Stretch IRAs No Longer on the Chopping Block
The the provision that would limit stretch IRAs (I blogged about it yesterday) has been removed from the proposed Highway Bill. Good news! See this article on AdvisorOne.com
No More IRA Stretching?
Senator Baucus' proposal to do away with stretching for most inherited IRA has not gone away as was anticipated earlier this month. A recently introduced Senate bill, S. 1813, the Highway Investment, Job Creation, and Economic Growth Act, includes a provision that would disallow lifetime tax deferred stretching of IRAs for beneficiaries other than a spouse, minor children or the disabled. Other beneficiaries would be required to withdraw and pay taxes on the entire account within five years. The new law would be effective January 1, 2013.
The Dirty Dozen - 12 Tax Scams to Beware of in 2012
The IRS has released its annual list of tax scams for taxpayers to watch out for - review this list to help educate and protect yourself. Believe it or not, the IRS wants to help!
Wealth Transfer Opportunities Targeted
Wealthy folks looking to transfer assets to younger generations in tax-advantaged ways should act now, as the Obama administration is seeking to limit several favorite techniques of estate planning attorneys. On the chopping block are the most commons uses of IDGTs (Intentionally Defective Grantor Trusts), GRATs (Grantor Retained Annuity Trusts), and discounts for gifts of interests in FLPs (Family Limited Partnerships) and FLLCs (Family Limited Liability Companies). Tax-free Dynasty Trusts would also be a thing of the past. This Forbes article from Deborah Jacobs provides a good overview of the proposals.
Some may argue that the passage of some or all of the proposed revenue boosting laws is unlikely, but I'm advising my clients to act now before it's too late.
Obama's 2013 Revenue Proposals
The White House has issued its 2013 fiscal year revenue proposals, with estate and gift tax changes consistent with administration's earlier stance on those rules. Beginning next year, the estate tax exemption would decrease to $3.5 million and the rate would increase to 45%. Spousal portability of the estate tax exemption, however, would remain. The gift tax exemption would go back to $1 million.
Proposals to require GRATs to have 10 year minimum terms and to eliminate certain valuation discounts are also included.
With the upcoming elections and the big fight over income taxes, there is little change that these proposals will become law.
IRS Procedure for Requesting Extension for Late 706
From the AICPA:
Beginning in January 1, 2011, the Internal Revenue Code provides for portability of the estate tax exemption between spouses. According to issued guidance so far from the IRS (Notice 2011-82 and IR-2011-97), to claim the benefit of portability, a timely filed Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return, is required. If the estate tax return is not timely filed, the guidance provides that the surviving spouse will not be able to claim the benefit of portability.
There is a procedure under section Treas. Reg. § 20.6081-1(c) that permits an estate, upon showing good cause, to seek a 6-month extension of time to file the estate tax return. Under this procedure, an estate is to file Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes. Form 4768 must contain a detailed explanation of why it is impossible or impractical to file a reasonably complete estate tax return by the due date and an explanation showing good cause for not requesting the automatic extension of time to file the return. Section 20.6081-1(c) provides that Form 4768 should be filed sufficiently early to permit the IRS time to consider the matter and reply before what otherwise would be the due date of the return. The instructions to Form 4768 provide that if the estate has not filed an application for an automatic extension and the time for filing such application has passed, the estate should file Form 4768 as soon as possible. It may be worth considering requesting a 6-month extension of time to file the estate tax return if you missed filing the return in time and would like to try to obtain the benefit of portability for the surviving spouse.
Blogger's note: Unless Congress extends the availability of portability and use of the additional exemption gained, it will expire at the end of this year, along with the increased $5.12 million exemption (reverts to $1 million). We'll see what happens after the election!Senator Baucus Proposes Big Changes to IRAs
I've been a big proponent of planning to preserve the ability to "stretch" inherited IRAs over the life expectancy of the beneficiary, which allows for tremendous tax-deferred growth. In what came as a big surprise, to me anyway, Senator Max Baucus recently proposed requiring that most inherited IRAs be paid out within five years. Now, however, it appears that Baucus is backing off his revenue raising proposal. This brings a collective sigh of relief from IRA owners, financial advisors, custodians, and tax professionals.
Tax Related Duties of an Executor
I just came across this article, Closing Down the Estate, on SmartMoney.com. It gives a good overview of what an executor is responsible for from a tax perspective, but is by no means exhaustive. Since Executors can be personally liable for certain tax penalties, they should make sure to engage an experienced tax attorney or CPA to ensure that everything is done timely and correctly.
