ro-
the nto er,
Estate Planning Alert by Michael Gray
Estate Planning For Real Estate in Uncertain Times
T
he federal estate tax has been repealed for one year for 2010. Representatives in Congress say they still want to reinstate it retroactively to January 1, 2010, possibly giving the executor or trustee the choice of accepting repeal with carryover basis or to be subject to the restored tax for decedents who died before enactment. Finding the required documents to determine carryover basis would be a nightmare for executors and trustees and the professionals who assist them with their reporting requirements.
Michael Gray Certified Public Accountant
Michael Gray, Certified Public Accountant (CPA) is the author of the Real Estate Tax Handbook, 2008 Edition. He also writes a monthly newsletter devoted to real estate tax issues, Michael Gray,CPA’sRealEstateTaxLetter, and is the host of a weekly public access cable television series, Financial Insider Weekly. His CPA practice focuses on real estate tax planning, income tax reporting, estate tax planning and administration of estates and trusts.
408-918-3162 mgray@taxtrimmers.com
To add insult to injury, after 2010 the federal estate tax is restored to its pre-2001 glory, with a $1 million exemption equivalent (it was $3.5 million for 2009) and 55% maximum tax rate (45% for 2009). As you might imagine, this situation is a fiasco for the estate planning and administration industry. What should individuals who are real estate investors do now? Count on there being some form of estate tax after 2010. Here are some estate planning actions you can take now, then amend your plan after the new rules are hammered out by Congress. If you don’t have a trust yet, you should have one. Since statutory probate fees are based on the gross value of assets without reduction for liabilities, the fees can be high for real estate. A trust generally takes less time to administer than a probate estate. In addition, a trust gives your family privacy. Without a trust, a decedent’s assets are a matter of public record. If you have a solid marriage and aren’t concerned about preserving your share of assets to ultimately go to your children, you can have a flexible estate plan. The plan allows
the surviving spouse to elect to take the decedent spouse’s assets outright or to have the assets placed in an irrevocable “bypass” trust for which the survivor receives the income during his or her lifetime with the remainder going to the decedent spouse’s children. This is called a “disclaimer trust” arrangement. Alternatively, spell out your actual wishes under the guidance of your estate planning attorney without reference to the Internal Revenue Code. If you are making bequests to minor children or grandchildren, you should provide for trusts under which their assets are held and managed until they are old enough to manage the assets themselves. 2010 may be a great time to set up a family limited partnership or LLC. Future appreciation and income can be shifted to other family members, out of the donor’s estate. By making gifts of minority interests of entities during your lifetime, you can qualify for significant valuation reductions (discounts) that wouldn’t apply if you held all of the property at the time of your death. Whatever estate planning moves you intend to make during 2010, be sure to get the best professional help possible, including an estate planning attorney, tax advisor, valuation specialist and other professionals as needed.
Michael Gray, CPA is the author of the Real Estate Tax Handbook, 2008 Edition. You can subscribe to his FREE email newsletter, Michael Gray, CPA’s Real Estate Tax Letter, at www.realestateinvestingtax.com. His CPA firm is located in San Jose. To schedule a consultation, call 408-918-3162 on Monday, Wednesday or Friday.
SJREI Journal
www.SJREI.net
3