Obama’s 2015 Budget Includes Serious Planning Loophole Closures

The Administration’s 2015 Budget, Dept. of Treas. “General Explanations of the Administration’s Fiscal Year 2015 Revenue Proposals,” (March, 2014), includes some drastic, previously submitted proposals of significance to estate planners, including:

(a) Requiring a person who buys an interest in an existing life insurance contract with a death benefit of $500,000 or more to report the purchase and report any payment of the policy benefits;
(b) Modifying the transfer-for-value rule by eliminating the exception for transfers to a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer, and adding an exception for a transfer to a partnership or corporation in which the insured is a 20% owner;
(c) Restoring the estate, gift, and GST rates and exemptions to their 2009 levels (top estate and gift tax rate and sole GST tax rate of 45%; $3.5 million estate tax applicable exclusion amount and GST exemption, and $1 million gift tax exemption), beginning in 2018;
(d) Requiring that all GRATs have a minimum term of 10 years, and that the remainder have some value;
(e) Limiting to 90 years the protection from the GST tax afforded by allocation of GST exemption;
(f) Treating as an incomplete transfer for gift and estate tax purposes a sale or exchange of property to a grantor trust deemed owned by the seller;
(g) Clarifying that the GST exclusion under Code Sec. 2611(b)(1) for payments of medical and tuition costs applies only to direct payments by a donor to the provider of medical care or to the school in payment of tuition, and not to trust distributions;
(h) Extending the lien on estate tax deferrals with respect to taxes attributable to interests in a closely-held business interest to continue throughout the deferral period;
(i) Limiting to $50,000 per year the annual exclusion for gifts to most trusts, gifts of interests in pass-through entities, gifts of interests subjection to a sales prohibition, and other transfers of property that cannot be liquidated immediately by the donor;
(j) Empowering an authorized party to act on behalf of a decedent in all matters relating to the decedent’s tax liability, so that the estate tax definition of “executor” applies to all tax matters;
(k) Eliminating stretch IRAs by requiring non-spouse beneficiaries of a decedent’s IRA or retirement plan to take inherited distributions over no more than five years;
(l) Prohibiting a taxpayer who has accumulated amounts within an IRA or qualified plan or other tax-favored retirement plan in excess of the amount necessary to provide the maximum annuity permitted for a tax-qualified defined benefit plan (currently $210,000 per year payable as lifetime joint and 100% survivor benefit commencing at age 62) to make additional contributions or receive additional accruals;
(m) Requiring that basis of property received by gift or from a decedent be determined consistently with the applicable gift or estate tax return;
(n) Extending the lien on estate tax deferrals with respect to business interests;

Fortunately, the adoption of these proposals is unlikely, particularly in an election year exacerbated by Congressional infighting and Tea Party conservatives.

Posted in Status of Tax Legislation, WillPlan Blog.

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