presented by Michael W. Barill, Esq. Phone:

Transcription

1 Estate and Trust Update, Including: WV Asset Protection Trusts, Proposed Section 2704 Regulations, Portability Planning, and Consistent Basis Reporting West Virginia Tax Institute October 24, 2016 presented by Michael W. Barill, Esq. Phone:

2 I. WV Domestic Asset Protection Trusts

3 Effective June 8, 2016 West Virginia began permitting Domestic Asset Protection Trusts (DAPT) to be established with the full benefit of creditor protection for a settlor who retains an interest in the trust - provided certain requirements are met.

4 Overview of Discussion: Where we were, What we ve gained, The requirements, What we protect and what we don t, Who should be Trustee, and Drafting considerations

5 Where we were Under prior law (common, statute and case) we could not spendthrift ourselves. We could only spendthrift third-parties (spouse, kids, beneficiaries). WV was in the majority of states no first party trust protection.

6 What we ve gained West Virginia now permits residents and non-residents to create a "qualified self-settled spendthrift trust," a DAPT. We ve gained first-party asset protection We can now spendthrift ourselves mostly (discuss later) Some revised and new Code sections: W.V. Code 44D-5-503a, 44D-5-503b and 44D-5-503c (and amending and reenacting 44D-5-505). West Virginia's statute requires that there be no creditors existing that would be expected to be able to pursue the assets of the trust upon funding The WVUTC also requires an extensive affidavit to be executed when any contribution is made to the trust that such contribution does not constitute a fraudulent transfer or render the grantor insolvent

7 The requirements: To understand the operation of the DAPT it is important to understand the meaning of the following terms: qualified beneficiary, qualified affidavit, qualified interest, qualified self-settled spendthrift trust, qualified trustee and independent qualified trustee.

8 Qualified Beneficiary: (I) the beneficiary is a distributee or permissible distributee of trust income or principal; (ii) the beneficiary would be a successor distributee or permissible distributee of trust income or principal if the interests of the distributees described in (i) terminated on that date without causing the trust to terminate; or (iii) the beneficiary would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.

9 Qualified Affidavit: A Qualified affidavit must be duly signed and delivered to the trustee of the trust upon formation of the trust and when any contribution is made to the trust The affidavit requirement is prudent from a legislative standpoint; however, it potentially causes the loss of the protection of the statute if contributions are made without compliance An affidavit is defective and is not a qualified affidavit if it fails to meet the eight (8) requirements set forth in 44D-5-503b(e) of the Code of West Virginia

10 8 requirements for a Qualified Affidavit: a) the grantor has full right, title, and authority to transfer the property to the trust; b) the property being transferred to the trust was not derived from unlawful activities; c) the grantor will not be rendered insolvent immediately after the transfer of the property to the trust; d) the grantor does not intend to defraud any creditor by transferring the property to the trust;

11 e) the grantor is not involved in any administrative proceeding, except for any proceeding expressly identified in the affidavit or an attachment to the affidavit; f) there are no pending or threatened court actions against the grantor, except for any court action expressly identified in the affidavit or an attachment to the affidavit; g) the grantor is not indebted on account of an agreement or order of court for the payment of support or alimony in favor of such transferor's spouse, former spouse or children; and h) the grantor does not contemplate at the time of the transfer the filing for relief under the Bankruptcy Code of the United States.

12 Qualified Interest The grantor's interest in a qualified self-settled spendthrift trust to the extent that such interest enables the grantor to receive distributions of income, principal or both in the sole discretion of a qualified trustee. A grantor may have a qualified interest in a qualified self-settled spendthrift trust and also have an interest in the same trust that is not a qualified interest

13 Qualified self-settled spendthrift trust it is irrevocable; it is created during the grantor's lifetime; expressly incorporates the law of West Virginia to govern the validity, construction and administration of the trust; there is, at all times at least one beneficiary other than the grantor to whom (i) income may be distributed, if the grantor's qualified interest relates to trust income; (ii) principal may be distributed, if the grantor's qualified interest relates to trust principal; or (iii) both income and principal may be distributed, if the grantor's qualified interest relates to both trust income and principal.

