Senators suggest main modifications to the taxation of estates and inherited income

Vermont Senator Bernie Sanders has introduced laws that require more discounts to pay estate tax and that increase the amounts payable. Another proposed law would eliminate the increase in the base inherited assets currently have.

Taken together, the changes would “shake” the world of estate planning, according to a leading lawyer.

Under Sanders’ For the 99.5 Percent Act, inheritance tax exemption would be reduced from $ 11.7 million for individuals and $ 23.4 million for couples to $ 3.5 million for individuals and $ 7 million for couples. Estates valued below the exemption amount do not pay federal estate taxes, while those exceeding the exemption threshold would be subject to an increasingly increasing tax rate. Estates between $ 3.5 million and $ 10 million would be taxed at 45 percent, estates valued between $ 10 million and $ 50 million would be taxed at 50 percent, estates valued at between $ 50 million and $ 1 billion would be taxed at 55 percent, and estates over $ 1 billion at 65 percent. This would be a significant increase from the current 40 percent tax rate for all exemptions.

The bill would also reduce the lifelong gift tax exemption from $ 11.7 million to $ 1 million, although individuals could still give away $ 15,000 a year without the gift counting towards the lifelong limit.

A group of Senators, including Sen. Sanders, Sen. Elizabeth Warren (D-Mass.), And Sen. Cory Booker (DN.J.), also enacted the Decent Tax and Equity Incentives Act (STEP), which allows the Law to be eliminated is to increase the base that the beneficiaries receive when they inherit property. When someone inherits a property, the cost base of that property is currently “increased” to the current value of the property. This means that if the property is sold immediately, no capital gains will be due from the sale. If instead the property is held for a few years prior to sale and appreciates, capital gains will be owed from the difference between the sale value and the increased base.

The STEP Law changes all of that. The proposal would require a rebate to pay tax on any previously untaxed profits. This means that if an estate includes real estate that has increased in value, the estate would have to pay tax on that increase. However, the law would allow the first $ 1 million of valued assets to be passed on without tax. In addition, families inheriting a farm or business could pay the tax in installments over a 15-year period. Taxes paid on the invoice would be deductible from estate tax.

Although many view the increase in the death base as a “loophole” in tax law, removing it would create paperwork for estate administrators trying to find information on the cost base for assets that have been held for decades. “The change in the basis (or income tax treatment) of inheritance will be exceptional for estate planners and their advisors,” estate planning attorney Jonathan Blattmachr told “Such a change, particularly in conjunction with proposed dramatic changes to the US estate tax system, would shake the world of any estate planner.”

It is unclear whether any of the proposed laws will have the support to pass the entire Senate in its current form. Republicans are unlikely to support the legislation, so Democrats would have to pass the laws through reconciliation, which would force all 50 Democratic senators to approve.

Last change: 04/01/2021

Learn the secrets of estate planning from an expert