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Use It or Lose It

by | Apr 14, 2021 | Estate Planning

Many of you have likely read about the bill that Senator Bernie Sanders has submitted. The purpose of this blog is to provide a few high points to see if it is worth having a conversation about how it may to apply to you and what you can do now to take advantage of current law before it is too late.

1. The point that is getting the most press is the reduction of the estate tax exemption equivalent from the current amount of $11,700,000 per person to $3,500,000 per person.

2. The gift tax exemption which is currently equal to your unused lifetime estate tax exemption will drop to $1,000,000.

3. Estate tax rates will increase from a current flat rate of 40% to various rates between 45% and 65% depending upon the size of a taxable estate.

4. Property held in grantor trusts (a tool we use frequently) will not be permitted step up in basis unless the property is in the estate of the person who passed.

5. Property held in grantor trusts will be included in the grantor’s estate and distributions from grantor trusts will be deemed to be gifts.

6. When valuing limited partnerships and LLCs, valuation discounts will be substantially limited.

7. Long-term trusts intended to minimize taxation as assets pass from generation to generation will be limited to only 50 years.

8. The annual exclusion for gift tax purposes will be reduced from $15,000 per donor per donee with an unlimited number of donees, to $10,000 per donee but only a maximum of $20,000 per year per donor.

What we are recommending to our clients who have estates over $7,000,000 is to consider implementing some or all of these strategies before the date of enactment of legislation which could be very soon or could be later in the year. Many of the changes under the present bill will become law as of the date of enactment so the window to take advantage of any of these tools is going away. However, irrevocable trusts created, gifts given using discounted entities, and gifts given to utilize your exemption can be made in advance in most cases, will be grandfathered under the new law.

If you would like further information about the possible changes, please email our office and we will be glad to send you an article that explains in more detail.

This is definitely a classic case of “use it or lose it” if you don’t use it, you’ll lose it.