California Estate Planning Blog by Kevin Staker

December 17, 2010

2010 Tax Relief Act Now Law

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 2:23 pm

It is over (except for the shouting and the gnashing of teeth).  The President signed the “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”. Reid and Pelosi not there; claimed too busy.  Truth: the President is a terrible negotiator and they know they blew it by not passing the tax provisions before the election.

However, it really is not over.  This is temporary for only two years. Hence, the debate can now begin on what to do for after 2012.

President Obama should, and may, frequently speak out for not extending the upper income tax cuts.  The Republicans will want to make permanent.

Personally, I believe they should not have been extended for anyone and certainly should not be extended beyond 2012.  We are borrowing money from our descendants to live beyond our means.  We should dramatically cut federal spending and allow the tax cuts to expire in 2013.  The Simpsons-Bowles Deficit Commission was a good start to the discussion.

Where are the leaders with the courage to stand for what is right? I believe this is true conservatism.  (sorry for the personal views)

By Kevin Staker

House Passes Tax Bill As Is; Estate Planning Uncertainty Continues

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 5:35 am
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Late Thursday the House passed the Senate tax bill as is and sent it off to the President for signature.  As expected the House did take a vote on an amendment to lower to the estate tax exemption, among other changes, to $3.5M.  That amendment failed to pass; the vote was 194 to 233.  A wise move because it would have been a waste of time.  The Republicans in the Senate would have blocked passage of an amended version, and the Democrats would have blinked first and capitulated in the long run.

Now what do we do?  For me as an estate planning attorney I will now need to advise my existing clients on what to do now.  First, I need to learn the real details and think through the implications.  With one major exception, I doubt I will change my advice to clients.  The reason is the change is only temporary.  Hence, I will likely continue to advise a married couple with over only $1.5M in assets to still do an “A-B” trust.  The reason is if Congress does nothing, although unlikely, on January 1, 2013 (Just before President Huckabee is inaugurated, but that is to discuss another time) we will go back to a $1M estate tax exemption.  I use $1.5M to recognize the odds of an increase.  I have a disclaimer trust provision in my simple trusts for a couple to handle folks between $1M and $1.5M.

The one exception is I am going to advise my wealthy clients to give away the $5M now to their children.   Although that may end up as only a delay in paying tax, as a an estate tax because of the gross up of gifts if we go back to a $1M estate tax exemption,  we will still get the appreciation on such assets out of their estate.  Note: I need to research but for now believe giving that $5M to grandchildren or a generation skipping trust would be risky because quite frankly I do not know if there is a gross up re generation skipping transfers at death.

Following is the summary of the transfer tax provisions from the Senate Finance Committee staff:

Temporary estate, gift and generation skipping transfer tax relief. The EGTRRA phased-out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, and lowered the gift tax rate to 35 percent and increased the gift tax exemption to $1 million for 2010. The proposal sets the exemption at $5 million per person and $10 million per couple and a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount is indexed beginning in 2012. The proposal is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.

Portability of unused exemption. Under current law, couples have to do complicated estate planning to claim their entire exemption (currently $7 million for a couple). The proposal allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning. The proposal is effective for estates of decedents dying after December 31, 2010.
Reunification. Prior to the EGTRRA, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The EGTRRA decoupled these systems. The proposal reunifies the estate and gift taxes. The proposal is effective for gifts made after December 31, 2010.

This is quite a Republican victory.  These exact provisions were voted down when proposed by Senator Kyl earlier in the year. quotes a senior House Republican aide:

“I’m trying to remember something that we passed under Bush that was this good”.  Read more:


OK for the curious, the one or two of you out of over probably 700 who will see this post who is interested:  Obama is toast.  Quite simply the economy will not have recovered enough by Nov. 2012 for him to be re-elected.  The Republican fight will be among Palin, Romney and Huckabee; the others such as Pawlenty do not have the name recognition.  My choice would be Eric Cantor, young, very bright, charismatic, very articulate, pretty good political beliefs (although be honest Eric, we cannot afford all these tax cuts) but he is also unknown.

Because of the many winner take all primaries, Palin will come scaryingly close to getting the nomination.  However, she is unelectable (40 percent of the electorate loves her, but 50 percent dislikes her, immensely); given a choice the voters would choose Obama over her (“I can see Russia from my house.”)  Romney is a good man but will suffer from the anti-Mormon bias of many, especially evangelicals; also many voters will be unnerved by his changes on the issues and by the similarities between Obamacare and Romneycare.  Huckabee is a good and great man.  Heard him speak on Prop 8 in October 2008; a marvelous speaker and you can see the goodness in his eyes.  He and Palin will split the evangelical vote.  We will finally have a national convention go beyond the first ballot.  The Palin delegates will then finally turn to Huckabee over Romney.  Huckabee will beat Pres. Obama.  You heard it first here.

