estate planning after the 2010 tax act

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Estate PlanningAfter the 2010 Tax

Act

Introductions

Greg Lowe• McKonly & Asbury• Partner• Chief Operating Officer• [email protected]

Stan Smith• Rhoads & Sinon• Partner• [email protected]

Pre-2010 Estate Plans• Applicable Exclusion Amounts

Pre-2010 Estate Plans• Use or lose the exemption• Assume a married couple has a federal gross estate of $8 million [Exhibit "A"]• If Mike died and left entire estate to Mary and Mary later died, there would

be substantial federal estate tax payable at Mary's death• Solution : Use of Credit Shelter Trust at the first death

• Divide assets between spouses• Direct part of the estate into a Credit Shelter Trust at first death• Possible use of so-called A-B trust planning• Surviving spouse owns part of the estate outright and is the beneficiary of part of the

estate through a Credit Shelter Trust

• Many such plans remain in existing Wills and Revocable Trusts

Effects of the 2010 Tax Act

• Beginning in 2012 the Applicable Exclusion Amount is adjusted for inflation to the nearest $10,000 increment using 2010 as a base year.

• Beginning in 2011, a deceased spouse’s unused exclusion amount (known as DSUE) may be transferred to a surviving spouse by fling an estate tax return and making an election.

• Increased the Applicable Exclusion Amount and indexed it to inflation

Effects of the 2010 Tax Act• Portability of the Exclusion Amount

• Reduced rate of federal estate tax

Estate Planning After 2010• Keep or eliminate the Credit Shelter Trust?• Tax and non-tax reasons for the trust • Income tax considerations

• Effects of direct distributions to surviving spouse • BEWARE - portability of the exclusion is not automatic• BEWARE - generation skipping tax ("GST") exclusion is NOT portable• Presidential candidates' estate tax proposals

Irrevocable Life Insurance Trusts (ILITs)• Why were they created?• Should they be retained?• Can they be terminated?• Are ILITs still useful?

Proposed Treasury Regulation 163116-02• Issued August 2, 2016• Attacking minority and lack of control discounts for family owned

businesses

Exhibit A

Exhibit B

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estate planning after the 2010 tax act

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