14 Qualified Trustee A Qualified Trustee is: A natural person residing in West Virginia; or An entity that is authorized to transact trust business in West Virginia. Plus, they have to: Maintain trust property in WV, Maintain trust and asset records in WV, Prepare trust income tax returns in WV, or Materially participate in the trust administration in WV.

15 Independent Qualified Trustee An Independent Qualified Trustee is a Trustee who is a Qualified Trustee but is NOT: the grantor, the grantor s spouse, the grantor s parents, the grantor s children/issue, or the grantor s sibling

16 Trustee Issues? Under the DAPT the trust must at all times have at least one qualified trustee (that is, a West Virginia resident or licensed trust company) who may be, but need not be, an independent qualified trustee. Then why do we need an independent qualified trustee? Because its smart. Should ALWAYS use one at least with any qualified interest distributions to the grantor. Believe the Act should be updated to require one.

17 Gift Tax Issues Won t know for sure until a DAPT is reviewed by a Court However, based on review of relevant estate and gift tax law, it is most likely that the funding of a WV DAPT will result in a completed gift It is interesting to note, that most other state s DAPTs allow the donor to determine whether or not to make a completed gift based on the trust structure or by allowing the retained power to veto distributions. Why not? Concerns over the veto power by West Virginia courts.

18 Estate Tax Concern In all probability, a WV DAPT will NOT be included in the donor s gross estate for estate tax purposes This is consistent with inclusion as a completed gift on the contribution to the trust.

19 the mostly. Creditors who can ignore a DAPT: The beneficiary s child under a child support Order, A judgment creditor who has provided services for protection of the benefciary s interest in the DAPT (lawyer job security provision), A claim of WV as provided by statute, A claim of the US as provided by statute,

20 the mostly continued Other ways to get to the DAPT assets; Distributions can be levied by beneficiary's creditors A creditor of the DAPT where the trustee obligates the DAPT can get to its assets WV Fraudulent Transfer Act actual intent to defraud a creditor you know or should have known about Bankruptcy Code Transfers within ten (10) years of filing bankruptcy are accessible by bankruptcy trustee and creditors And Divorce. Assets in the DAPT should retain their marital/separate character. If funding the DAPT with marital assets use a post-nup agreement

21 The WV DAPT provides that a grantor may transfer assets to a qualified self-settled spendthrift trust and retain in that trust a qualified interest, and, except as otherwise provided in Article 44D of the Code, the provisions relating to a creditor's claim against grantor, shall only continue to apply with respect to any interest held by a grantor in a qualified selfsettled spendthrift trust other than a qualified interest

22 If a grantor makes more than one transfer to the same qualified self-settled spendthrift trust, the WVUTC provides: (i) A subsequent transfer made by the grantor shall be disregarded in determining a creditor's claim with respect to determining whether a prior transfer was made by the grantor. The four-year limitations period that applies with respect to actions brought under the WVUFTA as to a subsequent transfer commences on the date that such subsequent transfer occurs with respect to each subsequent transfer by the grantor; and (ii) Any distribution to a beneficiary from a trust is deemed to have been made from the portion of the trust attributable to the latest transfer.

23 II. Proposed Section 2704 Regulation's The Death of Discounts?

24 Key dates: On August 2, 2016 the Treasury issued proposed regulations under Section 2704(b) of the Code. A hearing on the regulations and all comments submitted on those regulations will be held December 1. Treasury has announced that these rules will not become effective before 30 days after the regulations become final. Accordingly, we have at least until January 1 to prepare.

25 Overview of the Proposed Regulations The proposed regs, if adopted in their current form, while complex in the how, would eliminate virtually all minority or lack of control discounts for family controlled entities, whether active businesses or not, for gift, estate, or generation-skipping transfer tax purposes.

