A new proposal regarding estate taxes has been introduced in the U.S. Senate. S.B. 309, the “For the 99.8% Act,” is sponsored by Senator Bernie Sanders (I-VT). The bill would exempt the first $3.5 million of an individual’s estate from estate taxation. (Under current law, the exemption is $5 million, doubled to $10 million through 2025, and is adjusted for inflation.)

Estates above $3.5 million would face a 45% rate of tax on the amount up to $10 million. Currently, estates above the exclusion face a tax of 40%. There would be a 50% tax on the portion of an estate between $10 million and $50 million. There would be a 55% tax on the portion of an estate between $50 million and $1 billion. There would be a 77% tax on the portion of the estate in excess of $1 billion.

The legislation would limit the effectiveness of allocation of GST exemption to 50 years. GST exemption allows someone to pass assets that may be used by the next generation but not included in the next generation’s taxable estate. Assets in a trust to which GST exemption has been allocated may enable a family to skip estate taxation generation after generation. This legislation would stop that strategy.

The legislation would place limits on valuation discounts. The legislation doesn’t specify exactly how it would reign in valuation discounts.

Under the proposal, the estate taxes of someone with $3.5 million or less, the 99.8%, wouldn’t change. But, the estate taxes on a billionaire would increase significantly. For example, the tax on Jeff Bezos’ estate would nearly double. His current net worth is estimated at $131.9 billion. His estimated estate tax liability under current law is $52.75 billion and it would rise to $101.34 billion under the proposal.

Here is a link to Senator Sanders’ proposal.

If this legislation were to pass, some tried and true strategies, such as valuation discounts and GST planning, would have reduced effectiveness.

As the Senate is controlled by Republicans, it’s doubtful this proposal will even make it to the floor for a vote, at least until after the 2020 elections. But this may give a clue of the direction the estate tax might take if Democrats win control in the 2020 elections. Meanwhile, valuation discounts and GST planning remain effective estate planning strategies.

Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com