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Coming soon: More estate-tax battles - Encore - MarketWatch http://blogs.marketwatch.com/encore/2013/04/29/coming-soon...

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MarketWatch

April 29, 2013, 12:09 PM ET
Coming soon: More estate-tax battles

The word “permanent” – at least in the corridors of Washington, D.C. – doesn’t mean what you think it
means. And that should prompt you to keep a close eye on your estate plans.

[Image of people in formal attire]
More inheritance headaches loom.

The American Taxpayer Relief Act of 2012, which was
signed into law in early January, established a
“permanent” $5 million estate-tax exemption. The
legislation also set the same $5 million exemption for the
federal gift tax and generation-skipping transfer tax.
(That figure is indexed for inflation, which makes the
2013 exemption $5.25 million.)

But as Kelly Greene reported this weekend in the Wall
Street Journal, President Barack Obama's fiscal year
2014 budget calls for lowering the exclusion for estate taxes and the generation-skipping transfer tax to
$3.5 million (albeit not until 2018). The gift-tax exemption, meanwhile, would drop to $1 million. The
proposed figures would be a return to 2009 levels and would no longer be indexed for inflation.

According to the proposed budget, the changes – coupled with closing other “estate-tax loopholes” –
would raise $79 billion over 10 years. Which means that the only permanent thing about estate planning
would be efforts by financial advisers and tax attorneys to stay one step ahead of Washington’s search
for revenue.

To be sure, the president’s proposals are unlikely to be enacted in their current form. But Greene
highlights several possible changes that investors and families should watch for:

“Discounts” could disappear. Currently, the value of a minority share in a business – when transferred
from one family member to another – can be “discounted,” resulting in a tidy tax savings. The White
House, in previous budgets, has called for limiting or eliminating such discounts to family members. But
the absence of that idea in the budget for 2014 could mean the Obama administration believes the
Treasury Department already has the authority to change the rules – and simply will issue new
regulations to do so. If that’s the case, families considering such transfers might want to act sooner
rather than later.

GRATs could get watered down. A grantor-retained annuity trust, or GRAT, lets a person give a portion
of an asset’s future profits to heirs tax-free. (One popular use of GRATs: Passing along stocks whose
prices are depressed.) Such transfers take place over a set time period – as short as two years. But the
president's budget would require GRATs to have a minimum term of 10 years, making these trusts less

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