Do You Need an Experienced Lawyer for an Estate Tax Issue?
We Can Help
The primary point of departure in estate tax planning for clients is their net worth. There is no need to perform any estate tax planning at all for a married-couple client whose combined net worth is substantially less than the Applicable Exclusion Amount and who have not made taxable gifts in their lifetime and who do not hold a power of appointment over a substantial amount of property.
With the Economic Growth and Tax Relief Reconciliation Act of 2001, the AEA will increase, disappear, then reappear, as follows:
Year |
AEA
|
Highest Rate |
2001 |
$675,000
|
55% |
2002 |
$1 million
|
50% |
2003 |
$1 million
|
49% |
2004 |
$1 million
|
48% |
2005 |
$1.5 million
|
47% |
2006 |
$1.5 million
|
46% |
2007 |
$2 million
|
45% |
2008 |
$2 million
|
45% |
2009 |
$3.5 million
|
45% |
2010 |
unlimited
|
0 |
2011 |
$1 million
|
55% |
2012 |
$1 million
|
55% |
| (And thereafter) |
Thus, if you are likely to accumulate modest wealth by the time of death, such as a combined net worth among spouses of a few hundred thousand dollars, then in all likelihood the estate will never be estate-taxed. It is simply unnecessary to use complex estate tax planning for these clients. Occasionally, our California clients will want to obtain creditor protection, financial guidance of an incapacitated spouse, or remarriage discouragement, and in those instances we might explore use of a subtrust known as a Bypass trust in spite of their relative low net worth.
High Net Worth Planning
Much of the complex estate tax planning is done because estate tax affects those with substantial resources, who can afford the cost of the highly specialized tax lawyers who can address their problem. High-net-worth planning usually involves a combination of entity planning, irrevocable trusts, charitable and foundation planning, offshore strategies, income tax deferral and legacy planning strategies. There are a very few number of practitioners who competently plan in this area.
From our experience in fixing botched designs and consulting on post-mortem disputes, there are much fewer good drafting attorneys than the number who claim to practice in this area. Unfortunately, individual clients are usually in charge of selecting counsel and often do so without thoroughly investigating the claims of their prospective counsel with the State Bar, other counsel who practice exclusively in the area, or even their own CPAs and financial advisors. Further, sometimes good counsel are constrained by the client’s unreasonable budget limitations to accomplish even a small portion of what could be accomplished for the family literally for several generations.
High-Income Planning
Another niche area of estate planning pertains to the planning for high-income clients. The practitioners who emphasize this type of planning often use retirement planning strategies, certain investment styles and choices, closely-held business arrangements, charitable vehicles and related structures to accomplish the client’s income-tax-reduction objectives. Many non-lawyer financial planners attempt to specialize in this area, and some are much better than most lawyers. Unfortunately, there are many unscrupulous financial advisors whose recommendations often have more to do with the commissions earned off the product to be sold than the best interests of the client.
Nevertheless, some areas where your estate lawyer can be helpful involve income-tax-planning: legal niches such as ESOPs, stock option planning, defined benefit planning, 412(i)s, Roth rollovers, insurance-premium financing, advanced partnership planning, business entity selection and benefits, exempt organizations, charitable planning and philanthropy. Because high-net-worth clients are also quite likely to be high-income earners, it is a good idea to explore the above areas and strategies if you have high income and/or high net worth.
Contact us for a confidential consultation about your estate tax matter.
Call us at (415) 896-1500 or submit an inquiry using our online form.
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