Tag Archive for 'tax reform'

90 Year Limit To Dynasty Trusts Proposed In 2012 Budget

If the estate planning lawyers you know are looking even more pallid than usual this morning, its likely because of this story in today’s WSJ:

A type of trust used by the wealthy to shelter assets from estate taxes for hundreds of years, or even forever, is under fire.

The proposal, which first appeared a few weeks ago on a hit list of estate provisions in President Obama’s 2012 budget, would limit tax-free “dynasty trusts” to 90 years.


Example: Robert, a widower, has a net worth of $15 million and his heirs include children, grandchildren and great-grandchildren. If he leaves everything to his children and they in turn leave everything to theirs and so on, there could be an estate tax toll with each generation.

Robert would like to put his entire estate into a trust and skip layers of tax. But if he does, the generation-skipping tax kicks in and replaces the lost taxes—except for an exempted amount, which is currently $5 million per individual or $10 million per married couple. That $5 million can be pumped up using discounts, life insurance and other leveraging techniques.

Dynasty trusts push that generation-skipping tax exemption to the max, putting the exempted amount beyond the reach of estate taxes for the life of the trust. That, in turn, means the heirs don’t have to “spend” their own exemptions on those assets. These trusts are now allowed in 23 states and the District of Columbia[.]

It looks next to impossible that this would actually happen this year but its at least interesting that the idea is on the table.

I tend to agree with the gentleman quoted in the article who pointed to the asset protection features of such trusts as being their most beneficial aspects and its unclear from the article how the proposed limitation may effect a creditor’s ability to get at the trust assets after the 90 years expires.  Impossible to say at this point what effect this proposed limitation may have on how frequently these trusts are used, so stay tuned.

Special thanks to Professors Beyer and Caron for their respective posts on this topic here and here.

American Recovery and Reinvestment Act of 2009 – Part Deux: Helping The Less Fortunate

Greg Herman-Giddens has given us another nice summary of some of the provisions of the American Recovery and Reinvestment Act of 2009 as it relates to “to individuals receiving Social Security benefits, Railroad Retirement benefits, Veteran’s benefits, or Supplemental Security Income (SSI) benefits.”

In addition, up to $2,400 of unemployment compensation benefits received in 2009 will be excluded from gross income for federal income tax purposes. And, for individuals who lose their jobs on or after September 1, 2008, and before January 1, 2010, the Act offers assistance in the form of subsidized COBRA premiums–those who qualify will have to pay only 35% of the COBRA premiums needed to continue their health coverage, for up to 9 months.

The Act also features new and modified tax credits and deductions, including:

  • A new “Making Work Pay Tax Credit” for 2009 and 2010 equal to 6.2% of earned income, up to $400 ($800 in the case of a married couple filing jointly); withholding schedules will be adjusted to increase current take-home pay to reflect the credit. The credit is phased out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for married couples filing jointly).
  • A revised Hope education tax credit for 2009 and 2010, renamed as the American Opportunity Tax Credit. With an increased annual limit per student of $2,500, the credit is now available for the first four years of post-secondary education, and up to 40% of the credit is refundable. The credit is phased out for individuals with modified adjusted gross income exceeding $80,000 ($160,000 for married couples filing jointly).
  • A revised first-time homebuyer tax credit, extended to include qualifying home purchases through November of 2009. The maximum credit is increased to $8,000, and the rules requiring that the credit be repaid are waived for qualifying homes purchased after December 31, 2008, and before December 1, 2009, as long as the home continues to serve as the individual’s principal residence for 36 months. The credit continues to be phased out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for married couples filing jointly).
  • A new standard deduction for state sales and excise tax related to the purchase of a qualified motor vehicle after February 17, 2009 and before January 1, 2010. Individuals who itemize deductions will claim the deduction as part of state and local taxes paid, reported on Schedule A of IRS Form 1040. The deduction is capped at the tax attributable to a maximum purchase price of $49,500, and is phased out for individuals with modified adjusted gross income exceeding $125,000 ($250,000 for married couples filing jointly).

In addition, the Act increases the refundable portion of the child tax credit, and makes changes to the earned income tax credit that benefit families with three or more qualifying children, and married couples filing joint returns. Also, 2008 provisions relating to the alternative minimum tax (AMT), bonus first-year depreciation, and IRC Section 179 expensing were all extended through 2009.

Thanks Gregg…  This one is very helpful.

Presidential Candidate’s Ideas On Estate Tax Reform

Senator McCain

  • on record as supporting an increase of the estate tax exemption to $5 million,
  • lowering the tax rate to 15% (which is huge),
  • and indexing the exemption amount for inflation.

Senators Clinton & Obama

  • both have proposed essentially freezing the exemption amount ($3.5 million) and tax rate (45%) at their 2009 levels.
  • Neither supports indexing for inflation.

This according to Sara Hansard of Investment News who recently published this piece on the slim remaining chances of the estate tax actually being repealed.

Thanks to Mark Jakubik of The Pennsylvania Estate Planning Blog for originally posting on this.