What’s going on in the Estate and Gift Tax Arena?

Primer: The estate tax is imposed on bequests at death as well as inter-vivos (during life) gifts. A certain amount of each estate is exempted from taxation by the federal government. The exemption applies to total bequests and gifts (not including the annual gift exemption of $15,000 per year per person which is increasing to $16,000 starting in 2022). Transfers between spouses are exempted, and any unused exemption can be inherited by a surviving spouse.

The Biden Administration has proposed to tax capital gains when transferred by gift or at death. However, the Build Back Better Act (BBBA; H.R. 5376) as passed by the House, was modified to eliminate: 1) the lowering of the gift and estate tax exemption, 2) the step-up in basis upon death, and 3) changes to grantor trust rules.

While the new and improved Build Back Better Act provides relief from prior proposals which would increase the amounts subject to estate and gift tax, the Act does include tax increases for estates and trusts. Included in the Act are provisions which would subject estates and irrevocable trusts to new income tax surcharges. The Build Back Better Act applies a surtax of 5% on trust income of more than $200,000 and an additional 3% surtax at the $500,000 income level.

Remember that this legislation remains very fluid. Stay tuned for developments.
For more information on this subject see the excellent article written by Ann M. Rieger of Davis & Kuelthau, S.C. in the National Law Review (November 22, 2021 Volume XI, Number 326).