On March 25, 2021, Senator Bernie Sanders introduced the For the 99.5 Percent Act, a significant proposal to reshape the United States federal estate and gift tax system. The legislation was introduced as S. 994 and was referred to the Senate Finance Committee. Its stated purpose was to reinstate and strengthen estate and generation-skipping taxes, while closing a number of planning techniques that have traditionally allowed wealthy families to transfer substantial assets between generations with reduced tax exposure.

The title of the legislation reflects its political objective. The proposal was designed to affect the wealthiest 0.5% of Americans rather than the overwhelming majority of households. Senator Sanders and his supporters presented it as an attempt to address the concentration of wealth and to prevent the accumulation of dynastic fortunes through sophisticated estate-planning structures. The proposal therefore went considerably beyond simply increasing the estate tax rate.

Its significance for high-net-worth individuals lies in the breadth of the proposed changes. The legislation would have reduced the estate and gift tax exemptions, increased marginal estate tax rates substantially, restricted the use of grantor trusts and generation-skipping trusts, curtailed valuation discounts and placed new limitations on annual exclusion gifts. In combination, these measures would have altered many of the assumptions underlying conventional U.S. estate planning.

For wealthy families, the issue was therefore not simply the possibility of a higher estate tax bill. It was the prospect of a fundamentally different environment for transferring, protecting and structuring wealth across generations.

Reducing the Estate Tax Exemption

One of the most significant provisions would reduce the federal estate tax exemption from the then-existing level of approximately $11.7 million per individual to $3.5 million. The gift tax exemption would similarly be reduced to $1 million. The proposed changes to the exemption amounts and rates would generally apply from January 1, 2022, while many of the other provisions were proposed to take effect from the date of enactment.

This distinction is important because the reduction in the exemption would materially expand the number of estates potentially exposed to federal estate taxation. Under the proposal, an estate that could previously have transferred a substantial amount of wealth without federal estate tax would potentially fall within the taxable estate.

The proposal therefore represented more than a marginal adjustment to the existing system. It contemplated a return to a much more significant role for estate taxation in determining how accumulated wealth could be transferred from one generation to the next.

The issue also illustrates why estate planning cannot be separated entirely from broader tax policy. A family may spend decades building a business, investment portfolio or other capital base under one set of assumptions, only to find that the rules governing its eventual transfer have changed materially. The tax treatment of wealth at death can consequently be just as important as the taxation of the income generated during the owner’s lifetime.

My earlier article, US Taxes Set to Rise, examined the broader expectation in early 2021 that the incoming Biden administration and Democratic control of Congress would create pressure for higher taxation. The Sanders proposal provided a concrete example of how that political shift could translate into changes affecting substantial private wealth.

A Steeper Estate Tax Rate Structure

The proposed legislation would also replace the then-current 40% top estate tax rate with a substantially more progressive structure. Estates above $3.5 million would face a 45% rate, increasing to 50% above $10 million, 55% above $50 million and 65% above $1 billion.

The scale of the proposed increase is significant. At the very highest level, the proposed 65% rate would represent a substantial change from the prevailing 40% federal rate. The legislation was therefore designed not merely to broaden the estate tax base but also to impose a considerably heavier burden on the largest estates.

That distinction matters for families whose wealth is concentrated in operating businesses, investment portfolios or other assets that may appreciate substantially over time. The eventual value of an estate can be very different from the value of the assets when they were originally acquired, and a higher estate tax rate can materially affect the amount ultimately transferred to heirs.

The proposal therefore placed renewed emphasis on the timing and structure of transfers. Families with significant wealth would need to consider not only what they own, but how and when that wealth is transferred, which entities or trusts hold it and how those structures would be treated under a revised tax regime.

Grantor Trusts Under Pressure

Perhaps more significant for sophisticated estate planners were the proposed changes to grantor trusts.

Grantor trusts have historically been important tools in advanced estate planning because the grantor can retain certain income-tax characteristics while transferring economic interests outside the taxable estate. The proposed legislation sought to substantially restrict these arrangements by generally including grantor-trust assets in the grantor’s taxable estate.

The legislation would also prevent the use of certain grantor-trust arrangements from producing the same transfer-tax advantages available under existing law. In particular, assets held in a grantor trust that were not included in the grantor’s estate would generally no longer receive the same basis treatment at death, while distributions from grantor trusts to beneficiaries could themselves be treated as gifts.

These provisions are important because they target the architecture of estate planning rather than merely the amount of tax payable. A structure that may have been entirely legitimate and effective under the existing rules could become materially less attractive if the underlying legislation changes.

For wealthy families, this creates a planning problem that extends beyond calculating the headline estate tax rate. Existing trusts, family investment structures and succession arrangements may need to be reconsidered whenever the tax rules governing those structures are altered.

