Checklist of Planning Ideas for High Net Worth Taxpayers After 2010 Tax Act

Checklist – Post 2010 Tax Act: Estate Tax Reduction Considerations for High Net Worth Clients

With the $5 million unified gift, estate, and GST exclusion amount, wealthy clients who face an estate tax, even with these generous exclusions, should plan aggressively in 2011 and 2012 on the chance that 2013 will bring bad estate tax news. It will only be with hindsight, or a Ouija Board, that practitioners will be able to determine whether the 2011 to 2012 planning opportunity was a waste of time, because the estate tax was repealed, or the most significant opportunity in history to shift wealth. When the relative pros/cons and costs/benefits are weighed, unmarried clients with estates above $4-5 million, and married clients with estates above $8-10 million, should really plan aggressively. These net worth figures are merely broad ranges that need to be evaluated for each client individually. In many cases, the wealth levels at which planning should be aggressively pursued may be lower than what many clients realize.

√ Use the increased gift exclusion to seed or re-seed irrevocable grantor trusts. Structure and consummate large note sale transactions taking advantage of discounts which remain viable, low market interest rates, and being the process of shifting future appreciation out of the client's estate, while retaining the income tax obligation for trust earnings to continue to burn off estate assets. This could prove to be the Mona Lisa of estate planning.

√ GRATs are great for clients whose large exclusion is inadequate to solve anticipated estate tax problems. GRATs will be particularly useful for clients seeking to cap the value in their estate. For these clients GRATs can shift appreciation on investment portfolios out of the estate and generally serve as a break to prevent the growth of the estate above the amount the client believes will pass estate tax free under the new exclusion.

√ Insurance planning should be revisited, and aggressive split-dollar plans with GRATs funding the unwinding of the plan, may be an optimal step. Even some large valuable policies that clients could not shift to irrevocable life insurance trusts in the past, may qualify to be shifted now.

√ Qualified Personal Residence Trusts ("QPRTs") should be revisited for wealthy clients that had homes that were too valuable to shift to QPRTS when the gift exclusion was only $1 million.

√ Gift planning should be reviewed and revised.

√ Estate planning documentation should be revised to increase the likelihood that a future disability won't impair the ability to carry out the planning contemplated.