Obama Budget… And Estate Planning Consequences

Obama's budget proposal was recently released, and here are some of the proposed changes that involve estate planning.

As you are likely to have heard, President Obama unveiled his budget proposal not too long ago and it packs a wallop. We are living an era of fierce partisanship, and election season hasn’t exactly put a damper on that. As a result, the media and the critics have been quick to pounce on a number of points, to include accusations that the President’s proposal is mere election-season partisanship.

That media din aside, it truly is an important proposal to understand, especially when you are planning your estate. Why? Because you can at least attempt to hedge your bets against political tides, if not also plan for what may become law.

Fortunately, there are a few straightforward analyses of the proposal from an estate planning perspective, like this one from the Wills, Trusts & Estates Professor (and the second part, here).

Here are a few topics to whet your appetite:

Wealth Transfer Taxes: The proposed budget would permanently roll back the Estate, Gift, and Generation-Skipping Transfer (GST) taxes to their 2009 levels. The exemptions and rates would remain unified and “portability” between spouses of unused exemptions would also become permanent. However, that means going back to an exemption amount of $3.5 million and a taxation rate of 45%, thereby saving us from the possible default of falling to 2001 levels (a $1 million exemption at a 55% rate), but still representing a serious hike from the current exemptions and rate (at $5 million and 35%, respectively).

Grantor Trusts: Grantor trusts, and grantor retained annuity trusts (GRATs) in particular, get some special attention. For GRATs, the proposal calls for longer “minimum” terms, with 10 years as the minimum. For those of you familiar with the device, you know this makes the prospect inherently more risky, since you have to “outlive” the term of the GRAT before transfer of the trust assets. There’s more to GRATs, but even with Grantor trusts in general the proposal is intended to beef up transfer taxes. Why? Because, as a class of trusts, they have been so useful for disseminating wealth.

Those are two of the bigger – and to a certain extent, less nuanced topics – but it ought be clear that there are myriad changes in the works (also see the changes regarding “valuation”) and you are well-advised to stay tuned and keep informed.

It is politics, of course, and not yet actual law. On the other hand, it can help you understand the evolving debate and your own estate plans. If these changes were to become law, the impact would expansive.

You can learn more about  estate tax planning in the Estate Tax Planning Practice Center on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.

Reference: Wills, Trusts & Estates Prof Blog (February 15, 2012) “Obama’s Budget Proposal Part 1” and “Obama’s Budget Proposal Part 2

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