New Estate Tax Law 2013

The American Taxpayer Relief Act of 2012 made only one change from the 2012 estate tax laws: the top tax rate was increased from 35% to 40%. The gift, estate and GST tax exemption remains at $5 million, indexed for inflation (since 2011). For gifts made in 2013 and for decedents dying in 2013, the exemption is $5.25 million for a single person. In addition, the gift, estate and GST tax exemptions remain unified. The new Act also makes exemption portability between spouses permanent (a boon to those who inadvertently forget to plan their estates, but a wolf in sheep’s clothing that should not be relied upon if at all possible – call or email us to find out why).

Thankfully the Administration’s other revenue raising proposals, including eliminating short-term GRATs, requiring dynasty trusts to pay estate taxes after 90 years, limiting the benefits of intentionally defective grantor trusts, and reducing the availability of intra-family entity-based valuation discounts are not part of the law.

As always, please don’t hesitate to contact me with any questions or concerns. 

All the best,
Joe
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Donlon & Associates, PC provides high quality, focused legal counsel to clients of all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection PlanningEstate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.

Obama Budget Proposal: Estate & Gift Tax Provisions

The Obama administration has released it’s proposed 2013 budget. This proposal includes numerous wide ranging estate and gift tax reforms. It is nearly certain that this budget will never come to pass, however, a quick review of the important provisions is useful to give advisers and our clients a sense of what may be coming down the road.

The key provisions are:

1. Restore the 2009 Rate and Exemption. $3.5 million for estate and GST taxes, a $1 million exemption for gift taxes and a 45% maximum tax rate.

2. Retain portability of unused estate and gift tax exemption between spouses. This provision was first enacted in the December 2009 tax act.

3. Require consistency between asset values for transfer taxes and income tax. This would require taxpayers to report the same basis and values for all tax purposes.

4. Limitations on Discount Planning for Family-Controlled Entities. In an attempt to reduce discounting of interests in family partnerships and other closely-held entities, valuation rules will be enacted under Section 2704 to disregard limits on an owner’s right to liquidate interests and limits on the ability to be admitted as a full partner or hold an equity interest.

5. 10 Year Minimum Term for Grantor Retained Annuity Trusts. In addition the remainder interest of a GRAT would have to be above zero in value. The writing has been on the wall about this for some time now. GRATs are very powerful tax savings vehicles, and efforts to curb their use have been popping up with greater frequency during the past few years.

6. Limit GTS Exemption for Trusts to 90 Years. Perpetual dynasty trusts would be far less attractive (from a tax perspective). Of course, state laws would still permit perpetual trusts, but the IRS would simply hit the trust with GST tax after 90 years.

7. Grantor Trust Status = Estate Tax Inclusion. This is a monstrous proposal. Not only is the interplay between income tax status and estate tax inclusion a very valuable tool for planners, but it amazingly easy to inadvertently trigger “Grantor Trust” status and thus estate inclusion even for trusts where the Grantor has no interest or powers in the Trust whatsoever. This proposal has draconian implications.

As mentioned above, these proposals, at least in current form, are unlikely to see the light of day. However,we will be keeping a close eye on Washington and make sure all of our clients remain up to date with the latest tax law changes.

As always, please don’t hesitate to contact me with any questions or concerns.

All the best,
Joe

2012 Estate Tax Exclusion

For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.

Rev. Proc. 2011-52

2012 Gift Tax Annual Exclusion

The annual exclusion for gifts made in 2012 will remain at $13,000.

 

Rev. Proc. 2011-52

Client Alert: Debt Ceiling Bill Could Threaten Your Estate Plan

On August 2, 2011 President Obama signed the Budget Control Act of 2011 (the "debt ceiling bill". This law calls for a new Joint Committee to review year-end tax legislation. New changes might be proposed, not just those in the Budget Control Act. While we don't know what the results of this review will be, it is worth noting that many effective estate tax planning devices could be on the "chopping block." Techniques like short term GRATs, discounted sale transactions, and dynasty trusts have all been previously discussed for restriction or elimination, so it stands to reason that the Joint Committee will reexamine them closely.

What does this mean for you? Quite simply, you must consider acting now on any serious estate tax planning you have been putting off. Time is of the essence. We very well could see tax legislation that goes into effect the day it is signed, leaving us with no chance to implement these effective tax savings devices before the door slams shut. At best it seems we are looking at November 2011, not December 2012 as the next major turning point for estate tax planning.

