Estate Planning Financial Planning

Proposed Estate and Gift Tax Changes

What you need to know about the proposed estate and gift tax changes in 2021

Due to the spending spree brought on by the COVID-19 pandemic, and President Biden’s infrastructure building plans, it is no surprise that Congress is focusing on increasing revenue. Most of the time, these proposals include suggestions for collecting more tax dollars. Congress introduced a new bill at the end of March referred to as the “For the 99.5 Percent Act” which proposes major changes to existing estate and gift tax laws.

The most significant proposed changes

Reduce the current $11.7 million federal estate tax exemption to $3.5 million

The estate tax exemption represents the amount each person is permitted to pass on free of any federal estate tax at death.1 In 2010, the exemption was raised to $5 million and later to $11.7 million in 2018. The Sanders/Whitehouse proposal calls for decreasing the exemption to $3.5 million and indexing it for inflation. If passed, this will result in more tax for many families at death. Those with an estate worth less than $3.5 million will not be impacted.

Reduce the current lifetime gift tax exemption to $1 million

The current federal gift tax law gives each person an $11.7 million lifetime gift tax exemption, which is the amount they can give away during their lifetime before any gift tax must be paid. If passed, all cumulative gifts made during life above the $1 million exemption would face a payable gift tax. Gifts made prior to enactment to the bill will be counted against one’s new $1 million lifetime exemption.2

Increase the rate of taxation on federally taxable estates

Current federal estate tax law states that estates which exceed the exemption are subject to tax at the flat rate of 40%. For example, a $20 million estate with have an estate tax payable of $3,320,000. If passed, the proposed increase on the rate of estate tax would move to 45% for estates valued between $3.5 million and $10 million, 50% for estates over $10 million but less than $50 million, 55% for estates between $50 million and $1 billion, and 65% for estates over $1 billion.1

Limit total annual exclusion gifts

Currently, there is not an amount limit to how many gifts of $15,000 per year a person can make, or the number of gifts a recipient can receive from donors. Under the proposed act, the annual exclusion is reduced to $10,000 per annum, and a donor is limited to giving away just $20,000 in total each year. Recipient’s can’t receive more than $10,000 in total a year.3

Limit generation-skipping transfer trusts to a term of 50 years

The generation skipping transfer tax (GSTT) is a tax imposed on transfers to skip beneficiaries. Under current law, individuals can transfer up to $11.7 million to a long-term trust that benefits successive generations of a family. The trust can go from generation to generation without ever being subject to estate or gift taxes. The proposed act caps the duration of trusts that would be tax exempt at fifty years. After fifty years, distributions from the trust to a person more than one generation removed from the grantor would be subject to the generation-skipping transfer tax (GST).3

When could this bill be enacted?

The projected earliest date that the Act could become law would be in October of 2021 as a part of the Budget Reconciliation process.

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Investment advisory services are offered through Trek Financial, LLC., an SEC Registered Investment Adviser.  Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.


  1. “Five Proposed Changes to the Estate and Gift Tax Laws,”, May 5, 2021.
  2. “Proposed Federal Estate and Gift Tax Legislation,”, April 2, 2021.
  3. “What You Need to Know About the For the 99.5% Act,”, April 14, 2021.

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