26 The regulations attempt to do so through a variety of proposed new rules modifying both 2704(a) and (b). The regulations would clarify what entity interests they would apply to by modifying the concept of control, by aggregating certain transfers made within three years of death and those occurring at death, and by introducing new restrictions on certain provisions/limitations in agreements that would be ignored for wealth transfer tax valuation purposes.

27 More specifically, the proposed regulations would make two broad changes: First, they would change the Section 2704(a) regulations with respect to the lapse of a liquidating right and strengthen the Applicable Restriction concept The second set of changes would be the addition of Section 2704(b) regulations which would create a new concept called Disregarded Restrictions that would be ignored in valuing interests in family controlled entities

28 Legislative Background Adoption in October 1990 of 4 Code Sections comprising Chapter 14: Section 2701: Designed to kill preferred stock freezes through junior and senior equity Section 2702: Eliminate valuation benefits of Grantor Retained Income Trusts Section 2703: Disregard Buy-Sell and similar agreements unless certain conditions are met Section 2704: Tax loss of value from a lapse of a voting or liquidation right; disregard certain restrictions on liquidation that would reduce value; authorizes treasury to issue regulations to disregard other restrictions that reduce value but do not ultimately reduce the value to the transferee.

29 Overview of current Section 2704 Under section 2704(a) the lapse of any voting or liquidation right in a corporation or partnership is treated as a transfer by gift or a death in certain circumstances. Under section 2704(b) if an interest in a corporation or partnership is transferred to or for a member of the transferor s family, any Applicable Restriction is disregarded in valuing the transferred interest, if the transferor and members of his family control the entity immediately before the transfer. An Applicable Restriction is a limitation on the ability to liquidate the entity that is more restrictive than state law, if either the restriction by its terms will lapse at any time after the transfer or the transferor or any members of the transferor s family can remove the restriction after the transfer.

30 Proposed Regs. Under Section 2704(a) (the lesser of two evils) Current Section 2704(a) provides that the lapse of a liquidation or voting right where family has control triggers gift tax or estate inclusion. Was originally designed to overrule Harrison, TC Memo : Facts: GP died and under the partnership agreement, his right to cause liquidation ended at his death Tax Court: Partnership interest was valued by taking into account lapse of liquidation right (meaning he didn t have that right at death and therefore his interest was worth less) Section 2704(a): Adds to gross estate the reduction in value attributable to the lapse

31 2704(a) Regs. Under the proposed section 2704(a) regs., if a transfer is made within three years of death and there is an effective lapse of the voting or liquidation right because of that transfer, a lapse is deemed to occur at the time of death (deathbed lapse rule). If, however, the transfer occurs more than three years before death, the old rules continue to apply and no lapse would be deemed to occur under section 2704(a).

32 What is Control? As indicated, section 2704 only applies to entities that the transfer or members of his or her family control. The proposed regs. clarify what control means for both organizations. In general holding 50% of the vote or equity equals control. Holding an interest in the general partner in a limited partnership also means control. Regs. make it clear that they apply to LLCs and disregarded entities

33 Section 2704(a) Example Gift of a minority interest Example: I have 52% ownership interest in Partnership and can liquidate because I have control pursuant to the Partnership Agreement. I make a gift of 3% to a family member, so I have only 49% and I can no longer liquidate. Question: Has my liquidation right lapsed? Is that a gift or transfer?

34 Example Continued Under existing Regs. = No. No lapse of a voting or liquidation right is deemed to occur where the rights inherent in the transferred interest remain intact in the hands of the transferee. In this example, the right is still there, even though before the transfer I could have liquidated the company and afterwards I can t. The fact that that ability did not pass to the recipient and the fact that my ability to liquidate is lost are both irrelevant. Under Proposed Reg = Maybe. The propose regs would make an exception if the gift occurs within 3 years of death, in which case the transferor s estate would have to include the value attributable to the effective lapse of the right to liquidate.

