Thursday, December 23, 2010

Free tax update - Be one of the first to study the new tax bill from an estate planning perspective

$5 MILLION EXEMPTION, 35% RATES, PORTABILITY AND MORE...Congress recently passed the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” The provisions in this new law will usher in an unprecedented estate, gift, and GST tax regime for 2011 and 2012.

Join us for a review of the new laws and an interactive discussion on how to best serve our clients in light of the changes. Jeff Burr will be joining us real time from the University of Miami’s 45th Annual Heckerling Institute on Estate Planning to relay the latest planning tips and ideas as presented by the industry’s best and brightest.

Wednesday, January 12:
11:30 am - 12:00 pm: Registration
12:00 pm - 1:00 pm: Lunch and Presentation
7881 W. Charleston Blvd., Las Vegas 89117
or
2600 Paseo Verde Pkwy., Henderson 89074

Lunch will be provided. Those in attendance will receive an updated Estate Planning Checklist to use during client meetings. Please RSVP to Jamie Spring at 433-4455 or jamie@jeffreyburr.com.
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Those in attendance maintaining their CPA certification are eligible to receive 1 hour of CPE credit.

Wednesday, December 22, 2010

January 2011 AFRs Announced

Looks like rates are heading back up. For the month of January 2011 the Applicable Federal Rates (AFRs) are as follows:

In January the 7520 rate will be 2.4%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-2010-31.pdf.

Friday, December 17, 2010

On to Obama for Signing--House Passes the Tax Bill!

HOUSE PASSES "THE TAX RELIEF, UNEMPLOYMENT INSURANCE REAUTHORIZATION, AND JOB CREATION ACT OF 2010": WE ARE ON THE PRECIPICE OF AN UNPRECEDENTED ESTATE AND GIFT TAX REGIME

Late Thursday night House Democrats joined Republicans in staving off an attempt from Liberal Democrats to amend the bill passed by the senate yesterday and usher in an unprecedented estate and gift tax regime. The bill is now on its way to President Obama for his signature.

These changes are certain to have a profound effect on existing estate plans and clients currently considering putting plans in place. With a reduced estate and gift tax rate about to become law, coupled with all time high exemption amounts, the next two years stand to provide huge opportunities in terms of incorporating tax efficient wealth transfer planning strategies. Based on the new laws, as described below, clients may be staring at a limited window of opportunity to drastically reduce estate and gift tax exposure in very simple ways.

The following is a summary of some of the estate and gift tax provisions in the bill and the tax year to which they relate:

2010

1. Estates will be able to elect to be taxed at a 35% rate with a $5 million estate tax exclusion with a step-up in basis and $1 million gift tax exclusion.

2. Estates also have the option to forgo estate tax treatment and elect carryover basis.

3. Estate tax returns will be due no earlier than nine months from the date of enactment.

2011 and 2012

1. The estate and gift tax exclusion amount will be unified at $5 million and the maximum rate for both will be 35%.

2. Portability of the exclusion for individuals dying during 2011 and 2012 will be available to surviving spouses. The exclusion is only available from the last deceased spouse. (Might this create a new market for marriage?)

3. Step-up in basis returns, but assets placed in a by-pass trust will not receive an extra step-up in basis at the surviving spouse's death (but appreciation will be take place outside of the estate).

The increased exclusion amounts for lifetime gifts, along with the potential application of valuation discounts where appropriate, will give clients the ability to transfer significant amount of value out of their estates by simply gifting assets to loved ones. Where some clients may currently have sophisticated and complex planning in place, as deemed helpful under previous tax regimes, these new laws may provide significant opportunities to build on such prior planning.

As we head into a new year with a new set of estate and gift tax laws, now is an ideal time for us to sit down with our clients to reevaluate their current estate plans and see what possibilities exist to further reduce estate and gift tax exposure. Let's all make the most of the next two years!

Wednesday, December 15, 2010

Senate Passes Tax Bill

Here we go...by a vote of 81 to 19, the Senate voted today to lower the federal estate tax rate to 35 percent and to raise the applicable exemption to $5 million per person.

Now on to the house where Democratic leaders are debating among themselves on how to handle the estate tax. Many of such leaders say it should be 45 percent on estates worth more than $3.5 million. This could be their "bone," as discussed in yesterday's posting.

See: http://www.foxnews.com/politics/2010/12/15/tax-passes-senate-hits-hurdle-house/; http://www.smartmoney.com/personal-finance/taxes/tax-package-includes-favorable-estate-tax-changes-1292368597065/; and http://money.cnn.com/2010/12/15/news/economy/tax_deal_what_is_in_bill/.

--Attorney David M. Grant

Tuesday, December 14, 2010

The Built-in “Bone” of the Bill

I’m going to go out on a limb and say that the estate tax rate will ultimately reset a little higher than 35% and the exemption amount will come in lower than $5 million. Seems like the $5 million and 35% are just too good to be true (now this is just my gut). Obviously I could be wrong, but my feeling is that Obama and the Senate built in a “bone” to throw at the House, so that when they reduce the bill’s exemption amount and raise its rate they will look like fighters to their constituents.

Take a look at the “tea leaves” quote from Fareed Zakaria in a recent CNN interview. He said, “I think, in the end, [Obama will] get through the broad outline of the deal that he's struck with the Republicans. I think that there will be some changes, but I don't think they'll affect the broad outline. At least that's my sense right now.” The CNN interview can be read in full at http://bit.ly/gwupHz.

