One of the proposals would reduce the estate tax exemption to anywhere between $3.5 and $5 million, with an effective date of January 1, 2022. Another proposal would bring new rules to grantor trusts, including a change to how life insurance held in a trust would be taxed.1,2
At this point, many ideas are being evaluated, but nothing is final. Corporate tax rates, individual tax rates, and capital gains taxes are also on the negotiating table.
For now, the federal estate tax exemption remains at $11.7 for 2021, with a married couple having a combined exemption for 2021 of $23.4 million.3
But it wouldn’t be a surprise if the estate tax law changed as part of the overall plan. In 2019, 2,570 taxable estate-tax returns were filed, and they owed a combined $13.2 billion. Lowering the estate tax exemption to $5 million would raise an estimated $52.3 billion over five years.1
As difficult as it may be, the best approach is to wait-and-see. It would be hasty to make any estate changes based on current discussions.
But if you’re feeling unsettled as Congress continues to work on these changes, please reach out. Estate strategies often need adjustments as tax laws change, and it’s best to be prepared for a range of potential new rules coming out of Washington.
1. CNBC.com, September 29, 2021
2. FA-mag.com, September 22, 2021
3. IRS.gov, October 25, 2021