Dear Clients and Friends:

Last Friday, November 19, 2021, the House of Representatives passed H.R 5376, The Build Back Better Act (the “Act”), which was introduced into the House on September 27, 2021: Among many tax law changes, the bill reduces the estate, gift, and generation skipping tax exemptions in half- from approximately $12 million to $6 million. It also introduces a variety of adverse tax provisions affecting “grantor trusts,” which affects many trusts created for spouses and in more advanced estate planning. Senate Majority Leader Chuck Schumer has stated that he wants the Senate to pass it before Christmas. However, if the Senate were to make any alterations to the bill, which many believe is likely, then it would return to the House for another vote. The Senate will be considering the bill after Thanksgiving.

We previously wrote on H.R. 5376 and how it differed from the Biden Administration “Green Book” on September 30, 2021: To review the applicable sections of the bill reducing the estate, gift, and generation skipping tax exemptions, see Section 138207 of the Act within the link in the first paragraph above. The introduction of IRC §§ 1062 and 2901 altering the “grantor trust” rules can be found in Section 138209 of the linked bill.

As we have been writing, it is difficult to predict what will happen. There is a strong likelihood that the Senate will make changes, given the Act’s budget scoring produced further deficits. As a result, time remains but that time is potentially shortening. The longer many clients wait between the repositioning of assets to make gifts, or to separate the time between creation of spousal access trusts to help avoid the reciprocal trust doctrine, the better. However, there is no assurance when the Act will be enacted, if ever. The reduction of the estate, gift, and generation skipping taxes are proposed to be effective on January 1, 2022, but the grantor trust provisions are effective on “date of enactment” (the date signed by the President). Since most spousal access trusts are grantor trusts, it would be imperative to have these trusts created before then.

Please let us know if you have any questions or comments. We are pleased to be of service and we hope you have a wonderful Thanksgiving,

Joe Kempe

Scroll to Top