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On the Estate and Gift Law Tax Changes

10 Responses

1. Ann Miller RN MHA, on January 6, 2011 at 11:29 AM said:

   Attorneys Face Difficult Choices on 2010 Estates

   Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the executors of decedents who pass away in 2010 may choose either an estate tax option or the existing repeal of estate tax and a limited step-up in basis.

   There are likely to be three general categories for the 2010 estates. First, the estates under $5 million in taxable value are likely to choose the estate tax with a $5 million applicable exclusion amount and the normal Sec. 1014 step-up in basis. These estates will not pay estate tax and the heirs will receive higher-basis assets to the extent that is permissible. Only regular IRAs, installment notes, commercial annuities and a few other types of assets will not receive a step-up in basis.

   The second category is very large estates. These large estates are likely to select the repeal of estate tax option for 2010. There still will be challenges for executors and estate attorneys with those estates. While these estates (including those of at least five billionaires) will not be required to pay estate tax, there is a limited step-up in basis of $1.3 million for heirs, or $3 million for a surviving spouse. The allocation of this limited step-up in basis will require great negotiating skills.

   The third category will be estates of $5 million to $15 million. Executors and estate attorneys for this group will need to weigh a number of factors to determine whether it is better to pay some estate tax now and less capital gains tax later.

   A multitude of factors will be relevant in making that determination. Executors will start by calculating the estate tax payable with a $5 million exemption and the traditional estate tax rules. The comparison of the present value of potential future capital gains tax will be much more challenging.

   It will be necessary to review the basis for all estate assets, project a potential future sale date for each asset, increment asset values for inflation, determine the probable capital gains tax rate for each beneficiary and then select a discount rate to calculate a present value of each tax payment. There also may be liquidity needs and changes in future income and capital gains tax rates that impact the assumptions. Given the complexity of this option, it will be important to obtain beneficiary consents before electing to pay estate tax.

   Source: Children’s Home Society of Florida Foundation

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2. Jordan, on January 14, 2011 at 2:21 PM said:

   New Gifting Tax Rules

   Yep Chris – The new tax rules in 2011 will make it very worthwhile for some doctors and other people to give big gifts to friends or family. Why? The new ceiling is $5 million, at least for this year and next.

   http://www.fa-mag.com/pw-mag/pw-news/6663-new-tax-rules-make-big-gifts-appealing.html

   Jordan
   [Financial Advisor]

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3. Dr. David Edward Marcinko MBA CMP, on March 22, 2011 at 8:35 PM said:

   Excellent post, Chris

   Correct – Jordan. Under the new law, the federal estate tax exclusion is $5 million: that’s the amount you can leave, tax-free. What’s more, this $5 million exclusion is “portable” between spouses. Any exclusion not used by the first spouse to die passes to the surviving spouse.

   Dr. David Edward Marcinko MBA CMP
   [Editor-in-Chief]

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4. Ann Miller RN MHA, on March 30, 2011 at 2:34 PM said:

   White House Estate Tax Proposals

   Each January the White House submits its proposed budget for the fiscal year that starts the following October 1. The White House budget for fiscal year 2012 includes five specific proposals that impact estate taxation and estate planning.

   With a $5 million applicable exclusion amount per person for 2011, an estimated 3,600 estates will owe tax. More than 99.8% of 2011 decedents will not be subject to the estate tax with an exemption of $5 million. If the exemption had been lowered to $3.5 million (the rate in 2009); 5,500 estates would be taxable. With an exemption of $1 million (plus indexed increases), Treasury estimates that 40,000 estates would be subject to tax.

   The White House budget proposes estate tax changes in the following five areas.

   1. Marital Portability – In 2011 and 2012, a spouse may have an increased exemption from $5 million to as high as $10 million. The deceased spouse unused exclusion amount (DSUEA) could increase the available applicable exclusion to double the single person amount. However, because the current law applies for two years, the one spouse would need to pass away in 2011 and the second in 2012 to qualify. The White House budget proposes making the marital portability provision permanent.

