What Estate Planners Need To Know About The New Pension Protection Act

The PPA radically changes the rules applicable to charitable gifts of fractional interests in tangible personal property. The new rules are exceptionally onerous and there, unless modified, are likely to discourage donors from making fractional interest contributions. In general, the Code does not allow a deduction for income, gift or estate tax purposes for a donation to charity of an interest in property that consists of less than the taxpayer\u27s entire interest in the property. Nevertheless, a deduction is permitted for a contribution of an interest in property that consists of a vertical slice of the taxpayer\u27s interest, such as an undivided interest (e.g., 40%) of the taxpayer\u27s interest in the propert

Final Regs. on Deducting Expenses and Claims Under Section 2053-Part 1

As a general rule, expenses incurred in administering a decedent\u27s estate, if not deducted for income tax purposes, and claims against a decedent\u27s estate are deductible for estate tax purposes under Section 2053. That is, such expenses and claims reduce the amount subject to estate tax. (Under Section 2054, losses incurred during the settlement of estates arising from fires, storms, shipwrecks, or other casualties, or from theft, when such losses are not compensated for by insurance or otherwise, are also deductible.) The IRS recently issued certain final regulations under Section 2053 (reserving certain parts for later regulations) dealing with the estate tax deduction of claims against a decedent\u27s estate and costs of administering the estate, which amend the prior regulations. Proposed regulations were issued in 2007

The World\u27s Greatest Gift Tax Mystery, Solved

Jonathan G. Blattmachr, Diana S. C. Zeydel, and Mitchell M. Gans examine section 2523(b)(2)\u27s history and conclude that it was intended to deal with the limited situation in which the power of appointment created by the donor spouse has been conferred on the donor spouse by a third party

New Penalties on Appraisers and Related Valuation Worries Spawned by the Pension Protection Act of 2006

The name of the game in estate planning has long been valuation. Virtually, all lifetime estate planning arrangements involve some aspect of valuation, including grantor retained annuity and income trusts, qualified personal residence trusts and so-called freeze techniques. The lower the value, the lower the estate, gift or generation-skipping transfer tax that is imposed, as a general rule. Valuation often also is a key element in income tax matters, from determining the value of non-cash compensation income to the value of property contributed to charity entitling the donor to a charitable income tax deduction

Final Regulations on Estate Tax Inclusion for GRATs and Similar Arrangements Leave Open Issues

Final regulations that address estate tax inclusion for “grantor retained interest trusts” and similar arrangements leave a number of issues open. The final regulations make important clarifications on such issues as the amount of certain retained interest trusts and similar transfers included under Section 2036(a)(1) in the transferor\u27s gross estate when he or she dies during the retained interest term. Unfortunately, the regulations are incomplete in several respects. In addition, Rev. Rul. 200835 raises extra questions about the application of the final regulations to other arrangements

Supercharged Credit Shelter Trust

Many married individuals adopt an estate plan designed to avoid estate tax on the death of the first spouse to die while taking maximum advantage of the so-called unified credit (also known as the applicable exclusion amount). The plan typically involves setting apart the amount sheltered by the unified credit (the credit shelter amount) separately and providing that only the portion of the estate in excess of the credit shelter amount will pass in a manner that qualifies for the marital deduction. Frequently, the credit shelter amount is set apart in trust so that the surviving spouse may benefit from the property if needed without causing those assets to be included in the surviving spouse\u27s estate for estate tax purposes. A credit shelter trust not only preserves the unified credit of the first spouse to die but also provides an opportunity to leverage the unified credit of the first spouse to die during the lifetime of the surviving spouse: to the extent there is appreciation and/or accumulated income in the trust, it passes on the surviving spouse\u27s death free of estate tax (and free of generation-skipping transfer tax, assuming an allocation of GST exemption to the trust). The amount in the trust passing tax-free at the surviving spouse\u27s death is enhanced, of course, if trust distributions to the surviving spouse are minimized. The amount in the trust would be further enhanced if the credit shelter trust were the surviving spouse\u27s grantor trust: the surviving spouse\u27s payment of tax on the trust\u27s income would permit the trust estate to grow income tax free. The trust, in other words, would be supercharged. This article will suggest that a lifetime QTIP trust should be used to supercharge the credit shelter trust. Given the advantage offered by the Supercharged Credit Shelter Trust, practitioners may wish to consider adopting this drafting approach in many cases

Turner II and Family Partnerships: Avoiding Problems and Securing Opportunity

The article discusses the U.S. Tax Court case Estate of Turner (Turner II) which deals with the assets a decedent had contributed to a family partnership, marital deductions for partnership interests, and the elements of a federal gross estate. It states that in general, estate, gift, and generation-skipping transfer taxes are all levied on the fair market value (FMV) of the transferred property. Section 2036(a) of the U.S. Internal Revenue Code is also examined

Supercharged Credit Shelter Trusts Versus Portability

“Portability is a new tax election available to married persons that permits the estate of the first spouse to die to elect that the decedent\u27s unused estate tax exemption (called the deceased spouse\u27s unused exemption amount or DSUE amount ) be transferred or ported over to the surviving spouse who may use it to shelter the surviving spouse\u27s own taxable gifts or taxable estate. Whether a couple should rely on portability may be a complex financial matter. This article will compare the results of simply relying on portability with no further planning (the Pure Portability Plan ) to (1) using portability coupled with an immediate gift by the surviving spouse of the DSUE amount to a grantor trust (the Portability Plan ), (2) creating a traditional Credit Shelter Trust at the death of the first spouse to die, (3) using a Supercharged Credit Shelter Trust, and (4) using the spouses\u27 exemptions as early in lifetime as possible

The Impossible Has Happened: No Federal Estate Tax, No GST Tax, And Carryover Basis For 2010

Congress could adopt legislation retroactively reinstating the estate and GST taxes to the beginning of 2010, despite some question about the constitutionality of doing so. Nevertheless, estate planners and their clients need to take the current situation in account as well as the possibility the estate and GST taxes will be imposed retroactively to beginning of this year

Estate Planning After The 2010 Tax Relief Act: Big Changes, But Still No Certainty

Estate planners must now evaluate all estate plans in light of the new tax rules, the increased exemptions and lowered rates, and other features of the new law. They must determine how to change existing estate plans to address the opportunities offered by these changes and the problems they create. This additional level of complexity will alter the utility and features of most estate planning documents, render certain estate planning tools irrelevant, and render other estate planning tools especially important. Nevertheless, in determining what planning changes should or should not be made, it is critically important that practitioners realize that the changes expire at the end of 2012. There is no certainty that they will be extended beyond then. That makes dealing with the changes especially challenging