Archive for the ‘Estate and Gift Tax’ Category

Estate Planning Smarts

November 19, 2013

Our favorite book on estate planning is now available in an updated and expanded third edition. Estate Planning Smarts by Deborah L. Jacobs is now firmly established as the leading book on the subject, both for individuals planning their own finances and for finance professionals who want a thorough, readable treatment of the subject. In our review of the first edition we called this book a category killer, because it would be so hard for anyone to improve on it. Jacobs showed we were wrong, as she improved on her own work.

The new edition covers the important changes made by the 2012 tax law as well as the implications of the Supreme Court’s Windsor decision on same-sex marriage and the IRS pronouncement on how it would implement that decision.

to learn more: Estate Planning Smarts website

American Taxpayer Relief Act

January 3, 2013
By Kaye A. Thomas

In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:

  • Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
  • Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
  • The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
  • The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
  • Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
  • The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.


Estate Exclusion Portability Regs Confirm Critical Deadline

June 22, 2012
By Kaye A. Thomas

Pay attention, because missing this deadline could cost $1 million or more. And for some people, the deadline is today.

The Treasury has issued temporary and proposed regulations relating to portability of a deceased spousal unused exclusion amount. Under these rules it may be critically important to file an estate tax return for an individual who dies with a surviving spouse, even if the decedent has no valuable assets and an estate tax return is not otherwise required. Filing an estate tax return is the only way to transfer the decedent’s unused estate tax exclusion amount to the surviving spouse. People handling estates in this category may not realize there is any need to file an estate tax return, yet failing to do so could permanently deprive the surviving spouse of an increase in the estate tax exclusion amount that might otherwise produce savings of $1 million or more in estate and gift taxes. (more…)

Take My Wife’s Stock, Please

June 21, 2012

The Tax Court dealt with an unusual twist in a case where the IRS is seeking some $95 million in estate tax and penalties. The biggest dispute is over the value of certain shares of stock, with the estate tax return reporting $1,000 per share and the IRS appraising them at nearly $200,000 per share. But the Tax Court left that minor discrepancy for another day while it determined whether the decedent owned 740 shares, as the IRS claimed, or only 600.

The decedent, Alexander Richard, died in 2004. His wife had died seven years earlier, in 1997. When the wife died, no will was found and no proceedings were held regarding her assets on the assumption that everything passed by intestacy to her surviving husband, the decedent in this dispute. In 2010, in connection with preparations for this dispute, it was discovered that the wife had executed a will leaving 140 of the shares to a credit shelter trust. The Tax Court found that title to the shares had never been transferred to the decedent and that the shares were more properly included in the wife’s estate, even though the will establishing this result was not discovered until years after her husband died as the apparent owner of these shares.

reference: Estate of Alfred J. Richard v. Commissioner (PDF)

Transfer of Partnership Interests Qualifies for Gift Tax Exclusion

June 6, 2012

The gift tax exclusion permits a donor to make annual gifts up to a limited amount ($13,000 per donee for 2012) without paying gift tax or tapping into the donor’s lifetime exclusion amount. To qualify, however, the gift must be a “present interest” — in other words, something that will provide a current benefit, not merely a delayed one, to the recipient. A gift of a partnership interest may or may not qualify, because in some cases ownership of the interest confers only a future benefit on the recipient. Practitioners who work with these rules may want to review a new Tax Court decision discussing the factors necessary to treat a transfer of a partnership interest as a present interest, and finding that the transfers in that case qualified for the annual gift tax exclusion.

court opinion: Wimmer v. Commissioner (PDF)

First Deadline Under New Estate Tax Rules

October 3, 2011

Estate tax returns are due nine months after the death of the decedent. That means today is the first deadline to fall under the estate tax rules that took effect as of 2011. Estates can obtain an automatic six-month extension by filing Form 4768 (PDF). The deadline is notable because the new rules for the first time permit an election to transfer the unused portion of the decedent’s exclusion amount ($5 million for 2012) to the decedent’s spouse. The IRS says the election can only be made by filing an estate tax return, even if the return is not otherwise required to be filed.

Portability for Estate Tax Exemption?

December 8, 2010

There’s a hint in press reports about the deal being struck on tax legislation that it may include portability for the estate tax exemption. The idea has been around at least since 2008. Here’s what we said about it then. (more…)

Relief for Estates with Basis Problem?

September 14, 2010

This year’s temporary expiration of the estate tax may be a boon for heirs of very wealthy decedents, but actually increases the amount of tax paid by many other heirs. In years when the estate tax applies, the basis of assets held by the decedent is adjusted to the fair market value of the assets on the date of death, so that heirs can sell assets at that value without reporting a capital gain. This year, because the estate tax doesn’t apply, this basis adjustment is subject to a dollar limitation (see Property Received from 2010 Decedents for details). It’s possible for heirs of 2010 decedents to be better off under the rules that were in effect in 2009, when the generous exemption amount and unlimited marital deduction may have protected them from paying estate tax while the unlimited basis adjustment would also have protected them from paying tax on capital gains that were built-in at the time of the decedent’s death. (more…)

Basis Rules for 2010 Decedents

August 5, 2010

No doubt you’re aware that the estate tax has been repealed, solely for people dying in 2010. It’s less well known that repeal of the estate tax was accompanied by a change in the rules for adjusting the basis of inherited assets. For a description of the rules that apply when you inherit from someone who dies this year, see our new page on basis of property inherited from 2010 decedents.

Last Gasp for Short GRATs?

July 6, 2010

It appears that the grantor retained annuity trust, or GRAT, is about to lose much of its flexibility. Legislation to curtail the popular estate planning tool has been on the table for some time. Just days after the Senate removed GRAT provisions from the pending small business legislation, the House plugged it into a supplemental appropriations bill that provides funding for the troop surge in Afghanistan, among other measures. Assuming the bill is passed by the Senate, the measure would apply to transfers occurring after the date President Obama signs it into law. (more…)

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