[1] No pressing news regarding the federal estate tax.
Although the federal estate tax is being mentioned in many articles, there is no pressing news. In Nothing to Report (Estate Tax News Blog by Kevin Staker, 8/24/10), Kevin Staker laments about “nothing worthy to report”:
This author searches the Internet several times a day for any news re the estate tax worthy to report. I find it interesting there has been nothing worth reporting since August 4th. Congress being out of session most likely is the cause.
[2] Focus has shifted to taking advantage of the gift tax.
Journalists are using this break from the estate tax to educate readers about the gift tax opportunity that exists in 2010. Here are recent articles on the 2010 gift tax opportunity:
[2.1] Joseph A. Giannone, For the rich, 'tis better to give than wait, Reuters, Aug. 18, 2010.
Giannone provides several reasons why 2010 is a good year to gift assets to younger generations: (1) “U.S. taxes [are] almost guaranteed to rise next year,” (2) “[a] weak economy has led to razor-thin interest rates and beaten-down valuations.”
With regards to taxes rising next year, Giannone elaborates that (1) “capital gains taxes are going t rise,” (2) “top earners may pay nearly 40 percent of their income,” (3) generation-skipping transfer tax rates “are likely to return next year at rates as high as 55 percent,” (4) gift taxes “are set to bounce back to 55 percent next year.”
Giannone writes, “Contrary to the usual advice, investors should record income and capital gains now, but defer charitable deductions until next year.”
Giannone suggests various strategies for shifting wealth: (1) intra-family loans, (2) GRATs, (3) charitable lead trusts, and (4) “assets sold into a trust.”
[2.2] Deborah L. Jacobs, Five Ways To Freeze Out Uncle Sam, Forbes.com, Aug. 25, 2010.
Jacobs’s article picks up where Giannone’s article concludes. Giannone suggests four strategies to transfer wealth to younger generations. Jacobs elaborates on these strategies in some detail. She also discusses an additional strategy that is appropriate in our low interest rate, depreciated asset environment: revising existing GRATs.
Jacobs’s article is rich with details, which are presented in plain English. For example, Jacobs teaches about the AFR and the Sec. 7520 rate, and when each is used.
(In a previous blog entry, I suggested how Jacobs’s article can empower readers.)
[2.3] Paul Sullivan, A Year to Give Gifts to Your Heirs, and Save on Taxes, NY Times, Aug. 27, 2010.
Sullivan provides three reasons that make 2010 “a year to give gifts to your heirs”: (1) low tax rates, (2) “the values of many assets are still depressed,” and (3) no generation-skipping transfer tax in 2010.
Sullivan outlines some of the risks involved with giving gifts: (1) “certain techniques guaranteed an audit” by the IRS, and (2) psychological effects on those who receive large sums of money without incentives.
Sullivan concludes with the following advice: “Beating the federal government at the tax game is great, but damaging the lives of your heirs in the process could make it a Pyrrhic victory.”
[2.4] Bucks Editors, Will You Give More Gifts to Your Heirs This Year?, Bucks, Aug. 27, 2010.
This entry summarizes Sullivan’s article. There are four comments to the entry. One comment is by Deborah L. Jacobs. Jacobs’s comment is informative and should be read in conjunction with Sullivan’s article:
Without elaborating, Paul Sullivan notes that making gifts this year to trusts that will benefit grandchildren raises the risk that all the assets will be taxed when they are withdrawn. It's important to note that the same risk applies to gifts to custodial accounts (used for grandchildren who are minors) as well as deposits to 529 savings accounts for their benefit. The problem, in all these cases, is that since there is no generation-skipping transfer tax, and no exemption either right now, it is impossible to apply GST exemption to any of these entities. So the prudent course of action is to only make cash gifts this year to grandchildren who have already reached the age of majority.
[3] What can you do?
[3.1] I recommend printing out the articles above on gifting opportunities and risks in 2010. These articles are very good. There is added value in reading them together.
[3.2] To continue your studies, you can purchase (and maybe give away as a gift) Deborah Jacobs’s book on estate planning, Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide. Some professors have seen the benefit of an easy-to-understand explanation of estate planning and are assigning the book to their students. See An uncasebook about estate planning?
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