Recently there have been bills introduced in Congress and proposals from the Biden Administration to make significant changes to federal estate, gift and income tax laws.

The “For the 99.5% Act” was introduced in the Senate by Senator Bernie Sanders and others in late March. It proposes to decrease the federal estate tax exemption to $3.5 million and the federal gift tax exemption to $1 million. It also proposes to increase the estate and gift tax rates to 45%, and higher for estates valued at more than $10 million. The bill, if passed, would also eliminate or limit other strategies used to reduce estate taxes, including valuation discounts for interests in entities, grantor retained annuity trusts (GRATs), and planning with grantor trusts.

Also in late March, the “Sensible Taxation and Equity Promotion” (STEP) Act was introduced by Senator Chris Van Hollen and others, and proposes to eliminate the step-up in tax basis at death. Assets transferred by gift or at death will instead give rise to capital gains taxes for gains over $1 million. The STEP Act, if passed, would apply retroactively to the beginning of 2021 which complicates 2021 gifting decisions. A similar bill introduced in the House by Congressman Bill Pascrell would not apply retroactively.

More recently President Biden has released his Administration’s 2022 revenue proposals – the American Families Plan. Beginning in 2022, the Administration proposes to eliminate the step-up in tax basis at death and instead treat transfers of appreciated property by gift or at death as realization events giving rise to capital gains taxes, with a $1 million per person exclusion. The Administration also proposes to increase the top marginal income tax rate and capital gains tax rates. Notably, Biden’s proposals do not include proposed changes to estate, gift or GST exemption amounts or tax rates.

Most likely, these bills and proposals will not take effect in their current form. Yet, we are likely to see significant federal tax law changes in the coming year. The good news is that changes are not likely to take effect until late 2021 or early 2022. This means there is time for planning – including gifting assets – for those who want to act this year.