ChesterNewMatter4thQtr2021 - 26

CCBA Feature
Estate Planning Alert
Proposed New Estate and Gift Tax Legislation
By Stephanie P. Kalogredis, Esquire
Lamb McErlane PC
n September 13, 2021, the U.S. House of
Representatives Ways and Means Committee
released a draft of its new tax legislation. It
includes, among other matters, proposed changes that
would directly affect federal estate tax and many of the
gifting vehicles upon which we have come to rely. Here
are some highlights of changes that may affect your
estate planning along with some actions you may want to
consider immediately.
1. Federal Estate and Gift Tax Exclusion.
The current federal estate and gift tax exclusion amount
is $11.7M per person. This exclusion was scheduled
to return to $5M (indexed for inflation) on January 1,
2026. The proposed legislation would accelerate the
reduction for estates of decedents dying and gifts made
after December 31, 2021, effectively cutting the exclusion
amount in half ($6,030,000 in 2022).
Consider making gifts before the end of 2021 to utilize the
current $11.7M exclusion amount.
2. Grantor Trusts.
Generally, when the grantor of a grantor trust dies,
the assets in the trust are not included in the grantor's
federally taxable estate. In addition, payment by the
grantor of income tax on the trust income during his or
her lifetime, was not considered a further gift to the trust
or to the trust beneficiaries. Until now, the exception has
been for revocable (grantor) trusts which are included
and taxed as part of the grantor's federally taxable estate.
The proposal would include in the grantor's taxable
estate the fair market value of assets held in any and all
grantor trusts as of the grantor's date of death and the
payment of income tax on the trust assets by the grantor
would be considered an additional gift to the trust. In
addition, distributions from the trust during the grantor's
lifetime to anyone other than grantor or the grantor's
spouse (assuming the spouse is a US citizen) would
be considered a completed (taxable) gift. Further, the
proposal would treat the termination of the grantor trust
status during the life of the grantor as a completed gift.
The proposal would apply to trusts created on or after
the date the law is enacted or to contributions made to an
existing trust on or after that date.
Consider terminating grantor trust status now or making
a gift to a Grantor Retained Annuity Trust (GRAT) or
Spousal Lifetime Access Trust (SLAT) instead of a
grantor trust.
26 | New Matter


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