Obama Tax Plan Checklist


New Age FLPs.

FLPs in an environment with reduced or eliminated discounts and higher marginal taxes, will take on non-tax planning objective of the days of yore - shifting income to lower bracket family members.


New Age GRATs.

The grantor retained annuity trust (GRAT) game had been to put volatile asset classes into high payout short term GRATs. A confluence of factors might now make a long term GRAT with a different investment strategy the better approach. Consider: interest rates are at historic lows, it might take years for assets to recover their prior values, the needs of the federal fisc might lead to the repeal of the GRAT technique, etc. Consider long term GRATs with single asset classes. If the GRAT realizes a large gain, the old technique (called immunization) was to substitute T-bills for volatile GRAT assets to lock in gain. But with a long term GRAT with years remaining that won't work, so instead immunize with a conservative but diversified portfolio to minimize downside while providing some upside potential.


Tax Credits.

Credits have always been a favored technique to motivate specific types of investments. Obama tax proposals might include new and enhanced tax credits for investment in education, alternative and renewable energies, and other targeted objectives. These in turn will have to be factored into trust, FLP and other estate and family tax planning.


Conclusion. Significant tax legislation is likely, even though it might have to play backseat to more pressing economic, health care and other objectives. The landscape of the income and transfer tax systems could change rather significantly for wealthy taxpayers. If done intelligently, there will be tax pain, but remember "No pain, no gain". If it helps right the economy and vital social objectives, we'll all be better off.

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