Restrictions on Grantor Retained Annuity Trusts

The legislation also proposed significant restrictions on grantor retained annuity trusts, or GRATs.

GRATs have traditionally been used to transfer appreciating assets while limiting the value of the taxable gift associated with the transfer. The Sanders proposal would generally require newly created GRATs to have a minimum term of ten years and require the initial gift-tax value of the property transferred to the trust to equal at least 25% of the amount transferred.

These changes would make certain GRAT strategies considerably less attractive, particularly those designed around short-term transfers of rapidly appreciating assets.

The significance is broader than the individual technique. The proposal demonstrates a policy objective of closing what its sponsors regarded as opportunities for wealthy families to move appreciation outside their taxable estates through sophisticated trust planning. In other words, the legislation sought to change not merely the rate of taxation but the economic effectiveness of the structures used to reduce exposure to that taxation.

Limiting Valuation Discounts

Another important provision concerned valuation discounts for interests in family-owned or closely controlled entities.

Under existing principles, an interest in a private company or partnership may sometimes be valued at less than a proportionate share of the underlying assets because the interest is subject to restrictions on control or marketability. Such discounts can have significant estate and gift tax consequences when interests are transferred between family members or into trusts.

The proposed legislation would generally eliminate or significantly restrict discounts associated with lack of control and marketability for certain transfers involving family-owned or controlled entities. It would also introduce further restrictions where entities did not conduct an active business.

This provision is particularly relevant to families whose wealth is held through private companies, partnerships or other closely held structures. It demonstrates again that the legislation was aimed at the mechanisms through which wealth is transferred, not simply at the ultimate amount of wealth owned.

A family business can therefore become an estate-planning issue as well as a commercial one. The manner in which ownership interests are divided among family members, placed into trusts or transferred to the next generation can have substantial consequences when valuation discounts are restricted.

The Challenge to Dynastic Trusts

The legislation also targeted generation-skipping transfer tax planning, particularly the use of long-duration or so-called dynasty trusts.

Under existing rules, sophisticated trust structures can allow wealth to benefit multiple generations while reducing the incidence of transfer taxes. The Sanders proposal would limit the GST-tax exemption for trusts lasting more than 50 years, with transfers from such trusts becoming subject to generation-skipping transfer tax after the relevant period. The proposed restriction would also have implications for certain existing trusts.

This represents an important philosophical change. Estate planning has traditionally allowed wealthy families to structure assets for the benefit of children, grandchildren and later generations. A 50-year limitation would significantly restrict the ability to establish perpetual or very long-duration arrangements designed to preserve family wealth across successive generations.

The proposal therefore went directly to the question of dynastic wealth. Rather than simply taxing wealth when it first passes from one generation to another, the legislation sought to make it more difficult to construct structures capable of keeping substantial family capital outside the transfer-tax system indefinitely.

Annual Gifts and the Limits of Incremental Planning

The bill also proposed significant restrictions on annual exclusion gifts.

The existing annual gift tax exclusion permitted individuals to make qualifying gifts up to a specified amount per recipient without using their lifetime gift tax exemption. The Sanders proposal would reduce the annual exclusion for certain transfers and impose an overall $20,000 annual limit on such gifts by a donor in specified circumstances. These restrictions would particularly affect transfers involving trusts, interests in pass-through entities and other assets that could not immediately be liquidated by the recipient.

For families accustomed to using annual gifts as part of a broader succession strategy, this would reduce the usefulness of incremental transfers. The significance is again cumulative: the proposal was not directed at one particular planning technique, but at a broad range of methods through which wealthy families could gradually transfer economic value outside the future taxable estate.

The result would be a much more constrained environment for traditional estate planning. Families would have fewer opportunities to rely upon a combination of lifetime gifting, valuation discounts, grantor trusts and long-duration trusts to reduce the eventual transfer-tax burden.

The Broader Political Context

The Sanders proposal should also be viewed within the wider political environment of early 2021. The debate over wealth taxation was not limited to estate taxes. Senator Elizabeth Warren and other lawmakers had separately proposed an annual tax on household net worth above $50 million, with a higher rate for wealth above $1 billion. My March 10 article, Democrats Push for a ‘Wealth Tax’, examined that proposal and the potential implications for internationally mobile capital.

The two proposals were different in their mechanics. The Warren proposal focused on an annual tax on net worth, while the Sanders legislation principally sought to strengthen estate and gift taxation and close transfer-tax planning techniques. Their political direction, however, was similar: accumulated wealth and the mechanisms through which wealthy families preserve and transfer that wealth were receiving substantially greater attention.

That broader environment matters because tax policy rarely develops in isolation. A change to estate taxation can be accompanied by changes to income taxation, capital gains taxation, reporting requirements or wealth taxation. For an HNWI, the relevant question is therefore not simply what one proposal would do, but how several policy changes might interact.

