Yesterday, Monday, September 13, 2021, morning the House of Democrats released the details of their tax increase proposals.  The House Way and Means Committee plans to vote this week on the proposals.  A link to the text of the proposals is here. The proposals are in line with what many tax analysts have predicated are in line with what I expected.  Below are some selected highlights that will impact high/ultra-high net worth individuals.   

Notable is that the current proposal is that the gift/estate tax exemption will return to pre-Trump levels (about one-half of current levels) January 1, 2022 (four more months to use the bonus exemption before it disappears).  Also, notable is that grantor trusts upon the enactment of the tax billwill no longer tax-efficient tools for wealth transfer planning.  Wyoming trusts, and other favorable tax-friendly trust jurisdictions, will become even more important tax savings tools in the new nongrantor trust world of wealth transfer planning.

Here are some additional selected highlights of the proposals:

  • Raising the top marginal tax rate to 39.6% starting in 2022 for individuals with taxable income of $400,000 and $450,000 for married couples
  • Increases in the LTCG rate to 25% along with a Binding Commitment Exception
  • Adding a 3-percentage-point surtax on taxpayers adjusted gross income more than $5 million;
  • Sunsetting the increase in the estate/gift/GST tax exemption as of December 31, 2021 (i.e., return to pre-Trump level of $5M with inflation adjustments);
  • Forcing distributions from “MEGA IRAs” as well as limiting contributions once the account exceeds Threshold Amounts;
  • Elimination of Roth Conversions for Married Taxpayers Earning Over $450,000 a Year
  • Eliminating discounts for lack of control for passive assets, with a carveout for family farms and businesses;
  • New limits on note sales to Grantor Trusts as well as changes to Grantor Trust taxation
  • Changes to Valuation Adjustments Effective 1-1-2022
  • Elimination of IDGT Sales Effective 1-1-2022
  • Grandfather Rules for Existing Grantor Trusts
  • Increases in the Farm Exemption from $750,000 to $11,700,000
  • Inclusion of Grantor Trusts in a Taxable Estate
  • Taxation of Sales to Grantor Trusts just like Arms-Length Sales
  • Increasing the top cap gain rate to 25%, generally effective as of 9/13/2021;
  • Changes to the QSBS once AGI Exceeds $400,000;
  • Capping the 199A deduction for individuals at $400,000 and married couples at $500,000;
  • Raising the corporate tax rate to 26.5% from 21%;
  • Limiting business interest deductions and taxing foreign income at higher rates;
  • Increasing the holding period for carried interest from 3 to 5 years;
  • Limiting deductions for conservation easements retroactive to September, 2016.

We’ll continue to monitor tax legislation and update you if anything dramatically changes from the proposals made yesterday.

Author: D. Scott Robinson

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