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New York & North Carolina

Build Back Better Act May Tear Down Estate Planning


As part of the Build Back Better Act, the House Budget Committee recently released H.R. 5736, a House budget reconciliation bill that if passed, could restrict the ability of higher net worth individuals to pursue certain estate planning strategies now and in the future. The bill proposes several changes to the Tax Code, including adjustments to irrevocable trusts, estate tax, gift tax, and GST tax exemptions.

 H.R. 5736: Proposed Estate Planning Changes

  • Effective January 1, 2022, the $11,700,000 current federal estate tax exemption amount would drop to $5 million (adjusted for inflation).
  • Assets held in a revocable trust that is created on or after the legislation is enacted will be included in the tax exemption, upon the individual’s death, effectively preventing the trust from fulfilling its primary intention.
  • Proceeds from irrevocable life insurance trusts signed and funded on or after the legislation is enacted, would be subject to estate taxes upon the individual’s death.
  • Gifts to irrevocable life insurance trust signed before the legislation is enacted and funded after would be subject to estate taxes on a prorated portion of the insurance proceeds upon the individual’s death.
  • A 3% additional tax on high-income individuals and trusts and estates with income above $100,000.
  • The top tax rate for long-term capital gains and qualified dividends would increase from 20% to 25%.
  • The tax exemption on the sale of Qualified Small Business Stock would be reduced from 100% to 50%.
  • Mandatory distributions and contribution limits will be implemented for (>$10 million) retirement accounts above $10 million

What You Can Do Now

High net worth individuals should consider additional estate planning strategies to lock in the current $11.7 million exemption. In addition, existing trusts should be reviewed, and clients considering new gifting trusts are encouraged to create and fund them prior to the date of the new proposed legislation enactment.  

For more information about these proposed changes and how their tax consequences could affect your current and future estate planning strategies contact our office at (212) 946 – 4963.