We do not yet have answers on the estate and gift tax system, (as of today, the estate tax is repealed for just 2010, and the gift tax applies at a reduced rate to gifts in excess of $1,000,000).
The Obama administration made some revenue proposals for 2010 that were released by the Treasury Department in its "Greenbook." The Greenbook contained several proposals that are of interest in the estate planning arena:
Require Consistency in Value for Transfer and Income Tax Purposes
- This proposal would require that the income tax basis of property received from a decedent or donor must be equal to the estate tax value or the donor's basis.
- The executor or donor would be required to report the necessary information to both the recipient and to the Internal Revenue Service. This reporting requirement could apply to annual exclusion gifts and to estates for which no estate tax return is required.
- The proposal would be effective as of the date of enactment.
Modify Rules on Valuation Discounts
- The Greenbook proposal would significantly limit many valuation discounts that are used to leverage transfers when planning with family limited partnerships and family limited liability companies.
- The IRS has stipulated to discounts in the 35% range for family entities holding portfolio assets in recent Tax Court cases - these discounts could be lost in the future under the Greenbook proposal.
- The proposal would apply to lifetime transfers and transfers at death after the date of enactment.
Require Minimum 10-year Term for Grantor Retained Annuity Trusts (GRATs)
- The Greenbook proposes to require at least a 10-year term for all GRATs. This would eliminate the use of short-term rolling GRATs.
- The proposal would apply to GRATs created after the date of enactment.
Because none of the revenue proposals have yet become law, particularly if you are considering wealth transfer planning with a family entity or short-term GRAT, it is advisable to proceed immediately.
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