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For The 99.5% ACT

I hope this email finds you well and that 2021 will be a healthier year for all of us. As you may know, in the last few weeks there have been two separate proposals that would enact major changes to the gift, estate and income tax rules that would apply to lifetime gifts and taxation upon the death of an individual. The first was a bill submitted to the Senate and the second was a proposal introduced by President Biden in his speech to the joint session of Congress on April 28th. Senate Bill On March 25th Senator Bernie Sanders introduced legislation titled “For the 99.5 Percent Act”. A similar bill was introduced in the House by Congressman Jimmy Gomez. The Act would reduce the current estate and gift tax exemptions to $3,500,000 and $1,000,000 respectively as well as raise the estate and gift tax rate. The Act would also significantly eliminate or curtail many important estate planning techniques. Biden’s proposal Under current tax law, upon a decedent’s death, the income tax basis of assets owned by the decedent are stepped-up to fair market value, thereby eliminating the potential capital gains tax upon the sale of the assets by the heirs. Under President Biden’s proposal, untaxed gains on assets held at death (other than IRAs and qualified retirement plans) would be subject to capital gains tax above an exemption of $1 million of untaxed gain, plus an exemption for the first $250,000 of gain on a primary residence (i.e., for a married couple owning a home, the first $2.5 million of gains would be exempt). Apparently, family-owned farms and businesses could defer the tax until the family no longer operates the farm or business; however, what would qualify as a “family-owned” farm or business has not been spelled out. Effective date President Biden has not indicated what the effective date would be for his proposal. If enacted, presumably the effective date for President Biden’s proposal would be January 1st of 2022. Generally, the proposed effective date for most of the estate tax changes under Senator Sanders’ “For the 99.5 Percent Act” is January 1, 2022. However, under the Act, some of the proposed estate and gift tax laws changes are to be effective upon the date of the enactment of the Act. Most likely date of Enactment It is most likely that the Biden administration would use the budget reconciliation process to enact any proposed tax legislation, thereby requiring only 51 votes in the Senate to pass the tax legislation. Therefore, if any of the proposed new tax legislation is enacted, it is most likely to happen in the fall as part of the fiscal 2022 budget process. However, there are two scenarios where tax laws could be enacted outside of the budget reconciliation process. The first is if the Democratic senators are able to eliminate the filibuster. The second is if the tax legislation is attached to an infrastructure bill. An infrastructure bill appears to have bi-partisan support. It may be possible for the Democrats to get ten Republican senators to vote for an infrastructure bill which includes proposed tax law changes – especially if those senators are promised that significant infrastructure funds will be used for projects in their state. Planning It is not clear yet if either Senator Sanders’ bill or President Biden’s proposed tax law changes will gain any traction in Congress. However, it may be prudent to plan for the worst and hope for the best given the unpredictable political climate. The good news is that estate planning techniques that a taxpayer puts into place before the enactment of any new legislation will be “grandfathered in” from an estate and gift tax standpoint. This only makes it more beneficial to possibly consider implementing gifting strategies that are still currently allowed to transfer assets to family members before the enactment of any tax law changes.

More Information For a summary of the more important aspects of the bill proposed by Senator Sanders, see the “For the 99.5 Percent Act” page: We will be posting information regarding the President’s proposal to impose capital gains tax at death on appreciated assets on our website when more details of President Biden’s proposed tax legislation become available.

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