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Bernie’s New Estate Tax Proposal and What It Would Mean

By: Barry E. Haimo, Esq.
August 1, 2019

Estate tax proposal

Bernie’s New Estate Tax Proposal and What It Would Mean

“Tax-the-rich” proposals are seemingly being drawn up and put forth left and right by everyone sitting anywhere left of the political dial. The latest iteration comes from Bernie Sanders in the form of proposed tax hikes to the tune of five to 32 percent. He’s calling U.S. Senate Bill 309 the “For the 99.8% Act.”

It brings up a lot of questions:

  • How does it work?
  • What would it mean if it were enacted?
  • What are the chances of it actually happening?

First, though, let’s talk about that title.

What Does That Mean, For the 99.8 Percent ?

The heart of this bill is that it would leave the vast majority of estates untaxed while graduating tax rates for a tiny cross-section of the population – the very richest Americans. According to the Urban-Brookings Tax Policy Center, only one in 700 estates ever pay a dime of this type of federal tax. 

The goal of the program is two-fold: one, it would raise revenue by taking money from the very richest estates in the country, and two, it could help deter the amassing of “dynastic” wealth.

Bottom line? The vast majority of the population (approximately 99.8 percent) won’t be affected by this bill. 

However, if you count yourself among that highest 0.2 percent, it could mean big changes in your estate planning strategies.

Let’s break it down.

The Tax Proposal’s Primary Provisions

Currently, if your estate’s valuation falls below $5 million ($10 million through 2025), you are exempt from paying an estate tax prior to funds and property changing hands. Sanders proposes to drop that threshold to $3.5 million.

So, even if the Act were signed into law, you won’t be affected unless your estate is worth $3.5 million or more. Here’s how the bill breaks out tax rates for everyone above that line. 

  • Values between $3.5 million and $10 million would face a 45 percent tax rate (a five percent increase from today).
  • Portions of an estate valued at $10-$50 million will be subject to an additional 50 percent tax. 
  • A 55-percent tax will be applied to portions between $50 million and $1 billion. 
  • And a 77 percent tax will be levied on any amount in excess of a billion dollars.

To offer a point of reference, this strategy is not a new one. Tax rates in the 1920s and 1940s reached 77 percent on the largest estates in an effort to prevent the concentration of wealth among only a few people, which sounds very familiar.

The legislation also changes the way goods and services taxes work, and places limits on valuation discounts.

What The Bill Could Mean for Estate Planning

Firstly, the Senate is currently controlled by the Republican party, so we’ll start with this: not much is likely to change… for the time being, anyway.

Of course, depending on which way the pendulum swings in 2020, Bernie’s new estate tax proposal is just the type of approach to taxation that will require those of substantial means to change their estate planning strategies.

“Tried and true” strategies for passing valuables and money through trusts would need to be re-evaluated. And what types of property and products families invest in may have to change, for instance. 

For questions about how this kind of tax could affect your estate, contact us, and we’ll be happy to review with you.

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com 
LinkedIn: http://www.linkedin.com/in/bhaimo
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