Attention Attorneys! If you are NOT a member of the Academy, here is a list of action items that we released to members relating to the recent tax law changes. You may want to consider updating certain materials. If you have any questions about anything specific, email us at info@aaepa.com.

The New Year rang in significant changes with the American Taxpayer Relief Act. The biggest change was the repeal of the sunset provision on the existing law, as well as a few other items. The Education and Marketing departments are busy updating our most frequently used seminars, handouts, tax law insert for handouts (available later this week), Academy Reports, etc. to incorporate these changes and highlight the planning opportunities that exist now.

Changes in the Law

Regarding federal estate taxes, this new law makes almost all of the previous tax provisions, commonly known as ”TRA 2010,” permanent, with the exception of the tax rate. This means there is an estate tax exclusion of $5 million that will be adjusted for inflation. So for 2013, the exclusion is $5.25 million. The estate tax is coupled with the gift tax and the “unified” exclusion can be used either after death or while the person is still alive, just like under TRA 2010. The tax rate is now capped at 40%, instead of the prior 35%.

The “portability” provision from TRA 2010 is also retained. This means that the estate tax exclusion amount of the first spouse to die may be used by their surviving spouse, assuming an estate tax return is filed for the pre-deceasing spouse.

Regarding state estate taxes, as with the prior law, they remain deductible rather than a credit (as was the case many years ago).

The Generation Skipping Transfer Tax (GST) exemption is set at $5 million and is also adjusted for inflation. As in the prior law, the GST exemption is not portable. Thus, the use of GST exemption, along with remarriage protection, asset protection, etc., are reasons to continue using credit shelter trusts in appropriate cases.

The new law affects everyone’s income taxes. The existing rates on incomes below $400,000 (single) and $450,000 (married, filing joint) have been set permanently to the current level. For incomes over that amount, the rate will increase from 35% to 39.6%, where it was before 2001. In addition, this income bracket will see a raise in qualified dividend and capital gain income tax rates from 15% to 20%. Those tax rates will not change for lower income amounts.

When it comes to “charitable rollover” IRAs, those provisions will be extended for 2012 and 2013 only. This means that an individual over age 70 ½ can give up to $100,000 from their IRA without taking that amount into income. For clients making large charitable gifts from an IRA, this is good news because the deduction for a normal contribution, without the benefit of a “charitable rollover,” may be capped or not offset the income.

As we know, in many ways, Congress basically just kicked the can down the road for a few months which left us with a lot of unanswered questions. In reviewing the expedited law, we see many areas that are in limbo at this time. It does not appear that Congress addressed any of the “sequestration” spending issues and the debt limit hasn’t been raised. It remains to be seen what cuts the President, the Democratic Senate, and the Republican Congress are ready to agree to, if any. If they aren’t willing to make big cuts, they will be back looking to raise more taxes once again in a few months. In the meantime, here are proactive steps you can take now:

Recommendations on What You Can Do Now

Prospective Clients

For prospective clients, the planning is the same as it has been in the last few years – much less about taxes and more about providing provisions for remarriage, divorce, creditor and asset protection, and Medicaid pre-planning. We are updating the current Legacy Wealth Planning Seminar now and next on deck will be the Basic Estate Planning Seminar, which should be posted by the end of the month. If you have seminars scheduled, please keep in touch with your PBC so she can keep you updated on the status of the seminar materials.

Clients

It is always recommended to have all clients come in every several years for trust review meetings to see if their needs have changed and if updates need to be made to their plans. This year is no different, with an additional opportunity to select certain client situations for a special review.

• For clients who set up AB Trusts to take advantage of the tax savings (and not for remarriage, divorce, creditor protection, etc.) there could be the possibility that some may no longer need that planning tool and could benefit by simplifying their plans and save on the administration fees on the first death. We are considering a possible Amendment Package for those who would fall under this category. We are still thinking through the ethical considerations of this before we roll it out. We’ll keep you posted on these developments.

• For clients who have simple Living Trusts, we recommend you still have them come in for trust review meetings even if they don’t need a major change. There are always major benefits to seeing your clients – solidify relationships, referrals, private seminars, Medicaid pre-planning, GST planning, or other services.

Centers of Influence

For professionals, reach out and communicate with them on the many non-tax reasons their clients should be planning. Schedule networking meetings and CE programs to educate the professionals in your area.

Materials Available for Members

Law Firm Website Postings – We posted two tax law updates to Academy hosted law firm sites, one on December 20th about the then pending changes and the second on January 7th about the current changes. You will find these postings under your Law Firm News section of your site. You can also link to these postings in your mass emails and social media postings.

Snipe or Starburst Copy – “How 2013 Tax Law Changes Impact You!” or “2013 Tax Law Changes Revealed!” – add to any seminar advertising, direct mail or marketing letters

Expect These Updates on Materials

For Prospective Clients (Most of these items will be released in January)

• Legacy Wealth Planning “Estate Planning Myths” Seminar and Handout

• Seminar Handout Insert (to update old stock)

• “Basic Estate Planning” Seminar and Handout

• Academy Blog Posting that can be linked on your own Social Media Accounts and Blogs

• Direct Mail Invitation from Response Mail – updated bullets on estate tax and long-term care planning

• Newspaper Ad – updated bullets on estate tax and long-term care planning

For Clients (Most of these items will be released in February)

• “Trust Tune-Up” Seminar for Clients and Invitation Letter

• Client Review Meeting Letter

• 2013 “Income and Estate Tax” Newsletter Insert

For Professionals (Expect the eAlert next week and the CE Course in February)

• Educational Alert – Much of what we outlined above will be available in the form of an Educational Alert for you to download and use in your emails, social media and letters to professional advisors, clients and prospects to give them an update on what the facts are about the law changes.

• 12-Part CE Program

Other Items

• 2 Estate Planning Articles

• Academy Reports – 35 reports

• And more!

We will continue to add items to the Academy website as they become available.

Susan Russel
Director of Member Services
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com