Revised Build Back Better Bill Excludes Major Estate Tax Proposals
Revised Build Back Better Bill Excludes Major Estate Tax Proposals
In late October, the House Rules Committee released a revised version of the proposed Build Back Better Act Reconciliation Bill. Most of the major proposals that would create substantial changes in the estate planning arena were not included. Specifically, the following did not make it into the revised version of the bill:
Accelerated Reduction of the Estate, Gift, and GST Exemptions. Under the current tax laws, the estate, gift, and generation-skipping transfer tax exemptions are already scheduled to be cut in half from the current level of $11.7 million (indexed for inflation), effective on January 1, 2026. The prior version of the Build Back Better bill included an acceleration of this reduction of the exemptions to January 1, 2022. The revised bill does not include this acceleration provision.
Grantor Trust Changes. A grantor trust is a common estate planning tool that, when set up properly, can provide significant estate and income tax advantages for the individual who created the trust (the “grantor”). The prior version of the Build Back Better bill made substantial and far-reaching changes to the taxation of grantor trusts and transactions between the grantor and the trust, which would have virtually eliminated the use of grantor trusts as an estate planning tool. The revised version of the bill is silent regarding grantor trusts.
No Income Tax on Unrealized Gain. Under prior tax proposals, the gift of appreciated assets during lifetime or the transfer of appreciated assets at death was to trigger income tax on the unrealized gain or appreciation. These changes are not included in the current terms of the Build Back Better bill. There are also no other changes affecting the step-up in basis rules under the bill.
Loss of Entity Discounts. Discounts related to valuation of minority interests in closely held businesses transferred during lifetime or at death are a commonly used estate planning technique for reducing gift and estate taxes on transfers of those types of entity interests. Under the prior version of the Build Back Better bill, valuation discounts for “passive assets” (such as marketable securities) owned by a closely held business were to be eliminated. The revised version of the bill, however, does not include these provisions restricting the use of valuation discounts.
Although these prior, major tax proposals are not included in the current version of the Build Back Better Reconciliation Bill, the House is still considering the terms of the bill, and additional changes could be made. The House is not expected to vote on the Build Back Better bill until after it receives the Congressional Budget Office analysis of the bill’s impact. If the House passes the legislation, it will go to the Senate for consideration, where it could, of course, be changed further before adoption in that chamber. In light of all of this uncertainty, it remains to be seen what the legislation may include, if it is finally adopted.