Planning Potpourri

Reminder that GRATs as we know them may no longer be available if pending legislation is passed. Any GRATs in progress that need to be funded by year end should be pushed as banks require time to open accounts, due to the Patriots Act and other regulations.

Citizens for Tax Justice noted IRS data showing only 0.6 percent of deaths resulted in an estate tax payment in 2009 so the estate taxes could be strengthened beyond what President Obama proposed without harming American families and small businesses. He recommended making permanent the 2009 estate tax rate of 45% and a $3.5 million exemption level indexed for inflation. Sen. Bernie Sanders proposed a tiered tax with higher rates on the wealthiest estates. The “Responsible Estate Tax Act” (S. 3533) would raise the tax rate to 50% for estates between $10-$20 million, for those over $20 million a 55% tax, and for those over $500 million, an additional 10% surtax.

Roth Conversion Guru Ed Slott suggested some interesting tips at a recent conference: ►Should you recharacterize because the market declines? If you recharacterize you cannot re-convert until 2011 and you won’t get the 2 year tax deferral. So unless the decline is a biggie, you may still not want to reconvert.  ►Watch the impact of conversion on the income tax return return that is used for college aid or elect to get it into years you are not showing for financial aid.#Ed Slot

Year End Tips: ► No one knows what the law will be in 2011 so planning that makes sense whether there is a $1M exclusion or a $5M exclusion will be the most flexible and perhaps best. ► If you gift to a trust that is supposed to be for later generations (GST tax exempt) few advisers believe that future law will let you get away with a freebie so that if you want to really maximize tax benefits on gifts to grandchildren (“skip persons” in GST “speak”) do it out right, not to trusts. ► Discounts on family entities and GRATs have all been proposed to be repealed or greatly restricted so the planning consensus is do those now.  ► Reasons to make taxable gifts now: 1) get assets out that still have unusually low values because of the economy out of your estate; 2) pay tax at 35% instead of 55% next year; 3) if you survive 3 years the gift tax paid will be out of your estate too.

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