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Preparing for the Sunset - Unique Estate Planning Opportunities at the End of an Era
- 1. Preparing for the Sunset:
Unique Estate Planning Opportunities
at the E d of an E
t th End f Era
John F. Hussell, IV Staci N. Criswell
304.357.9966 304.357.9906
john.hussell@dinsmore.com staci.criswell@dinsmore.com
© 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
- 2. Current Tax Climate
2009 2010 2011 2012 2013
Estate Tax
$3.5 million $5 million $5 million $5,120,0001 $1 million
Exemption
Max. 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
Exemption
Max. 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. Use It or Lose It:
How Utilize h $5 12 Milli U ifi d C di
H 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. Use It or Lose It:
How Utilize h $5 12 Milli U ifi d C di
H 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. Use It or Lose It:
How Utilize h $5 12 Milli U ifi d C di
H 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. Use It or Lose It:
How Utilize h $5 12 Milli U ifi d C di
H 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. 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. 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 Administration's 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. 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. 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. 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. 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. 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 3
GRAT
G A 1
Yr 1 Yr 2
© 2012 DINSMORE & SHOHL | LEGAL COUNSEL | www.dinsmore.com
- 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. 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. 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. 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