Estate and tax planning ideas for 2012 v4-post-final (2)
Presented By: Suzanne Weber, C.P.A, M.S.T, T.E.P David Spence, Attorney at Law
• Tax is imposed on the transferor, not the recipient.• Tax is based on the fair market value of assets.• In calculating the tax, deductions are generally allowed for: • Decedent’s Debts and Expenses of Estate Administration. • Amounts Passing to a U.S. Citizen Spouse. • Amounts Passing to a U.S. Charity.
For Citizen or Resident Individuals: Highest Gift Tax Gift Tax Gift and Marginal Lifetime Annual Estate Tax Estate Tax Estate Tax Year Exemption Exclusion Rate Exemption Rate2010 $1,000,000 $13,000 35% Unlimited 35%2011 $5,000,000 $13,000 35% $5,000,000* 35%2012 $5,120,000 $13,000 35% $5,120,000* 35%2013 ?? $1,000,000 $13,000 55% $1,000,000 55% * Note: The Deceased Spouse’s Unused Exemption Amount (DSUEA) also carries forward to the surviving spouse.
Applicable to U.S. Citizens or Residents: Annual Gift Tax Annual Gifts or Annual Lifetime Exclusion Testamentary Exclusion Estate & Gift regardless of Bequests to Gift to Tax Exemption donee identity U.S. Citizen Non-citizenYear Amount or citizenship Spouse Spouse2011 $5,000,000 $13,000 Unlimited $136,0002012 $5,120,000 $13,000 Unlimited $139,0002013 ?? $1,000,000 $13,000 Unlimited $139,000
Applicable to U.S. Situs Property Annual Exemption for Exclusion Gifts or Applicable Lifetime Annual Gift to Bequests to a Gift & Gift Tax Gift Tax Non-U.S. U.S. Citizen or Estate Tax Estate TaxYear Exemption Exemption Spouse Resident Spouse Exemption Rates 2011 $0 $13,000 $136,000 Unlimited $60,000 18-35% 2012 $0 $13,000 $139,000 Unlimited $60,000 18-35%2013 ?? $0 $13,000 $139,000 Unlimited $60,000 18-55% But, what about bequests to a non-citizen spouse?
The Good: Allows testamentary bequests to non-citizen spouse to qualify for the unlimited estate tax marital deduction. Requires all income to be paid annually to spouse for life. No person has power to distribute to anyone other than surviving spouse. The Bad: Must have a U.S. person as trustee. If QDOT assets exceed $2 million FMV then trustee/co-trustee must be a domestic corporation (in other words, a bank). The Ugly: Distributions from the QDOT in excess of annual income are subject to withholding of estate tax at the highest marginal rate.
Now:Estate Duty or Gift Tax NoneIncome Tax Indian SourcedWealth Tax 1% Nonproductive Assets in excess of Rs. 2,50,000/1,50,000 of Ind/HUFRepatriation $1 million per year limit on capital From April 1, 2012- Direct Taxes Code:NRI Residence Test • 60 current days + 365 in Previous 4 yearsCorporate Residence Test Effective Management TestWealth Tax Expanded to Discretionary Trusts, limit change to in excess of Rs. 50 crore
Tax:Estate/ Gift Tax on Inheritance NoneIncome Tax Foreign Tax Credit offset Income Tax Reporting Requirements:Inheritance/ Gift over $100,000 Form 3520 w/ Tax ReturnFinancial Foreign Accounts Form TD F 90-22.1 FBAR• Over $10,000 maximum value • Due June 30thSpecified Foreign Financial Assets: Form 8938 due annually with tax• Max value $75,000/$150,000 S/J return• Year end value $50,000/$100,000 S/J
For 2011: Specified Individuals U.S. Citizen Resident Alien Non Resident (NR) Electing to be Resident Resident alien electing under treaty to be NR For 2012: Specified Domestic Entities Is closely held by specified person Hold specified foreign financial assets over $75k at anytime during the year or $100k at year end. Either: 50% of gross income or assets are passive 10% of gross income or assets are passive and was formed to avoid reporting.
1) Financial Accounts maintained by a Foreign Financial Institute (FFI). FFIs include: Mutual Funds, Foreign Private Equity Fund, etc…2) Other Specified Foreign Financial Assets (not held in a FFI, if held for investment) Stock issued by a foreign corporation Capital or private interest in a foreign partnership Note bond, or other indebtedness issues by a foreign person An interest in a foreign trust or estate.
Form Basic Compliances90.22-1 •Over $10k at any point in time •Signature authority- both individual & company 5471 •Controlled Foreign Corporation at least 30 days •Passive officer when a 10% stock change 926 Transfers to Controlled Foreign Corp. (CFC) 5472 25% or more Foreign Ownership, Sent separately 8621 Passive Foreign Investment Company 8858 Foreign Disregarded Entity/ Form 88321120F Permanent Establishment/ Trade or business in U.S.
