Wednesday, December 23, 2009

The Latest on Estate Tax Reform

As of today, no movement has been made on the estate tax reform front. At this point, it seems unlikely that Congress will act before the end of the year which means that an event that many once thought to be impossible will soon become a reality: the repeal of estate and GST tax and the implementation of carryover basis.

However, yesterday Senate Finance Committee Chairman, Max Baucus, and Senate Finance Ranking Member, Chuck Grassley, pledged in writing to Senate Majority Leader, Harry Reid, to extend various expiring tax provisions early next year to provide for a seamless transition without a gap in coverage.

For 2009, there exists a $3.5 million lifetime exemption and a 45% max rate for estate and GST tax. In 2010, there would be no estate or GST tax, but the gift tax would remain at a 35% max rate. In 2011, if no changes are made, we will see the return of the pre-2001 system: a $1 million lifetime exemption, a 55% max rate, and no more carryover basis.

With 2009 on the verge of closing its books, much of the attention has now shifted to 2010 and what a potential change in the law could mean for taxpayers and practitioners. Questions abound as to whether the estate and GST taxes will be reinstituted and, if they are, will they be retroactive. Many are also probably wondering what the repeal means for their current estate plan and if additional steps should be taken to taken to take advantage of the new law.

Here are some items to consider:

1. Determining carryover basis is likely to be a challenge, but there are two exceptions to the carryover basis provisions (executor can allocate up to $1.3 million to increase basis assets and $3 million to increase the basis of assets passing to a surviving spouse under certain conditions). It is important to make sure your estate planning documents permit the executor to make these allocations.

2. The current GST exemption amount stands at $3.5 million. If you have done, or plan to do, any generation skipping planning, you may want to consider using up this exemption before the end of the year since it won't be around in 2010 and will only be $1 million in 2011.

3. Any gifts you are planning to make to grandchildren or "direct-skip" persons in trust can be done in 2010 when there is no GST tax. It is important to consider the possibility that any new legislation could be retroactively applied to such transfers when establishing these trusts.

4. Formula gift clauses in wills and trusts could become problematic. Often distributions made from trusts will be based on drafted formula clauses that reference the federal estate tax in calculating an amount passing to a beneficiary. Seeing as how there will be no federal estate tax in 2010, the application of such clauses could become complicated. It is important to review your documents to address any such issues.

Given that the bill passed by the House was highly partisan, it is difficult to divine what might happen next year especially considering 2010 is an election year. We here at Jeffrey Burr as surprised as anyone that we are on the verge of being able to say, "It's the end of the estate tax system as we know it... at least it is for now."

-Attorney Jeremy Cooper

January AFRs Announced

For the month of January 2010 the Applicable Federal Rates (AFRs) are as follows:

For this same period, the Section 7520 Rate will be 3.0%.
To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-01.pdf.

Tuesday, December 22, 2009

Year End Charitable Giving

As a follow-up to yesterday's post, we are incuding some additional year-end planning reminders relating to charitable giving.

It's that time of year again when you either donate your money to charity or turn it over to the government. To ensure your gifts are deductible in 2009, keep in mind the following general tax tips:

Timing of Gift. Your gifts must be made on or before December 31, 2009.

Type of Gift. Donations can be made in many forms, such as cash, stock, personal property, real estate, life insurance policies, or a Charitable Rollover of your IRA.

Vehicles for Gift. Gifts can go directly to a qualified charity or instead be made through the use of another planned giving vehicle, such as donor advised fund, charitable remainder trust or charitable lead trust.

Limitations on deductibility. Certain limitations may apply as to how much of gift may be tax deductible (depending on type and amount). Be sure you are going to get the deduction you expect to get.

Coming tomorrow: Jeffrey Burr's update on the state of estate tax reform... stay tuned!

