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Pitfalls of New Estate Tax Portability

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(Dow Jones) A new tax break for spouses wealthy enough to worry about the estate tax seems to offer a huge benefit, but isn’t perhaps as special as it seems at first glance.

When Congress approved a two-year extension of tax cuts dating back to the Bush presidency, it also let married people pool their estate tax exemptions, under rules known as portability.

Now, a surviving spouse can take his or her own $5 million estate tax exemption along with any of the $5 million not used by the deceased partner. An exemption could not be shared in the past.

The change has spurred a lot of talk among the wealthy, according to Lauren Y. Detzel, chairman of the estate and succession-planning department at Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth. The question for some: Is portability a good reason to undo estate plans already in place?

The answer to that is a definitive “no,” Detzel says. “Educating clients about the ‘pitfalls’ of portability is a top priority,” she adds.

Under portability, if a husband dies in 2011 or 2012, having made $2 million in lifetime gifts, and leaves his whole $8 million estate to his wife, no tax is due at his death. Adam J. Wiensch, an estate planning attorney, and partner at Foley & Lardner LLP in Milwaukee, offers the example, adding that the wife can use his $3 million unused estate tax exclusion which, coupled with her own $5 million exemption, raises the threshold to $8 million.

There are several reasons not to simply rely on portability, but to plan instead for what to do with the part of the estate held by the first spouse to die.

First of all, the rules are in effect for two years only. We don’t know what Congress will do after 2012 yet.

Another problem is that relying on portability does nothing to address asset appreciation and or credit protection. A person who sets up a trust to hold the $5 million exemption for one or both spouses, instead of just relying on portability, clears the whole amount, plus appreciation and income on the assets, off the estate. And, the credit protection a trust can afford is often very important these days.

The kind of trust often used for this purpose is a credit shelter trust, otherwise known as a bypass trust, family trust, or A/B trust.

Carol Kroch, managing director and head of wealth and financial planning for Wilmington Trust, says that portability is difficult to rely on as it is scheduled to expire in 2013. Even if portability is extended beyond 2012, its utility could be reduced by future changes in the exemption amount and by divorce and remarriage. Thus, portability may be “a safety net that is not 100% safe.”

A general rule of thumb is that the very wealthy—that is people with considerably more than $10 million—should probably continue with more traditional and sophisticated planning, despite the new portability rules, according to Samuel V. Petrucci, director of Private Banking USA at Credit Suisse Securities (USA) LLC in New York.

The Law of the Land – Farming

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In farming, the business is usually a family’s greatest asset, not only for income and investment but as the next generations’ inheritance and potential livelihood. Before the likely return of the estate tax, estate planners recommend taking a close look at what you can shelter now and in the future.

“Unless Congress and the president can come to some sort of agreement to the contrary, the estate tax will be reinstated January 1, 2013, on any estate greater than $1 million,” says attorney Curt Ferguson, founding owner of The Estate Planning Center in Salem. “It will be a 45 to 55 percent progressive rate, depending on the size of the estate.

“I hear from my clients, ‘It’s harder to keep it than it was to make it.’ They want to make sure the son or daughter committed to farming and growing the operation is able to keep most or the entire farm without dividing it up or selling it.”

The land is the main issue, says Ferguson. “Usually, 90 percent of the assets are the land. The liquid assets, money in the bank, stocks, bonds, mutual funds, are a pretty small fraction.” However, he says, it’s not uncommon to see machinery worth $1 million.

Ferguson helps clients develop a comprehensive business and estate plan. Among his recommendations are these basic tax reduction strategies.

Make sure a married couple uses both exemptions, $1 million each. Don’t waste one exemption.

Divide ownership. If assets are divided in half, and one spouse’s assets are held in trust, when one spouse dies the other doesn’t have to pay estate tax on the full amount of all assets.

Employ discounting strategies. Put the farm assets into a limited liability company. When the owner dies, rather than transferring $1 million in real estate to the heirs, shares of the LLC are transferred at an effective 30 percent to 40 percent discount, which reduces that $1 million to $600,000 to $700,000.

Transfer assets to heirs while you’re living. Current non-taxable amounts are $13,000 per gift annually to unlimited recipients, or up to $1 million one time. Be sure any estate plan is flexible so plans can be changed.

A real concern is how the estate is transferred to more than one child when only one child wants to run the farm operation, Ferguson says. To avoid a forced sale when assets aren’t equally dividable, parents may wish to stipulate a rental arrangement or buy-sell agreement, may give the entire estate to the one child who wants to farm, or make some other anticipatory plan.

