Estate Planning Articles, Retirement Investing Reports and Analysis

Recently Proposed Changes to Federal Estate and Gift Tax Laws

by Alli Thomas

May 3, 2021

Although most of the action taken by the new presidential administration has centered around getting a handle on the COVID-19 pandemic and stabilizing the economy, Congress may soon have a new focus: tax reform.

Recently, Senator Bernie Sanders proposed major changes to federal estate and gift tax laws. Many tax experts agree that changes to the tax code are likelier to happen now that the executive and legislative branches of the U.S. government are aligned politically.

Here is a summary of the current laws and the proposed changes:


Current Laws

  • The estate tax lifetime exemption is $11.7 million per taxpayer
  • The estate tax rate is a flat 40%
  • The capital gains tax for taxpayers in the highest income bracket is 20%
  • The cost basis of an inherited property is “stepped up” to its fair market value without triggering capital gains tax on the appreciation of the property value that occurred during the deceased property owner’s lifetime


Proposed Changes

  • The estate tax lifetime exemption would be reduced to $3.5 million—not adjusted for inflation
  • The gift tax lifetime exemption would be reduced to $1 million
  • Gifts to irrevocable trusts will be limited to $30,000 per donor per year
  • The estate tax rate would increase to a progressive rate, starting at 45% for taxable estates between $3.5 and $10 million and increasing on an upward scale to 65% for estates over $1 billion
  • Discounts for assets held in family entities (for example, limited liability companies) would be eliminated
  • Dynasty trusts would be subject to a generation-skipping transfer tax after 50 years
  • Capital gains for taxpayers in the highest income bracket would double to 40%


What Action Should I be Taking Now?

It’s impossible to know whether these proposed changes will be made into law. However, they could be enacted as soon as January 1, 2022. And, if they are, that will effectively increase the number of estates that are subject to taxes.

If they are not enacted retroactively, now is the time to start having conversations with your family and an experienced financial planner to decide if you should be making gifts to your beneficiaries or to irrevocable trusts.

Request a no-cost, no-obligation advisor consultation today!

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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