Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

Certain Changes Effective in 2019

The gift, estate and generation-skipping exemptions are $11.4 million per taxpayer in 2019. Keep in mind that if a Credit Shelter Trust was earlier created at the death of a family member, that trust ordinarily will not be included in the estate of the beneficiary. With the larger estate tax exemption, the family may not care about estate tax inclusion, but they may want a “stepped up basis” for the assets in the trust at the death of the current beneficiary to minimize capital gains taxes. If this applies to your situation, you probably need to take some actions now in order to obtain the stepped-up basis for the trust assets on the death of the current beneficiary.

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Don’t Defer Planning Your Estate Because The Estate Tax Might Be Repealed

In 2001, when the estate tax exemption was $675,000 and George W. Bush was President, Congress “repealed” the estate tax. But the repeal was phased in over ten years and was then scheduled to last for only one year. Instead of actual repeal, what we got, under President Obama, was a reinstated estate tax with a much higher exemption of $5 million, indexed for inflation. The Republican party now controls both houses of Congress as well as the White House, and we are again hearing calls for repeal of the estate tax.

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Don't Forget Portability!

I have met with two surviving spouses so far this year who did not file a federal estate tax return in their deceased spouse's estate. The deceased spouse did not have sufficient assets to require the filing of a return, but an opportunity was nevertheless lost. The deceased spouse's unused estate tax exemption is only "portable" to the surviving spouse's own exemption (added on to it) if the Form 706 is timely filed (within 9 months after date of death, or 6 months after that if an extension request is timely filed). Treasury granted a one-time extension until December 31, 2014 for couples who had failed to file, but that was because with the federal recognition of same-sex marriage, a lot of couples who did not think they could have portability, now could after the Supreme Court's Windsor decision. Whether Treasury will grant another similar extension in the future is unknown. But remember that in order to possibly double the surviving spouse's estate tax exemption through portability, an estate tax return must be filed.

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Inherited IRA Not Protected From Bankruptcy

In Clark v. Rameker, 113 AFTR 2d 2014-889 (June 12, 2014), the U.S. Supreme Court unanimously ruled that inherited IRAs do not qualify for the bankruptcy exemption that applies to a debtor's own retirement accounts. Some states have their own exemptions from creditor claims that may include inherited IRAs, but the debtors in this state does not. The Supreme Court's decision was based solely on the federal exemptions in the bankruptcy code. In C.R.S. §13-54-102, Colorado has a list of state exemptions for protection from creditor claims. That list includes "property, including funds, held in or payable from any pension or retirement plan or deferred compensation plan..., any individual retirement account, as defined in 26 U.S.C. Sec. 408, any Roth individual retirement account as defined in 26 U.S.C. Sec. 408A..." In 2010, Laurie Hunter proposed in the Statutory Revisions Committee of the Trust & Estate Section of the Colorado Bar Association that Colorado's list of exemptions be clarified to specifically include a reference to inherited IRAs, as a result of conflicting decisions in federal Circuit Courts. Colorado had earlier amended this statute to include the specific reference to Roth IRAs quoted above. That proposal was not adopted by SRC, although a number of members thought our statute was broad enough to include inherited IRAs, which are defined in 26 U.S.C. Sec. 408(d)(3)(C) (a part of Section 408 mentioned with respect to IRAs). However, if creditor protection is important for beneficiaries, it may be preferable to have IRAs payable to trusts created for the benefit of those beneficiaries instead of payable outright to individuals who then "roll them over" into inherited IRAs. If a surviving spouse rolls over an IRA to his or her own IRA, then it should be protected as a part of that spouse's own retirement account. Other individual beneficiaries do not have that option.

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