ESTATE TAX AND ESTATE PLANNING
TACC LIFE EXPERIENCE SEMINAR – NOVERMBER 13, 2010
By CAROL K. KAO, Esq.
of Luce, Forward, Hamilton & Scripps, LLP
Reported by Lily Hazelton (吳美華)

Carol Kao, born in Taiwan, moved to the United States with her family when she was 8. She obtained her B.A. from UCLA and J.D. from USC. Carol is co-chair of the Family Wealth and Exempt Organizations practice group of Luce, Forward, Hamilton & Scripps, LLP. For 19 years, she has specialized in estate planning with an emphasis on family wealth transfers for large estates, sophisticated estate and gift tax saving techniques, charitable planned giving, family foundations and complex probate and trust administrations. Carol has been selected as one of the “Best Lawyers in America” and was named one of “Southern California Super Lawyers”.
The main items discussed by Ms. Kao are as follows:
1. Estate Tax Overview
a. No estate tax in 2010, assuming no retroactive legislation.
b. Assuming no new legislation, starting 2011, the estate tax credit will be $1,000,000 and the maximum estate tax rate will be 55% (plus surtax).
c. The estate tax is imposed on worldwide assets including all investments and life insurance.
d. Currently, there are 5 different proposals being presented in the Congress. It is widely speculated that an estate tax credit between $1,000,000 and $3,500,000 with a maximum estate tax rate of 45% might come out of the legislation.
2. Planning to Preserve Maximum Estate Tax Credit & Savings
a. It is very important to do the planning while both spouses are alive – Even with a $1,000,000 estate tax credit, by planning ahead, it is possible to transfer $2,000,000 without having to incur any estate tax.
b. A federal estate tax-free inter-spousal transfer is allowed either during lifetime or at death as long as the spouse is a U.S. citizen.
3. QDOT Planning for Non-Citizen Spouse
a. A Qualified Domestic Trust (QDOT) can be set up to transfer assets to a surviving resident-alien spouse while preserving the marital deduction for such a transfer.
b. The trustee of the QDOT must be a U.S citizen.
c. Additional requirements have to be met.
4. Some Techniques to Reduce Estate Tax
a. Annual exclusion gifts - The annual gift tax exclusion currently allows the donor to give $13,000 per donee per year without incurring a federal gift tax. Married couples can double the exclusion amount. This exclusion allows the donor to distribute his/her assets gift tax free and potentially reduce the estate tax.
b. Lifetime gift tax credit (currently $1,000,000 each donor) - can be used during the donor’s lifetime or upon death. This lifetime gift tax credit can be utilized during a donor’s lifetime to remove appreciating assets from the donor’s estate - removing the assets today keeps any appreciated value out of the donor’s estate later.
c. Gift tax rate of 35% in 2010, assuming no retroactive legislation - The gift tax rate could potentially go up to 55%. Year 2010 would be a good year to gift assets to heirs. Also, by paying gift tax during life-time, the donor in fact removes the gift tax amount from his/her estate, while funds used to pay tax on transfer at death may be includable in the donor’s estate for estate tax purposes.
d. Other Tax Planning Techniques –
1. Make payments directly to the donee’s educational institution or medical care provider to qualify the gift as tax exempt.
2. Transfer personal residence to a Qualified Personal Residence Trust (QPRT) (gifting with retained interest) can help reduce the gift value if certain conditions are met.
3. Transfer appreciating properties to a Grantor Retained Annuity Trust (GRAT) (gifting with retained interest) can help shift the appreciation to the heirs if certain conditions are met.

In conclusion, Ms. Kao emphasized that it is more beneficial to consider gifting when asset valuations are low.