International Wealth & Asset Planning Blog: Significant Inheritance Tax Changes Proposed – Urgent Action May Be Needed To Lock Down


A new tax bill (the “Bill”) is gaining ground in Congress and could end your ability to remove assets from your taxable estate by making tax-free donations to a grantor trust.

To put it plainly, if you have not already created an irrevocable transferor trust that removes assets from your taxable estate and you want to reduce your taxable estate, the bill requires you to form such a trust or to make some changes. before it is enacted, which could happen as early as October. Otherwise, any transferor trusts formed subsequently will be included in your taxable area due to the bill.

If you happen to already have a grantor trust designed to remove assets from your taxable estate, this is a good start as these trusts will be vested in the bill, so the assets will continue to be excluded from your taxable domain. You, however, can not give or sell additional assets to a trust (or swap assets with the trust) once the bill is enacted without any part of that trust being removed from your taxable estate. Therefore, you must not only have an irrevocable “full gift” grantor trust that exists prior to the enactment date of the bill (again, which may be as early as next month), but you must also transfer all the assets provided for in the trust at that time.

As time is likely to be running out, you should consider placing assets in a transferor trust before the bill is enacted.

What is a taxable heritage? For now, an individual can have an estate of up to $ 11,700,000 without incurring federal gift or estate tax. The bill will likely reduce that threshold amount to about $ 6,000,000 (that is, to about half). Therefore, if you fund a properly designed grantor trust with $ 11,700,000 by October (or regardless of when the bill comes into effect), you will have successfully withdrawn an additional $ 5,700,000 from your domain. taxable (not to mention any resulting appreciation and income from it).

What if I can only transfer $ 6,000,000 or less? Does that mean I can’t get any benefit from acting now? On the contrary, donations of $ 6,000,000 or less before the enactment date of the bill can still be very rewarding. For example: you would still have a trust that allows you to take advantage of the current transferor trust rules, which continue to reduce your taxable estate by requiring you to pay taxes on the income of the trust (allowing the trust to grow fiscally – free at a more exponential rate); you can still add and sell assets to the trust tax-free before the bill is enacted so that the trust can grow in value and accumulate income free of any inheritance tax or generation transfers ; and depending on how the final law will be interpreted (since everything is still evolving), you can still do certain transactions with the trust tax-free (for example, paying rent to the trust for the use of its assets ). Pre-enactment sales to the trust may be able to further reduce inheritance taxes if, for example, your tax-free sale of assets to the trust is in exchange for an “auto remittance note.” -cancellable ”, which results in no inheritance tax, unless the new law ends up stifling this strategy). In any case, these advantages not be available if you do not form the trust until after the bill is passed.

What is the property tax rate? Currently, the inheritance rate is 40% of the assessed value of the estate. The bill would keep that rate intact. Once you have a taxable area, you could be at the mercy of whatever Congress determines the rate should be at all times. This may be a disturbing thought to some knowing that the government’s tax goals are to “tax the rich”.

Savings in inheritance tax. For the sake of argument and easy calculation, let’s assume that in the future, the year of your death, the estate tax rate is 50%. If you’ve managed to protect an additional $ 5,700,000 this month (even though those assets never appreciate for the rest of your life), you and your family avoid nearly $ 3,000,000 in inheritance taxes (and probably much more given the appreciation in the value of these assets and the related income accrued).

If you can afford to donate to a trust that benefits you and your family, maybe now is the time to get involved, especially since the opportunity to take advantage of the appraisal update. of any donation will also be significantly reduced under the bill.

Of course, the bill is not yet law and has yet to be approved by Congress and the President. Interim debates on the final adoption of the bill will surely lead to changes in how the final version of the bill will be interpreted once enacted, and could delay its passage, but the current proposals are the best indicator we have. for planning ahead. countryside.

However, whether or not the bill passes, whether in a form similar to its current proposal or with significant changes, action now would always be beneficial. The inheritance tax exemption is already expected to decrease in early 2026 under the current law, and even if the bill is not passed, the exemption could be reduced sooner by Congress. Additionally, the grantor’s trust provisions have also been on the radar for some time, although this is one of the first major bills amending these provisions. Therefore, if you act now, even if the bill does not pass, you will already be prepared for possible future changes, as well as the reduction in exemption already planned for in 2026. So no matter what happening with the bill, you will have locked in the benefits of the current law, which will eliminate the need to scramble to deal with any changes that may arise in the future.

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