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TaxationWeb by John Bledsoe John Bledsoe, of John Bledsoe Associates, examines estate planning in the context of US citizens.Brief historyIn the year 2000 Congress passed a law that will eventually eradicate the so called “death tax”. Instead of eliminating it immediately, they decided to phase it out, just to give the American people something to live for. Currently the estate tax exclusion is 2 million dollars per person rising to 3.5 million in the year 2009. And in the year 2010 the estate tax will be eliminated entirely. For one year only. That’s right; in 2011 the estate tax will return. It will be imposed on people dying with more than 1 million dollars in their estate. So the obvious window of opportunity to have a tax-free demise is between January 1st and December 31st in the year 2010. For a person to avail themselves of this window of tax free opportunity, they have to die in 2010. This requires a very unusual commitment to tax savings, and will not likely be a recommended approach by mainstream professionals like myself.Current politicsWhat Congress told us when they passed this whacky law was that you could rely on the future politicians to improve this law to where estate taxes are eliminated forever beyond 2010. As a matter of fact, estate taxes have been the favorite platform of many a politico both large and small, but no change as of yet.What the public thinksOlder Americans who have more than 1 million dollars of net worth are skeptical as to whether or not the politicians are telling the truth about this. These folks have heard a lot of promises over the years. Heck, most of them remember the government telling them we were going to convert to the metric system a long time ago. So now that the current law has had almost 6 years to marinate, most prospects for estate planning have come to grips with this permanent estate tax elimination to be as unlikely as finding certain weapons of mass destruction.Get the facts outI begin every estate tax discussion with new clients by explaining the current law and political promises. I find that no one wants to take the wait and see approach when current proper planning is offered as an alternative. As a matter of fact, good estate planning will work well if there is an estate tax in place or not in the future.Take action nowI find that once people understand the great planning options that they have they will be proactive. These folks will most often avail themselves of the current estate planning opportunities of annual gift tax exclusion transfers to well drafted trusts. The use it or lose it nature of annual exclusions make it a do it now type of planning item. This simple action removes these transferred assets (and any growth) from estate taxes in the future…no matter what the politicians do.The perfect estate planI have read so many things about estate planning that have turned out to be false in practice. The key is to understand what the prospects want with their estate plan once they are apprised of their options. The perfect estate plan is not what we want but what the clients want. And some of their wants have never been articulated before. This makes the fact finding part of the process very important. I began doing estate planning when I was much younger. Yes it was so long ago I had hair! I discovered that even a pretty astute 20 something financial person (me), knows little about the estate desires of a 70 something millionaire next door type (the prospects). But I learned if I could suppress any of my preconceived notions and ask the right questions I could discover exactly what these prospects wanted in their estate plan. My findings were a shock to me.Certain does not make welcomeThe perfect estate plan does center on avoidance of tax, probate and guardianships. Just because the death rate is 100 per cent in this part of the world does it mean that our prospects accept their own mortality. The ultimate estate goal is unspoken and maybe unrealized. The perfect estate plan would be for me to figure out a way where my clients did not have to die. This would be a terrific marketing tool as well and the insurance companies would be equally ecstatic. In the absence of this immortality solution people want to live as long as possible, with a good quality of life, in control of their assets and situation. When they do inevitably die they would like for their remaining assets to go to their loved ones instead of the government.What motivatesIt is helpful to know how these financially successful senior folks view their money. The reason that these people have money is at the root of their convictions. They obviously have money because they spent less than they earned. (This is a lesson to us all). But the reason that they saved was not so their children would inherit more money. These good people saved money in case they ever had a financial rainy day. In fact many of them say they would not like to become a burden on their children or anyone for that matter. This good citizenship, self-reliant attitude caused them to save money for their own financial security. So they would like to have an estate plan that keeps them in control as much as possible and lets them have access to all their assets in case of financial rain.ConclusionEstate planning is alive and well for the professional who knows how to listen to the customer. They will tell you what they want. But you have to ask and then listen.April 2006 John Bledsoe John Bledsoe Associates 130 Forest Hollow Drive Suite 100 Argyle, TX 76226 USA Ph. 940.455.7006 Toll Free. 800.878.7844 Fax. 253.276.9219 This e-mail address is being protected from spambots. You need JavaScript enabled to view it
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About The Author  Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence. Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms. He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website. |
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Article Added Saturday, 06 May 2006 | 3929 Hits |
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