Estate Planning after the 2001 Tax Act : Guiding Your Clients Through the Changes

by Shenkman, Martin M.

• ISBN13: 9781576601211
• ISBN10: 1576601218
• Edition: 1st
• Format: Hardcover
• Copyright: 2002-05-01
• Publisher: John Wiley & Sons Inc

Summary

Estate Planning after the 2001 Tax Act is a step-by-step guide and sourcebook to help financial advisers navigate the estate planning?related changes in the tax code brought on by the 2001 Tax Relief Reconciliation Act. The author, estate planning expert and lawyer Martin Shenkman, provides a sound rationale for comprehensive estate planning and a host of invaluable planning techniques to address the uncertainties the new rules pose.

Table of Contents

Introduction	xvii
How to Use This Book	xviii
Tax References and Notes	xix
Sources for Background Information on Planning Techniques	xx
Updates and Forms	xxi
Overview	1	(1)
Goals of the Estate Tax Repeal	1	(1)
Back-End and Deferred Changes	2	(1)
Complexity of the Tax Bill	3	(1)
Likelihood of Actual Estate Tax Repeal	3	(4)
PART I General Considerations for Estate Planning
The Scope of Estate Tax Changes	7	(60)
Estate and Generation-Skipping Transfer Tax Repeal in 2010	8	(1)
Lower Estate Tax Rates and Higher Estate Exclusion	8	(8)
Impact of Lower Estate Tax Rates	9	(1)
Effect of Higher Exclusion	10	(1)
Qualified Family-Owned Business Interests Deduction Affected by Increased Exclusion	11	(1)
Coordination of GST Exemption with Exclusion Delayed	12	(1)
Investment of Bypass Trust and GST-Exempt Assets Post-2001 Tax Act	12	(4)
Modification of Gift Tax	16	(4)
Gift Exclusion Increased	16	(1)
Gift Tax Rate Reduced	17	(1)
Annual Gift Rules Unaffected	17	(1)
Transfers to Nongrantor Trusts Deemed Completed Gifts	18	(1)
Planning Highlights	19	(1)
Qualified Family-Owned Business Interests Deduction Repealed	20	(2)
Generation-Skipping Transfer Tax Changes	22	(23)
Transactions Subject to GST Tax	23	(2)
GST Exemption Increased	25	(1)
How to Take Maximum Advantage of GST Exemption	26	(2)
Effect of Eventual Repeal of GST Tax on Estate Planning	28	(2)
New Rules for Automatic Allocation of GST Exemption	30	(10)
Extension of Time to Allocate GST Exemption	40	(1)
Retroactive Allocation of GST Exemption	41	(1)
Severing a Trust to Secure GST Benefits	42	(2)
Substantial Compliance	44	(1)
State Death Tax Credit Reduction	45	(1)
Special State Tax Considerations	45	(1)
Impact on States Generally	46	(1)
Estate Tax Deferral	46	(8)
Installment Payment for Qualified Closely Held Businesses	47	(1)
Requirements to Qualify for Deferral	48	(2)
Percentage Test	50	(3)
Acceleration of Deferred Payment	53	(1)
Private Foundation Rules Extended to Certain Trusts	54	(1)
Relief from Recapture Tax on Special Use Valuation	54	(3)
Special Use Valuation Rules	55	(1)
Requirements to Qualify	55	(1)
Recapture of Tax Benefit	56	(1)
Conservation Easements	57	(4)
Estate and Gift Tax Consequences under Prior Law	58	(1)
Estate Tax Exclusion Requirements and Related Rules	59	(2)
Special Rules for Noncitizens	61	(1)
Year-by-Year Changes in Estate Tax	61	(6)
Non-Estate Tax Changes Affecting Estate and Related Planning	67	(22)
Reduction in Income Tax Rates	67	(8)
Illusory Tax Chart Simplicity	68	(1)
Reduced Limitations on Itemized Deductions and Personal Exemptions	69	(1)
Reduced Benefits of Capital Gains Favored Tax Status	70	(1)
Expanded Marriage Penalty Relief	71	(1)
Shifting Income to Family Members in Lower Tax Brackets	72	(1)
Tax-Free Investments	73	(1)
Deferring Income to Lower Tax Bracket Years	74	(1)
Changes in Tax Rates for Corporations and Other Entities	75	(1)
The Alternative Minimum Tax	75	(2)
Planning for the Alternative Minimum Tax	76	(1)
2001 Tax Act Changes	76	(1)
Child-Related Benefits	77	(1)
Child Tax Credit	77	(1)
Adoption Tax Credit	77	(1)
Dependent Care Tax Credit	77	(1)
Child Care Facilities Provided by an Employer Tax Credit	78	(1)
Education Planning	78	(6)
Stipulations for Education IR As	78	(3)
Code Section 529 College Savings Plans	81	(2)
Student Loan Interest Deductions	83	(1)
Higher Education Expense Deduction	83	(1)
Pension and Retirement Savings	84	(3)
Individual Retirement Accounts	84	(1)
