Right here come the taxes…. An Evaluation of the Proposed Property and Millionaire Taxes and Property Taxes in Connecticut and New York

This is a press release to the Greenwich Sentinel. It was not written by Greenwich Sentinel staff and was not verified for accuracy by the Greenwich Sentinel.

According to Cummings & Lockwood, with the recent passage of the US bailout, President Biden's $ 1.9 trillion stimulus package, it is natural to consider what kind of revenue-generating legislation might be introduced over the next few months and years Is Going To Pay For What Three separate rounds of stimulus packages have now been run to tackle the challenging economic conditions created by the Covid-19 pandemic.

The Biden government also has plans to pass a major infrastructure bill that would also require the raising of significant additional funds.

At the local level, many states are also striving for new tax laws in order to offset the budget deficits, although the state budgets are being relieved somewhat by the American rescue plan.

In a short time, Congress and state legislatures are likely to start debating key tax laws. The following is a selected overview of possible and proposed federal and state tax laws:

Tax proposals from President Biden
After the US bailout was signed, many news outlets reported that President Biden turned his attention to various tax proposals that were first announced during his presidential campaign. On transfer taxes (estate, gift, and generation transfer taxes), President Biden had proposed lowering federal tax exemptions, adjusted for inflation, to $ 5,000,000 ($ 10,000,000 per couple), though the most widespread figure is now a return to law As it existed in 2009, an estate tax exemption amount of $ 3,500,000, of which only $ 1,000,000 is eligible for gift giving during life, is the likely goal. The proposed reduction in exemptions could also go hand in hand with a proposed increase in estate and gift tax rates from 40% to 45%.

President Biden has also proposed that the "toughened basic rule" be lifted after death. Under current law, valued assets included in their taxable estate that are subject to estate tax are given a new cost base for capital gains tax purposes at the date of death so that they are available for sale on the day after death. No capital gains taxes are payable. For those covered by the current exemption, this means that many families do not pay capital gains or estate taxes on inherited wealth. Eliminating this "reinforced base" rule would be a major change in the transfer tax system. There is also a suggestion that a Biden tax proposal could include a provision that all unrealized gains on death would be taxed as if the assets were being sold, thereby generating capital gains taxes on death in addition to potential estate taxes if the taxable estate were to die Value exceeds exemption amounts.

Possible tax changes are not limited to estate and gift taxes. Quite a few proposals target various tax cuts introduced by the Tax Cut and Employment Acts passed by the Trump administration in 2017 (i.e., the return of the highest marginal income tax rate, earning from 37% over $ 400,000 per year to 39.6% ).

Last but not least, it is proposed to tax long-term capital gains for those who report annual income greater than $ 1 million at the same rate as ordinary income (the 39.6% rate mentioned above). This is a significant departure from existing tax law, as long-term capital gains have historically been taxed at rates between 15 and 20%. It remains to be seen whether some or all of these proposals and others not discussed above will be incorporated into proposed legislation before Congress. However, it is important that all taxpayers consider the impact these changes would have on them and their families and that they should consider raising such concerns with their estate planning attorney or other tax advisor.

Senator Warren's Wealth Tax – "The Ultra-Millionaire Tax Act"
US Senator Elizabeth Warren (D-Mass.) Recently introduced a bill called the Ultra-Millionaire Tax Act, which aims to impose an annual tax on households and trusts with a net worth of more than $ 50 million to raise. The bill is co-sponsored by several other Democratic Senate members, including Bernie Sanders (I-Vt.), And is described by its proponents as an important response to the growing inequality of wealth in the United States. The law proposes the following new tax structure:

A 2% annual tax on the net worth of households and trusts between $ 50 million and $ 1 billion; and

An annual surcharge of 1% (total 3% tax) on net worth of households and trusts over US $ 1 billion.

The bill also includes a provision that doubles the overall tax from 3% on households and trusts with net worth more than $ 1 billion to 6% each year that laws are in place that establish a public, universal health care system .

