As this Bloomberg article explains, the IRS recently announced that it was extending the time for heirs of 2010 decedents to file Form 8939. That form will NOT be due on April 18, 2011, but rather, will be due at some point in the future after the IRS finalizes the form and issues further guidance. The form is required for estates that are opting out of estate tax for 2010 (and thus, also opting out of a step-up in basis for the inherited assets for capital gains purposes). The form will be used to allocate the $1.3 million in increased basis (and additional $3 million in basis for assets being inherited by a surviving spouse). In general, the estates that are opting out of estate tax for 2010 are relatively large estates with more than $5 million in assets.
Joseph T. Hahn
IRS Extends Time to File Form 8939 For Deaths in 2010
Posted by Joseph Hahn on April 5, 2011
http://hahnestateplanning.com/2011/04/05/irs-extends-time-to-file-form-8939-for-deaths-in-2010/
“Second To Die” Life Insurance: What Is It?
As explained in this posting at Seacoastonline.com, "second to die" or survivorship life insurance can solve many financial problems. What is it? It is a life insurance contract that covers two lives, with the death benefit being paid only after both insureds have died. By having two lives under one policy, the premiums are in many cases much lower than they would be if you had two separate policies with the same death benefit. Thus, many couples can get more insurance than they would otherwise be able to afford. Also, folks who might otherwise be uninsurable due to health issues might be able to be covered in a survivorship policy. These policies are often used to fund estate tax liability, but can also be used to create liquidity in an estate even if no taxes are due. These policies are typically owned by an irrevocable life insurance trust to keep the death benefit out of the taxable estate of the insureds. As always, see a reputable estate planning attorney who can work with your life insurance agent to set this up properly.
Posted by Joseph Hahn on April 4, 2011
http://hahnestateplanning.com/2011/04/04/second-to-die-life-insurance-what-is-it/
“Second To Die” Life Insurance: What Is It?
As explained in this posting at Seacoastonline.com, "second to die" or survivorship life insurance can solve many financial problems. What is it? It is a life insurance contract that covers two lives, with the death benefit being paid only after both insureds have died. By having two lives under one policy, the premiums are in many cases much lower than they would be if you had two separate policies with the same death benefit. Thus, many couples can get more insurance than they would otherwise be able to afford. Also, folks who might otherwise be uninsurable due to health issues might be able to be covered in a survivorship policy. These policies are often used to fund estate tax liability, but can also be used to create liquidity in an estate even if no taxes are due. These policies are typically owned by an irrevocable life insurance trust to keep the death benefit out of the taxable estate of the insureds. As always, see a reputable estate planning attorney who can work with your life insurance agent to set this up properly.
Posted by Joseph Hahn on April 4, 2011
http://hahnestateplanning.com/2011/04/04/second-to-die-life-insurance-what-is-it/
Confusing Tax Treatment for Same Sex Couples In Community Property States
As this New York Times article discusses, this is a tricky tax season for same sex couples in community property states like California, Nevada and Washington. Why? Because for the first time, the IRS is requiring domestic partners or same sex married couples to split their community property income on both partners' respective federal income tax returns. So the federal government is recognizing the community property rights of the couple but not recognizing their legal relationship (which is why each partner must file a separate "single" tax return, even while they are reporting half of all the community income, deductions and tax payments). And as complicated as that sounds, the reality is even more complicated, as evidenced by the numerous CPAs who are scrambling to understand the significance of these new rules as applied to all the subtle complexities of our income tax system. But the bright side is that for many if not most of the couples to whom these new rules apply, they will pay less in taxes. Bottom line: see your tax professional for guidance.
Posted by Joseph Hahn on March 29, 2011
http://hahnestateplanning.com/2011/03/29/confusing-tax-treatment-for-same-sex-couples-in-community-property-states/
Nominated For Top 25 Estate Planning Blogs
Hahn's Estate Planning Blog has been nominated as a candidate for the Lexis Nexis Top 25 Estate, Probate and Elder Law Blogs of 2011. If you'd care to show your support, click on this link and you can vote by logging in and leaving a comment. Thank you for your support!
