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Recommended Estate Tax Laws

Yesterday I blogged about the history of the estate tax and other transfer tax laws.  While the past is certainly instructive in understanding the future, to prognosticate future law, it’s also helpful to look at those proposals and suggestions which have been offered up to Congress and the White House.  In March we shared President Obama’s estate tax ideas as set forth in his budget proposal.  Today, we share options for tax reform as recommended to Congress on April 4, 2012 by the Joint ABA Sections of Taxation and Real Property, Trusts & Estates Law.  The full document can be found here.  Our brief summary of some of the recommended options are as follows:

  1. Don’t allow short-term fixes.  Adopt long-term, policy-based legislation, devoid of sunsets, phase-ins or changes in the transfer tax system predicated on the mere passage of time.  “When the transfer tax laws are unstable and unpredictable, as they have been for the past decade, responsibly planning one’s affairs is a project fraught with frustration.”
  2. Unify credits.  Keep gift, estate, and GST tax credits unified.
  3. Fix problems with Portability.  While the Portability of Exemptions effort is applauded, several difficult issues caused by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRA 2010”) should be addressed with respect to Portability:
    1. Allow unused GST exemption to also pass to spouse;
    2. Index Deceased Spousal Unused Exclusion Amount (“DSUEA”) for cost of living adjustments;
    3.  Adopt a combined approach to remove incentives and disincentives from idea of remarrying based upon tax law: DSUEA that would not penalize a surviving spouse from remarrying a spouse with a lower DSUEA, but also would not provide a tax incentive to remarry;
    4. Explore alternatives to requiring that affirmative election for portability be made by filing a 706 estate tax return; and
    5. Make portability permanent in spite of the sunset of TRA 2010.
  4. Update Section 6166 deferral for closely held businesses.  Payment can be deferred for up to 5 years with payments then being spread equally over next 10 years.  These Sections suggest including other legal forms, beyond corporations and partnerships (e.g., sole proprietorships and disregarded LLCs).
  5. Eliminate control discounts for closely held entities created for no meaningful non-tax purposes.  Particularly, it proposes to disregard valuation discounts where:
    1. The transferred interest is part of a controlling interest to begin with;
    2. Other family members interests aggregately control;
    3. Restrictions on liquidation or withdrawal are not comparable to those agreed to by persons dealing at arms’ length, whether restrictions are imposed by state law or operating agreement or state law (i.e., Nevada’s Restricted LLC); and
    4. More stringent and uniforms standards for appraisals are not used to justify discounts – use valuation firms to police discounts.
  6. Eliminate estate tax “Clawback” or “Recapture” on unified credit gifts.  As part of TRA 2010 up to $5.12 million can be gifted under the exemption equivalent of the unified credit.  Unless the law is clarified, there has been considerable concern that if estate tax exemptions decrease, the difference between any larger gifts and the then lower exemption could then be recaptured and taxable in the estate.
  7. Update annual exclusion gifting requirements.  This recommendation would either eliminate the present interest requirement or at least codify the Crummey withdrawal power to better explain requirements and define the term “present interest”.


Time is a waste’n—clients should act now!  Every person with a potentially taxable estate should consider transfer tax planning now.  Even though the future transfer tax laws are unknown at this time, the current $5.12 million transfer tax exemptions provide an attractive and potentially once-in-a-lifetime opportunity for estate planning.  Call us today for a free consultation – 702-938-2244.