   2. Consistent Basis – The assets transferred through an estate in most cases will receive a step-up in basis. The proposal creates additional documentation requirements that will insure recipients who later sell assets value the basis in a manner consistent with the claimed estate value.

   3. Valuation Discounts – For transfers of real estate, limited partnership interests, family business stock and limited liability company interests, there frequently are valuation discounts that may range from 20% to 40% or more. The White House proposes that these discounts be reduced or eliminated for family transactions.

   4. Grantor Retained Annuity Trusts – The GRAT will be limited to a minimum of ten years. In addition, the annuity will not be permitted to decrease during that term. Finally; a remainder value greater than zero must be utilized.

   5. Dynasty Trusts – Several states have repealed the statue of limitations. A “dynasty” trust that in theory can be perpetual is therefore possible in these states. The White House proposes that there would be a limit on the duration of dynasty trusts.

   Source: Children’s Home Society of Florida Foundation

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5. Frank, on April 1, 2011 at 6:08 PM said:

   IRS Extends Form-Filing Deadline to Complete 2010 Estate Taxes

   The IRS is extending the filing deadline of a form needed to help determine the taxes on estates of people who died in 2010.

   http://www.fa-mag.com/fa-news/7134-irs-extends-form-filing-deadline-to-complete-2010-estate-taxes-.html

   Frank

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6. Hope R. Hetico RN MHA, on August 13, 2011 at 2:21 PM said:

   IRS Notice on 2010 Estates

   In Notice 2011-66; 2011-35 IRB 1 (4 Aug 2011), the IRS published long-awaited guidance on 2010 estates.

   In the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the estate tax was reinstated for individuals who passed away in 2010. However, the option is granted to executors of 2010 decedents to opt out of the estate tax. The election to opt out of the estate tax will be made on IRS Form 8939, “Allocation of Increase in Basis for Property Acquired from a Decedent.”

   Notice 2011-66 clarifies many of the issues arising due to the ability to remain within the estate tax or elect out of the tax for 2010 decedents. The Sec. 1022 election out of the estate tax requires the executor to file Form 8939 by November 15, 2011. However, if the IRS receives Forms 8939 from multiple parties who are all claiming a portion of the basis step-up amount, then the IRS will resubmit a letter to each person who filed a Form 8939. All of the beneficiaries will “collectively sign and file a single, restated Form 8939.” If the restated 8939 is not received within 90 days from the date the IRS has mailed letters to beneficiaries, the IRS will allocate the available increase in basis.

   Form 8939 will be published “early this fall.” The executor will be required to report and value all property except cash and Sec. 691 IRD property on that form.

   Generation skipping tax was also retroactively reinstated for 2010 decedents. However, the GST rate was deemed to be zero, which will create an applicable rate of zero.

   For inter vivos direct skips that are reported on IRS Form 709, there is an automatic allocation of GST exemption. It will be possible (and desirable due to the zero GST tax rate in 2010) to elect out of that automatic allocation of exemption.

   Because the statute was signed on December 17, 2010, an inter vivos GST transfer made prior to that date should be reported by September 19, 2011. GST transfers on Schedule R that are attached to Form 8939 may be reported by November 15, 2011.
   
   Source: Children’s Home Society of Florida Foundation

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7. Ann Miller RN MHA, on September 19, 2011 at 2:32 PM said:

   Six-Month Estate Tax Extension

   In Notice 2011-76; 2011-40 IRB 1 (13 Sept 2011), the IRS announced a six-month extension for filing estate tax returns and paying estate tax for 2010 decedents.

   The IRS Form 706 Estate Tax Return is normally due nine months after the date of the death. Most executors have typically requested a six-month estate tax return extension. However, the tax normally is required to be paid within nine months of death.

   Under this Notice, executors may file Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes and receive a six-month extension in both the filing date and payment of estate tax. Executors for decedents who passed away from January 1, 2010 to December 16, 2010 will have their due date for filing returns and paying tax extended until March 19, 2012. This is a recognition of the challenges executors and estate attorneys face in addressing the options for 2010. The six-month extension will permit executors and attorneys a greater period of time to gather all of the relative documents and appraisals to file the estate tax return.

