Death Tax Repeal Act Introduced in House and Senate

Identical bills have been introduced in the U.S. House and Senate that would permanently repeal the federal estate tax and generation-skipping transfer (“GST”) tax.

Overview of Current Federal Estate, Gift, and GST Tax Laws

Under current law, the exemptions from federal estate taxes, lifetime gift taxes, and GST taxes are indexed for inflation on annual basis.  In 2015, the exemption from each tax is $5,430,000.  In addition, the top tax rate for each type of tax has been holding steady at 40 percent since 2013 and will remain at this rate in future years (barring any legislative changes).

Summary of Death Tax Repeal Act of 2015

On February 26, 2015, Rep. Kevin Brady (R – TX) introduced a bill “To amend the Internal Revenue Code of 1986 to repeal the estate and generation-skipping transfer taxes, and for other purposes,” to be known as the “Death Tax Repeal Act of 2015” (H.R. 1105). 

This bill currently has 135 Co-Sponsors (134 Republicans and one Democrat – Rep. Sanford D. Bishop, Jr. (GA)) and provides for the following:

·         Repeals the federal estate tax and the GST tax for estates of decedents dying, and generation-skipping transfers made, after the date of enactment;

·         Includes special rules for assets held in a qualified domestic trust before the date of enactment;

·         Retains the federal gift tax with a top rate of 35 percent;

·         Retains the current law regarding the lifetime gift tax exemption;

·         Retains the gift tax annual exclusion ($10,000 as adjusted for inflation at a minimum of $1,000 increments; the exclusion is $14,000 for 2015);

·         Provides that transfers in trust will be treated as taxable gifts, unless the trust is treated as a grantor trust; and

·         Retains the carryover basis rules for lifetime gifts and stepped-up basis for property transferred after death.

On March 25, 2015, Sen. John Thune (R – SD) introduced an identical bill in the Senate (S.860) (the Senate bill was introduced with 26 Co-Sponsors, all Republicans).  On that same date, the House Ways and Means Committee (the chief tax-writing committee of the House) voted to favorably report the bill (as amended) by a roll call vote along party lines of 22 yeas to 10 nays.

What is the Future of the Death Tax Repeal Act of 2015?

Is it possible that with a Republican-controlled House and a Republican-controlled Senate, the Death Tax Repeal Act will become law in 2015?  Not likely.  President Obama has already expressed his disapproval of the proposal and would most assuredly veto the bill if it ever came across his desk for signature.  Nonetheless, our firm will continue to monitor both state and federal bills that will affect your estate plan and your estate tax bill. You should be aware of these proposed changes because legislative changes can have a significant impact on your estate plan.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.