The Answer to, “How Are They Gonna Pay for That?”

May I introduce you to “Sensible Taxation and Equity Promotion”…aka For the 99.5% Act. You may want to know who is promoting this for our benefit – Senators Chris Van Hollen (D-MD), Cory Booker (D-NJ), Bernie Sanders (VT), Sheldon Whitehouse (D-RI), and Elizabeth Warren (D-MA) – co-introduced this March 29th.

Two key components of the STEP Act are the taxation of unrealized gains upon the transfer by gift, in trust, or at death of certain property and the taxation of assets held in trust every 21 years. If enacted, the STEP Act also would require additional disclosure to the IRS for trusts with assets in excess of $1 million or gross income in excess of $20,000.

If passed, the For the 99.5 Percent Act would make the following major changes (among others) to estate and gift taxes effective December 31, 2021 retroactive to January 1:

  • Reduce the estate tax exemption to $3.5 million
  • Reduce the gift tax exemption to $1 million
  • Establish new tax brackets with rates ranging from as low as 45% for taxable estates of between $3.5 million and $10 million to as high as 65% for taxable estates in excess of $1 billion
  • Allow a $10,000 per-donee annual gift tax exclusion, subject to a $20,000 per-donor cap
  • Prohibit a step up in basis for assets held in grantor trusts that are not included in the grantor’s gross estate
  • Impose a 50-year limit on generation-skipping trusts (also known as dynastic trusts or GST trusts)
  • Impose limitations on minority interest discounts when valuing certain transfers of non-business assets (for example, certain interests in closely held entities) for gift and estate tax purposes
  • Impose a 10-year required minimum term for GRATs
  • Add Chapter 16 to the Code, an entirely new chapter with rules targeting the gift, estate, and generation-skipping transfer taxation of grantor trusts

The pace of legislative proposals targeting high-net-worth individuals this year suggests a renewed interest by Congress in reforming aspects of our current income, gift, and estate tax system. Parts of this system are already set to expire in 2026 under the Tax Cuts and Jobs Act passed by Congress during the previous administration.

Regardless of whether the two proposals discussed here become law, we would be well advised to discuss your current estate plan and include your attorney to determine whether there are any opportunities available under current law that you may wish to consider exploring in light of potential changes to the law. “We” would include your entire Family. Note there are new leading edge resources to deliver estate planning solutions and now may be the time to introduce those to you and have that discussion.

As always, standing by.