Most $15,000 Annual Gifts Per Donee Would Still be Allowed

  • Agribusiness
  • 4/8/2021

Not all of the details of the 99.5% Act are as bad as may be mentioned in the media. We review one of those sections.

We earlier this week did a post on the “for the 99.5% Percent Act” introduced by Senator Bernie Sanders.  In the post we indicated that the annual gift tax exclusion would be curtailed.  However, as we do further research on the language of the Act, the curtailment is not as bad as it first seems.

First, the change to $10,000 per donee is not really a change.  The current law in Section 2503(b) uses $10,000.  The current inflation adjustment is further in that section and under this Act, that adjustment would remain.  Therefore, this Act continues to keep the annual gift exclusion at the same amount ($15,000 for 2021 and will adjust to $16,000 soon).

Second, the clause indicating that annual gifts will be capped at twice the annual amount per donor instead of per donee is only for certain gifts.  We listed those gifts in our previous blog.  This primarily relates to any transfer to a trust or transfer of closely held entities such as a farm.

This means that a donor could only gift $30,000 (2 times current $15,000 annual gift exclusion) each year into a trust or transfer units or stock in a closely held entity.  However, if the STEP Act is enacted at the same time, a donor could simply gift cash to multiple donees and then have the donee purchase the units or stock from the donor.  Remember, under the STEP Act it does not matter if you sell or gift interests, each transfer will be subject to the transfer tax (assuming you have made cumulative gifts of at least $100,000).

Many farmers have set up irrevocable life insurance trusts for the benefit of their kids or grandkids.  Cash transferred directly to the trust to pay life insurance premiums would likely be subject to the $30,000 annual exclusion, but a farm couple could annually gift $60,000 to the trust.  They could also directly give cash to the kids (or vice-versus) who then could transfer cash into the trust to pay the premium.

Sometimes the heading on an Act such as this one can cause a great amount of angst but digging into the details, we sometimes find it may not be as bad as originally thought.

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

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