The American Housing and Economic Mobility Act of 2024 (AHEMA) is a giant $5 trillion tax increase now before both houses of Congress which has the potential, if Democrats end up with enough control after elections this year, to radically change estate planning. These proposed changes to the estate tax regime are in addition to other major proposed changes to income tax, housing industry, etc.
First note that there is a lot of misinformation floating around, for example this Forbes article that incorrectly states that the current estate tax exemption amount (Basic Exclusion Amount, or BEA) is $11.7 million per individual, though the current figure is $13,610,000 for this year and will be even higher next year under current law. To appreciate how drastic the changes are under AHEMA, one needs to know what the law is currently.
Basic Exclusion Amount (BEA) Reduced
The biggest change impacting most families would be the precipitous drop in the BEA from this year’s $13,610,000, or whatever it is next year due to inflation, all the way down to $3,500,000. That is a very sharp reduction, even from the $7,000,000 or so estimated to be the BEA in 2026 under current law if the Trump tax cuts sunset. Portability of Deceased Spousal Unused Exclusion Amount (DSUEA) remains to potentially exclude up to $7,000,000 for a married couple, but there are technical requirements for obtaining portability so there is risk in relying upon both exclusions in planning. As a result, many more families would require planning to avoid estate tax. You might even call this… AHEM… the Estate Planners Full Employment Act (EPFEA).
Estate Tax Rate Increased
The AHEM not only reduces the Basic Exclusion Amount (same amount used for estate tax, gift tax, and generation-skipping transfer tax), it also raises the rate on estate and gift taxes:
| If the amount with respect to which the tentative tax to be computed is: | The tentative tax is: |
| Not over $13,000,000 | 55 percent of such amount |
| Over $13,000,000 but not over $93,000,000 | $7,150,000 plus 60 percent of the excess of such amount over $13,000,000 |
| Over $93,000,000 | $55,150,000 plus 65 percent of the excess of such amount over $93,000,000 |
There is also a surtax on huge estates over a billion.
GRATs, RIP
The bill would kill use of Grantor Retained Annuity Trusts (GRATs) for estate planning by requiring a minimum ten year term and also a ten percent remainder interest.
Grantor Trusts, RIP
The bill also would kill use of grantor trusts, a mainstay of planning for several decades, where grantor pays income tax on a trust even if the trust is outside of grantor’s estate. Existing grantor trusts are to be grandfathered.
The bill also clarifies that basis step-up has been eliminated where a grantor trust holds property outside of a grantor’s estate.
GST Tax Incidence Curtailed
One bright spot in the bill is that it appears to eliminate application of Generation Skipping Transfer Tax (GSTT) to grandchildren, and even great-grandkids who are alive when the trust is created.
Annual Gift Tax Exemption Reduced
This exemption is reduced from this year’s $18,000 to only $10,000 per donee per year. In addition, there is a $20,000 aggregate cap per donor per year, but that cap appears to apply only where the donee is not able to readily liquidate the donated interest (which would throw a wrench into a lot of advanced trust planning).
Valuation Discounts Limited
The bill sets limits on valuation discounts for lack of marketability, lack of control.
Surcharges on High Trust Income
5% AGI over $200k, 3% AGI over $500k.
Farm Valuation
Special adjustment for farm value increased from $750k to $3mm.
Conclusion
The conclusion is to be written this November. I think it unlikely Democrats will sweep all races to the degree of having solid power over all three branches sufficient to pass AHEM in toto. Through various forms of election tampering, Democrats may achieve tenuous control of one or more branches of government, making it unlikely that any significant estate tax changes will be passed, with the result under current law that the doubling of the exclusion that Trump pushed through will simply sunset in 2026. Ideally, at least for families seeking to maximize Family Power, Republicans will take solid control of all three branches and extend the Trump tax cuts, perhaps even borrowing two features of AHEM (exempting grandkids from GST and addressing farm valuation), perhaps even repealing the estate tax again (this time without sunset provision). The constant back and forth between the parties on this issue means that families cannot rely on current law for their long-term estate planning (and estate planning is normally long-term). Thus families still need to include comprehsive tax planning in their trust, flexible planning just in case, when Congress merely kicks the can down the road with sunset provisions. There is plenty of work for me to do as an estate planner (including as tax lawyer) without having to be “soothsayer extraordinaire” guessing the next move of Congress on transfer taxes. Of the two, income taxes are more immediately a threat to liberty than estate taxes. Estate tax, as an indirect tax, is more friendly to our republican ideals especially in preventing oligarchic influence by space-happy trillionaires, but can also be used to frustrate and oppress familes that need to build wealth as they sustain the Republic. Most families should not even have to think about transfer taxes, but neither party has released them from the yoke of concern when it comes to planning for a long time horizon.