   Executors of 2010 decedents with death dates from Dec. 17 to Dec. 31 who request an extension will have 15 months to file and pay estate taxes.

   Most larger estates will make a Sec. 1022 election to opt out of the estate tax. While they will not pay estate tax, the larger estates will then be subject to carry-over basis rules. The larger estates will be required to file IRS Form 8939. Fortunately, the Notice changes the Form 8939 filing date from November 15, 2011 to January 17, 2012.

   Estates with values moderately in excess of $5 million may choose to file the estate tax return and pay a moderate estate tax. In exchange for payment of the estate tax, they will receive a step-up in basis on most assets. It may be beneficial to pay a modest or moderate estate tax and reduce future potential capital gains tax exposure.

   Larger estates are much more likely to make the Sec. 1022 election out of estate tax. However, these estates may need to gather extensive records to document the basis in the estate assets. The IRS has still not released the final Form 8939, “Allocation of Increase in Basis for Property Acquired from a Decedent.” It is anticipated that this form will be released later this year.

   Source: Children’s Home Society of Florida Foundation

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8. Ann Miller RN MHA, on October 23, 2011 at 1:43 PM said:

   Estate Exclusion Rises to $5.12 Million

   In Rev. Proc. 2011-52; 2011-45 IRB 1 (20 Oct 2011), the IRS published inflation adjustments for income, gift and estate taxes for 2012.

   There are several changes that affect gift and estate taxes. The applicable exclusion amount for gift and estate taxes is now indexed. It will increase from $5 million in 2011 to $5.12 million in 2012. The annual exclusion amount for present interest gifts will remain $13,000.

   For qualified farm and ranch property, the reduction due to special use valuation under Sec. 2032A will be limited to $1,040,000. Gifts to a non-citizen spouse are limited to $139,000. Finally, for the extension of estate tax payments under Sec. 6166, the 2% interest portion of the estate tax is increased to $1,390,000.

   Multiple changes were made to income tax provisions. There are updated brackets for married couples filing jointly, single persons, heads of household, married filing separately and trusts. The top 35% tax bracket will be $388,350. For trusts, the top bracket starts at $11,650.

   The “kiddie tax” exclusion will continue to be $950. Standard deductions will also increase. The married couple filing jointly deduction will be $11,900. Heads of household will receive $8,700 and single persons $5,950. The aged/blind additional deduction of $1,150 or $1,450 for single persons and heads of household will remain unchanged.

   The personal exemption will increase to $3,800. Those who qualify for expensing deductions may use a limit up to $139,000.

   Finally, charitable gift limits for token gifts also will increase. A “low cost” article is a premium for donors with the logo or other identifying information of the charity. If a person makes a gift of $49.50 or more, the charity may transfer a “low cost” article under the applicable limit to the donor with no tax impact.

   For individuals who make larger gifts, the premium may be up to 2% of the gift, but may not exceed $99.00.

   Source: Children’s Home Society of Florida Foundation

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9. Amber, on December 22, 2013 at 9:55 PM said:

   TRA

   The 2010 Tax Relief Act reunified the estate and gift tax exclusions at $5 million (indexed for inflation), and the American Taxpayer Relief Act of 2012 made the higher exemption amount permanent while increasing the estate and gift tax rate to 40% (up from 35% in 2012).

   Because of inflation, the estate and gift tax exemption is $5.34 million in 2014. This enables individuals to make lifetime gifts up to $5.34 million in 2014 before the gift tax is imposed.

   Amber

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10. Randy, on November 29, 2014 at 1:13 PM said:

    Seven Tips for Managing Your Digital Estate

    Given how much critical information is stored on electronic devices, financial advisors need to provide guidance to help clients manage the digital part of their wealth protection strategy.

    http://wealthmanagement.com/estate-planning/seven-tips-managing-your-digital-estate?NL=WM-10&Issue=WM-10_20141128_WM-10_969&sfvc4enews=42&cl=article_1&YM_RID=CPG09000002702210&YM_MID=1227#slide-0-field_images-715801

    Randy

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