Form Penalty Statute of Limitations (SOL) 90.22-1 •Non-willful: $10,000 6 years •Willful: Greater of $100,000 or 50% balance •Criminal: up to $500,000/ 5 yrs 8938 $10,000 each •6 yrs after filing if < $5,000 omitted •Entire return open for 3 yrs after filing return with form 3520 (Gift) 5% of Gift a month up to 25% 3/6 yrs after filed 3520 (Trust) 35% of transfer received 3/6 years after filed 8621 No direct penalties Entire return open for 3 years after filing return with form 5471 $10,000 Each Entire return open for 3 years after filing return with form 5472 $10,000 Each Entire return open for 3 years after filing return with form 8858 $10,000 Each Entire return open for 3 years after filing return with form
Intangible Assets Stocks, LLC & LP interests, patents, copyrights, etc. General rule—intangibles are located where the giver is located. Tangible Assets Real estate, equipment, automobiles, jewelry, artwork, etc. General Rule—tangible assets have “situs” where they are physically located. But, what about cash, currency, bank accounts, etc.?
Owned by a Non-resident, Non-citizen U.S. U.S. Company Personal Business Foreign Stock and U. S. Bank Bank Bank Other U.S. U.S. Real Non-U.S. Tax Accounts Accounts Accounts Intangibles Estate Real Estate US Gift Non-taxable Non-taxable Tax Taxable Taxable (Sometimes) (generally) Taxable Non-taxableUS Estate Non- Taxable Tax taxable Taxable Non-taxable (generally) Taxable Non-taxable BEWARE! The above table reflects general rules. Actual determination of taxability can be heavily fact-specific. PLEASE CONSULT YOUR LEGAL COUNSEL OR CPA!
Cash Transfers from India Indian restrictions on the ability of families to transfer cash out of India can create U.S. tax planning problems. What about U.S. stock? Foreign Trustees When selecting a successor trustee/executor, a U.S. person is preferable for a number of reasons: U.S. income tax issues. U.S. reporting issues Logistics Foreign Charities
The U.S. Estate and Gift Tax Can Apply in Situations One Would Not Expect. Cross-border Families and Cross-border Wealth Create a Myriad of Tax Traps but also Opportunities! When you have a tax situation in one country, you have to look at how it affects tax in the other country. In today’s environment, you should over comply and elect protective compliances.
Admitted To Practice: Supreme Court of California United States Tax Court United States District Court for the Northern District of California Affiliations: State Bar of California • Tax Section • Estate and Trust Section • Business Law Section Palo Alto Area Bar Association Society of Trust & Estate Practitioners Education: ATTORNEY AT LAW B.S. (Accounting), Brigham Young University OFFICE PHONE (650) 813‐9700 EXT. 211 M. Acc. (Taxation), Brigham Young University firstname.lastname@example.org J.D., Brigham Young UniversityDavid Spence heads the Estate, Trust, and Wealth Strategies practice for the Royse Law Firm. David’s practice focuses in the areas oftaxation, estates, trusts and other private wealth structures used in the efficient management, protection, and transfer of wealth tosucceeding generations. David’s clients are international and domestic individuals, families, family businesses and charitable organizations.Over the last twenty‐five years, David has practiced with prominent law firms, international accounting firms, and financial institutions inSilicon Valley and San Francisco.David has counseled some of the largest and most complex estates in the world. David has represented clients before various courts andadministrative agencies of the federal and state government, including the United States Tax Court and the Internal Revenue Service.Currently, David is also an adjunct professor with the Master of Science in Taxation (MST) program in the Lucas Graduate School of Businessat San Jose State University, where he teaches Taxation of Estates and Trusts. For more information about Royse Law Firm, PC or David Spence, please email: email@example.com
Affiliations: California CPA Society Society of Trust & Estate Practitioners Education: BS San Jose State University MST Golden Gate University Graduate MST Golden Gate University CERTIFIED PUBLIC ACCOUNTANT OFFICE PHONE (408) 931‐6201 SWEBER@WEBERANDCOMPANYCPA.COMSusan Weber is a principal of Weber and Company, Inc. a Certified Public Accounting and business consulting firm. Susan has over 25 yearsof experience in public accounting. She was previously with Armstrong, Bastow and Potter which merged with KPMG. Susan also previouslyfounded the public accounting firm Weber, Sanford and Company. Her area of professional concentration is International Tax, involvingplanning and compliance for businesses, individuals, estate and trust. She also has many years experience in the Real Estate and high techindustry.Susan has successfully represented clients with IRS controversy including international tax issues involving entity classification, transferpricing, passive foreign investment companies and the 2009 and 2011 offshore amnesty. Susan’s clients range from entrepreneurs, tomultinational companies, from Silicon Valley to around the world. For more information about Weber and Company, Inc. or Suzanne Weber, please email: firstname.lastname@example.org