Estate Planning After ATRA 2012 – Outline of PowerPoint

Estate Planning After ATRA 2012 – Outline of PowerPoint

By by Martin M. Shenkman, CPA, MBA, JD

Estate Planning After the American Taxpayer Relief Act of 2012

Martin M. Shenkman, CPA, AEP, PFS, MBA, JD

General Disclaimer

The information and/or the materials provided as part of this program are intended and provided solely for informational and educational purposes. None of the information and/or materials provided as part of this PowerPoint or ancillary materials are not intended to be, nor should they be construed to be the basis of any investment, legal, tax or other professional advice. Under no circumstances should the audio, PowerPoint or other materials be considered to be, or used as independent legal, tax, investment or other professional advice. The discussions are general in nature and not person specific. Laws vary by state and are subject to constant change. Economic developments could dramatically alter the illustrations or recommendations offered in the program or materials.

Circular 230 Disclaimer

This presentation is not intended to be an opinion and does not contain a full description of all facts or a complete exposition and analysis of all the relevant tax authorities. Information in this presentation was not intended or prepared to be used, and it cannot be used or relied upon by any party for the purposes of (i) avoiding any penalties that may be imposed on any taxpayer by any governmental authority or agency; (ii) promoting, marketing, or recommending to any party any transaction or matter addressed herein; or (iii) making any investment decision.

Estate Planning after ATRA

Summary of New Tax Provisions

American Taxpayer Relief Act of 2012 (“ATRA”) – Quick Estate Summary

$5 million PERMANENT inflation adjusted gift, estate and GST exemption.

Portability is PERMANENT.

–For practitioners trying to pick their way through the statutory language, the mechanism by which the $5 million exemption was made permanent is achieved in the somewhat circuitous manner of eliminating the provisions of the 2001 and 2010 tax acts that provided for the sunset of these benefits. Eliminating the sunset makes the sunrise on the permanent exemption.

PERMANENT is a dramatic change from any estate tax law we’ve had in a long time.

American Taxpayer Relief Act of 2012 (“ATRA”) – Quick Estate Summary

GST. GST tax rules made permanent: automatic allocation of GST exemption to indirect skips, elections regarding GST Trusts, qualified severances, Code Section 9100 relief for late allocation of GST exemption, etc.

Conservation Easements. The rules on the estate tax deduction for conservation easements under Code Section 2031(c) have been liberalized.

6166. Slight easing of the rules on the deferred payment of estate taxes on closely-held business interests under Code Section 6166 by increasing the number of equity owners in a qualified business from 15 to 45.

2032A. A waiver of the statute of limitations on special use valuation farm real estate under Code Section 2032A provided.

American Taxpayer Relief Act of 2012 (“ATRA”) – Quick Estate Summary

Portability. The privity requirement that some believed limited the application of portable exemption amounts does not apply. This is consistent with the recently issued Regulations. Reg. Sec. 20.2010-2T(c)(1)(ii)(A). The definition of the Deceased Spousal Unused Exemption Amount (“DSEUA”) is now determined by reference to the applicable exclusion amount instead of the basic exclusion amount. So the amount of portable exemption can include the exemption ported from a prior spouse to the deceased spouse in question.IRC Sec. 2010(c)(4)(B).

IRAs. Tax free distributions from IRAs to charities are permitted in 2013. These include the restrictions that have existed previously: donation limited to $100,000, donor must have attained age 70 ½ (not just become 70 ½ in 2013), etc.

Estate Planning after ATRA

It’s a Game Changer!

ATRA is a Game Changer

Key difference from the paste decade plus is the “P” word – Permanent. The large $5 million exemption, inflation indexing and portability are all PERMANENT.

All prior laws had sunsets and taxpayers, justifiably mistrusting of Congress continued, even if reluctantly, to plan because they feared the unknown. This fear has been permanently eradicated for all but the wealthiest pinnacle of the population.

Most taxpayers will not care about the federal estate tax, nor should they.

Paying state estate tax (other than in CT) is now optional for most.

ATRA is a Game Changer

Most Taxpayers. Planning for all but the wealthiest taxpayers needs to be rethought completely. Standard planning, like bypass trusts really doesn’t make sense for most taxpayers.

Wealthy. Planning for the wealthiest should continue with urgency and will, so far, involve much of the same planning as historically done, but that may all change.

Insurance. Life insurance will play a new role for most taxpayers. Every policy, insurance plan and life insurance trust (“ILIT”) needs to be evaluated and tailored to the new estate tax environment. Insurance will remain vitally important to planning, but in different ways and different applications.

