Proposed Legislation “For the 99.5% Act” Takes Direct Aim at Estate Taxes

Last week, Senator Bernie Sanders (I, VT) and Senator Shelton Whitehouse (D, RI) introduced the “For the 99.5% Act,” which includes a reduction in the estate tax exemption to $3.5 million per individual and $7 million per couple.  Sanders also introduced a bill to raise the corporate tax to 35% and reduce a corporation’s ability to shelter offshore profits.

We have known for a while there will be changes coming to estate and corporate taxes. Many estate planning attorneys expect this act to become a foundation for the estate, gift, and GST provisions of the 2021 tax bill President Biden presented during his campaign. We do not know which changes Congress will pass, but we know that changes in whatever bill eventually passes will require estate plans to be adjusted.

The changes expected include larger estates being subject to higher tax rates. The proposal calls for the increase of the 40% estate tax rate to 45% for taxable estates less than $10 million, 50% for taxable estates over $10 million, and 65% for taxable estates greater than $1 billion.

The “95.9% Act” calls for eliminating many of the estate planning tools used for the last twenty years. This includes GRATS (Grantor Retained Annuity Trusts), step-up in basis, the grantor trust rules, and eliminating most minority interest discounts and many marketability discounts for passive assets.

The proposed legislation reduces the lifetime gift tax exemption and changes to the Generation Skipping Tax (GST) exemption and rules. It is also possible that Irrevocable life insurance trusts, which own the life insurance policy and shelters the proceeds from estate taxation, may be eliminated.

The expected changes to the estate tax laws may be finding more popular support following the release of a report showing that the top 1% of Americans are managing to not pay far more in income taxes than the IRS’s methods had assumed.

The report from researchers from the IRS, the London School of Economics, Carnegie Mellon University, and the University of California, Berkeley, shows the wealthiest 1% of households fail to report 21% of their actual income, and 6% of that stems from “sophisticated evasion” strategies missed by federal audits. The unreported income might be as much as twice as large as the IRS thought.

With declining enforcement staff, the IRA’s rates of audits have declined in the last ten years, when the top 1% of wealthy Americans have become even more skilled at underreporting income. This costs the federal government about $175 billion a year. For a government now seeking revenues to recoup the pandemic’s enormous costs, there is a call for re-investing in the IRS’s ability to go after tax avoiders.

According to The Wall Street Journal’s article, “High-Income Tax Avoidance Far Larger Than Thought, New Paper Estimates,” pass-through businesses and partnerships, offshore tax avoidance, and other sophisticated entities have made it harder for the IRS to uncover income.

An op-ed in The New York Times’ Sunday Review, “How to Collect Unpaid Taxes,” references an IRS report from 2019  that estimated “Billions of dollars in business profits, rent and royalties are hidden from the government each year. By contrast, more than 95 percent of wage income is reported.”

The government’s inability to enforce tax laws is a function of how the IRS has been shrinking over time, with fewer workers. But former IRS commissioner Charles Rossotti says that Congress needs to change the law and create a third-party verification for business income, just as there is a third-party verification for wages. Rossotti proposes that information be collected from banks, requiring them to produce annual account statements totaling income and outflow, similar to the 1099 forms that investment firms must provide to clients. The Times thinks this would increase the taxes paid by those not reporting income by scaring people into compliance. Expect the banking and securities lobbyists to push back against any new requirements.

As someone who has worked in complex tax law for several decades, I have seen how often the IRS and academics have engaged in hand-wringing over how unfair the tax laws are, depending on the times, to the wealthy or American wage earners. But for now, tax law permits these strategies, and it appears any plan in place before a new tax law is signed will be grandfathered in.

We are keeping a close watch on the pending legislation as it winds its way through various committees and will continue to keep you informed on how it may affect your estate plan.


The Wall Street Journal (March 22, 2021) “High-Income Tax Avoidance Far Larger Than Thought, New Paper Estimates”

The New York Times (March 20, 2022) “How to Collect $1.4 Trillion in Unpaid Taxes”


Guardianship Horror Story Now Trending – “I Care A Lot”

The popular Netflix movie, “I Care a Lot” begins with a scenario loosely based on a real life nightmare reported by The New Yorker several years ago.  A large number of seniors were disenfranchised and abused by a guardianship system in Clark County, Nevada. Unfortunately, this is far from the only place where this elder abuse occurs.

For those of us who work daily to protect seniors, the movie provides an opportunity to broaden awareness of guardianship abuse.  It is not flattering to the courts who hand out guardianships without proper oversight, the guardians who steal the lives and property of seniors, and law enforcement officers who don’t understand that they are aiding and abetting an abusive, tragic series of events when they enforce the abusive guardians.

