Though their yield may not seem like much - 1.75% for AAA-rated 10-year bond - on an after-tax basis, that compares favorably to Treasuries.
"If I have someone with an AGI north of $400,000 or $500,000, then I would probably have the lion's share of their assets in munis," Yu says.
But there are a couple of complicating factors with owning munis. First, bear in mind that investor interest in munis has been high over recent years, driving up prices - and higher prices mean lower yields for bonds.
Also, the uncertain interest rate environment should make even the biggest muni fan a little wary. "I wouldn't want a client out greater than 10 years," says Yu, who also oversees investments for his clients. "You do sacrifice some yield by staying shorter, but it gives me more latitude and flexibility."
9. GIFT TILL IT HURTS
Tax preparers are always baffled when wealthy clients don't take advantage of the full yearly gift-tax exclusion, which in 2013 climbs to $14,000 per recipient. Even with the gift exemption locked at $5 million, the gift-tax exclusion can help a high-net-worth client move even more assets out of an estate.
"A married couple with 10 grandchildren has the ability to gift $280,000 a year," Benson says. "To be able to move almost $300,000 out of a wealthy couple's estate every year can really chip away at the estate tax."
But some clients may not want the money out of their control. For them, consider a 529 college savings plan, suggests Bourdon of Brightpath Wealth Planning. Clients can gift up to five years all at once (getting five years of the exclusion, assuming they live for the full five years), but they can remain the account's owners. If they have gifting remorse, they can withdraw the funds, albeit with a penalty.
For clients who have no problem with gifting, however, a 529 may not be the best use of the annual gift allowance. Here's why: Education payments aren't subject to the gift tax if made directly to an institution. Advise these individuals to still make a yearly gift and then pay separately for school when the time comes.
10. CONSIDER A GRAT (SOON)
The extension of the $5 million gift and estate-tax exemption and the modest rise in estate taxes may lull some high-net-worth clients into a false sense of security. But be warned: Other estate planning tools may be on the chopping block in the future. One area President Obama has singled out in the past is grantor retained annuity trusts.
Here's how a GRAT works: An individual sets up and funds a GRAT for a certain number of years. The funds are invested in any way the owner wishes. Each year, the owner must take a certain amount of money out of the trust as an annuity. The IRS assumes the GRAT will grow at a given rate, and sets it monthly for new GRATs. Here's the sweet part: That rate is currently 1.2%. Anything the trust earns beyond that can be passed on to beneficiaries free of gift taxes. "Because the IRS rate is so low, it's not hard to outperform that rate," Benson says.
One hitch: If clients die before the expiration of the trust, the remaining money must be added back into the estate. That gets particularly tricky given that the Obama administration wants to impose a 10-year minimum on GRATs, up from the current two-year requirement. Bottom line, advises Steffen: "Do the GRAT sooner rather than later."
11. ZERO IN ON UNDERVALUED ASSETS
One estate planning technique that makes sense more because of the sluggish economy than the tax changes is a grantor trust. This tool may appeal particularly to business owners, who can gift undervalued assets, such as shares of a closely held business, to the trust.
"As the business recovers through the economic cycle, the appreciation would happen outside their taxable estate," says Annika Ferris, a partner and wealth advisor with Atlanta-based Brightworth Private Wealth Counsel.
12. CONTINUE ROTH CONVERSIONS
The last three years were a godsend to anyone considering a Roth conversion. Without income limits, high earners could convert traditional IRAs into Roths, paying income tax up front, but at a historically low rate. In exchange, they could let their accounts grow tax-free and have tax-free withdrawals in the future, a time when tax rates will most likely be higher. On top of that, the markets' rise over the last few years has eased the conversion pain, in many cases making back the money that account holders paid in taxes.
