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IRA Financial Blog

Estate Tax – Episode 282

Adam Talks

IRA Financial’s Adam Bergman Esq. discusses a possible new estate tax, which may have an impact, especially for high income earners.

In this episode of Adam Talks, Mr. Bergman talks about Senator Bernie Sanders’s proposed estate tax proposal. This could have a big impact on high income earners. Pay attention, as this could impact your 2021 tax planning.

The Proposed Estate Tax

Senator Sanders introduced the “For the 99.5% Act” on March 25, 2021. As you can tell by the name, the bill is aimed at those Americans in the Top 0.5% of earners. It seeks to lower the federal estate tax exemption. Back in 2009, if an estate’s assets were above $3.5 million, you would owe the tax. Today, the number sits at $11.7 million, meaning three times the amount of assets in your estate was not subject to the estate tax. Note that these figures are doubled for joint filers.

In Sanders’s proposal, he lists the people who would be affected by this tax, so there’s no hiding this progressive tax and who it is meant for. Obviously, the plan is to tax the richest Americans. 99.5% of the country would not see higher estate taxes. According to the Joint Committee on Taxation, “this legislation would raise $430billion through 2031.”

The new plan would allow an exemption for the first $3.5 million of an estate ($7 million for married couples). Once you hit that mark, you will be taxed based on your assets. Up to $10 million, it’s a 45% tax. From $10 million to $50 million, there’s a 50% tax. From there, it’s a 55% tax up to $1 billion and 65% over $1 billion.

This change would be in effect for decedents who pass after December 31, 2021 and also apply to gifts made in 2022 and beyond. Of course, this legislation might not pass as is, but an estate tax of some kind could very well be in our future.

Other Considerations

Another part of the bill is to end so-called “dynasty trusts.” This allows someone to take money out of his or her estate and put in a trust. That trust is then passed on from generation to generation. There is no tax and there are no required distributions from it. There’s no estate tax to pay on those assets. There is a “rule against perpetuities,” which would limit how long you can do this. However, many states have gotten rid of this rule. Theoretically, you can pass on your fortunes for centuries, with little tax consequence.

The plan also seeks to strengthen the “Generation Skipping Tax.” One could bypass the estate tax by naming grandchildren as the beneficiary, instead of children. Thus, you skip a generation when you pass on. The Tax Cuts and Jobs Act doubled this exemption to over $11 million (doubled for couples). Obviously, your grandchildren would inherit a lot of assets without owing tax.

Further, a grantor retained annuity trust (GRAT) would now be required to have a ten-year minimum term with 25% value for the remainder interest. This is to prevent the donor from avoiding gift taxes by taking back the assets after a couple of years. The earnings left in the trust would go to the heirs tax free.

These, along with other loopholes, would be closed in the new legislation. Obviously, Senator Sanders wants to stop the trend of the “rich get richer.”


There will be workarounds to the estate tax, such as irrevocable trusts. As Mr. Bergman says, he’s not a big fan of the tax and there are other ways to tax the rich. Smart lawyers will always find a way to help their clients pay the least amount of taxes as they can.

Considering the state of the government, there is a strong chance that the rich will see higher taxes. An estate tax is just one proposal. Will it help? We don’t know for sure!

As always, thanks for listening. Checkout our Podcasts page for our different shows with hundreds of episodes. Catch us next week, where Adam talks about corporate taxes!


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