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Estate Planning 2004: What's Hot, What's Not

 ESTATE PLANNING 2004: WHAT’S HOT, WHAT’S NOT!

By

Theodore B. Atlass, Esq.

Denver, Colorado

 

I. THE ESTATE PLANNING CLIMATE IN 2004 IS GOOD

  

   A. We are past the initial paralysis of 9/11

   B. The economy and stock market have improved

   C. The impact of the 2001 Tax Act has sunk in

 

II. CERTAIN QUESTIONS SEEM TO ARISE CONSTANTLY

  

   A. Will death and gift taxes be eliminated?

   B. Do I need long-term care insurance?

   C. What do you think about 529 Plans?

   D. Can I give my IRA to charity?

   E. Do domestic asset protection trusts work?

   F. How do conservation easements work?

   G. Can my beneficiary stretch out IRA payments?

   H. Is the family limited partnerships still viable?

   I. What about using a joint trust for husband and wife?

  J. Don’t I want to avoid probate?

 

III. INTERESTING AND TIMELY ISSUES FOR ESTATE PLANNING 

    PROFESSIONALS

 

   A. Ethics and non-disclosure letters

   B. State income taxation of trusts

   C. Lifetime sale of life insurance contracts

   D. Priority of federal tax claims in estates

   E. Enactment of separate state death tax statutes

   F. Viable alternatives to traditional research sources

 

IV. KEY STATE LAW DEVELOPMENTS

     A. Application of the new Principal and Income Act

     B. Disposition of last remains

     C. Procedural Matters

         1. Filing fees increased

         2. New CPC forms

         3. Mandatory electronic filing

   

     D. Selected 2003 Colorado cases of interest

         1. Estate of De Herrera — Added time for filing claims

         2. Canterbury v. Kovacich — No unilateral severance by joint tenant

         3. Estate of Kiser — Impact of invalid conveyance o a trust

         4. Estate of Klarner — Apportionment of state death taxes

         5. Marriage of Dale and Major — Valuation of beneficial interest in trust

 

V. IMPACT OF 2001 TAX ACT

 

    A. Inflation-adjusted numbers for 2004

        1. Gift tax exemption-equivalent is $1,000,000

        2. Estate tax exemption-equivalent is $1,500,000

        3. Generation-skipping tax exemption is $1,500,00

        4. 2% portion of IRC Sec. 6166 Interest is $1,140,000

        5. Maximum IRC Sec. 2032A benefit is $850,000

        6. Non-citizen spouse annual exclusion is $114,000

        7. Reportable gift received from foreign person is $12,097

        8. Annual gift tax exclusion is $11,000

  

    B. Fewer people need to use fancy estate planning techniques

          1. Splitting assets and using basic marital deduction estate planning concepts will allow a married couple to pass on $3,000,000 free of transfer taxes

          2. Such amount is increased to $4,000,000 if husband and wife hold assets that can be discounted by only 25% by reason of being fractional interests in real estate or qualifying for other discounts (lack of control, lack of marketability, etc.)

          3. Such amount is further potentially increased by millions of dollars if life insurance is effectively held in an irrevocable life insurance trust

          4. Such amount is further potentially increased by conservation tax easements ($500,000 maximum/decedent) and special use valuation ($$850,000/decedent)

          5. Such amount is further increased by making lifetime gifts qualifying for the annual exclusion ($11,000/year, doubled if gift-splitting is used, and further enhanced if gifted property qualifies for discounts), payment of medical expenses for others, and payment of tuition for others.

 

     C. Impact on use of marital deduction formula provisions

         1. Fewer couples will have the now requisite $1,500,000

         2. Couples on the edge will consider using disclaimer trust provisions

         3. Beware of credit shelter gifts made to non-spouse

         4. Use of an irrevocable life insurance trust may eliminate need for marital

           deduction planning

     

     D. Spousal asset titling becomes more problematical with higher tax exemptions

     E. Current life insurance dilemma if estate tax might or might not be repealed

     F. Failure to realize that gift tax and estate tax have been decoupled

     G. Rethinking the allocation of GST exemption to certain transfers

     H. The possibility of carryover basis

 

VI. HOT PLANNING TECHNIQUES TO MINIMIZE TRANSFER TAXES

 

     A. Split-dollar life insurance is under attack

     B. Discounts are not dead

     C. Impact of interest rates

         1. Interest rates are now at historic lows

         2. Adverse impact on use of some techniques (CRTs and QPRTs)

         3. Positive impact on use of some techniques (CLTs, GRATs, and installment sales to IDITs)

 

    D. Specific planning examples

     1. "Hot asset" grantor retained annuity trust (GRAT)

     2. "Cash cow" grantor retained annuity trust (GRAT)

     3. Installment sale to intentionally defective grantor trust

     4. GRATs vs. installment sales - keep an open mind

     5. Charitable lead annuity trust

     6. Combine techniques for best results