As estate planning attorneys, we must stay ahead of the legislative changes that can significantly impact our clients’ strategies. The American Housing and Economic Mobility Act of 2024 (H.R. 9245), sponsored by U.S. Sen. Elizabeth Warren (D. Mass.), signals a transformative shift in both housing policy and the tax landscape. These changes will have profound implications for estate planning, charitable giving and the financial strategies employed by high-net-worth individuals. Although we probably won’t know whether this legislation has a chance of becoming law until after the Nov 5 election, it’s good to know what types of changes are being considered.
The Act aims to bolster affordable housing through significant federal investment. This legislation isn’t just a housing initiative; it also serves as a vehicle for substantial tax reform to address income inequality and ensure that wealthier individuals and corporations contribute more equitably to societal needs.
These reforms present challenges and opportunities for estate-planning professionals to reassess and optimize our clients’ estate plans.
Key Legislative Changes
- Reduction in estate and gift tax exemptions. The Act proposes a dramatic reduction in the federal estate and gift tax exemptions, lowering them from the current $12.92 million per individual to approximately $3.5 million. This reduction would expand the number of estates subject to federal estate taxes, increasing the need for careful planning. The proposed progressive estate tax rates—55% on amounts up to $12.92 million, 60% on amounts between $12.92 million and $93 million, and 65% on amounts exceeding $93 million—will require us to revisit our clients’ estate structures to ensure tax efficiency and compliance.
- Introduction of a wealth tax. The introduction of a wealth tax targets individuals with net assets exceeding $50 million. The tax rates start at 2% for assets between $50 million and $1 billion and escalate to 6% for those with assets over $1 billion. For clients in this bracket, it’s essential to explore strategies that mitigate the impact of this new tax, such as leveraging lifetime gifting, charitable contributions and trusts.
- Changes to capital gains tax treatment. The Act proposes that capital gains for individuals earning over $1 million annually be taxed as ordinary income. This change could significantly increase the capital gains tax rate for wealthy individuals, particularly those in the top marginal income tax bracket. Estate planning strategies should consider how to manage these potential increases, possibly through the timing of asset sales or the use of tax-advantaged investment vehicles.
- Imposition of a financial transaction tax. A new FTT on the trading of stocks, bonds and derivatives intends to curb market speculation while generating revenue to support affordable housing initiatives. Although the tax is relatively small, it will add up for clients with substantial trading activity, necessitating a review of investment strategies and potential alternatives that minimize exposure to this tax.
- Increases in corporate tax. The Act also seeks to raise corporate tax rates, particularly for large corporations, potentially affecting clients with significant business interests. These clients may need to adjust their business structures or explore alternative strategies to maintain tax efficiency while complying with the new regulations.
- Anti-tax avoidance measures for trusts. Specific provisions target the use of trusts for tax avoidance. The Act introduces a 10-year minimum term for grantor retained annuity trusts and removes generation-skipping tax exemptions for certain transfers. Additionally, new provisions under Internal Revenue Code Section 2901 would effectively end the use of new grantor trusts by treating them as part of the estate. IRC Sections 2705(a) and 2705(b) further limit valuation discounts for family-controlled entities and non-business asset transfers, respectively. These changes will necessitate a thorough review of existing trust structures and the exploration of new strategies to preserve the intended benefits for clients.
Strategic Estate-Planning Considerations
Given the breadth of these proposed changes, estate-planning attorneys must proactively advise clients on strategies to mitigate potential tax liabilities. Key strategies include:
- Maximizing annual exclusion gifts. Encourage clients to fully use their annual exclusion gifts to effectively reduce the taxable estate;
- Gifting and sale strategies. To shift appreciation out of the estate, consider selling assets to intentionally defective grantor trusts or spousal lifetime access trusts;
- Accelerating charitable contributions. Clients may benefit from accelerating planned charitable contributions through charitable remainder trusts or charitable lead trusts, thereby reducing the estate’s overall tax burden while fulfilling philanthropic goals; and
- Reviewing and restructuring trusts. Given the new restrictions on GRATs, grantor trusts, and valuation discounts, existing trust arrangements should be carefully reviewed and potentially restructured to align with the latest legal landscape.
Namrita Notani is a senior associate at Spencer Fane LLP
