Sens. Warren, Sanders Urge Crackdown on Trusts
Ultra-wealthy investors‘ “wealth managers are bragging” about the effectiveness of their “tax dodging tricks,” the senators write.
Top Democratic senators urged Treasury Secretary Janet Yellen on Tuesday to crack down on the use of trusts by ultra-wealthy Americans to dodge paying their fair share in taxes.
“Billionaires and multi-millionaires use trusts to shift wealth to their heirs tax-free, dodging federal estate and gift taxes,” Sens. Elizabeth Warren, D-Mass., Chris Van Hollen, D-Md., Bernie Sanders, I-Vt., and Sheldon Whitehouse, D-R.I., told Yellen in a letter.
They are doing this, the senators write, “in the open: their wealth managers are bragging about how their tax dodging tricks will be more effective in the current economy.”
The senators state the wealthiest millionaires and billionaires “use increasingly complex tax planning to exploit trusts and avoid paying taxes, including through using grantor retained annuity trusts (GRATs), other grantor trusts, and perpetual dynasty trusts.”
Treasury, the senators said, “can and should exercise the full extent of its regulatory authority to limit this blatant abuse of our tax system by the ultra-wealthy.”
Said the senators: “Only the richest American families are required to pay taxes when they pass on their massive wealth, with a whopping $25.84 million exemption for married couples. These transfer taxes include the estate tax, gift tax, and generation-skipping transfer tax and provide a small check on the growing wealth gap and help fund public infrastructure for all Americans.”
But today, the senators told Yellen, “less than 0.1% of American pay the estate tax — largely because of increases to transfer tax exemptions passed by Republican tax laws in 2017, which doubled the gift and estate tax exemption for married couples from $11.1 million in 2017 to $22.8 million in 2019 in a massive giveaway to the ultra-wealthy.”
The senators called on Treasury to take these and other steps to address what they called the abuse of GRATs and other grantor trusts:
- Require GRATs to have a minimum remainder value. President Joe Biden’s budget proposes requiring a GRAT’s remainder interest value — the amount left in the trust to pass to beneficiaries — of at least 25%. Treasury could use its regulatory authority to mandate such a threshold, the senators suggest.
- Reissue family limited partnership regulations. An FLP is a structure that allows a family business to transfer wealth with a valuation discount in order to reduce or avoid transfer taxes. A regulation floated during the Obama administration and withdrawn by the Trump administration greatly reduced this discount. “Treasury and the IRS should reissue these important regulations to end this abuse of family limited partnerships,” the senators wrote.
- Clarify that intentionally defective grantor trusts are not entitled to stepped-up basis. “Treasury should use its regulatory authority to issue a regulation or revenue ruling confirming the consensus view that IDGT assets that are not part of an estate for estate tax purposes do not receive stepped-up basis when the grantor dies,” the senators wrote.
Pictured: Sen. Elizabeth Warren, D-Mass. (Photo: Graeme Jennings/Bloomberg)