The 99.5% Act – How Could This Impact Your Estate Plan?

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By: Melanie E. Cuddyre, Esq. 

On March 25, 2021, Senator Bernie Sanders introduced the 99.5% Act (the “Act”). The Act targets tax reform relating to the Federal Estate Tax, Federal Gift Tax, and certain trusts. The Act includes many of President Biden’s proposals introduced during his 2020 election campaign. With a Democrat-led Congress, the likelihood of one or more of the Act’s provisions being passed is real.

The Act, in pertinent part, includes the following changes:

Federal Estate Tax

  • Reduces the Federal Estate Tax Exemption from the current $11.7 million per person to $3.5 million per person.
  • Introduces a graduated Federal Estate Tax system based on the value of the Estate:
    • 45% tax on value over $3.5 million
    • 50% tax on value over $10 million
    • 55% tax on value over $50 million
    • 65% tax on value over $1 billion
  • Requires inclusion of certain grantor trusts including irrevocable life insurance trusts (ILITs) in a grantor’s Federal taxable estate and triggers a gift of the entire value of the trust if grantor trust status is revoked during the grantor’s lifetime.

Federal Gift Tax

  • Reduces the Federal Gift Tax Exemption from $11.7 million per person to $1 million per person.
  • Limits the annual Gift Tax exclusion for certain transfers from.
  • Distributions from grantor trusts, which are currently subject to income tax to the donor, will be treated as a gift from the grantor to the beneficiary and subject to Federal Gift Tax.
  • Eliminates minority interest discounts and lack of marketability discounts for an entity in which the transferor, transferee, and members of their families either control or own a majority ownership of the entity.

Trusts

  • Limits the creation of tax-exempt generation-skipping trusts, or dynasty trusts, if the trust term is greater than 50-years.
  • Requires a 10-year minimum trust term for grantor retained annuity trusts (GRATs) and limits the maximum trust term to the life expectancy of the annuitant plus 10-years.
  • Requires that GRATs have a remainder interest of the greater of (i) 25% of the amount contributed to the trust, or (ii) $500,000.

If passed, whether in full or in part, the Act will likely have an effective date of January 1, 2022. Individuals should review their current estate plan and discuss potential updates or changes with their estate planning advisors.

Melanie Cuddyre is an Attorney with Leech Tishman and a member of the Estates & Trusts Practice Group. She is based in the Pittsburgh office and can be reached at 412.261.1600 or mcuddyre@leechtishman.com.

Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in business restructuring & insolvency, corporate matters, employment & labor, estates & trusts, intellectual property, litigation & alternative dispute resolution, and real estate. In addition, the firm offers a wide range of legal services to clients in the aviation & aerospace, cannabis, construction, energy & natural resources, healthcare, and hospitality industries. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York, Philadelphia, Sarasota and Wilmington, DE.

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