Shifting focus: estate planning transformed.

• Author: Foss, Mary Kay
• Position: Eatate Planning

One example would be intellectual property. The creator ol intellectual properly may have ordinary income associated with the sale of that properly or an extremely low tax basis. The beneficiary can sell inherited property and recognize capital gain on a higher tax basis.

Another example is rental real estate. The original owner would have greater gain and depreciation recapture upon the sale of rental property held for a number of years. This is especially burdensome if there is deferred gain associated with the properly from previous See. 1031 exchanges. The beneficiary inherits the property without any previous depreciation or deferred gain to reduce the tax basis. Depreciation begins again at the dale of death value.

Portability

Portability, which became permanent as pari of the 2012 law. is also an integral pari of the new approach to estate planning. With portability, it's more likely that the estate lax exemptions of both spouses will lie fully utilized. Willi today 's values, thai means $10,080,000 will avoid estate tax.

For example, if Dan dies when (lie combined value of the assets of lie and his wife. Daisy, are SH million, there are important decisions to be made.

They will first obcain values as of the date of death for each asset. Because Dan's half is less than $3,340,000. a Form 706 is not required. Most estate planners would advise them to the Form 706 to elect portability.

If Dan and Daisy's estate plan calls for assets to be split into a survivor's revocable) trust and a decedent's irrevocable trust, the portability amount called the Deceased Spouse Unused Exemption amount would be $1,340,000. Daisy could add that to her DSUE amount and have more than $6 million not subject to estate lax. But when Daisy passes away, only tile survivor's trust will be revalued to gel die basis step-up.

Estate Planning Transformed

If the trust that Dan and Daisy created during their lifetime provided thai the irrevocable trust would be created only if Daisy disclaimed the assets, the assets would

The 2012 American Taxpayer Relief Act made permanent changes to the estate lax. and changed rates for both income and estate taxes. As a result, the locus of estate planning has changed: Instead of the avoidance of estate lax. die desired result is the avoidance of income taxes.

Rates

The first consideration is lax rates. I he highest federal income lax rate is 39.6 percent, while the estate lax rate is 40 percent. California has the highest income...