The Will Doctor on Tax Planning in 2010

Another proposal just before year end in the House contained a phased in increase in the exemption equivalent to $5 million, and phased in decrease in the tax rate, down to 35%.  At this point, it starts becoming more difficult to determine whether Congress will be able to overcome its polarization in order to provide some order and stability in the tax regime concerning transfers of wealth.

It still seems reasonable to assume the weight of probability lies in favor of the permanent extension of the 2009 regime, or some compromise like the one above-enacted early this year.  But the likelihood of inaction and the resulting tax boondoggle in 2011 is now a real threat.  Scroggins, in his excellent synopsis of the issues which I posted today, gives it a 40 percent chance-and I have noted other commentators who consider it more in the fifty percent area.

All serious and “best of breed” estate planners are now enmeshed (as presenters or attendees)  in seminars now being offered by state and national bar associations and other providers, designed to help us deal with this uncertainty.  I will be participating in several over the next few weeks.  We anticipate calls from anxious clients (including those who wonder if they should embrace death this year to save taxes) who are rightfully concerned about the disposition of their wealth in this environment.

Fortunately, for a number of years we have been using forms for our wills and trusts which anticipated the possibility of the new tax (or non tax) regime, but these are likely to be bolstered by new language and techniques just now being developed.  We will make these available to our clients as soon as possible, and we are preparing a mailing for later this month to keep our clients as informed as possible.  In the meantime, we will keep you informed of progress on this blog.

Clients will be asking whether it makes sense to risk large gifts or other techniques in this environment, and we will generally respond with a conservative view-although each case MUST be considered based on its own circumstances.   A conservative view would recognize the possibility and likelihood of a retro-active application of the 2009 (or similar) tax regime-and it appears very unlikely that the law would exempt transfers made (in good faith??) in the interim.

So, the current strategy is: wait, and listen.  For clients presently engaged in their planning, we believe that it would be imprudent and wrong to avoid the implementation of a multi-generational disposition of creditor protected and family focused wealth transmission due to tax uncertainty.  We continue to design our documents to be as flexible as possible, to anticipate and cope with uncertainty in a way that will reduce the need for future changes.

For clients with estate plans implemented in the last few years, no immediate change is necessary-and we will contact you if we determine that action is necessary or advisable.  For clients with older documents, it is always appropriate for a review of your situation to reduce the risk of bad tax (and non tax) results.

Posted in Status of Tax Legislation, WillPlan Blog.

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