Estate Planning after ATRA

Changes that Affect All Taxpayers

Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs)

Itemized Deductions, Residency and Domicile

Roth Conversions

Asset Protection Planning Continues

Divorce Protection Planning

Income Tax Implications to Estate Planning

Buyer’s Remorse

Buyer’s Remorse over 2012 Plans

Estate Planning after ATRA

3 Categories of Taxpayers – New Paradigm of Estate Planning

3 Categories of Taxpayers

New Rules Dramatically Affect Professional Advisers

Estate Planning after ATRA

Moderate Wealth (or Lesser) Taxpayers

Moderate Wealth Taxpayers

Moderate Wealth Taxpayers - Insurance

Moderate Wealth Taxpayers - ILITs

Moderate Wealth Taxpayers - POA

Moderate Wealth Taxpayers-QPRT

Estate Planning after ATRA

Potentially High Net Worth Taxpayers and Taxpayers in Decoupled States

Potentially High Net Worth Taxpayers - Defined

Potentially High Net Worth Taxpayers - Insurance

Potentially High Net Worth Taxpayers – Bypass Trusts

Potentially High Net Worth Taxpayers – SLAT or Nothing

Potentially High Net Worth Taxpayers – SLAT

Potentially High Net Worth Taxpayers – POA/SLAT

Estate Planning after ATRA

High Net Worth Taxpayers

Estate Planning after ATRA


Decanting To a Better Trust

Decanting can be accomplished in one of three ways:

–Pursuant to the terms of the trust if the governing instrument permits a transfer of trust assets to the new trust.

–Under state statute. A growing number of states permit decanting pursuant to state statute.

–Under state common law.

Decanting may enable a trustee to:

–Extending the term of an existing trust, although generation skipping transfer tax issues must be addressed.

–Correcting scrivener errors.

–Adding a spendthrift provision to protect trust corpus.

–Changing trustee provisions.

–Changing governing law to a state law that is more favorable to achieving trust objectives.

–Converting a non-grantor trust to a grantor trust, or vice versa.

–Caution must be exercised in decanting a trust that is GST exempt or grandfathered to avoid tainting that benefit. Treas. Reg. Sec. 26.2601-1(b)(4).

Alaska Decanting Statute

AS 13.36.157. Trustee's Special Power to Appoint to Other Trust.

(a) Subject to (d) of this section, unless the terms of the instrument expressly provide otherwise, a trustee who has authority under the terms of an instrument or irrevocable inter vivos agreement to invade the principal of a trust for the benefit of a beneficiary who is eligible or entitled to the income of the trust may exercise without prior court approval the trustee's authority by appointing, whether or not there is a current need to invade the principal under any standard stated in the governing instrument, part or all of the principal of the trust in favor of a trustee of another trust under an instrument other than that under which the power to invade was created if the exercise of this authority

(1) does not reduce any fixed income interest of a beneficiary of the invaded trust;

(2) is in favor of the beneficiaries of the invaded trust;

(3) does not violate the limitations on validity under AS 34.27.051 or 34.27.100; and

(4) results, in the appointed trust, in the standard for invading principal that is the same as the standard for invading principal in the invaded trust.

(b) This section applies to a trust governed by the laws of this state, including a trust whose governing jurisdiction is transferred to this state.

(c) The exercise of the power to invade the principal of a trust under (a) of this section is considered to be the exercise of a special power of appointment.

(d) The governing instrument of an appointed trust may provide that, after a time or an event specified in the governing instrument, the trust assets of the appointed trust remaining after the time or event shall be held for the benefit of the beneficiaries of the invaded trust on terms and conditions regarding the nature and extent of the interests of the beneficiaries of the invaded trust that are substantially identical to the terms and conditions governing the interests of the beneficiaries in the invaded trust.

(e) In this section,

(1) "appointed trust" means the trust to which principal is appointed under (a) of this section;

(2) "invaded trust" means the trust whose principal is invaded under (a) of this section.

Estate Planning after ATRA


ATRA changes the face of estate planning forever.

Few taxpayers will care about estate taxes.

State estate tax may be optional.

Bypass trust for many are no longer optimal.

Life insurance will serve new and different purposes.

Wealthy taxpayers should view ATRA as a grace period and jump on it before it disappears

Estate Planning after ATRA

More Information

For More Information

Our Consumer Webcasts and Blogs

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.

Ad Space