Here are some Internet resources that may help you follow the bouncing Congressional ball in the current estate tax environment. These resources also provide some measure of advice and support for the difficult task of client counseling.
The federal estate tax is an important element in financial and estate planning for our clients and their families. Analyzing and applying this complex tax structure is difficult enough when we have legal and regulatory guidance, but has become a frustrating exercise in divination, and the art of hedging, in these uncertain times.
Tracking Congressional behavior
In “Estate Tax Repeal Update: Predictions About The New Federal Estate Tax Law” (About.com: Julie’s Wills & Estate Planning Blog, Feb. 2, 2009), Julie Garber reports on Professor Jeff Pennell’s seminar, “Federal Legislative Expectations in 2009-10.”
Ron D. Aucutt’s “Capital Letters” (The American College of Trust and Estate Counsel) provides excellent insights on recent estate tax proposals and legislation. “CCH Details Estate Tax Quandry for 2010” summarizes the consequences of Congressional inaction on the estate tax.
McGuireWoods LLP’s “Estate Planning in Uncertain Times: The Impact of the Repeal of the Estate Tax and What You Need to Consider,” is a 26 page white paper for clients and their advisors prepared by the Private Wealth Services Group of the firm. The Private Wealth Services Group includes Ron Aucutt, Dennis Belcher, and Charles D. “Skip” Fox IV, who were speakers at the 2010 Heckerling Institute on Estate Planning. The white paper comes with the usual disclaimers as to use and reliance for tax advice, but it is an excellent summary of the repeal changes, and the issues they present, and is well worth the read.
Joe Hodges’ “Heckerling Reports: 2010” (The American Bar Association Real Property, Trust and Estate Law Section) includes a Special Report on repeal. The Special Report quotes Conrad Teitell’s letter to the Senate Finance Committee urging immediate action and a newsletter from Evan Farr summarizing the effect of the current legislative inaction on client estate plan reviews.
Included in “Heckerling Reports: 2010” is Report No. 7, a summary of Steve Ackers, Carlyn McCaffrey and Ron Aucutt’s comments on repeal made in their presentation, “Charting New Paths for Estate Planners Through the Changing Landscape of Tax Laws and Regulations.” Report No. 7 includes a list of the most significant features of the current law that either end or begin on Jan. 1, 2010, comments on the changes in 2011 as a result of the sunset of the Economic Growth and Tax Relief Reconciliation Act, (EGTRRA) the constitutionality of retroactive legislation and their comments on planning and drafting in the present legislative climate.
The “General Explanation of the Administration's Fiscal Year 2011Revenue Proposals” discusses proposals to freeze the federal estate tax at 2009 levels, require consistent valuation for transfer and income tax purposes, modify rules on valuation discounts and require a minimum term for grantor retained annuity trusts. See Martin Schenkman’s take on the estate tax provisions of the Obama Budget Proposals in “Obama Budget Proposal Estate Impact” (LawEasy.com).
The economics of the estate tax related to President Obama’s 2010 budget proposals are analyzed by the Tax Policy Center in “2010 Budget Tax Proposals.” The Tax Policy Center compares the effect of proposals and the current law in 2012.
The Senate Budget Committee staff has published a “Brief Analysis of the Fiscal Year 2010 Budget,” discussing the effect of the proposed extension of the 2009 estate tax applicable exclusion and tax rate on the deficit.
Technical background resources on federal estate tax modification
In “Death and Taxes: The Economics of the Federal Estate Tax” (Tax Foundation Special Report, May 2006) Andrew Chamberlain, Gerald Prante and Patrick Fleenor focus on the economic impact of the estate tax.
“FET Reform: Senate Hearings” (PA Elder, Estate & Fiduciary Law Blog, April 7, 2008) provides summaries and links to the statements and testimony at the Senate Finance Committee Hearings on estate tax reform.
The Testimony of Shirley L. Kovar before the Senate Committee on Finance on April 30, 2008 focuses on the technical aspects of estate tax applicable exclusion portability.
Pending legislation and the current legislative process
Ron Aucutt’s “Why the Estate Tax is Still a Legislative Priority” (American College of Trust and Estate Counsel Capital Letter, Nov. 25, 2008) is an exhaustive insight on the current legislative process.
In Hani Sarji’s “Future of the Federal Estate Tax Blog,” estate tax bills are listed and summarized along with the latest news on repeal.
An example of proposed legislation tracking the administration’s position on a $3.5 million estate tax exemption is House bill H.R. 436. H.R. 436 would retain the current (2009) estate tax exemption and initiate family limited partnership and minority discount restrictions. This bill proposes the elimination of the use of “discounts” on interests owned in “passive” entities. You can track the progress of H.R. 436 on govtrack.us. Comments on it may be viewed and tracked on OpenCongress.
