Proposed Spending Bill: The Good, the Bad, and the Ugly Effects on Estate Planning

The “Infrastructure Financing and Community Development” bill making its way through Congress seeks to reduce the lifetime Estate and Gift tax exclusionary amount from $11.7 million to $5 million and to attack the grantor trust type of arrangements. That’s the bad. 

The good news is that some other provisions thought to be included in the Infrastructure Financing and Community Development bill were excluded, including: 

• Capital gains tax on death: earlier proposals suggested that to receive a step up in basis on appreciated assets, the donor would have had to pay the capital gains tax on the appreciation of the assets held by the donor at death.  

• Capital gains tax on transfers to trusts: taxing the built-in gain on appreciated assets prior to transfers to trusts, or to tax the trust on the built-in gain.  

• Increased Estate Tax Rate: increasing the estate tax rates up to 65% on estates in excess of $1 billion.   

• Decreased Gift Tax Exemption: taxing lifetime gifts in excess of $1 million. 

• Elimination of Step Up in Basis for assets held by a grantor trust: eliminating step-up basis for grantor trusts, so that grantor trust would pay capital gains taxes on the built-in gain of appreciated assets 

• Mandatory imposition of the Generation Skipping Tax (GST): imposing GST by causing a deemed termination of GST dynasty trusts every 50 or 99 years. 

And now the ugly: this creates uncertainty with current estate plans that must be addressed quickly. The Lifetime Estate and Gift Tax Exclusion could shrink effective the date the bill passes or Jan. 1, 2022. Likewise, the sections changing the grantor trust provision can also be implemented on the date the bill passes or Jan. 1, 2022.   

The unpredictability requires additional estate planning to take advantage of the full exclusionary amount, and to draft grantor trusts to make sure they are grandfathered in before the bill potentially passes.  

To guide you through the ugly, contact the estate planning attorneys at the Milton Law Group to do a thorough review of your existing estate plan to determine if we need to implement changes before Jan. 1, 2022, to ensure that your estate plan is not unnecessarily taxed due to the proposed changes in the law.  

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