Estate and Succession Planning: More Important Than Ever

After enactment of the American Taxpayer Relief Act of 2012, many clients and their advisors quickly concluded that “estate planning” was no longer important. This was primarily due to the effectively permanent large Federal estate and gift tax exemption level of $5 million-plus per person. This exemption, which is adjusted for inflation annually, this year is at $5.43 million – effectively eliminating Federal estate tax concern for over 99% of U.S. families! Yet estate and succession planning is more important than ever – for both tax and non-tax reasons.

First of all, 19 States still have an estate or inheritance tax of some type, and some of these jurisdictions have much lower exemption levels than does the Federal estate tax. So tax practitioners must know their State law for clients before eliminating estate tax from the planning agenda. In addition, many Wills and trusts are quite out-of-date, especially if not updated the past few years, and the changes in family situations, increase or decrease in net worth and other factors call for updating of the estate and succession plan.

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Family Wealth Planning in Uncertain Times

How do we measure success in Family Wealth planning (my preferred term to that of “estate planning”)? I believe the measure of success is meeting client goals in a practical, understandable and cost efficient way. This is a human process – involving first, people and their aspirations, opinions and goals. Then, given the financial aspects of planning, we consider property, its characterization, title, income stream, and appreciation potential. Finally, the goals of most families include passing on the property to younger generation family members – and here we come face to face with taxation in its various forms. The process involved in meeting family goals requires advisor competency, communication and real concern for our clients.

For nearly 50 years I have been involved in the use of entities, often pass‐through entities, for the efficient planning of clients’ estates – during lifetime and after death. The properly formed, funded and operated entity can separate management and equity ownership, can develop a format for gift and other transfers of equity interests within a family, and often constitutes an integral part of the overall succession plan for the family.

The year 2010 was a real challenge for planners and their clients, given the 1‐year repeal of the Federal estate and GST tax (not the gift tax, however). Then, late in December, 2010, the Tax Relief Act of 2010 was enacted into law in a rush to prevent the repeal of the 2001 “Bush tax changes” effective January 1, 2011. Now we are into the second year of the 2‐year “planning mandate window” for review, update and improvement of clients’ estate plans.

Planning now, even with the 2010 new legislation in effect, seems required, at least for our clients with larger estates. The review of Wills and trusts with formula bypass and marital trust clauses is needed, at a minimum. Further, given the uncertainty here, clients should review and confirm their intentions for estate distribution at death – to make certain their wishes are carried out.

We have something of a “triple reason” for planning now – low asset values in this recessionary economy, low interest rates (example: the mid‐term AFR rate for October, 2011 – over 3 and to and including 9 year loans or sales within the family – is 1.19%), and yet valuation discounts may be in for adverse legislation soon!

For further insights into family wealth planning from guest blogger Owen Fiore, JD, view his free on-demand webcast, Family Estate and Succession Planning: 2012 and Beyond.

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Family Succession Planning–a Hot Topic in 2012!

As an instructor for CPE Link webcasts on family wealth succession planning, I can say without question this is a 2012 “hot topic”. The 2010 Tax Relief Act, including numerous income and estate tax provisions, is due to expire by its terms January 1, 2013. So the year 2012 is the year of Affirmative Planning Action by clients, with positive planning advice from their CPAs and other advisors.

In spite of there being many estate planners active in working with high wealth clients, it has been shown that many families hold back on succession planning. The usual statement is that the law is uncertain, so let’s wait! However, often the real reason for inaction involves the difficult family dynamics, potential for family conflicts, and absence of advisor initiatives. People and their concerns, fears and goals are the central issue in family succession planning.

The issues of Property (“you can’t take it with you”!) and what will happen on the death of the estate owner must be considered, whether or not there is any estate tax liability. Certainly, for many families, this year’s $5 million estate tax exemption will eliminate any tax liability. However, absent new legislation, the exemption drops way down to $1 million January 1, 2013! Title and property ownership issues should be considered in any succession plan. In addition, flexible provisions must be added into the plan documents to account for changed circumstances, changes in tax law and other uncertainties. Having a plan, and discussing it within the family, also is the best way to avoid expensive litigation among heirs.

The CPA often is in an excellent position as a trusted advisor to the client to provide a stimulus for succession planning. Basic issues, covered in my succession planning courses, include Estate Planning alternatives using trusts effectively, the proper uses of FLPs, LLCs and corporations for business and investment assets, Valuation and building “discount planning”, and Buy-Sell Agreements and related Deferred Compensation Agreement Planning.

