Proposed Estate Tax Changes from Harris Campaign

Estate tax from wooden letters and gavel.

This election year, estate planning has become part of the presidential political debate. With Vice President Kamala Harris making estate tax reform a part of her platform, now is the time to update your estate plan to avoid the tax increases that may come under the next administration. Talk to an estate planning attorney now to reduce the amount your family will have to pay in estate taxes after your death.

Harris Campaign Endorses Substantial Estate Tax Rate Changes

On July 29, 2024, U.S. Congressman Emanuel Cleaver and Senator Elizabeth Warren put forward the American Housing and Economic Mobility Act of 2024. That bill has been publicly endorsed by Vice President Kamala Harris, making it a central part of her presidential campaign. While the publicly stated purpose of the bill is to address the affordable housing crisis, the act will be paid for through changes to the federal estate tax. The Harris Campaign’s endorsement has brought additional Democratic support for the bill, increasing the chances it will be passed by the next Congress if Democrats do well in the election in November.

The law, if passed, would revert many estate tax thresholds to the levels set during George W. Bush’s administration, and establish a series of progressive rates above those thresholds. Under the proposed bill, federal estate taxes would apply to any estate valued at more than $3.5 million, the lowest it has been since 2009. This would undo the $13.61 million threshold put into place by the Tax Cuts and Jobs Act of 2017. It will substantially increase the number of estates that will be subject to estate taxes, generating more revenue for the federal government to spend on its housing relief efforts. Above that $3.5 million floor, estates could face taxes as follows:

  • Estates not over $13 million would be taxed at 55% of that amount
  • Estates between $13 and $93 million would be taxed $7,150,000, plus 60% of any amounts over $13 million.
  • Estates above $93 million would be taxed $55,150,000 plus 65% over any amounts over $93 million.
  • Estates above $1 billion would also be taxed an additional 10% on top of the amount stated above.

The highest tax rate in this progressive tax structure would also apply to funds held in foreign estates and trusts.

Proposed Changes to Grantor Trusts

In addition to the amount of estate taxes, the American Housing and Economic Mobility Act would make several changes to the tax treatment of grantor trusts, a common estate planning tool used in asset protection to avoid paying unnecessary taxes and costs on their estate. If the law passes, some assets held within a grantor trust will be included in calculating the value of the grantor’s gross estate. Transfers made during the grantor’s lifetime will also be deemed gifts for the purpose of beneficiaries’ gift tax calculations. This change will apply to:

  • The portion of the trust that the grantor retains as an owner
  • Portions that the owner sells, exchanges, or transactions with the trust
  • Trusts where the grantor stops being deemed the owner during their lifetime

There are also changes being made to the way a grantor trust’s step-up basis is calculated, the way non-business property is valued, and to discounts available to families of the grantors. These changes will apply to any trust created or funds transferred into an existing trust on or after the law goes into effect. This means, to reduce the taxes assessed against your trust, you will need to place those assets into the grantor trust before the law takes effect.

Tax Benefits for Grantor-Retained Trust Annuities Limited

There are also additional changes proposed that will affect the way grantor-retained trusts are treated. In this subset of grantor trusts, tax protections will only apply to assets in which grantor retained an interest if:

  • The grantor’s right to receive fixed amounts is limited to 10 years or less
  • The fixed amounts do not decrease on an annual basis within the first 10 years
  • The remainder interest in the trust accounts for at least 10% of the value of the assets transferred to the trust (measured at the time of the transfer)

Generation-Skipping Tax Exemptions Eliminated

The American Housing and Economic Mobility Act will also eliminate the tax exemptions allowed for many “generation skipping” transfers. If the law passes, tax exemptions will only be available for transfers to natural persons (not businesses or organizations) who are within 2 generations of the grantor and who were born before the trust was created. Unlike the grantor trust changes above, this change would apply to all trusts – even those created before the law was passed. Older trusts’ taxes will be treated as though they were created on January 1, 2024. Any provisions written to engage in generation skipping tax exemptions beyond those allowed under the new law will be disregarded.

Gift Taxes Overhauled

The law will also simplify how the IRS calculates gift taxes. Under the bill, a person may receive up to $10,000 total gifts per year (from any number of people). However, certain gifts may amount to double that amount:

  • A transfer in trust
  • Ownership interests in passthrough entities
  • Transfers subject to a prohibition on sale
  • Property that cannot be immediately liquidated by the recipient

This will make it easier for gift recipients to calculate their tax owed in any given year. However, it may make it more difficult for you to determine, as a grantor, how much you can safely give to your loved ones as gifts as part of their estate plan.

Harris Campaign’s Estate Tax Changes Adds Surcharges to High-Value Estates

One of the stated purposes of the American Housing and Economic Mobility Act is to reduce wealth disparities. Because of this, if you have an especially high-value estate, you can expect the law will impact you the most. In addition to the progressive estate taxes listed above, the law also includes a surcharge on high income estates and trusts:

  • 5% on adjusted gross income to the taxpayer above $200,000
  • An additional 3% on adjusted gross income to the taxpayer above $500,000

However, this surcharge does not apply to income generated by charitable trusts. Because of this, philanthropic estate planning techniques may become a more important part of your high-net-worth estate planning. They can help reduce the size of your taxable estate and decrease the amount of estate taxes and surcharges your beneficiaries have to pay.

Get Help Avoiding Estate Tax Changes Now

Any change in the political landscape has a chance to alter the law. Estate plans are generally written assuming the estate tax laws will remain the same, and anticipating predictable changes such as cost of living increases or incremental adjustments. However, estate tax reforms can cause an existing estate plan to not function as intended, and leave your family paying more to the IRS than you ever intended.

To avoid the increased estate taxes proposed in the American Housing and Economic Mobility Act, you will need to update your estate plan before the law takes effect. That means now is the time to talk to an estate planning law firm with the tax expertise to understand the impact the change in the laws will bring.

At Harrison Estate Law, we are uniquely equipped to handle your family’s estate tax planning and address the uncertainty created by changing laws. We can help you consider strategies that will minimize tax consequences, and make sure your assets will be well-managed after your death. We are happy to help you set up a new estate plan or update your existing plan to better protect your assets and reflect your priorities. Please contact us online or via email or call 352-306-3579 to schedule a free consultation. If you don’t live close to Gainesville, we are happy to set up a phone or Zoom call. We also have extended evening and weekend appointments available upon request.

Categories: Estate Planning