“Head estate issues off early,” says Ferguson. “These issues can destroy families. I ask my clients, ‘After we’ve designed a plan and the plan has played out, will there still be family reunions? Will everyone involved say, ‘That’s the way it should be?” Intergenerational communication is very important so there isn’t hatred and jealousy.”

David Frisse, founder of Frisse & Brewster Law Offices in Paris, Illinois presents estate and family business planning seminars in and around central Illinois encouraging participants to look at several big picture questions in order to create the best possible business plan.

Do you recognize you are a steward? What you control now you won’t always control. If you look into the future two years, 20 years, what do you want to see for your family and for your farm business? How can you ensure this vision comes true? What are the obstacles to accomplishing your goals? If the estate tax is imposed on everything you own in excess of $1 million, at a combined federal and state rate typically in the 40 percent to 60 percent range, what happens to your goal? Do you give up or do something about it?

“You can start dealing with the bigger picture before 2011 without waiting to see what Congress does or doesn’t do.” Frisse says. “Go back to your vision. Once you’ve clarified your vision and goals, look closer at your situation.” What the business is worth, which holds title to your real estate, equipment and farm assets, who shares ownership with you, who owes money with you and what happens if that person has financial problems. Know what you’re good at, whether it’s raising a crop, marketing or both. And make sure you are using bookkeeping software that will help your tax preparer help you.

Frisse asks clients to consider how important keeping their farm “in the bloodline” really is. “Many family-owned farms really have two businesses, land ownership and crop production. Clarifying which family members are currently or likely to become involved in the crop production and which are not allows you to think more deeply into how to allocate responsibilities and benefit.

“The family can consider establishing who is in control while allocating economic benefit however they wish. Using farm business entities can keep control of the operation in the best hands throughout future generations, keep interlopers such as divorcing in-laws out, provide asset protection for family members and allocate economic benefits.

“This means going through a discussion to establish clear rules for future operation, value transfer, accountability, and revenue,” says Frisse. “What you are really doing is creating a succession plan for after you or other critical family members have become disabled or (have) died and identifying the resources you need for the plan to work.”

Its complex — taxes are just one set of challenges — and avoiding all estate taxes doesn’t assure your family farm will continue into the future. Simple wills and most simple trusts aren’t adequate, Frisse says. “There isn’t a magic form that will fix everything. Instead, there has to be a process of answering one question at a time. You’ve made thousands of decisions to create your family farm. To ensure your family will know what to do, you need a clear, written, reliable, legally enforceable plan.”

DiAnne Crown

Decanting an Irrevocable Trust: The ”Do-Over” Trust

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Steven J. Oshins, Esq., AEP (Distinguished)

& Brian J. Simmons, CFP®

What is Decanting?

How often do our clients set up and fund an irrevocable trust and then come back to us wanting to change the trust terms? This even sometimes happens within a matter of days, not even weeks, of funding the trust. Human nature is such that people change their minds. And it is also likely that circumstances will change after the trust has been funded.

For many years, practitioners have struggled to find ways to change the terms of an irrevocable trust.  However, through common law and through the decanting statutes that have been enacted in many jurisdictions, it is now possible to modify an irrevocable trust. The rationale for allowing such a modification is that a trustee who has the power to distribute the trust property to or for the benefit of one or more beneficiaries should be able to make the distribution to them in trust and dictate the terms of that trust. Decanting is essentially a “do-over”.

Trust decanting is the act of distributing assets from one trust to a new trust with different terms. Just as one can decant wine by pouring it from its original bottle into a new bottle, leaving the unwanted sediment in the original bottle, one can pour the assets from one trust into a new trust, leaving the unwanted terms in the original trust.

The Decanting Process

First Step: Move the Trust – Assuming the trust’s existing jurisdiction either has no decanting statute (and the planner wants more certainty than attempting to decant under a “common law” theory) or its decanting statute does not allow the desired modifications or has a user unfriendly statute, the first step is to look at the existing irrevocable trust to see if it can be moved to a different jurisdiction.If the trust agreement allows the trustee or trust protector to move the trust to a different jurisdiction, then the attorney can draft the appropriate documentation to move the trust to Nevada, including adding a trustee or co-trustee based in Nevada in order to take advantage of the Nevada jurisdictional advantages. If the trust agreement does not allow the jurisdiction to be changed, then the planner can check local law or otherwise petition the local court for approval to move the trust, or even use local decanting laws to add a provision allowing the trust jurisdiction to be changed.

