Estate tax proposals may still leave planning options available

The following excerpts are from Martin Vaughn, Estate-Tax Strategies Could Survive Curbs, Wall St. J., May 13, 2009:

The White House is proposing to curtail two popular tax-planning techniques, but wealth advisers say the strategies will remain attractive even if the new curbs are enacted. * * *

The administration has proposed to set a minimum term of 10 years for GRATs, which might make wealthy estate owners considering such a trust weigh the risk that they won’t survive the 10-year term.

But that change would be far more palatable to the wealthy than limits on the amount of return that can be passed on to beneficiaries tax-free, according to Justin Ransome, a partner in accounting firm Grant Thornton’s national tax office.

“This doesn’t take the GRAT off the planning table for our higher net-worth individuals,” Mr. Ransome says. “Even if they don’t outlive the 10-year term, it’s no skin off their nose,” he said.

The restriction, however, might encourage estate owners older than 75 — who would face a greater risk of dying during the 10-year trust period — to consider other planning techniques, Mr. Ransome says.

A second Obama proposal aims to limit the ability of wealthy families to use partnership structures to minimize the valuation of assets for estate-tax purposes. * * *

But Greg Rosica, a tax partner at Ernst & Young, says the Obama proposal might be an overreach.

“If I’ve got a $5,000 asset that is subject to certain restrictions, and I don’t have a lot of say in decisions about that asset, you’re not going to pay me $5,000 for it, because I can’t convert it to cash,” he says. “Depending upon the circumstances, this could disregard some real restrictions that have an impact on the value of the asset.”

Special thanks to Patrick S. Sylvester (Attorney & Counselor at Law, Sylvester Law Firm, PC) for bringing this article to my attention.