Title IV — S. 787 (Introduced in Senate)

Sec. 401 Amendment to Internal Revenue Code of 1986

Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

Sec. 402 Rate adjustment

(a)

Increase in estate tax rates— The table contained in section 2001(c) is amended to read as follows:

(b)

Reduction of basic exclusion amount— Paragraph (3) of section 2010(c) is amended to read as follows:

“(3) Basic exclusion amount—For purposes of this subsection, the basic exclusion amount is $3,500,000.”

(c)

Surtax on billion dollar estates— Section 2001 is amended—

(1)

in subsection (b), by striking “The tax” and inserting “Subject to subsection (h), the tax”, and

(2)

by adding at the end the following new subsection:

“(h) Surtax on billion dollar estates

“(1) In general—In the case of a taxable estate for which the applicable amount is in excess of $1,000,000,000, the tax determined under subsection (b) shall be increased by an amount equal to 10 percent of such applicable amount.

“(2) Applicable amount—For purposes of this subsection, the applicable amount shall be equal to the sum of the amounts under subparagraphs (A) and (B) of paragraph (1) of subsection (b) for the taxable estate.”

Sec. 403 Required minimum 10-year term, etc., for grantor retained annuity trusts

(a)

In general— Subsection (b) of section 2702 is amended—

(1)

by redesignating paragraphs (1), (2), and (3) as subparagraphs (A), (B), and (C), respectively, and by moving such subparagraphs (as so redesignated) 2 ems to the right;

(2)

by striking “For purposes of” and inserting the following:

“(1) In general—For purposes of”

(3)

by striking “paragraph (1) or (2)” in paragraph (1)(C) (as so redesignated) and inserting “subparagraph (A) or (B)”; and

(4)

by adding at the end the following new paragraph:

“(2) Additional requirements with respect to grantor retained annuities—For purposes of subsection (a), in the case of an interest described in paragraph (1)(A) (determined without regard to this paragraph) which is retained by the transferor, such interest shall be treated as described in such paragraph only if—

“(A) the right to receive the fixed amounts referred to in such paragraph is for a term of not less than 10 years,

“(B) such fixed amounts, when determined on an annual basis, do not decrease relative to any prior year during the first 10 years of the term referred to in subparagraph (A), and

“(C) the remainder interest has a value equal to or greater than 10 percent of the value of the assets transferred to the trust, determined as of the time of the transfer.”

(b)

Effective date— The amendments made by this section shall apply to transfers made after the date of the enactment of this Act.

Sec. 404 Certain transfer tax rules applicable to grantor trusts

(a)

In general— Subtitle B is amended by adding at the end the following new chapter:

“16 Special rules for grantor trusts

“2901. Application of transfer taxes

“(a) In general—In the case of any portion of a trust to which this section applies—

“(1) the value of the gross estate of the deceased deemed owner of such portion shall include all assets attributable to that portion at the time of the death of such owner,

“(2) any distribution from such portion to one or more beneficiaries during the life of the deemed owner of such portion shall be treated as a transfer by gift for purposes of chapter 12, and

“(3) if at any time during the life of the deemed owner of such portion, such owner ceases to be treated as the owner of such portion under subpart E of part 1 of subchapter J of chapter 1, all assets attributable to such portion at such time shall be treated for purposes of chapter 12 as a transfer by gift made by the deemed owner.

“(b) Portion of trust to which section applies—This section shall apply to—

“(1) the portion of a trust with respect to which the grantor is the deemed owner, and

“(2) the portion of the trust to which a person who is not the grantor is a deemed owner by reason of the rules of subpart E of part 1 of subchapter J of chapter 1, and such deemed owner engages in a sale, exchange, or comparable transaction with the trust that is disregarded for purposes of subtitle A.

“(c) Exceptions—This section shall not apply to—

“(1) any trust that is includible in the gross estate of the deemed owner (without regard to subsection (a)(1)), and

“(2) any other type of trust that the Secretary determines by regulations or other guidance does not have as a significant purpose the avoidance of transfer taxes.

