VOLUME 7, ISSUE 6
Nov-Dec 20 I 2
1 3…!
P [i 4“ P
Martin M. Shenkman, CPA, MBA, PFS, AEP, _[D
20 I 2 PLANNING TIME CONCERNS
Summary: 2012 is the year of the estate plan. Here’s through as part of addressing Speedy Gonzales gotta be
some tips to make it really happen: the fiscal cliff that will have a your role model until New
I If you snooze you lose: Lots of folks have waited profound and negative impact Years!
waaaay toooo long to address 2012 planning. Many are on planning. Remember we got I Be Proactiv®: Proactive is
finding out the hard way that most good advisers are too a new tax act in December not just a zit cream. It’s how
booked to help ‘em. But lots of folks that think they are 2010. Legislation to address you have to hustle to get your
well along the 2012 planning path are still asleep at the the fiscal cliff could change the planning done this year. You
switch and haven’t followed up on many critical and time estate tax game rules before must be personally proactive
sensitive components of what they (not their advisers) year end. Some provisions in pushing your advisory
have to follow up on to get their deals done. 2012 is un- could be made effective as of team (anyone and everyone
paralleled in tax planning history. The hand holding your the date of proposal, not enact- involved in your planning)
CPA, attorney, and wealth manager may have given you ment, which means you may forward. You must make it a
for planning in prior years just ain’t happening this go- lose the opportunity to imple- priority to personally set up
round. Everyone that is any good is really overwhelmed. ment a plan that is well under- meetings to sign documents,
Every pro will drop balls because there are so many fly- way. Sophisticated wealth meet with advisers and push
ing. To get your planning completed, and to get it com- transfers need to be completed each phase of planning to con-
pleted right, you have to follow up. ASAP. And many of the steps clusion. The volume of work
I It’s Crunch Time! OK Cap’n Crunch if you have 2012 necessary are in your hands everyone in the estate plan-
gift planning still in the hopper, and you hope to com- and are your responsibility. (Continued on page 2)
plete it before year end, time is of the essence. The estate
planning “machine” of local attorneys (e.g., who are
needed for trusts in other states like Delaware), apprais- _ 9
ers (real estate, business, discount, etc.), CPAs (e.g., cash C H ST. N
flow projections which are essential for any note sale
transaction or transfer of business interest), corporate _ 0
counsel (essential to obtain lender, lease and other ap- Summary’ Presldent Obama 9’9 A’ Medleare tax W1“ be
provals and to draft the entity documentation essential to has been reelected to a second Imposed on “fages and self”
consummate a gift of an entity interest), trust companies term and has reiterated that he employment income over
(to review and approve trusts, serve in fiduciary capaci- expeejs the Wealthy “’_pay $200’000 for smgles and
ties, open accounts), are all incredibly backlogged. Most more meeme tax’ ord”’ary_ $250’000 for malined eeuples
appraisers and attorneys are no longer taking new mat_ income tan rates may be raised and a 3.8 A) Medicare tax will
ters for 2012. The closer we get to Auld Lang Syne the by mereaslng ghe top two (fax a1’1”y_t” net Investment In”
more this backlog will grow. It will become harder, if not bmekets t” 36 A’ and 39_°6 A’° _e°me If your adlusted gross
impossible, to finish many 2012 transactions. Bob Kee- Capltal ga“’s_taX rates 1″” meeme (A_GD exceeds
bler a smart well known CPA and retirement planning ereflsed for hlghfiamers to $2_00’000 smgle ($2_50’000
guru has expressed concern that those waiting too near ?r%A’fip’“sbtl’_’e 3’8 A’ t «:l”m_t)° énvestlflteng mte”’(’l’e
s:.:::.m ..::::::.;:: 11:.
t at t eir requests won’t get processe
I Deadline Ma be Before Year End: The election 1.e_ even on the wealthiest taxpay- new Medicare tax unless it
sults, and President obama’s reiteration of his intent to ers’ n_”ght’ to some extent de’ resuhis from _“’Vest’nent of
have the wealthy bear more tax, has an ominous tone for I’end’_ng_”n the shape of tax W”rk”’_g ea1”t_al_° Dlselfss asset
anyone in the process of completing estate planning. No n_eg”t’at”’ns’_ m_”rph mu’ f’“”eat”’n dee’s_”’ns Wlth ymfr
one knows What will happen in Washington. While it is tighter restrictions on a range investment adviser, and busi-
possible that Congress will just kick the can down the of ded_“et”_’ns° Here 5 some Hess hquld heldmgs Wlth W”
road by extending the current estate tax regime, it is also 1”ann(’;§At’lI)’sft” dlseuss Wéth §_PAjbTr”steesls_h_”“ld _”l’lV’:W
possible that President Obama will push legislation 27/”1″’,i‘edicareer::§e%7I‘l”;;)‘i’::’ 5 wt” “”0″ I’(‘;0’:t’l_el:e::’O”n pig?”
VOLUME 7, ISSUE 6 PRACTlCAL PLANNER PAGE2
(Continued flom page 1) I ID Numbers: If you have an entity I Approvals: Third party contrac-
ning machine is experiencing is un- that needs a tax identification num- tual approvals are essential for many
precedented. There has never been a ber (EIN, TIN), call your CPA and transactions. You may not be permit-
time in the history of the estate tax (no get one assigned immediately as you ted to transfer real estate, or an en-
exaggeration) where you had to be will not be able to open a bank, bro- tity (e.g., LLC) that owns real estate,
more proactive, and more personally kerage or other account without it. without lender approval. The loan
responsible, to assist and push your Record the EIN on the front page of docs for your business lines of credit
own planning to completion than now. the document so that you’ll have it may have covenants restrictingI Steps to Consider: What must you available whenever needed.do now to increase the likelihood that I Appraisals: If you have an ap-

