Posted tagged ‘Gift and Estate Tax Exemptions’

Now is the Time for All Good Estate Planners to Come to the Aid of Their Clients!: Estate Planning Opportunities in 2012

February 7, 2012

 By Ashley Alderman

On January 25, 2012, Scot Kirkpatrick and I spoke about how clients can utilize the current gift, estate, and generation-skipping transfer tax laws and $5.12 million exclusion amount in 2012 to their advantage, particularly given the increasing likelihood that as of January 1, 2013, we will again be back to a $1 million gift and estate tax exemption with a 55% tax rate and a 5% surcharge on estates in excess of $10 million.  After reviewing the current state of the law, we also discussed the lingering questions surrounding the estate tax law, primarily dealing with the concept of portability of the unused spousal exclusion amount and the potential for “claw back” if an individual makes gifts in 2012 utilizing the current $5.12 million exclusion amount, but then the individual dies in a year when the exclusion amount is less than the amount the individual already gave away.  There is the potential that when the individual dies, his estate will owe estate taxes on those prior gifts.  Despite the uncertainty and this claw back risk, maximizing use of the $5.12 million exclusion amount in 2012 is still a very attractive option for some clients.  One reason is that many practitioners believe that some form of administrative or legislative relief would be provided.  Although there is not unanimity among all commentators, another reason is that even if the claw back applies, the total amount of taxes paid by the client and his estate would be lower if the gifted assets appreciate in value because the assets, along with any appreciation on such assets, are removed from the gross estate.

Following the explanation of the current law, and the uncertainties in the current law, we discussed multiple estate planning opportunities for clients in 2012, in particular those to utilize their $5.12 million exclusion amounts.  Some of the strategies discussed include:

  1. Outright gifts;
  2. Decanting assets in existing trusts into new trusts;
  3. Grantor Retained Annuity Trusts;
  4. Business Restructuring, including the formation of Family Limited Partnerships and “Estate Freezes,” including gifts and sales to intentionally defective grantor trusts;
  5. Captive Insurance Companies;
  6. Forgiveness or refinancing of outstanding promissory notes or loans;
  7. Additional gifts to Irrevocable Life Insurance Trusts to facilitate the purchase of additional life insurance policies or increased death benefit on existing policies;
  8. Qualified Personal Residence Trusts; and
  9. Charitable Lead Annuity Trusts.

As we repeatedly emphasized to those in attendance, this is the year to “use it or lose it!”   Many of these strategies need to be implemented in the beginning of the year in order to be completed by the end of 2012.  If you or a client may benefit from some of these estate planning opportunities, we will be glad to discuss them in more detail with you.

Executors Must Act Soon to Guarantee Spousal Portability of Gift and Estate Tax Exemptions for Estates of Decedents Dying in 2011

October 20, 2011

 By Rose Drupiewski

Beginning in 2011, there is portability of the gift and estate exemption amounts for spouses. The portability feature provides that if a spouse dies after 2010 without using all of his or her gift and estate tax exemption amount (currently $5 million), the unused gift and estate tax exemption amount may be carried over to the surviving spouse and used by the surviving spouse in addition to the surviving spouse’s available exemption amount. The unused exemption amount that can be carried over to the surviving spouse is limited to the basic exemption amount available at the time of the surviving spouse’s death. The purpose of the portability feature is to relieve spouses from the burden and expense of having to retitle assets or create trusts in order to obtain use of both spouses’ gift and estate tax exemptions.

In IRS Notice 2011-82, the Internal Revenue Service recently reminded taxpayers that in order to take advantage of the new portability feature, the executor of the deceased spouse must file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Filing the return is the only requirement to make the portability election, as the Service does not require that any affirmative statement be made, box checked, or other special action be taken on the return to obtain portability. The estate tax return must be timely filed for the predeceased spouse for the election to be valid. Because estate tax returns are due nine months after the date of death, the first estate tax returns being filed for portability purposes are due beginning in October, though estates may request an automatic filing extension of six months by filing Form 4768.

Because of the uncertainty regarding future changes to estate and gift taxes and applicable exemption amounts, executors of decedents dying in 2011 will most likely want to file an estate tax return to allow portability even if there is otherwise no obligation to file an estate tax return. The portability feature may provide a substantial benefit to the surviving spouse’s estate in the event the estate tax exemption amount drops to $1 million, as it is currently scheduled to do in 2013.