Upload
zumieb
View
216
Download
0
Embed Size (px)
Citation preview
8/13/2019 Unit 8 Estate Planning Part 4
1/26
Unit 8, part 4
Complex EstatePlanning and Tax issues
Economic Growth and TaxRelief Reconciliation Act
8/13/2019 Unit 8 Estate Planning Part 4
2/26
Gift Tax Issues underEGTRRA
$1,000,000 lifetime exclusion
Taxable gifts
Advantages of lifetime giving
$11,000 exclusion (2002) perdonee
Exclude appreciation from estate
Gift taxes paid reduce taxableestate
8/13/2019 Unit 8 Estate Planning Part 4
3/26
Gift Tax Issues underEGTRRA
Disadvantages of lifetime giving
May not be a taxable estate
Loss of step up in basis
Contra - may not get step up in basisat death
Gifts within 3 years of death
8/13/2019 Unit 8 Estate Planning Part 4
4/26
Filing Gift Tax Returns
3 year statute of limitation
Gift and estate tax, if error notmore than 25% of reported gift
6 year statute of limitation if >25%
No statute of limitation forunreported gifts Dinners, clothing, and the new Porsche
8/13/2019 Unit 8 Estate Planning Part 4
5/26
Gifts included withingross estate
Gifts within 3 years of death
Gifts with retained life estate orother interest
8/13/2019 Unit 8 Estate Planning Part 4
6/26
Other Gift TaxExclusions
Marital deduction
No limited Terminable interests excluded
unless a QTIP election ismade
8/13/2019 Unit 8 Estate Planning Part 4
7/26
Other Gift TaxExclusions
Educational or medical payments
Paid directly to qualified educational
organization Does not include payments to
qualified tuition programs or Coverdelleducation savings accounts
Paid directly to medical provider Includes health insurance premiums
No gift tax return required
8/13/2019 Unit 8 Estate Planning Part 4
8/26
Valuation of Closely HeldCorporations and LLCs
Minority interest discounts
Marketability discounts
Gifts of shares or interests: factorsto consider
Statute of limitations
Retained interest Affect on basis
8/13/2019 Unit 8 Estate Planning Part 4
9/26
Valuation of Closely HeldCorporations and LLCs
Step up in basis
Not applied to appreciated assetsheld in the corporate, LLC, orpartnership name
Unless the LLC or partnershipterminates at death
Applies to shares or interest of thedecedent
8/13/2019 Unit 8 Estate Planning Part 4
10/26
Carryover Basis Rules
Gifts
Donors basis plus gift tax paid
Cannot exceed FMV
8/13/2019 Unit 8 Estate Planning Part 4
11/26
Carryover Basis Rules
Date of death
Step up through 2009
2010 - no step up, except:
Amounts added to basis:
$1,300,000 ($60,000 for nonresident aliens)
Unused capital losses from decedents final tax
year
Unused net operating losses from decedents
final tax year Losses that would have been realized had
decedent sold assets immediately before death
Additional $3,000,000 for surviving spouse
8/13/2019 Unit 8 Estate Planning Part 4
12/26
Carryover Basis Rules
Record keeping
Basis reporting requirements added
Lifetime gifts - to donee within 30 days
Donor contact information
Gift tax return information
Transfers at death
Reported to IRS
8/13/2019 Unit 8 Estate Planning Part 4
13/26
Repeal of Qualified Family-Owned Business Deduction
Effective after December 31, 2003
Exclusion amount goes up to
$1,500,000 in 2004 QFOB deduction & applicable exclusion
were limited to $1,300,000
Recapture left in place (10 or 12years) - Conference Report
EGTRRA actually repeals recaptureprovision
8/13/2019 Unit 8 Estate Planning Part 4
14/26
Installment Payment ofEstate Tax
5 years interest only; followed by upto 10 annual installments
2% rate on first $1,060,000 (2001,amount indexed for inflation)
Eligibility expanded under EGTRRA
8/13/2019 Unit 8 Estate Planning Part 4
15/26
Special Use Valuation
Reduces value from FMV to usevalue in farming or closely held
business Reduction in value limited to
$800,000 (2001, indexed)
Qualified use for 5 of 8 years beforedecedents death
Substantial portion of assets inestate
8/13/2019 Unit 8 Estate Planning Part 4
16/26
Conservation Easements -Statutory Authority
Uniform Conservation EasementAct (UCEA)
Common law restrictionsabolished
Exemption from marketable title
acts Meets IRS requirements
Conservation and Historic
Preservation Agreements Act
8/13/2019 Unit 8 Estate Planning Part 4
17/26
Conservation Easements -Federal Estate Tax Treatment
Posthumous donations
By will
Consent by interest holders
Estate tax exclusion
Capped
2001 - $400,000
2002 - $500,000, or
40% of remaining value, whichever is
less
8/13/2019 Unit 8 Estate Planning Part 4
18/26
Conservation Easements -Federal Estate Tax Treatment
Estate tax exclusion
Reduction - difference less than30%
2% for each 1% below 30%
Acquisition indebtedness excluded
3 year holding period prior to death Geographic limitations repealed
(through 2010)
8/13/2019 Unit 8 Estate Planning Part 4
19/26
Conservation Easements -Federal Income Tax Treatment
Purchases
Capital gain reported
Basis allocated proportionally
Installment sales
C
8/13/2019 Unit 8 Estate Planning Part 4
20/26
Conservation Easements -Federal Income Tax
Treatment
Donations
Deduction for FMV
50% limitation
Spread over subsequent 5 years
Basis allocated proportionally
Bargain sales
8/13/2019 Unit 8 Estate Planning Part 4
21/26
Conservation Easements -Federal Income Tax Treatment
Requirements for deductibility
Perpetuity
Conservation purpose
Reservation of rights
Pesticide use/clear cutting
Surface mining banned
Subordination of indebtedness
Plan for monitoring and
enforcement
8/13/2019 Unit 8 Estate Planning Part 4
22/26
Conservation Easements - StateIncome Tax Benefits
Charitable deduction
Credit
8/13/2019 Unit 8 Estate Planning Part 4
23/26
Conservation Easements - RealEstate Tax Benefits
Reduced FMV/reduced appraisal
Reduced appreciation
8/13/2019 Unit 8 Estate Planning Part 4
24/26
Conservation Easements -Appraisal & Valuation Issues
FMV at time of donation orpurchase
Reduced by resultant increase invalue of retained property
No deduction - benefits to donor
exceed public benefits
8/13/2019 Unit 8 Estate Planning Part 4
25/26
Conservation Easements -Appraisal & Valuation Issues
Valuation methods
Comparable sales
Typically insufficient sales of PDRs
Before and after method
FMV prior to donation less FMV after
donation Two appraisals required
Substantiation requirement
Licensed appraiser
8/13/2019 Unit 8 Estate Planning Part 4
26/26
Conservation Easements - Like-Kind Exchanges (sec. 1031)
Conservation easements may beexchanged for a fee simple interest
Basic requirement for nonsimultaneouslike-kind exchanges
Like-kind property
Like-kind exchange permitted in sales contract
Qualified intermediary used to hold funds
Reverse like-kind exchanges permitted