plans
•Harvesting gains and losses
•The inter-relationship of income and estate taxes
•Grantor retained annuity trusts (GRATs)
•And much more
Most importantly, reading this book will give you the advice of three estate planning experts as to how you should plan now, avoid major planning pitfalls, and minimize the risks associated with 2012 planning. The result of this will be better protection and tax savings for you and your loved ones. You will learn about many of the techniques that America’s wealthiest families use in their planning. And the authors know, because America’s wealthiest families seek them out for advice.
On a personal note, I’ve worked for many years, even decades with each of these authors and I am thrilled to see them pool their talents to make a book for sophisticated consumers and professional advisers alike at this crucial time.
I’ve been privileged to work in the fields of accounting and tax law for 50 years and have taught more than 750,000 people over that time. My overarching goal over all these years has been to help others navigate through the complexities inherent in the financial world while they try to build a comfortable future for themselves and their families. I am proud to write the Foreword to a book that is so consistent with my own personal mission.
I encourage you to take advantage of the knowledge and planning ideas provided by this timely book. A wealth of information is at your fingertips.
Do bear in mind, as the authors point out many times, state laws differ, everyone’s circumstances differ, and cutting edge planning always has risks. So plan and benefit but do so with professional guidance.
Sidney Kess, CPA, JD, LL.M., AEP® (Distinguished) is of counsel at Kostelanetz & Fink, LLP, New York, NY, and was recently selected Most Influential Practitioner by CPA Magazine. He is a nationally renowned tax expert and author/coauthor of hundreds of tax books on financial and estate planning. Having lectured to more than 750,000 practitioners on tax, financial, and estate planning, he is one of the nation’s best known lecturers in continuing professional education.
In 2011, Mr. Kess received AICPA’s Gold Medal Award for Distinguished Service that is given to individuals who have made a major contribution to the CPA profession and is the highest award granted to a CPA by the Institute.
CHAPTER ONE
INTRODUCTION TO 2012 PLANNING
This may be one of the most important estate and tax planning years in history. For instance, 2012 may prove to be the best and last great wealth-transfer planning opportunity for high net worth individuals. It may also be the best year to recognize income including dividends and long-term capital gains. Then again, it might not! The real issue is deciding what can and should be done with respect to estate, gift, and generation-skipping transfer (GST) tax planning in the waning days of 2012. (In very simplistic terms, the GST tax is a separate wealth transfer tax, similar to a gift or estate tax, on transfers to “skip persons,” such as grandchildren.) For many taxpayers, the cost, complexity, and hassle of significant 2012 planning is relatively insignificant in comparison to the tremendous benefits that might be achieved. But a large number of taxpayers are simply not jumping on this opportunity. Never before has so much wealth been considered for transfer in such a short period of time. The goals of this book include:
•Helping to educate you on what planning options are available, and why you should consider moving quickly to address these options.
•Discussing what arrangements, traps, and special considerations affect 2012 planning.
•Explaining the unique issues created by the necessary compression of the planning sequence and how you can effectively plan within such a short timeframe.
This book is being written for both taxpayers and their advisers. While advisers may hunger for more citations and technical jargon, and taxpayers may struggle to understand some of the more technical discussions, the time compression of 2012 planning necessitates this approach. Taxpayers and their advisers will have to work together in an efficient and cohesive manner to complete planning steps in time. Thus, everyone has to be on the same page—hence one book. It is hoped that this unique approach will make 2012 planning a successful endeavor for readers of all backgrounds.
THE BIG GIFT
Gift planning is the topic of the moment for estate planners, tax practitioners, and their clients. But the sound bytes the media has disseminated (the current $5 million—inflation adjusted to $5.12 million—exemption and 35 percent rates in 2012 could become $1 million exemption with a slight upward adjustment for GST tax purposes and a 55 percent rate in 2013) masks a myriad of essential details, complexities, and planning nuances that you need to consider on a rather urgent basis.
PERSPECTIVE ON THE ESTATE TAX ROLLER COASTER
If you love roller coasters, there are only two places to go: Cedar Point in Sandusky, Ohio, or a visit to your estate planner.
The tax legislation enacted under President Bush, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), made dramatic changes to the federal estate (and other) taxes. EGTRRA phased-down the estate and generation-skipping transfer taxes until they were fully repealed in 2010. That temporary repeal of the estate tax became an optional result for one year, spawning incredible complexity, but also some unbelievable tax windfalls. EGTRRA lowered the gift tax rate to 35 percent for 2010, but left the gift tax exemption at $1 million for 2010. These substantial tax reductions became known as the “Bush tax cuts.” The Bush tax cuts were scheduled to sunset or end in 2010 so that in 2011 the estate, gift, and the GST tax would all have increased. The GST exemption (a separate exemption amount that may be allocated to either lifetime or death transfers in order to minimize or avoid the GST tax) was scheduled to decline to $1 million, but that amount would have been indexed for inflation since 1997. The inflation-adjusted amount would have been $1,360,000. The estate tax exemption would have decreased in 2011 to $1 million. Finally, the estate, gift, and GST tax rates would have risen to 55 percent. Some believed that this increase in the estate, gift, and GST taxes would be detrimental to the economy and that lessening the sting of such an increase would support further economic recovery.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Act) P.L. 111-312, which became law on December 17, 2010, increased the estate tax exemption (the amount that a taxpayer can leave at death free from federal estate tax) from $3.5 million, as it was in 2010, to an unprecedented $5 million, inflation adjusted. The 2010 Act unified the gift and estate tax exemptions, increasing the gift tax exemption to an unprecedented $5 million, again inflation adjusted. In 2012, that amount is $5,120,000. As a result, any taxpayer can give away in aggregate (whether during life or at death) without a federal transfer tax over $5 million! This presents a tremendous opportunity to shift wealth that no one of means (including taxpayers with far less wealth than $5 million) should ignore. Now is truly the time for many taxpayers to act.
Many of the favorable extensions and tax law changes contained in the 2010 Act could end in 2013. Thus, the window of opportunity to act may soon be over.
2013—THE TAX YEAR TO FEAR ... MAYBE
Here we go again! In 2013, the gift and estate tax rates and exemptions may revert to previous levels—before the generosity of the 2001 and 2010 Acts. If this were to occur,