Second Step: Decant the Trust – The second step is for the attorney to prepare appropriate documents to decant the trust to change some or all of the terms by pouring the assets into a trust with different terms.

This might include creating a new trust or otherwise might just use another pre-existing irrevocable trust as the recipient of the trust assets.

Move Trust to Nevada, then Decant It

Nevada, South Dakota, Alaska and Delaware have historically been the so-called first-tier trust jurisdictions. This whitepaper will describe the benefits of moving a pre-existing irrevocable trust to the State of Nevada to then utilize Nevada’s flexible decanting statutes.  Having some of the most flexible, easy-to-use, decanting statutes in the United States, Nevada received a Total Score of 97.5 out of a possible 100 on the 2014 Trust Decanting State Rankings Chart at http://www.oshins.com/images/Decanting_Rankings.pdf.  [The chart at this link is updated on an annual basis.] Pursuant to the “First Step” as described above, the trust can be moved to Nevada to take advantage of these flexible, user-friendly laws.

Nevada Revised Statutes (“NRS”) Section 163.556{1) provides that, “[u]nless the terms of a testamentary instrument or irrevocable trust provide otherwise, a trustee with discretion or authority to distribute trust income or principal to or for a beneficiary of the trust may exercise such discretion or authority by appointing the property subject to such discretion or authority in favor of a second trust for the benefit of one or more of those beneficiaries.” This statute provides the general decanting authority.

One of the key advantages of Nevada law is that there is no requirement that the trustee must provide notice of the decanting to the beneficiaries, nor does the trustee need to provide copies of the pre-existing or proposed new trust to the beneficiaries. This is not intended to allow the trustee to violate his or her fiduciary duties, but since most people desire privacy, this is a huge advantage inherent in Nevada law. Pursuant to NRS Section 163(5), “[b]efore appointing property pursuant to subsection 1,a trustee may give notice of a proposed action… or may petition a court for approval…” [emphasis added] The discretion under Nevada law to provide notice or obtain court approval is important for a trustee who is concerned that the proposed modifications may violate the trustee’s fiduciary duties to one or more beneficiaries. Most other jurisdictions that have decanting statutes require notice to be given for every decanting.

Decanting Examples

Following are ten reasons to consider decanting an irrevocable trust:

1. Extending the term of the trust: Many trusts are drafted to make mandatory distributions to the beneficiaries at staggered ages. This can make the trust assets liable for unnecessary estate taxes and make open the trust up to creditors and divorcing spouses of the beneficiaries. The trustee should consider decanting the trust into a long-term Dynasty Trust that lasts for multiple generations.

However, the duration of the new Dynasty Trust must still be limited by the perpetuities period established in the preexisting trust. And for trusts moved from a longer-term Dynasty Trust jurisdiction, the decanted trust can continue to take advantage of the longer term up to 365 years and also take advantage of other features of Nevada’s trust and tax laws.

2. Changing a support trust into a discretionary trust:  Many trusts are drafted to give the trustee the power to make distributions to the  beneficiaries for their  health, education, maintenance and  These trusts are often called support trusts. Depending upon state statutes and case law, support trusts are often available to certain classes of creditors, including divorcing spouses.  A discretionary trust, on the other hand, gives the trustee absolute discretion over distributions and thus generally protects the assets from all classes of creditors.  Thus, decanting a support trust into a discretionary trust can be a valuable strategy.

3. Correcting drafting errors or ambiguous terms: Many trusts have drafting errors or ambiguous terms that need to be Some trusts give a trust protector or independent trustee the power to fix these types of errors, while others do not. Decanting the trust into a new trust can cure these problems.

4. Changing the governing law of the trust: Many trusts were established in a jurisdiction with a state income tax that can be avoided or bad creditor protection statutes or case law that can also be  While many of these trusts have a provision allowing the trustee to move the trust to a different situs, many of them do not. This is easily solved by decanting the trust into a trust domiciled in a superior trust jurisdiction.  This also includes the ability to decant a Dynasty Trust or Domestic Asset Protection Trust from one state to a state with superior laws.  As one of the leading Dynasty Trust and Domestic Asset Protection Trust jurisdictions, decanting the trust under Nevada law can significantly improve a trust.

5. Modifying powers of appointment: Many trusts do not contain powers of appointment which would enable a person to change the succeeding interests of the beneficiaries and how they receive the assets. In today’s planning world where the estate tax exemption is much higher than it had been in the past and in which income tax reduction has been so much more important, it is often also useful to be able to give a beneficiary a general power of appointment over certain trust assets in order to achieve a new income tax basis at that person’s death. This can be accomplished through decanting.

