Uncertainty and what it means for you

I have been receiving the same type of question from many clients lately. In each instance, the question centers around the activities of the government in spending more money than we have (and printing what it doesn't have!) and what that means for us on an ongoing basis. Every client of mine is aware of the current opportunity to use the five million dollar ($5,000,000.00) per person exemption to do advanced estate planning if the client's situation calls for it, but often in discussions the clients are nervous about whether this high exemption will continue to be in place for the rest of this year and next (currently set to reset to the one million dollar exemption level on 1/1/2013 unless congress acts to change the law before then). In upcoming blog posts we will be looking at some opportunities that high net worth individuals have by using the high exemption for this year, but my response to these clients who are nervous generally is always the same.

That response is that while the government has told us that we have the next two years to use this high exemption, I would not recommend that they wait until the end of 2012 to use the exemption if they need to do advanced planning. This is because it would be easy for the government to change the law for 2012 anytime before that calendar year starts (so think about a "compromise" at the end of this calendar year or anytime before then). If the government does change the exemption levels then people who would otherwise need to use the higher exemptions may not be able to do so if they wait until next year (especially since we do not know if any changes to these exemptions are on the table in any of these debt ceiling discussions). My recommendation to anyone reading this post is that you work with your existing planner NOW to determine if the exemption should be used this year in order to ensure that the planning can be done. When people allow the uncertainty to prevent them from doing the planning that they otherwise need to do, that leads to inaction and ultimately a poor or bad result for one's family. Do not let the media or the politicians convince you that it is sufficient to wait for "certainty" to happen. Create your own certainty by working with competent planners who can advise you on all of the issues that people are facing in today's world.

Teaching in the Fall

I'll be teaching Federal Income Taxation in the Fall Semester at Trinity law School. For any students reading this, we'll be going through many of the fundamental code sections that are important in this practice area and focusing on statutory interpretation (as we'll probably spend more time in the Internal Revenue Code than in the casebook). If any Trinity Student has any questions about what will be covered in the class, I will be submitting the syllabus this week and I will be available to discuss if you have further questions.

Highlighted Charity for February 2011

This month's featured charity is The Foundation for Hope and Innovation. Their website and other information can be found here:

They are a 501(c)(3) organization that was formed to do cancer research. They are passionate about doing everything that they can to fight this disease and do very good work. As their website states, their mission is:

http://www.foundationofhopeandinnovation.com

"The Foundation of Hope and Innovation is dedicated to cancer research. We strive to improve treatment outcomes of those affected by the disease as well as foster awareness in the medical community and the general public. We are committed to providing hope through innovative approaches that promise to extend the lives of cancer patients and keep them cancer free longer."

As with all of the charities that I highlight in this Blog, I find them to be doing important work for society that will impact all of us (whether we get cancer in the future or a loved one or friend). If you have any questions about what they do or want to find out more, check out their website set forth above.

2010 changes and how to plan in 2011 and 2012

The dust has now settled on the 2010 Tax Legislation called "The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" which was passed in December of 2010. This act was passed just a few weeks prior to the so called "sunset" of the Bush tax cuts and has generally extended those cuts for two more years (until December 31, 2012). No matter where you are at on the political spectrum, this act has created some interesting planning opportunities that may, or may not, exist at the end of 2012 (depending on the results of that election). My goal is to place my other ongoing series of posts on hold and spend some time unpacking this tax act. There is much that needs to be discussed from the act, and I will start discussing the major areas that clients are asking about and that they should be asking about.

In no particular order, some of the topics that are of interest to my clients are: the addition of an election for decedent's estates dying in 2010 (either keeping the unlimited estate transfer with no step up in tax basis or the five million dollar exemption with the step up in tax basis), portability of a deceased spouse's unused exemption amount, the extension of income tax dividend and capital gain rates, and much more.

I will be discussing many of those topics in individual blog posts, but at this time note that if you have an estate over five million dollars (for a single individual) or over ten million dollars (for a married couple), this two year period may give you an unparalleled planning opportunity (especially if the election in 2012 creates a balance of power in the government that does not support the five million dollar exemption). Many of my high net worth clients that have taxable estates over the ten million dollar level are really looking at using the full ten million dollar gift to fund life insurance strategies, private annuity strategies, installment sale strategies, and many others. If you have been waiting to discuss proper planning until a more permanent law is passed into effect, then you may want to reconsider for this next two year period.

If you have any questions about your current estate planning or about what techniques can really work in this environment for the next two years, do not hesitate to contact me at 949-788-1819 or Mark@Zieboldlaw.com.

Year End Planning

Many clients have contacted me and asked about the most effective planning methods and techniques during this year where the "regular" estate, gift, and generation skipping tax rules will go back in effect next year (more on that below). With regard to each person's unique situation, different planning techniques may provide you or them with some extra benefit if done before the end of the year. In general, those include large lifetime gifts (as the tax rate on gifts over the million dollar lifetime gift credit) is 35% in this year, but reverts back to a maximum rate of 55% next year without any congressional action. Based on this, if you are a client who has been thinking about making large gifts and who does not mind paying gift taxes, then this is the year to make outright, large gifts. These types of gifts can be made to trusts as well, but based on the rules regarding generation skipping taxes, I am not recommending that you make large gifts to trusts that have beneficiaries who would trigger generation skipping taxes. The reason for this is that even though there is no GST tax this year, the GST tax will be assessed against distributions from trusts in the future if the gift that funded the trust was not exempt from this type of tax. Due to this change in the law that will occur on January 1, 2010, I am suggesting to clients that if they want to make large gifts to grandchildren or more remote heirs to avoid the GST tax in the future (and to take advantage of the lower gift tax rate this year), then the gifts should be outright. If the trust is set up to benefit the children of the Donor, then the large taxable gift can be made to a trust for that person's benefit, but the trust must be set up to be included in that beneficiary's estate if you do not want it to be subject to GST taxes in the future.

In general, planning techniques involving charitable gifting (outright gifts to charities, creation and funding of private foundations, public charities, etc.) all must be done before the end of the calendar year instead of the tax due date of April 15th next year. Based on this, if you are working with your CPA to determine if you need additional charitable deductions for this tax year, make sure that you work with your attorney to provide enough time to make these gifts prior to the end of the year. Even the formation of private foundations can be done prior to year end as they can be formed and funded (giving you the tax deduction) if the entity obtains its 501(c)(3) status within a close period of time of the formation of the entity (you must generally file the 1023 form within 27 months of formation if you want the operations of the entity to be tax exempt from the date of formation).

In addition to all of the above, Congress is going to modify the GRAT rules sometime next year, so if you would benefit from a two year GRAT, then that may be another planning technique to consider. Life Insurance is also another great option that people sometimes consider too late (based on developing health issues). The earlier you get a life insurance plan in place, the better your costs will be (and you will often be able to get more coverage).

If you have questions about what any of the above means, do not hesitate to contact me by phone or email and we can discuss your questions in greater detail.

New Firm and Services Offered

It has been a while since I last posted on this blog, but that should change from this point forward as I have left my prior Firm and have opened up my own office. My new contact information is as follows:

Ziebold Law Group
9870 Research Drive, Suite 105
Irvine, CA 92618
949-788-1819 x 129 (phone)
949-788-1869 (fax)
Mark@Zieboldlaw.com

In addition to this, two others and myself are planning on offering Christian Fiduciary Services (Trustee services from a Christian Worldview) in the near future (outside of my law practice). Please update your contact information for me with the information above and have a great day.

Content on Avvo website

I have started providing legal answers and legal guides on Avvo (www.avvo.com). Take a look at the following: