The Department of the Treasury has released the Treasury Green Book for Fiscal Year 2017, which provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning, if passed, is found on page 183 of the Green Book and is re-printed here for your convenience:
LIMIT DURATION OF GENERATION-SKIPPING TRANSFER (GST) TAX EXEMPTION
GST tax is imposed on gifts and bequests to transferees who are two or more generations younger than the transferor. The GST tax was enacted to prevent the avoidance of estate and gift taxes through the use of a trust that gives successive life interests to multiple generations of beneficiaries. In such a trust, no estate tax would be incurred as beneficiaries died, because their respective life interests would die with them and thus would cause no inclusion of the trust assets in the deceased beneficiary’s gross estate. The GST tax is a flat tax on the value of a transfer at the highest estate tax bracket applicable in that year. Each person has a lifetime GST tax exemption ($5.45 million in 2016) that can be allocated to transfers made, whether directly or in trust, by that person to a grandchild or other “skip person.” The allocation of GST exemption to a transfer or to a trust excludes from the GST tax not only the amount of the transfer or trust assets equal to the amount of GST exemption allocated, but also all appreciation and income on that amount during the existence of the trust.
Reasons for Change
At the time of the enactment of the GST provisions, the law of most (all but about three) States included the common law Rule Against Perpetuities (RAP) or some statutory version of it. The RAP generally requires that every trust terminate no later than 21 years after the death of a person who was alive (a life in being) at the time of the creation of the trust. (more…)
The Department of the Treasury has released the Treasury Green Book for Fiscal Year 2017, which provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning, if passed, is found on page 180 of the Green Book and is re-printed here for your convenience:
MODIFY TRANSFER TAX RULES FOR GRANTOR RETAINED ANNUITY TRUSTS (GRATS) AND OTHER GRANTOR TRUSTS
Section 2702 provides that, if an interest in a trust is transferred to a family member, any interest retained by the grantor is valued at zero for purposes of determining the transfer tax value of the gift to the family member(s). This rule does not apply if the retained interest is a “qualified interest.” A fixed annuity, such as the annuity interest retained by the grantor of a GRAT, is one form of qualified interest, so the value of the gift of the remainder interest in the GRAT is determined by deducting the present value of the retained annuity during the GRAT term from the fair market value of the property contributed to the trust.
Generally, a GRAT is an irrevocable trust funded with assets expected to appreciate in value, in which the grantor retains an annuity interest for a term of years that the grantor expects to survive. At the end of that term, the assets then remaining in the trust are transferred to (or held in further trust for) the beneficiaries. The value of the grantor’s retained annuity is based in part on the applicable Federal rate under section 7520 in effect for the month in which the GRAT is created. Therefore, to the extent the GRAT’s assets appreciate at a rate that exceeds that statutory interest rate, that appreciation will have been transferred, free of gift tax, to the remainder beneficiary or beneficiaries of the GRAT. (more…)
The Department of the Treasury has released the Treasury Green Book for Fiscal Year 2017, which provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning, if passed, is found on page 179 of the Green Book and is re-printed here for your convenience:
EXPAND REQUIREMENT OF CONSISTENCY IN VALUE FOR TRANSFER AND INCOME TAX PURPOSES
Section 1014 provides that the basis of property acquired from a decedent generally is the fair market value of the property on the decedent’s date of death. Similarly, property included in the decedent’s gross estate for estate tax purposes generally must be valued at its fair market value on the date of death. Although the same valuation standard applies to both provisions, until the enactment on July 31, 2015, of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act), there was no requirement that the recipient’s basis in that property be the same as the value reported for estate tax purposes. This Act amended section 1014 to provide generally that the recipient’s initial basis in property as determined under section 1014 cannot exceed the final value of that property for estate tax purposes. This consistency requirement applies to property whose inclusion in the decedent’s gross estate increases the estate’s liability for federal estate tax. (more…)
As of January 1, 2016, California allows the use of a “transfer on death” deed for real property. A TOD deed essentially allows a person to execute and record a revocable deed, which grants real property to a beneficiary upon the grantor’s death. Introduced by Assemblyman Mike Gatto (D-Glendale) via AB 139, the TOD is effective by operation of law, the primary purpose of which is to avoid the probate process (which is onerous and expensive in California) and to reduce the need for a revocable trust for certain individuals.
San Bernardino County has posted a sample form.
While the TOD deed may be useful in limited circumstances, it does not supplant the importance of having a revocable trust plan for many individuals.
Bryan Cave has made the shortlist for the prestigious Magic Circle Awards for 2016 under the category of “International Law Firm of the Year – USA”.
The Magic Circle Awards are held annually each Spring to recognize the best advisors in the financial sector on a global scale.
The Department of the Treasury has released the Treasury Green Book for Fiscal Year 2017, which provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning, if passed, is found on page 177 of the Green Book and is re-printed here for your convenience:
RESTORE THE ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER (GST) TAX PARAMETERS IN EFFECT IN 2009
The current estate, GST, and gift tax rate is 40 percent, and each individual has a lifetime exclusion of $5 million for estate and gift tax and $5 million for GST (indexed after 2011 for inflation from 2010). The surviving spouse of a person who dies after December 31, 2010, may be eligible to increase the surviving spouse’s exclusion amount for estate and gift tax purposes by the portion of the predeceased spouse’s exclusion that remained unused at the predeceased spouse’s death (in other words, the exclusion is “portable”).