6. Changing trustee provisions: Many trustee provisions do not allow for a succession of trustees or for a list of people who can name successors, while other trusts have a succession of trustees who the settler may have wanted at the time the trust was established, but who would now not be selected by the settler if the settlor could redo the trust today. This can be changed through decanting.

7. Combining trusts for greater efficiencies: Many of our clients setup trusts at different times, and sometimes with different law firms over the  Ultimately, the family has more trusts than are needed. If the trusts aren’t sufficiently similar enough to merge them, then they can be combined through decanting one trust into another or by decanting multiple trusts into a newly formed trust.

8. Separating trusts: Many trusts have been drafted so the entire family benefits from one large pot Although this sometimes makes sense in certain situations, more often than not it creates problems because different beneficiaries have different needs and different investment philosophies.

A large pot trust can be decanted into separate trusts for each beneficiary so the beneficiaries have their own autonomy.

9. Creating a special needs trust: It may not have been contemplated when the initial trust was drafted that there would be a beneficiary that has special needs and will require a trust that preserves eligibility for public A trust can be decanted to add this language.

10. Qualifying a trust to own S corporation stock:  Many trusts have been drafted without the trust scrivener contemplating the possibility that the trust would need to be able to own S corporation stock at some point. This includes other forms of business entities that elect to be taxed as an S corporation.  If the trust agreement doesn’t give a trust protector or independent trustee the power to add such provisions, the trust can be decanted to add the provisions.

This list is not intended to be exhaustive. There are other reasons one may want to decant a trust. Decanting is perhaps the most underused tool in the estate planning industry in relation to the benefits and flexibilities it provides and likely will become more popular as more practitioners become aware of these opportunities.

Nevada Trustee Requirement

In order to take advantage of Nevada’s laws, at least one trustee generally must be a natural person residing in Nevada, a trust company that maintains an office in Nevada, or a bank that possesses trust powers and that maintains an office in Nevada.  Individuals wishing to set up a Nevada trust who may not have any individual contacts in Nevada generally use a trust company based in Nevada to serve in that capacity.

Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the l aw Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best lawyers in America®.     He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection Jaws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at [email protected] or at his firm’s website, www.oshins.com.

 Brian J. Simmons, CFP® has over seven years experience in the Financial Services industry as an independent financial advisor and life insurance agent. His expertise includes working with high net worth clients developing and implementing their financial, investment, estate and insurance plans. Before joining Premier; he worked with a local Registered Investment Advisory firm. His professional accreditations include Series 7, 66 and 24 securities licenses, various state insurance licenses, and membership in the Southern Nevada Estate Planning Council. Contact Brian at: b[email protected].

What is the Best Asset Protection Plan for Physicians?

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In our initial discussions with a client these questions always comes up “What’s the best asset protection plan?” “Are there any plans which are completely bulletproof?”

Like any well trained professional I usually duck those kinds of direct and unconditional questions. After all, this is the legal system we’re talking about and when we compound the mixture of judges, jurors and lawyers, the results can be unexpected, to say the least. Law is probably a lot like medicine in that respect. So while we can’t honestly guarantee that the particular plan we design will produce the exact outcome we want, we do know what has happened before in similar situations. If existing case law and legislation is clear and well developed then an asset protection plan that falls within the pre-set boundaries will have favorable and predictable results.

The O.J. Simpson civil case demonstrates this principle in the most dramatic fashion. Despite the fact that the families of the victims have vigorously pursued collection of their $33 million civil judgment for more than 10 years, they have been largely unsuccessful. The reason for this is that a large portion of Simpson’s assets are held in retirement plans which are exempt from judgments. The law specifically protects from collection the total amount in such plans as well as any proceeds which are distributed. Published reports are that Simpson had approximately $4.1 million in his retirement plans and draws a benefit of $25,000 per month, completely shielded from the judgment.

Although we’ve seen many similar results in less notorious cases the asset protection in the Simpson case was well supported by law and withstood persistent and sophisticated attacks from the victim’s families. Regardless of the appalling result in this particular case, what is well illustrated here is that legal techniques such as a protected retirement plan can shelter substantial assets from liabilities and judgments even in the most egregious circumstances. If one of your goals is to protect your savings from the risks of your business and medical practice then it is worth considering the pros and cons of the retirement plan strategies.

