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New Tax Laws…

Still waiting….

Tick, tock, tick, tock….

I heard a funny client comment the other day.  The guy said to me, “I want to clean up my estate plan to account for Obama’s tax law changes as I don’t want him getting my money….”

This is not political commentary… this is reality.  The tax law “changes” merely go back to what was the law in 2002… long before Obama was the President.  The current law “change” is the law that was written in 2001 by our brain trust in Washington DC.  There is no right and wrong here… both Democrats and Republicans, back in 2001, got together what they thought was a good compromise.

They were likely sure the law would be changed before 2010 and thus you would never have a case where multi-billionaires would die without paying tax, you would never get to the end of 2010 with a sunsetting law that might cause a few really rich people (or their kids) to speed up the dying process, nor would the successors in DC not come up with a permanent law by 2010.

The bottom line is there is complete uncertainty and, it is my current guess, we may see this uncertainty for a while.  This uncertainty has caused a lot of clients to delay in taking action.  Clients with millions of dollars have told me they don’t want to spend the money for estate planning in such an uncertain time.

The fact is wealthy people will be taxed one way or the other. Will the exemption amount be one million, two million, three point five million or some totally different number?  I don’t know.  Will it be called an “estate tax,” a “gift tax,” a “capitol gains tax,” or some other tax?  I don’t know. However, I know that rich people will be taxed.  Or as my friend James would say, “rich people will be taxed period dot.”

The estate tax has long been a favored way, in Washington DC, to tax the rich. With our current economic times it is silly and naive to think wealthy people won’t be taxed. If you are a wealthy person (and you know who you are) then you will be taxed and thus you should be doing estate planning NOW!

A lot of estate planning choices give other benefits besides tax savings.  Yes, they will give tax savings later but they may do other things now.

For example, a Qualified Personal Residence Trust (“QPRT”) is an irrevocable trust that provides asset protection.  It also gets future appreciation out of your estate so doing a QPRT now, with such low home values, can be a huge tax savings down the road.  QPRTs are designed for your personal residence and one other (non-income producing) home which is typically a vacation home.

Another great one is doing a family limited partnership (“FLP”).  It is a business entity to hold assets which gives continuity, keeps control away from irresponsible kids, and down the road can provide some huge tax savings.  It is great for rental properties, businesses and can even be implemented for large stock portfolios.

Another simple estate planning device is the irrevocable life insurance trust (“ILIT”).  Having your life insurance in an ILIT can provide benefits well above any tax savings. What about creating asset protected money for your spouse and kids!?  Plus, life insurance grows without tax, pays out without tax, and creates a huge pool of liquidity after death.

These are just a few of the major estate planning devices you should be looking at how regardless of what the taxes are. Of course, all of the above in addition to your standard revocable trust, wills, powers of attorney and the like!  Plus, it’s always a good idea to review your assets and confirm that the ownership is properly titled in your trust.

Call me to discuss your estate plan!  -John