your 2012 planning will be completed? praisal that is in process, call your 2012 Estate manning; Tax

Ask your advisers what specific steps appraiser immediately and confirm a PI _ S T N

g Q

you can take, and review the points date that you will receive a valuation a'””” te 5 to ake ow new
below and act immediately to the ex- number. That figure is essential to 200 page book by Shenkman,

tent that these matters pertain to you. your plan. Many 2012 estate plans

If you are not sure, call and/or email have interrelated components. The Blattmacl” and Keebler

each adviser that may be involved. appraisal you obtain will affect the available as an e-book on

I Appointments: If you have a trust, value (percentage) of an entity or

shareholders agreement, deed or other real property you hope to gift (or “’ W’amaZ°”‘c°m for $3935‘
legal document that has to be com- sell). This in turn affects what your

pleted, call your estate, corporate, and corporate attorney must draft in en- transfers, dividends, and all sorts of
real estate attorney, and schedule an tity documents and what your real stuff 2012 gift planning may violate.
appointment to review your docu- estate attorney must draft on any A tenant (e.g., an anchor tenant in a
ments, and a second appointment to deeds. Depending on the numbers, shopping center) may have rights to
sign. Get the key dates locked-in. the structure of your transaction restrict your transfer of the owner-

may have to change. If you’re gifting ship entity. If you have a franchise,

pteetetmer to Readers: preetteet planner provides close to the maximum $§.12M (or the franchisor may have to approve
teeeepepty eeeptete tptetmettept hewevep due to your remaining exemption), you may any transfer. If you have not already
space Iimitations, and other factors, there is no want to integrate 21 “defined value obtained the necessary consents, yoll
assurance that every item can be relied upon. Facts clause” into your planning. This is a should have your corporate, real es-
and circumstances, including but not limited to h ° (1 t ° ° ° th fall- t t th tt dd th
general planning idea in Practical Planner,

tpeppteppete tp your ptt.ppmeteppee_ This newsletter of your gift. Morte complexity. Unless “Plan B”. in ease the approvals aren’t
does not provide estate ptanningt tax or other tegat the eXCeSS Value IS oVel° to a I°eCelVed In tlllle Cash to grantor
advice. If such services are required you should seek charity, its not particularly secure. trust now, swap in business later).
Professional 9Uidehoe- The Author. Publisher and More decisions, more documents, I Securities: Open accounts with a
NAEP.C d° “°t. have “a.’b”‘tV f°r _a”Y ‘°SS 9r °’a”‘_a9° more complexity and not much time. check as an initial deposit before at-
resulting from information contained herein. This
pewetetter eepetttptee ettemey edverttetpe 22 You need. to understand the options tempting to transfer securities. If
NYcRR1200_ and the risks associated with each, you are transferring securities from

and make a decision. Your estate one institution to another without
Review.’ Andrew Wolfe, CPA, Esq- planner can explain options for having the same identity of accounts
h l ° . . h k B k A

IRS Circular 230 Legend: No information contained structutrmit .etse/ C ilustes fwvatllldtliy’ (6 g e :01: av: suite‘ tatt 2:1 t imdt
herein was intended or written to be used, and cannot excess 0 C an y prwa e mm a ‘On’ Wan 0 Fans er a S oc 0 a ms
be used, for the purpose of avoiding U.S. federal, state exeess te QTIP 01′ GRATa ete-) but “1 Trust eentlltmny X) You may en‘

or local tax penalties. Practical Planner was not written you have to make the call. To get the counter significant problems. Discuss
to suloloort the Promotion, marketing, or reoorhrhehde transfer done, you might defer re- the logistics and how to handle such
ti°” °f 3”)’ tax p’a””i”9 Strategy °’ a°ti°”- ceiving the full appraisal report until transfers with the intended recipient
Ppptteher tefermepee: Preetteet Planner te pupttehed next year, and rely on a written letter institutiotp now. Discuss the Patifiot
bi_mon»thly by Law Made Easy press, LLCt p_O_ BOX pl’oVldlIlg Just the Valll2ltloIl figures. Act and KIIOW Yolll° Customer