In order to take advantage of the asset protection features of a protected retirement plan, the plan itself must be developed and designed so that it qualifies under the law as an exempt asset – free from potential judgment claims. Since the law often varies from state to state and Federal law may apply in some circumstances, I’ll provide some general rules and guidelines and you can discuss the specific details of your case with your local attorney.

Qualified Plans – The first group of plans that are exempt are those well-known ERISA qualified plans, such as defined benefit, profit sharing and 401(k) plans. Both Federal and state law clearly protect the amounts in these plans and any distributions which are made. There may be exceptions for some court ordered family support obligations and possibly federal or state taxes, but as a general rule the protection of these plans from lawsuits and judgments is very strong. The drawbacks of these plans are that if you have several employees, in your practice you may have to make contributions for them also – you can’t just cover yourself in a qualified plan. As a result, the expenses of covering all employees, preparing the necessary filings and paying for annual administration may exceed the tax and asset protection benefits. A careful evaluation of all aspects of these plans is required to measure the costs and potential advantages.

Self-Employed Plans – If you are self-employed and your plan covers only yourself (IRA’s and solo 401(k)’s) the amount exempt from a judgment varies significantly based on the law of your particular state. Some states protect the entire amount in these plans while others shield only the amount necessary for reasonable retirement needs, a vague and subjective standard which you probably wouldn’t want to rely on. If a big part of your savings is or will be in an IRA, determine with your attorney whether it is exempt from judgments in your state. Also, consider whether the amount of your contribution limits to your IRA is sufficient to shelter a significant portion of your savings.

Private Retirement Plans – In some states (such as California) the law allows for the creation of a Private Retirement Plan which is entirely exempt from judgments. These plans must be carefully drafted and maintained but they are highly flexible in design, need not cover other employees and annual contributions can substantially exceed those available under the qualified plans or IRA’s. (See www.rjmintz.com/misc/asset-protection-articles/what-is-the-best-asset-protection-plan-for-physicians/) Although no tax deduction is available for these contributions, the complete exemption for amounts in these plans may be highly valuable in a wide variety of circumstances and should be considered as a stand-alone asset protection plan or in conjunction with a tax deferred account.

Make sure to talk with your attorney and tax advisor to see which of these retirement plans provides the best asset protection in your state and that you understand the legal and tax consequences of the strategy which will apply in your particular case.
Robert J. Mintz

Prospecting Tools for Financial Advisors & Estate Planning Attorneys – On Demand Webinar

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When should I check my estate planning documents?

Estate planning documents, such as Wills, trusts, powers of attorney and Health Care Directives are dynamic documents that need to be changed when the circumstances of your life change. There is a great temptation to feel that you can put the documents into a file or safety deposit box and say: “Thank goodness I won’t have to think about those documents again.” But in fact, as changes in circumstance occur, estate planning documents need to be reviewed to be certain that they are still appropriate for the new circumstances.

Here are several changes that ought to trigger a review of existing estate planning documents:

1. The birth of children. In almost every case, it is most appropriate to create a support trust to provide for the care of any minor children, and to provide for the investment of assets that are to be held until the children attain a suitable age. Such a trust also can provide for the education of the children.

2. Changes in marital status or other personal circumstances. It should be obvious that a change in marital status would be a good reason to review existing estate planning documents. Provision in a Will or trust for a new or a former spouse will likely need to be changed. In most cases, it will be inappropriate to continue to name the former spouse as the agent under a power of attorney to make financial or health care decisions.

3. The value of assets may increase or decrease. The decision to create existing estate planning documents was probably based upon certain assumptions about the value of the assets in the estate, and whether it was likely that the assets would increase or decrease in value over time. Significant changes in the value of assets may cause estate planning documents to be too complex, or perhaps, too simple to continue to meet the objectives originally identified.

4. The law regarding estate taxation may change. The law regarding state and federal estate taxation has changed numerous times and in many different ways over the past several years. Other changes are likely to occur in future years. All of these changes may have a significant impact on the propriety of existing estate planning arrangements. This factor alone is a very substantial reason why existing estate planning documents should be reviewed periodically.

5. Changes in health status. As the condition of health changes, there should be a corresponding evaluation of existing estate planning documents to be certain that the changes in the needs of the individual will be met by the estate planning documents.

For example, if a person is diagnosed with a form of dementia, existing powers of attorney should be reviewed to be certain that they will be sufficient to meet the likely increased need for the agent to undertake the management of financial decisions.

Similarly, if a diagnosis of a terminal condition has been made, all estate planning documents should be reviewed with an estate planning attorney to be certain that the documents are still appropriate in view of this change of circumstance.

