Preparing for the Sunset - Unique Estate Planning Opportunities at the End of an Era

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Preparing for the Sunset - Unique Estate Planning Opportunities at the End of an Era

  1. 1. Preparing for the Sunset:Unique Estate Planning Opportunitiesat the E d of an E t th End f EraJohn F. Hussell, IV Staci N. Criswell304.357.9966 304.357.9906john.hussell@dinsmore.com staci.criswell@dinsmore.com © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  2. 2. Current Tax Climate 2009 2010 2011 2012 2013 Estate Tax $3.5 million $5 million $5 million $5,120,0001 $1 million ExemptionMax. Estate 45 percent 35 percent 35 percent 35 percent 55 percent Tax Rate Gift Tax $1 million $1 million $5 million $5,120,0001 $1 million ExemptionMax. G Tax . Gift 45 percent t 35 percent t 35 percent t 35 percent t 55 percent t Rate GST Tax $1 million indexed $3.5 million $5 million $5 million $5,120,0001 for inflation from Exemption 1997 Max. GST 45 percent 0 percent 35 percent 35 percent 55 percent Tax Rate 1 The gift, estate, and GST tax exemptions were increased by a COLA of $120 000 Rev Proc. 2011-52, §3 29 gift estate $120,000. Rev. Proc 2011-52 §3.29. © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  3. 3. Use It or Lose It:How Utilize h $5 12 Milli U ifi d C diH to U ili the $5.12 Million Unified CreditPlanning for Married Couples: Gift to Spousal Lifetime Access Trust (SLAT) Secondary Objective in Making Large Gifts is Retaining Access (“just in case”) Giving Access to Spouse Is Often Tantamount to Retaining Access Beware of Reciprocal Trust Doctrine Gift to Inter Vivos QTIP f Q Potential Qualified Disclaimer Spouse’s Decision to Disclaim Can Wait for up to 9 months Allows Time to Determine Where Tax Laws Are Heading © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  4. 4. Use It or Lose It:How Utilize h $5 12 Milli U ifi d C diH to U ili the $5.12 Million Unified CreditPlanning for Single Clients: g g Grantor Dynasty Trusts Defer Transfer Taxes for Multiple Generations Grantor Pays Income Taxes Without Making Additional Taxable Gifts to Trust Forgiveness of Past Loans Very Simple and Popular Technique Simple to Do and Confers on a Prior Transfer the Gift Treatment if the Gift Tax Exemption Had Not Been Smaller © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  5. 5. Use It or Lose It:How Utilize h $5 12 Milli U ifi d C diH to U ili the $5.12 Million Unified Credit Qualified Personal Residence Trusts (QPRTs) QPRTs Are More Effective When the Section 7520 Rate Is High Unlike GRAT, U lik a GRAT a QPRT cannot be “zeroed-out” tb “ d t” The Unavoidable Remainder (Gift) Value Can Be Transferred in a QPRT More Easily When the Gift Tax Q yW G Exemption Is High © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  6. 6. Use It or Lose It:How Utilize h $5 12 Milli U ifi d C diH to U ili the $5.12 Million Unified Credit Four Considerations for Making Exclusion Gifts Choose the Assets Given Carefully and if Possible Use Discounted Assets Use f Formula All ti Clause or Defined Value U of F l Allocation Cl D fi d V l Clause Make the Gift to a “Grantor Trust” G G Plan for Financial Reversals © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  7. 7. Estate Planning at the Crossroads: The F Th Future of T T h i f Top Techniques General Explanations p of the Administration’s Fiscal Year 2013 d st at o s sca ea 0 3 Revenue Proposals Department of the Treasury February 2012 y This document is available online at:http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pdf © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  8. 8. Estate Planning at the Crossroads: The F Th Future of T T h i f Top Techniques On February 13, 2012 the Department of Treasury released the y , p y General Explanations of the Administrations Fiscal Year 2013 Revenue Proposals (the “Greenbook”). The 2013 Greenbook included many proposals articulated in prior years – namelynamely, modifying the rules on valuation discounts, requiring a minimum term for GRATs, and limiting the duration of GST tax-exempt trusts. In addition, the 2013 Greenbook seeks to incorporate the grantor trust rules into the transfer tax system. © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  9. 9. Modify Rules on Valuation Discounts Frequently used with closely-held business, FLPs and LLCs q y y , Lack of Marketability (inability to quickly convert the business holding to cash) Lack of Control or Minority Interest (if less than a controlling interest) Built-In Gains (when valuing a corporation using net asset value method) © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  10. 