Helping Your Clients Overcome Tax Planning Paralysis
Tagged with: Applicable Exclusion • Bush Tax Cuts • Bypass Trust • Capital Gains • Dividends • Estate Planning • Estate Planning Education • Gift Tax • law firm practice management • Law Firm Systems • Legal Education • legal marketing • Practice Building Strategy • Steve Hartnett • tax planning • Taxable Income
In recent years, uncertainty has been the name of the game when it comes to tax planning. This year is no different.
The Bush tax cuts are set to expire on December 31, which means that absent intervention by Congress:
- Tax rates for ordinary taxable income will increase, with taxpayers in the highest bracket paying 39.6%
- The number of taxpayers subject to the Alternative Minimum Tax will expand significantly
- Maximum long-term capital gains rates will increase from 15% to 20%
- Stock dividends will be taxed as ordinary income, meaning a maximum rate of 39.6% rather than the current cap of 15%
- The estate and gift tax applicable exclusion, currently $5.12 million, is scheduled to reset to $1 million. The maximum estate and gift tax rate is scheduled to increase to 55%, with a 5% surcharge for estates that exceed $10 million.
There are several proposals pending that would soften the impact of all these tax changes. For example, President Obama has proposed a return to the $3.5 million estate tax applicable exclusion and top estate tax rate of 45% that were in effect in 2009. Other proposals would maintain the current $5 million or repeal estate taxes altogether.
But this is an election year. Therefore, Congress is unlikely to take any action until late November at the earliest.
With tax laws once again in limbo, clients can be even less eager than usual to commit to a plan – what is an estate planning attorney to do?
- Be sure to consider the impact of an applicable exclusion in flux. If you are giving the applicable exclusion to a bypass trust at the death of the first spouse, consider that it may be anywhere from $1 million up to the entire estate. If this is not what is intended, be sure to draft limits on the size of the bypass trust.
- Take advantage of today’s $5.12 million gift tax applicable exclusion. It may not be there next year.
- For a client with an even larger estate, take advantage of “zeroed-out” GRATs.
I’ll discuss “zeroed-out” GRATs and how they can be used successfully in my next blog.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
Tags: Applicable Exclusion, Bush Tax Cuts, Bypass Trust, Capital Gains, Dividends, Estate Planning, Estate Planning Education, Gift Tax, law firm practice management, Law Firm Systems, Legal Education, legal marketing, Practice Building Strategy, Steve Hartnett, tax planning, Taxable Income