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For the 99.5% Act

On March 25, 2021, Senator Bernie Sanders introduced legislation titled “For the 99.5% Act.” NOTE:  It is not clear yet if this new legislation will gain any traction in Congress. Many believe there is a chance that the reduction of the federal estate tax exemption could happen.

Proposed changes for decedents dying after December 31, 2021, and for gifts made after December 31, 2021.

  • Reduce the U.S. federal estate tax exemption to $3.5 million (Current amount is $11.7 million)
  • Reduce the U.S. federal gift tax exemption to $1 million (Current amount is $11.7 million)
  • Increase the progressive federal gift and estate tax rate (current rate is 40% for estates of $1 million or more)

       45% for the excess value over $3.5 million 
       50% for the excess value over $10 million 
       55% for the excess value over $50 million 
       65% for the excess value over $1 billion 

Proposed changes after enactment of the legislation

  • Disallowance of a basis step up on death for assets held through a grantor trust, if the assets are not included in the grantor’s gross estate at the time of death
  • Grantor Retained Annuity Trusts (GRATs) will be required to have a minimum 10-year term and a 25% minimum value for the remainder interest
  • Elimination / reduction of discounts for transfers of interests in entities such as family limited partnerships that are not conducting an active trade or business
  • Constrain dynasty trusts that are exempt from generation-skipping transfer taxes, if the trust period is greater than 50 years
  • Limit the annual gift tax exclusion up to no more than $20,000 per donor (currently $15,000 per donee)

Proposed change for trusts created after the enactment of the legislation, or in relation to trusts created before the enactment of which contributions are made to the trust after the enactment of the legislation.

  • Distributions to beneficiaries from a grantor trust will be generally subject to U.S. federal gift tax