Significant recent developments in estate planning.

• Author: Whitlock, Brian T.
• Position: Part 1

This article--the first of two parts--examines recent developments in estate, gift and generation-skipping transfer tax planning. Specifically, this part discusses legislation and regulations, including, among other items, estate tax repeal proposals; the Hubert final regulations; Sec. 6501 (c)(9) adequate disclosure final regulations; andproposed regulations on charitable remainder annuity trusts, grantor retained annuity trusts and grantor retained unitrusts.

EXECUTIVE SUMMARY

* Adequate disclosure final regulations detail the information to be disclosed to trigger the running of the SOL.

* Hubert final regulations clarify the distinction between estate "transmission" expenses and estate expenses.

* Treasury cracked down on perceived abuses in the areas of CRTs, GRATs and GRUTs.

This two-part article focuses on recent developments in estate, gift and generation-skipping transfer (GST) taxes. This-part analyzes current legislative and regulatory developments in areas such as estate tax repeal; increase in the Social Security earnings limit; exclusions indexed for inflation; separate-share regulations; updated mortality tables; and lowered group-term life insurance rates. The second part, in the September issue, will focus on cases and rulings on estate and gift tax.

Legislative Developments

Estate Tax Repeal

Senator Jon Kyl (R-AZ) is leading the legislative charge to repeal the estate and gift taxes. The senator (and many of his colleagues) contend that death should not be a taxable event.

During fall 1999, the House and Senate passed legislation to repeal the Federal estate and gift taxes.(1) President Clinton vetoed the bill on Sept. 23, 1999; no attempt was made to override the veto. That legislation contained a grand "wish list"--individual income and capital gains tax cuts, estate and gift tax repeal, etc. The legislative measures were extremely broad; thus, the veto did not attract any significant negative press or public outcry.

However, the estate tax repeal issue is far from dead. Numerous legislative proposals were introduced during the recent political primary season.(2) The proposals varied significantly and have potentially broad effect outside of gift and estate tax collections. Even though the income, gift and estate tax rules are found in different chapters of the Code, they tend to be interdependent (e.g., basis adjustments). In fall 1999, the AICPA Tax Section, recognizing the need for additional study and the opportunity for legislative assistance, created an Estate Tax Repeal/Carryover Basis Task Force, which is working closely with legislative representatives to gather data, analyze each of the legislative proposals and facilitate change. A change in Presidential administration may add further impetus, but the issue is far more complex than it first appears.

Although no direct legislative changes were made to the estate and gift taxes during the past 12 months, some indirect measures were enacted, as discussed below. Social Security Earnings Limit

On April 7, 2000, legislation(3) repealed the earnings limit for working taxpayers aged 65 to 69, effective for tax years ending after 1999. Under prior law, affected taxpayers were forced to forfeit $1 of Social Security benefits for every $3 of wages in excess of the earned income limit ($17,000 in 2000).

The repeal of the earnings limit will encourage more workers to remain in the workforce. While this might have a positive effect on a U.S. economy that has a shortage of qualified labor, it will also create estate planning ramifications for entrepreneurs.

First-generation entrepreneurs are often reluctant to turn over the...