Obama Tax Plan Checklist

◙
New
Age FLPs.

FLPs in an environment with reduced or eliminated discounts and
higher marginal taxes, will take on non-tax planning objective of the days of
yore – shifting income to lower bracket family members.

◙
New
Age GRATs.

The grantor retained annuity trust (GRAT) game had been to put
volatile asset classes into high payout short term GRATs. A confluence of
factors might now make a long term GRAT with a different investment strategy
the better approach. Consider: interest rates are at historic lows, it
might take years for assets to recover their prior values, the needs of the
federal fisc might lead to the repeal of the GRAT technique, etc. Consider long
term GRATs with single asset classes. If the GRAT realizes a large gain, the
old technique (called immunization) was to substitute T-bills for volatile GRAT
assets to lock in gain. But with a long term GRAT with years remaining that
won’t work, so instead immunize with a conservative but diversified portfolio
to minimize downside while providing some upside potential.

◙
Tax
Credits.

Credits have always been a favored technique to motivate specific
types of investments. Obama tax proposals might include new and enhanced tax
credits for investment in education, alternative and renewable energies, and
other targeted objectives. These in turn will have to be factored into trust,
FLP and other estate and family tax planning.

◙ Conclusion.
Significant tax
legislation is likely, even though it might have to play backseat to more
pressing economic, health care and other objectives. The landscape of the
income and transfer tax systems could change rather significantly for wealthy
taxpayers. If done intelligently,
there will be tax pain, but remember “No pain, no gain”. If it helps right the
economy and vital social objectives, we’ll all be better off.