Estate Planning Year-End Review

Written by Alan Cox, Director of Estate/Trust Planning and Estate Settlement, and Mike Bleck, Senior Estate Planning Specialist

If all you wanted for Christmas was tax legislation, you were disappointed! What a year it has been monitoring the twists and turns of various estate planning and tax proposals and the potential impact. Let’s review where we have been this year and what may lie ahead in 2022.

Earlier this year there were a number of tax proposals floating around including the Made in America Tax Plan, American Families Plan, For the 99.5% Act, and Sensible Taxation and Equity Promotion (STEP) Act of 2021. Within these proposals, there were changes that would impact almost every taxpayer. They included tax rate increases on capital gains, high-income individuals, trusts, and corporations. These bills also included provisions to take away various tax benefits or strategies such as § 1031 exchanges, stepped-up basis at death, and grantor trusts among others.

Then, in September, the House Ways & Means Committee released its version of the bill which started the more intense negotiations within the House. Some of the items included in this proposal were:

Reduction of the Gift and Estate Tax Exemption
Limit on the Use of Grantor Trusts
Elimination of Discounting for Non-Business Assets
Increase in Top Marginal Tax Rate for Individuals
Increase in Capital Gain Rate
Increase in Corporate Tax Rate
Various Retirement Plan Provisions

On November 19, 2021, the House passed its final version of the bill, influenced by Senators Kyrsten Sinema and Joe Manchin. Many of the tax proposals in the House Ways & Means Committee bill were stripped from the final House version passed. Instead, the House bill primarily included tax increases on the mega-wealthy and instituted a corporate minimum tax.

The House bill was taken up by the Senate with all eyes on Senators Sinema and Manchin. The hope was that a bill would be passed by Christmas, but on December 17, 2021, President Biden said in a statement, “My team and I are having ongoing discussions with Senator Manchin; that work will continue next week. It takes time to finalize these agreements, prepare the legislative changes, and finish all the parliamentary and procedural steps needed to enable a Senate vote.” [1]

And then the bombshell came two days later, on Sunday, December 19, 2021, when Senator Manchin announced that he was a “no” vote on the Build Back Better bill as currently drafted. He stated:

“My Democratic colleagues in Washington are determined to dramatically reshape our society in a way that leaves our country even more vulnerable to the threats we face. I cannot take that risk with a staggering debt of more than $29 trillion and inflation taxes that are real and harmful to every hard-working American at the gasoline pumps, grocery stores, and utility bills with no end in sight. The American people deserve transparency on the true cost of the Build Back Better Act. The non-partisan Congressional Budget Office determined the cost is upwards of $4.5 trillion which is more than double what the bill’s ardent supporters have claimed. They continue to camouflage the real cost of the intent behind this bill.”[2]

On Monday, December 20, 2021, Senator Manchin outlined his demands for the basis of a new plan which included reducing the cost to $1.75 trillion and extending benefit programs to 10 years, removing the budget gimmick employed in the original bill to include more programs but have them expire so the full cost of the program is not factored into the cost of the bill. On December 21, 2021, President Biden indicated a willingness to work with Senator Manchin. It will be a delicate balance in crafting a bill that both the Senate can pass and also go back to the House and be passed.

So where does this leave us as we head into 2022? As with any year, we realize that the tax landscape can change. Financial planning decisions should be driven based upon analyzing your goals and objectives and not driven by pending tax law changes.

Furthermore, we know that certain tax benefits are set to expire on December 31, 2025, such as the decrease in the gift and estate tax exemption. We suggest you talk to your advisors about this now and so they can analyze whether implementing a gifting strategy is consistent with your overall estate planning goals. As we round out the year, we encourage you to focus on your overall estate planning goals and objectives and less on the pending tax legislative changes.

Please talk to your Blue Trust advisor to discuss your specific situation and strategy. If you don’t have a Blue Trust advisor but would still like to speak with us, please contact us at 800.987.2987 or email blog@bluetrust.com.

[1] Hill Tax Briefing: Senate Democrats Punt Economic Plan to 2022, December 17, 2021.

[2] Joe Manchin Statement on Build Back Better Act, https://www.manchin.senate.gov/newsroom/press-releases/manchin-statement-on-build-back-better-act

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