President Barack Obama’s recently released FY 2014 proposed budget contains a number of estate, gift, and generation-skipping transfer (GST) tax proposals. The most far-reaching would permanently return the estate, gift, and GST tax regimes to the 2009 rules, starting in 2018. This would mean a 45% top tax rate and a $3.5 million exemption for estate and GST tax and a $1 million exemption for gift taxes, and neither exemption would be indexed for inflation.
Among the other provisions is a new proposal that would clarify that the GST tax exclusion does not apply to certain distributions made from health and education exclusion trusts (HEETs) for purposes of medical care and education. The proposal would apply to trusts created after the introduction of the bill proposing this change and to transfers after that date that are made to preexisting trusts.
The budget proposal would also:
- Require consistency in value for transfer and income tax purposes (effective date of enactment);
- Coordinate certain income and transfer tax rules applicable to grantor trusts—potentially altering estate planning techniques and transfer tax benefits of sales to intentionally defective grantor trusts (IDGTs) (effective date of enactment);
- Require a minimum 10-year term for grantor retained annuity trusts (GRATs) and a maximum term of the life expectancy of the annuitant plus 10 years—impacting the ability to use GRATs for estate tax planning (applicable to trusts created after the date of enactment);
- Limit the duration of a GST exemption to 90 years (for additions to preexisting trusts and trusts created after the date of enactment); and
- Extend the lien on estate tax deferrals provided under Sec. 6166 (up to 15 years and three months from the date of death) (for decedents dying after the effective date and preexisting unexpired liens on the effective date).
Unlike many prior proposed budget proposals, the fiscal 2014 proposed budget no longer contains the proposal to modify the rules on valuation discounts.
—Eileen Reichenberg Sherr (email@example.com) is a senior technical manager–taxation at the AICPA.