Taylor English Attorney Melissa McMorries Featured in Atlanta Business Chronicle Story "Estate Planning Firms Get a Lift from Relief Act," January 18, 2011
On Dec. 17, 2010, President Barack Obama and the 111th Congress presented to Americans what many observers interpreted as an early Christmas gift in the form of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act. Informally dubbed “TRA 2010,” and broadly defined, the legislation includes extensions, revisions and additions to tax laws and employment programs along with incentives designed to stimulate the economy. A number of provisions in TRA 2010 have been welcomed by financial professionals involved with estate planning. Now equipped with previously unavailable or newly revised tools and guidelines, planners and advisers are eager to help wealthier clients devise strategies that allow for passing and protecting assets to descendants. “Frankly, this came as a big surprise because most of us were thinking everything was going to revert to 2009 levels,” said Melissa McMorries, an attorney in the Business Transactions, Corporate & Taxation group at Taylor English Duma LLP in Atlanta. Instead, estate planners find themselves looking out over what amounts to a brand new, albeit perhaps temporary, playing field. For 2011 and 2012, the federal estate tax exemption stands at $5 million for each spouse, while the tax rate for estates valued above that amount is set at 35 percent. Additionally, federal gift and generation-skipping transfer (GST) taxes have been “unified” with the estate tax, which means all three exemption limits ($5 million) and tax rates (35 percent) are the same. Furthermore, up through 2009, married couples were able to pass on twice the federal estate tax exemption by incorporating “AB Trusts” in their estate plan. With TRA 2010, the need for AB Trust planning has been effectively eliminated thanks to provisions in the law allowing for “portability,” which means any unused portion of the estate tax exemption tied to the first spouse can be added to the surviving spouse’s exemption. “Between the combined $10 million exemption on the estate and the portability option, plus gifting allowances, there are plenty of planning opportunities,” McMorries said. Although the estate planning regulations in TRA 2010 materially affect only a small percentage of Americans, for those who fall into the category the next two years represent a rare opportunity to change the future. “We might not have absolute certainty, but for two years, at least, we have some clarity,” said Eliot Brandy, a certified financial planner and senior vice president at SunTrust Investment Services. “This is a time for people who are affected [by TRA 2010’s estate planning provisions] to re-evaluate where they are, what their plan looks like today and what changes can be made to deliver the most benefits,” he said. One area of potential benefit mentioned by Brandy and others is in valuation discounts, which had been targeted for elimination by various proposed bills leading up to the passage of TRA 2010. Typically, valuation discounts are applied when a taxpayer transfers interest in a non-publicly traded partnership, whether by gift or upon death, to a descendant. The valuation discount allows for the handling of the shift to the younger beneficiary in a more tax-effective manner. “That’s one of those things [Congress] didn’t touch that was surprising,” Brandy said. “Depending on the size of the discount, we can leverage the exemption to a significantly higher number.” Today’s historically low interest rates and lackluster real estate market may not signify a robust economy, but those same factors are working to favor estate planners and their clients, especially the ones who are, as McMorries put it, “land-rich.” “Generally speaking, over time, land values increase, which makes gifting by utilizing a family limited partnership such an attractive option,” she said. Experts also say now is the time to consider the wide variety of trust plans available to the well-heeled. Known in the trade by acronyms, such as CLAT, CRAT, GRAT and GRUT (respectively, Charitable Lead Annuity Trust; Charitable Remainder Annuity Trust; Grantor Retained Annuity Trust; and Grantor Retained Unitrust Trust), most trusts share a common goal with the other tools in the estate planner’s briefcase. “It all adds up to an almost unprecedented opportunity for wealth transfer in the family,” said Lee Drake, a partner at Davis, Matthews & Quigley P.C. Drake said clients who previously had been hedging are now lining up to re-evaluate their plans and take advantage of what could be a short-lived trend in governmental legislation. “As long as these laws stay in place, they are going to allow clients to make estate planning decisions based on what the needs of the family are instead of what the tax implications are,” Drake said. Thanks to TRA 2010, for a select group of American families there’s no time like the present to plan a more comfortable future for generations to come.