Planning Potpourri

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Elizabeth
Taylor Estate Plan:

If the Obama administration enacts portability of the
estate tax exclusion the Chapel of Love in Las Vegas may be the biggest
beneficiary. Here’s the deal. Portability means that if your spouse dies you
can use any exclusion (currently $3.5M) he did not use. This is without even
needing a bypass trust. This makes planning for married folks simple. An “I
love you will” (leaving everything outright to the surviving spouse) will
suffice. This, however, will be dangerous because too many people will stop
consulting with an estate planner and the myriad of other problems they have
will never be addressed (management of assets, liability protection, state
estate tax and more). Back to the “Liz Plan.” If portability is enacted,
depending on how the law is worded, you might be able to marry and accumulate
portable exclusions! Here’s how it might work. A wealthy Hollywood Starlet
marries an elderly terminally ill nursing home resident. The deal in their
pre-Nup is that Gramp’s kids will get $100,000 from Starlet on his death, and Starlet
gets Gramp’s exclusion. Do the math. If Starlet is worth $35M she can marry
nine “Gramps” and solve her estate tax problem (and she’ll beat Liz by 1!). And
who said estate planning won’t make Entertainment Tonight!

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Note
Substitution or Replacement:

So you sold assets to your kids or a grantor trust
years ago. Can you renegotiate the old loan and re-loan new funds at the current
low interest rates? Consider the applicable federal rates (“AFRs”) to
illustrate the change in interest rates. Assume the old loan of $2M was issued
in January 1998, when the AFR was 7.13%. Assume that the trust can borrow money
from a third party and prepay the loan to you. If a new loan is then made now,
the January 2009 AFR was 2.48%, the interest rate savings will be huge. This
will result in substantial additional growth outside of your estate over the remaining
loan term. This technique, while valuable, is not without gift or income tax
risk. For example, the IRS might assert the “step-transaction” doctrine and
collapse the repayment and new loan and argue that the reduced interest rate is
a gift. Worth exploring, but carefully.