Planning Considerations for Build Back Better Act Tax Proposals

Meristem paper

On Sunday, the House Ways and Means Committee issued a draft proposing significant changes to tax law. The political path forward is subject to change; however, for those who are likely to be impacted, the window to plan is closing – the time to act is now.

There are a few important dates to note in the act. Sunday, September 12, is the “Date of Introduction.” The date the bill passes (if it does) will be the “Date of Enactment.” The House is scheduled to vote on the bill on September 27.

The act in its entirety covers measures ranging from universal paid family and medical leave, the development and use of green energy, and more. For our piece, we’ve focused on the planning areas of importance to clients of Meristem, which are highlighted below.


The top individual income tax bracket is increasing from 37% to 39.6%.

The top capital gains tax rate will increase from 20% to 25% effective retroactively as of the Date of Introduction (9/12).

A 3% surcharge will be levied on individuals and trusts with Adjusted Gross Income (AGI) above $5,000,000.

The pre-existing Net Investment Income Tax (NIIT) of 3.8% will be expanded to include all AGI exceeding $400,000.

Contributions to IRAs valued at more than $10,000,000 will no longer be allowed at any age, and required minimum distributions from those accounts will increase as of 12/31/2021.

Roth IRA conversions will be eliminated for married taxpayers with AGI above $450,000.


  • Accelerating income into this year.
  • Delaying charitable gifts into future years.


The lifetime federal gift, estate, and generation-skipping transfer (GST) tax exemption that was set to sunset in 2025 is accelerating.

After 12/31/2021, the estate, gift, and GST exemption will revert from $11,700,000 to approximately $6,000,000 in 2022. These tax rates will stay the same at 40%.

Those who have used some of their $11,700,000 exemption may not keep the full unused remainder. For example, if $5,500,000 of exemption was used in 2012 and $6,200,000 remains today the remainder is reduced to $500,000 after 12/31/2021.

After the Date of Enactment, grantor trusts will be included in the grantor’s estate for estate tax purposes. Transactions between a grantor and a trust will no longer be ignored for income tax purposes.  

Grantor trusts that are currently in existence, or put in place before the Date of Enactment, will continue to be treated as completed gifts/sales outside of the grantor’s estate. Future contributions or sales to a grantor trust in existence will likely mean that part of the trust will become includable in the grantor’s estate.

Any remaining value in a Grantor Retained Annuity Trust (GRAT) after the Date of Enactment will be considered a taxable gift at the end of the term, basically negating the benefits of using the strategy. GRATs already in existence at the Date of Enactment will be grandfathered in.

Other grantor trusts such as Intentionally Defective Grantor Trusts, Spousal Lifetime Access Trusts and Charitable Lead Trusts will also be affected by these grantor trust changes.

Sales to and swapping assets between the grantor and a grantor trust will no longer be an ignored transaction for income tax purposes.

Valuation discounts on non-active entities and real estate have been effectively eliminated. 


Consider accelerating discussions and making decisions if any of the following strategies are being contemplated:

  • Use of lifetime estate/gift/GST exemption
  • Creation of Spousal Lifetime Access Trust (SLAT) for gifting
  • Asset swap or sale of assets to a grantor trust
  • For grantor trusts, it may be advisable to turn off “the grantor trust status” especially for trusts that may make future gifts or loans. Examples include Irrevocable Life Insurance Trusts (ILIT) or other trusts that require frequent future contributions to pay premiums or other obligations.
  • Before turning off the grantor trust status, consider situs for income tax purpose (state of taxation).
  • Those planning to swap assets out of a grantor trust should consider doing so as quickly as possible.
  • Most of these opportunities could expire as of the Date of Enactment, which could be as soon as September 27.

While the political path forward for the bill remains uncertain, there are steps you can take to prepare for all outcomes. Please consult with your advisor about your unique situation. 

The information and opinions presented in this communication are subject to change without notice, are provided for background purposes only, and do not purport to be full or complete. No representation is made concerning the actual future performance of investments, markets, or the economy. Information obtained from outside sources is considered reliable but is not verified. Before investing, please carefully consider whether an investment is suitable for you. Past performance is not necessarily a guide to future performance and there can be no assurance that an investment’s objective will be met. Please refer to the offering document for further details of the financial commitments and risks involved in connection with investment.

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This presentation is the property of Meristem, LLC and is intended solely for the use of the Meristem client, individual, or entity to whom it is addressed. This presentation may not be reproduced in any manner or re-distributed by any means without the express consent of Meristem. Mis-transmission is not intended to waive confidentiality or privilege.

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