Lessons Learned From the American Bankers Association Conference

Wealth managers should take advantage of the 2010 Tax Act while it lasts

Trust and estate professionals should be thankful for—and take advantage of —key provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Act) while they last, because some may not be around after 2012, said tax experts at the American Bankers Association’s annual Wealth Management and Trust Conference in Miami Beach on March 7.


“This is the best situation we will see for awhile,” said Larry Campbell, tax director for PricewaterhouseCoopers in Washington, D.C., speaking at the conference’s “Tax Update for Trusts, Trustees and Wealthy Individuals —Legislative & Regulatory Developments” session.

“We didn’t get anything bad, just good,” said Donald Roman, a PricewaterhouseCoopers tax partner based in Pittsburgh who also spoke at the session. Roman was referring to the portion of the law that reunified estate and gift taxes and allows individuals a combined maximum exemption of $5 million for gifts and bequests made this year and next.

That provision, Roman told the wealth managers at the conference, “is probably the single most significant thing that will affect your business in the next 24 months.”

But both Campbell and Roman stressed the temporary nature of the new tax law. “There’s a great deal of uncertainty about what’s going to happen next,” Campbell said.

Tax increases in the near future appear increasingly likely as a result of political pressure resulting from the ballooning federal deficit, he added.

One provision unlikely to be renewed, according to Roman, allows a non-corporate taxpayer to exclude 100 percent of gain from the sale of qualified small business stock acquired after Sept. 27, 2010 and before Jan. 1, 2012. “That’s a pretty attractive little tax provision,” Roman said, “but a very temporary one.”

However, the 2010 Tax Act’s qualified charitable distributions from individual retirement accounts is likely to be renewed, Campbell said. Under that provision, taxpayers aged 70½ and older may make direct transfers of up to $100,000 per year from traditional IRAs to qualified charities tax-free in 2011 and 2012.

Also likely to go into effect in 2013, as a result of the Health Care Reform Act, is a 3.8 percent Medicare contribution tax on net investment income if modified adjusted gross income exceeds $200,000, or $250,000 for a married couple filing jointly, according to Campbell.

Wealth managers should also note, he added, that any trust or estate with taxable income over approximately $11,500, including capital gains, will also be subject to the additional 3.8 percent tax as a result of the new health care law.

Also of great interest to wealth managers is the 2010 Tax Act’s “very, very generous” repeal of generation-skipping transfer (GST) taxes in 2010 and reinstatement of the GST tax for 2010 with a rate of zero percent and a $5 million exemption, Roman said. “It’s the best of both worlds,” he stated. “It gave certainty to the last 13 months and certainty to lifetime transitions.”

The most immediate adjustments businesses have had to make to comply with new regulations have come as a result of new requirements for cost basis reporting, according to Roman.

Effective Jan. 1, providers of 1099s have additional reporting responsibilities on 1099-B for publicly traded securities and must include the adjusted basis of the security, indicate whether it’s long- or short-term and indicate whether there’s a disallowed loss due to a wash sale. As a result, Roman said, companies have had to upgrade their reporting systems, record keeping procedures and technology.

Companies hoping that cost basis reporting will be temporary are out of luck, according to Campbell. “It’s a loophole-closer and it’s here to stay.”

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