35 Proposed Regs. Under Section 2704(b) Under section 2704(b)(4) the treasury is authorized to issue regulations to provide that other restrictions (besides Applicable Restrictions) shall be disregarded in determining the value of the transferred interest, if the transferor and members of his family control the entity immediately before the transfer. Proposed regs under section 2704(b) introduces an entirely new concept Disregarded Restriction and are designed to effectively change the outcome in the Kerr case

36 The Relevant Case - Kerr Kerr, 113 TC 449 (1999): Facts: under agreement, could not liquidate before the year 2043 without consent of all partners, and charity (a non-family member) was a partner IRS position: Disregard the restriction on liquidation as an Applicable Restriction

37 Tax Court held: restriction on liquidation was not more onerous than default rule under state law which required consent of all partners as default rule; limiting partner s right to redeem his/her interest is not an Applicable Restriction; and an Applicable Restriction only exists where restriction is on liquidation of the entire entity not on an individual interest.

38 Fifth Circuit in Kerr: Affirms on Different Ground: Because charity owned an interest, family could not remove the restriction. For a restriction to be considered removable by the family, the Code specifies that [t]he transferor or any member of the transferor's family, either alone or collectively, must have the right to remove the restriction. Section 2704(b)(2)(B)(ii). The Code provides no exception allowing us to disregard nonfamily partners who have stipulated their probable consent to a removal of the restriction. The probable consent of [charity], a non-family partner, cannot fulfill the requirement that the family be able to remove the restrictions on its own.

39 Three Objectives Proposed Section 2704(b) all can be viewed as changing the outcome in Kerr (interesting thought losing party can overturn the Courts) 1) Eliminate no more restrictive state default-rule concept: We will now only respect state law where it is mandatory and they mean mandatory (must be mandatory, default wont cut it) Can not have optional provision or alternative statute for the same type of entity If state law says liquidation requires consent of all partners and this cannot be modified by agreement As a practical matter, this will not occur

40 New Term: Disregarded Restriction 2) Use Section 2704(b)(4), authorizing regulations, to create the new concept of a Disregarded Restriction: Each owner is deemed to have a six-month put right (the inability to force a redemption of a partner s interest would be considered a Disregarded Restriction - funny, not even a restriction) Unless mandatory state law bars it which will effectively not happen This will pretty much eliminate discounts or suppress them

41 Disregarded Restriction cont. 3) A Disregarded Restriction can t be avoided by giving nominal interests to non-family members (the new 10% - 20% rule) This is only true re: Prop Reg given Fifth Circuit in Kerr Valuation based on each partner having a sixmonth put right: Based on the concept of minimum value

42 Example of Application of Proposed 2704(b) Reg. A parent makes a gift of a limited partnership interest to a child. Under the partnership agreement, liquidation is to occur in year 2066, unless all partners unanimously agreed to earlier liquidation. The agreement prohibits the withdrawal of a limited partner. This prohibition is a Disregarded Restriction because it imposes a restriction on the ability of the partner to compel a liquidation of the partner s interest and the restriction is not mandated by state or federal law.

43 Example continued Deemed to carry a liquidation right of that interest (the 6 month Put Right) eliminating any discount As a result, because family members could remove the restriction after the transfer, the interest must be valued without taking into account the provision in the partnership agreement that prevents the partner from compelling a redemption of its interest. Because no state or Federal mandatory law exists to the contrary (one that requires that you can t have a 6 month Put Right) In effect, the IRS is trying to use regs. under 2704(b)(4) to take back Rev. Rul and the string of defeats it had suffered in the Courts on Family Attribution. The entire line of minority discount cases are effectively gone.

