The Weekly Scenario: What to Know About the “For the 99.5% Act” and the “Sensible Taxation and Equity Promotion (STEP) Act”
There are many potential tax law changes that may be coming to a theatre near you. I can’t get too far into the weeds in this blog, but I’ll address two current proposals that may be of interest.
About three weeks ago, Senators Bernie Sanders (D-VT) and Sheldon Whitehouse (D-RI) introduced what they refer to as the “For the 99.5% Act.” As the name implies, the Act is focused on the top 0.5% of Americans.
Under current law, the estate and gift tax lifetime exemption amount is $11.7 million per person (indexed for inflation), with amounts transferred in excess of this amount (this does not include annual gift tax exclusion gifts of $15,000 per person) subject to a 40% tax.
The estate and gift tax exemptions are currently unified, meaning amounts not used via gifts during one’s life can be applied to offset estate tax upon death. The current exemption levels were doubled by the Tax Cuts and Jobs Act (TCJA) of 2017 and are expected to “sunset” or return to pre-TCJA 2017 amounts at the end of 2025.
Some of the most significant provisions of the 99.5% Act are as follows:
- Reduces the estate tax exemption amount to $3.5 million per person but continues to index it for inflation.
- Reduces the gift tax exemption to $1 million per person (the system would no longer be unified).
- Increases the estate and gift tax rate (40%) to:
- 45% of an estate between $3.5 million and $10 million.
- 50% of an estate between $10 million and $50 million.
- 55% of an estate between $50 million and $1 billion.
- 65% of an estate over $1 billion.
- Eliminates valuation discounts for non-business assets.
- Eliminates the use of “Defective (for income tax purposes) Trusts.”
- Restricts the funding of Grantor Retained Annuity Trusts (GRATs) and imposes a minimum term of 10 years.
- Limits on “Generation-Skipping” while also imposing a maximum term of 50 years.
- Reduce the annual gift tax exemption (as mentioned above) from $15,000 per donee per year to $10,000 per donee per year.
About the same time, Senators Chris Van Hollen (D-MD), Corey Booker (D-NJ), Elizabeth Warren (D-MA), Bernie Sanders (D-VT), and Sheldon Whitehouse (D-RI) introduced what they call the Sensible Taxation and Equity Promotion (STEP) Act.
Under the current law, when an individual dies, the cost basis of property would receive a cost basis adjustment being adjusted to its Fair Market Value (FMV) at the date of death. When gifting appreciated property, the cost basis would carry over to the recipient.
Some of the most significant provisions of the STEP Act are as follows:
- Property transferred by gift or bequest is treated as sold for its FMV, with the gain (or loss, but only if transferred via bequest) being recognized currently. There would be a $100,000 exclusion for gifts and a $1 million exclusion for transfers at death. There is a deferral period of 15 years built in to pay the tax.
- The exclusion of up to $250,000 per person on the sale of a principal residence would continue.
- All ‘non-grantor’ trusts would have to pay tax on unrealized gains every 21 years (although trusts created in 2005 or earlier would have their first “deemed realization” in 2026).
- Gifts or bequests to spouses or charities would be exempt.
The effective date of these proposed changes would be January 1, 2022.
As always, if you have any questions or would like to learn more, please contact Steve Shane at email@example.com or 301.575.0313.
ABOUT STEVE SHANE
firstname.lastname@example.org | 301.575.0313
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts, and a charitable trust. He is also experienced with drafting documents for business planning, the incorporation, and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we focus on furthering our clients’ objectives and provide timely services and within budget, all while focusing on the clients’ interests and goals.
Offit Kurman is one of the fastest-growing, full-service law firms in the United States. With over 230 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well-positioned to meet dynamic businesses’ needs, as well as the needs of the people who own and operate them. We also provide representation of individuals and families in diverse matters ranging from estate planning and asset protection to intellectual property structuring and entrepreneurial start-ups. Our International Group provides clients with a broad range of services for transactions and dispute representation for clients worldwide, including Europe, Canada, Asia, Latin America, the Middle East and Africa.
At Offit Kurman, we distinguish ourselves by the quality, breadth, and global reach of our legal services — as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners interested in representing clients in the middle market, also gives clients access to experienced counsel in almost every area of the law and in many jurisdictions in the U.S. and abroad
Subscribe and follow us on our Blog, and on Facebook, Twitter, Instagram, YouTube, and LinkedIn. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA |SOUTH CAROLINA | VIRGINIA | WASHINGTON, DC