New Bill Could Have Drastic Changes to Estate and Gift Tax Exemptions
A new bill working its way through Congress could change current estate planning rules and dramatically shift estate planning standards as early as Jan. 1, 2022.
On Sept. 15, 2021, the House Ways and Means Committee introduced a new bill titled “Infrastructure Financing and Community Development” that would, among many other changes, reduce the increased Estate Tax and Gift Tax Exemption to half of the exemption allowed in the 2017 Tax Cut and Jobs Act (“TCJA”).
The proposed bill would decrease the existing Estate and Gift Tax exemption amount from $10 million to approximately $5 million effective Jan. 1, 2022, rather than Jan. 1, 2026, which was the existing date the TCJA exemption was set to sunset.
The change in date to four years earlier than the previously planned reduction of the Estate and Gift Tax Exemption is meant to collect more taxes from wealthy estates to offset expenditures in the Infrastructure Financing and Community Development spending bill.
Because Democrats do not have a super majority of the Senate and House, they can only pass legislation that is revenue neutral or will be revenue neutral over a 10-year period so they can pass the legislation by a simple majority and avoid a filibuster in the Senate. This process is known as budget reconciliation.
How will this impact your existing estate plan?
Changes to your estate plan – at least since 2018 – have been designed around an increased Estate and Gift Tax exemption, meaning that most people’s estate tax liability if they were to die between 2018 and 2026, would not be taxed, or in reality, would be exempt from taxation.
With the decrease in Estate and Gift Tax Exemption proposed for 2022, now a moderately sized estate (e.g., $10 million per couple, or $5 million per person) will be taxed at Estate Tax rates, which can be as high as 40 percent.
How can you minimize the impact of the proposed change to the Estate and Gift Tax Exemption?
Contact the estate planning attorneys at Milton Law Group to review your estate plan and see if structuring gifts to irrevocable trusts before the end of the year can utilize the full $11.7 million dollar exemption amount in 2021.
Otherwise, if Congress makes the changes proposed in the House bill effective before 2022, then you will only be able to gift $5 million per person.
Named to the Power List of Tax Attorneys in Missouri, Shine Lin successfully represents individual and business clients in all phases of federal tax controversy, including examination, appeals, collections, and litigation by using his more than 15 years of knowledge of IRS administrative procedures.
**Read our full series of articles on how the proposed bill could impact estate planning strategies:
New Bill Could Have Drastic Changes to Estate and Gift Tax Exemptions
Proposed Tax Law Changes: Grantor Trusts and Gifts to Irrevocable Trusts
Proposed Spending Bill: The Good, The Bad, and The Ugly Effects on Estate Planning