The Schneider Downs team of estate planning professionals provide an estates and trusts tax update for November 2021.
We are all familiar with the old proverb that nothing in life is certain but death and taxes. While this may have held true in Benjamin Franklin’s time, there is little certainty in taxes today. Just four years after the Tax Cuts and Jobs Act (“TCJA”) brought about the most sweeping overhaul to the tax code in over three decades, Congress has once again set its sights on changing the playing field.
On September 12, 2021, the House Ways and Means Committee introduced a series of proposals to be included in President Biden’s budget reconciliation bill known as the “Build Back Better Act.” The initial bill included various proposals that would significantly impact the opportunities for estate and gift tax planning that exist under the TCJA framework. The changes included a reduction in gift, estate, and generation-skipping transfer (“GST”) exemptions, significant changes in the rules affecting grantor trusts, and the disallowance of valuation discounts for nonbusiness assets.
Negotiations on the Build Back Better plan are ongoing, and the current $1.75 trillion package is roughly half the size of the bill envisioned back in September. To the surprise of many estate-planning professionals, the most recent version of the legislation omits the above proposals, leaving the estate tax system virtually unchanged. Although this is tentatively good news for taxpayers, it is important to remember that this does not mean that individuals considering estate planning should cancel appointments with their advisors.
First, even if final legislation makes no changes to the estate tax system, the increased exemption amounts of $11.7 million are only temporary and will revert to pre-TCJA levels in 2026 even without Congressional action. Individuals should be mindful of how this sunset could affect their estate planning objectives.
Second, although the estate tax provisions have not been incorporated into the current bill, certain adverse income tax provisions remain intact. As part of what has been called the “Millionaire Surtax,” a surtax of 5% would be imposed on estates and irrevocable trusts with income greater than $200,000 and an additional 3% surtax at the $500,000 income level. This surtax would create an additional layer of complexity when planning for trusts.
Finally, it is important to remember that we remain in an environment of significant uncertainty. Although the unfavorable estate tax provisions do not appear in the current version of the legislation, these provisions have already been drafted and it would not require significant effort to “cut and paste” some or all of them back into final legislation. It is also possible that they reappear in a future legislative process following the 2022 and 2024 elections.
There are several estate planning techniques that are well suited to this uncertain environment. We encourage you to reach out to us to discuss which planning opportunities may work best for you and your family.
About Schneider Downs Estate, Trust and Succession Planning
Schneider Downs is uniquely positioned with a diverse team of credentialed professionals, including CPAs, CFPs, LLMs, MBAs, JDs, and non-practicing attorneys who are committed to comprehensive service. From business entity succession planning to estate administration, Schneider Downs professionals can synthesize the most complex financial situations to develop an effective, customized, tax-efficient estate and succession plan.
Schneider Downs & Co., Inc. is not a law firm and does not provide legal services. In furtherance of the estate planning services provided, it may be necessary to retain legal counsel.
Tax and legacy planning services are offered through Schneider Downs & Co., Inc. Investment and asset management services are provided through Schneider Downs Wealth Management Advisors, LP. Each service may require you to sign a separate engagement agreement that will outline the services to be provided and the respective fees.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.