Estate Planning: The Clock is Ticking -- Use it or Lose it Before 2013

"Estate Planning: The Clock is Ticking — Use it or Lose it Before 2013" by David Pratt, Lindsay A. Roshkind, and Scott L. Goldberger - Florida Bar Journal (February 2012 -- Volume 86, No. 2) ("Page 31 | On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, 124 Stat. 3296 (2010) (2010 act). The 2010 act ushered in some significant changes to the estate, gift, and generation-skipping transfer (GST) tax regimes, namely reducing the estate, gift, and GST tax rates to 35 percent, increasing the estate, gift, and GST tax exemptions to $5 million,[1] and reunifying the estate and gift tax exemptions.[2] However, these provisions of the 2010 act will remain in effect only through December 31, 2012, when the act is scheduled to sunset.[3] Unless Congress enacts new legislation prior to then, on January 1, 2013, the law will revert to the laws in effect in 2001, with top estate, gift, and GST tax rates of 55 percent, estate and gift tax exemptions of only $1 million, and a GST tax exemption of only $1 million (indexed for inflation).[4] Thus, in order for clients to avail themselves of the maximum benefits under the 2010 act, clients should consider engaging in one or more of the planning techniques discussed in this article as soon as possible. Each of these techniques can significantly reduce one’s taxable estate at death by taking advantage of the provisions of the 2010 act before they expire.")

The Rush to Avoid Gift Taxes

Family Value: The Rush to Avoid Gift Taxes - WSJ.com (JEH: This is an excellent, brief article on several key trust planning concepts related to the potential use of the current $5 million estate/gift/generation-skipping transfer (GST) tax exemption. I have posted other articles on this topic over the past year or so. Many practitioners and commentators have suggested self-settled spendthrift trusts (also known as "domestic asset protection trusts" (DAPTs)), which this article highlights, as part of this type of planning. These trusts are generally not advisable for effective protective planning, but can indeed be useful in the context of making a completed gift for federal transfer tax purposes in this current exemption scenario because they offer added flexibility (though, again, likely little if any actual protection for the grantor(s) (also known as the settlors or makers of the trust)). If you are considering this type of planning, you should commence sooner rather than later. If you wait until November or December 2012, you will probably be too late.)

president obama budget proposal estate planning

Change is on the Way: President Obama’s proposals for estate planning in 2013 and beyond - WEALTH WATCH - Trusts & Estates Magazine (JEH: The current administration's proposals make planning during 2011 and 2012 even more important. The current $5 million gift tax exemption, which is the highest in history (except during times when these federal transfer taxes did not exist), would be decreased to the $1 million exemption under the 2001 tax act. The estate and generation-skipping transfer (GST) tax exemption, which are also currently $5 million, would return to their $3.5 million levels under the 2001 tax act. In addition, the proposals suggest a 90 year "term limit" on trusts designed to optimize these exemptions (essentially a tax-oriented version of the rule against perpetuities) in order to limit their effectiveness (which of course means taxing those assets more often as they pass from one generation to the next). Consequently, planning to utilize the current exemption is critical for anyone whose assets would exceed the revised exemptions, including those whose assets would appreciate beyond those limits. With the possibility of future inflation, that might be more folks than anyone thinks now.)

Resources on general estate planning information

Clients and even other advisors often ask where to find resources on general estate planning information, such as the differences between wills and revocable living trusts or the basic steps of the probate process. The Internet is a wonderful tool, but can also be overwhelming and does not necessarily deliver the most useful information at the top of your search results. Following are several of my favorite resources on fundamental estate planning issues and questions.

First, The Florida Bar's consumer pamphlets on estate planning are excellent. Unfortunately the website's auto-generated links are terribly long. Here is the link to the relevant pamphlets on wills, trusts, and estates, or you may use this much simpler shortcut link: http://tinyurl.com/FlaBarPamphlets.

For example, the pamphlet on "The Revocable Trust in Florida" discusses some of the common myths regarding these topics. For instance, all assets are not subject to probate after someone passes away. It also covers "Do I benefit by avoiding probate?" and cites the general example of a multi-jurisdictional probate situation -- where someone owns real property in multiple states -- as one illustration of the proper use of a revocable trust.

The Florida Bar's website contains a vast amount of additional resources. In another blog post, I mentioned the Florida Bar Journal, the archives of which are available for more than ten years. You may also view any Florida lawyer's profile via the "Find a Lawyer" online directory.

Second, the American Bar Association's Section of Real Property, Trust and Estate Law website, which was recently redesigned along with the rest of the ABA website, also offers numerous resources from basic to very advanced information (including complete continuing legal education materials from previous programs). The "Estate Planning [Frequently Asked Questions" pages cover many basic estate planning and probate/trust administration issues.

