On September 13, 2021, the House Ways and Means Committee released draft legislation that proposes a series of tax increases and tax cuts, which will undergo revisions by the committee over the next coming days. Most tax proposals were anticipated; however, the House provided a few surprises. Here’s a breakdown of some of the proposals specifically impacting estate planning.
Trust, Estate, and Gift Tax Provisions
Estate Tax Basic Exclusion Amount
The estate tax basic exclusion amount is $11,700,000 for 2021. The proposal would terminate the temporary increase in the basic exclusion amount, returning that amount to $5,000,000, indexed for inflation. Under this proposal, the basic exclusion amount in 2022 is anticipated to be $6,030,000. The proposal would apply to estates of decedents dying and gifts made after December 31, 2021.
Planning opportunity: Consider making gifts up to the 2021 estate tax basic exclusion amount of $11,700,000.
Valuation discounts, such as marketability discounts and minority interest discounts, are allowed for transfers of nonbusiness assets for estate and gift tax purposes. The proposal would eliminate valuation discounts for certain transfers of nonbusiness assets for estate and gift tax purposes. Nonbusiness assets are defined as passive assets that are held for the production or collection of income and are not used in the active conduct of a trade or business. The proposal would apply to transfers after the date of the enactment of this Act.
Planning opportunity: Consider making gifts now to maximize valuation discounts.
When a deemed owner of a grantor trust dies, the assets of that grantor trust (other than a fully revocable trust) are generally not included in the deemed owner’s estate. The proposal would require that assets in a grantor trust be included in the gross estate of the deceased deemed owner. Additionally, the proposal would treat distributions (other than to the deemed owner or spouse) during the life of the deemed owner and the termination of grantor trust status during the life of the deemed owner as completed gifts.
The proposal would apply to trusts created on or after the date of the enactment of this provision and to any portion of a trust established before the date of enactment that is attributable to a contribution made on or after such date.
Planning opportunity: Consider terminating grantor trust status on trusts already in place. Consider making a gift to a grantor retained annuity trust (GRAT) or spousal lifetime access trust (SLAT) prior to enactment.
Transfers Between Deemed Owner and Irrevocable Grantor Trust
Transfers between a deemed owner and his or her irrevocable grantor trust are nontaxable events. The proposal would disregard grantor trust status when determining whether a transfer between a deemed owner and his or her grantor trust is a sale or an exchange, possibly resulting in a taxable event. Additionally, the proposal would expand the definition of related party under Internal Revenue Code Section 267(b) to include grantor trusts and their deemed owners. The proposal would apply to trusts created on or after the date of the enactment of this provision and to any portion of a trust established before the date of enactment that is attributable to a contribution made on or after such date.
Planning opportunity: Consider sales to intentionally defective grantor trusts prior to enactment.
It’s important to note that these tax proposals have not yet been passed or finalized. As this situation continues to evolve, our teams at BerganKDV will monitor and keep you updated on any key information that may impact your tax planning. If you have any questions regarding you and your business’s tax planning strategy, BerganKDV can help. Contact us today and one of our experienced professionals will be happy to assist you.
There are also significant changes in the proposal affecting individuals and corporations as well as retirement plans – you can read more about these provisions here: