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By Scott M. Simmons, JD, LL.M.Managing Director & Family Office Fellow
By Julia S. Weaver, JD, LL.M.Managing Director & Family Office Fellow

A Peaceful Holiday Season for Taxpayers, but What Lies Ahead?

At the turn of the 17th Century, William Shakespeare wrote his play, Much Ado About Nothing. Much the same could be said so far about the numerous tax legislative proposals introduced in Congress during 2021. The initial proposals introduced in early 2021 contained a wide-ranging list of potential income and estate tax reforms, many previously not contemplated and some introduced with retroactive effective dates. Throughout the year, the various proposals were negotiated and the focus narrowed, ultimately resulting in the House passage of its version of the Build Back Better Act on November 19, 2021.

The Build Back Better Act has been the subject of intense negotiations aimed toward gaining the support of at least fifty Senators, a necessity to get the legislation passed in the Senate via reconciliation. Senator Joe Manchin, however, announced last week that he has pushed away from the negotiating table and will not support the Build Back Better Act as currently drafted. Senator Manchin’s vote was seen as critically necessary for the legislation to pass through the Senate. This decision effectively ended the prospect of tax reform in 2021.

Of great significance is the resulting inability to impose any retroactive tax reform for the 2021 tax year. Retroactive effective dates were an element of many reform proposals and a great source of uncertainty throughout this past year. However, this does not mean that all wealth enhancement planning should stop for affluent families. It remains a possibility that an even more narrowly focused tax bill could be passed in 2022.

In essence, a “tax manuscript” has been published for all to see. Families and advisors should consider several key issues that will remain a source of planning concern going forward.

I. Estate, Gift and GST Tax Exemption Sunset

  • The current Estate, Gift and Generation-Skipping Tax Exemptions remain, but are still set to ‘sunset’ on December 31, 2025, thereupon reducing the exemptions essentially in half. Note, the exemptions for 2022 have been announced at $12,060,000 per person.
  • While there was no early reduction in these amounts included in the proposed Build Back Better Act, affluent families should still consider utilizing the elevated exemptions where appropriate and while they remain available under our current laws.

II. Valuation Discounts

  • Earlier versions of tax reform included the elimination of valuation discounts. This topic has frequently been a prime target for reform, both legislatively and through changes in regulations. In fact regulatory changes were proposed by the Treasury Department as recent as five years ago, but later were scuttled.
  • For those families that would benefit from the appropriate use of currently available valuation discounts as part of their wealth enhancement planning, there may be no better time to act.

III. Taxation of Certain Trusts

  • The Build Back Better Act included a wholly new proposal for an income surtax of 5% on Non-Grantor Trusts with income greater than $200,000 and an additional 3% if the trust’s taxable income exceeded $500,000.
  • With the introduction of this new risk to certain trusts, it would be prudent for individuals and advisors to reconsider trust income taxation issues, including distribution standards and capital gain income provisions in new and existing trusts.
  • Further, to enhance flexibility, families may consider utilizing a Trust Protector with an ability to modify the trust terms to account for future tax changes.

If we had a nickel for every time we heard the quote, “don’t let the tax tail wag the dog”, we would have collected many nickels over 2021. Upon our reflection, however, the dog finally wagged its tail for many affluent families who treated the prospect of tax reform as an impetus to update legacy and wealth transfer plans in a very positive way. That momentum should continue in 2022 as families consider what could have been and what might still be.

Your Oxford team is positioned to ensure that our affluent family clients continue to develop thoughtful wealth enhancement strategies and implement them timely and efficiently. Consultation with your Oxford team and an analysis of the possible impact of any tax policy changes will allow your full team of advisors to identify the optimal solutions for your family.


The information in this presentation is for educational and illustrative purposes only and does not constitute tax, legal or investment advice. Tax and legal counsel should be engaged before taking any action. OFG-2112-16