1300, Tenafly, New Jersey o7e7o_ Information; news There is some risk that if there is a rules with your financial advisers.
Ietter@shenkmanIaw.com, or call 888-LAW-EASY. change when the final report is com- They can’t short-cut regs. This due
C _ h 8 _© 2012 L M d E P pleted a tax may be triggered. But diligence stuff takes time. Call every
Lt:’(§y;t’tt”rtet]htearte°$‘:t?ete No part ffihteapfibttfigeenress’ that risk may well be worth taking financial institution involved in your
may be reproduced, stored, or transmitted without because the Options are so limitedo planning to address these issues. PP‘
II iI‘Il‘II III ..iii..I‘ .. D‘VOLUME 7. l55UE 6 PRACTICAL PLANNER PAGE3
CH ECKLIST: PosT- ELECTION T/>o< TIPS

(Continued firom page 1) Family limited partnerships may verting your IRA into a Roth IRA,
trust’s CPA as making distributions morph into income shifting tools that do it at today’s lower rates. Gener-
to beneficiaries under the tax thresh- they were before estate planners en- ally, convert by asset class to take
old may save money. gineered FLPs into discount ma- advantage of market volatility. Roth
V 3 Analyze When *0 take chines. If you can get paid this year IRAs are not subject to the required
deductions and losses, The usual rule instead of next, the income may be minimum distribution (RMD) rules
to accelerate tax deductions and taxed at a lower rate. If you have a that regular IRAs are subject to at
losses may not work, Because of pos- bond paying interest on January 1, age 70.5 so they’re groovier for doc-
sible tax increases the opposite ap- sell that bond in December. The in- tors and others worried about asset
proach might be best, but… If re- come will be taxed at 35% now, in- protection. Beneficiaries can realize
strictions on deductions are enacted, stead Of at a 43.8% marginal tax rate tax free withdrawals from Roth

then perhaps you should only defer in 2013. Sell bonds trading at a pre- IRAs, but not from regular IRAs.
deductions that aren’t likely to he mium in 2012 when the premium is From an estate tax planning perspec-
restricted, The reinstatement of the taxed at lower 15% capital gain tive, funding a bypass or applicable
3% AG] phase out of itemized de- rates. Repurchase the bond later. exclusion trust with a Roth IRA is
ductions may also make many deduc- Asset location considerations should much more efficient since they are
tions of little value in 2013 regardless be evaluated. If the marginal tax rate full dollars, whereas funding with a
of other changes, The calculus of on dividend paying stocks increases, regular IRA is not only more com-
what to defer/accelerate is uncertain, it may prove advantageous to hold plex but it underutilizes the benefit

Harvesting Gains: Recognizing those stocks in qualified plans. because the dollars involved are par-
income, and harvesting capital gains, V ‘ If you’re con” tial or pre-tax dollars. PE‘

in 2012, before rate increases could
be a smart move. Gift an existing

installment note to a non-grantor R E C E N T D Ev E Lo p M E N T 5

trust and trigger the income tax at

2012’s lower rates. Use derivative
strategies and straddles to recognize ISelf-Settled Trusts: A recent Illinois case ruled unfavorably on the use of a
gain in 2012. The straddle rules pre- self-settled trust. Rush Univ. Med. Center v. Sessions, _ N.E. 2d _, 2012
vent you from taking a loss early, not IL 112906, 2012 WL 4127261 (Ill, Sept. 20, 2012). Some have concluded that
from triggering gain early. Caution, the use of a self-settled trust in a asset protection jurisdiction (“DAPT”) for
the income triggered by gain harvest- residents of non-DAPT jurisdictions is not viable. Others have pointed out that
ing in 2012 may impact the taxation the result in Rush U was not unexpected in that it is consistent with prior bad
of Social Security benefits for some. fact cases attacking self-settled trusts. The reality is that before and after Rush
If you’re elderly or terminally ill, U DAPTs were and remain unproven. Only after the Supreme Court rules on
gain harvesting may not make sense the application of the Full Faith and Credit clause of the Constitution as to

as it may be more advantageous to whether a DAPT jurisdiction has to respect the judgment from the non-DAPT
simply hold the securities until death jurisdiction, will it be confirmed whether creditors can reach a DAPT, and

and achieve a step up in income tax hence whether transfers to a DAPT will be removed from your estate for a non
basis for heirs. -DAPT resident. The Court’s evaluation of the use of self-settled trusts under

