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 A regulation floated during the Obama administration and withdrawn by the Trump administration greatly reduced this discount.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)