We shall see.

By Kevin Staker

December 16, 2010

Tax Bill Likely to Pass House Unchanged This Evening or Tomorrow (In Other Words, the Republicans Will Win the Game of Chicken)

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 4:59 pm

A lot of procedural machinations in the House.  However, here is the likely order of things:

– House debating the tax bill as I write this.

– Next, a vote on an amendment to lower estate tax exemption from $5M to $3.5M.  Interesting to see whether or not will pass.  Not likely, although Democrats are pretty incensed by all this.   House Dem leaders claim have not counted votes and do not know what will happen.

–  If amendment passes, House then votes to approve the bill.  Sent to Senate and the game of chicken resumes with the Republicans.  Would be very interesting.  Democrats just are not handling the PR on this well at all.  Nearly all American voters would likely say, yes give me my income tax cut and lower the exemption.  However, the Republicans are handling all of this brilliantly.  All or nothing.  They know if Dems force delay to next year; Dems will get a worse deal.  House will then capitulate.

–  If estate tax amendment loses, or even if it passes  and then the Democrats cave in later as they almost surely would, the House passes the Senate version and sends to the President.

What a great legislative victory for the Republicans.  Personally, I have tried to keep my personal beliefs out of my postings but I must say I believe it wrong to borrow over $800 billion from our descendants to pay for us to live beyond our means.

By Kevin Staker

“Gnashing of Teeth”

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 9:43 am
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Many sources indicate the House will end up passing the Senate version of the Tax bill.  Businessweek has a good analysis of the likely steps to passage in the House.  The Democrats will try to amend the estate tax provision.  However, the final outcome will almost surely be passage as is.

Following is a segment of the article:

The House will vote on a proposal to amend the compromise plan with a higher estate tax sought by Democrats — and which Senate Republicans say they will refuse to accept. If that amendment fails, the House will vote on final approval of the bill passed by the Senate yesterday, 81-19.

Income taxes will increase across-the-board on Jan. 1 if Congress fails to pass a bill for Obama to sign.

“We’re perfectly aware” that passage of the estate-tax amendment would send the measure back to the Senate, said House Rules Committee Chairwoman Louise Slaughter, a New York Democrat. Asked whether the higher estate tax would pass, Democratic Representative Chris Van Hollen of Maryland, an assistant to House Speaker Nancy Pelosi, said, “I know that there’s strong support for it.”

Others said they doubted there would be enough support for the estate tax proposal, and the House will likely clear the Senate-passed measure and send it to Obama for his signature. “This has been a done deal for a while,” said House Agriculture Committee Chairman Collin Peterson, a Minnesota Democrat. He called the speculation over the estate-tax proposal “just a lot of gnashing of teeth,” as he left a meeting of House Democrats this morning.

Another great article at The Hill is not so adamant that the Democratic attempt to get the estate tax exemption down to $3.5M will fail.  However, it also indicates that is the likely conclusion.

So to keep up the story line: It is all over but for the gnashing of teeth.

By Kevin Staker

December 14, 2010

It Is All Over But the Shouting

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 1:52 pm

There are additional signs The Tax Act will pass as is.  House Majority Leader Hoyer states the House will have a vote on an amendment changing the estate tax provisions to the 2009 level ($3.5M exemption, etc.).   However, would likely be a symbolic vote of protest.  Might not even pass if enough Blue Dog Democrats join all the Republicans (bet you a lunch even my hero spending hawk Rep. Flake will even vote in favor)  Even if the amendment passes, the 83-13 vote on cloture in the Senate and the public opinion polls showing the American public overwhelmingly favors it indicate the Senate Republicans will then say no.  The House will capitulate and they will all go home for Christmas.

Wonder where the Salon article got the title for their article yesterday: Tax cut deal: All over but the shouting? See my article of yesterday.

By Kevin Staker

December 13, 2010

Most Likely Estate Tax Proposal Will Pass As Is

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 9:30 am
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It is probably over except for the shouting.

House Majority Leader Hoyer is stating he believes the House will pass the Tax Bill as written and as will be passed by the Senate with possibly some amendments to the estate tax provisions.  That would likely mean amending the bill to go back to the 2009 law:  $3.5M exemption, 45 percent top rate, and only $1M gift tax exemption.    The bill would then go to a House Senate conference committee where the Republicans would say the estate tax amendment is unacceptable.  The Democrats will blink and capitulate.  This is a better bill than they will get in the next Congress.  And that will be it.

