Advanced Planning
Jun 5th, 2009 by admin
Now is the time to act!
Right now we have a perfect storm of opportunity for wealth transfers for high-net-worth clients.
A combination of low interest rates, low gift tax rates, and lowered asset valuations means that we can reduce an estate for half the cost of just two years ago, and most likely half the cost it will be two years from now.
Our strategies include: Gifting; Advance Selling; Charitable Trusts; and Minority Discounts.
Gifting:
Historically IRS transfer rates have the gift tax rate lower than we’ve seen in a generation. We take advantage of this fact by using the $13,000 annual exclusion amount, creating simple and rolling Grantor Retained Annuity Trusts, selling interests in a closely held business to Grantor Trusts, and making simple, low-interest loans to family members.
It’s important to take action on GRATs as soon as possible. The Obama administration has proposed making the minimum term of a GRAT 10 years (as opposed to 2). Since it’s vital for the grantor to outlive the Trust, this will make trusts for older grantors a far riskier proposition. Additionally, congress is considering requiring a minimum 10% valuation on transfer – meaning it will no longer be possible to “zero-out” a GRAT.
Advance Selling:
The combination of low interest rates and low valuation of assets means that we can transfer what was a $1,000,000 piece of property four years ago at its reduced value of, say, $700,000. When prices rebound over the next few years, we will have accomplished a $1,000,000 transfer for a fraction of the cost.
Let’s take advantage of the low capital gains rate – only 15% for the top tax brackets.
Charitable Trusts:
With interest rates at a low, the pendulum on Charitable Trusts has swung between favoring Charitable Lead Trusts and Charitable Remainder Trusts. Many high-net-worth clients favor these trusts anyway.
Minority Discounts:
With this technique, the value of the asset is discounted due to lack of marketability and reduced control of the asset. Sophisticated estate planners, working with top local estate CPA firms, have transferred millions of dollars without paying estate taxes, and won challenges from the IRS on those transfers.
However, it’s important to act fast: Congress is considering legislation (H.R. 436) to limit the use of minority interest discounts for lack of control in valuing business interests transferred between family members. Additionally, the proposed legislation would eliminate valuation discounts for certain closely-held entities to the extent of their non-business or passive assets.
Why choose the Law Office of Daniel K. Printz to do your advanced estate planning?
We have formed partnerships with top local financial planners and CPA firms, known for their expertise with reducing estate taxation through sophisticated but legal (in fact, battle-tested!) techniques.
Call today for a consultation. (858) 740-4370.
What’s this I hear about Repealing the Estate Tax?
By now it has become clear that President Obama wants to freeze the estate tax exemption at its current level. This means that estates with less than $3.5 million in value can be transferred free of the estate tax at death. In other words, for some of us the time to plan is right now.
Why? Because the temporary total repeal of the estate tax, which would have meant that even the very wealthy could pass their entire estates free of estate tax at death, will not occur in 2010 as planned. It also means the estate tax credit won’t reset to Clinton-era levels of $1 million dollars and a 60% tax rate in 2011, which is when the current legislation, passed as part of the 2001 Bush tax cuts, was scheduled to expire.
What this means for you is that now is the time to do some serious planning – let’s pull out those dusty trusts and do some serious wealth management. If you’ve been putting it off because of uncertainty about the estate tax, now is the time to act.
How can I use lifetime gifts to reduce my estate?
Under IRC Section 2503(b), the first $13,000 (plus cost of living adjustments) of gifts to any person, other than gifts of future interests in property, made during a calendar year are not included in the total amount of gifts made during the year. There is no limit to the number of recipients to whom a donor may make an annual exclusion gift each year.
Therefore, a client with numerous objects of his or her affection can significantly reduce their estate with tax-free transfers.
Let’s say John Doe has eight nephews and nieces. Each year he can make $124,000 (8 x $13,000) in gifts free of gift taxation. Moreover, spouses can elect to great a gift of separate party made by the owner spouse to a third party as being made one half by each spouse. Thus, John and his wife Jane can make a $26,000 gift to each donee.
Now that there is clarity in the Estate Tax exemption for the foreseeable future, gifting is one of those tools we can offer our clients to abate potential estate tax issues.
Want more information? Call us at (858) 740-4370 and make an appointment.