All of these events are reason to double check to be certain that existing estate planning documents will be sufficient to fulfill the objectives to provide for loved ones, and to protect assets from unnecessary taxation and dissipation.

Daniel Orville Kellogg

After The Fiscal Cliff

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What has Changed in the Estate and Gift Tax Laws?

Congress passed the American Taxpayer Relief Act of 2012’’ (“ATRA”) that made the federal estate tax exemption permanent on January 1, 2013. In a last minute move before we went over the “fiscal cliff”, in an 11th hour tax law passed by the Senate on New Year’s Eve, and by the House of Representatives one day later, mostly what Congress did was to make permanent the system that has been in effect for the past two years. I am just thankful that we now have permanence that has been missing for the last 12 years.

What’s most important to us as planners is how the “fiscal cliff” deal changes will affect our clients’ existing estate plans and whether any changes are necessary.

Most estate planning documents deal with non-tax issues, including the very valuable benefit of structuring assets to avoid the probate process at death and to provide creditor protection for beneficiaries. The Power of Attorney, Conservator, and healthcare documents are all extremely important and necessary. These documents are critical to avoid unnecessary court oversight and expense, delay, and intrusion.

What are the provisions of the ATRA that will affect my estate planning practice or clients?

Top gift, estate and GST tax rates are set at 40%. ATRA 2012 establishes the top gift, estate, and GST tax rates at 40% for gifts made and decedents dying in 2013 and thereafter. This top rate is higher than the 2012 rate of 35%, but lower than the 55% rate that would have come into effect on January 1 in the absence of legislation. This top rate will apply to transfers exceeding the exemption amounts.

Exemption amount: Permanently set at $5,000,000 per client, indexed for an inflation adjustment beginning 2012 ($5.12 million in 2012). The estate tax exclusion amount for deaths in 2013 will be $5.25 million.

Gift Tax Rate: The estate and gift taxes will remain unified, so the $5 million exemption also applies for gift tax purposes, and will follow the estate tax rate. The rate was permanently set to 40% of the amount over the exemption. In addition, the annual gift exclusion amount was raised to $14,000 per person this year.

Generation Skipping Tax Rate: The generation skipping tax exemption follows the estate tax rate. The rate was permanently set to 40% of the amount over the exemption.

Portability made permanent: Further, the deal continues the estate tax portability provisions that allow a surviving spouse to take advantage of his or her deceased spouse’s unused exemption amount. This provision allows a surviving spouse to avoid complicated estate planning by recognizing that gifts between spouses are typically tax free and allowing the exemption to be portable between both spouses. In order to utilize this, a 706 tax return MUST be filed within 9 months, so in my opinion, portability is less than optimal in many cases.

Use of the A/B/Bypass Trust: Some of the discussion since passing this legislation has focused on the use of A/B trust structure, and whether planning is better without the credit shelter trust. I still am in favor of estate planning with an A/B/C trust, especially to preserve a decedent’s share in case of a remarriage of the survivor spouse, and also to allow the flexibility of state estate tax planning. As long as the trust is flexible enough to allow the options of funding the various sub-trusts to the survivor spouse, which ours does, you still have the benefit of planning that gives the most flexibility to the survivor. We will review the provisions in our trust as a precaution

Upside to IRA Planning in ATRA

Hidden in the law — along with the typical year-end riders attached to a last minute piece of legislation, including tax breaks for NASCAR and the alternative fuel industry — were a couple of tangible impacts to the retirement world, though one may offer just short-term benefits. First, it looks as though folks hoping to roll over their regular 401(k)s to Roth 401(k)s may get an opportunity for a long-term tax break — lord knows you’re going to need one, as your taxes really are going to go up. A new provision in the package will allow 401(k), 403(b) and 457(b) participants to make the leap to a Roth 401(k) without waiting for the traditional qualifying events (retirement, reaching age 59 1/2 or changing jobs). Why? Because doing so immediately sends that tax deferral — which you’ll have to pay up front — to Washington, rather than waiting until your far-off retirement day, and Washington wants your taxes. It’s a huge opportunity for regular folks to make that Roth conversion – provided they have the financial wherewithal to pay those taxes much sooner than later.

Potential future legislation. It is important to note that there may be a push for additional revenue-raising legislation as political debates continue. The current administration has expressed its desire to limit the advantages of GRATs, grantor trusts, GST-exempt dynasty trusts, and transfers in family entities that qualify for valuation discounts. Clients who might consider employing those techniques may wish to do so sooner rather than later.