Friday, February 24, 2012

Estate Planning Comes to Hollywood

As discussed in this excellent article in Forbes, the Oscar-nominated film The Descendents, starring George Clooney, is replete with estate planning-related issues.  While I thought the movie was overrated, I did think the film makers did a good job in their handling of such concepts as the need for a living will to handle end-of-life care; the complexity of intra-family relations  as it pertains to real property held in a long-term trust; the common law requirement that requires termination of a trust under the Rule Against Perpetuities;  and how best to pass an inheritance to a child in a manner that will not impair his or her incentive to be a productive citizen (also known as the condition of "affluenza"). 

I am pleased that the producers consulted with a law professor who teaches estate planning to ensure that the estate planning issues were handled appropriately.

Tuesday, February 14, 2012

Obama's Budget Proposal and Estate Taxes -- Back to the Future

As has been widely reported, President Obama's proposed 2013 budget would eliminate the Bush-era income tax cuts for the "wealthy," and would require those earning more than $1 million per year to pay at least 30% of their earnings in Federal income taxes.  In addition, the capital gains rate for higher income earners would increase to 20%.

Less widely reported are some of the key estate and gift tax related proposals:

  • a $3.5 million per person estate and gift tax exemption
  • elimination or restriction of several advanced estate and gift tax reduction techniques, including the use of minority discounts and Grantor Retained Annuity Trusts ("GRATs").
  • elimination of the "Intentionally Defective Grantor Trust" ("IDGT") technique that presently allows for the sale of assets to a trust in which the trust assets grow outside of the grantor's taxable estate, with the grantor paid by the trust for the assets sold to a trust via a promissory note.  Since under the current grantor trust rules the sale of the assets to the IDGT is considered for income tax purposes a sale to the grantor himself, there is no recognition of gain on the transfer.
Elimination of some or all of these advanced estate and gift tax planning techniques would certainly pose challenges to estate planners in helping their clients reduce exposure to estate and gift taxes.

Given that we are in an election year, and given the acrimony between the Republicans and the President, the chance of Obama's proposed budget passing largely intact is virtually nil.  That being said, Congress faces a December 31st deadline for the repeal of all the existing Bush tax cuts, so something will have to give between now and the end of the year.  We shouldn't be surprised, then, if the estate and gift tax exemption is reduced  to $3.5 million, and if some if not all of the advanced estate and gift tax planning techniques are eliminated.

With all the uncertainty, we are advising all of our high-net worth clients to plan now at a time when we can rely on some wonderful planning techniques to achieve significant estate and gift tax savings.

If you're a true policy wonk, an explanation of the proposed budget can be found here.

Friday, February 3, 2012

Cautionary Tales of Estate Planning Failure -- and the Need to Update Your Planning

A recent article in Forbes uses estate planning disasters of the rich and famous to highlight the importance of getting your affairs in order -- and the pitfalls for leaving things to chance.  The article describes how Eva Gabrielsson, the long-time girlfriend of Stieg Larsson -- author of the wildly successful Girl With The Dragon Tattoo series -- ended up fighting with his family over Larrson's estate. Larrson died at age 50 without a will. Under Swedish law -- which apparently is similar to the intestacy laws in New York -- Gabrielsson was entitled to none of Larsson's estate, notwithstanding that they were a couple for 32 years prior to Larrson's death.  The very public fight over Larrson's estate quickly became ugly, with each side hurling nasty charges at the other.

The Larsson saga and others described in the article highlights an issue I run into frequently: how to answer the question, "when should I see you about my estate planning?"  My (tongue-in-cheek) answer is, "call me six months before your are going to be disabled or will die, and we'll be able to get your affairs in order."

This type of conversation points out the concern many people have about estate planning; namely, a fear that they might get their planning done "too soon" or "too late".  As the Forbes article points out in describing the Michael Crichton estate fiasco, the solution to that dilemma is to ensure that your estate plan is updated regularly. In our practice, we offer an annual maintenance program that ensures that our clients' plans are reviewed and modified every year to keep current with changes in our clients' lives, changes in the law, and changes in our knowledge and experience.  By participating in a formal maintenance program, you are assured that you will never do your estate planning "too early," as your planning will be modified to keep up with the many changes affecting your estate plan.

Click here for the link to the Forbes article.