ESTATE AND GIFT TAX REFORM (SERIES OF 3)

Dear Clients and Friends:

We knew it was coming, but the scope and timing has been and remains unclear. Yesterday, March 25, 2021, Senator Bernie Sanders (VT) and Senator Sheldon Whitehouse (RI) introduced the ”For the 99.5% Act” which will likely become the cornerstone of the estate, gift and GSTT provisions of the 2021 landmark tax bill. It is hailed as one of the most important pieces of legislation in our time. Many clients reacted in mid-2020 and have continued to react by using advanced strategies to “lock-in” their exemptions. The provisions are intended apply to any calendar year beginning after the date of the enactment of this Act. So, if passed in 2021, it would become applicable to transfers by gift and by death occurring in 2022. The Act, among other provisions, provides for:

• A reduction of the estate tax exemption from its current $11.7 level to $3.5 million.
• A reduction of the gift tax exemption from $11.7 to $1 million, while reducing the annual per person exclusion from $15,000 to $10,000 and $20,000 in total to everyone per year.
• A reduction and limitations on the use of generation skipping exempt trusts by reducing the duration of exempt status and the amount of exemption to conform reduced estate and gift tax exemptions.
• An increased estate and gift tax rates to 45% on amounts over $3.5 million; 50% on amounts over $10 million; 55% over $50 million; and 65% on amounts over $1 billion.
• Elimination of, or provides restrictions on, a host of other common estate planning tools, trusts, and methods of valuation.

The legislation was announced with backing from a number of academics, politicians, and billionaires, such as Bill Gates and Warren Buffett. Furthermore, it placed the legislation in historic contexts by claiming that over the past 40 years, there has been an enormous transfer of wealth from the middle class to the wealthiest people in America. In America today, the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent. The 50 wealthiest people in this country own more wealth than the bottom half of Americans — 165 million people. Since 1985, the bottom 90% of Americans have seen their share of our nation’s wealth plummet from 34% to just 24% in 2019, according to the most recent data. While low-income workers at Walmart are forced to rely on food stamps, Medicaid and public housing to survive, the Walton family is now worth over $220 billion. More than a century ago, Republican President Theodore Roosevelt fought for the creation of a progressive estate tax to reduce the enormous concentration of wealth that existed during the Gilded Age. As Teddy Roosevelt said, “The absence of effective state, and, especially, national restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need is to change the conditions which enable these men to accumulate power … Therefore, I believe in a … graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.”

Simultaneously, the Biden Administration has called to increase audits. IRS Commissioner Rettig informed a congressional panel that increasing audits and IRS personnel could generate an additional $175 billion in tax revenues. The agency has lost 15,000 enforcement personnel since 2010.

If you have any questions concerning the application of this proposed legislation on your circumstances, please feel free to contact us.

Regards,
Joseph C. Kempe