On March 21, 2021, Rep. Jimmy Gomez and Sen. Bernie Sanders introduced a new bill into Congress called, "For the 99.5% Act." The bill's introduced form is only 18 pages long, but its potential impact on federal estate and gift tax laws significantly affects estate planning. While it is impossible to determine if the bill will pass into law, some of the act's key elements may inspire Congress to increase the estate tax using other mechanisms should this bill fail. Legislators might also seek to remove well-known tools like trusts to bypass taxation upon your death to generate revenue for federal programs.
In a letter to Congress, 51 national organizations supporting Senator Sanders's and Representative Gomez's estate tax reform urge congressional members to adopt the legislation. The letter cites that the richest one percent of Americans own nearly 32 percent of the nation's wealth, and the bottom 50 percent own just 2 percent. This stark inequality creates constraints and financial growth limitations for the majority of Americans.
The Sanders–Gomez proposal strives to reverse this trend and increase the estate tax rate currently in place, topping out at 65 percent on estates over one billion dollars. In contrast, President Biden's campaign estate tax plan would retain the 40 percent estate tax rate currently in place. Much is unknown, but one thing is clear: change is on the table regarding inheritable asset and gift tax classes.
The Joint Committee on Taxation (JCT) believes the Sanders bill can raise $430 billion over ten years. Some of the bill's main provisions (remember these are only proposals right now; no laws have been changed) that generate this revenue include the following proposals:
The For the 99.5 Percent Act would provide beneficial valuation rules for small businesses and farms as well as land subject to qualified conservation easements. The Sanders-Gomez bill would give family farms extra protection by allowing lower assessed value on farmland up to three million dollars, exempting even more farms from tax. But those larger ones could feel a tax squeeze.
Overall, there is overwhelming public support to raise taxes on Americas' wealthiest. Still, some of these inheritance tax rate changes will affect the so-called "middle-class millionaires" who will need to restructure their current estate plans if the For the 99.5% Act is passed into law. Especially important is that many of our nation's farming and ranching families could be squeezed into very difficult positions under some of the proposed changes. The proposed tax rate of 45 percent on estates between 3.5 to 10 million dollars will affect family generational wealth more so than the top tax rates for mega multi-millionaires and billionaires.
McCreary Law Office is watching this legislation and takes potential changes into account as we design your plan. But working jointly with your CPA and financial planner is also part of the team approach as we find the best solutions for your family.
If these changes affect you or if you're ready to move forward with your estate planning, please reach out to the office. You may contact McCreary Law Office or call the Jacksonville, FL office at 904-425-9046 or the Houston, TX office at 713-568-8600.
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