Important Estate Tax Provisions in President Obama’s 2012 Budget Proposal

For those people who thought there would be a lull in proposed estate/gift tax legislation as a result of the sweeping 2010 tax law, that is not the case. President Obama’s 2012 budget proposal released last week contains numerous important estate and gift tax proposals, which are as follows:

  1. Returning the estate/gift tax to 2009 levels, meaning a $3.5 million estate tax exemption amount, a 45% estate/gift tax rate and a $1 million lifetime gift tax exemption.
  2. Making permanent the new portability rules with respect to enabling the surviving spouse to use the deceased spouse’s unused exclusion amount.
  3. Adding another category of restrictions for family controlled entities that would be required to be disregarded for valuation purposes. A key component of planning involves the use of leverage and valuation discounts to reduce (i) the value of lifetime gifts if assets are transferred during life and (ii) the value of a decedent’s assets at death. This proposal potentially could limit the utility of family owned investment partnerships and limited liability companies.
  4. Limiting the use of GRATs to a minimum term of 10 years and requiring the remainder interest to have a value greater than zero. This proposal has been floating around for some time now, and is another attempt to have the usefulness of GRATs minimized.
  5. Limiting the duration of generation-skipping transfers in trust to ninety (90) years from the creation of the trust. With many states eliminating rules related to the duration of trusts, this proposal is aimed at recapturing revenue lost with the permitted perpetuity of trusts.

As these proposals are debated, we will keep you apprised of any developments.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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