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Tax planning, Estate planning, Trust documents – Be proactive now and do not regret indecisiveness in 2021

Bernie’s “For the 99.5% Act”: Is It Time to Start Thinking about Tax Planning?

For the year 2021, each individual has $11,700,000.00 of estate tax credit (or $23,400,000.00 for married couples), otherwise known as the “applicable exclusion amount.” For estates that exceed the applicable exclusion amount, the tax rate is up to 40.00% of the amount in excess of the applicable exclusion amount. The current estate tax credit is scheduled to maintain that level, indexed for inflation, until December 31, 2025, at which point the applicable exclusion amount will be reduced to approximately $6,000,000.00 ($12,000,000.00 for married couples).  However, since the Biden administration proposed major estate tax reform, there has been much discussion about whether the estate tax credit will be reduced earlier.

On March 25, 2021, Senator Bernie Sanders introduced the “For the 99.5% Act,” which proposed, among others, the following tax reforms:

  • A reduction of the applicable exclusion amount to $3,500,000.00 per person ($7,000,000 for married couples);
  • An increase of the estate tax rate, with graduated levels as follows: 45.00% for assets in excess of $7,000,000; 50.00% for assets in excess of $10,000,000.00; 55.00% for assets greater than $50,000,000.00, and 65.00% for assets in excess of $1,000,000,000.00.

The same changes would apply to the federal gift tax.

It is important to note that this bill has not been approved by congress. However, some form of tax reform seems very likely given that the Democratic party has consolidated power in both branches of the U.S. Congress.

What should you be doing about this now to plan for the likelihood of lower applicable exclusion amount and higher tax rates? Every client is different, but there are planning techniques and strategies that can be utilized now to proactively prepare. For some, a strategy of outright gifts to family members, via irrevocable trusts or closely held entities, makes sense. The advice for some regarding the applicable exclusion amount is to “use it or lose it.” However, others may not be in a position to make outright gifts in sufficient amounts to take advantage of the current applicable exclusion amount without sacrificing income that they rely on to live. For those people, tax planning involving sales to intentionally defective grantor trusts, which can be structured to provide payments to the settlor for a term of years, might make more sense.

Tax planning is complex, and there is no “one size fits all” answers in tax planning, especially given the uncertainty of the tax laws in the near future. If you think you may be affected by the tax reforms, it is crucial to get the advice of experienced estate planning attorneys who can provide counsel that is tailored to your particular needs and goals. If you are interested in knowing more about tax planning for you and your family, contact the experienced attorneys of Chepenik Trushin LLP, who are ready, willing, and able to assist you with your estate planning needs. Bart Chepenik, JD LL M (Taxation) 305-613-3548 (always accessible days and evenings), Brad Trushin, Esq, 305-981-8889. We are here to help you save money on your taxes and protect all of your hard earned lifetime money and assets achieved.

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