Obama’s Final Budget Proposal Continues to Address Estate Planning Issues

The Administration included in its 2017 budget proposals two new proposals regarding the reporting of cost basis for persons receiving inherited property, and to require donees to report their basis consistently with that of the donor with respect to lifetime gifts reported on gift tax returns.

It also repeats several former estate planning-related proposals, including: (a) simplifying the income tax limitations on charitable deductions for gifts to private foundations; (b) requiring that GRATs have a minimum length of 10 years and a minimum remainder of 25 percent of the value of the transferred assets (or $500,000, if greater); (c) 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; (d) 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 percent; $3.5 million estate tax applicable exclusion amount and GST exemption, and $1 million gift tax exemption), beginning in 2016; (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 done; (j) 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; (k) 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 to make additional contributions or receive additional accruals.

As we have in past years, we acknowledge that these proposals have mostly symbolic significance in this election year.  But this serves as a reminder that very significant reforms are still contemplated in Democratic circles which would severely increase the burden of transfer taxation on well to do families.


Posted in Status of Tax Legislation, The Tax Environment, WillPlan Blog.