Obama’s Budget Proposal Includes Estates, Gifts, and Trusts Taxation Changes

Obama’s Budget Proposal Includes Estates, Gifts, and Trusts Taxation Changes

The Treasury Department has just issued “General Explanations of the Administration's Fiscal Year 2016 Revenue Proposals,”  http://www.treasury.gov/resource-center/tax-policy/Pages/general_explanation.aspx.  In it, the President’s Administration includes a budget proposal that contains proposals to change estate, gift, and trust taxation.  Some of these proposals include:  1. imposing a capital gains tax on the transfer of appreciated assets by gift or upon death;  2. reverting the estate, gift, and GST rates and exemptions beginning in 2016 to the levels and rates that existed in 2009 (i.e., $3.5 million estate tax applicable exclusion amount and GST exemption, and $1 million gift tax exemption with a top estate and gift tax rate and sole GST tax rate of 45 percent);   3. requiring that grantor retained annuity trusts (“GRATs”) have a minimum length of 10 years and at the end of the term there be a minimum remainder value of 25 percent of the value of the transferred assets (or $500,000, if greater);  4. Making sales to grantor trusts moot by  treating such trusts as an incomplete transfer for gift and estate tax purposes;  5. limiting the protection from the GST tax afforded by allocation of GST exemption to 90 years;  6.  causing the lien from  estate tax deferrals for taxes attributable to interests in a closely-held business interest to continue throughout the deferral period;   7.  limiting the annual exclusion for gifts to most trusts, gifts of interests in passthrough entities, gifts of interests subject to a sales prohibition, and other transfers of property that cannot be liquidated immediately by the donee to $50,000 per year;  8. eliminating stretch IRAs by requiring non-spouse beneficiaries of a decedent's IRA or retirement plan to take inherited distributions over no more than five years;  9. Capping IRA and qualified plan contributions by prohibiting future contributions by a taxpayer with an IRA or qualified plan to $210,000 per year (indexed).

While it is always relevant to read the administration’s proposals,  with a Republican dominated House and Senate, the likelihood of any of this passing as actual legislation seems low.