“(d) Deemed owner defined—For purposes of this section, the term deemed owner means any person who is treated as the owner of a portion of a trust under subpart E of part 1 of subchapter J of chapter 1.

“(e) Reduction for taxable gifts to trust made by owner—The amount to which subsection (a) applies shall be reduced by the value of any transfer by gift by the deemed owner to the trust previously taken into account by the deemed owner under chapter 12.

“(f) Liability for payment of tax—Any tax imposed pursuant to subsection (a) shall be a liability of the trust.”

(b)

Clerical amendment— The table of chapters for subtitle B is amended by adding at the end the following new item:

(c)

Effective date— The amendments made by this section shall apply—

(1)

to trusts created on or after the date of the enactment of this Act;

(2)

to any portion of a trust established before the date of the enactment of this Act which is attributable to a contribution made on or after such date; and

(3)

to any portion of a trust established before the date of the enactment of this Act to which section 2901(a) of the Internal Revenue Code of 1986 (as added by subsection (a)) applies by reason of a transaction described in section 2901(b)(2) of such Code on or after such date.

Sec. 405 Elimination of generation-skipping transfer tax exemption for certain trusts

(a)

In general— Section 2642 is amended by adding at the end the following new subsection:

“(h) Elimination of GST exemption for certain trusts

“(1) In general

“(A) Transfers from non-qualifying trusts—In the case of any generation-skipping transfer made from a trust that is not a qualifying trust, the inclusion ratio with respect to any property transferred in such transfer shall be 1.

“(B) Qualifying trust—For purposes of this subsection, the term qualifying trust means a trust for which the date of termination of such trust is not greater than 50 years after the date on which such trust is created.

“(2) Trusts created before date of enactment—In the case of any trust created before the date of the enactment of this subsection, such trust shall be deemed to be a qualifying trust for a period of 50 years after the date of the enactment of this subsection.

“(3) Date of creation of certain deemed separate trusts—In the case of any portion of a trust which is treated as a separate trust under section 2654(b)(1), such separate trust shall be treated as created on the date of the first transfer described in such section with respect to such separate trust.

“(4) Date of creation of pour-over trusts—In the case of any generation-skipping transfer of property which involves the transfer of property from 1 trust to another trust, the date of the creation of the transferee trust shall be treated as being the earlier of—

“(A) the date of the creation of such transferee trust, or

“(B) the date of the creation of the transferor trust.

“(5) Regulations—The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this subsection.”

(b)

Effective date— The amendments made by this section shall take effect on the date of the enactment of this Act.

Sec. 406 Simplifying gift tax exclusion for annual gifts

(a)

In general— Paragraph (1) of section 2503(b) is amended to read as follows:

“(1) In general

“(A) Limit per donee—In the case of gifts made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year.

“(B) Cumulative limit per donor

“(i) In general—The aggregate amount excluded under subparagraph (A) with respect to all transfers described in clause (ii) made by the donor during the calendar year shall not exceed twice the dollar amount in effect under such subparagraph for such calendar year.

“(ii) Transfers subject to limitation—The transfers described in this clause are—

“(I) a transfer in trust,

“(II) a transfer of an interest in a passthrough entity,

“(III) a transfer of an interest subject to a prohibition on sale, and

“(IV) any other transfer of property that, without regard to withdrawal, put, or other such rights in the donee, cannot immediately be liquidated by the donee.”

(b)

Conforming amendment— Section 2503 is amended by striking subsection (c).

(c)

Regulations— The Secretary of the Treasury, or the Secretary of the Treasury's delegate, may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the amendments made by this section.

(d)

Effective date— The amendments made by this section shall apply to any calendar year beginning after the date of the enactment of this Act.

Title IV — Estate Tax Reform

IV Estate Tax Reform