Mar 12
This post reviews the impact of recent legislation on estate, gift and generation-skipping transfer planning. The American Taxpayer Relief Act of 2012 (ATRA), signed into law January 2, 2013, has brought some welcome permanency to such planning.
ATRA made permanent the unification of the estate, gift, and generation-skipping tax rate structure including making permanent the basic exclusion amount — the amount a taxpayer may transfer without incurring estate or gift taxes — at $5,000,000, adjusted for inflation. The value of a person’s estate and/or lifetime gifts exceeding the basic exclusion amount is subject to a maximum estate and gift tax rate of 40%. Also, the generation-skipping transfer (GST) exemption is $5,000,000, adjusted for inflation. The maximum GST tax rate also is 40%. As adjusted for inflation, the basic exclusion and exemption amounts were $5,120,000 for 2012, and is $5,250,000 for 2013.
ATRA also set the income tax rates that apply to estates and trusts at 15%, 25%, 28%, 33% and 39.6% for taxable years beginning after 2012.
Further, ATRA also made permanent the so-called “portability” provision. If a spouse dies after 2011 without exhausting his or her basic exclusion amount, the surviving spouse may be able to gift against that amount. This latter provision does not apply to gifts given to grandchildren, i.e., generation-skipping transfers.
Finally, ATRA made permanent the deduction for state estate taxes, the repeal of the qualified family-owned business interest deduction and certain conservation easement rules.
If you have any questions regarding this legislation or what it means to you, please click here to contact Paul.
Apr 24

Here are some of the more important tax developments that have come out during the first three months of 2012. Most are documents from the Internal Revenue Service, but some are important cases and legislative changes you might want to be aware of for you or your business.