With the April initial deadline for 2011 income tax returns past, now should be the time for actively proceeding to engage clients in succession planning within the family. This not only is the right thing to do for clients; but also it is an effective method of practice development for the CPA or other advisor. Go for it, and do your best for clients – they deserve it!

Guest Blogger, Owen Fiore, JD

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Time to Focus on Family Wealth Succession Planning

Tax law seems more uncertain than ever; however, what is a sure thing is the importance of CPAs and other professionals moving their clients to update and improve their succession planning.

The Tax Relief Act of 2010 (enacted 12/17/10) gives CPAs and other tax professionals an outstanding “window of opportunity” for 2011 and 2012 (the law sunsets January 1, 2013, absent additional tax legislation).

The new $5 million lifetime gift tax exemption gives families a real opportunity to shift values of investment assets and family businesses to younger generations – all without any gift tax and with the opportunity for future income and appreciation to go to the younger generation family members. Outright gifts, installment sales, self-cancelling installment sales, sales to grantor trusts are among the techniques worthy of consideration. It is important, also, to review existing estate plans, especially where there are “formula clauses” that are impacted by changes in exemption levels.

According to CPE Link author-instructor Owen Fiore, JD, 2011-2012 is a critical time period for really getting the family wealth succession planning job done right and with the necessary flexibility. Now is the time for action, before Congress either fails to act or acts in a manner adverse to wealth accumulation and preservation important to our clients. Especially as to valuation discounts and the use of entities to shift wealth within the family, timing is essential due to the possibility of adverse tax legislation at any time, even before 2013.

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Tax Relief Act of 2010: Impact on Estate Planning

With provisions that affect both 2010 returns and forward planning for 2011 and 2012, the Tax Relief Act of 2010 puts pressure on tax practitioners to get up to speed rapidly on how to advise clients. Several income tax provisions have implications for the 2010 estimated tax payments, including the January 15, 2011 estimate, and also the 2010 returns themselves. In some cases, provisions may affect retroactively the estates of people who died in 2010.

CPE Link has responded with a new webcast devoted to the new rules of the Tax Relief Act of 2010 with an emphasis on estate planning and wealth succession and key rules for individuals and businesses.

The 2-hour webcast, Tax Relief Act Of 2010: Focus On Financial and Estate Planning puts practitioners on the cutting edge of financial and estate planning for 2011 and 2012. “The political theater that led to the Act’s passage is over and tax practitioners have to deal immediately with the reality. This course helps them to leverage the detailed provisions of the Act in practical and client-friendly financial and estate plans,” said instructor Owen Fiore, JD, who represents families and business entities in developing and implementing tax sensitive wealth succession, preservation and management plans.

This webcast covers the following topics:

  • What to do with estates of decedents dying in 2010, including election to opt into a “zero estate tax” but with carryover income tax basis.
  • How estate plans must be revised in 2011, to account for new estate tax provisions of the Tax Relief Act of 2010.
  • What Congress may do in 2011, especially with GRATs (grantor retained annuity trust) and valuation discounts.
  • The new attraction of major gifts and leveraged gifting through Family Limited Partnerships (FLPs) and Limited Liability Corporations (LLCs).

CPAs, enrolled agents, and financial planners can sign up now for the CPE Link webcast offered January 21 or February 9.

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Practice development opportunities in estate planning

As a CPA, you can be a key member of your client’s “estate planning team.” You can help develop estate planning programs with your clients in order to preserve and manage family wealth, including closely-held business interests as well as investment assets.

With the “estate and GST tax gap” in 2010 and uncertainty as to new legislation and its impact on estate planning, all plans of families with significant wealth should be reviewed and likely updated or improved.

To help you get up to speed on estate planning, valuation and pass-through entities, CPE Link is offering a trio of live webcasts taught by veteran estate planner, Owen Fiore, JD. Owen brings 40+ years of tax and estate planning practice experiences, dealing with new imperatives in Estate Planning, Valuation planning for family wealth (including closely-held businesses), and the best uses of Pass-Through Entities (FLPs, LLCs and S Corporations). Owen provides comprehensive materials for each presentation with references to current case law.

The July schedule include:

7/16: Estate Planning for 2010 and Beyond

7/26: Using Valuation Concepts & Issues in Tax Planning

7/28: FLPs, LLCs and S Corporations

Register for the 3 course Family Wealth Preservation Value Bundle and save! Earn 12 CPE hours.

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