Monday March 10, 2014
Even though the passage of the American Taxpayer Relief Act of 2012 ("ATRA") has been touted as providing certainty to federal estate tax and gift tax laws that has been absent for the past 13 years, we should not become complacent and lose sight of what is being proposed in Washington since, as the saying goes, "A law is only permanent until Congress decides to change it." And while under ATRA the 2014 estate tax exemption of $5.34 million will continue to be indexed annually for inflation and is expected to reach $9 million per decedent by 2034, the struggle in Washington to balance revenues with spending may very well lead Congress to close some of the "loopholes" that the ultra wealthy have benefited from in the past in order to decrease the values of their estates for estate tax purposes and allowed them to create "Dynasty Trusts" that will continue to grow estate tax free for many years into the future.
With all of that said, President Obama's 2015 budget, which was released last week, is yet another rehash of budgets from prior years, none of which had any chance of being enacted, nor does this one. Nonetheless, all of the budget proposals from past years which would curtail certain sophisticated estate planning techniques and close those "loopholes" remain in the 2015 budget, and one or more of these proposals could very well be tacked on to unrelated legislation in the next few years (as Forbes writer and attorney Deborah L. Jacobs points out, "watch those transportation funding bills"). So, without further ado, below is a summary of the provisions of President Obama's 2015 budget that could impact your estate plan.
First up, the same old proposals:
- Here we go again - as in Obama budgets past, the 2015 budget would decrease the federal estate tax exemption to $3.5 million, decrease the lifetime gift tax exemption to $1 million, and increase the top estate and gift tax rates to 45%, but not until 2018. President Obama has supported these numbers since he first ran for president in 2008 and he even pushed for these numbers to be included in ATRA, to no avail. To me this proposal is like listening to a broken record or waking up on Groundhog's Day everyday like Bill Murray. Let it go, President Obama, let it go.
- Eliminating the estate tax benefits of sales to intentionally defective grantor trusts.
- Requiring all grantor retained annuity trusts ("GRATs" for short) to have a minimum term of 10 years, and eliminating zeroed-out GRATs.
- Including assets held in grantor trusts in a decedent's estate and making distributions from grantor trusts during the grantor's lifetime subject to gift taxes.
- Limiting the length of time that Dynasty Trusts can remain estate tax and generation-skipping transfer tax free to 90 years.
- Making distributions from Health and Education Exclusion Trusts (HEETs for short) subject to generation-skipping transfer taxes.
- Eliminating "stretch IRAs" by requiring IRAs inherited by non-spouse beneficiaries to be cashed out within 5 years of the deceased owner's date of death.
And here is one new thing to ponder - saying goodbye to "Crummey" withdrawal rights. The 2015 budget proposes the elimination of the present interest requirement for gifts that qualify for the annual gift tax exclusion (currently $14,000 per donee). Instead, a new category of transfers (without regard to the existence of any "Crummey" withdrawal or put rights) would be created, and would impose an annual limit of $50,000 per donor on the donor's transfers of property within this new category that will qualify for the gift tax annual exclusion. This would result in a donor's transfers in the new category in any given year that exceed a total amount of $50,000 being treated as taxable gifts, even if the total gifts to each individual donee did not exceed $14,000. The new category would include transfers in trust, transfers of interests in pass-through entities, transfers of interests subject to a prohibition on sale, and other transfers of property that, without regard to withdrawal, put, or other such rights in the donee, cannot immediately be liquidated by the donee.
Tuesday March 4, 2014
Recently I received an email asking me about Florida's quirky laws regarding who can, and can't, serve as Personal Representative of your estate. Florida Statute §733.304 is unusual in that it states the following:
733.304 Nonresidents.--A person who is not domiciled in the state cannot qualify as personal representative unless the person is:
- A legally adopted child or adoptive parent of the decedent;
- Related by lineal consanguinity to the decedent;
- A spouse or a brother, sister, uncle, aunt, nephew, or niece of the decedent, or someone related by lineal consanguinity to any such person; or
- The spouse of a person otherwise qualified under this section.
What does this mean in plain English? That you can't name your friend who lives in Chicago as your Florida Personal Representative, but you can name your niece who lives in Chicago as your Florida Personal Representative.
So what are the options for a Florida resident who doesn't have any relatives they want to name as their Personal Representative? There are several:
- A neighbor or friend who lives in Florida can be named as Personal Representative.
