Friday, January 20, 2012 February AFR
The February AFR's were released yesterday. The rates remain at a historic low. The short-term rate (.19%) and the Section 7520 rate (1.4%) remain the same as last month. The mid-term rate (1.12%) and long-term rate (2.58%) have gone down slightly. With the gift tax exemption increased to $5,120,000, in 2012, this is an exceptional time to do life-time estate planning with your clients. While you are meeting with them for the preparation of their income tax returns you should be discussing the fact that with rates this low they should be considering estate planning techniques that are available.
As always Neil and I remain available to assist you and your clients in this regard.
Bob Katz
Monday, January 16, 2012 Form 8939 - Allocation of Increase in Basis for Property Acquired From a Decedent
Reminder: If you have a client who died in 2010 and the executor wants to elect out of the estate tax and into the carry-over basis regime, Form 8939 must be filed. The deadline for filing the return is tomorrow, January 17. There are no extensions of time to file this form. In addition, as I have stated in a previous blog, the only way to elect out of the estate tax, for 2010 decedents, is to timely file this form.
Bob Katz
Tuesday, November 01, 2011 Inflation Adjustments
The IRS is issuing Rev. Proc. 2011-52 which will provide inflation adjustment amounts for various items beginning in 2012. Some of the adjustments are particularly important to estate planning.
While the gift tax annual exclusion amount will remain at $13,000 for the 4th consecutive year, the exemption equivalent of the unified credit for gift and estate tax purposes is being adjusted to $5,120,000. In addition the GST exemption amount is increasing to $5,120,000.
It is also important to remember that interest rates are at a historic low, values are still not rising and discounts on intra-family transfers are still viable. Now is an incredible time for clients to be doing estate planning!
If we can be of any assistance to you or your clients, do not hesitate to contact Bob or I.
Neil
Tuesday, December 21, 2010 Generation Skipping Tax - Urgent
We will be posting a summary of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (hereinafter referred to as the "Act." However, there is one provision that requires immediate attention regarding the Generation Skipping Transfer Tax (GST).
As you know, this Act extends the Bush Tax cuts for two years (2011 and 2012). In addition, it reinstates the Estate, Gift and Generation Skipping Taxes.
The GST has been reinstated retroactively to January 1, 2010. However, the Act states that for 2010 the tax rate is zero. The gift tax exemption has been increased from $1 million to $5 million effective for gifts made on or after January 1, 2011 and before January 1, 2013.
A transfer to a trust for the benefit of a grandchild is treated as a direct skip and subject to the GST. Therefore, a very wealthy taxpayer could establish a trust for a grandchild, before January 1, 2011, that would be GST tax-free (as a result of the zero tax rate) and which will never be subject to the GST, in later years, when distributions are made to that grandchild.
Example: William Wealthy sets up a trust for the benefit of his granddaughter, Wendy, in the amount of $10 million. This transfer will create a generation skipping transfer of $5 million ($10 million minus the $5 million exemption). Due to the fact that 2010 generation skipping transfers are subject to a zero tax rate no tax will be paid.
However, for 2010 this will be treated as a $9 million taxable gift (assuming that the taxpayer has not previously taken advantage of the 2010 exemption of $1 million). This will create a gift tax exposure of $3.15 million ($9 million times the 35% gift tax rate).
While many taxpayers have no tolerance for the payment of any tax, please understand that the $10 million gifted will grow estate and GST tax-free. In addition, if the grandfather lives for 3 years the gift tax paid is out of his estate and regardless of when he dies the growth in value of the $10 million that he gifted is also removed from his estate.
Clearly this is a technique that is only available to our weathiest clients who understand the benefits to be derived and have the tolerance for the payment of the gift tax.
To take advantage of this technique time is critical. The trust must be established and the gift into the trust must be made on or before December 31, 2010. If you require more information or assistance in this regard please contact Neil or me.
Bob Katz Tuesday, July 06, 2010 GRATs
Both the House and the Senate are considering changes to the taxation of GRATs that would greatly reduce the estate and gift tax savings that GRATs generate. The changes would prohibit the establishment of short-term GRATs by requiring a minimum term of 10 years. In addition, it would eliminate zeroed-out GRATs by requiring that there be a minimum amount in the GRAT at the end of its term. Therefore, if any of your clients are considering establishing a GRAT or you are recommending a GRAT to your clients the GRAT should be established now, before any change is effective. If you or your clients require any assistance please call our office and speak to Neil or Bob. Tuesday, March 16, 2010 QTIP election for NYS
With the current no-federal estate tax situation, a question arose as to whether a QTIP election could be made for the NYS estate tax. New York State law did not allow a separate QTIP election. A QTIP election was allowed for NYS estate tax purposes if the election was made on the federal estate tax return. Where there is no federal estate tax, or no estate tax return was required to be filed a separate NYS QTIP election could not be made.
