Top 9 Considerations in Light of Administration’s Proposals to Change Estate and Gift Tax to Generate Revenue

Top 9 Considerations in Light of Administration’s Proposals to Change Estate and Gift Tax to Generate Revenue

 Award-winning law firm McManus & Associates flags potential modifications to the law that should factor into one’s estate planning

 NEW YORK, NY – President Obama and the Treasury Department recently released the Fiscal Year 2015 Budget Proposal and the associated “Green Book,” which details the Administration’s revenue proposals. With future policies that will be pushed now clear, McManus & Associates, a top-rated tax and estate planning law firm based in the Tri-State Area, today released the “Top 9 Considerations in Light of President Obama’s Proposed 2015 Budget.”

“Although not all the items in the Green Book will make it into the final budget, these explanations of revenue proposals reveal policy priorities,” commented McManus. “It shouldn’t be overlooked that the Administration’s recently released proposals for Estate and Gift Tax contain several items that could significantly affect one’s ability to pass assets to loved ones in a tax-efficient manner.”

 Top 9 Considerations in Light of President Obama’s Proposed 2015 Budget

 1. What is President Obama’s Budget Proposal and Green Book, and how do they relate to your estate plans?

  •  The President’s budget outlines his chief objectives that are contingent on revenue, while the Green Book details how that additional revenue will be generated. The Green Book is the Treasury Department’s General Explanation of the Administration’s Fiscal Year 2015 Revenue Proposals.
  • The proposals represent the Executive Branch’s priorities and foreshadow what could end up as points of negotiation in the legislative process. We now know that the President intends to make changes to Estate Tax and Gift Tax, which should factor into one’s estate plan.

2. Are dynasty trusts still under fire? How might a 90-year limitation on the Generation Skipping Transfer (GST) exemption for trusts change your planning?

  •  The Administration aims to do away with a strategy that can help protect one’s estate from transfer tax, in which professionals utilize a donor’s GST exemption to create significant transfer tax savings over the long-term.
  • The Green Book proposal pushes for trusts to lose their transfer tax exemptions on the 90th anniversary of their creation.

3. Do you have your life insurance policies in trust? Tax-free gifts to cover premium payments could be in trouble.

  •  The Obama Administration intends to kill the use of Crummey powers that permit a gift to a trust to fall under the annual exclusion.
  • The Green Book has set forth the elimination of the present interest requirement and would allow the annual exclusion amount of $14,000 per donee for transfers to individuals or trusts intended to profit the donee and that would be tacked onto the donee’s estate.

4. Who will choose your executor if you have not named anyone? Maybe the Internal Revenue Service (IRS).

  •  If an eligible executor within the United States is missing, this role could be thrust upon any person in possession of the decedent’s property.
  • In order to determine who the executor is, the Green Book proposes giving the IRS regulatory authority to create rules to resolve conflicts among those who might be named executors.

5. What is there to love about the grantor trust and its additional gift of tax coverage? What is the Administration pushing to achieve that could deprive you of the associated opportunity?

  • Grantor status allows one the freedom to pay the income taxes for the trust by assuming that income on his or her personal income tax filing. This makes it possible for the assets to continue to grow in the trust and, essentially, the grantor is able to make an additional gift by paying the tax liability.
  • The Green Book proposal seeks to match up the income and transfer tax rules by lumping assets owned by the donor and sold or exchanged with a trust into the grantor’s estate upon his or her death for income tax purposes. Other options: They become a taxable gift upon the termination of grantor status or upon their dispersal during the grantor’s life.

6. Why might one opt for Grantor-Retained Annuity Trusts (GRATs) with short terms, overlapping GRATs, and hedging with life insurance?

  • The current Administration is paying close attention to short-term, zeroed-out GRATs. With these vehicles, the donor retains an annuity adequate for the gift to be valued at zero. To avoid assets being tacked on to one’s estate, the short term reduces the risk of the donor dying during the GRAT term.
  • President Obama’s proposal would force GRATs to have a minimum term of 10 years. The GRAT remaining in existence for a decade means there’s a greater chance of the donor dying.

7. The so-called “permanent” exemptions could vanish in 2018. Why should you give now in trust?

  •  President Obama has pulled back from his pledge to “permanently” set the exemption amounts at $5MM (adjusted for inflation). The Administration has proposed to revert to the exemptions and rate from 2009, starting in 2018.
  • The estate and GST exemption would drop to $3.5 million, while the gift tax exemption would drop to $1 million with a top marginal tax rate of 45 percent. Note: These exemptions would not be indexed for inflation.
  • Under this new structure, portability would continue to exist despite the fact that it was not in effect in 2009.

8. How will estates that consist largely of interest in closely-held businesses be affected? What does the Estate tax lien and IRC Section 6166 election mean for you?

  • There is a proposal to do away with the deferral allowed under Section 6166 for the payment of estate taxes due from estates that own closely-held businesses. Currently, estates that qualify for a Section 6166 election can defer estate taxes for about 15 years—but the general estate tax lien under Section 6324(a)(1) expires after a decade.
  • With the five year gap, the IRS has been challenged to collect estate taxes because of businesses failing. The general estate tax lien would stretch across the full Section 6166 election deferral period with the Administration’s proposal.

9. Is the advantage of making gifts now to take valuation discounts and preserve more of your assets on the chopping block?

  • The proposed budget calls for consistency in value for transfer and income tax purposes. This could mean that one cannot take valuation discounts (or at least such discounts become less beneficial).
  • Due to the this requirement, the transferee cannot later report the basis in the property greater than 1) the value of the property for estate tax purposes as it relates to property received from a decedent, or 2) the donor’s basis for property received by gift.
  • The proposal seeks to impose a reporting requirement on executors for bequests from estates and on donors for gifts that would require basis to be reported to both the beneficiary and the IRS.

To discuss considerations specific to your estate in light of the Administration’s budget proposals, call 908-898-0100. For more information on award-winning McManus & Associates, go to

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About McManus & Associates

McManus & Associates, a trusts and estates law firm, was formed in 1991 by John O. McManus to provide the high quality experience of the largest firms coupled with the intimacy and efficiency of a specialized boutique firm. Over 20 years later, McManus & Associates continues to earn its reputation for integrity, intellectual ability, efficiency, and enduring relationships.

For more information contact:

Lauren DuBois
(917) 573-2485