On November 9, 2017, the Joint Committee on Taxation released the Description of the Chairman’s Mark of the Tax Cuts and Jobs Act (the “Chairman’s Mark”) that is scheduled for markup by the Senate Finance Committee on November 13, 2017. The Chairman’s Mark shows that the Senate’s concepts for tax legislation contain significant differences from the House’s Tax Cuts and Jobs Act that will need to be addressed in the reconciliation process.
With respect to the estate, gift, and generation-skipping transfer (GST) taxes, the proposal contained in the Chairman’s Mark is fairly simple. The current transfer tax regime is retained, and, as in the House’s Tax Cuts and Jobs Act, the basic exclusion amount is doubled from $5 million to $10 million and continues to be indexed for inflation occurring after 2011. These changes would take effect for decedents dying, and gifts and generation-skipping transfers made after December 31, 2017. However, unlike the House’s Tax Cuts and Jobs Act, the Chairman’s Mark does not propose to repeal the estate, gift, and GST taxes.
The Chairman’s Mark proposes to change the income tax rates applicable to estates and non-grantor trusts differently than under the Tax Cuts and Jobs Act. Estates and trusts have rate brackets of 15%, 25%, 28%, 33% and 39.6%. Under the Chairman’s Mark, the bracket thresholds for estates and trusts would be 10%, 25%, 35% and 38.5%, and under the House Cuts and Jobs Act, estates and trusts would see brackets of 12%, 25%, 35% and 39.6%. The income threshold at which the top rate applies to estates and trusts under either proposal would decrease by $200 to $12,500 and be indexed for inflation after 2018. The Chairman’s Mark, like the House’s Tax Cuts and Jobs Act, changes the way bracket thresholds are adjusted for inflation, replacing the consumer price index with the chained consumer price index. This change would lower the year-to-year inflation adjustments, causing individuals to pay more taxes over time.
The Chairman’s Mark, like the House’s Tax Cuts and Jobs Act, increases the charitable deduction threshold from 50% of an individual’s contribution base to 60% of an individual’s contribution base for gifts of cash to a public charity.
On November 9, 2017, the House Ways and Means Committee concluded its markup of the Tax Cuts and Jobs Act, passing the bill on a 24-16 party-line vote. A manager’s amendment to the bill would delay repeal of the estate tax by an additional year to December 31, 2024, which was needed to keep the bill within the fiscal 2018 budget resolution that allows for a $1.5 trillion tax cut. The Tax Cuts and Jobs Act will be considered by the full House the week of November 13, just as the Senate Finance Committee begins its markup of the Chairman’s Mark.
The Senate Finance Committee will begin marking up the Chairman’s Mark on Monday. In an estimate released November 9th, the Joint Committee on Taxation said the Senate Finance Committee’s tax reform proposal would cost just shy of $1.5 trillion over 10 years, coming under the threshold set by reconciliation instructions in the fiscal 2018 budget resolution. After the markup, which must keep the cost of the legislation at $1.5 trillion or less, the Chairman’s Mark will be reduced to legislative text and presented to the full Senate for a vote. Following Senate approval, the tax bill will be sent to a joint committee of House and Senate members who will work to create a compromise version. The compromise version will be sent to the House and Senate for approval. If Congress passes the bill, it will be sent to the President.
President Trump has proposed an aggressive timeline for the comprehensive tax legislation, asking for a bill to be passed by both chambers before Thanksgiving so that it may be signed into law by Christmas. As the tax legislation works its way through the reconciliation process, we will keep you informed of its progress and possible effect on the estate, gift and GST taxes.
About the Authors:
Matthew J. Ahearn is Board Certified in both Wills, Trusts & Estates and Tax Law by The Florida Bar Board of Legal Specialization. He has extensive experience in the areas of estate and business succession planning, asset protection planning, charitable planning and planning to minimize or avoid wealth transfer taxes. Mr. Ahearn handles all aspects of probate and trust administrations, including estate and gift tax audits before the Internal Revenue Service. He represents both beneficiaries and fiduciaries in contested matters. He may be reached at firstname.lastname@example.org.
Kyle C. Griffin practices in the areas of estate planning, probate and trust administration and taxation law. In addition, he assists clients with state and local tax issues, including sales and use taxes, corporate tax and property taxes. He may be reached at email@example.com.