Florida Estate Planning Lawyer & Attorney : Stokes McMillan Maracini & Antúnez : Litigation, Probate, Trust Administration

Beginning in 2008, Congress will ratchet up the restrictions imposed by the so called "kiddie tax " by increasing the age under which children are taxed at their parents' marginal rate for unearned income.  The new cut off age will be age 18 and younger, or age 23 and younger for "children" who are full-time students. 

In this recent article on Investors.com authored by Donald Jay Korn for Investors Business Daily, Korn discusses the new law, which targets upper-income families, and is designed to prevent such families from shielding income on dividends and long term gains by shifting such income to their children.

"A partial remedy for parents in higher brackets was to give appreciated assets they wanted to sell to their kids.  That was especially attractive if the kids were in the two lowest tax brackets [which owe 0% on most dividends and long term gains].  They could sell the assets and owe no tax."

While the increased restrictions do exclude married children who file joint returns, as well as children whose own earned income constitutes more than one-half of their support, it would seem these exceptions will be applicable in only a small percentage of cases.   

Finally, although the new law does impose increased restrictions, parents can still always save in gains taxes by transferring assets to their children to hold until after the child graduates college, and then having the child sell at his own (and most likely much lower) tax rate. 

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In the April 23, 2007 publication of the Federal Register, the U.S. Treasury proposed several amendments to the regulations on claims against estates governed by Section 2053 of the Internal Revenue Code. The most notable proposed changes include:

1.  Events occurring after a decedent's death will be considered when determining the amount deductible under all provisions of Section 2053;

2.  Deductions under Section 2053 will be limited to amounts actually paid by the estate in satisfaction of deduct able expenses and claims;

3.  A protective claim for refund may be filed before the expiration of the period of limitations for claims for refund in order to preserve the estate's right to claim a refund if the amount of a liability will not be ascertainable by the time of the expiration of the period of limitations for claims of refund; and

4.  No deduction may be taken on an estate tax return for a claim that is potential, unmatured, or contested at the time the return is filed.

The proposed regulations serve as a reaction to a history of inconsistent case law regarding whether post-death events should be taken into account in valuing claims against an estate.  Unlike Section 2031, Section 2053 does not contain a specific directive to value a deductible claim at its date of death value.  As a result of this vagueness, courts have gone both ways, resulting in the inconsistent treatment of estates for estate tax purposes. The Treasury hopes that by adopting the proposed regulations, Section 2053 will be construed and applied the same way in all jurisdictions. 

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