January 2013      

Team Tisser Foundation (TTF) is a non-profit corporation founded by Doron M. Tisser and his wife Laurie. TTF raises money for various charitable purposes and does not focus on any one charity or charitable purpose. The goal is to raise as much money as possible to "Help Make A Difference" by "Improving Life for Others." TTF has made donations to Memorial Sloan-Kettering Cancer Center, Leukemia & Lymphoma Society, Challenged Athletes Foundation, as well as charities helping people affected by natural disasters such as Hurricane Katrina and the Tsunamis. Since 2000, TTF has donated over $250,000 to over 40 different charities. Friends and clients generally donate money to TTF to support Doron's participation in triathlons and marathons. If you would like more information about TTF, please contact Doron at doron@tisserlaw.com, or visit www.teamtisser.org

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About
Doron M. Tisser

Doron M. Tisser has specialized in estate and gift planning, tax planning, trust and probate administration, charitable giving, buy-sell agreements and related areas for over 30 years. Mr. Tisser is one of less than 100 attorneys in California who has been designated as both a Certified Specialist in Probate, Estate Planning and Trust Law, and as a Certified Specialist in Taxation Law by the State Bar of California Board of Legal Specialization. He was chosen by his peers as a Super Lawyer for 2009, 2010, 2011, and 2012 for Southern California, and enjoys an "a.v." rating by Martindale-Hubbell Law Directory, which is the highest possible rating and is based on ethical considerations and legal skills. Mr. Tisser has published over 65 articles and chapters in books on various estate and tax planning subjects and is a frequent speaker and lecturer at estate and tax planning seminars. Mr. Tisser competes in triathlons, including Ironman races, and raises money for charities through Team Tisser Foundation, a non-profit corporation he co-founded with his wife Laurie.

THE FISCAL CLIFF DEAL AND ESTATE PLANNING

The impact of the Fiscal Cliff deal (the “Deal”) on income taxes, especially for those persons in the highest tax bracket, has been well-documented. What has scarcely been noticed, however, is the continuation of the government’s favorable treatment toward estate and gift taxes on large estates.

This article will review the portions of the Deal affecting estate taxes, gift taxes and generation-skipping taxes, and discuss how these rules create continued opportunities for individuals looking to freeze or lower their taxable estates.

New Estate Tax Laws
 

 

2012 Law

Old 2013 Law

New 2013 Law

Estate Tax Exemption

$5,120,000

$1,000,000

$5,250,000

Gift Tax Exemption

$5,120,000

$1,000,000

$5,250,000

Generation Skipping Tax Exemption

$5,120,000

$1,000,000

$5,250,000

Estate Tax Rate

35%

35% - 55%

40%

Portability

Yes

No

Yes

As you can see from above, the estate and gift tax exemptions remain at $5 million per person. To be exact, the number is $5,250,000 in 2013, and will be adjusted for inflation each year.

This means that a person may transfer, during life or upon death, up to $5,250,000 ($10,500,000 for married couples) to his or her beneficiaries without paying any transfer taxes.

The tax rate on amounts transferred above the estate, gift or generation-skipping tax exemption was 35% in 2012. The Deal raised the tax rate to 40% on amounts above the exemption.

The law in 2011 and 2012 also allowed for “Portability”, which is the ability of an individual to use his or her deceased spouse’s unused estate tax exemption. The Portability provisions have all been continued under the new law.

This means that when the second of two spouses dies, she will have her own estate tax exemption plus any portion of her spouse’s unused exemption.

For example, if a couple has $8 million of community property assets, and husband gives his $4 million to his spouse at his death, none of his exemption is used since the transfer qualifies for the marital deduction. Upon the spouse’s death, she now owns $8 million in assets and would have to pay an estate tax on the amounts above her estate tax exemption of $5.25 million. With portability, however, she can add her husband’s unused $5 million exemption to her own exemption, which gives her a total estate exemption of $10.5 million, and no estate taxes will be due.

Remember that portability is not automatic; you must file an estate tax return upon the first spouse’s death to make his or her exemption portable, even if that person would not have otherwise been required to do so.

While some people will say that portability negates the need for creating a bypass trust at the first spouse’s death, this is not correct. Creating a bypass trust gives the surviving spouse protection from creditors and lawsuits, and allows for the preservation of the deceased spouse’s generation-skipping tax exemption, which is not portable.

Estate Planning Tools that Remain Available

The Deal did not address the following issues:


  • Minimum terms for grantor retained annuity trusts
  • Elimination of valuation discounts on transfers between family members
  • Limits on the term of generation-skipping trusts
  • Elimination of intentionally defective grantor trusts (IDGTs), which allow a grantor to transfer assets for estate tax purposes while continuing to effectively receive income from the assets transferred

Taken together with the $5.25 million estate and gift tax exemption amounts, these and other tools will continue to be used in 2013 until Congress changes the law.

While there is no expiration date written into the new law, the exemption amounts or the estate tax planning tools can be changed through the passage of a new law at any time. Because the estate and gift tax laws were not negotiated very much as part of the Deal, we expect them to be part of a more extensive negotiation in the coming months, with the possibility that some or all of the above strategies could be lost.

For those individuals who made transfers under the Fiscal Cliff deadline, they should not be discouraged. It’s important to remember that the earlier the planning begins, the more effective it will be at reducing estate tax liability, since all appreciation of transferred assets occurs outside of the grantor’s estate.

The Fiscal Cliff helped many individuals make advantageous tax planning moves that they may not have otherwise done, and the benefits to their families will continue to compound over time. For those people who did not act, the opportunity remains; for how long, we don’t know.

 

Tisser Law Group, A Professional Corporation | 5425 Farralone Ave, Suite 100 | Woodland Hills | CA | 91367

doron@tisserlaw.com – Doron M. Tisser, Esq.
brian@tisserlaw.com – Brian H. Standing, Esq.
armine@tisserlaw.com – Armine Bazikyan, Esq.
judy@tisserlaw.com – Judy Schwarz, Paralegal

erica@tisserlaw.com – Erica Opperman, Paralegal

laura@tisserlaw.com – Laura Stein, Admin. Director
amber@tisserlaw.com – Amber McBride, Practice Coordinator
heather@tisserlaw.com – Heather Lanet, Admin. Assistant
zion@tisserlaw.com – Zion Dungo, Admin. Assistant
jesus@tisserlaw.com – Jesus Esteves, Admin. Assistant  
This Newsletter is intended to provide legal information only; legal information is not legal advice and you should consult with qualified legal counsel prior to implementing any estate planning. The transmission or receipt of information to or from this Newsletter is not intended to create, and does not create or constitute, an attorney-client relationship. No portion of this Newsletter may be reproduced or used in any manner other than for the private information of the reader without the express written consent of Tisser Law Group, A Professional Corporation. The testimonials throughout this Newsletter were provided by actual clients. To maintain their privacy their names may have been abbreviated. Please note that testimonials do not warrant, guarantee or predict your particular results. Copyright Tisser Law Group, A Professional Corporation 2010. All Rights Reserved.