“For The 99.5% Act”

July 13, 2021by Frontier Group

The recent introduction of Senator Bernie Sanders’s proposed tax reform bill, the “For the 99.5% Act,” has proven to bring the possibility of unprecedented changes to tax and estate planning.

Examples of these changes include:

  • – Reducing existing federal estate and gift tax exemptions
  • Increasing estate tax rates
  • Limiting lifetime transfer strategies
  • Imposing new rules and regulations on certain types of commonly used trusts.

Due to the uncertainty of outcome of this proposed legislation, taxpayers may be pre-empted to make changes to their estate planning.

Federal estate and gift tax exemption

At present, federal estate and gift tax exemption is set at $11.7 million per individual and $23.4 million per married couple.

  • This exemption may be applied by individuals to gifts made during the taxpayer’s lifetime or to transfers made at the taxpayer’s death.
  • The exemption may also be applied partially to lifetime transfers and the remainder to transfers at death.

If implemented, the “For the 99.5% Act” proposes the following changes:

  • The federal gift tax exemption amount would be reduced to $1 million per individual.
  • The federal estate tax exemption would be reduced to $3.5 million per individual and $7 million for married couples.
  • There would be an increase in the progressive estate tax rates for estates exceeding $3.5 million:

  • Annual gifting that is tax exempt would be limited to certain transfers, including transfers to trusts and to certain family entities.
  • Valuation discounts on the transfer of certain assets.
  • The effectiveness of grantor trusts would be limited.
  • Grantor Retained Annuity Trusts (GRATs), a longstanding vehicle for highly favourable lifetime transfers, would also face new restrictions.

If the “For the 99.5% Act,” is enacted it would not apply to trusts and transfers created prior to enactment. It may therefore be wise for high-net-worth individuals to consider proactive next steps to address these potential limitations before they become law.

Frontier Group