Roth IR A Requirements and Contribution Limits	84	(2)
Employer Retirement Plans	86	(1)
SIMPLE Plans	86	(1)
Flexibility in Retirement Plan Transfers	87	(1)
Comprehensive Tax Planning	87	(2)
Key Issues Beyond Tax Considerations	89	(18)
Important Non-Estate Tax Considerations	89	(2)
Emotional Aspects: Minimizing Family Disputes	90	(1)
Minimizing Legal Fees	90	(1)
Essential Guidelines	91	(3)
Non-Estate Tax Benefits of Trusts	94	(1)
Income Taxation of Trusts	94	(6)
Calculating Trust Income	95	(1)
Deductions and Losses Available to Trusts	96	(1)
Special Deductions for Trusts	97	(3)
Asset Protection	100	(2)
Succession Planning	102	(1)
Need for Broad-Based Planning	103	(4)
PART II Specific Techniques and Planning Strategies
Planning for Different Types of Taxpayers	107	(10)
General Considerations for All Taxpayers	107	(1)
Moderate Estates Owning Insurance	108	(1)
Elderly or Infirm Taxpayers with Large Estates	109	(2)
High-Net-Worth Taxpayers Who Are Not Elderly or Infirm	111	(1)
Elderly Widows and Widowers	112	(1)
Unmarried, Gay, and Lesbian Couples	113	(1)
Foreign Taxpayers	114	(1)
Taxpayers Making Charitable Contributions	115	(1)
Taxpayers Concerned about Medical Care Costs	115	(1)
Low-Net-Worth Taxpayers	116	(1)
Planning for Different Types of Assets	117	(8)
Assets Likely to Appreciate Substantially	117	(1)
Assets That Have Declined Substantially in Value	118	(1)
Marketable Securities	119	(1)
Real Estate Investments	120	(1)
Closely Held Business Interests	121	(1)
Personal Residence	122	(1)
Vacation Home	123	(1)
Life Insurance	123	(1)
Need for Careful Review of Assets	124	(1)
Reconsideration of Trusts and Other Planning Vehicles	125	(88)
Terminating an Existing Trust Because of 2001 Tax Act Changes	125	(4)
Bypass (Credit Shelter) Trusts	129	(26)
Planning after the 2001 Tax Act	130	(1)
Ways to Fund a Bypass Trust	131	(23)
Bypass Trusts and Nonmarried Taxpayers	154	(1)
Post-2001 Tax Act Planning for Existing Bypass Trusts	155	(1)
QTIP/Marital Trusts	155	(6)
Requirements for QTIP Treatment	158	(1)
Effect of 2001 Tax Act on Surviving Spouse's Access to QTIP Assets	159	(1)
Tax Relief Changes Affecting QTIP Trusts	160	(1)
Post-2001 Tax Act Planning for Existing QTIP Trusts	160	(1)
Annual Exclusion Gift Planning	161	(2)
Problems Presented by Gifts to Trusts	161	(1)
Post-2001 Tax Act Gift Planning	162	(1)
Qualified Personal Residence Trusts	163	(4)
Tax Relief Changes Affecting QPRT Trusts	164	(1)
Planning for New QPRT Trusts	165	(1)
Planning for Existing QPRT Trusts	166	(1)
Insurance Planning and Insurance Trusts	167	(7)
Tax Relief Changes Affecting Insurance Trusts	169	(1)
Planning after the 2001 Tax Act	169	(3)
Planning after Estate Tax Repeal in 2010	172	(2)
Split-Dollar Insurance Arrangements	174	(2)
Uses for a Private Split-Dollar Insurance Arrangement Post-2001 Tax Act	175	(1)
Planning after Estate Tax Repeal in 2010	176	(1)
Grantor Retained Annuity Trusts	176	(4)
Factors Affecting Tax Benefits of GR ATs	177	(2)
Tax Relief Changes Affecting GR AT Transactions	179	(1)
Post-2001 Tax Act Planning for Existing GR ATs	179	(1)
Unsuitable Uses for GR ATs	180	(1)
Sales to Intentionally Defective Grantor Trusts	180	(6)
Gift and Estate Tax Considerations of IDITs	183	(1)
GST Tax Considerations of IDITs	183	(2)
Tax Relief Changes Affecting IDIT Transactions	185	(1)
Post-2001 Tax Act Planning for Existing IDITs	185	(1)
Planning for New IDITs	186	(1)
Dynasty Trusts	186	(12)
Structure and Operation of a Dynasty Trust	188	(1)
Tax Relief Changes Affecting Dynasty Trusts	189	(2)
Essential Decisions for Dynasty Trust Planning	191	(5)
Implementing a Common Post-2001 Tax Act Dynasty Trust Plan	196	(2)
Post-2001 Tax Act Planning for Existing Dynasty Trusts	198	(1)
Charitable Remainder Trusts	198	(5)
CR ATs and CRUTs	200	(1)
Requirements That CRTs Must Meet	200	(2)
Tax Relief Changes Affecting CRTs	202	(1)
Planning for New CRTs	202	(1)
Charitable Lead Trusts	203	(3)
Tax Relief Changes Affecting CLTs	205	(1)
Planning for New CLTs	205	(1)
Planning for Existing CLTs	205	(1)
Children Trusts	206	(2)
Tax Relief Changes Affecting Children Trusts	207	(1)
Planning for New Children Trusts	207	(1)
Planning for Existing Children Trusts	208	(1)
