Rep. Earl Pomeroy (D-ND) has introduced H.R. 436. In addition to setting the federal estate tax exemption at $3.5 million and imposing a marginal tax rate for estates over that amount of 45% (50% for estates between $10 million and $23.5 million), the bill would limit many discounts associated with the use of family limited partnerships.

If HR 436 becomes law, appraisers would not be allowed to apply any discounts to "non-business" assets held by partnerships or other entities. Instead, those assets would be valued as though they were transferred directly to the recipient. For example, if $1,000,000 is held by the partnership in cash or marketable securities, a 10% interest would be valued for gift and estate tax purposes at $100,000, even if a willing buyer might pay only $60,000 for the interest (assuming a 40% discount for lack of marketability and control). In addition, if a family controls an entity which is not "actively traded," in contrast to current law, no discounts will be allowed for the transferee's lack of control of the entity.

For more information regarding this topic, please e-mail your requests to Randall A. Denha, or call Randy at (248) 457-7205.

While Congress debates the fate of the federal estate tax, it is interesting to note how little the tax contributes to the federal budget. A March 19, 2008, Congressional Research Service Report said that the combined revenues from estate and gift taxes were $26 billion in 2007, constituting only 1% of total federal revenue. Of course, this number was impacted by the $2 million estate tax exemption in effect for 2007 that is scheduled to return to $1 million in 2011.

Nevertheless, after the Senate Finance Committee hearings on November 14, 2007; March 12, 2008; and April 3, 2008, it's pretty clear (to us) that estate tax repeal is not likely. Based on those hearings and a recent Senate budget resolution, we predict that the law scheduled to take effect in 2009, and only for that year, will be made permanent. Thus, we expect there will be a $3.5 million exemption ($7 million for a married couple) with a top tax rate of 45%.

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

Partnerships, estates and trusts are generally required to file their income tax returns by April 15 and are permitted to obtain a six-month extension to file such income tax returns to October 15. Individual taxpayers also may extend the filing of their returns to October 15. One of the problems that many individual taxpayers have in timely filing their tax returns on extension is waiting for a Form K-1 from a partnership, estate or trust. The Form K-1 may not show up until October 15 - the last day that the taxpayer has to file his or her return.

The IRS has decided to assist taxpayers with this problem. However, instead of lengthening the extension period for individuals, the IRS shortened the extension period for partnerships, estates and trusts from six months to five months. Certainly, this should help individual taxpayers, but will put more pressure on tax preparers to complete the partnership, estate and trust returns.

This change does not apply to S corporations, another entity that provides Form K-1s. Since S corporations are required to file their returns by March 15, the existing six-month extension already expires on September 15.

These new rules, pursuant to IRS News Release 2008-84, will be effective for tax returns due in 2009 and thereafter.

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

In January 2005, following the death of Mary E. Griffin in Shiawassee County (Michigan), a beneficiary of Ms. Griffin's Trust filed a petition with the Probate Court contesting the terms of the Trust alleging, among other claims, that the Trust was the product of undue influence. The Trustee of Ms. Griffin's Trust filed a motion to have this petition dismissed upon the basis that the no-contest clause contained in the Trust was both enforceable and applied to the petitioning beneficiary. Michigan statutory law provides that a provision in a will (and only a will) purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the probate estate is unenforceable if there is probable cause to institute such proceedings. However, since there is no similar statute in the probate code as it relates to trusts, it has been conventional wisdom among many practitioners that the legislature intended no contest clauses contained in trusts apply even if the contesting party had probable cause to contest a trust. The Shiawassee County Probate Court held in favor of the Trustee and enforced the no-contest clause.

On December 2, 2008, the Michigan Court of Appeals in In re Mary E. Griffin Trust held, in a 2-1 decision, that the "probable cause" test that applies to wills should also apply to trusts. It concluded that, while the aforementioned statute does not apply to trusts, it does reflect the State of Michigan's public policy that no-contest clauses in trusts are unenforceable if there is probable cause for challenging the trust. The Court of Appeals went on to say that since the beneficiary who challenged the Trust did have probable cause to file his petition, the no-contest clause in Ms. Griffin's Trust was not enforceable.

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

	Annual	Semi-Annual	Quarterly	Monthly
Short Term AFRs (Term 3 Years or Less)	0.60%	0.60%	0.60%	0.60%
Mid Term AFRs (Term More Than 3 Years and 9 Years or Less)	1.65%	1.64%	1.64%	1.63%
Long Term AFRs (Term More Than 9 Years)	2.96%	2.94%	2.93%	2.92%
Section 7520 Rate	2.0%