In 2021, the House and Senate proposed various bills that would have shut down virtually every estate planning strategy that ultra-high net worth clients rely on today to transfer hard-earned wealth to family members. Taken together, these proposals would have destroyed estate planning as we know it today:
- Eliminate grantor trusts
- Eliminate discounting
- Tax gains of appreciated property at death by eliminating the stepped-up cost basis
- Raise estate tax rates on large estates
- Sunset (cut in half) gift exemptions as of the beginning of this year rather than the end of 2025
- Severely limit annual gift tax exclusion
- Reduce the duration of GRATs and dynasty trusts.
- Tax mega-IRAs (thanks to the publicity surrounding Peter Thiel’s incredible IRA)
Fortunately, these proposals all failed. Unfortunately, the threat has not passed – largely due to the impression created by the press that the ultra-wealthy are getting away with murder. Consider the following:
February 14, 2022 Bloomberg article entitled, “Shale King Harold Hamm Is Passing Billion to His Heirs Tax-Free.”
- “Harold Hamm executed one of the largest wealth transfers in U.S. history last week, handing each of his five children a stake worth about $2.3 billion in Continental Resources inc., the shale drilling company he founded more than 50 years ago. Like other ultra-rich Americans, Hamm’s massive gift, years in the making, is likely to be passed down largely tax-free.”
- “Hamm, 76, seems to have relied on two of the most common loopholes for avoiding the U.S.’s 40% estate-and-gift tax levy as he shifted the majority of his fortune. The key to these techniques, both perfectly legal, is to carefully structure transactions so they benefit heirs but aren’t technically gifts at all. Democrats had proposed shutting down the strategies….”
February 23, 2022, Washington Post editorial entitled, “Congress Passed Up an Obvious Policy Tool to Fix Wealth Inequality” – a call for tougher inheritance taxes.
- “The estate tax is so riddled with exemptions and loopholes that only 0.04 percent of U.S. deaths resulted in the filing of estate tax returns in which inheritance tax was owed and the effective tax rate paid was only 14.7 percent….Alas, federal policy has gone in the wrong direction in recent years. The 2017 Republican tax bill doubled the amount of money exempt from estate taxes, from $11 million to $22 million per couple. This exemption is due to phase out in 2026, but expect Republicans to push to keep it in place.”
https://www.washingtonpost.com/opinions/2022/02/23/congress-inheritance-taxes-fix-wealth-inequality/
We don’t know what the future holds and what changes may await us. So many clients focus only on lifetime exemption limits. Frankly, I’m not nearly as concerned with exemption limits as I am with a complete and total re-do of our most valuable estate planning tools and techniques.
Your thoughts?