Family Limited Partnerships and Limited Liability Companies	208	(3)
Tax Relief Changes Affecting FLPs and LLCs	209	(1)
Planning for New FLPs and LLCs	210	(1)
Planning for Existing FLPs and LLCs	210	(1)
Choosing Appropriate Estate Planning Techniques	211	(2)
Carryover Basis Changes Scheduled for 2010	213	(58)
Record-Keeping Burdens Associated with Basis Rules	216	(3)
Record Keeping for a Home	216	(1)
Repair versus Capital Improvement	217	(1)
Classification as Personal Property, Not Real Property	217	(2)
Three Basis Rules: Stepped-Up, Carryover, and Modified Carryover	219	(1)
Stepped-Up Basis Explained	220	(1)
Capital versus Noncapital (Ordinary) Gains and Losses	221	(2)
Carryover Basis Explained	223	(3)
Carryover Basis Rule Modifications	224	(1)
Basis for the New Rules	225	(1)
The General Carryover Basis Rules	226	(3)
Character of Property and Recapture	226	(1)
Definition of Property ``Acquired from'' the Decedent	227	(1)
Exceptions to the General Carryover Basis Rules	228	(1)
$1.3 Million Basis Adjustment for Estates	229	(2)
$3 Million Spousal Basis Adjustment	231	(6)
Requirements to Qualify	232	(4)
Planning for the New Spousal Basis Adjustment	236	(1)
Inflation Increases for Basis Adjustments	237	(1)
Community Property Law and the New Carryover Basis Rules	238	(1)
General Features of Community Property	238	(1)
New Basis Step-Up Rules and Community Property	239	(1)
Three-Year Rule to Restrict Deathbed Planning Techniques	239	(1)
Allocating Basis Adjustments	240	(3)
IRD and the Modified Carryover Basis Rules	243	(1)
Liabilities and the Modified Carryover Basis Rules	243	(2)
General Income Tax Rules for Encumbered Property	243	(1)
Charitable Gifts and Liabilities	244	(1)
Gain on Distributions from Estates and Trusts	245	(4)
Special Use Valuation Rules and Income Recognition	246	(1)
2001 Tax Act Changes	247	(2)
Special Rules for Inherited Art and Creative Property after 2009	249	(1)
Special Rules for Donations of Certain Capital Assets	250	(1)
General Restrictions on Contribution Deductions	250	(1)
2001 Tax Act Changes	251	(1)
Personal Residence Interplay of Home Sale Exclusion and Carryover Basis Rules	251	(5)
General Rules for Excluding Gain on the Sale of a Principal Residence	251	(2)
Extension of Home Sale Exclusion Rules to Estates	253	(1)
Definition of a Qualified Revocable Trust	254	(1)
Decedent's Use Available to Heirs	255	(1)
Special Rules Applicable to Foreign Taxpayers and Transactions	256	(1)
Modified Basis Adjustment for Nonresident Aliens Severely Limited	256	(1)
Basis Adjustments Not Permitted for Certain Stock Holdings	256	(1)
Gain on Transfers to Certain Foreign Trusts and Estates	256	(1)
Basis Reduction for Foreign Investment Company Stock	257	(1)
Reporting Requirements under the New Modified Carryover Basis Rules	257	(8)
Complex Tax Return Required	257	(1)
Planning Perspective for Smaller Estates	258	(1)
Special Rule for Nonresident Aliens	259	(1)
Tax Return Requiring Participation of Executor and Others	260	(1)
Information That Must Be Reported	261	(1)
Reports an Executor Must Give Heirs	262	(1)
Penalties to Encourage Compliance	263	(1)
New Gift Tax Filing Requirements	264	(1)
Planning with the New Modified Carryover Basis Rules	265	(5)
Need for Immediate Record Keeping	265	(1)
When to Sell, When to Hold	265	(1)
Transferring Assets to Taxpayers in Low Tax Brackets	266	(1)
Negative Effect on Inter Vivos QTIP Technique	267	(1)
Step-Ups with Living Trust Assets	268	(1)
Determining the Tax Basis of an Asset	269	(1)
Increased Liability of Executors and Trustees	269	(1)
Drafting of Wills and Trusts under the New Law	270	(1)
New Regulations from the IRS	270	(1)
Issues in Revising Wills and Other Estate Planning Documents	271	(10)
Will Drafting Considerations	271	(7)
Basic Dispositive Scheme	272	(2)
Handling the Bypass Trust with Smaller Estates	274	(1)
Revising Language to Fund Trusts	274	(1)
Addressing Modified Carryover Basis, the $1.3 Million/$3 Million Step-Ups, and Other Post-2009 Issues	275	(3)
Revocable Living Trusts	278	(1)
Need for Coordination	278	(1)
Home Sale Exclusion Rules	279	(1)
Powers of Attorney	279	(2)
Notes	281	(10)
Index	291