Payroll Tax Cut Full-Year Extension: On February 22, President Obama signed into law the Middle Class Tax Relief and Job Creation Act of 2012, extending the payroll tax cut for the remainder of 2012. The legislation maintains the FICA payroll tax rate for employees at the 4.2% rate that has been in place since January 2011, rather than the historical rate of 6.2%. Note that unless Congress decides to extend the lower rate again, the 4.2% rate expires December 31, 2012. The extension does not affect the 10.4% SECA rate, as that was already in place through 2012.
Business Automobile Depreciation Limits: In Rev. Proc. 2012-23, the IRS provided inflation-adjusted automobile (including trucks and vans) depreciation deduction limitations and automobile (including trucks and vans) lessee inclusion amounts for 2012, including automobiles, cars and trucks eligible for first-year additional depreciation.
Deduction for Mortgage Interest: In an IRS Chief Counsel Memorandum, CCA 201201017, the IRS advised that any reasonable method, including the exact and simplified methods described in temporary regulations to §163, the method provided in Publication 936, Home Mortgage Interest Deduction, or a reasonable approximation of those methods, may be used until final regulations are issued specifically addressing allocations of interest on part of acquisition and/or home equity indebtedness that exceeds qualified residence interest limitations. In Sophy v. Comr., the U.S. Tax Court held that unmarried taxpayers who owned homes in California as joint tenants may not deduct more than a proportionate share of interest on $1 million of acquisition indebtedness and $100,000 in home equity indebtedness. The Tax Court determined that the debt must be determined per residence rather than per taxpayer. In the case, two unmarried taxpayers owned two homes with mortgages totalling more than $2.2 million. The each attempted to take an interest deduction on $1.1 million of debt per person.
Electronic Filing of Schedules K-1: Certain entities, such as partnerships, are required to annually file a Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., with the IRS and provide a copy to their partners. In Rev. Proc. 2012-17, the IRS set forth procedures under which a partnership (including an electing large partnership, as defined in §775) that furnishes Schedules K-1 (Form 1065) to its partners electronically will be treated as satisfying the requirements of §6031(b). Prior to the issuance of the new revenue procedure, there was no specific guidance as to whether the furnishing of Schedules K-1 electronically met these requirements. Partnerships must receive the partner’s consent before providing the K-1 electronically, rather than on paper.
S Corporation Dividends: In David E. Watson PC v. U.S., the Eighth Circuit Court of Appeals, in an issue of first impression, held that some of the purported dividend payments that an S corporation made to its sole shareholder constituted wages subject to FICA. The court determined that the characterization of funds distributed by an S corporation to its shareholder-employees turns on an analysis of whether the payments were made as compensation for service, not on the intent of the corporation in making the payments. The court explained that while the concept of “reasonable compensation” is generally applied to the realm of income taxes, the concept is equally applicable to FICA tax cases.
Extension of Deadline to Make Portability Election: Section 2010(c) allows the estate of a decedent who is survived by a spouse to make a portability election to permit the surviving spouse to apply the decedent’s unused exclusion to the surviving spouse’s own transfers during life and at death. The portability election may be made only by the estates of decedents dying after December 31, 2010. Section 6075(a) makes the due date for filing an estate tax return nine months after the date of the decedent’s death. Section 6081(a) provides that IRS may grant a reasonable extension of time for filing any return and that, except in the case of taxpayers who are abroad, no such extension may be for more than six months. In Notice 2011-82, the IRS provided procedures to make the portability election. For estates of decedents dying in early 2011 that had missed the due date for filing Form 706 and Form 4768, the IRS granted, for the purpose of make a portability election pursuant to §2010(c)(5)(A), a six-month extension of time for filing Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. In Notice 2012-21, the IRS stated that the extension applies when the executor of a qualifying estate did not file a Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, within nine months after the decedent’s date of death, and therefore the estate did not receive the benefit of the automatic six-month extension. A qualifying estate is an estate: (1) the decedent is survived by a spouse; (2) the decedent’s date of death is after December 31, 2010, and before July 1, 2011; and (3) the fair market value of the decedent’s gross estate does not exceed $5,000,000.
Repeal of Special Corporate Estimated Tax Payment Rules: The Middle Class Tax Relief and Job Creation Act of 2012, enacted Feb. 22, repealed the special estimated tax payment rules for corporations with assets of at least $1 billion (determined as of the end of the preceding taxable year) that would have impacted payments due in July, August or September 2012, 2014, 2015, 2016 and 2019, respectively. The changes were made over numerous pieces of legislation that increased the required payments. Thus, such corporations should determine their estimated tax payment as if the special rules had never been enacted.
Splitter Regulations: On February 14, the IRS published in the Federal Register foreign tax credit regulations concerning who is the taxpayer who may claim the credit when the foreign law differs from the U.S. law in viewing the entity with the right to the income as fiscally transparent (i.e., merely a representative of its owners or members) or as a required member of a combined income regime (such as in the case of a disregarded entity or a consolidated income group). The new rules generally retain the long-standing legal liability standard, but provide that the credit is to follow the income in many of these situations regardless of who pays the tax or has the tax obligation. On the same day, the IRS published temporary regulations under a statutory change in 2010 designed to prevent taxpayers from splitting the foreign income from the creditable foreign taxes so as to claim the latter and defer the former. The rules for these cases generally suspend the credit until the income is recognized for U.S. purposes.
FATCA Proposed Regulations: FATCA, which was part of the 2010 HIRE Act, enacted chapter 4 (§§1471- 1474), which in turn imposes 30% withholding on “withholdable payments” to foreign financial entities (FFIs) and certain nonfinancial foreign entities (NFFEs) unless they report U.S. account owner information to the IRS. Withholdable payments are basically fixed or determinable annual or periodic (FDAP) gains and the gross proceeds of the sale or disposition of FDAP income-producing assets. With the issuance of the proposed regulations on February 8, there is no longer any doubt that the objective of FATCA is information reporting, not withholding — withholding is simply the “incentive” to report.
