2012 Estate Planning. Martin Inc. Shenkman

2012 Estate Planning

in written form so that the practitioner will have a record of what was done. From a marketing standpoint, a written communication is more likely to receive attention from elderly clients who may not be e-mail savvy. Moreover, a written communication is more likely to be shared by a parent or other potential benefactor with heirs who might benefit from the planning.

For many professional firms, an online blog or newsletter will likely have already been used to disseminate the 2012 planning message. But if the newsletter is only sent via e-mail, a very substantial portion of the firm’s client base may be missed. Many firms favored using e-mail addresses in their databases when they began their electronic communications. However, for many elderly clients and for clients that have been inactive for 5, 10, or more years, no current e-mail address may be available. So relying solely on an e-mail communication will likely miss a significant portion of the clients who might benefit most from 2012 planning. A simple and cost-effective method to get clients’ attention and visibility for the firm is a postcard mailing to all clients.

PLANNING NOTE: Sample letters and a postcard are reproduced in Appendix B and are also posted on www.laweasy.com to provide you easy access to these items.

Cautions for Consumers

For those of you seeking guidance on how the 2012 planning opportunities and the myriad of possibilities for the future of the tax laws that may impact your personal situation, this book will provide a better understanding of the subject matter and en-able you to have a more productive meeting with your estate planning team (attorney, CPA, financial adviser, insurance consultant, etc.). Attempting to plan on your own, or using an “inexpensive” document production or planning website, was never a sensible idea, and it certainly isn’t now. You can never substitute a boilerplate legal form for the decades or more of experience of a professional estate planner, especially in the unique situation you are facing today. Estate planning is about planning for you and your family, focusing on your individual needs, your unique objectives, and as such it must be tailored to your particular situation (which is dynamic and ever changing).

SUMMARY

Never before in the history of the transfer tax system has there been such a potentially valuable and narrow window of opportunity as presented by the remainder of 2012. While uncertainty abounds, succumbing to that uncertainty, instead of proactively planning, could result in losing out on tremendous tax, asset protection, divorce, and other planning benefits. Depending on future developments, assumptions made today may prove incorrect and, as a result, the fruits of planning may be less than optimal. But even with that risk, engaging in proper planning today will likely prove dramatically better than doing nothing. Many unique planning opportunities and technical nuances of 2012 planning are reviewed in the following chapters.

CHECKLIST: STEPS YOU SHOULD TAKE

Don’t forget to factor state estate (and gift) taxes into planning. In decoupled states, the cost of not planning in 2012 can be substantial and many who might be affected may erroneously believe they are beneath the threshold where estate tax minimization planning is relevant.

Residency/domicile is significant for the determination of state income tax, trust situs for non-grantor trusts you have established, estate taxation (or avoidance), and interpretation of your will and revocable trust. Planning the situs or location of trusts established in 2012 is also vital to the potential benefits and even the success of the entire plan. Too often taxpayers incorrectly presume that their domicile for estate tax purposes is the state where their state income tax returns indicate they are residents for income tax purposes. Don’t presume that any trust you establish should be formed in the state in which you reside. You should endeavor to address these potentially dangerous misconceptions when engaging in 2012 planning.

Income, capital gain, dividend, and other tax planning considerations must be addressed for anyone engaging in 2012 estate planning. Strategic asset allocation, Roth conversion, and a myriad of other decisions may be affected.

Determine whether your planning in 2012 for divorce and asset protection benefits outweighs your estate tax planning concerns. Malpractice, divorce, premises liability, and other unmanaged risks can decimate an estate far worse than any tax.

Steps for Professional Advisers

Communicate with clients immediately as to the options available for 2012 planning. Consider an e-mail letter and postcard. Samples are provided in the Appendices. Mail a regular letter or postcard (more cost effective and likely more visible) to every client address. Remember an e-mail database will not include contact data for older clients who may not use e-mail or the Internet. Most important, many inactive clients will not be reached via a mass e-mail. Older clients are likely the ones that have the most outdated planning and who may benefit the most from 2012 planning.

CHAPTER TWO

CURRENT TRANSFER TAX LAW—PROPOSED AND POTENTIAL CHANGES

To better understand the overview of planning ideas discussed in this book, this chapter offers a more detailed discussion of many of the proposed law changes. It includes a brief overview of the generation-skipping transfer (GST) tax. It also discusses some of the many proposals to modify the income tax rules, especially as they apply to higher income taxpayers. The possible changes to the income tax rules have important implications to estate planning and should be considered when evaluating 2012 estate planning options. A major difficulty with all these rules is that there is little certainty as to what changes might eventually be enacted. It is possible that new proposals not mentioned below might become law instead. The real challenge for 2012 is to understand that uncertainty often provides opportunity. Chapters 5 and 9 discuss many of the planning options to consider in light of the transfer and income tax changes discussed here.

EXEMPTION AMOUNT AND RATE

The 2010 Act set the estate, gift, and GST tax exemption at $5 million per person (or $10 million per married couple), inflation adjusted starting in 2012; it’s now $5.12 million. An effective tax rate of 35 percent was set for all the federal transfer taxes: the estate tax applicable at death, the gift tax applicable to lifetime (inter-vivos) transfers, and the generation-skipping transfer (GST) tax. These favorable 2010 Act changes, however, all expire (i.e., sunset) at the end of 2012 and, absent congressional action, the exemption will decline to $1 million (although the GST exemption will be higher as a result of it being inflation adjusted) and the unified rate will rise to 55 percent.

PLANNING NOTE: While there are a number of proposals, and many more predictions, the law right now is as provided above. The critical point to 2012 planning is that, absent a visit by Carnac the Great, we may not know what the 2013 laws will be until well after 2012 planning opportunities have disappeared. Remember, the 2010 estate tax rules were not known until mid-December 2010!

2012 Estate Planning. Martin Inc. Shenkman