HR 601119th CongressIn Committee

Estate Tax Rate Reduction Act

Introduced: Jan 22, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Estate Tax Rate Reduction Act would amend the Internal Revenue Code to set a flat 20% rate for the tax on estates, gifts, and generation-skipping transfers (GST). It replaces the current graduated rate structure with a single rate, and it makes a series of conforming changes to other code provisions so they align with this new flat rate. The amendments would apply to transfers occurring after December 31, 2024 (i.e., starting in 2025). The bill also states that its budgetary effects are not to be entered on certain PAYGO scorecards. In short, the bill would substantially reduce the tax bite on large transfers by replacing a tiered system with a uniform 20% rate.

Key Points

1Establishes a flat 20% rate for the tentative tax on estates, gifts, and GST transfers, replacing the existing rate structure described in section 2001(c) of the Code.
2Makes conforming changes to various related sections (2056A, 2107, 2201, 2641, 2801, 6601(j)) to reference the new single rate rather than a tiered schedule and to adjust how the GST rate is calculated.
3Clarifies GST treatment by defining the applicable rate as the product of the new 20% rate and the transfer’s inclusion ratio.
4Applies the new rate to transfers occurring after December 31, 2024 (i.e., starting with 2025 tax years).
5States that the budgetary effects of these amendments shall not be entered on certain PAYGO scorecards.

Impact Areas

Primary group/area affected: Individuals and estates subject to estate, gift, and generation-skipping transfer taxes; estate planners and executors administering large estates or gifts.Secondary group/area affected: Beneficiaries of large estates or gifts; trustees and charitable remainder trust planning; financial and tax advisors specializing in high-net-worth planning.Additional impacts: Potentially significant revenue implications for the federal government due to the reduction from a progressive/tiered rate structure to a flat 20% rate; changes to planning strategies around estates and intergenerational transfers; changes in how GST taxes are computed due to the inclusion ratio interaction with the new rate. The bill does not address changes to exemptions or base amounts beyond the rate itself.

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