Bottom line: Act Now. You should consult with your qualified legal and tax advisers as soon as possible to review your estate plan and examine the benefits and drawbacks of the tax savings techniques most likely to be eliminated.

As always, you are invited to contact me directly with any questions or concerns. I am always happy to help.

All the best,
Joe Donlon

The estate planning law firm of Donlon & Associates, PC provides high quality, focused legal counsel to clients of all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City, Long Island, Westchester, and Northern New Jersey. These areas include Nassau County, Suffolk County, Westchester County, Queens, Brooklyn, Manhattan, Staten Island, Hoboken, Jersey City, Hudson County, and Bergen County.

Asset Protection for Business Owners podcast

Nina Kaufman, Esq., of Ask the Business Lawyer recently interviewed Donlon & Associates founder  Joe Donlon about Asset Protection for Business Owners.

The podcast is about 15 minutes long and done in a conversational Q&A format. We invite you to head on over to Nina's blog and give a listen:
Asset Protection for Business Owners Podcast

While you're there, be sure to take a look at the other entries in Nina's blog and peruse her website, Ask the Business Lawyer. Nina has a lot of great information available for business owners.

If you have any additional questions about asset protection, please don't hesitate to contact Joe directly by calling 516-522-8900 or visiting the firm's website: Donlon & Associates, PC


Donlon & Associates, PC provides high quality, focused legal counsel to clients of all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.

Estate Taxes 2010

Nothing like the last minute.

Congress finally acted to provide some certainty for taxpayers and their advisors on the gift tax, estate tax and generation skipping transfer tax. The new law, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, sets up the following scheme for tax years 2010 - 2012:

2010 Estate Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35%

Option to elect carryover basis instead of Estate Tax

2010 Gift Tax
Exclusion amount: $1,000,000
Maximum tax rate: 35%

2011 Estate Tax / 2012 Estate Tax
Exclusion amount: $5,000,000 (indexed by CPI 2012+)
Maximum tax rate: 35%

2011 Gift Tax / 2012 Gift Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35%

2013 Estate Tax
??????
Unless Congress acts in 2012, this new law will sunset and 2013 will revert to the old rates ($1M exclusion and 55% top rate)

So, now we know what the big debate during the 2012 Presidential Election season will be -- taxes.

The other important change is the portability of the exclusion amounts between spouses. Under prior law, smart tax planning often required the creation of a Credit Shelter or Bypass Trust to receive the exclusion amount of the first spouse to die. The new law doesn't require such techniques. Even a couple with a so called "sweetheart will" that leaves their entire estate to each other with no other tax provisions will still benefit from a combined estate tax exclusion of $10,000,000.

Unfortunately, while this provision seems to simplify things for clients and their advisors, "exclusion portability" could actually be a trap for the unwary for numerous reasons, including:

1) The deceased spouse's exclusion is not indexed to inflation so the deceased spouse's assets are likely to continue to grow and thereby suffer unnecessary tax at the second spouse's death. Placing those assets in a Credit Shelter Trust would have avoided this major issue.

2) Asset held directly in the surviving spouse's name are subject to subsequent lawsuits, marriages/divorces, mismanagement, creditor attacks, etc. Assets in a Credit Shelter are insulated from all of this.

3) Credit Shelter Trusts ensure the funds eventually wind up benefiting the children, grandchildren, friends or charities the deceased spouse wanted to help. Funds left directly to the surviving spouse are subject to his/her whims and planning (or lack thereof). Those funds could wind up going to the survivor's new spouse or children in the event of remarriage.

4) The current law will automatically disappear in two years without Congressional action. Relying on any unusual provision of this new law (like portable exclusions - something unheard of until now) might be asking for trouble given the uncertain future and unstable political and financial situation of the country.


The new law certainly creates a tremendous opportunity for smart planning. Unfortunately, there is a real danger that it will lead to complacency amongst clients and advisors who focus solely on the larger exclusion amounts and assume estate planning is unnecessary. This could be disastrous.

All clients should seek out qualified legal counsel to plan their estate, regardless of age or wealth. Estate taxes are but one reason for smart estate planning. Don’t forget about:
* guardianship for minor children
* asset protection planning
* family business succession
* liability protection
* legacy management
* special needs planning
* planning for second marriages or troubled family situations, etc.

In addition, the New York State Estate Tax has NOT changed, and it applies to estates of $1,000,000+.

As always, you are invited to contact me directly with any questions or concerns. I am always happy to help.


All the best,
Joe Donlon

The estate planning law firm of Donlon & Associates, PC provides high quality, focused legal counsel to clients all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.