ABA Urges Congress to Provide Clarity on Estate and Generation-Skipping Taxes

10:28 am Uncategorized

Last week, the American Bar Association’s Section of Real Property, Tax & Estate Law sent a letter to Congress that urged our representatives to act on the estate and generation-skipping taxes before adjournment.  While the letter did not take a particular position on how Congress should solve estate tax and GST issues, it did ask legislators to “provide certainty regarding the general structure of the unified estate, gift and GST tax system.  Attorneys around the country tell us that many Americans have been paralyzed in their basic estate planning, for fear that the final regime that Congress enacts may result in adverse tax consequences or require a new estate plan.”

The ABA RPTEL letter requests resolution on eight critical estate planning issues:

1. If the estate tax is applied retroactively, families of decedents who have died in 2010 should have the opportunity to restructure their decedents’ estate plans to create the type of deductible dispositions that are common when planning for the estate tax.

2. Similarly, if the GST tax laws are applied retroactively, or if the 2010 gift tax rates were increased retroactively, donors should have the right to restructure or rescind transfers that were made in 2010 in reliance on the suspension of the GST tax in 2010 or on the application of a maximum 35% gift tax rate.

3. The GST tax does not apply to GSTs that occur in 2010 (such as gifts to grandchildren).  While that is clear, there are many issues causing confusion, which could be resolved if IRC § 2664 were revised to clarify that the GST rules and definitions of Chapter 13 otherwise continue to apply during 2010.

4. Because no GST exemption exists in 2010, considerable uncertainty exists as to how to avoid such future GST tax.

5. Suggest preservation of all of these GST administrative rules that were enacted under the 2001 Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”).

6. The estate tax also does not apply to estates of decedents dying in 2010.   Similar to the GST tax, many issues causing confusion could be resolved if IRC § 2210 were revised to clarify that the estate tax rules and definitions of Chapter 11 otherwise continue to apply during 2010.

7. Section 901 of EGTRRA provides for the “sunset” of all EGTRRA provisions, requiring the tax law to be applied from January 1, 2011, as if EGTRRA “had never been enacted.”  This provision has created a host of uncertainties regarding the transition rules as to what laws will apply after 2010, in light of the one-year hiatus of the estate and GST tax in 2010.

8. Compliance with the carryover basis rules of IRC § 1022 will require significant resources of both taxpayers and the IRS, to implement a program that will apply only to beneficiaries of estates of decedents dying in 2010.  It is up to Congress to weigh the advantages and disadvantages of a carryover basis system, but there can be little doubt that implementing such a system will be technically complex and administratively burdensome.

If you need some clarity in your estate planning, contact our California estate planning law firm.

Your California legal and financial planning experts are at your service; Contact us today.

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