March 2011 | Issue 51
Estate planners are beginning to digest the planning implications of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“2010 Act”), which was enacted December 17, 2010. What they are finding is that, for the period between now and December 31, 2012, taxpayers have been given an unprecedented opportunity to undertake certain strategies that can substantially reduce their federal estate taxes. One planner has described the period during which the 2010 Act will be in effect as “two years that can last a lifetime.”
Under the new act, the estate tax, gift tax and GST tax rates are reduced to 35%.
A new $5 million per person exclusion for estate, gift and GST creates the opportunity to make substantial gifts, either outright or through entities such as GRATS, grantor trusts, CLATS and freeze partnerships.
Valuation discounts continue to be permitted under current law. It should be pointed out, however, that the Obama Administration’s Fiscal Year 2012 Revenue Proposals, released February 14, 2011, do seek to modify provisions related to valuation discounts on family-owned entities, such as family limited partnerships and family limited liability companies. The Administration wishes to strengthen Sec. 2704(b) of the Internal Revenue Code by modifying it to create a new class of restrictions called “disregarded restrictions” that must be ignored when valuing such entities. Examples of such restrictions would be (i) limitations on a holder’s right to liquidate his interest in a family-controlled entity and (ii) restrictions on the ability of a transferee to be admitted as a full partner to a partnership.
Commencing January 1, 2013, unless Congress acts, the estate, gift and GST tax provisions that existed before 2002 will be reinstated. No one can reliably predict what Congress will do, or foresee what kind of estate tax regime will come into effect after that date. All that can be said for certain is that for the present, the planning opportunities that exist now should be given a close look.
IRS CIRCULAR 230 DISCLOSURE
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended to be used, and cannot be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or (b) promoting, marketing or recommending any transaction or matter addressed herein.