How A New Estate Law Can Immediately Increase Taxes

published by:
TED TOAL, CFP®
September 1, 2021
How A New Estate Law Can Easily Increase Taxes

How A New Estate Law Can Immediately Increase Taxes

Vermont Senator Bernie Sanders introduced the “For the 99.5 Percent Act” on Mar 25, 2021. If passed, this law could significantly impact your estate upon death and the taxes your heirs must pay. In addition, the law would adversely affect non-taxable gifts during your lifetime. 

In this post, we’ll cover the 3 most impactful changes of the proposed law:

  • Reduced Lifetime Exemption Amount
  • Increased estate tax rates
  • Restricted annual Gift Tax Exemptions

(Please note - there are several other changes contained within the 99.5 Percent Act; we are focused on three changes that will affect most people.)

Reducing the Lifetime Exemption Amount

The Lifetime Exemption determines the amount of assets an individual or couple can leave to heirs free from estate taxes. 

The current Lifetime Exemption amount is $11.7 million for an individual and $23.4 million for a married couple. However, under the 99.5 Percent Tax Act, these figures will drastically reduce to just $3.5 million for an individual and $7 million for a married couple. Significantly more family estates will now be subject to taxes, given this reduction in the Lifetime Exemption Amount.

We recommend updating your complete net worth projection to determine if this proposal will impact your estate now or in the future.

Increases to the Progressive Estate Tax Rates

On top of the lower Lifetime Exemption Amounts, tax rates for estates between $3.5 million and $10 million for an individual ($7 million and $20 million for a married couple) would jump to 45% and progressively increase up to 65%. These proposed tax rates compare to the current tax rates of 18% to a maximum of 40%.

Gift Tax Exemption

Current estate law allows anyone to give $15,000 annually to another person free from income taxes and estate taxes. And, you can give $15,000 to an unlimited number of people. Gifting provides the advantage of reducing your estate and providing tax free funds to your heirs while you are living. 

The proposed 99.5 Percent Act would limit these gifts to $10,000 annually and to no more than two people, effectively limiting total annual gifts to $20,000.

Actions

Congress is targeting the estates of higher net worth individuals and families to increase tax revenue. However, with proactive planning today, you can take advantage of current laws and potentially reduce future estate taxes. Contact us today for an Estate Plan review!

Have questions about your personal financial situation? Please contact us to discuss.

Are your retirement funds in alignment with your Risk Number? Are your investments keeping you up at night? Find your Risk Number® now!

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At RCS Financial Planning, our mission is clear and straightforward: to provide personalized wealth planning and investment advice that minimizes our clients' financial concerns and maximizes their long-term peace of mind.. We firmly believe that a true financial partner shows you how to make the best choices for your future by always focusing on your needs first. And our fee-only service model ensures there is no conflict of interest.

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