The Hill has a good analysis of the three possible scenarios.

It is a shame the change is only for two years.  It is possible, if not likely, the new rules will someday become permanent.  However, the temporary nature of these changes will make estate planning continue to be very difficult for anyone with over $1M in assets.  The reason is if there is no agreement two years from now, we will go back to a $1M exemption with a 55 percent, really 60 percent, top rate.   What would happen then is if someone uses the new $5M gift tax exemption, they pay no gift tax now.  However, if the estate tax exemption is only $1M when the die, the extra $4M in gifts will be “grossed up” and included in their taxable estate, and so be subject to estate tax.  In addition, I do not even want to think about what would happen if they had given away the $5M to grandchildren and we would after death have to deal with the generation skipping transfer tax.

The Republicans may think they are helping small business in relation to the estate tax.  However, the uncertainty will only make things worse.

By Kevin Staker

December 10, 2010

Actual Tax Bill Has Blockbuster Additions! Retroactive to 2010! Gift Tax Exemption to $5,000,000!

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 5:49 am
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Majority Leader Reid (but all of this obviously drafted by Republican Senator Kyl’s staff) have added in the actual bill some extra goodies to the proposed tax law changes.  We had been hearing rumors of some of this but the total are are almost as amazing as the exemption and rate amounts.

–     The $5M exemption and 35 percent rate will be retroactive to January 1, 2010, unless the estate elects no estate tax but then has only limited step up in basis.  This means most estates will automatically get a full step up in income tax basis unless they elect otherwise.

–     Estate of surviving spouse can use the unused portion of the estate tax exemption of the first spouse to die (“portability of estate tax exemption”).  Effective 2011 and 2012.

–     Gift tax and generation skipping transfer tax exemptions will also  be $5,000,000!  Holy moly this continues to amaze.  The rich will have a two year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations.

The first two add ons are pretty popular and so would likely pass.  However, this last item is such a blockbuster it may be the straw that breaks the camel’s back with the Democrats.  You thought you had seen open rebellion among the Democrats in the House yesterday.  Just see how they react today.  They will be climbing out of their skins.  This provision is such a “bridge too far” as Speaker Pelosi has put it that you may lose more Democratic senators and even a Republican or two.  This will give the wealthy some amazing tools for sheltering assets from the estate tax.

If all this passes, this act will be a bonanza of work for estate planning attorneys such as me.

Again, this shows how bad I can be at predicting.  Until yesterday, I had been dismissing any talk of a retroactive fix of the estate tax and step up in basis.

The Act is called the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”.

Kudos to Hani Sarji for posting the first good analysis of the actual bill, with the first links I could find on the full text of the bill and the summary by the staff of the Senate Finance Committee.  These are found at his Forbes blog.

December 9, 2010

Oops! Passage Still Looks Likely But Not Certain. House Democrats Now Playing Chicken With the Republicans and the White House

Filed under: estate tax,Kevin Staker — Kevin Staker @ 11:31 am

Sorry, short on time.  Looks like House Dems have votes to prevent passage of tax act in the Congress.  See very interesting tally of votes at The Hill.

Game of chicken now on between them versus the Republicans in Congress and their own President in the White House.  Sticking point most of all the high estate tax exemption and low rate.   They may all settle at $3.5M and 45 percent if the Dems stick to their guns.  Not likely they will not however.

Will the Tax Provisions Make Retroactive Changes to 2010 re Estates? Also, Looks Like Passage Unchanged Is Fairly Certain

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 8:45 am
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Found another cryptic reference to retroactive changes re 2010 regarding decedent’s estates at

A congressional staff member helping draft the legislation said the agreement would give people who died in 2010 a choice of tax treatment for the year: the 35 percent estate tax or a replacement capital-gains tax.

Not positive on why they are saying.  I guess might be to give estates the option of no estate tax but limited step up in income tax basis or $5M exemption with 35 percent rate but unlimited step up in income tax basis.

Also, looking pretty certain the votes will be there to pass in both Senate and House despite all the arm waving.  (See the same Bloomberg article.)

By Kevin Staker

It’s 3 In the Morning and I am Worrying About This Stuff

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 3:48 am

Woke up wondering if Congress really is considering making the 2010 rules optional and giving estates option of going with 2009 rules.  This would help medium size estates to have a full step up in basis.  Could not find any other articles mentioning such word.

However, did find a good article at Salon that explains better than I did yesterday why an attempt by Congressional Democrats to change the exemption to $3,500,000 will fail.

We shall see.

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