In general, the proposed regulations, which build on earlier preliminary guidance aim to reduce FATCA’s compliance burden and to provide (through transitional rules) ample time for affected entities to comply with chapter 4. The proposed regulations establish a timetable for implementation (including grandfathered treatment for pre-existing obligations), exempt many classes of entities that would otherwise be subject to FATCA, set out payee/beneficial owner identification and documentation procedures, and provide FFI due diligence procedures. The proposed regulations also signal the IRS’s intention to coordinate chapter 3 (§§1441-1446) and chapter 4 so as to avoid duplicate reporting.
The same day that the proposed regulations were issued, Treasury issued a joint statement with five countries (the UK, France, Italy, Spain, and Germany). The joint statement would introduce a framework that would let banks send information on their U.S. accounts to their own governments, which then would share the information with the IRS. The framework would not provide country-by-country blanket exemptions; rather, it would provide an alternative mode of FATCA compliance by adjusting local (i.e., foreign) law restrictions to allow for the automatic exchange of information between and/or among participating governments. (It’s not yet clear if the framework would be implemented multilaterally or bilaterally.)
Offshore Voluntary Disclosure Initiative: On January 16, the IRS announced that it is reopening its special program to allow taxpayers to disclose their offshore assets to the government for a third time. According to the IRS, the program will be open for an indefinite period until otherwise announced. A few key differences in this program from 2011, include its open-ended structure and a slightly higher top penalty of 27.5%, up from 25%. But the program does retain a feature that allows some smaller taxpayers to be eligible for a 5% penalty or a 12.5% penalty. To participate, taxpayers must file all original and amended tax returns and include payment for back taxes and interest for up to eight years, as well as paying accuracy-related and/or delinquency penalties.
Foreign Financial Accounts Reporting: Beginning in 2012, virtually every U.S. individual (including residents, certain nonresident aliens, among others) who files a federal return for the year and had an interest in an applicable account/asset valued over $50,000 on the last day of the year or $75,000 at any point during the year, must file Form 8938, Statement of Specified Foreign Financial Assets. Reporting thresholds vary based on filing status. The form must be filed annually.
Proposed Withdrawal of 2007 Coordinated Issue Paper on Cost Sharing: On January 19, IRS Transfer Pricing Director Sam Maruca, who has said in the past that coordinated issue papers are not the best way to disseminate guidance to the field, announced the proposed withdrawal of a 2007 coordinated issue paper (CIP) on cost sharing. Maruca said the CIP illustrates the hazards of trying to develop a blueprint for transfer pricing cases. “It has been very risky—indeed, has backfired on us—to think we can issue blanket advice in this area,” he said. Following the release of the paper in September 2007, practitioners complained that it was an attempt to retroactively apply the income method, which was not introduced until 2005, when the IRS issued its proposed cost sharing regulations. The issue paper warned auditors to be skeptical of taxpayer attempts to apply the comparable uncontrolled price and residual profit split methods to cost sharing transactions, saying the “discounted cash flow”—an unspecified method in the 1996 regulations, renamed the income method in the proposed regulations—likely was more appropriate.
Merger of the IRS’s Advance Pricing Agreement and Competent Authority Functions. Maruca said the new Advance Pricing and Mutual Agreement Program was up and running February 27. The new structure puts an end to the handoff between the APA Program and the U.S. Competent Authority in bilateral cases, which represent the majority of APAs. Under the old structure, the APA Program, working with the taxpayer, developed a negotiating position in a case and submitted it to Competent Authority, which then undertook the negotiations with the foreign authorities. Now, the same individual will be responsible for both developing and negotiating the position. This is the structure employed by most U.S. trading partners.
Final Rules, Sample Language for Health Plan Summary Benefit Disclosures: Under the Public Health Service Act (PHSA) §2715, group health plans and health insurance issuers that offer group or individual health insurance coverage must provide a summary of benefits and coverage (SBC), as well as a uniform glossary of insurance-related and medical terms, to the individuals they cover. The IRS, HHS and EBSA, who all share rule-making authority under PHSA, issued final regulations that change some of the content requirements that were included in the proposed regulations issued in August 2011. Specifically, the IRS eliminated provisions that would have required premiums (or cost of coverage information for self-insured plans) to be included in SBCs. The IRS indicated that premium information may be too complex to be conveyed in an SBC and is not required by statute. The IRS also modified the final regulations to require SBCs to include an internet address where an individual may review the uniform glossary, a contact phone number to obtain a paper copy of the uniform glossary, and a disclosure that paper copies of the uniform glossary are available. The final regulations apply for disclosures to participants and beneficiaries who enroll or re-enroll in group health coverage through an open enrollment period (including re-enrollees and late enrollees) beginning on the first day of the first open enrollment period that begins on or after September 23, 2012. For disclosures to participants and beneficiaries who enroll other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees), the final regulations apply beginning on the first day of the first plan year that begins on or after September 23, 2012. For disclosures to plans, and to individuals and dependents in the individual market, the regulations apply to health insurance issuers beginning on September 23, 2012.
Final Rules on ERISA 408(b)(2) Service-Provider Disclosure: Under final rules issued by the Department of Labor’s Employment Benefits Security Administration February 3, covered service providers to ERISA-covered defined benefit and defined contribution plans must provide to plan fiduciaries the information required to: (1) assess reasonableness of the total compensation, both direct and indirect, that a covered service provider receives from the contract; (2) identify potential conflicts of interest; and (3) satisfy reporting and disclosure requirements under Title I of ERISA. “Covered service providers” include ERISA fiduciary service providers, investment advisers registered under federal or state law, brokers, and recordkeepers. The rule only applies to service providers that reasonably expect to earn $1,000 or more in total compensation under a service contract. The rule does not apply to simplified employee pension plans, savings investment match plans for employees of small employers, individual retirement accounts, certain §403(b) annuity contracts and custodial accounts, or employee welfare plans.
If you have any questions about any of the topics discussed here. Click here to contact Paul.


