January & February 2013

VOLUME 8, ISSUE I
JAN-FEB 20 I 3
9?
«’i ii iii 1G I [C liiii L, E i:
THE INTELLIGENT VALENTINE’S DAY KISS
Summary: KISS -Keep It Simple Stupid. If you don’t have a taxpayers the income tax, not surviving spouse’s life, no
$5 million+ estate do you want a short, simple and cheap the federal estate tax, is the federal estate tax savings, and
will as your estate plan as the American Taxpayer Relief P1’obien1- if Yo“? sPonse and aii no basis step “P on the secnnci
Act of 2012 (A1-RA) made the $5 mime“ inflation adjusted descendants are beneficiaries spouse’s death. Your old
exemption and portability (you can benefit from the un_ of the bypass trust, then the style bypass trust could cost
used exemption of your deceased spouse) all permanent? trustee can sprinkle income to you more in income tax while
Fear of the estate tax is gone for most wealthy people! beneficiaries “_’ the lowest 0 you,re_ aiwe’ cost your heirs
Planning for these Worth 55 (Single) or $10 (couple) m“_ bracket to avoid the new 3.8 A more in income tax,when they
lion+ remains complex-See Checklist. But the cavalier Medlcare tax’ You can re‘ Se.“ assets after 3701.1 Ve both
purpose a bypass trust to save dled, and at best glve you 21
application of the KISS principal will likely undermine your income tax ifyou don,t Worry state estate tax savings lees
goals’ Yes’ m many cases plannmg ci°_m_ be Smpler and less about federal estate tax. With than these costs. Not neces-
costlyefor those under the $5/$10 million weelth range. portability, when your spouse eerily a Whmele The analysis
more intelligent application of the KISS principal to simpli- dies, you succeed to his or her can be affected by the nature
iV pi3″”i”3 when 3Pi°i°i”iaie is the ‘”3V- “F°i ii‘°5e ‘~’“‘ie” unused exemption. So you may of your assets, your tax basis,
the new exemption amounts, planning remains hot,” Chris- never need a bypass trust to future appreciation, and oth.
Tia” Gfevi E5cl- 5UE8e5t5- “Whiie the Kiss Piincipai can 3P- avoid federal estate tax. Assets er variables. Christian, help,
ply, there remain at least 20 shades of estate planning.” in a bypass trust may trigger I need a KISS! So repurpose
This requires more than a form will. “Your estate planner higher income tax during the (Continued on Page 2)
needs new tools in his or her estate planning playroom to
deal with the new planning environment,” he adds.
Your win could establish C H EC KLISTI WEALTHY ‘ I 3 PLAN
this trust and bequeath the federal exemption amount (or
a lower state exemption). Your surviving spouse can ben-
efit but the assets are all removed from his/her estate. Summary: if VOW net Woi’iii i5 ti1oU8h the economic benefits
That was standard planning for years. Now what? You over the $5/$10 million federal accrue inside the trust (outside
might still benefit by removing assets from state estate threshold, you should plan your estate). For the really
tax. These trusts can still protect assets from a remar- quickly and aggressively. Do I wealthy, a grantor trust per-
riage, lawsuits, etc. Consider a couple of tweaks in how sound like the estate tax ver- mits you to sell interests in a
you apply them [)oSt ATRA. COIlSide1‘ giving an iIlde- sion of Chicken Little? Maybe, highly appreciated business to
Pendent trustee a right in distribute the assets Ontiigili io but President Obama has made a trust and not recognize gain.
Yam‘ sPo“se and terminate the trust in that manners if his position clear that the Valuation discounts are on the
the tiiiist isnit needed’ or Pbtaining 3 basis Step up 0“ the wealthy should bear more tax. block. So is the ability to allo-
sufwwng spouseis death 15 beneficial the assets can be More fiscal cliffs are looming, cate GST exemption for more
paid out. Basis step up means that assets included in your and President Obama has re_ than 90_yearS.
estate get an increase (step up) inlthe amount-on which peeteehy called for ehenees to ‘I Get with the Program _ If
gain is calculated on sale (tax basis). Some like dis-
key estate tax planning tech- you’re in this wealth category
claimer bypass trusts. You bequeath all the assets to your
surviving spouse and then he/she can disclaim (renounce) mques that most m Washington “Pd dld not glft your exemp-
some of the assets into a trust for his or her benefit. This w°u_Id mew as were I°°p_h°_Ie no” .amount last year’ get
is theoretically a better approach, but few surviving c’°5′”g’” These ‘”°I”de‘ Ehm” moving before the rules
spouses actually complete the disclaimer. Also, as the “ating gram” trust benefits bi’ chanlge flfr thhe wl(:lr;e’ Most
exemption increased in past years many bypass trusts i”Ci”di”3 them i” V°‘” e5iaie- p.efop.e tzoaltzsbmtlb EVS mgde
only benefited the surviving spouse, because the amounts Giant” “‘~’5i5 make the i”°°’“e gl ts In u ac e 0
were so large. But ATRA was a paradigm shift. For most °i 3 in-i5i iaxabie to YOU We” (Continued on page 3)VOLUME 8, ISSUE I PRACT]CAL PLANNER PAGE2
THE INTELLIGENT VALENTINE’S DAY KISS
(Continued from page I) uate the projected return on a one- (handcuffs not required), the spouse
our ass rus s wi e c an es 1 e ra er an a survivors 1 0 1c . se in l u cou ene 1 oo. ey byp t t °thth h g l’f th th ° h°ppl’y tt°g’t p ldb ftt ‘Wll
suggested above for flexibility. How Consider the increased income tax the MILIT can do everything both
you invest (asset location) and other benefits of a permanent insurance an ILIT and a SLAT can do. Why
variables can also squeeze more ben- policy in light of the increased in- pay for two trusts if you can use one.
nies out of your repurposed bypass come tax rates and the 3.8% Medi- Remember we want that KISS. But
trust. In some instances, such as care tax. Investments can grow in- you can do better. Let’s say you live
when your estate is small enough that side a policy free of income tax. in one of the 20 or so states that have
the alternatives below aren’t worth- These dollars can be borrowed, oftenwhile, a bypass trust might remain the in a tax advantaged manner. Insur-

