Plan your estate before it’s too late

Time is ticking on estate planning as we know it. Soon, one of the most favorable planning eras will likely come to an end. Recent months have seen a myriad of tax proposals seeking to eliminate many popular wealth-transfer techniques.

Tax proposals

Since March of this year, no fewer than four proposals have been released to modify current gift and estate tax rules. Most recently, on Sept. 12, 2021, the House Ways and Means Committee issued its proposal for the budget reconciliation bill. The draft legislation includes several significant changes affecting high-income and high-net-worth individuals, but from an estate planning perspective, it proposes to:

• Add a surcharge high-income trusts and estates: The proposal would apply a 3% surtax on trusts and estates with adjusted gross income over $100,000. This change would be effective for tax years after Dec. 31, 2021.
• Reduce the gift, estate and GST tax exemptions: The proposal would reduce the gift, estate and generation-skipping transfer (GST) tax exemptions to their 2010 levels. Indexed for inflation, this would result in the 2022 exemptions equal to approximately $6 million per person, or $5.7 million less than the 2021 amount of $11.7 million per person.
• Pull grantor trusts into decedent’s estates: The proposal would require grantor trusts to be included in their deemed owner’s estate. This change would apply to grantor trusts created after the date the provision is enacted (which could be this year) or to any portion of a grantor trust created before enactment attributable to a contribution made on or after such date. Although not clear at this point, the proposal could eliminate planning with grantor-retained annuity trusts (GRATs), qualified personal residence trusts (QPRTs) and certain charitable lead trusts.
• Tax certain sales between grantor trusts and their owners: The proposal would cause sales between grantor trusts and their deemed owners to be taxable. Traditionally, taxpayers have been able to sell assets to their grantor trusts without recognition of gain and without receiving taxable income on any corresponding note payments. This provision, which could be effective this year (on the date of enactment), would change that.
• Eliminate valuation discounts for nonbusiness assets