Dec 28
This post is a brief discussion of year-end tax planning from an estate and gift tax perspective. In this post, I discuss making gifts to children and grandchildren during 2011 and 2012 without incurring any gift tax. Many of these techniques may also will reduce your overall income tax burden.
Use of Gift Tax Exemptions to Reduce Estate and Gift Tax
Congress reinstated the federal estate tax for 2010 and thereafter, setting the unified federal estate and lifetime gift tax exemption amount at $5 million for 2010 through 2012. For 2012, the amount is inflation-adjusted to $5,120,000. This increased amount is well above the $3.5 million amount effective for 2009. Although the exemption amount and tax rates after 2012 are uncertain, there is no doubt that the estate tax is here to stay. Therefore, a person should consider making sufficient lifetime gifts so that his or her estate will not exceed the exemption amount in effect at death.
Please understand that lifetime gifts are subject to a gift tax imposed at the same rate as the estate tax. This “unified” system is intended to eliminate any tax advantage to making gifts. But certain types of lifetime transfers are not subject to gift tax, and year’s end could be a good time to make such gifts.
Annual Gift Tax Exclusion
The most commonly used method for tax-free giving is the annual gift tax exclusion, which allows a person to give each donee up to $13,000 each year during 2010, 2011 and 2012 without reducing the giver’s estate and lifetime gift tax exclusion amount. A person is not limited as to the number of donees to whom he or she may make such gifts. Thus, if an individual makes $13,000 gifts to 10 donees, he or she may exclude $130,000 from tax. In addition, because spouses may combine their exemptions in a single gift from either spouse, married donors may double the amount of the exclusion to $26,000 per donee.
Because the annual exclusion is applied on a per-donee basis, a donor can leverage the exclusion by making gifts to multiple members of the same family. Thus, a donor could make a $13,000 gift to his son and a $13,000 gift to his daughter, for a total of $26,000 in tax-free gifts. He could double this tax-free amount to $52,000 if his spouse joins in the gifts.
The annual gift tax exclusion applies to gifts of any kind of property, although certain types of property may require an appraisal. Gifts of appreciated property also could result in income tax savings, because the recipient would pay the capital gains tax on any sale. The threat of higher income tax rates in future years makes this an important consideration.
Because a donor may not carry over his or her annual gift tax exclusion amount to the next calendar year, year-end gifting is critical so as to maximize the exclusion’s benefits for each year. If a donor wishes to make a gift exceeding the exclusion amount, he or she can effectively double the exclusion by making one gift in December and the second in January. For example, a married couple could make a tax-free gift of $52,000 to any individual by making a gift of $26,000 in December 2011 and another $26,000 gift in January 2012.
Note that Congress substantially increased the estate and lifetime gift tax exclusion amount, mentioned above, from $1 million in 2010 to $5 million in 2011 and 2012; thus, providing a two-year window for maximizing such giving. Congress also provided that, if a spouse dies in 2011 or 2012 without exhausting his or her estate and lifetime gift tax exclusion amount, the surviving spouse may be able to gift against that amount. This latter provision does not apply to gifts given to grandchildren, i.e., generation-skipping transfers.
Tuition Payment Exclusion
In addition to the annual gift tax exclusion, a person may make tuition payments for any individual without incurring gift tax. Though the amount that may be excluded is not limited, all payments must be made directly to a tax-exempt school at any level, for the purpose of education or training. The exclusion applies only to tuition. Thus, payments for room and board, books, required equipment, or related expenses are not excludible. Because there is no limit on the gift amount, its timing is less important than with the annual exclusion. Nevertheless, if a person has the choice of making either a tuition payment or an annual exclusion gift for a particular beneficiary, it usually is preferable to make the tuition payment, because he or she still could make an annual exclusion gift later in the year.
Congress recently extended the income tax deduction for tuition payments through 2011. To obtain the deduction, the tuition payment must be made to an institution of higher education on behalf of a dependent, and the payor’s adjusted gross income must be below certain limits. Thus, a tuition payment may have some income tax advantages.
Section 529 College Savings Plans
