Proposed Estate Tax Law Change Could Affect Your Plans for Protecting Your Family

Late last month, Senators Sanders and Whitehouse submitted the “For the 99.5% Act”. If passed in its current form, it will dramatically change the Federal Estate and Gift Tax laws.

By way of recapping the current law, the Estate, Gift and Generation-Skipping Transfer Tax exemptions are unified into one total credit of $11.7 million per person (this is your exemption). This means that you can gift during your lifetime and/or upon your death (including those more than one generation removed from you) in total $11.7 million (2021) without implication of an Estate, Gift or Generation-Skipping Transfer Tax being due. Transfers beyond this amount are subject to being taxed.

For example, mom and dad gifted $2 million to each of their two children during their lifetimes and want the remainder of their $15 million estate to be inherited by their children through their revocable trust upon the death of the survivor of them. Because mom and dad each have a current estate tax exemption of $11.7 million in 2021, the lifetime gift of $2 million to each child reduced their current exemptions to $9.7 million for each mom and dad. It is important to note as well that the exemption is tied to the year of death of the estate owner.

Under the current law, as long as this couple’s estate doesn’t grow beyond $19.4 million by the time the second spouse dies, there would not be an estate tax due on the estate (keeping in mind that they would have needed to properly plan to fully utilize both of their estate tax exemptions most commonly accomplished through the type of marital funding formula in their joint revocable trust).

The “For the 99.5% Act” proposes to change the Estate and Gift Tax laws as follows:

●          The Estate Tax Exemption (the amount you can pass upon your death) would be lowered to $3.5 million

●          The lifetime Gift Tax Exemption (the amount you can pass during your lifetime) would be limited to $1 million

●          There would be no adjustment for inflation to the Estate Tax Exemption

●          Any amounts in excess of the Estate Tax Exemption would be taxed from 45% to 65% (the current Estate Tax rate is 40%)

●          Assets left in trust would be limited to 50 years from being exempt from the Generation-Skipping Transfer Tax (a tax in addition to the estate tax for transfers to those more than one generation removed) in all jurisdictions

●          Grantor Retained Annuity Trusts would not be very attractive under the new rules

●          There would be a limitation on valuation discounts for business interests such as Family Limited Partnerships, Limited Liability Companies and Corporations

Now returning to the couple described above, if the Estate Tax Exemption changed to $3.5 million for each spouse and mom and dad had a $15 million estate net of the $4 million total lifetime gifts made to their two children, each of them would only have a remaining $1.5 million exemption to cover their estate. So, a $15 million estate less both of their exemptions utilized upon death with the proper planning equals an estate tax on $12 million. Transferring a $15 million estate less their $3 million total available remaining exemption equals an estate tax on $12 million. $12 million times a blend of the estate tax rates between 45% to 50% equals an estate tax in excess of $5 million.

There is planning that can be done now before an estate tax hike occurs. If you’d like to learn more on several strategies that can be deployed, request my book “Estate Planning Secrets of the Affluent” that I co-authored with attorney David M. Frees, III, Esq. by clicking here : Estate Planning Secrets of the Affluent | Geiger Law Office or by emailing or calling Kirsten at our office at [email protected] or 760-448-2220.



Brenda Geiger, J.D.

CEO and Managing Attorney
Geiger Law Office, P.C.
1917 Palomar Oaks Way, Suite 160
Carlsbad, CA 92008
(760) 448-2220