How Proposed Legislation Could Affect Your Advanced Estate and Gift Tax Planning Options

May 14, 2021
Brad Galbraith, Esq.

On March 25, 2021 Senate Budget Committee Chairman Bernie Sanders (I-VT), held a hearing in which proposed tax legislation, titled “For the 99.5% Act”, was outlined.  This bill, while not law, is a clear indicator of how the Democrat majority would like to change our estate and gift tax laws.  The proposed legislation provides as follows:

Proposed Legislation

  • The estate tax exemption would be reduced from $11.7 million to just $3.5 million per person.
  • The estate tax rate would be increased from 40% to a progressive system ranging from 45% to 65%.
  • The gift tax exemption would be reduced from $11.7 million to just $1 million per person.
  • The effective date for this legislation would be January 1, 2022.

What To Do About It

It is a virtual certainty that our tax laws will be changing and that the changes will negatively affect our firm’s clients.  I have been advising my clients to do advanced estate tax planning before the laws change.

The most popular estate and gift tax planning strategy being used for married taxpayers is called a spousal lifetime access trust (“SLAT”).   A SLAT is an irrevocable trust with one spouse as the grantor and the other spouse as the lifetime beneficiary. SLATs can provide continued access to the gifted property by appointing the lifetime beneficiary spouse as trustee.  With the spouse serving as trustee, he or she may make distributions of the trust property to themselves.  In other words, the trust property is still easily accessible should it be needed.  This structure allows the grantor to move assets out of his or her estate while still potentially enjoying the benefits of those assets through their spouse.

A grantor may also name children as beneficiaries during the grantor’s lifetime, along with the spouse. If the spouse beneficiary dies before the grantor, the children then become the primary beneficiaries.  This may be a concern for some, as the possibility of the sudden passing of a spouse could seemingly make the trust property inaccessible to the grantor.  This is not the case when the SLAT is properly drafted.  The drafting attorney may include a provision allowing the grantor to borrow from the trust without adequate interest or security, effectively preserving the grantor’s ability to access trust assets.  Thus, in the event the lifetime beneficiary/trustee spouse predeceases the grantor, a person can be appointed to effectively fill in for the spouse for the purpose of accessing trust property for the grantor.

When to Act

Whether SLAT planning or other advanced estate and gift tax planning strategies are attractive to you, the time to act is now.  At Galbraith Law, we anticipate that many of our clients will want to implement advanced estate and gift tax planning before the end of the year.  This planning takes time and should not be left to Fall.  We expect that our workload capacity for 2021 will be fully booked by September so procrastination could cost your family millions of dollars.  We recommend that interested taxpayers should begin year-end planning by August 1 or risk being unable to complete planning on a timely basis.

Act Now

If you would like to explore your advanced estate and gift tax planning options, I recommend that you contact our offices to schedule a call, zoom or in-person meeting to begin the process.

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