Contributions to a college savings plan established according to Section 529 of the Internal Revenue Code (529 plan) do not qualify for the exclusion for tuition payments, but are covered by the $13,000 annual gift tax exclusion. A contribution to the plan also may entitle the contributor to a state income tax deduction. Thus, a contributor can reduce his or her own income taxes by funding a 529 plan with savings that would have been used for college anyway.
Qualified distributions from a 529 plan may be used for a wide range of educational expenses, including tuition, fees, books, supplies, required equipment, and room and board, but not transportation costs. An added advantage of a gift to a 529 plan is that, generally, the income earned by plan contributions is tax-free, so long as it eventually is used for qualified educational purposes. Also, because the contributor may be the plan’s custodian, he or she can ensure that the beneficiary uses the account for educational purposes.
A special rule allows a contributor to utilize up to five annual gift tax exclusions simultaneously when funding a 529 plan. He or she may fund the plan with up to $65,000 (5 × $13,000) this year, then file an election with the IRS to spread this gift over five years (2011 through 2015) for gift tax purposes. By using five annual exclusions, the entire gift becomes gift-tax-free, although the contributor must wait until 2015 to make another tax-free contribution.
Medical Payment Exclusion
Subject to limitations, a person may exclude from gift taxes all payments he or she makes directly to medical providers on behalf of another individual. These medical expenses must be of the type that would qualify for an income tax deduction. The exclusion for medical payments also includes the payment of medical insurance premiums. Thus, paying a child or grandchild’s insurance premiums is an efficient means of making a tax-free gift that does not consume either the annual gift tax or the estate and lifetime gift tax exclusions. Further, the payor may claim an income tax deduction for a payment made for his or her spouse or dependent.
Gifts in Trust
Despite the tax savings, a person may be uneasy about making outright gifts to children or grandchildren, due to the loss of control over how they use the gift. We can address these concerns by making the gifts in trust, which allows the trust creator to determine when the beneficiaries receive the money and how it is used.
Special requirements exist that ensure that a gift in trust qualifies for the $13,000 annual exclusion. Generally, the trust is drafted to provide the beneficiary with temporary withdrawal rights over the gift (usually for 30 days), such that the gift is considered a present interest rather than one that vests in the future. Although this arrangement presents a risk that the beneficiary could withdraw the gift from the trust, the likelihood of the trust creator terminating any further gifts to the trust is usually sufficient to prevent such withdrawals. If you are interested in making a gift in trust, we can explore this option more thoroughly.
Charitable Gifts
Year end is a good time to review charitable giving to ensure it is accomplished in the most tax-efficient manner. Charitable giving is a form of estate planning because a gift to charity never will be subject to estate or gift tax, and provides the giver with an immediate income tax deduction. If a person wishes to make a large gift before January 1, his or her circumstances must be reviewed to determine the gift’s impact on the giver’s 2011 income tax liability and whether all or a portion of the gift should be deferred to 2012. If the gift is property and requires an appraisal (usually for gifts of property with a value in excess of $5,000, other than publicly traded stock), the process must be started as soon as possible so that the appraisal is available before year end.
In conclusion, I hope that the information in this post is useful in your gift planning for 2011 and 2012. If you wish to take advantage of any of the planning techniques that I have described, please feel free to contact Paul by clicking here.
Feb 10
On December 17, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Although the primary feature of this legislation is a two-year extension of the Bush-era income tax cuts, the Act also addresses the repeal of the estate tax for 2010 and its reinstatement in 2011. The legislation reenacts the estate tax for 2010 (but grants an option to elect back into the repeal) and provides generous estate and gift tax exemptions and rates for 2011 and 2012. Unfortunately, the Act is only a temporary measure — in 2013, the pre-2001 estate and gift tax provisions will return, with the potential to impose a much greater tax burden on estates and gifts.
Following is a summary of the provisions of the new Act, with a discussion of the opportunities and pitfalls that it presents for your personal estate planning.
Estate and Gift Taxes in 2011 and 2012
