A number of speakers at the UJA Federation of New York 41st Annual Sidney Kess New York Tax & Financial Planning Conference urged attorneys, CPAs, and financial planners attending to encourage their clients to review their wills. There was concern that the federal estate tax repeal for 2010 could have a devastating impact on the distribution of property if they died in 2010.
A particularly expressed concern were those wills with formula clauses that assumed the existence of an estate tax. Martin Shenkman with Martin M. Shenkman, P.C. in Teaneck, NJ indicated that relying upon a state-enacted stop-gap law that assumes an estate tax of a certain date for purposes of a formula clause might not work as it could result in the disposition not intended by the actual formula clause in the will.
I believe it was Daniel Daniels of Wiggin and Dana LLP in Stanford, Conn. who opined if a change in a will is needed, a deficient formula clause might be replaced with a bequest to a giant QTIP trust providing flexibility to deal postmortem with the estate tax uncertainty. This is especially true if the estate tax is imposed retroactively to individuals dying towards the end of 2010.
Shenkman also pointed out how the estate tax repeal discourages charitable bequests in a will since there is no estate tax charitable deduction to utilize. He offered a number of alternatives which would result in a deduction for income tax purposes. He also added that similar logic would apply upon reinstatement of an estate tax if the estate is under the estate tax exclusion amount.
Also in dealing with uncertainty, Steven Siegel of the Siegel Group in Morristown, NJ recommends including alternative dispositions when drafting, as this allows for the greater effective utilization of disclaimers to accomplish a desired result despite the uncertainty.
It is extremely unfortunate that the Congress that enacted the “Economic Growth and Tax Relief Reconciliation Act” and subsequent Congresses, especially and including this one, created and continue to perpetuate this uncertainty. In 2001, while I was editor-in- chief of Practical Accountant, I mentioned in a cover story on this subject that a practitioner observed tongue-in-cheek, “Some advisors are having clients sign a living will where the plug will get pulled five minutes before the end of 2010.” My fear is this Congress will take no action in 2010 and a plug might be pulled or someone might commit suicide just before 2010 ends so the death occurs before the estate tax is reinstated.
© 2010
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The above may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.
Showing posts with label estate taxes. Show all posts
Showing posts with label estate taxes. Show all posts
Friday, September 17, 2010
Tuesday, June 22, 2010
Howard’s Inner Circle, No. 15: Dramatic Changes in Tax Planning
I met Dean Zerbe a number of years ago when he became National Director in alliantgroup's Washington, D.C. office. He was formerly a Senior Tax Counsel on the Senate Finance Committee. I took a liking to him immediately and was lucky enough to hear him speak last week at a Firm of the Future free breakfast hosted by Philip Whitman of Whitman Business Advisors and Robert Fligel of RF Resources.
Dean Zerbe understands intimately the dynamics of tax legislation and is especially attuned to the changing winds in Washington. I like that his free newsletter is only sent out when he has something important to say. Most importantly he pulls no punches when he describes the factors and the players that influence tax legislation.
There were some keys points he made that morning indicating to me that accounting firms should be making changes in their approach to tax planning, and in identifying which clients and potential clients are impacted by tax legislation.
Tax legislations’ increased industry focus.--It was particularly evident in the recent health reform legislation according to Zerbe that taxes were imposed on industries or a tax benefit was given to an industry. Take the therapeutic credit/grant which is a limited $1 billon program which ends once that amount is allocated. Interestingly if a qualified company picked by the IRS can’t use the credit it gets a grant. Zerbe points out the IRS form for applying was expected to come out momentarily and there is a very limited time to file. He expects future tax legislation to continue to focus on specific industries as that is easier than changing tax rates in general. Another example of this continued type of focus is a controversial proposal trying to increase payroll taxes for S corporations where shareholders are professionals.
Taking the penalty.—Zerbe expects more companies to pay the penalty for not proving medical insurance benefits as that will result in a greater savings than continuing to pay the benefits. He predicts taking the penalty as increasingly being viewed as a viable option in other situations.
Choosing to pay the estate tax for those dying in 2010.--Zerbe predicts one option that Congress might select is allowing certain estates of those deceased in 2010 subject to carryover basis to pay an estate tax instead and get a stepped-up basis for the property. If this option is adopted or the carryover basis rules are left alone, there are significant fiduciary obligations for these executors and administrators and planning opportunities for the disposal of property with a carryover basis with regard to heirs.
Watch out for tax whistleblowers—According to Zerbe, underpayment of tax whistle blowing is on the increase such as the reporting of companies taking advantage of promoted tax shelters. With downsizing, a move to independent contractors, and the informality of e-mails, it should come as no surprise that a disgruntled ex-employee might seek a reward from IRS. What is fascinating is the number of law firms who are specializing in this. Just do a search on the Internet.
Highlight costs of compliance-- CPAs and the organizations representing them need to put a greater effort in convincing Congress to calculate the costs of compliance when a tax law change is proposed suggests Zerbe. The figures could be included in Congressional reports the same way the revenue impact of specific law changes are displayed.
© 2010
*************************************************************
The above is from the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.
Dean Zerbe understands intimately the dynamics of tax legislation and is especially attuned to the changing winds in Washington. I like that his free newsletter is only sent out when he has something important to say. Most importantly he pulls no punches when he describes the factors and the players that influence tax legislation.
There were some keys points he made that morning indicating to me that accounting firms should be making changes in their approach to tax planning, and in identifying which clients and potential clients are impacted by tax legislation.
Tax legislations’ increased industry focus.--It was particularly evident in the recent health reform legislation according to Zerbe that taxes were imposed on industries or a tax benefit was given to an industry. Take the therapeutic credit/grant which is a limited $1 billon program which ends once that amount is allocated. Interestingly if a qualified company picked by the IRS can’t use the credit it gets a grant. Zerbe points out the IRS form for applying was expected to come out momentarily and there is a very limited time to file. He expects future tax legislation to continue to focus on specific industries as that is easier than changing tax rates in general. Another example of this continued type of focus is a controversial proposal trying to increase payroll taxes for S corporations where shareholders are professionals.
Taking the penalty.—Zerbe expects more companies to pay the penalty for not proving medical insurance benefits as that will result in a greater savings than continuing to pay the benefits. He predicts taking the penalty as increasingly being viewed as a viable option in other situations.
Choosing to pay the estate tax for those dying in 2010.--Zerbe predicts one option that Congress might select is allowing certain estates of those deceased in 2010 subject to carryover basis to pay an estate tax instead and get a stepped-up basis for the property. If this option is adopted or the carryover basis rules are left alone, there are significant fiduciary obligations for these executors and administrators and planning opportunities for the disposal of property with a carryover basis with regard to heirs.
Watch out for tax whistleblowers—According to Zerbe, underpayment of tax whistle blowing is on the increase such as the reporting of companies taking advantage of promoted tax shelters. With downsizing, a move to independent contractors, and the informality of e-mails, it should come as no surprise that a disgruntled ex-employee might seek a reward from IRS. What is fascinating is the number of law firms who are specializing in this. Just do a search on the Internet.
Highlight costs of compliance-- CPAs and the organizations representing them need to put a greater effort in convincing Congress to calculate the costs of compliance when a tax law change is proposed suggests Zerbe. The figures could be included in Congressional reports the same way the revenue impact of specific law changes are displayed.
© 2010
*************************************************************
The above is from the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.
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