H&A Wins Self Dealing Penalty Abatement

The IRS confronted our client with an assessment of over $700,000 in self dealing transaction penalties under Internal Revenue Code Section 4941 for its dealings with a private foundation.  H&A obtained a full abatement of the assessed penalties through hard work,  creative thinking, and attention to detail.  This was a collaborative effort by our tax controversy team and is a testament to the wide ranging skills and knowledge offered to our clients.

We cannot guaranty abatement of penalties.   The success or failure of a request or claim for penalty abatement depends on the facts and circumstances of each individual case.  If you need help dealing with the IRS, please call or email Hoffman & Associates today at 404.255.7400.

Governor signs Senate Bill 461

Governor Perdue signed Senate Bill 461 on May 28, 2010, making the provisions thereof retroactive to January 1, 2010.  As discussed, the law allows married Georgia residents to utilize the entire step up in basis provided under the current estate tax laws without modification to current documents.

If you have any questions about this law or how it affects your estate plan, please give us a call.

Georgia Senate Bill 461 and Funding of the Marital Trusts

As a previous article stated, the Federal Estate Tax purported repeal and the new carryover basis rules could cause problems for older Wills of married persons where the Will is drafted to maximize the Federal Estate Tax Exclusion.  The Georgia legislature is in the process of passing a bill that would all the language of the older Wills to fully fund the marital trusts for the benefit of spouse until Congress settles whether or not there will be a federal estate tax.  This bill allows married Georgia residents to utilize the entire step up in basis provided under the current estate tax laws and will become effective when Governor Perdue signs it.  To view a text of Senate Bill 461, click here.

To recap the issue, as most Wills are currently drafted, a formula is used to maximize the federal estate tax allowance that is in existence at the time of a person’s death.  If a married individual dies in 2010, his entire estate would pour over to the Credit Shelter Trust under his will, leaving no assets to fund the Marital Trust which is necessary to maximize the spousal step up in basis).

If you are unsure of how your Will works or have questions about the funding of trusts under your Will, please give us a call.

Federal Estate Tax Laws that may affect your Will

As a result of the 2001 tax legislation, the Federal Estate Tax has purportedly been repealed for 2010.  While Congress is still debating the issue, as it stands now if a person were to die in 2010 there might be no federal estate tax on their estate.  Additionally, step up in basis of assets to the date of death value is virtually eliminated.  There is an exception to the step up in basis in that a spouse can elect to step up the basis in $3,000,000 worth of assets and other individuals can elect to have $1,300,000 of assets stepped up in basis.  All other assets will be inherited with a carryover basis from the time the decedent acquired the property.

As a result of this new carryover basis rule, there could be an issue with capturing the basis increase in $3,000,000 of assets passing to spouse under a Will.  In order to qualify for the step up in basis on the $3,000,000, the property must be held in what is known as a qualified terminable interest property trust.  As most Wills are currently drafted, a formula is used to maximize the federal estate tax allowance that is in existence at the time of a persons death.  While no one anticipated that Congress would actually allow a total repeal of the federal estate tax law, we are currently faced with that issue.  There is talk that if Congress reinstates the federal estate tax they will make it retroactive back to January 1, 2010.  However, some may challenge this as unconstitutional and we do not know if they would be successful.

Therefore, we want to inform everyone that under the current law, if a formula is used in your Will to maximize the funding of the Credit Shelter Trust, all of your assets will go to that under your Will.  What this means is that your surviving spouse may lose the right to get a step up in basis on $3,000,000 worth of assets as no assets from your estate will go to the QTIP Marital Trust.  Some argue that your family could go to court and argue that your intent was not to have all assets pass to the Credit Shelter Trust and that the court may “revise” the Will to accomplish your intent to fully maximize all benefits affordable to your spouse.  Unfortunately, we cannot advise whether this argument would be successful.

Of course, if the federal estate tax is reinstated and made retroactive, there is no issue.  However, if it is not retroactive, and if you pass away during a “total repeal” period (2010), your spouse and family may lose out on the benefits of a step up in tax basis.

Therefore, it is advisable that you contact an attorney to execute a Codicil to your Will to assure assets that pass to your spouse will be allowed to fully utilize the step up in basis rule.

Federal Estate Tax Laws that may affect your Will in a Second Marriage

As a result of the 2001 tax legislation, the Federal Estate Tax has been repealed for 2010.  While Congress is still debating the issue, as it stands now if a person were to die in 2010 there might be no federal estate tax on their estate.

There could be an issue with providing assets for some spouses under a Will, particularly if it is a second marriage.  Typically, a Will is drafted utilizing a formula to maximize the federal estate tax allowance that is in existence at the time of your death.  While no one in the legal and accounting communities anticipated that Congress would actually allow 2010 to arrive with a total repeal of the federal estate tax law, we are currently faced with that issue.  There is talk that if Congress reinstates the federal estate tax they will make it retroactive back to January 1, 2010.  However, some may challenge this as unconstitutional, and we do not know if they would be successful.

Therefore, under the current law, if the typical formula is used in your Will to maximize federal estate tax allowances, all of your assets will go to the Family Trust, also known as the Credit Shelter Trust.  What this means is that if your spouse is not named as a beneficiary under the Family Trust, they will not get any benefit from your estate as the Marital Trust created for the benefit of the spouse will not receive any assets from your estate.

In some instances in second marriages, a person’s Will provides for spouse under a Marital Trust and for children from a previous marriage under the Family Trust.  Therefore, under the current tax law this is detrimental to the surviving spouse, as all assets will go to the children from the previous marriage.  If this is not your intent, it is advisable that you contact an attorney to execute a short Codicil to your Will to assure assets will pass to a spouse in a second marriage.

Of course, if the federal estate tax is reinstated and made retroactive, there is no issue.  However, if it is not retroactive, if you pass away during a “total repeal” period (2010), your spouse will lose out on the benefits of your estate.

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