Tuesday, November 24, 2009

Update on Estate Tax Reform Bills

Below is a summary of the most recent bills introduced in late October and November of 2009 that would have an impact on the Federal Estate Tax as we now know it. As the law currently stands the Federal Estate Tax is set to be eliminated for estates in 2010, with a sunset of prior law with low exclusion amounts and higher tax rates returning in 2011. There have been many proposed bills this year to make permanent or at least make a temporary change for 2010.

Below is a summary. More detailed information and actual bill language can be found at http://www.govtrack.us/.

1) H.R. 4154 – proposed by Rep. Earl Pomeroy (D – ND) on 11/19/09 titled Permanent Estate Tax Relief for Families, Farmers, and Small Business Act of 2009.

  • Would make permanent the $3.5M applicable exclusion amount.
  • Would freeze estate and gift tax rates at 45%.
  • Replaces (and hopefully eliminates H.R. 436 introduced 1/1/09 which had significant restrictions in valuation discounts often used by estate planners).

2) S. 2784 – proposed by Sens. Thomas R. Carper (D – DE) and George V. Voinovich (R – OH) on 11/17/09.

  • Would make permanent the $3.5M applicable exclusion amount.
  • Would freeze estate and gift tax rates at 45%.
  • Indexed for inflation.

3) H.R. 4015 – proposed by Rep. Jerry McNerney (D – CA) on 11/4/09

  • Would make permanent the $3.5M applicable exclusion amount.
  • Would freeze estate and gift tax rates at 45%.
  • Indexed applicable exclusion amount would be indexed for inflation rounded to nearest multiple of $10,000.
  • Change to IRC §2057(a)(2) – family-owned business interests deduction increased to $8 Million.
  • Exclusion of farmland from estate tax if use continues as farmland for 8 years following death of decedent and material participation by family members.

4) H.R. 3905 – proposed by Rep. Shelley Berkley (D – NV) and Kevin Brady (R – TX) and Artur Davis (D – AL) and Devin Nunes (R – CA) on 10/22/09.

  • Provides for increasing applicable exclusion amounts: 2009 ($3.5M) to 2019 ($5.0M), indexed for inflation thereafter.
  • Provides for decreasing tax rates:1% decrease each year starting at 45% in 2009 reaching 35% in 2019 and staying at 35% thereafter.

Friday, November 20, 2009

Morris Named "Rising Star" -- Congratulations Bob!

Robert L. Morris, an associate attorney at Jeffrey Burr, was named to the list of 2009 Mountain States Rising Stars, by the publication Super Lawyers (view the Supper Lawyers website here).

This publication recognizes the top up-and-coming attorneys in each state-those who are 40 years old or younger, or who have been practicing for 10 years or less. The selection process is a comprehensive, good-faith and detailed attempt to produce a list of those lawyers that have attained high peer recognition, meet ethical standards, and have demonstrated some degree of achievement in their field. No more than 2.5 percent of the eligible attorneys in each state are named to the Rising Stars list.

Bob is absolutely deserving of this high and select honor. Congratulations, Bob! To read more about Bob Morris, you can view his profile here.

IRS Rules on Domestic Asset Protection Trust

On October 30, 2009, the IRS released Private Letter Ruling (PLR) 200944002, wherein the IRS privately ruled that a self-settled spendthrift trust, from the State of Alaska, was not includable in the settlor’s gross estate merely because the terms of the trust allowed the settlor to receive, in the discretion of the trustee, distributions of income and principal from the trust.

This ruling indicates the possibility that a settlor may transfer property into a Domestic Asset Protection Trust (“DAPT”), or Nevada On-Shore Trust (“NOST”), as we like to call it in the State of Nevada, in a way where such property is not includible in one’s gross estate for estate tax purposes, while such settlor remains eligible to receive trust distributions from the trust.

Even though 12 states have now passed some form of a DAPT statute, it appears that only Nevada and Alaska would have laws allowing for a transfer to such a trust to qualify as a completed gift, thereby making the transferred assets non-includable in the gross estate of the settlor for estate tax purposes. This is because Rev. Rul. 2004-64 seems to say that if any of the settlor’s creditors are able to reach the DAPT’s assets, the assets of the trust will be includable in the gross estate of the settlor.

As an example, many of the DAPT states provide access to the trust by a deceased settlor's spouse or minor children at the time of the settlor’s death. Because such statutory provisions would seem to allow access by “creditors,” a state having such a law would probably not be a good jurisdiction in which to avoid estate inclusion by a transfer to a DAPT. (See, Reg. § 20.2036-1(b)(2) which states that inclusion occurs "to the extent that the use, possession, right to the income, or other enjoyment is to be applied toward the discharge of a legal obligation of the decedent, or otherwise for his pecuniary benefit. The term “legal obligation” includes a legal obligation to support a dependent during the decedent's lifetime.")

