US House Proposals Would Have Significant Impact on Estate Planning for High Net Worthers If Passed | Goodwin



The U.S. House of Commons Committee on Ways and Means tax proposals would have a significant impact on estate planning for high net worth individuals if passed. The gift, estate and GST exemption amounts would be reduced; grantor trusts would be subject to grantor estate tax and certain grantor trust benefits would be eliminated; and valuation discounts for certain non-business assets would be eliminated.



The United States House Committee on Ways and Means has approved a list of legislative proposals (the “House Committee Proposal”) to increase revenues. The House committee’s proposal includes a variety of proposed changes to the Internal Revenue Code (the “Tax Code”). This alert is not a full analysis of the House committee’s proposal, but rather focuses on a small number of proposals that, if passed, would affect high net worth taxpayers and their estate planning: (i) a reduction in exemption from federal inheritance and gift tax and generational transfer tax exemption amounts (“GST”), in force on January 1, 2022; (ii) the inclusion of any grantor trust created after adoption date in the donor’s estate, the taxation of distributions from such trusts that are attributable to contributions made after adoption date and the inclusion in the donor’s estate of a portion of these trusts attributable to the contributions made after adoption date; and (iii) and the elimination of valuation discounts for certain non-commercial assets, in force on the date of adoption. High-income taxpayers may wish to discuss with their financial advisers other proposals contained in the House committee’s proposal, including increases in top marginal income tax and long-term capital gains rates. and new limitations on IRA contributions.

The provisions outlined below are legislative proposals only – they still need to be approved by the United States House of Representatives and reconciled with Senate legislative proposals before a final bill can be sent to the President for signature.


The House committee’s proposal reduces the amount of the federal inheritance and gift tax exemption and the amount of the GST exemption by $ 10 million, indexed to inflation (currently 11, $ 7 million), to $ 5 million, indexed to inflation (estimated at $ 6.02 million in 2022). These reduced exemption amounts would affect gifts made on or after January 1, 2022, and estates of individuals who die on or after January 1, 2022.

High net worth individuals should consider donating now to take advantage of the current exemption amounts before they are repealed. However, to qualify for the current higher exemption, an individual’s lifetime donation total must exceed the new lower exemption amount (for example, if the exemption drops to $ 6.02 million, the total donations before the decrease must exceed $ 6.02 million to use the currently higher exemption). The IRS has said that donations made during the period when the higher exemption is in effect will be protected from federal inheritance and gift tax on the death of the donor.


The House committee’s proposal includes proposals that would eliminate the tax benefits of so-called “transferor trusts”.

Irrevocable settlor trusts are generally structured such that: (i) the donor is the “deemed owner” of the trust for income tax purposes and pays the income taxes of the trust; (ii) contributions to the trust are gifts completed for gift tax purposes, requiring either the use of a portion of the deemed owner’s remaining gift tax exemption, if any, either the payment of tax on donations by the donor at the time of the contribution; and (iii) the assets of the trust are not included in the donor’s taxable estate. Currently, sales and other transactions between a grantor trust and its deemed owner are not gain realization events for income tax purposes. Many types of trusts commonly used by estate planners are settlor trusts, including Spousal Life Access Trusts (“SLAT”), Irrevocable Life Insurance Trusts (“ILIT”), Trusts annuity retained by the settlor (“FREE”) and qualified personal residence trusts (“QPRT”), among others.

The House committee proposal contains the following proposals concerning (i) grantor trusts created on or after the promulgation of the House committee proposal and (ii) contributions made to existing trusts (or sales or exchanges with existing trusts) effective upon enactment of the House committee proposal:

  • The value of the assets of a grantor trust created and funded after enactment would be included in the taxable estate of the deemed owner and contributions to a pre-enactment grantor trust would result in part of that trust being included in the taxable estate. from the deemed owner. Since post-enactment contributions to grantors’ trusts prior to enactment will cause estate tax inclusion issues, contributions to existing ILITs for the purpose of paying insurance premiums or direct payment of premiums from insurance on behalf of the trust would be problematic. Donors of existing insurance trusts should consider whether there are steps they can take prior to enactment to reduce the impact on the trust if the House committee’s proposal becomes law.
  • Distributions from a grantor trust would be deemed to be gifts from the deemed owner to the beneficiary, thereby requiring the use of a portion of the remaining deemed owner’s gift tax exemption, if any, or requiring the payment of gift tax by the donor at the time of distribution, unless (i) the distribution is made to the owner’s spouse or owner, or (ii) the distribution fulfills a legal obligation of the owner. If the transferor trust status is terminated, the owner would be deemed to have made a taxable donation of the assets of the trust. This rule would only affect the grantor’s trusts prior to enactment to the extent of contributions made from the enactment of the House committee proposal. The effect of this proposal is to tax the transfer of an asset from the donor to a beneficiary of the trust when the value of the asset is likely to be higher (the time of the distribution of the trust) rather than lower (the time of contribution to the trust).
  • A sale or exchange between a grantor trust (other than the deemed owner’s revocable living trust) and its deemed owner would become a gain realization event for income tax purposes, requiring payment of income tax. capital gains by owner. Further, a grantor trust and its deemed owner will be considered “related parties”, thereby rejecting losses generated by the sale or exchange of assets between a grantor trust and its deemed owner.

If you plan to donate more than $ 6.02 million, less the portion of the exemption amounts that you have already used, you should consult your tax advisor and consider making those donations as soon as possible.


The House committee’s proposal would eliminate valuation discounts on transfers from certain entities that hold “non-business assets,” including cash, stocks, bonds, and real estate not used in a business or trade activity. active. These entities, such as family limited partnerships, would be valued as if the transferor had transferred the asset directly to the transferee at its fair market value. The House committee’s proposal includes a transparency rule stating that assets held by a subsidiary entity would be treated as belonging directly to the parent entity if the parent entity owns 10% or more of the subsidiary entity. This proposed change to the valuation rules would apply to all transfers made from the date of adoption..

This proposal would affect any donation or sale subsequent to the promulgation of an interest in an entity such as a partnership or limited liability company that holds non-business assets, including to a trust for the benefit of a spouse or descendants. of the donor. These entities would no longer be entitled to valuation discounts due to a lack of marketing or a lack of control.


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