STEPHANIE COHEN FEATURED PANELIST AT MARCH 30 DISRUPTIVE WOMEN IN HEALTH CARE PANEL

Stephanie Cohen offered insights into what insurance customers can expect from the new health bill at the first monthly breakfast series on health reform, hosted by Robin Strongin, president of Amplify Public Affairs and the Disruptive Women in Health Care Blog (www.disruptivewomen.net), and its media partner, The Hill (http://thehill.com).

The topic of the event was, Health Reform: US Patience (not a typo) Pay the Price.

Strongin opened the meeting asking, "Now that Health Care Reform Legislation has finally passed – what's going to happen next?"

"The law is an outline, now the novel has to be written," said Cohen. "This is changing daily."

Another panelist, Mary Grealy, President of the Healthcare Leadership Council, added, "Americans waited and waited for the new legislation (this is where the patience comes in) like kids waiting for Christmas morning. But now, we have to open the presents and see what's inside. Did we get what we wanted? Or did we just get socks? We either had one of the greatest achievements or the downfall of the Republic."

Grealy went on to discuss both the positives and the negatives of the new legislation before concluding, "Just because the legislation passed, doesn't mean the work is done. Congress is really going to have to revisit this."

The third panelist of the morning, Judy Feder, Professor of Public Policy and former Dean of the Georgetown Public Policy Institute, talked about the history and politics of the new legislation.

"I am beside myself with excitement [about the health care reform bill]," Feder said. "You couldn't have a more dramatic process – we were up, we were down, we were dead, we were alive. I am of the camp that calls this a bloody miracle."

Cohen finished up the morning meeting by providing attendees with a detailed outline of the incredible quantity of changes that will be put into practice in the coming months and years.

"The legislation is still a work in progress, and there are a lot of misunderstandings," Cohen told Disruptive Women. "This new book is being written chapter by chapter. It has to be revised. This is just the beginning."

The next Disruptive Women breakfast meeting, "News (Hot) Flash: Sex, Drugs & Menopause," will be April 29, 2010 from 7:30 a.m. to 9 a.m. To attend, register here: www.disruptivewomen.net/breakfastseries.

ATTORNEY STEFAN NICHOLAS EXPLAINS THE ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT

By Stefan C. Nicholas, Esq., Director / Chair
Logan H. Winn and Jedediah R. Bodger, Jackson & Campbell, P.C., www.jackscamp.com

For the past few years, the joke among estate planning practitioners and their clients has been that 2010 would be a good year to die.

The one-year "death" of the estate tax, however, has been greatly exaggerated. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) actually put in place a much more complex and burdensome estate and gift tax system that will impact more taxpayers than the traditional estate tax that has caused so much uncertainty. As a result, 2010 may be anything but a good year to "go gentle into that good night."

The current state of affairs has made many, including many members of Congress, yearn for the simpler days of the estate tax.

Key issues

The key issue at hand involves a provision that "repealed" the estate tax for only one year – this year, 2010 – although the estate tax may be retroactively reinstated at any time. Yes, it's really that confusing. Congress failed to act prior to the end of 2009 to extend the estate tax, despite repeated promises to do so.

Moreover, if Congress fails to act prior to the end of 2010, the estate tax will return in 2011 — but not as it was in 2009, rather as it was prior to 2001. Did you follow all of that? This state of confusion and uncertainty is the unintended, and unwanted, legacy of EGTRRA. What, if anything, should you do about it?

The State of the Law

Prior to January 1, 2010, each U.S. person could have given away, during their lifetime, a gift of up to $1 million free of tax, or at death a total of $3.5 million worth of property free of estate tax. Gifts and inheritances over those amounts were taxed at 45 percent.

Additionally, prior federal tax law provided for an unlimited marital deduction. This meant that each U.S. person could have transferred an unlimited amount of property between spouses without incurring any federal estate taxes. Combining the $3.5 million exemption with the unlimited marital deduction meant that a married couple could have a combined estate of $7 million, which passed tax-free (for federal purposes) at the death of the second spouse to die.

In 2010, there is currently no estate tax and the top marginal rate for the gift tax is 35 percent. Without further action, in 2011 there will be a reduced estate tax exemption of $1 million per person and a top marginal rate of 55 percent (with an additional 5 percent surtax for certain large estates).

And there's more.

•The federal gift tax exemption will remain fixed at $1 million, but gifts over that amount will be taxed at an increased rate of 55 percent beginning in 2011.

•In addition to the repeal of the estate tax, new "basis" rules are in effect for estates inherited in 2010. Prior to 2010, assets transferred at death were transferred with a basis equal to the assets' fair market value at the date of the decedent's death.

•Any appreciation realized by the donor was essentially forgiven and passed tax-free. This "step up" in basis has been repealed and replaced with "modified carryover" basis rules.

In short, for the year 2010, any property owned by a decedent is transferred to the recipient with the decedent's basis (i.e., the original purchase price).

Therefore, although exempt from estate and gift tax, the assets received may be exposed to capital gains taxes when the inherited property is sold by the recipient, to the extent that the gain exceeds $3 million for assets transferred to a spouse and $1.3 million for assets transferred to anyone else, such as children, with gains calculated from the assets' original purchase price.

This switch to "modified carryover" basis rules from "stepped-up" basis rules is one of the major changes to be aware of for 2010. In 2011, the "step-up" in basis rules will return along with the estate tax.

How do these changes impact you and your current or anticipated estate planning?

As noted, no one expected such legislative inaction and estate planning practitioners are now trying to grapple with the unintended consequences of EGTRRA. Congress is looking at ways to fix the problem, including the possibility of retroactive legislation.

This solution will almost certainly lead to litigation, which will only lengthen the current state of confusion. Fear not, there may be some concrete steps you can take now. Click here for more details.

The Bottom Line

Although we are faced with uncertainty until Congress finally attends to the estate tax, at a minimum your existing estate planning documents should be reviewed to ascertain the effects of the one year repeal on your individual plan. Unfortunately, there is no one-size-fits-all "band-aid," but your advisors can help you avoid any unintended estate and gift tax consequences in 2010, as well as take advantage of any of the benefits to you during the one year "repeal."

About Stefan C. Nicholas

Stefan C. Nicholas is a Director and Chairman of Jackson & Campbell's Estates and Trusts practice group and a member of the Business Law practice group. He has extensive experience in drafting wills, trusts and all ancillary documents in connection with estate and gift tax planning, as well as asset protection planning including both on- and off-shore asset protection trusts and the use of corporate entities. Stefan also has extensive experience with sophisticated wealth transfer techniques such as grantor retained interest trusts, qualified personal residence trusts and defective grantor trusts. Contact him at SNicholas@JacksCamp.com.