President Obama is proposing tax increases on the wealthy. If you’re in that category what can you do?
Can high income earners do more than take it on the chin?
Certainly. First, let’s mention some of the old standbys, then I will mention some more creative planning ideas.
What about trusts?
Many wealthy taxpayers have set up trusts that were intentionally made taxable to the person setting them up for income tax purposes. These are referred to as grantor trusts. For some, it might be advantageous to reconsider whether the trusts should continue to be taxed in that manner or whether there may be an advantage to having the trust pay the tax. People with grantor trusts should talk to both their CPA and estate planning attorney about the pros and cons of a change if the law is enacted.
What about family limited partnerships?
Family limited partnerships (FLPs), and family limited liability companies (LLCs), have been used for many years primarily for estate and gift tax savings. Higher taxes on the wealthiest earners will create a greater spread in tax rates from the lowest to the highest. This may make a more traditional use of FLPs and LLCs again of paramount importance — shifting income to lower bracket family members. If taxpayers gift FLP or LLC interests to heirs in lower brackets, they may be able to pay income tax at their low rates on their portion of partnership earnings.
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