4. SELECTED ASPECTS OF FAMILY WEALTH TRANSFER A. Tax Implications of Family Wealth Transfer B. Testamentary Gifts C. Intervivos Gifts D. Gifts to Minors E. Charitable Planning F. The Irrevocable Life Insurance Trust G. ERISA and Qualified Plan Benefits 439 440 4A. Tax Implications of Family Wealth Transfer 441 442 September 2013 ESTATE PLANNING UPDATE By: Sanford J. Schlesinger, Esq. and Martin R. Goodman, Esq. Schlesinger Gannon & Lazetera LLP TABLE OF CONTENTS I. THE AMERICAN TAXPAYER RELIEF ACT OF 2012 ..................................................2 A. Federal Transfer Tax Provisions ............................................................................. 2 B. Federal Income Tax Provisions .............................................................................. 2 II. THE TAX RELIEF, UNEMPLOYMENT INSURANCE REAUTHORIZATION, AND JOB CREATION ACT OF 2010 ...............................................................................3 A. Federal Transfer Tax Provisions ............................................................................. 3 1. Federal Estate Tax Provisions ..................................................................... 3 2. Federal Gift Tax Provisions ........................................................................ 6 3. Federal Generation-Skipping Transfer Tax Provisions .............................. 6 4. Federal Portability Provisions ..................................................................... 7 (a) General ................................................................................................ 7 (b) Portability and the Future of Bypass Trusts ...................................... 10 (c) Portability and Prenuptial Agreements ............................................. 11 5. Other Provisions........................................................................................ 11 6. Summary Chart ......................................................................................... 12 7. Omitted Transfer Tax Provisions .............................................................. 13 8. IRS Publication 950 .................................................................................. 13 B. Federal Income Tax Provisions ............................................................................ 13 C. Estates of 2010 Decedents, Form 8939 and 2010 Transfers ................................. 13 1. Notice of 2011-66 and Rev. Proc. 2011-41 .............................................. 14 (a) Electing the Carryover Basis Regime ............................................... 14 (b) Relief Provisions for Form 8939 ....................................................... 15 (c) Amount of Basis Increase ................................................................. 16 (d) Allocating Increases in Basis ............................................................ 17 (e) Reporting to Beneficiaries ................................................................. 19 (f) Coordination With Other Income Tax Provisions ............................ 20 (g) GST Tax in 2010 ............................................................................... 21 2. Notice 2011-76 and IR-2011-91 ............................................................... 21 (a) Estate Tax Return Extensions ........................................................... 21 (b) Form 8939 ......................................................................................... 22 (c) GST Taxes ......................................................................................... 22 (d) Income Tax Returns and Gift Tax Returns ....................................... 23 (e) Penalty Relief .................................................................................... 23 D. State Transfer Tax Considerations ........................................................................ 23 (a) New York .......................................................................................... 23 (b) Connecticut ....................................................................................... 25 (c) New Jersey ........................................................................................ 25 {00039079.DOC / } 443 i (d) Pennsylvania ..................................................................................... 26 (e) Florida ............................................................................................... 26 (f) Delaware ........................................................................................... 26 (g) Other States ....................................................................................... 26 (h) State QTIP Elections ......................................................................... 26 E. Obama Administration and Congressional 2013 Proposals.................................. 27 III. MEDICARE TAX ON ESTATES, TRUSTS AND INDIVIDUALS ...............................29 IV. IMPORTANT IRS REGULATIONS, ANNOUNCEMENTS AND COURT DECISIONS ........................................................................................................29 A. 2013 Inflation Adjustments................................................................................... 29 B. Tax Returns ........................................................................................................... 30 1. Draft Form 8690 ....................................................................................... 30 2. Estate Tax Returns for 2012 Decedents .................................................... 30 3. 2012 Gift Tax Returns .............................................................................. 30 4. Estate Tax Returns for 2011 Decedents .................................................... 30 5. 2011 Gift Tax Returns .............................................................................. 31 6. 2011 Generation-Skipping Transfer Tax Forms ....................................... 31 7. Estate Tax Returns for 2010 Decedents .................................................... 31 8. 2010 Gift Tax Return ................................................................................ 31 9. 2010 Generation-Skipping Transfer Tax Forms ....................................... 31 C. Estate Tax and Gift Tax Audits and Collections .................................................. 31 D. Request for Discharge From Personal Liability – Form 5495 .............................. 34 E. Form 990 and Form 8940 ..................................................................................... 34 F. Qualified Personal Residence Trusts .................................................................... 35 G. Private Trust Companies and Family Offices ....................................................... 35 H. Restricted Management Accounts ........................................................................ 36 I. Estate Tax Deductions for Claims and Expenses - Section 2053 ......................... 36 J. Section 6166 Court Decisions and Announcements ............................................. 38 K. 2% Floor for Miscellaneous Itemized Deductions ................................................ 42 L. Alternate Valuation Date Election ........................................................................ 44 M. Generation-Skipping Transfer Taxes .................................................................... 45 1. Exercise or Lapse of Power of Appointment ............................................ 45 2. Qualified Severances ................................................................................ 46 3. Allocation of GST Tax Exemption ........................................................... 47 4. Transactions of Interest ............................................................................. 48 5. GST Taxes and Code Section 6166 .......................................................... 48 N. Intentionally Defective Grantor Trusts ................................................................. 48 O. GRATs and GRITs ............................................................................................... 50 P. Gifts, Gift Tax, and Estate Tax Includibility of Gift Tax ..................................... 53 Q. Same-Sex Marriages ............................................................................................. 55 R. IRAs and Qualified Retirement Plans ................................................................... 55 S. Special Valuation Rules – Chapter 14 .................................................................. 60 T. Ruling Procedures ................................................................................................. 61 U. No Ruling Areas ................................................................................................... 61 V. Priority Guidance Plan .......................................................................................... 65 {00039079.DOC / } 444 ii W. Basis Reporting Requirements .............................................................................. 65 X. Change of Address Notification............................................................................ 65 Y. Circular 230 .......................................................................................................... 66 Z. Internal Revenue Bulletins and Cumulative Bulletins .......................................... 66 V. DIGITAL ASSETS ............................................................................................................66 VI. FDIC INSURANCE INCREASES