It is important to note that this new "wealth tax" would co-exist with the existing estate and gift tax infrastructure and it is possible in the year of death that both this wealth tax and an estate tax could be levied on the estate of a deceased if the estate was above the corresponding exemption amounts.

The bill apparently suggests that the introduction of such a wealth tax could lead individuals to consider giving up their U.S. citizenship in order to evade the tax. Accordingly, the bill would impose an exit tax of 40% on such a waiver of citizenship.

Finally, the bill requires at least 30% of taxpayers 'taxpayers' audits each year, and provides significant penalties for underreporting assets and taxes due.

Connecticut Real Estate Tax Exemption
As of January 1, 2021, the inheritance tax exemption for Connecticut residents who die in calendar year 2021 is $ 7.1 million. The exemption is expected to increase back to $ 9.1 million on January 1, 2022, and ultimately equal the federal amount of exemption (currently $ 11.7 million, adjusted for inflation annually) on January 1, 2023.

However, recently introduced legislation could change that timetable and reverse course for a derogation that is more in line with the lower derogations seen in previous years. While several bills have been introduced (all still on committee), the common theme is reducing inheritance tax exemptions and removing the current $ 15 million limit on inheritance tax payable to the state of Connecticut on a deceased's estate.

Various reports suggest that the Democratic majority in state lawmakers prefers to roll the inheritance tax exemption back to $ 2 million, which is the level at which it was set for the majority of the previous decade. There is at least one proposed invoice that would keep the current exemption amount. However, there appears to be consensus among the proposed bills to lift the $ 15 million cap on estate tax payments.

Finally, it should be noted that Connecticut's exemption for tax year 2023 and later is currently set to coincide with the federal exemption every year. Accordingly, changes that could be made at the federal level could directly affect the Connecticut exemption amounts without further state legislative action. In the absence of measures at the federal or state level, the increased exemption introduced in 2017 under the Law on Tax Reductions and Employment will "disappear" on January 1, 2026. At this point, a lower exemption from the federal government of $ 5 million (adjusted for inflation) would return.

Governor Ned Lamont recently stated that he does not support "broad-based" tax increases, but it is unclear whether his opposition extends to reducing inheritance tax exemptions or whether it has recently been more tailored to the proposed statewide property tax and other taxes in introduced in the current legislative period.

New York Estate Taxes
As of January 1, 2021, the inheritance tax exemption for New York residents who die in the 2021 calendar year is $ 5,930,000. However, this figure remains somewhat misleading in practice. The New York estate tax is colloquially known as the "cliff tax" because the taxable estate is more than 105% of the current exemption amount (or $ 6,226,500 or more for 2021) and the tax is not available subject to estate tax. Currently, the maximum estate tax rate for land over $ 10,100,000 is 16%. Laws were recently introduced that would change this maximum rate to 20%. This rate hike is part of a broader set of proposed new taxes and tax calculation formulas that will be charged to run the state budget for the coming fiscal year.

What should I do
While it is certainly difficult to plan in the face of the unknown, many wealthy individuals are taking advantage of the historically high exemptions while they still exist. This remains a good tactic, especially while these proposed changes are in the early stages of implementation. For those taxpayers considering various strategies to anticipate the possibility of material changes in federal and state tax laws, now is a good time to consult a Cummings & Lockwood LLC estate planning attorney or other trusted advisor.

About Cummings & Lockwood LLC
Founded in 1909, Cummings & Lockwood provides sophisticated legal assistance to individuals, families, family offices, related companies, other trading companies, and nonprofits. Through their offices in Stamford, Greenwich and West Hartford, Connecticut as well as Naples, Bonita Springs and Palm Beach Gardens, Florida, the firm's attorneys provide a wide range of legal services including trusts and estates, corporate and finance, litigation and arbitration commercial and residential real estate. For more information on Cummings & Lockwood, please visit our website at www.cl-law.com.