As property planning attorneys, we should keep forward of the legislative adjustments that may considerably affect our purchasers’ methods. The American Housing and Financial Mobility Act of 2024 (H.R. 9245), sponsored by U.S. Sen. Elizabeth Warren (D. Mass.), alerts a transformative shift in each housing coverage and the tax panorama. These adjustments can have profound implications for property planning, charitable giving and the monetary methods employed by high-net-worth people. Though we in all probability received’t know whether or not this laws has an opportunity of changing into regulation till after the Nov 5 election, it’s good to know what varieties of adjustments are being thought-about.
The Act goals to bolster reasonably priced housing by important federal funding. This laws isn’t only a housing initiative; it additionally serves as a automobile for substantial tax reform to deal with revenue inequality and be certain that wealthier people and firms contribute extra equitably to societal wants.
These reforms current challenges and alternatives for estate-planning professionals to reassess and optimize our purchasers’ property plans.
Key Legislative Modifications
- Discount in property and reward tax exemptions. The Act proposes a dramatic discount within the federal property and reward tax exemptions, decreasing them from the present $12.92 million per particular person to roughly $3.5 million. This discount would increase the variety of estates topic to federal property taxes, growing the necessity for cautious planning. The proposed progressive property tax charges—55% on quantities as much as $12.92 million, 60% on quantities between $12.92 million and $93 million, and 65% on quantities exceeding $93 million—would require us to revisit our purchasers’ property buildings to make sure tax effectivity and compliance.
- Introduction of a wealth tax. The introduction of a wealth tax targets people with internet property exceeding $50 million. The tax charges begin at 2% for property between $50 million and $1 billion and escalate to six% for these with property over $1 billion. For purchasers on this bracket, it’s important to discover methods that mitigate the affect of this new tax, reminiscent of leveraging lifetime gifting, charitable contributions and trusts.
- Modifications to capital positive aspects tax remedy. The Act proposes that capital positive aspects for people incomes over $1 million yearly be taxed as odd revenue. This alteration may considerably enhance the capital positive aspects tax charge for rich people, significantly these within the high marginal revenue tax bracket. Property planning methods ought to take into account easy methods to handle these potential will increase, presumably by the timing of asset gross sales or using tax-advantaged funding autos.
- Imposition of a monetary transaction tax. A brand new FTT on the buying and selling of shares, bonds and derivatives intends to curb market hypothesis whereas producing income to assist reasonably priced housing initiatives. Though the tax is comparatively small, it’s going to add up for purchasers with substantial buying and selling exercise, necessitating a assessment of funding methods and potential options that decrease publicity to this tax.
- Will increase in company tax. The Act additionally seeks to lift company tax charges, significantly for giant firms, probably affecting purchasers with important enterprise pursuits. These purchasers might have to regulate their enterprise buildings or discover various methods to keep up tax effectivity whereas complying with the brand new laws.
- Anti-tax avoidance measures for trusts. Particular provisions goal using trusts for tax avoidance. The Act introduces a 10-year minimal time period for grantor retained annuity trusts and removes generation-skipping tax exemptions for sure transfers. Moreover, new provisions beneath Inside Income Code Part 2901 would successfully finish using new grantor trusts by treating them as a part of the property. IRC Sections 2705(a) and 2705(b) additional restrict valuation reductions for family-controlled entities and non-business asset transfers, respectively. These adjustments will necessitate an intensive assessment of present belief buildings and the exploration of recent methods to protect the meant advantages for purchasers.
Strategic Property-Planning Issues
Given the breadth of those proposed adjustments, estate-planning attorneys should proactively advise purchasers on methods to mitigate potential tax liabilities. Key methods embody:
- Maximizing annual exclusion presents. Encourage purchasers to totally use their annual exclusion presents to successfully cut back the taxable property;
- Gifting and sale methods. To shift appreciation out of the property, take into account promoting property to deliberately faulty grantor trusts or spousal lifetime entry trusts;
- Accelerating charitable contributions. Shoppers could profit from accelerating deliberate charitable contributions by charitable the rest trusts or charitable lead trusts, thereby decreasing the property’s total tax burden whereas fulfilling philanthropic objectives; and
- Reviewing and restructuring trusts. Given the brand new restrictions on GRATs, grantor trusts, and valuation reductions, present belief preparations needs to be rigorously reviewed and probably restructured to align with the newest authorized panorama.
Namrita Notani is a senior affiliate at Spencer Fane LLP