Tax proposals could change the real estate planning landscape


Every year there are many tax proposals. These proposals run in full chain. We begin to care when there is a change of power in Washington, D.C., especially when there is no divided government.

Currently, Democrats control the House by a narrow margin and the Senate is evenly divided, with Vice President Harris able to cast a decisive vote if the room is divided. So, while a tax change is certainly possible, it is by no means a certainty.

A recent proposal by Senators Sanders (I-VT) and Whitehouse (D-RI), “the 99.5% Act,” would dramatically change the real estate planning landscape. Below is a summary of the law from Senator Sanders. Here are some of the changes the law will make:

  • Reduce the passable amount to $3.5 million upon death, with only $1 million available during life. These amounts will not be adjusted for inflation. Today’s amount is $11.7 million and is adjusted for inflation. (However, even under current law, the exemption is halved after 2025.)
  • Amounts in excess of the exemption are taxed at rates ranging from 45% to 65%. The current rate is 40%. Amounts from $3.5 million to $10 million will be taxed at 45%, from $10 million to $50 million will be taxed at 50%, and from $50 million to $1 billion will be taxed at 55%, and amounts Over $1 billion will be taxed at 65%.
  • Change the creation and skip tax exemption rules so that assets cannot be left in a trust that has avoided estate taxes for more than 50 years.
  • Change the rules of grantor-held pension funds so that they are not nearly as attractive as a way to pass on value to others.
  • Limited evaluation discounts, such as minority discounts. These deductions are often used to pass on as much as possible with the least possible use of the exemption or the lowest possible tax.

The law may change dramatically or may not be passed at all. But, if it passed in its current form, it would change estate planning dramatically. So what can you do? If you are an estate planning attorney, you can act now to encourage your clients to plan according to current rules. For example, your customers can use their current, historically high exemption while they get it. They can use strategies to take advantage of the discount while they are available.

If you are not an estate planning attorney, meet with your estate planning attorney to learn about your options. But, act now. Time is of the essence.

Stephen C. Hartnett, JD, LLM
Education Manager
American Academy of Estate Planning Lawyers, Inc.
9444 Balboa Street, Suite 300
San Diego, CA 92123
Phone: (858) 453-2128
www.aaepa.com

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