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Leslie Yarnes Sugai
Interpreting the 2010 Estate Tax
Law
Client SeminarMay 25, 2011
750 University AvenueSuite 140
Los Gatos, CA 95032(408) 354-0200
www.css-lawfirm.com
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• Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
• 2001- 2009 phased in increases of estate tax exemption and reduction in estate tax rate
Prior Law
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YEAR TOP ESTATE TAX RATE EXCLUSION AMOUNT
2001 55% $675,000
2002 50% $1,000,000
2003 49% $1,000,000
2004 - 2005 48% in 2004, 47% in 2005 $1,500,000
2006-2008 46% in 2006, 45% in 2007 -2008
$2,000,000
2009 45% $3,500,000
Prior Law
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• 2010- complete repeal of estate tax
• Modified carry over basis rules
Prior Law
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• Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
• Enacted December 17, 2010• Repeals portions of prior law as if never
existed
New Law
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• Can select which tax method to use1. Modified carry over basis rules with no
estate tax, or2. Estate tax at 35% with $5,000,000
exemption
Deaths in 2010 Under New Law
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• 2011 tax rates for estate, gift & GST tax: A. $5,000,000 exemption B. 35% estate tax rate
2010 Act Tax Summary
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• 2012 tax rates for estate, gift and GST tax: A. $5,000,000 exemption plus inflation
adjustment B. 35% rate
2010 Act Tax Summary
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• 2010 Act onsets after 2012• 2013 tax rates – return to prior tax
structure• For Estate and Gift Taxes
A. $1,000,000 exemption B. 55% rate
2010 Act Tax Summary
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Typical Revocable Trust with Tax Planning
• an A/B trust – splits at first death into
survivor’s and bypass sub-trusts
Revocable Trust Tax Planning
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Irrevocable Trusts
taxed equals unified credit
not taxed
not taxed
taxed with surviving spouse’s estate
taxed
not taxed
Living Trust Est ate
Community Property owned equally
by both spouses
½ ½
Decedent’s Pourover WillDecedent’s Non-Trust Property
Objective:Designate Beneficiaries of
Decedent’s Non-Trust Property
Probate Fees
Outright Gifts
Survivor’s EstateSurvivor’s Revocable Trust
Surviving Spouse’s Entire EstateObjective:
Avoids Probate for Estate in the TrustDistributes Estate of Beneficiaries after
death
A
B Bypass Trust$5 Million*Objective:
Save on Estate Taxes*maximum
C Marital TrustRemaining Estate
Objective:Decedent
Designates Eventual Beneficiaries
D Disclaimer TrustPart of Remaining
EstateObjective:
Save on Estate Taxesfor large estates
Children’s TrustObjective: To Hold Inheritance Until Designated Event Occurs
unified credit protects first
Survivor’s Pourover Will
Survivor’s Non-trust Property
Probate
Fees
Outright Gifts
First Death
Decedent’s Estate
Second Death
D e c e d e n t’s
separateproperty
SurvIvor’s
separateproperty
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Review following factors:1) size of estate2) family situation3) comfort level for surviving spouse to have
full control
Is a Bypass Trust Still Necessary?
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New Provision in Tax Code- Surviving spouse is allowed to use
the unused estate tax exemption amount of deceased spouse
Portability
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DSUEA – Deceased Spouse’s Unused Exclusion Amount
Portability
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- Benefits for future- Only valid for 2011 & 2012- Not available for 2010- Only for most recent deceased spouse- Must file estate tax return to claim
Portability
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- Larger exemptions- Portability
Is Bypass Needed?
Is Bypass Trust Still Necessary?
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- Client’s Goals• To benefit surviving spouse
- No longer tax driven : use disclaimer trust for
post-death tax planning
I Love You Plans
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-Previously to reduce Estate Taxes-Now- Shift of wealth at $5M exclusion
Gifting
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-Clawback concerns-Delay gifts until end of 2012• Wait for congress to correct clawback
and change 2013 exemption.
Gifting
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-What new laws will congress pass?
Future- 2013 and Beyond
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-Modify now or later?
-No clear answer
To change EP?
Janis CarneyLeslie Yarnes SugaiSheri Sudweeks
Thank you for coming
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