hot choice, but for many bypass trusts ance can still be great, but for most Free am-6./6,5, W/”-tepapersi

be used as a backstop to better folkS, It Wlll be applied In a different

planning. You need to update your manner for different benefits. recorded webinars and

will and plan even if you’re under the 9

Re ur osed Irrevocable Life more on 2012 7-ax/let

exemptmn amount! Insurance Trusts (ILITs) – The clas-

Reflurposed Insurance _ Sic is a trust inSul‘-

Folks under $5/$10 million used to buy 311°C 50 913111131115 co111d11’t 1’eaC11 P10‘

survi‘/Orship insurance to pay es- Ceeds, benefiCiarieS Couldn’t Squall‘

tate tax. While still useful for state es- 119111» and 11 Wo1l1d11’1 be 111C11ld€d 111

tate tax, for those safely under the ex- Vo111” 951313 11 )’011’1’e 11111191‘ 1119 119W deeennied from the federal estate tax

h th° t
e111P11011 3111011111 S111″f1Vf11S111P 1115111 gffitrntattltog tbfn ttlledncrteinttufeliillenlefgg and that your state has a $1 million
311% n:1a°y be a hardlahmlts But: t remain important Instead of a survi estate tax exemption’ Ignore Con-
iscar insurance. epurpose 1 may – ‘ – o
fl] 1, ‘ C °d ’ _ vorship ILIT for those safely under necttcut Smce It hes a glft tax 31,”?
s I e a Wmnen tmsl er a perms that is a hard limit Under traditional
th t’ ‘d th – I
nent insurance policy on one life. Eva] 9 911911111 10:1» 001151 91‘ 9 1‘eP111’ bypass trust planning youad put $1
posed ILIT’ Have an ILIT for one million in a bypass trust under your

