Democratic senators target super-wealthy property tax strategies

Democratic lawmakers are asking the Treasury to curb strategies used by the super-rich to evade property taxes, and criticize financial advisers who tout such strategies.

“Billionaires and multimillionaires use trusts to pass on wealth to their heirs tax-free while evading federal property and gift taxes,” Senator Elizabeth Warren of Massachusetts and three other senators wrote in a letter Monday to Treasury Secretary Janet Yellen. . “And they do it openly: their wealth managers brag that their tax avoidance ploys will be more effective in the current economy. The super-rich should pay their fair share, not evade taxes by hiring elite lawyers and accountants.”

Warren, a member of the Senate Banking Committee, joined Senators Chris Van Hollen, MD, Sheldon Whitehouse, DN.H., and Bernie Sanders, I-Vt. Sanders is holding caucuses with other Democrats in the Senate.

They asked Yellen to use their regulatory powers to limit the use of trusts by wealthy people to reduce the amount of inheritance taxes they pay. The senators argued that this would make the tax system fairer.

Legislators cited statistics that only 0.1% of Americans pay property taxes. In part, they blamed the Tax Cuts and Jobs Act of 2017 for doubling the estate tax exemption.

“But there is another reason for this low payout rate: Millionaires and billionaires are engaged in increasingly sophisticated tax planning that uses trusts to avoid taxes,” the senators wrote.

They focused specifically on maintaining trustee annuity trusts, a strategy in which an individual moves assets into a facility that then generates an annual income. At the expiration of the annuity, the money held in trust can be donated to a beneficiary who has a small gift tax liability.

“Tax planning with trustees, including GRATs, is a game of shells in which a wealthy individual and his wealth managers can transfer assets back and forth in a manner that effectively transfers wealth. heirs, minimizing tax liabilities,” the senators wrote.

This strategy is often recommended by financial advisors to wealthy clients, especially when interest rates are low.

The Senators have outlined several steps they say Yellen could take to halt GRAT, including taxing the transfer of assets to a trustee’s trust and requiring GRAT to withhold a minimum remaining value.

They also criticized perpetual dynastic trusts and the wealth management firm that recommended them.

“Wealth management firms openly boast about the millions in tax avoidance they can achieve for their ultra-wealthy clients using a dynasty trust,” the senators wrote. “For example, one wealth management firm advertises an ‘extraordinary opportunity’ to amass an additional $367 million in wealth over 75 years while avoiding taxes through dynastic trusts.”

They then cited information from The Northern Trust Institute website.

Senators only casually mentioned “legislative decisions” to reform the trusts. Instead, they focused on regulatory measures that Yellen could implement. A bill containing ideas to reform the senators’ inheritance tax will face great controversy against a Senate filibuster and almost no chance in the Republican-controlled House of Representatives.

“We share the Biden administration’s commitment to end tax abuse through the use of trusts, and while we look forward to continuing to work with you on legislative solutions, we strongly recommend that the Treasury Department use its existing authority to curb this tax evasion by the super-rich.” the senators wrote.

[More: The Trump family used this strategy to save on taxes]