On March 10, 2011, Senator Charles Schumer (D-NY) introduced the "Public Good IRA Rollover Act of 2011" (S.557). If enacted, starting this year and without expiration, the new law would allow all of the following:

1. Rollovers of any size;
2. For those at least age 70½, rollovers to private, non-operating (grantmaking) foundations;
3. For those at least age 70½, rollovers to donor advised funds;
4. For those at least age 59½, rollovers to charitable gift annuities (for the account owner and/or his spouse); and
5. For those at least age 59½, rollovers to newly established CRTs (for the account owner and/or her spouse).

Let's hope this new law passes. We will be sure to keep you apprised of its progress.

For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.

On April 12, 2011, the IRS issued proposed Regulations (REG-154159-09) that provide rules regarding who is the "taxpayer" for purposes of applying the IRC Section 108 discharge of indebtedness rules to a grantor trust.

IRC Sections 108(a)(1)(A) and (B) exclude discharged debt from a taxpayer's income if the discharge occurred in a bankruptcy case or to the extent the taxpayer is insolvent when the discharge occurs. Some taxpayers take the position that this exclusion is available to the extent the grantor trust is insolvent or bankrupt, even though the owner for income tax purposes (i.e., the grantor) is not. The IRS and the Treasury Department disagree.

The proposed Regulations make it clear that the IRS and Treasury will take the position that the insolvency exception is available only to the extent the owner of the grantor trust is insolvent; and that the bankruptcy exception is available only if the owner of the grantor trust is subject to the Bankruptcy Court's jurisdiction. Thus, the grantor trust itself would not be considered the owner.

The Regulations are proposed to apply to discharge of indebtedness income incurring on or after the date the final Regulations are published.

For more information regarding this topic, please e-mail your requests to Julius Giarmarco, or call Julius at (248) 457-7200.

On December 16, 2010, the IRS released draft IRS Form 8939 entitled "Allocation of Increase in Basis for Property Acquired from a Decedent" which allows executors to allocate $1.3 million of regular basis increase and $3 million for qualified spousal basis property. This information return is used to establish income tax basis for property acquired from a person who died in 2010. The next day, the Tax Relief Act of 2010 was signed into law which, among other things, established the estate and GST exemptions and rates for estates of decedents dying in 2010. The new tax act required executors to file Form 8939 by April 18, 2010.

On March 31, 2011, the IRS announced that Form 8939 is not due on April 18, 2011, and should not be filed with the final Form 1040 of persons who died in 2010. The announcement also provided that the due date will be issued at a later date. As soon as the new due date is announced, we will notify you of the same in a future edition of our E-Update.

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457-7218.

Generally, grantor retained annuity trusts ("GRATs") are used to transfer future appreciation in an asset to children (or in trust for children), gift tax free. With a GRAT, the grantor sets up a trust with a term of at least two years and funds the trust with marketable securities or other investments. For example, a two-year GRAT requires a fixed payment (annuity) to the grantor in each of the two years. Upon the termination of the GRAT at the end of two years, any assets remaining in the GRAT pass to the children or to a trust for their benefit.

The annuity payments from the GRAT are set so that their present value is equal to the value of the assets initially transferred to the GRAT, using a discount rate prescribed monthly by the IRS (3.0% for April 2011). This type of GRAT is known as a "zeroed-out GRAT". Any appreciation of the underlying investments above this "hurdle" rate passes to the children (or to a trust for their benefit) gift tax free. If the investments return less than the hurdle rate, the GRAT must pay all its assets back to the grantor, with no gain to the children.

For high net worth individuals who would like to provide financial assistance to their elderly parents without using ("wasting") their $5 million gift tax exemption, establishing a zeroed-out GRAT for the benefit of their parents might be the answer. While President Obama has recommended the elimination of short-term GRATs (by requiring they have a minimum term of ten years), that proposal did not find its way into the Tax Relief Act of 2010.

For more information regarding this topic, please e-mail your requests to Julius Giarmarco, or call Julius at (248) 457-7200.