Posted by Joseph Hahn on March 4, 2011
http://hahnestateplanning.com/2011/03/04/nominated-for-top-25-estate-planning-blogs/
2010 Estate Tax Election Causing Headaches
As this article from Forbes lays out in detail, the complexity facing executors/trustees of estates where the decedent died in 2010 is daunting and likely to cause some head-scratching. Given the estate tax reform that took place at the very end of the year, these estates have to make an election of whether to proceed under the 2011 rules (35% estate tax on assets in excess of $5 million with full step up in basis on inherited assets) or the 2010 rules (no estate tax, but a complex "modified carryover basis" system that will likely result in significant capital gains taxes). On the extremes, the choice is easy. But in the $5 to $10 million dollar range of estates, the choice will be quite complicated. And if you choose the 2010 rules, the IRS form to make the election, Form 8939, is not even finalized yet and is likely to be further revised. Good thing that the IRS has stated that the form will not be required to be filed until at least 90 days after the final version is issued by the IRS.
Posted by Joseph Hahn on February 24, 2011
http://hahnestateplanning.com/2011/02/24/2010-estate-tax-election-causing-headaches/
Act On Estate And Gift Tax Opportunities Today? Or Wait And See?
This article from Deborah Jacobs in Forbes outlines some of the dilemmas facing wealthy families who are considering whether and how to take advantage of the opportunities created by the recent estate/gift tax reforms during the next two years. The opportunities are real and substantial, including zeroed-out or "Walton" GRATS, Familly Limited Partnerships, and installment sales of FLP interests to grantor trusts to leverage the valuation discounts available for FLP interests. These strategies will effectively permit wealthy individuals to pass far more than the $5 million estate tax exemption on to their heirs. On the flip side, there are transaction costs incurred in setting up these vehicles and there's always the possibility that Congress will either repeal the estate tax entirely in 2013 (pretty unlikely) or continue the present laws after that time (fairly likely), in which case there's no real rush to get on the bandwagon today. Something to consider when you're speaking with your professional advisors.
Posted by Joseph Hahn on February 3, 2011
http://hahnestateplanning.com/2011/02/03/act-on-estate-and-gift-tax-opportunities-today-or-wait-and-see/
Role of Bypass Trusts Changing?
Has the recent estate tax reform changed the role of "bypass trusts," long a fixture of married couples' estate planning strategies? This article from MSN Money argues yes. With the exemption increased to $5 million per person and that exemption made "portable" to the surviving spouse, the primary reason for the bypass trust has now been eliminated. Or has it? Portability is only the law for the next two years and to qualify, both spouses must die in 2011 or 2012. Also, you must file an estate tax return for the deceased spouse to claim the unused exemption, even if the deceased spouse wouldn't otherwise be required to file a return. And portability does not apply to the GST exemption. And what about the non-estate tax motivations for a bypass trust? Protecting the kids from a future remarried spouse, creditor protection, etc. The article concludes that we're going to see a lot more "disclaimer" bypass trusts, where the surviving spouse has the option of funding the bypass trust if circumstances dictate at the time of the spouse's death.
Posted by Joseph Hahn on February 2, 2011
http://hahnestateplanning.com/2011/02/02/role-of-bypass-trusts-changing/
ABA Issues Comments to IRS on Form 8939
The ABA has issued official comments to the IRS on its draft Form 8939 which deals with allocation of basis for property acquired from decedents who died in 2010. This form only applies to those estates who will choose the "no estate tax/carryover basis" system rather than those that will choose the "$5 million exemption/35% estate tax/step up in basis" system, i.e., the largest estates. Some of the comments: include an explicit due date; only require disclosure on the form of assets that exceed some threshhold value (like $10,000); explain how community property should be handled; permit requests for extensions of time to file the form; allow the executor to affirmatively check a box stating that he/she is electing the zero estate tax/carryover basis. To review these comments, click here: Download ABA Section of Real Property Trust and Estate and Section of Taxation Comments on Draft Form 8939
Posted by Joseph Hahn on February 1, 2011
http://hahnestateplanning.com/2011/02/01/aba-issues-comments-to-irs-on-form-8939/
ABA Issues Comments to IRS on Form 8939
The ABA has issued official comments to the IRS on its draft Form 8939 which deals with allocation of basis for property acquired from decedents who died in 2010. This form only applies to those estates who will choose the "no estate tax/carryover basis" system rather than those that will choose the "$5 million exemption/35% estate tax/step up in basis" system, i.e., the largest estates. Some of the comments: include an explicit due date; only require disclosure on the form of assets that exceed some threshhold value (like $10,000); explain how community property should be handled; permit requests for extensions of time to file the form; allow the executor to affirmatively check a box stating that he/she is electing the zero estate tax/carryover basis. To review these comments, click here: Download ABA Section of Real Property Trust and Estate and Section of Taxation Comments on Draft Form 8939
Posted by Joseph Hahn on February 1, 2011
http://hahnestateplanning.com/2011/02/01/aba-issues-comments-to-irs-on-form-8939/
