SENATE INTRODUCES ESTATE AND GIFT TAX REFORM TO PAY FOR HOUSING

August 16, 2024

Senators’ Warren, Warnock, and Cleaver have reintroduced what they are touting as landmark legislation to tackle a U.S. housing crisis. Their introduced Bill is said to be bicameral legislation that would create nearly 3 million new housing units and would reduce rents by 10% for American families — entirely paid for by reforms to the estate and gift tax laws. Revenues to fund the estimated $500  billion  in expenditures over the next 10 years would come primarily from the following :

  • An increase of the estate and gift tax rate on wealth transfers exceeding available exemptions up to $13 million to 55%; 60% on transfers exceeding $13 million but not over $93 million; and 65% on amounts over $93 million.
  • The estate and gift tax exemption would be lowered from $5 million to $3.5 million (as of 2011), indexed for inflation. Depending on how calculated, this would lower the exemption to approximately $9 million from what is projected to be in excess of $14 million in 2025 .
  • Additionally, there would be a 10% surtax on amounts (estate values including prior taxable gifts) exceeding $1 billion.
  • Grantor trusts created after the date of enactment of the legislation would be taxable in the estate of the grantor on death, less amounts reported as taxable gifts, and would  deny a basis step-up (elimination of capital gains) on assets not taxable at death. Further supporting the opinion by some, the Bill specifically states that no inference should be made that a basis-step up currently occurs on the death of grantors who are deemed for income tax to own the assets under the so-called “grantor trust rules.”
  • The generation-skipping tax exemptions would not apply to transfers to persons or trusts for them two or more generations lower than the transferor.
  • The annual gift tax exclusion would be lowered to $10,000 per person with a total annual limitation of $20,000 for gifts in trust or involving certain family-controlled entities.
  • Valuation discounts for gifts of shares of entities or fractions of property would be eliminated on property transfers after the date of enactment.
  • Income from trusts and estates would be subject to a 5% surcharge on amounts over $200,000 and 3% on amounts over $500,000.

As can be seen, much of this legislation is prospective from date of enactment. As a result, our recommendations remain as described in our Client Updates over the last several years: https://kempelaw.com/wp-content/uploads/2023/12/Newsletter-Fall-Winter-2023-24.pdf  Furthermore, the elections will determine whether this legislation would potentially accelerate into 2025 or whether Trump’s platform will eliminate these proposals from relevance.  Nevertheless, the prudent course is to act now!

Best Regards,

Joe Kempe

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