Leslie Yarnes Sugai

Interpreting the 2010 Estate Tax

Law

Client SeminarMay 25, 2011

750 University AvenueSuite 140

Los Gatos, CA 95032(408) 354-0200

www.css-lawfirm.com

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• Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

• 2001- 2009 phased in increases of estate tax exemption and reduction in estate tax rate

Prior Law

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YEAR TOP ESTATE TAX RATE EXCLUSION AMOUNT

2001 55% $675,000

2002 50% $1,000,000

2003 49% $1,000,000

2004 - 2005 48% in 2004, 47% in 2005 $1,500,000

2006-2008 46% in 2006, 45% in 2007 -2008

$2,000,000

2009 45% $3,500,000

Prior Law

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• 2010- complete repeal of estate tax

• Modified carry over basis rules

Prior Law

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• Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

• Enacted December 17, 2010• Repeals portions of prior law as if never

existed

New Law

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• Can select which tax method to use1. Modified carry over basis rules with no

estate tax, or2. Estate tax at 35% with $5,000,000

exemption

Deaths in 2010 Under New Law

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• 2011 tax rates for estate, gift & GST tax: A. $5,000,000 exemption B. 35% estate tax rate

2010 Act Tax Summary

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• 2012 tax rates for estate, gift and GST tax: A. $5,000,000 exemption plus inflation

adjustment B. 35% rate

2010 Act Tax Summary

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• 2010 Act onsets after 2012• 2013 tax rates – return to prior tax

structure• For Estate and Gift Taxes

A. $1,000,000 exemption B. 55% rate

2010 Act Tax Summary

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Typical Revocable Trust with Tax Planning

• an A/B trust – splits at first death into

survivor’s and bypass sub-trusts

Revocable Trust Tax Planning

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Irrevocable Trusts

taxed equals unified credit

not taxed

not taxed

taxed with surviving spouse’s estate

taxed

not taxed

Living Trust Est ate

Community Property owned equally

by both spouses

½ ½

Decedent’s Pourover WillDecedent’s Non-Trust Property

Objective:Designate Beneficiaries of

Decedent’s Non-Trust Property

Probate Fees

Outright Gifts

Survivor’s EstateSurvivor’s Revocable Trust

Surviving Spouse’s Entire EstateObjective:

Avoids Probate for Estate in the TrustDistributes Estate of Beneficiaries after

death

A

B Bypass Trust$5 Million*Objective:

Save on Estate Taxes*maximum

C Marital TrustRemaining Estate

Objective:Decedent

Designates Eventual Beneficiaries

D Disclaimer TrustPart of Remaining

EstateObjective:

Save on Estate Taxesfor large estates

Children’s TrustObjective: To Hold Inheritance Until Designated Event Occurs

unified credit protects first

Survivor’s Pourover Will

Survivor’s Non-trust Property

Probate

Fees

Outright Gifts

First Death

Decedent’s Estate

Second Death

D e c e d e n t’s

separateproperty

SurvIvor’s

separateproperty

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Review following factors:1) size of estate2) family situation3) comfort level for surviving spouse to have

full control

Is a Bypass Trust Still Necessary?

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New Provision in Tax Code- Surviving spouse is allowed to use

the unused estate tax exemption amount of deceased spouse

Portability

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DSUEA – Deceased Spouse’s Unused Exclusion Amount

Portability

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- Benefits for future- Only valid for 2011 & 2012- Not available for 2010- Only for most recent deceased spouse- Must file estate tax return to claim

Portability

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- Larger exemptions- Portability

Is Bypass Needed?

Is Bypass Trust Still Necessary?

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- Client’s Goals• To benefit surviving spouse

- No longer tax driven : use disclaimer trust for

post-death tax planning

I Love You Plans

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-Previously to reduce Estate Taxes-Now- Shift of wealth at $5M exclusion

Gifting

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-Clawback concerns-Delay gifts until end of 2012• Wait for congress to correct clawback

and change 2013 exemption.

Gifting

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-What new laws will congress pass?

Future- 2013 and Beyond

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-Modify now or later?

-No clear answer

To change EP?

Janis CarneyLeslie Yarnes SugaiSheri Sudweeks

Thank you for coming

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