South Plains Trust & Estate Council Federal Estate and Gift Tax Update Jeffrey N. Myers Bourland, Wall & Wenzel, P.C. Attorneys and Counselors 301 Commerce Street, Suite 1500 Fort Worth, Texas (817) (817) (facsimile) Website: ©Bourland, Wall & Wenzel, P.C.

2 Brief History Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) Summer 2005 Summer 2005 December 2009 December 2009 December 6, 2010 December 6, 2010 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act, P.L ) Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act, P.L )

3 Temporary Relief In general, the provisions of EGTRRA that were scheduled to expire at the end of 2010 are extended for two years. In general, the provisions of EGTRRA that were scheduled to expire at the end of 2010 are extended for two years. Absent further legislation, the changes made by EGGTRA still expire at the end of 2012, i.e. $1.0 million exemption (adjusted for inflation), 55% estate and gift tax rates Absent further legislation, the changes made by EGGTRA still expire at the end of 2012, i.e. $1.0 million exemption (adjusted for inflation), 55% estate and gift tax rates

4 Income Tax Summary Income Tax Rates Income Tax Rates Itemized Deduction Itemized Deduction Capital Gains/Dividends Capital Gains/Dividends Social Security Social Security AMT AMT IRA Charitable Rollover IRA Charitable Rollover State/Local Sales Tax Deductions State/Local Sales Tax Deductions

5 Overview Unification of Exemptions - $5.0 million exemption for estate, gift and GST transfers Unification of Exemptions - $5.0 million exemption for estate, gift and GST transfers Unification of Rates - 35% Unification of Rates - 35% Indexing – indexed from 2010 to the nearest $10,000 beginning in 2012 Indexing – indexed from 2010 to the nearest $10,000 beginning in 2012 Effective Dates Effective Dates Estate and GST – January 1, 2010 Estate and GST – January 1, 2010 Gift – January 1, 2011 Gift – January 1, 2011

6 Decedents Dying in 2010 Estate Tax Default Rule – Estate tax applies Default Rule – Estate tax applies Carryover Basis Election Carryover Basis Election Formula Bequests Formula Bequests

7 Decedents Dying in 2010 Due Dates Estate Tax Return - return and payment of tax is extended to no earlier than 9 months after date of enactment Estate Tax Return - return and payment of tax is extended to no earlier than 9 months after date of enactment Carryover Basis Report - initial due date, April 15, 2010; may be extended to 9 months after date of enactment Carryover Basis Report - initial due date, April 15, 2010; may be extended to 9 months after date of enactment Disclaimers - initial date, subject to qualification, is 9 months from date of death; extended to 9 months after date of enactment Disclaimers - initial date, subject to qualification, is 9 months from date of death; extended to 9 months after date of enactment

8 Portability Any exemption that remains unused as of the death of a spouse who dies after Dec. 31, 2010 (the “deceased spousal unused exclusion amount”) is generally available for use by the surviving spouse, as an addition to the surviving spouse's exemption. Any exemption that remains unused as of the death of a spouse who dies after Dec. 31, 2010 (the “deceased spousal unused exclusion amount”) is generally available for use by the surviving spouse, as an addition to the surviving spouse's exemption. Applies to gift and estate transfers Applies to gift and estate transfers Must elect on timely filed estate tax return (including extensions) of the predeceased spouse Must elect on timely filed estate tax return (including extensions) of the predeceased spouse

9 Gift Exemption 2010: $1.0 million 2010: $1.0 million : $5.0 million : $5.0 million

10 Generation-Skipping Transfer Tax Exemption: $5.0 (applies for 2010 – 2012) Exemption: $5.0 (applies for 2010 – 2012) Rate: 2010 – 0%; – 35% Rate: 2010 – 0%; – 35%

11 Omissions GRAT 10-Year Minimum Term GRAT 10-Year Minimum Term Discounts Discounts

12 What Was December Like? Held off on taxable gifts Held off on taxable gifts Evaluated GST transfers Evaluated GST transfers Forgave Debt Forgave Debt Trust Distributions Trust Distributions

13 Going Forward Basic Estate Plan Basic Estate Plan Lifetime Gifts Lifetime Gifts Grantor Trusts Grantor Trusts Sales to Grantor Trusts Sales to Grantor Trusts GRATs GRATs Real Estate Real Estate Life Insurance Life Insurance

14 New Sunset on the Horizon January 1, January 1, Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) – inapplicable Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) – inapplicable Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 – inapplicable Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 – inapplicable

South Plains Trust & Estate Council Federal Estate and Gift Tax Update Jeffrey N. Myers Bourland, Wall & Wenzel, P.C. Attorneys and Counselors 301 Commerce Street, Suite 1500 Fort Worth, Texas (817) (817) (facsimile) Website: ©Bourland, Wall & Wenzel, P.C.