The third favorite is CCH's excellent "Financial Planning Toolkit." I have praised this site and CCH's companion "Business Owner's Toolkit" for years. Each features an expandable "tree" of information on relevant topics. An entire portion of the Financial Planning Toolkit is devoted to estate planning, which explains basic and more advanced concepts and techniques to achieve a person's planning goals.

I hope that others find these resources useful. Everyone should of course consult their own professional advisors in their own state to determine how to implement planning that achieves their specific goals based on their circumstances. Being informed with accurate general information should help to facilitate the planning process, though.

Marital agreements in the estate and asset protection context

In honor of Valentine's Day (with smiles -- and hearts if you like), here are some general thoughts about marital agreements. Please note that I am admittedly not a family/marital lawyer (far from it and for many reasons). Nevertheless, there are certainly times when you should consider a marital agreement in the estate and asset protection context.

One of those circumstances involves Florida homestead (that is, a Florida resident's primary residence). By default, a surviving spouse receives a life estate in Florida homestead. One of the few ways to change that fact is via the use of a valid marital agreement. Consequently, many marital agreements drafted in light of Florida law -- whether for current Florida residents or those anticipating the change of their domicile to Florida -- should typically address Florida homestead issues. A detailed discussion is well beyond the scope of this blog post, but you may find excellent articles on the subject via a simple Google search for "Florida homestead" (no quotation marks needed) and/or a visit to The Florida Bar's website, where you may access years of archives of The Florida Bar Journal (under "Archives" or use the "Search" box) and find superb relevant articles by Barry Nelson, Esq. and others.

Another situation where marital agreements are indeed relevant involves asset protection. Perhaps you thought that you could only use a marital agreement prior to marriage, known as a "prenuptial" (or, if you prefer the Latin prefix, an "antenuptial") agreement. In some states, that is true because they still regard married couples as unified for contractual purposes, meaning that married couples are not typically viewed as separate parties for contractual purposes and therefore cannot generally make a valid contract between each other. In the wonderful Sunshine State, though, you may generally enter into a marital agreement even if you are already married, known as a "postnuptial" agreement.

Marital agreements can become important in the asset protection arena because they can require transfers of assets in order to satisfy the requirements of the agreement for each spouse. Those transfers typically do not constitute "fraudulent transfers," which is basically the "undo" tool that a creditor may attempt to employ in order to avoid the transfer of your asset(s) to someone or something (such as a trust or a business entity). The basic rule of fraudulent transfers is that you cannot put an asset that was formerly available to a creditor beyond that creditor's reach, particularly if trouble arises for you. Several exceptions to this set of rules apply, though, including transfers where you receive full value ("consideration") in exchange for the asset(s) transferred. Marital agreements can offer the same type of exceptional treatment because each spouse is viewed as merely carrying out required transfers under a binding legal obligation that reflects the pre-existing rights of each party to various assets.

Again, a detailed discussion of marital agreements is well beyond the scope of this post. You may obtain additional information by searching Google or your favorite search engine. Colleague Alexander Bove, Jr., Esq. has written some excellent recent commentary on the use of marital agreements in this context (see, for example, their firm's November 2009 newsletter). The American Bar Association also has helpful information regarding marital agreements in general, such as "The ABA Guide to Marriage, Divorce & Families" (entire book here via FindLaw) or "The ABA Guide to Family Law" (entire book online, just like "The ABA Guide to Wills & Estates" available here in its entirety).

Hopefully this post will provide some helpful general information on using marital agreements in the estate and asset protection planning context. As with anything, individual facts and circumstances will inform any type of planning. There is no "cookie-cutter" solution to these issues. With careful, thoughtful planning, though, marital agreements can enhance the estate plan, provide for the various distributions of assets under the estate plan, potentially even restrict future changes to the estate plan and/or its implementation after one spouse's death, and possibly even further protect assets of the estate (during lifetime and after death if properly structured).

Additional repeal coverage at Heckerling Institute

Although I will miss the Heckerling Institute this year (only the second time in a decade), those who are attending should note the additional coverage/sessions on repeal of the federal estate tax. Additional details are available on the UM website (here). Advisers dealing with any aspect of estate planning should consider attending the Institute, as it is definitely the best in the country. I will miss participating in the ABA reporting team led by Joe Hodges, Esq., but will be reading their excellent coverage via the ABA-PTL list (here) or the ABA website (here) and would encourage other advisers to do the same.

Summary of estate planning and asset protection laws in Southeast

I recently posted a summary chart/matrix comparing the estate planning, asset protection, and state-level tax laws of four Southeastern jurisdictions (AL, GA, and TN, which often "feed" into Destin, along with FL (current as of August 21, 2009)), which is available <here.