3 on
space limitations, and other factors, there is no W? a pelftelanen Po my to ti? , 6 en” But if your combined estate is say $4
assurance that every item can be relied upon. Facts Va“ age 0 Incense tax gmwt ms‘ 6 million (well below the federal ex-

and circumstances, including but not limited_to_ the polley. Set It up so your spouse/ emptien for a couple) you could Still
differences in state law, may make the application of a partner is a beneficiary and funds ewe nn n d 1, e d S at tn ens a n as i n State
general planning idea in Practical Planner, b b d tli l- d

inappropriate in your circumstances. This newsletter fizilsltrifantteleirorfsvifis itenakifl It): gnnna estate tax 011 the 211d deat11° The s°1“’
does not provide estate planning, tax or other legal , , ‘ P tion may be a MILIT! You may have
advice. If such services are required you should seek at Lttettme Access Ttttsts (SLATs) an ILIT anyway. You can do more
professional guidance. The Author, publisher and many use. Consider incorporating than make annual gifts to an ILIT to
“.:E.::’,i?.’;::.*;:::.::::::’*zJ:.;::::.’$.::;:;diiize a ‘°”§;”m °::: 0″ “’::;’;- premiums» more
newsletter constitutes attorney advertising 22 cy° . on nee 0 up a 6 our , S “‘9 «lust hke yet‘ would Wtth 3 SL”_5‘T°
NYCRR 12ee_ and insurance plan even if you re As you get en in years, you can gift

11111191‘ 1119 eXe111Pt1011- more. You can put far more into

Rewew’ Andrew Wolfe’ CPA’ Esq’ v Multi-Purpose Irrevocable Life your MILIT. the” 3 bypass ttttst

IRS Circular 230 Legend: No information contained TM (MILITS) – could hold Smce after $1 mllhon your
herein was intended orwritten to be used, and cannot Yeah, so I made up a new name! But estate would pay state estate tax on
be used, for the purpose of_avoiding U.S. federal, state this eeuld be the intelligent Klss fei. 1.119.111“ death» A1111 11131 S 3 113111

or local tax penalties. Practical Plannerwas notwritten estate iannin fer talks with ennn n limit. But in any decoupled state

to supportthe promotion, marketing, or recommenda- p g g (Other than CT) on can ift u to $5
wealth to Ian but not enou h y g P

tion of any tax planning strategy or action. P a g miiiinn_l_ tn yntn, MILIT before death

wealth to put up with costly and
Publisher Information: Practical Planner is published complex planning, This is a 1-epur- and reduce your State estate tax by
bl-monthl b Law Made Eas Press LLC P.O.Box more then a bypass trust MILIT
V Y V v v _ posed ILIT and a few more steps.
1300, Tenafly, New Jersey 07670. Information: news . benefits: All benefits of the repur-
a great way to remove assets from 1’

Copyright Statement: © 2013 Law Made Easy Press, both spouses’ estates but let one estate tax‘ Use a single tt“st instead
LLC. All rights reserved. No part ofthis publication spouse have access, and even if done of 311 ILIT9 SLAT and bypass trust
may be_reproduced,_stored, or transmitted without eteatively and with a little risk It’s simpler, better income and estate
I I I I‘ll‘ II III _lll_I‘VOLUME 8, ISSUE I PRACTiCAL PLANNER PAGE3
C H EC KLIST: WEALTHY 20 I 3 PLAN

