In the previous issue of Solutions, we discussed recent changes to the estate and gift tax exemption as a result of the Tax Cuts and Jobs Act (TCJA). These changes created a limited window of opportunity to take advantage of unprecedented estate and gift tax exemptions, potentially saving taxpayers and their families millions in estate taxes. This limited window came in the form of the doubling of the estate and gift tax exemption to an historic high of $11.4 million per individual.

In this issue, we want to update you on two proposed changes that may close the window of opportunity sooner than expected.

First, on January 31, 2019, legislation was introduced to establish a progressive estate tax on taxable estates of $3.5 million or more, with a top estate tax rate of 77%, equal to the highest estate tax rate in US history (1941-1976).

Specifically, the legislation proposes the following:

For estates between:           Proposed Tax Rate
$3.5 million to $10 million                    45%
$10 million to $50 million                     50%
$50 million to $1 billion                        55%
Over $1 billion                                     77%

Second, on March 26, 2019, California Senate District 11 Representative Scott Wiener introduced SB 378 which seeks to reestablish an estate tax in California for decedents dying after December 31, 2020.

California’s previous estate tax was commonly called a “pick up tax” and was equal to the amount of a credit available for state death taxes on a decedent’s federal estate tax return. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) gradually phased out this federal credit, effectively eliminating the estate tax in California in 2005.

SB 378 would impose a 40% tax rate on estates above $3.5 million. The new estate tax would be phased out at the current federal estate tax exemption amount of $11.4 million, thus avoiding double taxation.

If SB 378 is passed by the Legislature, it would appear on the November 2020 ballot and be enacted upon voter approval. Both of these proposals would also reduce the gift tax exemption from its current $11.4 million down to $3.5 million, thereby closing the window of opportunity that was opened by TCJA.

If you have questions or would like more information, please contact Kevin Wiest at [email protected] or 844.4WINDES (844.494.6337).