44 Contrast of Proposed Regulations under and Prop. Reg deals with a lapse of a liquidation right Whereas Prop. Reg deals with the non-existent put right *************************************************** Prop. Reg does not have a nonfamily member provision - Even if donor survives three years, the transferred interest will be deemed to have put right or liquidation right Whereas Prop. Reg does have a nonfamily concept

45 A Few Critical Definitions and Rules Only Apply to Family Controlled Entities: Modification of Meaning of Control Assignees: Confirms gift of partnership interest because a transfer to an Assignee is a Lapse State or Federal Laws (not foreign) but only if no alternate statute available Requirement that Disregarded Restrictions do not ultimately reduce the value in the hands of the recipient: implication: if it is to lapse or can be removed by the transferor and family members

46 A Few More Critical Definitions & Rules Tenancy in Common (is it a partnership can we avoid these regs.?) Marital Deduction and Charitable Deduction Property (marital deduction value should be same as transfer tax value) Buy Sell Agreements 2703 and 2704 do not overlap) Good News for some taxpayers: Basis Matters

47 What Can/Should Be Done Now Do not proceed on the assumption that the regulations will be declared invalid Advise clients and advise advisers Action taken before the effective date can use the current rules (e.g., gift and sales of discounted assets) Examples: Gifts (always in trust) Installment sales to grantor trusts (Rev. Rul ) GRATs probably longer term; discount in but no discount out? 100 Year GRAT?

48 What Can Be Done After the Regulations Become Final? We just don t know There is some likelihood that the final regs. will be less harsh than the proposed regulations would suggest.

49 Would the Proposed Regulations, if Adopted as Final, be Valid? Interaction with legislative history: Conference Report: [t]hese rules do not affect minority discounts or other discounts available under present law. Chevron, 467 U.S. 837 (1984): If statute is ambiguous, IRS can resolve it if reasonable Mayo, 562 U.S. at 55: Incorporates Chevron in the tax context Home Concrete, 132 S. Ct (2012): examination of legislative history... can lead to the conclusion "that Congress had decided the question definitively, leaving no room for the agency to reach a contrary result"

50 Summary and Conclusions on Proposed Regs. The proposed regulations, if adopted as final, will represent one of the biggest changes in estate tax planning in 25 years They would eliminate minority (lack of control) discounts for family controlled entities, whether passive or active, by reason of a deemed put right Indirectly, they likely will affect lack of marketability discounts as well Some uncertainty on tenancy in common Basis should increase as estate tax values increase (what about the three-year rule)? Tell clients, advisers, and consider action soon!!!

51 III. Portability Planning

52 Portability What is it? Portability in short is the use by the surviving spouse of the deceased spouse s unused exemption amount (DSUEA).

53 Understand and Take Advantage of Portability: Portability was made permanent by the American Taxpayer Relief Act of 2012 Practitioners must use portability in appropriate cases (joint property - no non-marital trust - retirement funds)

54 IRC defines DSUEA as... the lesser of: (a) the basic exclusion amount or (b) the excess of: (i) the applicable exclusion amount of the last such deceased spouse of such surviving spouse over (ii) the amount with respect to which the tentative tax is determined under Section 2001(b)(i) on the estate of such deceased spouse

55 Make the Election: Ability to make the election is automatic with the filing of the 706 by the executor of the first spouse to die. The estate of the deceased spouse must file an estate tax return to report the amount of the DSUEA which may be used in the surviving spouse s estate Must timely file a complete return There are special rules for estates under the filing thresholds Can opt out of Portability - an affirmative election made on page 4 of the estate tax return

56 Estates Under the Filing Threshold: Precise values of assets that qualify for the marital or charitable deduction do not have to be reported Appraisals are not required for those assets The executor may estimate in good faith the value of those assets qualifying for the marital or charitable deduction. Such estimates are subject to penalties of perjury. All assets are listed on the appropriate schedule; however, the values of such assets to which the special rule applies are not reported on the individual schedules The total estimated value of the assets subject to the special rule is calculated based on the IRS Table of Estimated Values contained in the instructions and such corresponding amount is entered on Line 10 of page 3 of the estate tax return Estimates cannot be used if a precise value is needed to be eligible to use the alternate valuation date, special use valuation, installment payments, or reverse QTIP election

57 Statute of Limitations Extended for Portability: The statute of limitations for an estate that elects portability is extended indefinitely to allow the IRS to reexamine the deceased spouse s estate tax return to re-determine the amount of the DSUE reported by the estate. The IRS may adjust or eliminate the DSUE amount reported on a return after the normal period of limitations; however, the IRS may only assess additional tax with respect to the deceased spouse s return only within the normal period limitations.

