In December of last year, President Obama turned the standard estate plan upside down when he signed the Tax Relief Act of 2010. In addition to a record $5 million applicable exclusion amount and continued 35% top rate, the estate tax included a brand new concept that may force your clients to re-evaluate their estate plan.

That concept is the Deceased Spouse Unused Exclusion Amount (DSUEA). Advisor’s Journal covered the DSUEA shortly after the concept was introduced [Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122)]. In that article, we concluded that the DSUEA not only makes bypass trusts unnecessary, but may even hurt an estate’s beneficiaries by reducing the basis of assets they receive from the bypass trust. We hinted at one solution to the bypass trust problem—disclaimers. Here we’ll discuss a particular solution to the bypass trust problem, the so-called “A-B Bypass Trust.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the new estate tax in Advisor’s Journal, see IRS Finally Issues Guidance on 2010 Estate Tax (CC 11-160), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), & Obama Tax Agreement Passed by House (CC 10-117).

For in-depth analysis of the estate tax, see Advisor’s Main Library: Estate, Gift and GST Taxes

The IRS has dropped the second shoe, giving taxpayers guidance through the complex procedural machinations they must follow to avoid the 2010 estate tax.

The IRS released two pieces of guidance for estates of 2010 decedents. Advisor’s Journal covered Notice 2011-66 in a previous edition [see IRS Finally Issues Guidance on 2010 Estate Tax (CC 11-160)]. Today we discuss the second component, Revenue Procedure 2011-41, which provides a safe-harbor for executors of estates of 2010 decedents and beneficiaries of those estates. If the safe-harbor procedure is followed and the executor doesn’t take a contradictory position on a return, the IRS will not challenge the election against the estate tax or the basis allocations made by the executor.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of estates of 2010 decedents in Advisor’s Journal, see IRS Finally Issues Guidance on 2010 Estate Tax (CC 11-160), What Next? ILITs and Estates under 5MM (CC 11-114), & Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122).

For in-depth analysis of the estate tax, see Advisor’s Main Library: Estate, Gift and GST Taxes

The infamous “carried interest” treatment enjoyed by hedge fund and venture capital fund managers may be at risk in the wake of the Tax’s Court’s decision in Dagres v. Commissioner, 136 T.C. No. 12 (Mar. 28, 2011). Although the Tax Court didn’t directly assault the carried interest “loophole” in Dagres, some commentators think it may have opened the door for the Treasury and the IRS.

“Carried interest” is one part of a private fund manager’s payment for managing a fund. Most private fund managers receive two different types of payment for their services. The first is a flat fee—usually 2% of fund assets. The second component, the manager’s carried interest, is a performance fee, which is typically 20% of the fund’s profits.

The income tax treatment of the 2% flat fee part is uncontroversial: It’s taxed as compensation for services at ordinary income rates and is subject to employment taxes. The carried interest component of the fee, however, is taxed at capital gains rates as an investment. As a result, what is often a majority of a hedge fund manager’s fee is taxed at the 15% capital gains rate instead of the more than double ordinary income top rate of 35%.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For a full discussion of the taxation of carried interests, see Professor David Herzig’s article, Carried Interests: Can They Effectively be Taxed, available online from SSRN.

For previous coverage of hedge funds in Advisor’s Journal, see Tax-Free Hedge Fund Investment: Private Placement Insurance (CC 11-39) & Hedge Fund Must Now Register with the SEC Under the New Wall Street Reform Act (CC 10-45).

Fixed income annuity contracts are a great hedge against longevity risk that can help provide retirement income sufficiency in an increasingly uncertain environment. But even with a fixed annuity, income sufficiency is a tricky goal to attain when you’re walking uphill against inflation.

Since a $100,000 annuity pays the same $650/month in January 2032 as it does in January 2012, it must be paired with a strategy that hedges against inflation. Writing for Forbes earlier this month, Stephen Horan, PhD, discussed the lesser-known cousin of the fixed annuity, the inflation-protected annuity.

An inflation-protected annuity is generally a “fixed” annuity that includes a component that ratchets up payments each year to account for inflation. There are two general types of inflation protected annuities: (1) those that account for inflation by increasing payments by a fixed percentage (e.g., 4%) each year to account for inflation; and (2) those with a variable increase that is tied to an inflation indicator like the Consumer Price Index (CPI).

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see Annuities: They Get No Respect (CC 11-120), Annuity Respect: Earning It! (CC 11-150), & How Much to Allocate to Annuities: A Critical Analysis (CC 11-109).