-Attorney Jeremy Cooper and Attorney David M. Grant

Monday, December 21, 2009

Year-End Estate and Gift Tax Planning Points

With a little more than one week left in the year 2009, we wanted to provide a few reminders and planning points that should be considered:

1. Irrevocable Life Insurance Trusts (ILITs): If you have made contributions/deposits to your ILIT for payment of the premium this year, have you also prepared and sent the annual Crummey letter? (Named after the court case that provided for completed-gift status of annual exclusion gifts for payment of life insurance premiums). Consistent with the funny-named case on this point, letters should be sent to the trust beneficiaries informing them that a deposit has been made in the trust’s account and that the beneficiaries are entitled to request withdrawal and payment from the trust.

2. Annual Gifts: For tax year 2009, Federal tax law permits a person to give up to $13,000 per year to any other person (and as many people as one may choose). This is called the “annual exclusion” amount. If you have given away cash or property in excess of this amount during this calendar year, then a gift tax return should be filed to report this fact. Please call us or notify your CPA to make sure this important return is prepared and filed. Gifts in excess of the $13,000 are taxable, but if you have remaining “lifetime exclusion” amount you can apply this to this gift so that no tax payment is required. If you have not made annual gifts this year, it is not too late to do so if this is part of the strategy you and your attorney have implemented for reducing your taxable estate.

3. Other items to consider relating to your basic estate planning:

Have there been marriages, divorces, births or deaths that would impact your current plan?

Are your home and/or other real properties owned by your trust? (We frequently discover that when a client refinances a property that this event will often result in the removal of the family trust as the owner of the property.

Are all your accounts owned by your trust? (Newly opened accounts may have been overlooked).

Are the balances of your accounts within “safe” FDIC limits?

Are your Successor Trustees, Executors, and named agents on your powers of attorney still appropriate? (Watch for an update on powers of attorney in our upcoming Client Focus newsletter)

Have you met with an attorney to review your plan within the past few years? 2010 may be a monumental year for changes in the Federal Estate Tax with the repeal for estate tax looming. This will likely have an impact on almost every old estate plan.

-Attorney Jason Walker

Wednesday, December 9, 2009

Jeffrey Burr Attorney, David Grant, to Present at First Annual Southwest Tax Conference


Jeffrey Burr's director of Estate Planning, David Grant, presented a session on Grantor Trusts during the Nevada Society of CPA's first annual Southwest Tax Conference (for more info on the conference, click here: http://www.nevadacpa.org/Tax_Conference/Tax_main.htm).

Mr. Grant's presentation addressed the commonly used estate planning vehicle known as the grantor trust. Grantor trusts are powerful income and estate tax planning tools that clients commonly use to avoid probate, to manage the distribution and administration of their assets after death and/or to facilitate the transfer of wealth out of one’s estate for the ultimate benefit of another party while retaining the ability to pay any income taxes due on income earned by the trust’s assets. Although every estate plan is different, because grantor trusts are a very effective and flexible type of trust, they are often the trust of choice for the experienced estate planner.

To obtain a copy of the outline Mr. Grant used for his presentation, please contact our offices. Included as an exhibit in the Grantor Trust outline is an article on grantor trusts and their income tax filings options which was authored by Jeremy Cooper, an associate attorney with Jeffrey Burr. The article was published in the Silver State CPA Journaland can be read by clicking here and turning to page 10 of the Journal.

Estate Tax Legislation Passed By the House

Since our last post, there has been some movement on the Estate Tax Reform front. On Thursday, December 4, with no Republican support, the House passed the Pomeroy bill providing a permanent extension of 2009 law (225 – 200. click here for a breakdown of the votes: http://politics.nytimes.com/congress/votes/111/house/1/929.

As a reminder, the Pomeroy Bill is summarized as follows:

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).

While Jeffrey Burr recognizes that the passage of this Bill is only the beginning of a potentially complicated process, we felt it important to inform you of the activities taking place on the Hill with regard to Estate Tax Reform. We also feel it is important to point out that this bill does not address, negatively or otherwise, GRATs or valuation discounts. Stay tuned.

Please do not hesitate to contact Jeffrey Burr with any questions regarding Estate Tax Reform or any other Estate Planning or Probate matter.