In September 2021, the Ways and Means Committee of the House of Representatives proposed new tax legislation (the “September Bill”) that would have greatly affected estate planning.  On October 28, 2021, the legislation was revised to remove those provisions.  However, given that the legislation is in flux and the provisions could still be added back, we want you to be aware of these provisions so that you can decide how to respond.

Under the September Bill, effective January 1, 2022, the gift, estate and generation- skipping tax exemptions would have been reduced by half (this change was scheduled to occur anyway starting in 2026).  This means that the exemptions would have gone from approximately $12M per person (or $24M per married couple) to approximately $6M per person or $12M per married couple.  Thus, for those who want to maximize use of the higher exemption (the “bonus exemption”), gifts of the full exemption would need to be completed prior to 2022.  (Note that, since the Connecticut exemption is only $7.1M in 2021, there would be $528,000 Connecticut gift tax payable unless a portion of the gifts were made with non-Connecticut real or tangible property).  We discussed use of the bonus exemption in our Annual Client Newsletter 2021 sent earlier this year.

The September Bill would also have eliminated many of the benefits of trusts known as “grantor trusts” and would have caused potential gift and estate taxes if gifts were made to these trusts after the legislation passed.   If the provisions are brought back into the legislation, we will address them in another firm communication.  These types of trusts include life insurance trusts, grantor retained annuity trusts and spousal lifetime access trusts.

While we do not know if the legislation will pass or what the final provisions will include, we can still recommend that those who are comfortable making large gifts use their bonus exemption sooner than later since the exemptions are set to expire at the end of 2025 and possibly this year.  For those who have maximized use of their gift tax exemption, they may have unused generation- skipping tax exemption which may in certain circumstances be allocated to existing non-exempt trusts.  By doing so, trusts which might have been included in a child’s estate can now pass to the next generation free of estate tax in the child’s estate.

We will continue to monitor developments and keep clients informed if and when any legislation passes.  For more information or to pursue gifting opportunities in 2021 or later, please contact Lisa F. Metz (lmetz@brodywilk.com) or another BW attorney.