Estate Planning


The infamous “Fiscal Cliff” was reached the end of 2012, and, as our nation fell off the Fiscal Cliff, Congress passed the American Taxpayer Relief Act of 2012 (“ATRA 2012”) on January 1, 2013. The President signed ATRA 2012 into law the very next day. As has been widely reported, the “sequester” required spending cuts were only delayed for a couple of months, ATRA 2012 increases revenue to some extent, but also included many tax benefit “extenders” and special tax benefits for some taxpayers and their companies. However, in the estate and gift tax area and as to estate and succession planning in general, ATRA 2012 makes “permanent” (until more tax legislation is passed) the benefits of the Tax Relief Act of 2010, which was set to be repealed, in effect, January 1, 2013.

Owen Fiore, JD has been involved in estate and succession planning for nearly 50 years, including presenting webcast courses for CPE Link the past several years. See prior CPE Link Blogs authored by Owen October 2 and May 8, 2012. On January 24th he will present for CPE Link an updated version of his estate planning and family wealth succession webcast, titled Family Estate and Succession Planning: 2012 and Beyond. With a detailed outline, nearly 100 power point slides, and a special ATRA 2012-based outline on succession planning issues, participants will have an inside look at the important issues for tax practitioners and their clients to consider in 2013.

The only adverse element on estate and gift taxes in ATRA 2012 is the increase in the top transfer tax rate from 35% to 40%. Of singular importance is that the $5 million (adjusted for inflation since 2011) per person lifetime exemption is made permanent. Therefore, the many clients who failed to make substantial gifts in 2012 when it was believed the 2013 exemption would go down to $1 million, now have another opportunity to transfer wealth within the family – without tax! In addition, the TRA 2010 Portability Election also was made permanent by ATRA 2012. What does this mean? The answer is that any unused exemption level in the estate of the first spouse to die in a married couple situation, by proper election, can be used by the surviving spouse in addition to his or her own exemption. Therefore, it is critical to insure that estate planning documents take this election into account.

Finally, for the clients who made large gifts in 2012, there are important gift tax return reporting requirements to be met, including via the use of qualified valuation appraisals for “hard-to-value” assets, such as closely held corporate stock, FLP and LLC interests, and even co-tenancies in real estate.

Our “triple reason” for 2013 estate and succession planning remains: low asset values, low interest rates, and the possibility of new adverse tax legislation later in 2013.

Guest blogger: Owen Fiore

How do we measure success in Family Wealth planning (my preferred term to that of “estate planning”)? I believe the measure of success is meeting client goals in a practical, understandable and cost efficient way. This is a human process – involving first, people and their aspirations, opinions and goals. Then, given the financial aspects of planning, we consider property, its characterization, title, income stream, and appreciation potential. Finally, the goals of most families include passing on the property to younger generation family members – and here we come face to face with taxation in its various forms. The process involved in meeting family goals requires advisor competency, communication and real concern for our clients.

For nearly 50 years I have been involved in the use of entities, often pass‐through entities, for the efficient planning of clients’ estates – during lifetime and after death. The properly formed, funded and operated entity can separate management and equity ownership, can develop a format for gift and other transfers of equity interests within a family, and often constitutes an integral part of the overall succession plan for the family.

The year 2010 was a real challenge for planners and their clients, given the 1‐year repeal of the Federal estate and GST tax (not the gift tax, however). Then, late in December, 2010, the Tax Relief Act of 2010 was enacted into law in a rush to prevent the repeal of the 2001 “Bush tax changes” effective January 1, 2011. Now we are into the second year of the 2‐year “planning mandate window” for review, update and improvement of clients’ estate plans.

Planning now, even with the 2010 new legislation in effect, seems required, at least for our clients with larger estates. The review of Wills and trusts with formula bypass and marital trust clauses is needed, at a minimum. Further, given the uncertainty here, clients should review and confirm their intentions for estate distribution at death – to make certain their wishes are carried out.

We have something of a “triple reason” for planning now – low asset values in this recessionary economy, low interest rates (example: the mid‐term AFR rate for October, 2011 – over 3 and to and including 9 year loans or sales within the family – is 1.19%), and yet valuation discounts may be in for adverse legislation soon!

For further insights into family wealth planning from guest blogger Owen Fiore, JD, view his free on-demand webcast, Family Estate and Succession Planning: 2012 and Beyond.

As an instructor for CPE Link webcasts on family wealth succession planning, I can say without question this is a 2012 “hot topic”. The 2010 Tax Relief Act, including numerous income and estate tax provisions, is due to expire by its terms January 1, 2013. So the year 2012 is the year of Affirmative Planning Action by clients, with positive planning advice from their CPAs and other advisors.

In spite of there being many estate planners active in working with high wealth clients, it has been shown that many families hold back on succession planning. The usual statement is that the law is uncertain, so let’s wait! However, often the real reason for inaction involves the difficult family dynamics, potential for family conflicts, and absence of advisor initiatives. People and their concerns, fears and goals are the central issue in family succession planning.

The issues of Property (“you can’t take it with you”!) and what will happen on the death of the estate owner must be considered, whether or not there is any estate tax liability. Certainly, for many families, this year’s $5 million estate tax exemption will eliminate any tax liability. However, absent new legislation, the exemption drops way down to $1 million January 1, 2013! Title and property ownership issues should be considered in any succession plan. In addition, flexible provisions must be added into the plan documents to account for changed circumstances, changes in tax law and other uncertainties. Having a plan, and discussing it within the family, also is the best way to avoid expensive litigation among heirs.

The CPA often is in an excellent position as a trusted advisor to the client to provide a stimulus for succession planning. Basic issues, covered in my succession planning courses, include Estate Planning alternatives using trusts effectively, the proper uses of FLPs, LLCs and corporations for business and investment assets, Valuation and building “discount planning”, and Buy-Sell Agreements and related Deferred Compensation Agreement Planning.

With the April initial deadline for 2011 income tax returns past, now should be the time for actively proceeding to engage clients in succession planning within the family. This not only is the right thing to do for clients; but also it is an effective method of practice development for the CPA or other advisor. Go for it, and do your best for clients – they deserve it!

Guest Blogger, Owen Fiore, JD