Congressman Sander Levin (D-MI), ranking member of the House Ways and Means Committee, and other Democrats recently introduced a bill, H.R. 4996, to adjust the estate, gift and generation-skipping transfer taxes to more “sensible levels.” Hence, the bill was given the catchy name, the “Sensible Estate Tax Act of 2016” (the “Act”).

Currently, a U.S. person may transfer up to $5,450,000 worth of assets during lifetime or at death free of gift, estate and generation-skipping transfer taxes (in addition to assets that may be transferred to a spouse or charity free of tax). For transfers of assets over the $5,450,000 exemption amount, a 40% flat tax is applied. This means that a married couple may collectively transfer $10,900,000 in assets during lifetime or at death free of tax. The current exemption amount is indexed for inflation and is scheduled to increase accordingly. Congressman Levin and his colleagues feel that this is not sensible and want to roll back the estate, gift and generation-skipping transfer tax laws to those in existence in 2009.

In 2009, the estate tax exemption was $3,500,000 per person with a 45% tax rate applied to transfers of assets at death in excess of $3,500,000. The gift tax exemption in 2009 did not equal the estate tax exemption and was only $1,000,000. This means that if a person transferred more than $1,000,000 worth of assets during their lifetime, then a 45% flat tax would apply.

A summary of the Act provided by the House Ways and Means Committee points out that as of 2013 less than one-fifth of one percent of persons dying in the United States owed estate tax.  The Joint Committee on Taxation estimates that the Act would generate approximately $161 billion over a ten year period with many more decedents’ estates paying estate taxes.

The problem with lowering the exemption amount and increasing the tax rate is that the value of many small family businesses will not come within the exemption amount and will be forced to pay a significant tax, which could impact future viability for these businesses.

Both Democratic presidential candidates, Senator Bernie Sanders and former Secretary of State Hillary Clinton, support reducing the estate tax exemption and increasing the estate tax rate. So, we’ll have to wait and see how this Act fares in light of the pending presidential election.

If you would like to discuss this or other trusts and estates issues, please contact the attorneys at Drucker Law Offices, 468 North Camden Drive, 2nd Floor, Beverly Hills, CA 90210, 310.285.5375 Tel, 310.444.9754 Fax, www.druckerlaw.com