The U.S. Senate is considering a new tax bill often referred to as the “99.5 % Act,” introduced by Senator Bernie Sanders. The proposal would dramatically reshape estate‑ and gift‑tax rules for high‑net‑worth individuals and could affect both current residents and those planning to renounce U.S. citizenship.
Core changes to estate and gift taxation
| Current rule | Proposed change |
|---|---|
| Estate‑tax exemption – $23.4 million per individual (subject to sunset in 2025) | Reduced to $3.5 million per individual (≈ $7 million per married couple) |
| Lifetime gift‑tax exemption – $12.92 million (unified credit) | Reduced to $1 million per individual (≈ $2 million for married couples) |
| Estate‑tax rates – 40 %‑45 % on amounts above the exemption | Proposed tiered rates:
|
The bill also prevents the stacking of the reduced estate exemption with the lowered gift exemption, effectively limiting the total tax‑free transfer amount to roughly the new estate exemption.
New restrictions on wealth‑preservation tools
The legislation would curtail several planning techniques that high‑net‑worth individuals currently use:
- Valuation discounts for interests in family businesses or real estate would be limited, reducing the ability to lower taxable values.
- Grantor Retained Annuity Trusts (GRATs), grantor trusts, and similar structures would face tighter rules.
- Annual exclusion gifts to trusts would be restricted, further narrowing the scope for tax‑free wealth transfers.
Impact on non‑U.S. persons with U.S. assets
Even non‑citizens who own U.S. assets—such as real estate, brokerage accounts, or cash—could be subject to the estate tax under the new rules. The proposal expands the definition of “U.S. situs” assets, meaning that foreign investors with significant U.S. holdings may face a 45 %–65 % tax on the value of those assets at death.
Consequences for expatriates and “covered expatriates”
- The covered expatriate threshold (net worth ≥ $2 million) remains unchanged and is not indexed for inflation, keeping the bar low for those who could be subject to the exit tax.
- The act would make it harder to use gifts or trusts to lower the value of assets before expatriation, potentially increasing the exit‑tax liability for those who renounce U.S. citizenship.
- Because the bill limits valuation discounts and other planning tools, the government could effectively set the appraisal value of businesses, artwork, jewelry, and other high‑value items.
Practical considerations for wealth owners
- Review estate plans now – The current exemption is slated to sunset in 2025; early adjustments may preserve more wealth.
- Assess U.S. asset exposure – Non‑citizens with U.S.‑situated property should evaluate the potential estate‑tax impact.
- Consider diversification – Shifting assets to jurisdictions with more favorable estate‑tax regimes could mitigate exposure.
- Monitor legislative progress – The proposal is still a draft; amendments could alter thresholds, rates, or exemptions before enactment.
Risks and caveats
- The exact rate brackets and thresholds are not fully detailed in the draft, leaving some uncertainty about the precise tax burden at various wealth levels.
- The bill does not index the estate‑tax exemption or gift‑tax exemption for inflation, which could further erode the real value of these thresholds over time.
- Even if the act does not pass, the discussion signals a broader political trend toward higher wealth taxes, suggesting that future proposals may follow a similar pattern.
Staying informed and proactively adjusting wealth‑preservation strategies can help high‑net‑worth individuals navigate the potential changes before they become law.
