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Author: Don Obrien

How To Navigate Estate And Tax Planning With The Recent Legislative Proposals


With Democrats in control of both the White House and Congress, there has been considerable speculation about some of the recent legislative proposals and the potential tax impact—especially on high-net-worth individuals and families.

Among the bill proposals that could have an effect on estate and tax planning are:

·      For the 99.5% Act. Senator Bernie Sanders proposed the For the 99.5% Act, which includes major changes to the gift, estate and generation-skipping transfer (GST) taxes, including higher gift and estate tax rates.

·      STEP Act. The Sensible Taxation and Equity Promotion (STEP) Act was introduced by Senator Chris Van Hollen. It treats gifts, either in trust or upon death, as sold for fair market value, thereby triggering immediate capital gains taxes for beneficiaries on gains that exceed $1 million.

The Biden Administration. The administration has outlined their proposals as part of the American Families Plan, and further clarified in May 2021, as part of the Green Book. The proposals included an increase on the top individual income tax rate to 39.6% for income greater than $400,000 and an increase of the tax rate on capital gains and dividends to 39.6% if household income is greater than $1 million

·      House Ways and Means Committee Proposal. The committee recently released its proposal and it includes a number of changes. Included in this proposal is an increase in the corporate tax rate, an increase on the top individual income tax rate to 39.6% for income greater than $400,000 and an increase of the capital gains tax rate to 25% for individuals with income greater than $400,000. Importantly, the proposal includes a provision that would include grantor trusts in the estate of the grantor, which could dramatically change the planning landscape.

It is important to note that none of these proposals has been signed into law yet and may never come to fruition. In addition, if or when a bill is approved, it may wind up looking very different than what was initially proposed, as there is a lengthy legislative process that a bill must go through before it becomes a law. Although we don’t know yet what specific changes to expect, we do know tax changes are likely on the horizon, as there almost always are whenever there is a shift in political power or an administration change.

Planning considerations

Given the uncertainty of the current legislative landscape, high-net-worth individuals and families with estate tax concerns may want to consider the following wealth transfer strategies:

·      Intentionally Defective Grantor Trust (IDGT). An IDGT is a type of irrevocable trust that takes advantage of the difference between income tax and estate tax rules.

With an IDGT, you can transfer trust assets for the benefit of your family or beneficiaries while you are still alive, effectively removing those assets from your taxable estate. In addition, if you structure an IDGT as a grantor trust, any income generated by the trust is taxed to you rather than your beneficiaries, potentially further reducing the value of your taxable estate and allowing trust assets to grow tax-free for your beneficiaries.

·      Spousal Lifetime Access Trust (SLAT). A SLAT is an irrevocable trust created by the grantor for the benefit of their spouse. However, if you have children or other descendants, the trust terms can be drafted in a way to provide benefits for them as well during your spouse’s lifetime.

SLAT assets will not be included in your or your spouse’s estate for federal estate tax purposes. This means assets will not be taxed when either you or your spouse die and that the value of assets your children and other descendants inherit may be significantly greater, depending on whether assets appreciate in value. In addition, the benefits of “grantor trust” status often apply to a SLAT, as long as it is structured as an IDGT, which most are.

·      Annual gifts. Right now, the annual tax-free gift limit is $15,000 per individual (indexed for inflation) and does not count against the lifetime gift tax exclusion. If you plan on giving a substantial gift and are in a position where you can give now, you may want to consider taking advantage of the historically high gift tax exclusion limit.

With potential legislative tax changes in the foreseeable future, it is important to know your options. These are just some of the likely estate and tax planning strategies you may want to consider. There may be other strategies and tools that are better suited for your particular circumstances. We recommend consulting your estate planning professional with any questions you may have.

CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation. You can listen to our conversation about legislative process and tax law changes here.



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Oliver Bolt

Oliver Bolt

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