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The President's FY 2015 Budget Again Takes Aim at Estate and Gift Tax Planning

Yesterday, the President released his 2015 fiscal year federal budget.  As with the President’s past budgets, revenue raising proposals include lowering the estate, generation-skipping transfer (“GST”) and gift tax exemptions to their 2009 levels starting in 2018.  This would mean a $3.5 million GST and estate tax exemption and a $1 million lifetime gift tax exemption, with the top tax rate increasing to 45%.  The budget proposes eliminating all zeroed-out GRATs and requiring a minimum ten (10) year term.  Dynasty trusts would also be eliminated and no trust could extend beyond 90 years from creation.  The budget proposals would limit the effectiveness of sales to grantor trusts by causing a portion of the property sold to be included in the grantor’s estate for federal estate tax purposes.  Finally, the effectiveness of irrevocable life insurance trusts (and other annual exclusion trusts) would be limited by only allowing $50,000 annual gift tax exclusion per donor (rather than allowing these types of gifts to qualify for the current gift tax annual exclusion of $14,000 per donee).  Many of these strategies, if implemented now, would be “grandfathered” and not subject to the proposed law changes, if any are enacted.  The full budget can be found here and the explanations can be found here.