For decedents dying in 2011 and 2012, the Act greatly reduces the reach of the estate tax by granting estates a $5.0 million exemption for property subject to the tax. In 2009, the last year in which there was an estate tax, the exemption was $3.5 million, so this is a significant increase. In addition, the Act introduces the concept of exemption “portability” between spouses — if one spouse does not use all of his or her $5.0 million exemption, it may be used by the estate of the surviving spouse, effectively creating a $10.0 million exemption for married couples. The few estates that exceed this $5.0/$10.0 million threshold will be subject to a new 35% tax rate, considerably lower than the 45% rate that prevailed before 2010.
Gift taxes are also lighter. Since 2001, taxpayers have had only a $1.0 million lifetime exemption for gift tax purposes. That exemption is increased to $5.0 million for gifts made in 2011 and 2012, and the tax rate on 2011 and 2012 gifts in excess of that amount is 35%.
Estates of Decedents Dying in 2010
The estates of those who died in 2010 faced considerable uncertainty prior to the passage of this legislation. A 2001 law repealed the estate tax for persons dying in 2010, but also imposed a carryover basis regime that required that heirs use the decedent’s tax basis for inherited property. Before 2010, that property had received a basis step-up at death. For some heirs, this 2010 requirement was a greater tax burden than would have been imposed by the estate tax. In addition, there was a risk that the estate tax would be retroactively reinstated for 2010, so many executors did not know what to do.
Congress has now eliminated that uncertainty for 2010 estates. It has repealed carryover basis and reinstated the estate tax for 2010, but with the $5.0 million exemption and 35% tax rate that are also available in 2011 and 2012. The new law also provides that estates of persons dying in 2010 can elect out of the estate tax, provided that they accept the carryover basis regime.
The estate tax return is normally due nine months after the date of death. In light of the special circumstances in 2010, the Act extends that filing date (as well as the payment date for the tax) for 2010 decedents to September 17, 2011.
Generation-Skipping Transfer Tax
The Act makes a number of changes to the generation-skipping transfer (GST) tax, which, to simplify things a bit, is an additional tax imposed on gifts and bequests to grandchildren and great-grandchildren. The 2001 legislation repealed the GST tax for 2010 only, but there was a lack of clarity as to the effect of that repeal. The recent Act should eliminate that uncertainty, because it provides that the GST tax was in effect in 2010, but with a 0% tax rate. This means that any generation-skipping transfers that occurred in 2010 were tax-free, but that taxpayers could still take advantage of the various GST tax exemptions that could reduce or eliminate the tax in future years.
Going forward, the Act aligns the GST tax with the reformed estate and gift taxes. In 2011 and 2012, the GST exemption is increased to $5.0 million and the tax rate is 35%. In 2013, the GST tax, like the estate and gift taxes, will revert to a $1.0 million exemption and a 55% tax rate.
Planning Opportunities
Despite the large changes made by the Act, planning opportunities are limited. One opportunity has a short lifespan. There is a very narrow window until December 31 in which to make generation-skipping gifts that are free of the GST tax. If you are interested in doing so and can act quickly, please contact us immediately so that we can explore your options.
Estates of decedents who died in 2010 now have certainty as to the tax law, but still must decide whether accept new default regime ($5.0 million exemption, 35% tax rate) or to elect into the prior 2010 law (no estate tax, but with carryover basis). If the estate is less than $5.0 million, in most cases it will be best to accept the application of the estate tax and thereby acquire a basis step-up in the assets. But an analysis should still be done to determine whether the heirs are better off with a stepped-up basis or the carryover regime. It is worth noting that, if the estate of a married decedent accepts the application of the estate tax in 2010, the portability provisions do not apply to the unused portion of the $5.0 million exemption. Portability applies only to decedents dying in 2011 and 2012.
If an individual is likely to die in 2011 or 2012, his or her estate plan must be reviewed to determine whether it takes full advantage of the $5.0 million exemption and, if applicable, the portability of that exemption. But for the great majority of our clients, who intend to live well beyond 2012, the temporary nature of the estate and gift tax changes means that they cannot be relied upon for planning purposes. Congress will revisit the estate, gift and GST taxes in late 2012, and we cannot predict what action it will take at that time. Nevertheless, many of you have been reluctant to do any estate planning in light of the legislative uncertainty and the possibility of estate tax repeal. Now that we know that the estate tax will be with us for at least another two years, the time is ripe to do the planning that you have been putting off. Click here to contact Paul to discuss your estate plan.
Dec 13

