AICPA Resources on Estate Planning Impact of President’s Estate Tax Proposals
This webpage covers the estate planning impact of the President’s fiscal year 2013 estate tax proposals. Below are various resources on this issue.
AICPA Podcast on Estate Planning Impact of the President’s Budget Proposals
A 20 minute podcast on the estate planning and financial planning impact of the estate tax provisions in the recently released President’s fiscal year 2013 budget proposal is available to AICPA members. The podcast covers various provisions, including those affecting intentionally defective grantor trusts (IDGTs), valuation discounts, and grantor retained annuity trusts (GRATs). Even though these provisions may not be enacted this year, it will help you have intelligent conversations with your clients, know what the President’s legislative agenda for this year is, and be prepared for some of the estate tax provisions that may eventually be enacted.
Estate Tax Provisions in the President's Fiscal Year 2013 Budget Proposal would:
- Return permanently the estate, gift, and generation-skipping transfer (GST) tax regimes to the 2009 rules (45% top tax rate and $3.5 million exemption for estate and GST tax and $1 million for gift tax, starting in 2013);
- Make permanent the portability of unused exemption amounts between spouses (starting in 2013)
- Require consistency in value for transfer and income tax purposes (effective date of enactment);
- Modify the rules on valuation discounts (for transfers after the date of enactment);
- Require a minimum 10-year term for grantor retained annuity trusts (GRATs) and a maximum term of the life expectancy of the annuitant plus ten years – impacting the ability to use GRATs for estate tax planning (applicable to trusts created after the date of enactment);
- Coordinate certain income and transfer tax rules for grantor trusts - affecting planning with intentionally defective grantor trusts (IDGTs);
- Limit the duration of GST exemption to 90 years (for additions to pre-existing trusts and trusts created after the date of enactment); and
- Extend the lien on estate tax deferrals provided under Sec. 6166 up to 15 years and three months from the date of death) (for decedents dying after the effective date and pre-existing unexpired liens on the effective date).
Administration’s Budget Proposal Includes Change to Tax Treatment/Estate Planning with Intentionally Defective Trusts
Among the various estate tax proposals in the recently released President’s fiscal year 2013 budget proposal and Treasury explanation, is a new proposal that could alter estate planning techniques and benefits with intentionally defective grantor trusts (IDGTs). The assets in these trusts would be included in the estate of the grantor at death. The proposal is being considered in order to coordinate certain income and transfer tax rules applicable to grantor trusts.
Tax Impact: Under the proposal, when a transfer is made to a grantor trust, the gift tax would be applicable when there is a distribution from the grantor trust or when the trust ceases to be a grantor trust. To the extent not yet distributed, any amount in the grantor trust at the date of the grantor’s death would be subject to estate tax. This would eliminate the transfer tax benefits of sales to IDGTs.
Also Affected: In addition, the proposal would apply to any non-grantor who is deemed to be an owner of the trust and who engages in a sale, exchange, or comparable transaction with the trust that would have been subject to capital gains tax if the person had not been a deemed owner of the trust. In such a case, the proposal would subject to transfer tax the portion of the trust attributable to the property received by the trust in that transaction, including all retained income there from, appreciation thereon, and reinvestments thereof, net of the amount of the consideration received by the person in that transaction. The proposal would reduce the amount subject to transfer tax by the value of any taxable gift made to the trust by the deemed owner. The transfer tax imposed by this proposal would be payable from the trust.
Not Affected: The proposal would not change the treatment of any trust that is already includable in the grantor’s gross estate under existing provisions of the Internal Revenue Code, including without limitation the following: grantor retained income trusts (GRITs); grantor retained annuity trusts (GRATs); personal residence trusts (PRTs); and qualified personal residence trusts (QPRTs).
Effective Date: The proposal would be effective with regard to trusts created on or after the date of enactment and with regard to any portion of a pre-enactment trust attributable to a contribution made on or after the date of enactment. Regulatory authority would be granted, including the ability to create transition relief for certain types of automatic, periodic contributions to existing grantor trusts.
For further information, see details on these estate tax proposals and a Journal of Accountancy article on the budget proposal.
See fiscal year 2012 proposals for the prior year's estate tax revenue proposals.
See fiscal year 2010 proposals for the prior year's estate tax revenue proposals.