The House Ways and Means Committee released its plan on how to pay for the $3.5 trillion Build Back Better Act last week. Addressed in the plan are numerous tax law changes, but this alert will specifically address the provisions that directly impact estate tax planning.*
Effective date: January 1, 2022 – Estate/Gift Tax Exemption Cut in Half
Currently, the gift, estate, and GST tax exemptions are each $11.7 million per person for 2021. Under current law, this exemption is planned to sunset to $5 million (adjusted for inflation) on January 1, 2026. The proposed plan will accelerate this sunset date to January 1, 2022, which is 4 years earlier than planned. It is important to note, however, that there is no clawback for prior year gifts. Those who wish to take advantage of the current higher exemption amounts should consider accelerating their original plan and make gifts before the end of this year.
Effective Date: The Date of Enactment – “The Death of Grantor Trusts”
Under current law, sales between grantor trusts and their deemed owners are disregarded for tax purposes. Under the proposed plan, these sales would be considered taxable transactions. In addition, if a decedent is the deemed owner of a Grantor Trust upon death, the proposed plan would require that the value of the grantor trust be included in his or her taxable estate. Fortunately, Grantor Trusts established and funded before the date of enactment will be grandfathered in.
Effective Date: The Date of Enactment- Valuation Discounts Impacted
The proposed plan also eliminates valuation discounts for Estate and Gift tax purposes on nonbusiness assets. These passive-type assets are assets that are not used in the active conduct of a trade or business. A good example of this would be a family-limited partnership that holds only marketable securities, although the definition is not limited to this.
Now is the time to act and make lifetime gifts of up to $11.7 million before the end of this year, either use it or lose it! But don’t forget, Estate planning and taxes are never one size fits all, so before you “Act”, make sure you talk to one of your WilkinGuttenplan advisors.