In the January 2011 Tech Review 2011 Tax Law Changes, we discussed the estate and gift tax changes created by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Act) and their application to estate and gift tax related planning software. Enough time has now passed to note a number of new commentaries on the 2010 Act that have appeared on the Internet. Here are references to the most useful of these commentaries and summaries of their content:
American Institute of CPA’s Quick Reference Checklist for Estate Planning After the 2010 Act summarizes the considerations to take into account during client reviews as to each of the estate planning areas affected by the 2010 Act.
Patti S. Spencer, “Estate Planning Opportunities After the 2010 Tax Relief Act,” (Pennsylvania Trusts and Estates Blog Jan. 3, 2011) introduces planning considerations for estates of various sizes after the 2010 Act.
Jonathan G. Blattmachr, Mitchell M. Gans, Howard M. Zaritsky and Diana S.C. Zeydel, “Estate Planning After the 2010 Tax Relief Act: Big Changes, But Still No. Certainty,”114 Journal of Taxation No. 02 (February 2011), provides a definitive review of the 2010 Act’s provisions, an overview of its gift tax effects, portability issues and problems that may come up and technical changes the 2010 Act made. You can find this article using the above link to the Collins & Collins website, which also has articles on the $5 million tax exemption.
Igor Potym and Michael D. Whitty, “Estate Planning After The 2010 Tax Act - What You Need To Know and Do Now” (National Law Review, March 3, 2011) discusses the impact of the 2010 Act on married couples’ estate plans, portability, the estate tax effect of the increased gift tax exemption for 2011 and 2012, planning opportunities for estates of 2010 decedents and state death taxes.
Books (for purchase) on the 2010 Act’s effect on planning that are already available include:
Howard Zaritsky, “Practical Estate Planning in 2011 and 2012” (ThomsonReuters), which includes comprehensive drafting suggestions and examples along with the author’s analysis of the subject matter.
Marty Shenkman and Steve Akers, “Estate Planning After the Tax Relief and Job Creation Act of 2010: Tools, Tips and Tactics,” which provides a quick intro to the estate-planning adjustments required by the 2010 Act.
Provisions Applicable to Decedents Who Died in 2010
Here are treatises on the provisions of the 2010 Act that deal with the election that must be made by executors of the estate of a decedent who died in 2010:
“Estate, Gift, and GST Tax and Carryover Basis Implications of the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010” (Law Firm of Beason & Nalley) provides a discussion of the post-mortem estate issues that arose with the 2010 Act, including carryover basis reporting, disclaimers, gifts, recapture of increased gifts, portability exemption amounts and other postmortem issues.
Thomas Wechter, "Repeal of the Estate Tax, But Carryover Basis for 2010” (AICPA, Aug. 12, 2010) discusses the modified carryover of basis of property received by a beneficiary from a 2010 decedent and the required reporting issues. This article was written before the 2010 Tax Act was signed into law but is a good discussion of the carryover basis provisions of Internal Revenue Code Section 1022 that are available by election for estates of decedents dying in 2010.
Julie Garber, “2010 Estate Tax Rules, Modified Carryover Basis vs. Estate Taxes” (About.com) provides a quick introduction to the modified carryover basis rules and the election option to report carryover basis rather than subject the estate to estate tax.
The Internal Revenue Service has announced that the Treasury Department and IRS extended the deadline for filing Form 8939 beyond the previously set April 18 deadline. While there's no new date yet, guidance is expected soon. The draft Form 8939 is available from IRS.gov. The IRS publication 559, “Survivors, Executors and Administrators” provides guidance for income tax filings required of an estate in 2010 after the signing of the 2010 Act into law.
Deceased Spousal Unused Exclusion Amount
Portability of the estate tax exemption has been a major topic of discussion. Some of the articles providing an introduction to this topic include:
"Bypass the Bypass Trust," (Trusts & Estates, Feb. 1, 2011) discusses the implication of the 2010 Tax Act's "portable" exclusion
“Portability Under the New Estate Tax Law,” (Fortenberry PLLC) is part of a series of articles on the 2010 Act and how it affects estate planning in 2011 and beyond. Other pertinent articles include “Introduction to the New Estate Tax Law, Estate Planning Under the New Estate Tax Law, and Why Estate Tax Planning Still Matters.”
Justin P. Doyle, “New 'portability' doesn't resolve all estate planning issues” (Rochester Business Journal) provides a basic discussion on portability.
“Estate planning tactics for those who don't need portability,” (McCurrie, McCurrie & McCurrie, L.L.C. posted on Estate Planning.
Michael W. Sweet, “Will Portability of the Estate Tax Exemption Change Estate Planning?”(April 7, 2011).
A more detailed and technical exposition of portability by Dan Evans is available, “Problems with Portability” (Steve Leimberg's Estate Planning Newsletter - Archive Message #1777, Feb. 16, 2011). This article discusses how the deceased spouse’s unused exclusion amount (DSUEA) works and the issue of whether portability reduces the need for estate planning or is just a safety net for those with inadequate planning. The article examines the technical issues of the possible loss of the extra-inherited exclusion if the surviving spouse remarries and then survives the second spouse and the estate tax that might be imposed retroactively on lifetime gifts that used the inherited exclusion. The article also looks at the reduction in the exclusion for past gifts in excess of the $1 million exemption for which gift tax was paid.
The DSUEA applies only to the estates of decedents dying in 2011 or 2012. The executor of the estate of the first deceased spouse must file an estate tax return on which the DSUEA is computed. The executor must also make an election on that return so that the DSUEA may be taken into account in the estate tax return of the surviving spouse. The applicable exclusion amount for the surviving spouse is the basic exclusion amount plus the DSUEA of the deceased spouse.
Sheppard F. Miers, Jr. and Melissa S. Taylor, “'I give and bequeath all my DSUEA to my spouse': The New 'Portability' Feature in Federal Estate Tax Law and Issues It Raises,” (GableLaw 2010) includes examples in the application of portability.
Return of Pre-EGTRRA 2001 Provisions
After the expiration of the provisions of the 2010 Act in 2012, the federal estate tax will return to its pre-Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) status. Some articles providing topical discussion on the return of Pre-EGTRRA provisions are:
Christopher Burns and Amy Papenhausen, “Shifts in the Estate Tax Landscape: The 2010 Tax Relief Act” (Bench & Bar, Minnesota State Bar Association, April 2011) discusses the temporary nature of the relief provided by the 2010 Act and what the tax landscape may look like in 2013 without further Congressional action.
Other areas that are unaffected in 2013 and beyond by the 2010 Act include IRC Section 2057 and the family owned business interest (FOBI) deduction. The 2010 Act extends this repeal through 2012. In 2013, the pre-EGTRRA law will return, including the FOBI deduction.
The 2010 Act also extends IRC Section 2058, which provides a deduction for state estate and inheritance taxes for 2010, 2011 and 2012. In these years, the state death tax deduction is still available on Form 706, line 3b, as it was in 2005 through 2009. In 2013, the IRC Section 2011 credit returns and the Section 2058 deduction will no longer apply.
There are numerous resources on the Internet that will help you with the complexities of estate planning after the 2010 Act. Such opinion and commentary should, of course, be carefully evaluated, but may contain helpful ideas you wouldn’t otherwise encounter.
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 2004). 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.
Trusts & Estates 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].