(Continued fi~om page I ) a great way to freeze the value in up most of your exemption on your
did so because they did not appreci- your estate and shift future apprecia- 2012 gifts, using GRATs which can
ate the mechanisms that can be used tion to a trust outside of your estate. be structured to shift growth out of
effectively to assure them, their It can also lock in significant valua- your estate without using any signifi-
spouse/partner and family access to tion discounts. If the loopholes above cant current exemption, could be a
the funds transferred. Yes, you’ll are closed this technique, which has great technique, If you have closely
have to jettison the KISS principal, been the keystone of many high net held business interests this is a poten-
but at this wealth level if simplicity is worth families’ plans, may be im- tially valuable approach to consider.
your goal, and costs are your con- practical. That will be a huge tax Again, you have to move before the
cern, you’re not seeing the forest benefit to lose out on. GRAT “loophole” is closed.

through the trees, You can set up / Revisit GRATs – Some advisers / Decant and Clean Up – If you have
11011-l‘eeiPl‘oeai SLATS (eaeh S1JollSe were pushing these last year because old trusts and planning, the time to
or Partner Sets up 3 SoIIleWh3t diffel‘- of the proposals to require a mini- clean them up is now. If the grantor
ellt t1‘llSt to!‘ the Other), Self-Settled mum 10 year term for GRATs. That trust and GST “loopholes” are closed
tl‘llSt (DAPT) 01‘ Some hybrid Val‘ia- would take much of the zing out of you will have fewer options and more
tion Of its and rnore- it tne the technique and make the mortali- difficulty cleaning up past planning
“ieepneies” anoVe are eiesed these ty risk of GRATs impractical for “stuff.” Decanting is the process
Pianning ideas Wenit naVe tne bang older or ill taxpayers to bear. Using whereby you pour an old trust into a
they did in 2012- GRATs in 2012 if ou hadn’t used new and better crafted trust. While

E your exemption geenerally didn’t no one can be sure what if any

Trusts – If you set up an irrevocable make sense. But now, if you’ve used “loophole” closing will occur, or its
gift trust last year but used less then

your entire exemption, and if the

trust was set up appropriately for C E N T D E P M E N

your circumstances (e.g., sufficient

access to the trust assets if you need
them)» toP Off the gift and Use 1113 the The American Taxpayer Relief Act (ATRA) permanently eliminated estate tax
rernaining eXernPtion- Aisea since the worries for most taxpayers. So now, what do you do with those family limited

$5 rniiiien exemption is iniiatien in‘ partnerships ( FLPs) and limited liability companies (LLCs) that you set up for es-
nexen it tneteasen anetnet $130,000 tate planning purposes? No one enjoys the formalities of maintaining FLPS/LLCs,
tn eo13’ Gttt tnnt ntnennt tee’ It yen the cost and hassle of the extra income tax returns, and more. So if they don’t
went and the leepnetee are eteeed ye” provide an estate tax benefit, deep six’em! Not. Repurpose them (just like lots of
might need to have your current

other planning can be modified for the New Normal of estate planning as illus-

trust split into separate subtrusts to

hold gifts before the change and trated throughout this newsletter). FLPs and LLCs continue to benefit you by:
those after. If your trust Wasnat Providing control over assets (e.g. as a manager of a manager-managed LLC you
drafted with enough flexibility, yen can control within reason investment, distribution and other decisions). Protect
might even need a new trust Net a assets from creditors. In many states charging order protection is available (the
very practical prospect for $130,000, claimant can get your share of distributions but cannot take over as a member or
Perhaps gift cash for each yea;-95 ih- partner). Limit irresponsible heirs by controlling how much say if any they have
flation adjustment then swap in busi- in FLP/LLC operations and what distributions they get. Even if the federal estate
ness interests later. Gift now! tax benefits were zapped, these entities should remain the cornerstone of many
V L“ Assets te Yenr Trnst – it Yenr plans. But, just like those late night infomercials (don’t ya love Sham Wow!)
wealth is substantial enough that there’s more! Given the restrictions on itemized deductions many high income
gifting $5,250,000 (tne niaxirnnni taxpayers may find itemized deductions disappearing. Creative but careful use of
2013 eXernPtion arnnnnt) or FLPs/LLCs may secure certain deductions. Most important, FLPs/LLCs were histor-
$1oa500900 it yenire rnarrieda is Oni)’ ically used to shift income (subject to the family partnership rules of IRC Sec.