There is no estate tax in 2010, but IRS still wants estates with assets over $1.3 million to file an information tax return.  The IRS released a draft of what the return will look like. It is called IRS Form 8939 – Allocation of Increase in Basis for Property Received from a Decedent. The purpose of the form in this year of estate tax repeal to allocate the modified carryover basis of a person who dies in 2010. The return is a very short three page form and will be due on April 15, 2011, which is the same date as a 2010 decedent’s final income tax return (Form 1041). A draft of the Form 8839 can be found by clicking here.

Aug 17

There are no shortage of people who think about the need to have a will in preparation for their inevitable departure from this life. Many of those people also wonder if they need a trust as well.  In general, people just want to know the best way to handle their affairs while they are alive so their loved ones don’t have to worry about it (too much) when they pass away.  Preparing for that time is called estate planning. As you can imagine, there are a lot of issues to consider in putting together your estate plan. One of the most confusing aspects of estate planning are the tax effects of your estate planning decisions. There are actually several types of taxes that must be considered in a properly executed estate plan, such as income tax, estate tax, gift taxes, and generation skipping transfer taxes. For that reason it is important to choose a attorney who understands the tax implications of your estate planning decisions. As an attorney specializing in tax issues, Paul Jones understands how these taxes will affect your estate planning decisions. Understanding these tax issues will help you make better decisions. If you would like to review your own estate plan or get one started click here to contact Paul.

Apr 12

The Form 706 is a snapshot of a decedent’s financial situation on the date of death or at a special valuation date 6 months after the date of death . The Form 706 return is due nine months after the date of death (or 15 months if extended).  The purpose of the Form 706 is to provide a complete detailed listing of the decedent’s assets and liabilities, as well as current and future estate expenses. The Form 706 is not required for all estates, just those estates which value exceeds a threshold set by congress must file. This threshold has changed frequently over the years. For persons dying in 2010 there is no estate tax. However, in 2011 the estate tax threshold is an estate valued over $1,000,000.  If you potentially have a taxable estate the time to plan for mitigating those taxes is now. Contact Paul to discuss strategies and alternatives by clicking here.

Nov 18

The term “Inherited IRAnext hit” in the internal revenue code describes any IRA after the death of its owner. The beneficiary of the IRA is said to have inherited his or her ownership of the IRA. Inherited IRAs have special tax rules regarding Inherited IRAs. There different rules for surviving spouses from beneficiaries who are not the spouse of the decedent (children, grandchildren, etc.).  If you have inherited an IRA an would like to know what your options are in terms of tax planning, click here to contact Paul to discuss your options.


Aug 26

A trust can be set up and used for various purposes–avoiding probate, protecting assets, efficiency in asset transfer, providing anonymity, conserving assets for a person that may waste the assets upon receiving them all at once, etc. Trusts are often set up with these intentions in mind, but often become ineffective or go unfunded because the administration or transfer of the assets to the trust is not handled properly. Paul can can assist you with your trust needs and follow through to ensure that you understand the proper funding, administration, and tax requirements of the trust. Click here to contact Paul to review or set up your trust or just to talk about whether a trust is something you need.

Dec 22

For tax purposes, when a person dies he or she is left with a “gross estate” A person’s gross estate consists of everything that person owns or has an interests in at the date of their death . The fair market value of these items is used to determine the person’s gross estate. Specific examples of what kind of property is includible in a person’s gross estate are cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. A person’s gross estate will likely include non-probate as well as probate property. If your gross estate is $1,000,000 or more there is very likely some complexity to your estate. An estate tax return filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 – 2005; $2,000,000 in 2006 – 2008; and $3,500,000 effective for decedents dying on or after January 1, 2009. There are legal and legitmate ways to pass on property before death to minimize estate tax. Gove Paul a call to discuss your estate affairs or click here to contact Paul through this web site.