Heckerling Musings 2012
The 46th Annual Philip E. Heckerling Institute on Estate Planning was again held in Orlando during the week of January 9, 2012. I have summarized some of my observations for the week, as well as other observations from various current developments and interesting estate planning issues. My goal is not to provide a general summary of the presentations; the summaries provided on the American Bar Association Real Property, Trust & Estate Law Section website (http://www.americanbar.org/groups/real_property_trust_estate/events_cle/heckerling_reports/heckerling_2012.html) that is prepared by a number of reporters, coordinated by Joe Hodges, do an excellent job of that. In addition, there are excellent summaries provided by Martin Shenkman on the Leimberg Information Services reports. This is merely a summary of observations of selected items during the week as well as a discussion of other items. I sometimes identify speakers, but often not. However, I take no credit for any of the outstanding ideas discussed at the Institute — I am merely relaying the ideas of others that were discussed during the week.A major focus of the presentations at the Heckerling Institute in 2012 is how to maximize flexibility in planning trusts, in light of the uncertainty that we now face. This major focus included presentations regarding structuring trusts to provide maximum control and flexibility to beneficiaries, a special 2 ½ hour in-depth discussion (by Jonathan Blattmachr) of utilizing powers of appointment to add flexibility,decanting, trust protectors, and ways of modifying trusts after their creation. Items 7-12 all address various topics related to various strategies that may be used to provide flexibility or make changes in light of changed circumstances.
1. Legislative Uncertainty and Predictions
a. Possibilities; Estate Tax Returns Anticipated For 2011 Decedents with $5 Million Exemption; Possible Legislative Actions. The Tax Policy Center has published a summary of estimates of estate tax returns that will be filed for 2011 decedents. It anticipates8,600 returns being filed, but only 3,270 taxable returns that will result in estate taxes of $10.6 billion. There are interesting estimates about the very small number of returns that will involve farms or businesses that comprise at least 50% of the gross estate.
All returns where farms and businesses comprise at least 50% of the gross estate: 430 returns, but only 120 taxable returns,reflecting $660 million of estate tax.
Returns where farms and businesses comprise at least 50% of the gross estate and the farm or business is less than $5 million:210 returns, but only 40 taxable returns, reflecting a grand total of $7 million of Possible Congressional actions include:
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- Doing nothing, and on January 1, 2013 there will be a $1million exemption and 55%-60% tax rate. (Many planners think this is likely to occur, in which event there would likely be legislation sometime in 2013.)
- Repeal the estate tax. This cannot be ruled out, though Dennis Belcher thinks it will not happen. (A problem with repeal is that the all estates would receive a step up in basis of death, with no offsetting revenues.)
- Adopt the 2010 approach, with the alternative to elect intocarryover basis.
- The Obama Administration’s proposal is to use a $3.5 million exemption and 45% rate.
- Some other lower exemption. The “ Sensible Estate Tax Act of2011 ” (discussed immediately below) proposes a $1 million exemption, indexed from 2000). (Jonathan Blattmachr predicts“ I think there is a very good chance the $5 million gift exemption will go away. ”)
- Retain $5 million/35% system. (Jeff Pennell thinks theexemption will not be reduced lower than $5 million; he put sit- “the toothpaste is out of the tube ”.)
- Canadian type capital gains and death system, though that is very unlikely.