Utah’s DAPT statute provides another example of one potentially allowing a creditor of the settlor to reach assets. In Utah, the State can attach assets of the trust in satisfaction of the settlor’s debts owed to the State, such as for taxes owing to the State of Utah by the settlor. (See, Utah Code Ann. § 25-6-14(1)(c)(viii)) Thus, under Rev. Rul. 2004-64, the assets of a Utah DAPT would most likely be includable in the estate of its settlor.

Therefore, the NOST is the perfect self-settled trust tool, not only for protecting one’s assets from creditors, but also for providing significant estate tax and wealth transfer planning opportunities. For more information on the NOST, please visit the Jeffrey Burr website or call us at 702-433-4455.

Remember, PLRs give great guidance and insight but are only binding on the requesting taxpayer. They cannot be relied upon as legal precedent by others. A Copy of this PLR can be found at http://www.irs.gov/pub/irs-wd/0944002.pdf.

-Attorney David M. Grant

Thursday, November 19, 2009

Happy Thanksgiving!


** Borrowed from Glick, Utah Bar Journal, Volume 22 N. 6 Nov/Dec 2009, pg.24.

Wednesday, November 18, 2009

December AFRs Announced

For the month of December 2009 the Applicable Federal Rates (AFRs) are as follows:

For this same period, the Section 7520 Rate will be 3.2%.
To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-09-38.pdf. If you have further questions please contact us at 702-433-4455 or visit our homepage at http://www.jeffreyburr.com/.

Monday, November 16, 2009

Avoid Termination of S Status by Curing Disproportionate Distributions After the Fact

On October 30, 2009, the IRS released Private Letter Ruling (PLR) 200944018, wherein the IRS privately ruled that in the year following a disproportionate distribution from an S corporation, such disproportionate distribution could be cured to avoid the inadvertent termination of the corporate S election. Even though the curing measure in the following year resulted in a non-pro-rata distribution, the traditional problem of creating a second class of stock was not an issue.

Remember, PLRs give great guidance and insight but are only binding on the requesting taxpayer. They cannot be relied upon as legal precedent by others. A copy of this PLR can be found at http://www.irs.gov/pub/irs-wd/0944018.pdf.

-Attorney David M. Grant

News Flash: Congress may yet enact estate tax legislation in 2009

On October 14, 2009, House Ways and Means Committee Chairman Charles Rangel (D-NY) indicated his committee was considering moving forward on estate tax reform.

Then on October 22, 2009, Mr. Rangel said he was working on 2009 legislation to make estate tax legislation permanent. These legislative options will likely be discussed at the Democrats’ next committee caucus meeting later this week.

According to Ron Aucutt, a partner at McGuire Woods LLP in McLean, Virginia, on that same 22nd day of October, members of the House Ways and Means Committee, namely Shelley Berkley (D-NV), Kevin Brady (R-TX), Artur Davis (D-AL), and Devin Nunes (R-CA) introduced H.R. 3905, called the "Estate Tax Relief Act of 2009." Mr. Aucutt stated that “Under this bill, in each of the ten years from 2010 through 2019, the estate tax applicable exclusion amount would increase by $150,000 and the top rate would decrease by 1 percent. Thus, by 2019 the exemption and rate would be $5 million and 35 percent.”

He also said that “…the deduction for state death taxes would be reduced 10 percent per year through 2019, when it would be eliminated entirely” and that “… the $5 million exemption would be indexed for inflation after 2019.” According to Mr. Aucutt, “H.R. 3905 would also abandon carryover basis and make permanent the other 2001 transfer tax changes, including the several helpful rules regarding allocation of the GST exemption.”

It appears committee members are now getting ready to discuss the estate tax in 2009, even though according to Aucutt, it is unlikely that the Democratic Caucus will ever support a bill such as H.R. 3905. (The above information was derived from the LISI Estate Planning Newsletter # 1539 on October 26, 2009).

If you have any comments or questions regarding this news flash or estate tax planning in general, please feel free to contact an attorney at our office. http://www.jeffreyburr.com/

-Attorney David M. Grant

We not only blog, we plan estates, too!

Our firm includes a team of attorneys who handle estate planning, probate, trust administration and guardianship matters, and twenty members who make up our dedicated support staff. Our entire team is dedicated to helping our clients find the very best legal solutions for their legal concerns, and our knowledgeable paralegals help keep our fees down where it is appropriate for a paralegal to be involved. In addition to our staff, we work with a variety of experts outside our office who can help us analyze your position and provide you with solutions.

At Jeffery Burr, we understand that many of our clients face difficult challenges during the estate planning or probate process. Providing caring and compassionate counsel throughout the process, we will do everything we can to provide you with the legal services you need to make the right decision for your family. We offer evening and weekend appointments, and we try to facilitate in-home visits when necessary. We also provide legal counsel in Spanish.

Visit our website at www.jeffreyburr.com.