Recent Developments
◙ Obama Greenbook proposal: This calls for the reduction of the gift exemption to $1 million instead of the current $5 million. GRATs may require 10 year terms. GST tax will be imposed every 90-years limiting the dynastic trust planning so many are pursuing. Discounts, the nectar of gift tax leveraging, may be eliminated on transfers between family members. This would overrule Rev. Rul. 93-12 which states that fair value is a "willing buyer, willing seller" test for related parties. This may come about by new regulations under IRC Sec. 2704. Grantor trusts, the cornerstone of much of today's planning, are proposed to be hammered. This had not been proposed before. The law would provide that the assets of a trust that is a grantor trust for income tax purposes, would be included in your estate. This would Zap Zow Blam! *!*# (think Batman) many transactions including sales to IDIGITs. If you make a distribution from the trust it will be a deemed a completed gift at that time. The effective date for this provision is trusts created after the date of enactment, or for gifts made to such a trust after the date of enactment. So everyone should consider making large gifts now to grantor trusts to avoid this. While there is no assurance how grandfathering will work, and there is no way to guesstimate the likelihood of this even being enacted, acting now sure seems the best option. This change will zap Rev. Rul. 2004-64 which had held that the payment of the tax on income earned by a grantor trust is not an additional gift by the grantor. That will relegate one of the hottest tax burns to the dustbin.
◙ Non-Married Couples the unfairness grows. So you can't get a marital deduction for gift/estate tax purposes, but now you cannot treat mortgage interest like you're separate! Home mortgage interests is only deductible for the first $1M mortgage and on $100,000 of home equity line debt. The Tax Court just ruled that unmarried co-owners can't each get a $1M/$100,000 amount since the limit applies on a per-residence basis, not a per person basis. IRC Sec. 163(h)(3); Sophy (2012), 138 TC No. 8. PP