V 3 3011115 deP1’eCi3tio11 the common law rule was supported by a number of Illinois cases. Marriage of
and Section 179 deductions are im- Chapman, 297 Ill. App. 3d 611, 620 (1988), and Crane v. Illinois Merchants
portant to consider as you plan asset Trust Co., 238 Ill. App. 257 (1925). The court stated the common law rule as
acquisitions near year end, If you follows: “Traditional law is that if a settlor creates a trust for the settlor’s own
plan to buy a new car, should you benefit and inserts a spendthrift clause, the clause is void as to the then-existing
buy it now or in January 2013 when and future creditors, and creditors can reach the settlor’s interest under the
income tax rates are higher and trust.” The court noted that this conclusion did not require that the transfer be
when you may qualify for a Section a fraudulent conveyance. Clearly the planning and implementation in the case
179 deduction? was flawed. Holding real estate in Illinois, and having the grantor as a trustee
Shifting Income: Income shifting and trustee protector was inadvisable. Perhaps restrictions can be incorpo-

to iunioi. generations, and 2012 from rated into a self-settled trusts, e.g., that you cannot benefit unless you’re not
2013, may be advantageous. This married, or that no distributions can be made to you until after ten years and a
should he eonsidered when you make day after funding (to fall outside the period when a bankruptcy trustee can
gifts, when trustees plan distrihu_ avoid a transfer to a self-settled trust), etc., may make the trust as not being
tions from non-grantor trusts, etc. self-settled if those events have not been triggered. PP

PRACTICAL PLANNER F.tC1 M.1
MARTIN M. SHENKMAN, PC Hackensack NJ
PO Box I300, Tenafly, N] 07670
Email: newsIetter@shenkmanIaw.com Permit No- iizi
RETURN SERVICE REQUESTED
erg
More Info:
°Publications: Estate and Financial Plan-

ning for People Living with COPD avail-

able on Demos Health. All proceeds paid to

the COPD Foundation. This book was

written under the auspices of our charity

WWW.chronicillnessplanning.org.

°Seminars: We’re planning a 2013 chronic

illness speaking tour-NJ to South Dakota.

If your charity or professional organization

along the way would like a presentation

email us as we are developing an itinerary.

Email shenkman@shenkmanlaw.com.

Creative solutions that coordinate a// your planning goals:
Estate ‘ Tax ‘ Business ‘ Pelsonal
-Financia/ -Asset Protection
cannot receive additional contribu-
PLAN N i N (3 PQT Po U Rm tions. An impermissible additional
contribution will disqualify the
GRAT. So the argument is that the
I We Weren’t Standing on all 4 should be recognized in a later tax transfer under the defined value
E: We got barked at about our pet year when grantor trust status didn’t clause is deemed effective the date of
trust article. Pet trust documents apply. Thanks to Steven Siegel, Esq. the formation of the GRAT and the
which are free standing have a much Morristown, NJ. sale (which is why they should be
different set Of laws than when pet IGRAT and Defined Value Clause: signed the same day), There is no
trusts are formed under your will. Defined value clauses are a mecha- assurance that the IRS will buy this,
Thanks to pet lawyer expert and nism to limit the risk of an IRS audit In choosing the GRAT term it might
friend Rachel Hirschfeld, Esq. http:// adjustment on hard to value assets be advisable to have the GRAT term
WWW-PetTrnStLaWYer~eo1n _ transferred to a trust. The approach is extend longer than the likely period
I 3 to have the excess value paid over to a during which an IRS audit might
The iiieeiiie eii 3 grantor trust is non-taxable recipient. While case law result in a valuation adjustment
taxed to Yo“ as grantor- it Yo“ Seh has supported this when the excess is shifting assets into the GRAT, It
assets to a grantor trust for a note no paid ever tp eharity some tax experts would seem «Odd» to have steek paid
iiieeiiie is triggered beeaiise iiis ii believe that the excess can be paid over to a GRAT that has already
granter trllsto What happens When over to a zeroed out grantor retained epded under its Own terms. pp
Yo“ die? After yenr death it eanit he annuity trust. This raises issues. If the E E
a grantor trust. AS a Safety measure hard to Value asset ends up in a EA
consider electing out of the install- GRAT as a result pf an audit the term §,9_ ’ 5’}
ment sales method in the year of the of the trust must he ieug euuugh that Q at.
grantorss death since there is no tax there will be liquidity to p ay the auuu- § m
that year- Sehle might argue that yen ity amount. If there is inadequate li- i e cc:
can’t elect out of installment sale duidity the appuity Wpuid have tp be 5′”
treatment since no sale occurred for i in kip . Thi mi it i. ii. p
income tax purposes. This might pre- aigpiiaisai eiaeh yesar ti”: I:iale{(ell:;hee play- P1.iMt:“fl lgmllitzfii”
Vent the IRS tram arguing that gain ment. This would be costly. GRATs mp Mn fig is
www.Iaweasy.com