Prior to the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the maximum tax rate was 55 percent, plus a 5-percent surcharge on the amount of the taxable estate between approximately $10 million and $17.2 million (designed to recapture the benefit of the lower rate brackets). The exclusion for estate and gift tax purposes was $675,000 and was scheduled to increase to $1 million by 2006. Under EGTRRA, beginning in 2002, the top tax rate for all three types of taxes was reduced incrementally until it was 45 percent in 2007. In 2004, the exemption for estate taxes (but not for gift taxes) began to increase incrementally until it was $3.5 million in 2009, and the GST tax exemption and rate became unified with the estate tax exemption and rate. During this post-EGTRRA period through 2009, the gift tax exemption remained $1 million. Under EGTRRA, for 2010, the estate tax was to be replaced with carryover basis treatment of bequests, the GST tax was to be not applicable, and the gift tax was to remain in effect with a $1 million exclusion and a 35-percent tax rate. The EGTRRA provisions were scheduled to expire at the end of 2010, meaning that the estate tax and GST tax would be inapplicable for only one year.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA) retroactively changed applicable law for 2010 by providing a top estate tax rate of 35 percent for taxpayers electing estate tax rather than carryover-basis treatment. It retroactively reinstated the GST tax and unified the exemption for estate, GST, and gift taxes beginning in 2011 with a $5 million total lifetime exclusion for estate and gift tax and for GST tax (indexed after 2011 for inflation from 2010). It also enacted the portability of the exemption between spouses for both gift and estate tax purposes. The TRUIRJCA provisions were scheduled to expire at the end of 2012.
The American Taxpayer Relief Act of 2012 (ATRA) permanently raised the top tax rate for estate, GST, and gift taxes to 40 percent. It also made permanent all the substantive estate, GST and gift tax provisions as in effect during 2012. 178
Reasons for Change
ATRA retained a substantial portion of the tax cut provided to the most affluent taxpayers under TRUIRJCA that we cannot afford to continue. The United States needs an estate tax law that is fair and raises an appropriate amount of revenue.
The proposal would make permanent the estate, GST, and gift tax parameters as they applied during 2009. The top tax rate would be 45 percent and the exclusion amount would be $3.5 million for estate and GST taxes, and $1 million for gift taxes. There would be no indexing for inflation. The proposal would confirm that, in computing gift and estate tax liabilities, no estate or gift tax would be incurred by reason of decreases in the applicable exclusion amount with respect to a prior gift that was excluded from tax at the time of the transfer. Finally, the unused estate and gift tax exclusion of a decedent electing portability and dying on or after the effective date of the proposal would be available to the decedent’s surviving spouse in full on the surviving spouse’s death, but would be limited during the surviving spouse’s life to the amount of remaining exemption the decedent could have applied to his or her gifts made in the year of his or her death.
The proposal would be effective for the estates of decedents dying, and for transfers made, after December 31, 2016.
Last year’s Green Book Proposal on the same topic can be read here.
Dyke advises individuals, families and financial institutions on international estate planning and U.S. tax matters, with a particular emphasis in planning for clients who are exposed to both the U.S. and U.K. tax systems.
The 7520 rate for March 2016 has decreased to 1.8%.
The March 2016 Applicable Federal Interest Rates can be found here.
As part of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, signed into law by President Obama on July 31, 2015, Sections 1014(f) and 6035 were enacted.
Section 1014(f) provides rules requiring that the basis of certain property acquired from a decedent may not exceed the basis of that property as finally determined for federal estate tax purposes, or, if not finally determined, as reported on a statement made under section 6035.
Section 6035 imposes new reporting requirements for the executor of an estate of a decedent where a federal estate tax return is required to be filed. The executor must furnish, to both the IRS and to each person who holds a legal or beneficial interest in the property listed on the estate tax return, a statement “identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.”
Section 6035 requires that such statements must be furnished no later than the earlier of (1) the date which is 30 days after the date on which the federal estate tax return was required to be filed (including extensions, if any) or (2) the date which is 30 days after the date such return is filed.
In August 2015, the Internal Revenue Service released Notice 2015-57, which delayed the due date for filing that statement until February 29, 2016, giving the Treasury Department and the IRS time to prepare the necessary guidance implementing the new reporting requirements.
Last week, the Internal Revenue Service released new Notice 2016-19, which further delays the due date for filing that statement until March 31, 2016. The Notice includes the recommendation from the Treasury Department and the IRS that “executors and other persons required to file a return under section 6018 wait to prepare the statements required by section 6035(a)(1) and (a)(2) until the issuance of proposed regulations by the Treasury Department and the IRS addressing the requirements of section 6035. The Treasury Department and the IRS expect to issue proposed regulations under sections 1014(f) and 6035 very shortly.”