Estate Planning After ATRA 2012 – Outline of PowerPoint

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

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

Conclusion

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

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