The 2010 year was extremely complicated from a planning perspective. Gift, estate, and GST issues abounded. The law vacillated from one extreme to the other before the TRA was enacted. Client gift tax returns for the 2010 year will have to be approached with far more caution and focus than in prior years. The following checklist indicates a few of the many steps to consider.
√ Protective GST automatic allocation elections should be considered. File an affirmative election for the 2010 year allocating GST exemption rather than relying on the automatic allocation rules. In 2013, the automatic allocation rules might again be in jeopardy.
√ In light of the 2010 repeal of the GST automatic allocation rules and the possibility of a repeat performance in 2013, file a list of all prior years automatic allocations, and affirmatively state the intent was that they be respected in all future years, even if the automatic allocations rules are again in issue. Reconfirming on a gift tax return, filing all prior year automatic GST allocations, and stating that they are being affirmatively reported in light of the uncertainty of future treatment of past automatic allocations may accomplish little, but it would seemingly not cause any harm. It might just help reconfirm the client's position that past automatic allocations were made, if 2013 brings the uncertainty 2011 brought.
√ Carefully and specifically elect rules for transfers to trusts for grandchildren out of the GST automatic allocation that relied on the move down rule and were attended to avoid GST tax without the use of GST exemption.
√ Evaluate the reporting of insurance trust funding transactions. Some clients loaned funds to insurance trusts to fund 2010 gifts in the absence of certainty about GST. Post TRA, these same clients may have forgiven loans, or made gifts to those trusts and had the trusts repay the loans. Be sure annual demand or Crummey powers were properly completed since they may not fully be patterned after prior years. If a loan was made, obtain a copy of the loan documents and repayment. Consider reporting the entire transaction for gift tax purposes.
√ Some clients established trusts in 2010 before it was certain whether GST could be allocated to those trusts, or whether they could be GST exempt. Evaluate what actions and reporting may have to be addressed and reflected on the 2010 gift tax return.
√ Valuation reports should be evaluated in light of the swings. Some appraisers incorporated valuation impact of the relative changes in anticipated future marginal tax rates in their analysis. With the certainty (well for two years) of the TRA on income tax rates, the assumptions in some of these appraisals may change.
Subscribe to our email list to receive information on consumer webcasts and blogs, for practical legal information in simple English, delivered to your inbox. For more professional driven information, please visit Shenkman Law to subscribe.