Financial & Estate Planning: What Should Advisors and Their Clients Do Now?

1. Financial & Estate Planning: What Should Advisors and Their Clients Do Now? Moderator: Sidney Kess Panelists: Blanche Christerson Daniel Daniels Jeremiah Doyle Brent Lipschultz Jeffrey Lowin Jacqueline Patterson Martin Shenkman Steven Siegel

2. Introductions • Sidney Kess, Esq. - Moderator • Panelists: • Blanche Christerson, Deutsche Bank Private Wealth Management • Daniel Daniels, Wiggin and Dana LLP • Jeremiah Doyle, Bank of NY Mellon • Brent Lipschultz, Eisner Amper LLP • Jeffrey Lowin, Morrison Cohen LLP • Jacqueline Patterson, Haney, Buchanan & Patterson, LLP • Martin Shenkman, Martin M. Shenkman, PC • Steven Siegel, The Siegel Group

3. Estate and Gift Taxes - Past & Present • Estate and gift taxes, which had been unified since 1976, were decoupled in 2002. Now the estate and gift taxes have been reunified for 2011 and 2012. • A special estate tax election applies for decedents dying in 2010.

4. Estate Tax Rate • For 2010, 2011, and 2012, the top federal estate tax rate is fixed at 35% • This applies to income taxes for individuals and corporations.

5. Estate Tax Exemption • An estate is allowed to claim a unified credit to offset estate tax – the exemption amount. • The exemption for 2010, 2011, and 2012 is $5 million. • After 2012, the exemption amount is set to revert to $1 million.

6. Portability • New provision in the 2010 Tax Relief Act • If the first spouse to die does not use up his/her exemption amount (“deceased spousal unused exclusion amount”), it carries over to the surviving spouse and can be used in addition to the surviving spouse’s exemption amount. • Planning pointer: To use the deceased spousal unused exclusion amount, the estate of the deceased spouse must make an election on a timely filed estate tax return. • Purpose: to make it easier for married couples who did not get adequate representation for bypass trusts under their wills and to retitle assets to avail themselves of each spouse’s full exemption amount.

7. Special Rule for Decedents Dying in 2010 • Estates of decedents dying in 2010 have the options to: • Use the estate tax rules that were to have applied under EGTRRA in 2010 (no estate tax but a modified carryover basis rule) • Use the estate tax rules now in effect for 2010 as a result of the 2010 Act (an exemption amount of $5 million, with a top tax rate of 35% and a stepped-up basis rule • Election • Decedents dying before 12/17/2010, due date is 9/19/2011. • New Form 8939

8. Estate Tax Planning Strategies • Bypass trusts • Grantor retained annuity trusts (GRATs) • Life insurance policies

9. 2010 State Estate Taxes*

10. Gift Tax Rules • No change in annual exclusion ($13,000; $26,000 MFJ) • Exclusion for direct payments of tuition or medical expenses still applies • Gifts to a US citizen spouse or charity continue to be gift-tax free • Basis of gifts continues to be based on donor’s basis

11. Gift Tax Rules • 2010: • $1 million lifetime gift tax exemption • Taxable gifts subject to flat tax rate of 35% • 2011 and 2012: • $5 million exemption amount, which can be used for lifetime transfers or transfers at death • Taxable gifts subject to a top tax rate of 35%.

12. Changes in Basis Rules • 2010 Tax Relief Act repeals modified carryover basis rules and reinstates the stepped-up basis rule. • Stepped-up basis: • property acquired from decedent generally has basis equal to its value on the date of death • Modified carryover basis rule: • Heirs are treated as having acquired the property by gift • Use decedent’s basis, except: • Executor may allocate $1.3 million of basis step-up regardless of who inherits the property • Executor may allocate $3 million of basis step-up for assets passing to surviving spouse

13. Modified Carryover Basis Rules • Applies to the following types of property • Property acquired by bequest, devise, or inheritance • Property acquired from the decedent’s estate • Property transferred by the decedent during his/her lifetime in trust • Property passing from the decedent by reason of his/her death without consideration (joint tenant under rights of survivorship) • Surviving spouse’s 50% share of certain community property

14. Property Not Eligible for Allocation of Stepped-Up Basis • Property acquired by the decedent by gift (other than from spouse) during the 3-year period ending on date of death • Income in respect of a decedent • Certain stocks or securities

15. Reporting Requirements – Form 8939 • Recipient’s name and taxpayer ID • Accurate description of property • Decedent’s adjusted basis of property and FMV on date of death • Decedent’s holding period • Gain on sale of property that is treated as ordinary income • Basis increase allocated to property

16. Generation-Skipping Transfer Tax (GST) • Purpose: to prevent families from transferring property that skips a generation as a way to escape one level of estate tax • 2010-2012: $5 million exemption • 2010: GST tax = 0 • 2011 & 2012: GST tax = 35% • No portability

17. Timeline for Provisions

18. Q&A

19. PFP Section Upcoming Events • PFS Program (www.aicpa.org/PFP/PFS) • PFS exam review course now available on CPA2Biz • PFS exam registration opens again in June/July 2011! • PFS in-depth education available in 6 separate courses around all main areas of personal financial planning • 2011 AICPA Advanced PFP Conference (www.cpa2biz.com/PFP) • January 16-18th at Aria Resort and Casino • Comprehensive coverage of all financial planning subject matter • AICPA Tax Strategies for High-Income Individuals(www.cpa2biz.com) • May 5th through 6th at Bellagio • Upcoming Web Seminars (www.aicpa.org/PFP) • Generation Skipping Tax In-Depth, February 9th, 1:00-2:30 p.m. ET • PFP homepage www.aicpa.org/PFP