estate planning tax exemption, future of estate tax exemption

What is The Future of The Estate Tax Exemption?



The future of the estate tax exemption is not yet concrete. However, we’re getting closer to understanding how wealthy estates may be affected if the bill known as The 99.5 Percent Act becomes law. 

Currently, the federal estate tax exemption is $11.7 million for an individual or $23.4 million for a married couple. This is set to change, and the date is fast approaching. On January 1st, 2022, the new estate tax exemption will change. The proposed new amount for estate tax exemption is $3.5 million for an individual. This means that married couples would lose a combined $16.4 million in estate tax exemption.    

Future of the Estate Tax Rates

U.S. Senator Bernie Sanders introduced this bill to Congress back in January, 2019. It includes federal estate tax increases for wealthy estates. The future proposed estate tax rates will range according to the size of the estate, with increases from 12.5% to as much as 65% for sizable estates. 

Here’s a breakdown of the affected estate sizes: 


Estate Size Proposed Federal Estate Tax Rate
$3.5 million – $10 million 45% 
$10 mil – $50 mil 50%
$50 mil – $1 billion 55%
$1 billion + above 65%


Highlights from the “99.5% Act” Bill

Estate tax and gift tax changes will occur under this new bill. Here are a few of the highlights:

    • Annual exclusion gifts would no longer be unlimited.
      • Individual annual tax exempt gift amount is set at $15,000 per beneficiary.
      • Example: Barb gifts $300,000 a year that’s exempt from federal gift tax, because she gifts $15,000 each to twenty different beneficiaries.
    • Grantor trusts would generally no longer avoid estate tax.
      • Under the new bill, any grantor trust would be subject to estate tax because they would be considered part of the estate of the deceased grantor.  
    • More rules for GRATs (Grantor-Retained Annuity Trusts)
      • GRATs would have a required minimum term of 10 years.
      • Terms can’t extend more than 10 years after the grantor’s life expectancy.

How “Dynasty” Trusts Would Be Affected

Generation-Skipping Trusts are used by families to transfer funds to future generations while avoiding estate and gift taxes. This can be extremely helpful for wealthy families. Current law allows you to transfer up to $11.7 million to a trust like this. However, these “dynasty trusts” that allow grandchildren and great-grandchildren to access funds without incurring taxes, may change drastically under the new bill. 

An excerpt from the bill says, “The bill eliminates the generation-skipping transfer tax exemption for any trust whose termination date is not greater than 50 years after its creation.” This means that the trust can only avoid federal estate taxes for fifty years, instead of indefinitely. The fifty years starts counting on the date the trust is created. 

Get Help Planning Around the Changes

Estate tax planning may change drastically by 2022. If your estate is going to be affected by these changes, you need options. Creating a DIY Estate Plan may seem like a smooth move that saves you money, but in reality, it could end up costing you tens of thousands of dollars. 

You need expert help when you’re planning around these new changes. You can rely on the qualified estate planning attorneys at Phelps LaClair in Phoenix. Our experts will ensure that your estate stays out of probate court and remains preserved for future generations.

Contact us to schedule a consultation today.






photo “Tax” by: | from Flickr on 6/3/2021 | used under the Creative Commons license | no changes made

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