The Build Back Better Act is moving through Congress, and it could very well be signed into law by the end of the year.
Understanding what this could mean for your estate plan is important, whether you’ve already a plan in place or haven’t yet started.
Key changes that could affect estate plans
If the Build Back Better Act becomes law, there are three major ways that it will affect federal estate and gift tax regulations (which means that it will, by default, have major consequences for estate planning):
- It will change the way that grantor trusts are taxed. Assets held in grantor trusts established after the Act begins will still be included in the grantor’s estate for the purpose of federal estate taxes. Plus, any assets added to previously established trusts may be included in the grantor’s estate for tax purposes.
- It will reduce certain tax exemptions. Currently, the federal estate, gift and generation-skipping transfer tax exemption is $11.7 million. If the Act becomes law, it will decrease to $5 million, adjustable for inflation.
- It will increase the limits on the estate tax valuation for certain kinds of real property (those used in farming, trades or businesses). For estates involving someone who dies after Dec. 31, 2021, the limitation will rise to $11.7 million.
These are by no means the only consequences the Build Back Better Act may have on your estate plan. Because of the potential for changes, you may want to start thinking about your estate planning strategy (with an eye toward limiting your estate taxes) earlier than you anticipated.