On September 13, 2021, the Congressional House Ways and Means Committee introduced legislative tax proposals to help fund the House’s proposed $3.5 trillion stimulus package. A brief summary of the
trust and estate and retirement asset taxation proposals included within it follow:
1. Trusts and estates with taxable income of over $12,500 (adjusted for inflation) would be taxed at a 39.6% rate, increased from the current 37% rate.
2. Trusts and estates would be taxed on capital gains at a top rate of 25%, increased from the current 20% capital gains tax rate.
3. Trusts and estates with adjusted gross income (“AGI”) over $100,000 would be subject to a 3% surcharge on their income.
4. High-net-worth individuals would be subject to this additional 3% surcharge tax on their income on AGI greater than $5 million (for married filing jointly) or $2.5 million (for single taxpayers or married filing separately).
5. The federal estate tax exemption would return to the 2010 amount of $5 million (increased for inflation each year thereafter) from its current $11.7 million. In contrast, the value reduction for qualified real property used in a family farm would increase from $750,000 to $11,700,000.
6. In contrast with current federal tax law, an intentionally defective grantor trust would be treated as part of the grantor’s taxable estate for estate tax purposes.
7. Valuation discounts for lack of marketability or for minority ownership would not apply to the transfer of non-business assets. Currently, the IRS and courts permit such discounts to the fair market value of property for gift tax purposes.
8. Taxpayers with IRA or 401k (or other employer contribution plan) assets greater than $10,000,000 would no longer be permitted to contribute to their Roth or traditional IRAs, if their AGI exceeds $450,000 (for married filing jointly taxpayers) or $400,000 (for single taxpayers).
9. Employers would have to report to the IRS 401(k) balances that are greater than $2.5 million.
10. Taxpayers with AGI of $400,000 or more (or $450,000 or more in the case of married filing jointly taxpayers) would no longer be able to convert tax-deferred IRA or 401k account balances to Roth IRA accounts.
11. Taxpayers would no longer be able to use IRA assets to invest in private securities offered only to accredited investors.