58 Should the election be mandatory or discretionary? It depends upon who is selected as Personal Representative If the Personal Representative is the surviving spouse: Consider conflict of interest Consider whether it is better to make the election mandatory If the Personal Representative is a Non-Interested Fiduciary A fiduciary owes a duty to all beneficiaries. With a larger estate, the election is probably immaterial, but there is an expense With smaller estates, the cost of the election may be an issue, this may be true when the surviving spouse is not the ancestor of the other beneficiaries (i.e., 2 nd,, 3rd, 4th, etc., marriages)

59 Add Mechanism to By-Pass Trusts to Attain Basis Adjustments (and any GST trust for descendants) Independent Trustee with unlimited power to distribute, Benefits: Allows appreciated assets to be distributed, loss assets to remain in by-pass trust, and it is a relatively simple arrangement, not based on a formula or involving complicated power of appointment issues Risks: Independent Trustee will be shy in exercising the authority, the spouse s unexpected death before distributions, distributed assets exposed to spouse s creditors Independent Trustee can grant a GPOA, or Formula GPOA

60 Non-Federal Estate Tax Reasons to Continue Using Traditional By-Pass Trust Planning Asset management Asset protection via spendthrift trust protection Disposition control by the decedent spouse (i.e., preventing the surviving spouse from diverting the assets) Use of the deceased spouse s GST exemption (i.e., no GST exemption portability)

61 Use of QTIPS: After the advent of portability, a taxpayer may wish to establish a QTIP trust and have his or her executor make the QTIP election (i.e., within the scope of Rev. Proc ) to enable his or her estate tax exclusion to pass to his or her spouse via portability. Provides the executor with discretion to treat as Bypass or QTIP trust Provide such authority in will or trust Limits beneficiaries in Bypass Trust to spouse to qualify as QTIP

62 Use Disclaimers to fund disclaimer/by-pass trust Surviving spouse may need to be solvent at the time of disclaimer Some states treat a disclaimer by an insolvent person as a fraudulent transfer May disqualify spouse for Medicaid benefits

63 Strategic Reasons to Continue Using Traditional By-Pass Trust Planning Protecting increases in value from estate tax upon the surviving spouse s death Second marriages and blended families Protection of the surviving spouse from losing the DSUE Amount by remarriage

64 Asset Protection Issues: Spendthrift creditor protection, at least as to principal Mandatory income interest in QTIP Trust creditors may be able to reach income once distributed -- more exposed to creditors than a totally discretionary by-pass trust Discretionary principal rights should be beyond creditors reach

65 Planning Opportunities and Best Practices with Portability Change your Intake Questionnaires to Ask if Client has DSUE Amount For example: Did you have a spouse who died on or after January 1, 2011? Yes No If yes, please provide us with a copy of your deceased spouse s federal estate tax return. It will be important to identify clients with DSUE amounts and collect the information needed for reporting DSUE usage on the surviving spouse s gift or estate tax returns. Identifying clients whose spouse died after December 31, 2010 will also allow you to identify situations in which the portability election was not made. Often, the deceased spouse s estate would not have been required to file an estate tax return. Under the proposed portability regulations, not having filed an estate tax return means the portability election was not made. When appropriate, consider asking the IRS for an extension of time to file the portability election, which in these situations may be requested pursuant to Treas. Regs. Section

