Planning Potpourri

Elizabeth Taylor Estate Plan:

If the Obama administration enacts portability of the estate tax exclusion the Chapel of Love in Las Vegas may be the biggest beneficiary. Here's the deal. Portability means that if your spouse dies you can use any exclusion (currently $3.5M) he did not use. This is without even needing a bypass trust. This makes planning for married folks simple. An "I love you will" (leaving everything outright to the surviving spouse) will suffice. This, however, will be dangerous because too many people will stop consulting with an estate planner and the myriad of other problems they have will never be addressed (management of assets, liability protection, state estate tax and more). Back to the "Liz Plan." If portability is enacted, depending on how the law is worded, you might be able to marry and accumulate portable exclusions! Here's how it might work. A wealthy Hollywood Starlet marries an elderly terminally ill nursing home resident. The deal in their pre-Nup is that Gramp's kids will get $100,000 from Starlet on his death, and Starlet gets Gramp's exclusion. Do the math. If Starlet is worth $35M she can marry nine "Gramps" and solve her estate tax problem (and she'll beat Liz by 1!). And who said estate planning won't make Entertainment Tonight!

Note Substitution or Replacement:

So you sold assets to your kids or a grantor trust years ago. Can you renegotiate the old loan and re-loan new funds at the current low interest rates? Consider the applicable federal rates ("AFRs") to illustrate the change in interest rates. Assume the old loan of $2M was issued in January 1998, when the AFR was 7.13%. Assume that the trust can borrow money from a third party and prepay the loan to you. If a new loan is then made now, the January 2009 AFR was 2.48%, the interest rate savings will be huge. This will result in substantial additional growth outside of your estate over the remaining loan term. This technique, while valuable, is not without gift or income tax risk. For example, the IRS might assert the "step-transaction" doctrine and collapse the repayment and new loan and argue that the reduced interest rate is a gift. Worth exploring, but carefully.

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