| Estate Tax Planning
in a Dynamic Environment
by
C. Arthur Robinson II
Payne, Gates, Farthing & Radd
Last
summer the topic of the repeal of the estate tax law
was a hot political topic in Washington. The tax was
"repealed" in a phased in combination of reduced
rates and expanding credits previous to outright "repeal".
It had become clear that the law reached estates which
it should not. The estate tax has been repealed and
reenacted on four or more prior occasions since the
1790s. However, current economics strongly favor the
retention of the tax because the revenue generated by
the tax is so significant.
The
silver lining of the estate tax is the step up in basis
for all assets to fair market value as of the date of
death for a decedent's estate. This step up in basis
which regularly washes the income tax slate clean, results
in significant income tax savings. It also puts the
heirs in a position where they do not have to produce
information from long before in order to compute their
income tax liability going forward. The new law eliminates
most of the basis step up on "repeal."
Because
of the Sunset provision built into the tax act ("EGGTRA"),
it is likely that we will see an estate tax in some
form continuing into the future. It is also likely,
based on the suggestions of professional groups like
the American Bar Association Trust and Estate section,
that the exemption equivalent amount will be substantially
increased.
It
is important to recognize that there is a vast difference
between the tax which the statute requires one to pay
absent planning and the tax which can be engineered
with appropriate estate tax planning. The key is to
be proactive with respect to this tax. The actions taxpayers
should take are: 1) use of annual exemption amounts
for gifting to beneficiaries; 2) planning for the unified
credits available to decedents; 3) creation of wealth
outside the transfer tax system; and 4) the use of methods
which discount the value of taxable assets or delay
the payment of the tax.
It
is important to realize that every taxpayer has in his/her
power to significantly affect the amount of estate tax
which their estate would pay and such plans should be
as flexible as possible. For that reason, we recommend
that you should consider in the near term appropriate
estate planning. You should consider this a dynamic
process which takes place in a newly turbulent environment
and that an appropriate review of your estate plan in
light of changes in circumstances or the law be done
bi-annually.
C.
Arthur Robinson II is
a member of the Norfolk law firm of Payne, Gates, Farthing
& Radd, P.C. and has practiced since 1985 concentrating
in matters involving taxation, including estate planning,
estate and trust administration and many areas of business
and corporate law. He received a BA from Vanderbilt
University, and an M.B.A. and law degree from the College
of William and Mary. He is a CPA as well as an Attorney.
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to Virginia Business - April 2002
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