As we mentioned in part one of this article, as of November 17, 2011, legislation was proposed that, if enacted, would change the federal estate tax related laws. The proposed legislation is called of H.R. 3467, The Sensible Estate Tax Act of 2011.
We continue; in addition to changes in the federal estate tax, gift tax, portability benefit, and pick-up tax, the proposed legislation would make the following changes:
Valuation Discounts and Minority Interest Discounts
Under current law, family limited partnerships are used to provide asset protection and to compress the value of underlying assets.
The new law would eliminate the use of valuation discounts as to non-business assets; and, there would be no valuation discounts for minority interests, if the other owners are family members.
Grantor Retained Annuity Trusts
The new law would require grantor retained annuity trusts to have a minimum 10 year terms and the annuity cannot be reduced during the term. Furthermore, the remainder interest (at the time assets are transferred into the trust) must be greater than $0.
Some generation-skipping trusts are used to avoid the federal estate tax and generation-skipping tax for generations (or even, forever, if sited in a state that has abolished the rule against perpetuities.)
The new law would end trusts when they attain have been in existence for 90 years.
There is no guaranteed that this new proposed law will actually become law. In fact, there a competing law was introduced in March 2011, The Bipartisan Death Tax Repeal Permanency Act. That proposed law would totally eliminate the federal estate tax and set the gift tax exemption at $5 million with a 35% top gift tax rate.
There is sure to be much discussion and the future of the federal estate tax related laws is unclear. The only thing that is clear is that the current law is extremely conducive to the transfer of and protection of wealth. Now is the best time to consult with a qualified estate planning attorney to take advantage of current law before it’s too late.
Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.