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Understanding How the 99.5% Act Affects You

On March 25, 2021, Senator Bernie Sanders and Senator Sheldon Whitehouse introduced the “For the 99.5 Percent Act” (referred to in this blog as the “99.5% Act”), a piece of legislation that would change federal estate and gift taxes. Here are the highlights you need to know:

  • Reduces the federal estate tax exemption from $11.7 million to $3.5 million
  • Reduces the gift tax exemption from $11.7 million to $1 million
  • Tax rates increase for gift, estate, and generation-skipping tax (GST) at a progressive rate

Reduces Federal Estate, Gift, and GST Tax Exemptions

Current exemptions:

The 99.5% Act would reduce estate, gift, and GST tax exemptions from the current exemption, which is $11.7 million, to $3.5 million ($7 million for married couples). Federal estate taxes apply to the transfer of property at death, but this tax only applies to families whose wealth exceeds a certain amount. This means at the time of an individual’s death, the executor must file for federal estate taxes if the estate exceeds the exempt amount (which right now is $11.7 million). Any estate valued above this number, under the current law, is taxed at a top rate of 40%. Also keep in mind that an estate does not just refer to property, but also includes all the deceased’s assets, including financial, real (i.e., land or other tangible property), jointly owned assets, and life insurance proceeds.


How this will change:

If the 99.5% Act is passed, the current estate tax exemption will be reduced to $3.5 million. Any estate valued above this amount must file federal estate taxes within 9 months of the individual’s death. The tax rates are also changing to a progressive tax rate, with the new rates as follows:

  • 45% tax rate for estates $3.5 million- less than $10 million
  • 50% tax rate for estates $10 million-less than $50 million
  • 55% tax rate for estates $50 million- less than $1 billion
  • 65% tax rate for estates $1 billion or more


One important thing to note is that the federal estate tax exemption level is doubled for married couples. So, a $3.5 million dollar exemption becomes a $7 million dollar exemption (and the same applies for the current exemption amount). This was passed under the Tax Cuts and Jobs Act and is set to expire in 2025.


Estate and gift taxes also allow a deduction for transfers to a surviving spouse, to support a minor child, or to a charity. Tax exemption levels are also portable between spouses, so if a spouse dies and has an estate of say $5 million, whatever the value of the estate ($5 million) minus the cap ($7 million for spouses) is transferred to the survivor; the surviving spouse’s exemption would increase by $2 million. There are certain special provisions granted to certain types of estates (such as family-owned businesses), although these laws can vary per state, so it is best to talk to a lawyer about if your family qualifies. If passed, these increases would go into effect at the start of 2022.


For gift taxes, the tax exemption will be reduced from $11.8 million to $1 million. This rule means that per donor, there is a lifetime tax exemption of $11.8 million. Any amount gifted beyond this amount would be subject to gift taxes at a set tax rate, which is currently taxed at 40%. Under the 99.5% Act, you would have to pay a gift tax on any amount over $1 million. This tax would also be changed to a progressive tax similar to that mentioned above. l


Annual Exclusion Gifts

The 99.5% Act also affects Annual Exclusion Gifts, which limits the total amount of money that can be gifted by a person per year without having to pay a gift tax. It also affects the amount of gifts a donor can make and the number of gifts a single recipient can receive per year. The current annual exclusion is $15,000 – so a donor can make a gift of $15,000 to an individual without having to pay a gift tax, and there is currently no limit on the amount of $15,000 gifts a donor can make. Say you have two children; you can gift each of them up to $15,000 dollars annually without having to pay taxes. The same rule about the tax exemption doubling for married coupled is applied here. If you are married, you and your spouse can gift $30,000 to each donee.


But this could change. The 99.5% Act plans to limit the number of gifts a donor can make from its current number, unlimited. A donor would be limited to giving $30,000 total per year for liquidated gifts (“liquidated” meaning a gift in a trust or entity interests). It would also limit the amount an individual could receive as a gift/s per year.


Grantor Trusts

Grantor trusts would also be affected by the 99.5% Act. A grantor trust is any trust where the grantor or other owner controls or directs the trust’s income or assets. If you have a “revocable trust,” this would apply to you. Many families have used grantor trusts to move their wealth outside the grantor’s taxable estate, while the owner would still pay the trust’s income taxes during their lifetime. After the owner’s death, the family would not pay as much money on the trust under estate taxes because this trust is “separate.” The 99.5% Act would change this. A grantor trust would no longer be separate from the estate, and thus a family would have to pay estate taxes at the time of the individual’s death, and the distributions from the grantor trust would be considered gifts, and thus the family would have to pay gift taxes.


There are many laws subject to change if the proposed “For the 99.5% Act” passes, but as of right now, it still has to make it through both the House and the Senate. If the legislation does pass, any changes proposed by the bill would go into effect December 31, 2021. If you have an estate of $3.5 million or more, now is the perfect time to start planning. Our estate planning legal team can provide legal counsel in trusts, gift tax laws, and wealth transfers, helping you plan for these changes so you are not blindsided if the bill passes. We specialize in revocable living trusts, estates, and representation in gift matters – all key components that are subject to change under the 99.5% Act. To get started on planning, or for more information, please reach out to us today by visiting our website at or by calling us at (805) 981-8555.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Cristian R. Arrieta, Lowthorp Richards McMillan Miller & Templeman, A Professional Corporation, 300 E. Esplanade Drive Suite 850, Oxnard, CA 93036