Guiding Clients 2010 Estate Tax Purgatory[1]
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Transcript of Guiding Clients 2010 Estate Tax Purgatory[1]
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The New Estate Planning Landscape (Guiding Clients
Through Estate Planning Purgatory)
Presented by
Richard L. Randall, Esq.Chairman & CEO, National Network
of Estate Planning Attorneys
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Bush Tax Act (EGTRRA)
•Gradually Increased Exemption Amounts (from $675,000 to $3.5 Million in 2009)
•Decreased Estate Tax Rates (Down to Top Rate of 45%)
•Eliminated Estate &GST Taxes in 2010
•“Sunset” Provision (“Byrd Rule”) Reinstates Previous System in 2011 Unless Congress Acts
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Extension of EGTRRA?
•H.R. 4154 Passed December 3, 2009 (with NO Republican Votes)
•Republicans Wanted $5 Million Exemption and Top Rate of 35%
•Senate Failed to Pass Any Law and Denied Two Month Extension (Same Republican Proposal, but Including “Portability” )
•“Byrd Rule” Requires 60 Vote Majority & There’s No Consensus!
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Indeed, Senate Finance Committee
Chairman Max Baucus says there’s “Massive, Massive Confusion”!
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What Happens In 2011 If No Change?
•$1 Million Federal Estate Tax Exemption
•Estate and Gift Tax Unified Again
•GST Exemption Will Be Inflation Adjusted $1 Million (approximately $1,340,000)
•Top Rates Revert to 55% (With 60% “Bump” for Estates Over $10 Million)
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Three Potential Scenarios
•Congress Acts This Year and Law Applies Retroactively
•Congress Acts and Law Does NOT apply Retroactively (or Retroactivity is held Unconstitutional)
•Congress Does Not Act
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Three Possible Results
•2009 Provisions Extended ($3.5 Million Exemption and 45% Rate)
•$5 Million Exemption and 35% Rate
•$1 Million Exemption and 55% Rate
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So What’s the Law Now?
• NO Federal Estate Tax
• NO Generation Skipping Tax (GST)
• Gift Tax at 35% Rate
• Carryover Basis Regime Becomes Effective
• $1.3 Million Step-up Allocation
• Additional Step-up Allocation for $3 Million for Assets Transferred to Spouse, Either Outright or to a Q-TIP Trust
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And, Planning Uncertainty “Rules!”
•Constitutionality of Retroactive Provision?
•Interpretation of Legal Documents
•Interpretation of “Repeal” Language
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Constitutionality of Retroactive Application of Tax Legislation
•Good Arguments on Each Side
•Retroactive Application Has Been Upheld, but Rulings Can Be Distinguished
•Very Difficult to Predict Result
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And, Planning Uncertainty “Rules!”
•Constitutionality of Retroactive Provision?
•Interpretation of Legal Documents
•Interpretation of “Repeal” Language
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Federal Estate Tax Reduction
Trustee Instructions:Transfer up to Exemption Equivalent to Family Trust, Put Any Excess in Marital Trust
Marital
Excess 1st $3,500,000(2009)
Family
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Federal Income Tax Reduction
Trustee Instructions:Transfer all Property to Family Trust, Put Excess Appreciated Assets in Marital Trust
Marital
Assets With Up to $3,000,000
of Appreciation - 2010
All Property(Maximum of 1st $1,300,000
Stepped Up - 2010)
Family
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Income Tax Basis Analysis
BUY DIE SELL
2009 10 100 100
2010* 10 100 10
2011 10 100 100
*$1.3 MM Basis Adjustment; Additional $3MM Spousal Basis Adjustment
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Federal Estate Tax Reduction
Trustee Instructions:Transfer up to Exemption Equivalent to Family Trust, Put Any Excess in Marital Trust
Marital
Excess 1st $1,000,000(2011)
Family
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And, Planning Uncertainty “Rules!”
•Constitutionality of Retroactive Provision
•Interpretation of Legal Documents
•Interpretation of “Repeal” Language
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“As If Never Enacted”
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•“Blended Families”•Charitable Bequests•Generation-Skipping Trusts•“De-Coupled” State Death Taxes
Note: These Involve Percentages and Formula Wording
Prioritizing Client Situations for Review
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What Can Financial Advisors Do?
•Proactively Identify Clients with Estate Planning Documents Executed Prior to 2001
•Proactively Verify Estate Planning Document Language For More Recent Plans
•Proactively Identify Clients Who Have Pursued Generation-Skipping Planning
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What Can Financial Advisors Do?
•Proactively Identify Clients With Appreciated Assets and Assess Basis Information Situation With Them-Begin With Clients That Have Known Health Issues
•Proactively Identify Clients Affected By Potential Reduction to $1 Million Exemption
•Encourage Clients to Document Their Intent
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The Author Would Like to Acknowledge the Assistance of:• James W. Collins, Legal Support Director for the National Network of Estate Planning Attorneys•Members of the National Network who supplied various material and insights•Leading Estate Planning Attorneys for Their Insights in Articles, on Teleconferences and at the Heckerling Institute
Acknowledgements