House bill H.R. 4154 passed the House and is pending in the Senate. Track it at govtrack.us. For the Commerce Clearing House analysis of this bill, see the Tax Briefing Federal Estate Tax (H.R. 4154). Also see Ronald D. Aucutt, “The Obama Administration’s Revenue Proposals,” for a review of the Treasury Department’s “General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals” (popularly called the “Greenbook”).
Senate bill S. 722, introduced by the Senate Finance Committee Chair, is summarized and tracked at OpenCongress. S. 722 would make the 2009 estate, gift and generation skipping provisions permanent and index the unified credit amounts for inflation.
In “IRS Silent So Far On New US Tax Rules for Inherited Wealth,” Martin Vaughn points out that the IRS is taking a wait-and-see approach on issuing guidance on estate tax for 2010, mentions concerns that Congress may reenact an estate tax retroactively and reviews the carryover basis concerns. He also states that another option that is getting some discussion by Congressional staff is an election that would allow the family members of people who died between Jan. 1, 2010 and when new legislation takes effect to choose between paying estate taxes at the rates in effect in 2009 or the capital gains tax regime under the current law.
Planning in uncertain times
Some helpful resources to stimulate your thinking as you face the difficult task of advising clients and initiating planning updates in 2010 include:
- Jonathan G. Blattmachr & Michael L. Graham’s, “Thinking About the Impossible for 2010” (Probate & Property, May/June 2007 Vol. 21 No. 3, pg. 12), which includes sample language.
- Carlyn McCaffrey’s comments on planning pending legislation summarized in Joe Hodges’ “Heckerling Report No. 7”.
- In “Estate Tax Repeal What you Can do Now” (LawEasy.com), Martin Shenkman offers advice for the public.
- The American College of Trust and Estate Counsel paper “Issues Raised By the One-Year Suspension of the Estate and GST Taxes,” addresses the many problems resulting from the 2010 interregnum.
The state reaction to the federal scene
See Julie Garber’s “State Inheritance Tax Chart” and “State Estate Tax and Exemption Chart” for a list of state estate tax exemptions in 2009 and 2010 (About.com: Julie’s Wills & Estate Planning Blog).
The competition among states to attract taxpayers interested in avoiding the state estate tax continues. See “America’s Most Wealth Friendly States Continue to Bid for your Clients’ Trust Business” (The Trust Advisor Blog).
An example of the local struggles over the estate tax is the ongoing effort to repeal the Ohio state estate tax as described in Julie Garber’s “Ohio Estate Tax Repeal Update – A New Initiative Seeks to End Estate Tax in 2013” (About.com: Julie’s Wills & Estate Planning Blog). Governor Mark Parkinson is proposing to reinstate the Kansas estate tax as reported in “Kansas governor outlines plan to balance state budget.”
Julie Garber’s, “What is the Modified Carryover Basis Regime? ” (About.com: Julie’s Wills & Estate Planning Blog) will introduce you to the issues flowing from the carryover basis provisions of Internal Revenue Code Section 1022.
A helpful exposition of the carryover basis conundrum is Martin Schenkman’s discussion of what you can do while the status of the estate tax is uncertain at “2010 Estate Tax Repeal – Is it real? What’s the Deal?” (LawEasy.com).
Constitutionality of retroactive legislation
For insight on the issue of retroactivity, see “The Constitutionality of a Retroactive Reenactment of the Estate Tax in 2010” (TaxProf Blog Dec. 17, 2009).
Congress can, of course, change all our thinking on the federal estate tax with the stroke of a pen. In the meantime these resources will help you prepare for the various eventualities that may arise.
Trusts & Estates magazine is pleased to present the monthly Technology Review by Donald H. Kelley—a respected connoisseur of the software and Internet resources wealth management advisors use to further their practices.
Kelley is a lawyer living in Highlands Ranch, Colo. and is of counsel to the law firm of Kelley, Scritsmier & Byrne, P.C. of North Platte, Neb. He is the co-author of the Intuitive Estate Planner Software, (Thomson – West 2009). He has served on the governing boards of the American Bar Association Real Property Probate and Trust Section and the American College of Tax Counsel. He is a past regent and past chair of the Committee on Technology in the Practice of the American College of Trust and Estate Counsel.
has asked Kelley to provide his unvarnished opinions on the tech resources available in the practice today. His columns are edited for readability only. Send feedback and suggestions for articles directly to him at [email protected].