10. Modify Rules on Valuation Discounts (continued) ( i d) Ranges we have seen g Lack of Marketability – 15% to 45% Lack of Control – 10% to 40% Excess of 35% Combined - Inviting an Audit President Obama’s 2013 “Green Book” Proposal – Will make it more diffi lt if not i difficult, t impossible, t claim valuation ibl to l i l ti discounts, particularly in family situations © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  11. 11. Modify Rules on Valuation Discounts (continued) ( i d) The proposal would create a category of “disregarded p p g y g discounts” that would be ignored in valuing an interest in a family-controlled entity transferred to a member of the family, if, if after the transfer, the restriction will lapse or may be transfer removed by the transferor or the tranferor’s family Disregarded restrictions would include restrictions on liquidation of an interest that are measured against standards prescribed in Treasury regulations, not against default state law Disregarded restrictions would also include limitations on a transferee’s ability to be admitted as a full partner or other holder of an equity interest © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  12. 12. Require a Minimum Term for Grantor Retained A R i d Annuity Trusts (GRATs) i T (GRAT ) Risk-free* way of transferring wealth free from transfer taxes y g 7520 Rate Hope that trust assets produce a return in excess of the 7520 rate *Only risk is no tax-free transfer if grantor dies during annuity term (still no worse off) © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  13. 13. Require a Minimum Term for Grantor Retained A R i d Annuity Trusts (GRATs) i T (GRAT )Children’s 2-Year Zeroed-Out GRATs Trust T t 1st Traditional GRAT Ends 2011 2012 2010 GRAT 2 GRAT 3GRATG A 1 Yr 1 Yr 2 © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  14. 14. Require a Minimum Term for Grantor Retained A R i d Annuity Trusts (GRATs) i T (GRAT )This proposal would require, in effect, some downside risk in the use of GRATs by imposing the requirement have a minimum term of ten years and a maximum term of the life expectancy of the annuitant plus ten yearsThe proposal also would include a requirement that the remainder interest have a value greater than zero at the time the interest is created and would prohibit t th ti th i t ti t d d ld hibit any decrease in the annuity during the GRAT term © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  15. 15. Limit Duration of Generation-Skipping Transfer (GST) T Exemption T f Tax E iThis proposal would provide that on the 90th anniversary of the creation of a trust, the GST exclusion allocated to the trust would terminateThis would be achieved by increasing the inclusion ratio of the trust to one, thereby rendering no part of the trust exempt from GST tax © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  16. 16. Coordinate Certain Income and Transfer Tax Rules A li bl R l Applicable to Grantor Trusts G TTo the extent that the income tax rules treat a grantor of a trust as an owner of the trust, the proposal would (1) include the assets of that trust in the gross estate of that grantor for estate tax purposes (2) subject to gift tax any distribution from the trust to one or more beneficiaries d i th b fi i i during the grantor’s life, and (3) subject t ’ lif d bj t to gift tax the remaining trust assets at any time during the grantor s life if the grantor ceases to be an grantor’s owner of the trust for income tax purposes © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
  17. 17. Our Team John Hussell – Office Managing Partner Kelli Harrah – Secretary j h h john.hussell@dinsmore.com ll@di kelli.harrah@dinsmore.com Staci Criswell – Partner  staci.criswell@dinsmore.com Susan Burgess – Secretary J.E. White, Jr. – Partner susan.burgess@dinsmore.com  j hi @di je.white@dinsmore.com Debbie Martin Secretary D bbi M i – S Joshua Rogers – Associate debbie.martin@dinsmore.com  joshua.rogers@dinsmore.com Terri Rubenstein - Secretary Andrew Ellis – Associate  andrew.ellis@dinsmore.com d lli @di terri.rubenstein@dinsmore.com terri rubenstein@dinsmore com Katherine Mullins – Associate Kim Sigman - Secretary  katherine.mullins@dinsmore.com kim.sigman@dinsmore.com Larissa McCoy – Paralegal  l i larissa.mccoy@dinsmore.com @di Natalie Taylor – Paralegal  natalie.taylor@dinsmore.com © 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com

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