Democrats may rein in big estates without reforming the estate tax

Democrats may limit some strategies used by wealthy Americans to reduce or avoid estate taxes. The list of potential tax reforms connected to the Democrats’ $3.5 trillion budget plan include grantor-retained annuity trusts, intentionally defective grantor trusts and non-economic valuation discounts. 

The targeted strategies are often used by multimillionaires and billionaires to “gift appreciated assets to heirs tax-free while reducing the size of their taxable estate. . .” 

In addition to disallowing certain complex trust-planning techniques, Congressional Democrats may also ask the Treasury Department to update regulations to “prevent the abuse of non-economic valuation discounts.”

According to Robert Lord, counsel for progressive group Americans for Tax Fairness, “[b]asically you’ve got this basket of loopholes that collectively can be used to defeat the estate tax at really any level, even billionaires.” 

“Interestingly, Democrats don’t seem to be weighing reforms to the estate tax itself, such as a higher tax rate or a reduced asset threshold that would subject more estates to federal levies.” 

The Democrats’ proposed estate-tax reforms “are part of Democrats’ broader theme of raising taxes on the wealthy to help fund climate, paid leave, childcare and education measures. . .” 

See Greg Iacurci, Democrats may rein in big estates without reforming the estate tax, CNBC Personal Finance, September 10, 2021. 

Special thanks to Deborah Matthews (Virginia Estate Planning Attorney) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2021/09/democrats-may-rein-in-big-estates-without-reforming-the-estate-tax.html