There are two key provisions that many commentators feared would be in the 2010 Tax Act, but which were not included in it.
Specifically, there have been several proposals to place limits on Grantor Retained Annuity Trusts (“GRATs”), which allow individuals to transfer wealth out of their estates with as little as a zero estate or gift tax cost that would have made GRATs less valuable from an estate planning perspective. There have also been several proposals to limit valuation discounts in connection with certain estate planning techniques such as family limited partnerships. There were no such provisions included in the Act. Therefore, these techniques continue to be available to move wealth to lower generations.
Temporary Relief Does Not Extend to Non-US Citizens Who Are Not Residents for Estate Tax Purposes
The Act reinstates federal estate taxes on United States-situs property of non-US citizens who are not residents. The increase of the applicable exclusion amount to $5 million per person does not apply to non-US citizens who are not residents. US situs property exceeding $60,000 in value is currently subject to US estate taxes beginning at graduated marginal rates starting at 18 percent. Accordingly, particular vigilance needs to be exercised in structuring the acquisition of US assets such as real property, so as to avoid imposition of US estate taxes at pre-2010 levels.
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