a nnwn Payment en Vent Planning» (e)) to lower bracket family members. This can avoid the top 39.6% rate and per-
yen sntnnn evatnate sentng assets haps the 3.8% Medicare tax on passive income. Bottom Line: Most taxpayers
(e°g°’ interests in n tntnny tnveettnent should retool FLPs and LLCs and morph them into asset protection, family control
LLC’ real estate entities’ ete’) te yet” d income tax lannin tools For reall wealth tax a ers see the Checklist
grantor trusts (the trusts you set up an . p e ‘ ‘ . V V p Y

in 2012 were likely grantor trusts, article. The ultra-wealthy should use discounted FLP and LLC interests to fund
but be sure before you Sign”. This is gifts or sales to grantor dynasty trusts now before the rules change. PP
PRACTICAL PLANNER F_ to M1
1rs – ass a1
NEWSLETTER USPosta ePaid
MARTIN M. SHENKMAN, PC H k gk NJ
PO Box I300, Tenafly, N] 07670 3° ‘W530
Email: [email protected] Permlt No- 1 121
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E Creative solutions that coordinate all your planning goals: g
2 – Estate – Tax – Business ‘ Personal 5;
3 -Financial -Asset Protection
2/Ilo/i/q//I»/‘o/o/N/‘s/‘o/fo/s/‘q/o/i/‘q/~/‘o//is/‘um/‘o/‘IIs/’«/s//¢‘o/¢’o/~/’o/A/’o/‘»/‘o/»/’«/¢’./~/o/s/‘o/J5/J’;
insurance coverage to be sure all as-
P:_ANNiN(3 PoTPouRRi sets and risks remain covered and
new ownership interests, entities, are
properly reflected. Distributions
You need to share more love with your an amended and restated sharehold- must be consistent with the oost_
2012 planning to enhance the chance ers’ agreement, etc. Some transfers transfer ovvnershio it 35% of an F”,
it will succeed. Ignoring what you did were made without securing required was gifted to a trust distributions
last year will almost assure failure. lender or other approvals. Contact any must he made 35% to the trust_ oh_
While there are lots of steps that will third parties and obtain the necessary serve a” oost_transter formaiities_ it
have to be taken, and they’ll all de- approvals. Some trusts were funded new entities were formed to hoid as_
pend on the details of your particular with gifts of cash because appraisals sets given, he sure the right oeooie
plan, a list of many of the common could not be obtained in time. Consider with the appropriate positions/tities
steps to take (or avoid) might help you swapping in the hard to value assets sign appropriate documents and con_
understand some of what is involved: that you initially intended to be in the firm appropriate actions_ if an invest_
Typos and incomplete steps exist. No trust. Gift tax returns will be required ment trustee is require to approve
plan or document could have escaped for almost all 2012 transfers. Be sure trust investment decisions be sure
oversights and loose ends with the which professional will have primary that individuai executes investment
mad rush to consummate gifts in 2012. responsibility for the preparation and documentation_ The manager of a
Whatever you did, it all should be giv- that they begin the process of obtain-
en a second look. Many transfers ing the necessary information. In-
were completed with the minimal doc- come tax returns should reflect the ,, ,_ ‘S./”6
umentation needed to conclude the consequences of 2012 transfers. This E twp g
transfer. For example, if you made may require allocation of entity income ~ ‘cg
gifts of stock to a trust, a stock power to the time period before and after the fl é ‘ E5}? “0
and assignment may have been transfers, filing returns for new entities
signed. Circle back and be sure to issue and trusts, etc. Review asset alloca- Practical legal
a stock certificate to the trust, execute tion and location decisions. Review in plain English
www.shenkmaneducation.com