1. Assets which were not acquired from the decedent should not reported on Form 8939.



2. Cash or IRD assets should not be reported on Form 8939.



3. On the date of the decedent's death, if an asset's basis is less than the fair market value, then there is no basis increase allocation permitted to that asset.



4. GST allocation may be made on Form 8939.



5. No extensions are permitted to file Form 8939 beyond January 17, 2012.



6. Form 8939 should not be filed if no Federal estate tax is due.



7. If a 2010 decedent held a general power of appointment over assets in another trust, the 2010 decedent is not treated as having owned that trust property and, therefore, such property is not eligible for a basis step up.



8. If a 2010 decedent died between December 16, 2010 and January 1, 2011, his/her executor will have 15 months to file Form 8939.



9. It might not be too late to get court approval of decisions regarding how to allocate basis among various assets owned by the decedent which are eligible for a step up. However, action should be taken quickly in order to seek probate court approval.

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

As may be recalled, the burning question is whether the creditor protection afforded to IRAs in the hands of the original owner "runs with" the IRA to also shield it against the creditors of non-spouse beneficiaries (typically children) after the original owner's death. Since the state and federal bankruptcy statutes granting protection refer only to "IRAs", the courts have had to decide whether the term "IRA" includes "inherited IRA" or not. Hence, the different results seen thus far.

To end the confusion experienced there, on May 31, 2011, Florida amended its law to say, in effect, that "IRA" means "inherited IRA." Thus, inherited IRAs are protected in Florida, and all cases to the contrary there have been legislatively overturned. We reported this development in our May 2011 e-update. However, we have recently learned that on April 29, 2011 and on June 17, 2011, Arizona and Texas, respectively, also amended their statutes in a similar fashion.

Since all three statutes provide unlimited protection for inherited IRAs (in contrast to other states, such as Nevada, which protects only a certain dollar amount, or California, which protects only the amount needed for support in retirement), Florida, Arizona, and Texas are now the leading states in this regard. Knowing this, advisors should counsel clients who are domiciled in these states and who have inherited IRAs to limit their withdrawals from the same to the minimum required by law. By doing so, they can build up for themselves substantial retirement funds that will be creditor protected the same as their own retirement funds.

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

The October, 2011 Section 7520 Rate of 1.4% is an historic low. The historic high of 11.6% was in May, 1989. As recently as May, 2011, the Section 7520 rate was 3%. For December, 2011, the Section 7520 rate will be 1.6%.

What wealth transfer techniques work best in a low Section 7520 rate environment? Since a grantor retained annuity trust (GRAT) only works if the GRAT assets produce a return in excess of the Section 7520 rate (the so-called "hurdle" rate), the GRAT is an excellent wealth transfer tool in a time of low interest rates. The same is true of a charitable lead annuity trust (CLAT). Since any growth in the CLAT in excess of the hurdle rate passes to the remainder beneficiaries (the donor's family) at the end of the CLAT term, a CLAT works best to transfer wealth with low Section 7520 rates.

Installment sales to intentionally defective grantor trusts (IDGTs) also benefit in a low interest rate environment. The less interest the grantor has to charge the IDGT, the more assets remain in the trust. And the payments on a private annuity drop as interest rates fall, allowing the purchaser/child to pay less to the annuitant/parent.

There are, however, some wealth transfer techniques that do not thrive with lower interest rates. For example, a qualified personal residence trust ("QPRT") works best when the value of the retained interest (i.e., the right to occupy the residence for a set term of years) is higher (resulting in a smaller gift of the remainder interest). In addition, since remainders after annuity interests are worth less when interest rates are lower (as with GRATs), the deduction for the donor's contribution to a charitable remainder annuity trust (CRAT), or for the purchase of a charitable gift annuity, will be less.

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