66 Use DSUE Amounts by Gift the current rules allow any surviving spouse having DSUE from a deceased spouse since January 1, 2011, to use the DSUE by gift there are many benefits of using DSUE by gift. To Achieve Better Estate Tax Results. Making gifts of the DSUE amount as soon as possible removes all future appreciation from the surviving spouse s estate. To Remove Concern with Remarriage. If the surviving spouse remarries and the new spouse predeceases the surviving spouse, the new spouse s DSUE amount replaces the DSUE amount of the first deceased spouse, and the benefit is lost. Making a gift that uses the DSUE amount of the first deceased spouse before the new spouse dies locks in the benefit of the first spouse s DSUE. To Remove Concern over Lack of Indexing. The DSUE amount is fixed and not indexed for inflation. Making gifts removes all future appreciation in the assets given.

67 Make sure the Portability Election is Authorized in Wills/Revocable Trusts and address who is responsible for costs of filing a return solely to elect portability. Sample Language for a Will : My Personal Representative shall make the portability election under section 2010(c)(5)(A) of the Code for any portion of my applicable exclusion amount that would otherwise be unused, even if it appears unclear that my spouse or my spouse s estate could benefit from such exclusion, and shall pay all expenses associated with making such election as an expense of administration. My Personal Representative shall provide to my spouse a complete copy of my estate tax return for use in tax filings in connection with my spouse s use of such ported exclusion against my spouse s inter vivos gifts or testamentary transfers. Other than providing such copy of my estate tax return, my Personal Representative shall have no obligation to my spouse, or my spouse s estate, heirs, beneficiaries, or assigns, to maintain records to substantiate the portability election or exclusion amount ported. My Personal Representative shall be held harmless with regard to the portability election, so long as my Personal Representative did not act with gross negligence or with willful neglect.

68 IV. Consistent Basis Reporting

69 The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 passed new and permanent rules on how to determine the income tax basis of property received from a decedent.

70 These rules impose significant additional compliance responsibilities on the executors of estates, and provide the IRS definitive basis values on estate assets These new rules include both new reporting requirements for all estates that file estate tax returns, and new requirements that some beneficiaries use as their basis the same value used by the executor for estate tax purposes

71 Under Section 6035, the executor of a decedent's estate that is required to file a federal estate tax return must also file a valuation statement with the Secretary of the Treasury and with each person acquiring any interest in property included in the decedent's gross estate (Form 8971). This statement must identify the value reported on the decedent's estate tax return for each property interest and whatever other information the Secretary prescribes.

72 Gross Estates exceeding the filing threshold are required to file Form 8971 Estates below the filing threshold and filing for Portability or GST Elections only, are not required to file Form 8971 Due Date of Form 8971 Due within 30 days of filing estate tax return Current Delayed Deadline: June 30, 2016 (Notice )

73 Assets Reported on Form 8971 & Schedule A Each beneficiary who receives assets required to be reported on Form 8971, receives a Schedule A Each beneficiary s Schedule A must include all assets that could be used to satisfy the beneficiary s share Includes all assets includible in the decedent s gross estate except: Cash (not including coin collections) IRD (annuities, pensions, etc.) Tangible Personal Property not exceeding $3,000 Assets sold by the estate where gain/loss is recognized

74 Special Rule Cash Bequests Satisfied by Cash or In Kind If the cash bequest is not paid before the filing of the estate tax return, including extensions, the Form 8971 reports all of the assets that could be used to satisfy that bequest ** Planning ensure cash bequests are satisfied by a cash only provision in estate documents or satisfied with 15 months.

75 Subsequent Transfers And Filing Requirements The transfer of an asset received from a decedent to a related transferee will require the original distributee to file a supplemental Schedule A to the IRS and recipient reporting the new ownership Currently, no time limit on the transfer rules

76 The penalty for failing to file a complete and timely valuation statement with either the IRS or a beneficiary is $250, with a $3 million maximum penalty for all failures during the same calendar year This amount is reduced if the error is corrected within 30 days of the required filing date