New York State Department of Taxation and Finance has now rectified this problem with the issuance of TSB-M-10(1)M (issued on March 16, 2010). A separate NYS QTIP election can be made by attaching a pro-forma federal estate tax return to the NYS estate tax return.
The TSB states that for the year 2010, if there is no federal estate tax, the federal form to be used for the pro-forma purposes is the Form 706 (Rev. 9-2009) used for decedents dying in 2009. Tuesday, February 16, 2010 Pay-As-You-Go (PAYGO)On February 12, President Obama signed into law the Statutory Pay-As-You-Go Act of 2010. The bill requires that any new non-emergency legislation affecting tax revenue not increase the federal deficit. In other words, any tax reduction provisions must be paid for by other tax increases.
It is interesting to note that the following tax provisions have been exempted from PAYGO:
Extension of the 2009 Estate and Gift Tax provisions;
An Alternative Minimum Tax patch;
A permanent extension of the Section 179 increases; and
Making permanent any middle class tax cuts (i.e. reduced capital gains and dividend rates, educational incentives, elimination of limits on personal and dependency exemptions and itemized deductions, and tax rate reductions). Monday, February 01, 2010 Heckerling Estate Planning ConferenceNeil and I just returned from Orlando Florida where we spent the last week listening to the "experts" regarding the current status of the estate tax and what Congress is planning to do. As you know, from my previous blog, Congress did not act prior to December 31, 2009 and therefore we presently have no estate tax for people dying in 2010. Unfortunately, the experts pointed out the problems with regard to the estate tax suspension for one year but were not able to add any insight as to what Congress may do and when they may do it.
However, they all seem to suggest that if Congress does not act within the next month no legislation will take place until after the mid-term election in November.
The next issue that they discussed was the constitutionality of a retroactive reinstatement of the estate tax law, for people dying in 2010. The general consensus is that since this is not a "new tax" it would be constitutional. Although they all believe that if the tax is made retroactive to January 1, 2010, there would be a number of law suits brought to challenge it.
Married clients, who had standard credit shelter wills, face special problems if they die in 2010 without the tax being retroactively reinstated. This results from the standard language that establishes the credit shelter trust which is based upon the maximum amount to create the minimum estate tax. Since there is no estate tax, the maximum amount would be the entire estate of the first of the spouses to die. This could create undisireable results for the survivor and their children. Therefore, it is important that elderly and infirmed married couples review their wills with competant counsel to avoid problems if one of them passes in 2010 and there is no estate tax.
Finally, the suspension of the estate tax has brought with it "carry-over" basis, which itself creates issues. For example, it is unclear as to whether carry-over basis only applies to assets sold in 2010 of an individual that died in 2010. The law provides that the estate tax and "fair market value" basis returns in 2011 as if the 2010 provisions "never applied." Does this mean that if an individual died in 2010, with no estate tax, and assets are sold in 2011 and later years the basis for those assets are the fair market value on the date of death or alternate valuation date?
There are many issues outstanding . This may be the first time that the phrase "it is what it is" has no meaning at all.
As always we are here to help you and your clients muddle through this maze. Wednesday, December 30, 2009 2010 Where do we go from here?Here we are on December 30, 2009 and there has been no change to the upcoming one-year repeal of the Federal Estate Tax. If anyone had told me, at any time within the past ten years, that I would be discussing the repeal at this time I would have told them they were crazy. But it appears that the truly crazy people are our elected officials in Washington.
Let me give you something to think about and we would like to hear what you have to say in this matter. There are two possible senarios that we must contemplate:
First- Congress will do nothing in 2010 to the estate tax. If this happens there will be a one year moratorium and many plugs will be pulled. For people dying in 2010 there will be no estate tax, the beneficiaries (with limited exceptions) will inherit assets with a carry-over basis (instead of a stepped-up basis) and gifts over and above the annual exemptions and life-time exemption will be taxed at a rate of 35%. On January 1, 2011 the estate and gift taxes will revert to the rules that were in place ten years ago (Exemption of $1,000,000 and maximum tax rate of 55%).
Second- During 2010 Congress will enact a "permanent estate and gift tax law." Based upon bills introduced into the House and the Senate, in 2009, the exemption may stay at the $3.5 million level, the tax rate will be at most 45%, possibly lower, and stepped up basis will be reinstated.
Generally, the government does not like to pass tax legislation retroactively (unless it benefits taxpayers). Ponder this: A taxpayer dies early in 2010. Congress enacts an estate tax subsequent to the date of the taxpayer's death. What is going to happen?
Will the estate tax be applied retroactively? Will there be some blending of tax rates to soften the blow to the estate? Can you have two taxpayers who died in 2010, both with identical estate values, where one dies before the enactment and one dies after, where their estates are taxed differently?
Welcome to the State of Confusion. Your comments would be welcome.
Bob Katz
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