International Wealth and Jurisdictional Risk

This is where international wealth planning becomes increasingly relevant.

A wealthy family that has all of its assets, businesses, residence and succession arrangements concentrated in one jurisdiction is necessarily exposed to changes in that jurisdiction’s tax and regulatory policy. That does not mean that international diversification is appropriate for every family, nor does it imply that wealthy individuals should attempt to avoid legitimate taxation. It means that jurisdictional exposure should be understood as a component of overall wealth risk.

My March 15 article, FATCA and Foreign Bank Accounts, examined the growing ability of U.S. authorities to obtain information concerning foreign financial accounts and the increasingly extensive compliance obligations imposed upon financial institutions. The direction of travel was already clear: international wealth could no longer be planned around assumptions of banking secrecy or regulatory isolation.

Similarly, Crypto & Taxes, considered the evolving relationship between new forms of capital and taxation. The underlying lesson is applicable more broadly. As governments identify new forms of wealth and new methods of holding capital, the tax and regulatory framework surrounding those assets is likely to develop with them.

The implication is not that wealthy individuals should seek secrecy. Quite the opposite. Modern international wealth planning increasingly requires transparency, compliance and careful consideration of where assets are held and how ownership is structured.

What Should High-Net-Worth Individuals Do?

The fact that the Sanders legislation was only a proposal did not make it irrelevant to private wealth planning. Legislative proposals often change before enactment, and many never become law. Nevertheless, a serious estate plan should not be constructed on the assumption that today’s rules will remain unchanged indefinitely.

The appropriate response is therefore not panic or a premature restructuring of every asset. It is to review existing arrangements against the possibility of a materially different tax environment. Trust structures, family businesses, investment entities, lifetime gifts and succession arrangements should be examined to determine whether they remain appropriate if exemptions decline and transfer taxes increase.

Timing may also become more important. Where legislation proposes different effective dates for different provisions, the distinction between action taken before enactment, action taken after enactment and action taken after a later effective date can become material. Families considering substantial transfers should therefore understand the legislative timetable and obtain appropriate legal and tax advice before making decisions.

For internationally mobile families, the analysis should extend beyond U.S. federal estate and gift taxation. State taxation, domicile, residence, citizenship, situs rules for assets and the tax treatment of trusts in other jurisdictions can all affect the ultimate result. Cross-border estate planning consequently requires coordination rather than a single-country approach.

Wealth Planning Is Becoming More Strategic

The significance of the For the 99.5 Percent Act lies ultimately in what it says about the direction of wealth policy.

The legislation sought to reduce exemptions, increase rates and restrict a number of established estate-planning techniques. Whether every provision would ultimately have been enacted was uncertain, but the proposal demonstrated that the political debate had moved beyond a simple question of income taxation. The accumulated stock of private wealth, and the mechanisms used to preserve that wealth across generations, were becoming central targets of policy discussion.

For HNWIs, this reinforces the importance of treating estate planning as part of a broader wealth strategy. Investment decisions, tax residence, succession planning, asset ownership and jurisdictional exposure increasingly interact with one another. A family that considers each issue separately may overlook risks that become apparent when the issues are viewed together.

This does not necessarily mean moving capital abroad or changing residence. It means understanding the available choices before circumstances make those choices urgent. Where appropriate, legitimate diversification of assets, structures and jurisdictions can provide greater flexibility, while sophisticated investment migration programmes can provide an additional residence option for families whose circumstances justify it.

The 99.5% Question

The political proposition behind the legislation is straightforward: 99.5% of Americans would not be affected in the same way as the wealthiest families, while the largest estates would bear a substantially greater transfer-tax burden. But for the families who fall within the affected category, the consequences could be considerable.

The proposed reduction in exemptions, higher marginal rates and restrictions on trusts and valuation techniques would fundamentally change the economics of transferring substantial wealth between generations. Estate planning would become less about finding a single efficient structure and more about understanding how a range of assets, entities, trusts and jurisdictions interact under a changing legal framework.

The proposal should therefore be taken seriously even if its final legislative form remains uncertain. Wealth accumulated over a lifetime can be exposed to a very different tax environment at the point of succession, and sophisticated families need to consider that possibility well before a transfer becomes imminent.

The broader lesson is that wealth preservation is increasingly a matter of strategic planning rather than simply investment performance. The investor who understands the political and fiscal environment, reviews existing structures and preserves legitimate alternatives is better positioned than one who assumes that today’s rules will remain tomorrow’s rules.

For the wealthiest families, the question is no longer simply how to create wealth. It is how to preserve it, transfer it and structure it in a world in which governments are paying increasingly close attention to accumulated private capital.