- An attorney who is licensed to practice in Florida and lives in Florida can be named as Personal Representative.
- A bank or trust company authorized and qualified to exercise fiduciary powers in Florida can be named as Personal Representative.
- A Revocable Living Trust can be created and funded and then anyone can be named as the Successor Trustee since there aren't any relationship or residency restrictions on who can be named as a Successor Trustee in Florida.
Note that Florida Statute §733.304 also applies to a nonresident who owns real estate in Florida - in other words, the nonresident must either name a qualified relative, a non-relative who is a Florida resident, or a Florida bank or trust company as Personal Representative in their Last Will and Testament with regard to the probate of the nonresident's Florida real estate.
If you're a Florida resident or you own real estate in Florida and you don't have any qualified relatives or Florida friends who you want to name as your Personal Representative, then consult with a Florida estate planning attorney or a Florida bank or trust company to discuss all of your options and figure out what will work the best in your situation.
Monday March 3, 2014
Move over "wealth tax" and "living estate tax" and say hello to the "financial transaction tax," also known as the "Robin Hood tax," or the "Wall Street tax" in the U.S.
Recently a group of European actors, including British actors Andrew Lincoln ("The Walking Dead") and Bill Nighy ("Love, Actually"), Spanish actor Javier Cámara ("Bad Education"), French actress Clémence Poésy ("Harry Potter") and German actress Heike Makatsch ("Love, Actually") starred in a short film directed by Brit David Yates of Harry Potter fame which praises the benefits of the financial transaction tax 10 years into the future.
Lincoln portrays the host of a fictional show called "Global Financial Talk" while the other actors portray various fictional representatives of the European financial sector. The segment of the fictional show is dated February 15, 2024, and at the beginning fictional host "James Easton" describes the tax as a "tiny tax on the financial sector designed to benefit the poor and the planet" that was implemented by 11 European countries in 2014. The French, Spanish and German financial representatives then go on to praise the benefits of the tax - it has been good for business, reversed cuts to public benefits, and brought real money to the fight against poverty and addressing climate change. On the other hand, Nighy, the CEO of the fictional British Bankers Group, is mocked because Great Britain chose not to enact the so-called "miracle tax."
So what exactly is the financial transaction tax? Originally the European version that has been tossed around over the past few years would have been a tax on 0.1 percent of share and bond trades and 0.01 percent of derivative transactions. In fact, in 2013 11 EU states (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) agreed to move forward with the tax which would have gone into effect on January 1, 2014. But the form of the tax proposed has run into legal hurdles and has met with vigorous opposition from Great Britain, Sweden, and other European countries, mainly because U.S. lawmakers don't really seem interested in it (several bills that would enact some form of a "Wall Street tax" in the U.S. have fallen on deaf ears, although the official RobinHoodTax.org website lists American celebrities such as Tom Morello, Russell Simmons, Michael Moore and Mark Ruffalo as supporters of the tax).
So why all of the new fuss about the financial transaction tax? In fact, the short film comes at a time when both Germany and France are once again pushing for implementation of some form of the tax by May 2014, which if enacted will undoubtedly end up being a watered-down version of the original proposal. But who knows, if Germany and France are successful with implementing some form of the tax this year, then we just may begin to hear some real talk about enacting a "Wall Street tax" in the U.S.
Tuesday February 25, 2014
Rep. Dave Camp (R-Mich.), who is committee chairman of the U.S. House Ways and Means Committee, will release a "comprehensive discussion draft on tax reform" as early as this week despite push back from both sides of the political aisle.
In a message obtained last week by The Hill, Camp wrote, "We can choose to have a real discussion about what tax reform can mean for American families and employers or we can choose to cower to special interests and maintain the status quo. Clearly, I choose the former." He also stated that those balking at comprehensive tax reform "don't want to look special interests in the eye and say the game is up. Well, it is. We simply cannot afford the business as usual mentality that keeps Washington comfortable, but complacent."
Camp's big picture plan is to simplify the tax code for both individuals and employers and add a spark to the U.S.'s economic recovery. And while both Republicans and Democrats remain skeptical that a comprehensive overhaul of the Internal Revenue Code can be accomplished by the end of 2014, clearly the time for simplifying the 4 million+ word Code is well past due. But unfortunately no one in Congress other than Mr. Camp seems to care.