What You Need to Know About the Bernie Sanders Estate Tax Bill

Have you heard about the estate tax bill Senator Bernie Sanders proposed to Congress back in March of this year? While it hasn’t passed yet, if it does, it will go into effect at the end of the year and can have substantial impacts for many Americans. The serious changes proposed by the bill should not be taken lightly and, while it is not yet law, it should still be taken into consideration as you put your estate plan in place or look to update an already existing estate plan. Doing so could drastically soften the financial blow this bill stands to have on certain estates in the U.S.

What You Need to Know About the Bernie Sanders Estate Tax Bill

The proposed bill is named the “For the 99.5% Act” as it is intended to establish a progressive tax system to strengthen the economy while only really impacting the top 0.5% wealthiest of Americans. The Act focuses on casting a wider net for who would be subject to the federal estate tax as well as increasing the federal estate tax rate. You see, right now, the federal estate tax exemption amount is quite high. It currently sits at $11.7 million per individual and $23.4 per married couple. The “For the 99.5% Act” would lower those limits down to $3.5 million per person and $7 million per married couple. The estate tax exemption would continue to be indexed for inflation.
In addition to a dramatic change in the federal estate tax exemption limits, the proposed Act also sets to make notable changes to the federal estate and gift tax rate. Currently, this is a flat rate of 40%. The Act proposes a progressive estate tax rate based on the size of an estate. The rate increases with the size of the estate. The proposed rates are as follows:

  • A 45% tax rate for estates valued greater than $3.5 million, but lower than $10 million
  • A 50% tax rate for estates valued greater than $10 million, but lower than $50 million
  • A 55% tax rate for estates valued greater than $50 million, but lower than $1 billion
  • A 65% tax rate for estates valued greater than $1 billion

If passed, the Act would also lead to the inclusion of grantor trusts in the federal estate tax calculation. This would be a significant change as grantor trusts have historically been used as a means of removing assets from estate tax liability by transferring ownership of assets from an individual to the trust itself. The Act, however, would add a provision to the Internal Revenue Code stating that grantor trusts funded after the date the Act becomes effective would be considered owned by the grantor for purposes of income and estate tax calculations.
The Act also stands to make notable changes to annual gifting exemptions. While the current annual gifting exemption is $15,000, the Act proposes a reduction to $10,000. It also proposes adding an annual cumulative limit per donor of two times the annual limitation. The proposed limitations would also pertain to making gifts to trusts or other entities where assets are unable to be immediately liquidated.

Estate Planning Attorneys

To best protect the effectiveness of your estate plan, it can be critical to keep it updated so it falls in line with changes in the law and changes in your circumstances. Talk to the trusted estate planning attorneys at OC Wills & Trusts about how to create and maintain an estate plan that most accurately reflects and protects your goals for the future. Contact us today.

Brian Chew, the managing partner of OC Wills & Trust Attorneys, has extensive experience in the areas of estate planning, asset protection planning, business succession planning, long-term care planning, and veterans’ benefits. By devoting his practice to estate planning matters, he has founded a firm that strives to provide exceptional service to their clients by working closely with individuals and their families to create comprehensive and customized estate plans. For the past twenty five years, Brian has served thousands of clients in the matters of estate planning, wills and trusts. If you have any questions about this article, you can reach Brian Chew here.