From our perspective as Elder Lawyers, the guardianship process is intended to protect seniors and others who, for a variety of reasons, are not able to manage their own lives. It is the last resort, usually also the last thing adult children want to do for their aging parents.

In New York State, there are a number of rules and procedures to prevent the type of abuse that was reported in The New Yorker article and is depicted in “I Care a Lot”. That’s not to say the Empire State has completely eliminated all of its guardianship abuse problems, but they tend to occur less frequently here than in other states.

One important rule that New York has established to prevent Guardianship abuse is a cap on fees collected from Court appointees in a given time period. When attorneys who sign up to become Guardians for people are awarded fees by the Court, they must log the fees within the system maintained by the State. Once they hit a certain amount of fees, they are barred from taking on additional appointment for a certain time period. This prevents people like Rosamund Pike’s Marla Grayson from being continuously appointed for people and acquiring huge fees from the Guardianship process.

New York also has rules on who can petition for Guardianships in New York. While there is a catchall “a person otherwise concerned with the welfare of the person alleged to be incapacitated” who is allowed to petition for Guardianship, this is reserved more for friends and non-family members already involved in the person’s life. Additionally, people’s own doctors, as depicted in “I Care a Lot”, cannot petition the Court for Guardianship of an individual, as that would break doctor-patient confidentiality and the release of protected medical information would violate HIPAA. Medical records from a person’s long-standing doctor cannot even be introduced as evidence in a Guardianship proceeding without the person’s consent, as it is protected by HIPAA.

For those who find themselves involved in a Guardianship hearing for themselves or a loved one, an attorney who is experienced in the guardianship process and understands the law is needed. However passionately a family member may speak in court, they cannot protect their loved one without understanding how the process works and how the law is applied. In the opening scenes of “I Care a Lot”, you see a man in Court pleading with the Judge about his mother who has been placed into a Guardianship. The man in a suit standing next to the pleading son, presumably his lawyer, sadly says nothing. A proper attorney in a Guardianship matter would be speaking for his client and arguing for his client’s interests. A competent and experienced attorney can help avoid injustices in the Guardianship process.

The best way to avoid needing a Guardianship is estate planning with a properly drafted Power of Attorney and Health Care Proxy. The estate planning process is a far easier and less court-intensive way for the senior and their family to determine who will be in charge of medical decision making and managing assets. And when a guardianship must be established because of a lack of planning, the process is long and reporting requirements are rigorous, which is as it should be.

If you have a choice, having an estate plan in place well in advance of any issues is the best option. When the option of Guardianship is turned to, make sure you have an attorney who can stand and fight for you.

Medicare Doesn't Cover Everything

What’s Not Covered by Medicare?

Medicare provides health insurance for retirees, but it doesn’t cover everything. In fact, there’s a lot that Medicare does not cover, and many of these are health care costs that can consume a nest egg. Here are the top five healthcare costs that should be part of your retirement preparations:

Medicare and Long Term Care Costs

Long Term Care is one of the biggest budget busters for retirees. Long term care can easily cost tens of thousands of dollars a month. Medicare does offer some skilled nursing care coverage, but it’s very limited. If you are eligible, in terms of age, health and finances, buy a long-term care insurance. Sometimes a long-term health insurance policy is folded into a life insurance policy. Talk to your insurance broker—this is something you need, as much as an estate plan.

Alternative or Chiropractic Care

If your healthcare includes alternative or chiropractic care, Medicare is not yet fully evolved to pay for these services. The monthly massage that you know keeps headaches or crippling joint pain at bay is not covered, regardless of how effective it is for your well-being. There are some Medigap or Medicare Advantage plans that do cover specific kinds of alternative therapies, so do your research.

Dental and Oral Health

Medicare does not connect your healthy smile with your overall health. Despite studies that clearly demonstrate the connections between good oral health and overall health, especially cardiovascular health, Medicare is not paying for your dental treatment, unless they are “medically necessary” for you before your physician will allow you to undergo covered procedures.

But in most cases, you have to pay for your own dental care. And if you’ve ever needed a crown or root canal work, you know these procedures can cost several thousand dollars. Best to set aside some assets for dental work.

Glasses and Vision Care

The same goes for vision care. The cost of an eye exam, glasses and contact lenses must be paid by you. There are more options today than there were ten years ago (i.e., online, or big box prescription glasses and contact lenses) but it’s still an expense that you need to cover yourself.

Hearing Aids

Hearing aids are the bane of many retiree’s financial life. They are extremely expensive, and Medicare doesn’t cover the audiology exam that is needed before you can be fitted for them or the devices themselves, some of which can cost as much as $10,000. A federal law was passed in 2017 that directed the U.S. Food and Drug Administration to ease the financial barriers to purchasing a hearing aid, but the self-fitted, less expensive devices don’t work for everyone.