Will the Senate Estate Tax Bill Impact My Estate Plan?

With the recent election and inauguration of the 117th United States Congress, new bills are being introduced that impact all aspects of a person’s life. According to a recent news source, one such bill is Senator Bernie Sanders’ proposed estate and gift tax reform legislation. For individuals with an estate plan in place, the introduction of new legislation gives cause for concern that it may impact their estate plan. The bill will reduce the estate tax exemption to $3,500,000 and increase the estate tax rate from a flat rate to a progressive one. Because the nuances of such a law can be confusing, below are some common questions and answers about the new estate tax bill.

What Does the Bill Propose?

The bill seeks to reduce the estate tax exemption from $11,700,00 to $3,500,000. This means if an estate is valued at over $11,700,000 currently, the heirs of the estate will need to pay a tax. If the proposal is enacted, the heirs of an estate valued at over $3,500,00 will have to pay the tax. Additionally, if the bill passes, anyone who received more than $1,000,000 in gifts from a loved one as a part of their estate plan will have to pay a tax too. The proposed exemption limits are per person; therefore, for married couples, the total exemption limit would be $7,000,000. After 2022, the exemption will continue to rise with inflation.

For individuals who will be above the exemption limit, the tax rate will also change from a flat rate of 40% to a progressive tax. Under the bill, the new tax will be 45% for the first $6,500,000 of the taxable estate, and then 50% on the next $40 million, 55% for the next $50 million, and then 65% for any remaining taxable assets.

What Should I Do if I am Impacted by the Bill?

For Texans who have an estate value over the proposed exemption limit, they have a few options. They can: (1) be willing to pay the estate tax; (2) gift, donate, or use estate funds to become below the limit; (3) establish a trust in a spouse or descendant’s name utilizing estate funds. An estate planning attorney can talk through these options and decide which fits an individual and their situation best.

One benefit to the proposed bill is that any arrangements entered into before the law is enacted will be grandfathered in. This means that if a person reduces the value of their estate to below the new exemption limit—either by gifting or donating funds—before the bill goes into enactment, they will not be affected.

Because the new estate tax exemption bill is complicated, individuals who think they may be impacted—and want to learn about their options—should contact an experienced estate planning attorney to help.

Contact a Houston Estate Planning Attorney

If you or a loved one is interested in creating a Houston estate plan before this law is implemented, contact the dedicated estate planning attorneys at McCulloch & Miller, PLLC. Our attorneys have years of experience drafting estate plans that comply with federal and state law. Because estate and gift tax laws are often amended, our lawyers will inform you if your estate plan ever needs to be updated. To speak with one of our knowledgeable attorneys today and to schedule a consultation, give us a call at 713-333-8900.

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