U.S. Sens. Ron Wyden (D-OR) and Angus King (I-ME) said they had introduced legislation Wednesday that would crack down on the practice of using high-value trusts to avoid income, gift and estate taxes.
Wyden, chair of the Senate Finance Committee, said the legislation, Getting Rid of Abusive Trusts Act, would modify the rules dealing with grantor retained annuity trusts (GRATs), commonly used by the ultra-wealthy to minimize or zero-out tax liability on assets worth at least tens of millions of dollars. The trusts are neither available nor useful to middle-class Americans as a financial planning tool, the senators said.
“The abuse of these high-value trusts is a clear-as-day example of how there’s a special set of tax rules that allows the ultra-wealthy to pay what they want, when they want, and oftentimes nothing at all,” he said. “This is a garden-variety tax dodge in which a billionaire signs some papers and moves some money around, and suddenly they have to pay little or no tax on appreciating assets worth tens of millions of dollars. This abuse of GRATs skates by because it’s an incredibly complicated subject with a jargon-heavy name, but the bottom line is it’s fundamentally unfair and it’s past time for Congress to put a stop to it.”
The bill would requirements GRATs have a minimum term of 15 years and a maximum term of the life expectancy of the annuitant plus 10 years. Additionally, it would prohibit any decrease from the annuity during the GRAT term, and would require that the remainder interest in a GRAT at the time of transfer have a minimum value for gift tax purposes. The law makers said the reasoning behind the changes is to impose costs on the use of GRATs so they are less likely to be used for tax avoidance.
“In the midst of tax season, most Americans will spend many hours filing paperwork and documentation, all to pay for programs and services that benefit our entire society,” King said. “The Getting Rid of Abusive Trusts Act would close a loophole many wealthy Americans use to escape their responsibility to society by redirecting the vast gains on their fast-appreciating assets, like tech stock, into tax-free trusts for their children. Those who benefit extraordinarily from American workers, capital markets, and rule of law should support our communities at least as much as our teachers and first responders do.”