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Advisory: Drastic Changes to the Estate and Gift Tax System – TIME IS OF THE ESSENCE

By: Louis W. Pierro, Esq.

As you probably have heard, the $3.5 trillion Build Back Better Act was introduced on September 13th in the House Ways and Means Committee.  Although there has been considerable controversy over the legislation, it is a Reconciliation Bill, which means that the Democratically controlled House and 50/50 Senate can pass the bill with the deciding vote cast by Vice President Harris.  Most of the attention has been focused on the provisions of the bill that would provide a number of new programs, and its cost of $3.5 trillion – but President Biden has said that all $3.5 trillion in new spending is “paid for”, and it is how those new taxes are raised to pay for the plan that we need to be concerned about.

Remember that this is just proposed legislation, but many of the most damaging tax law changes will be effective immediately upon enactment, which could come before anyone has an opportunity to react.  So, without a crystal ball, being pro-active and getting your planning in place ASAP is crucial.

I have attached an article from Wealth Management.com that traces some of the proposals that would dramatically alter the way we plan our clients’ estates, which I commend to your reading.  Suffice it to say that the IRS “wish list” of techniques that they would like to see legislated out of existence, called the “Green Book”, was cut and pasted into this bill.  In addition, the enhanced Gift, Estate and Generation Skipping Exemption brought in through the Tax and Reconciliation Act of 2017, which is currently $11.7 million per person, would revert back to $5 million (adjusted for inflation) on Jan. 1, 2022, which will eliminate the ability to gift nearly $6 million of wealth tax free, or $12 million per married couple.

The rule changes are far-reaching, and hit all types of trust planning, including Life Insurance Trusts (ILIT’s), Spousal Lifetime Access Trusts (SLAT’s), Intentionally Defective Grantor Trusts (IDGT’s), Grantor Retained Annuity Trusts (GRAT’s) and Beneficiary Defective Inheritor’s Trusts – the heart and soul of current estate planning – in addition to limiting valuation discounts, accelerating income and capital gains taxes on sales to trusts, and more. 

If you have a plan already in process, it will be necessary to accelerate the plan and bring it to completion as soon as possible.  If you are contemplating doing planning under the existing, favorable rules, today is the day to start.  In either case, please call our office to arrange a time to speak about the new rules, and your particular situation, so that we can effectuate a plan before the law changes take effect.

Lou Pierro