--Attorney David M. Grant

Monday, December 13, 2010

The Latest on Estate Tax Legislation

The State Column: “Rep. Chris Van Hollen: Tax compromise will pass, Estate Tax may not” – See http://bit.ly/fGxwUO

The Hill: “Van Hollen: Tax deal will come to floor, but estate tax is sticking point for Dems” – See http://bit.ly/g4eYqs

The Washington Times: “Democrats not pleased with deal on estate taxes” – See http://bit.ly/gZ5d1P

The Wall Street Journal: “The State of the Estate Tax: At Long Last, It Appears That Washington Has Agreed on New Estate-Tax Rules. Here's What You Need to Know” – See http://on.wsj.com/fTcxli

Forbes: “Weak Estate Tax Could Derail Tax Deal” – See http://bit.ly/gh0v6I

Friday, December 10, 2010

Mr. Reid Makes a Move (along with Mr. McConnell) on the Estate Tax

Just yesterday, our Senator from Nevada (who also happens to be the Senate Majority Leader), introduced legislation to extend the Bush Tax Cuts through 2012. The bill submitted by Mr. Reid, along with Senate Minority Leader Mitch McConnell, would provide, among other tax changes, the following:
  • The proposal would reunify the gift and estate tax exemptions at $5 million per person or $10 million per couple;

  • It would also set a $5 million generation-skipping transfer (GST) tax exemption going forward and zero percent rate for 2010;

  • The bill would decrease the top transfer tax rate to 35% for estate, gift and GST taxes beginning 2011;

  • While the proposed bill would be effective January 1, 2010, it would allow for an election to choose no estate tax and modified carryover basis for estates arising in 2010;

  • It would allow for portability of any unused exemption to a surviving spouse, based upon the election of the deceased spouse’s executor; and

  • It also appears to leave unchanged the laws relating to Grantor Retained Annuity Trusts and Valuation Discounting.

--Attorney David M. Grant

Thursday, December 9, 2010

The Federal Estate Tax - How Much Does it Mean?

This week, especially, there is a lot of discussion about taxes in general. Part of the discussion for the “Bush tax cuts” is the Estate and Gift Tax and the changes in rates and lifetime exemption amounts that have occurred since 2001. Although Estate taxes are exciting to the attorneys at our firm, and they have a daily impact on the planning that we do, there is an argument that the Estate Tax is not all that important. (That argument hurts our feelings).

Whether that argument advances the side pushing for reduction or total repeal, or whether that strengthens the argument for regression and reduction of the exemption amount to 2001 levels is not my place to say. However, it is interesting to see how much (or how little) of a benefit the Federal Government does receive from the Estate and Gift tax program.

Federal Receipts for 2001 under the Estate and Gift Tax program resulted in $28.4 Billion.* (I look at 2001 because it was a year prior to effective changes to the Estate Tax). That number sounds large; extremely large. Until compared to the total receipts under the Individual Income Tax, Corporate Income Tax, Employment Tax, etc. The Estate Tax produced only 1.43% of the Treasury’s receipts for 2001. With the decrease in Estate tax rates and increase in lifetime exclusion amounts, this figure was reduced to $23.4 Billion, and 1.11% of the Federal receipts.

In conclusion, whatever the result is this week with the debate on taxes, and despite the publicity afforded the Estate Tax; it is interesting to see that it is actually a very small player in income received by our government.


* This figure, and the figures used to generate the chart below come from p. 66 of the Presentation prepared by the Staff of the Joint Committee on Taxation and was presented to the Senate Committee on Finance on December 2, 2010. http://finance.senate.gov/imo/media/doc/120210tbtest.pdf




 - Attorney Jason Walker

Tuesday, December 7, 2010

Another Estate Tax News Flash

It was reported this morning by Tara Siegel Bernard of the New York Times that President Obama and Republican leaders have struck a deal that “would ultimately set an exemption of $5 million per person and a maximum tax rate on estates of 35 percent — a higher exemption and far lower rate than many Democrats wanted.”

While we are hopeful that this deal might have “legs”, whether democratic congressional leaders will accept President Obama’s bargaining is really another question.

See the New York Times article here: http://bucks.blogs.nytimes.com/2010/12/07/what-the-tax-deal-means-for-you/?scp=1&sq=35%%20tax&st=cse

--Attorney David M. Grant

Monday, December 6, 2010

Recent Bill May Provide Insight on Future of Transfer Tax Law

Although the recent amendment to H.R. 4853 appears to be dead on arrival in the Senate, this bill, as introduced by Montana Senator Max Baucus on December 2, 2010, did provide some insight as to where transfer tax laws might end up. Following is a quick summary of the bill’s points:

Use of 2009 Rates & Exemptions. The bill would have reinstated the 2009 estate, gift and GST tax law, with an estate exemption of $3.5 million, indexed for inflation beginning in 2011. The top estate, gift and GST tax rate would have been 45%.

Unification of Exemptions. The estate tax and gift tax exemptions would have become unified at $3.5 million, beginning in 2011.

Portability Would have been Available. The bill would have allowed the executor of a deceased spouse’s estate to transfer any unused estate tax exemption to the decedent’s surviving spouse.

Special 2010 Dispensation for GST Transfers. GST transfers made in 2010 (before the date of the bill’s introduction) would have been taxed at a zero GST tax rate.

Farmland Deferral. Estate tax payments on farmland would have been deferrable until such farmland was sold or transferred outside the family, or until it was no longer used for farming purposes.

Changes to GRAT Law. This bill would have provided that (1) GRATs would have a required minimum ten-year term; (2) that the annuity amount could not decrease in any year; and (3) that the remainder interest would need to have a value greater than zero as determined at the time of the transfer to the GRAT.

--Attorney David M. Grant