2012 Gift Planning Time Worries

2012 Gift Planning Time Worries

By by Martin M. Shenkman, CPA, MBA, JD

2012 Planning Time Concerns – October Update

As 2012 moves closer to an end, the time pressures and constraints of work to complete the growing volume of 2012 planning will begin to make it difficult, and at some point, impossible to complete planning in a timely fashion. Bear in mind that many plans will require a number of different people to complete steps in order to create and implement a plan. If any necessary step cannot be completed in time, it could impede the completion of an entire plan. While the steps might differ from plan to plan, some or all of the following might present issues:

  • Financial projections may be essential, or perhaps just advisable, to support the amount of gift or transfer being made.
  • A bank or trust company will be required to review a trust document and satisfy its legal department. We have already seen some bank reviews of trusts expand to more than six weeks in time. This could worsen as year end gets closer.
  • A bank or trust company will have to complete detailed “know your customer” due diligence procedures.
  • A lender, franchisor, landlord, or other third party may be required, under a contractual agreement, to approve transfers you wish to make in 2012. At some point there will not be enough time to have real estate or corporate counsel review governing instruments and obtain required consents.
  • A sophisticated trust agreement, limited liability company documentation, gift transfer documentation, defined value clause provisions, sale and loan documentation and more, may all be necessary to properly implement the transaction. One state that had typically turned around new LLC filings in a matter of days, as of early October, was processing documents from early September. These delays will lengthen and at some point it may not be feasible to form entities, or obtain filed documents on existing entities, to complete planning.
  • Appraisals, even preliminary estimates for appraisals, require time. As appraisal firms become increasingly inundated with work, backlogs will undoubtedly develop. Already one national business appraisal firm and a local real estate appraisal firm have already stopped taking any new 2012 work. As year end approaches, time delays will grow and more firms will cease accepting 2012 engagements.
  • Depending on the planning being contemplated, out of state counsel review and approval may be necessary, adding additional time to the process.
  • The planning team (CPA, attorney, wealth manager insurance consultant, etc.) will have to coordinate their respective roles and the overall plan. As every adviser faces their own crush of 2012 gift planning, this coordination will become more difficult to coordinate.
  • The pressure of year end work will likely impact the quality of work anyone can complete.
  • Rushed planning can never be as carefully completed as planning that has the luxury of time and deliberation.

There are many more issues that might arise. Complex plans take time for even seasoned and skilled advisers to develop. Your making decisions to move millions of dollars into complex and unfamiliar trust structures in such a compressed time frame will make the planning process increasingly difficult and stressful. You should also bear in mind that as the time frame during which planning must be completed is compressed, certain tax doctrines under which the IRS may challenge planning may become increasingly difficult to address (sham transaction doctrine, reciprocal trust doctrine). For example, if several steps, of a plan are completed in short order, the IRS may attempt to collapse the steps into one which may result in adverse tax consequences (step transaction doctrine).

All is not lost, even if you are a Johnny- (or Jane) come-lately. There are many planning steps that might still be completed, even closer to year end. But, these are not going to be the optimal, well thought out plans that can truly capitalize on what might prove to be the most advantageous year to plan in the history of the gift, estate and GST tax. These benefits might include: $5.12 million gift exemption, valuation discounts, grantor trust status, perpetual allocation of GST exemption and more. So, if you think it is too late, let us know and perhaps we can provide some creative alternatives. But late moves will also face risks. For example, some advisers suggest funding a trust with cash now, and substituting hard to value business or real estate assets next year. It is not certain that this may not have an adverse impact depending on the changes to grantor trust rules. An extensive memorandum has been emailed to all clients for whom we have email addresses. If you did not receive this memorandum via email, please visit www.laweasy.com where you can find this memorandum. We have written a book, 2012 Estate Planning: Tax Planning Steps to Take Now, which is available as an e-book from www.amazon.com, or which we will send as a courtesy to clients who are completing 2012 complex trusts. This will explain many of the timing issues and steps you might consider. But even all these resources don’t identify all the issues and concerns.

We will do everything possible to help you take advantage of 2012 planning opportunities. But the sooner you act, and the more proactive you are in working with all your advisers in completing and implementing the plan, the greater the likelihood of your planning being completed in time and achieving its intended goals.

A few final caveats:

  • Legislation might be enacted before year end that undermines planning steps you have in process. The real deadline may be after the election and before year end.
  • While there is every hope that planning implemented before the end of the year will be respected regardless of future legislative changes (“grandfathered” in tax jargon), there is no guarantee.
  • This might all prove to be “Much Ado About Nothing”. Congress might put a band aid on the estate tax and extend the law as it presently is for another year or two. No one knows. But waiting on a hope might prove a costly gambit.
  • Planning can often have negative consequences. If you gift assets today, they will not qualify for an increase in the value used to calculate future capital gains (in tax jargon, “there is no step up in basis.”). A concept called “clawback” might apply to pull intended gifts back into the estate tax calculation.
  • We are here to help. Let us know how we can assist you and your other advisers with your planning. But please act quickly and be proactive. At this point you must be advised that it is difficult for any advisers, appraisers, lenders, trust companies, or others to guarantee that every intended component of your plan can be completed on time.

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