Many clients won't move forward on tax and estate planning now because of the tremendous uncertainty in Washington over tax laws. True, it could be a while before there's any clarity regarding the host of new legislative proposals, and clients might be surprised by changes effective in November even if Congress' Joint Select Committee on Deficit Reduction acts later.

The range of possible changes to the estate tax, for instance, is wide. At one end of the spectrum is a repeal. At the other, a $1 million exemption and a 55% rate, accompanied by restriction or repeal of many favored planning techniques.

Too many unanswered questions to plan now? Think about this: Once the answers are known, planning options may have vaporized. Advisors need to push clients to plan now.



Although uncertainty reigns, there are solid estate moves planners should address with their clients. Most are worthy of immediate action. Hesitant clients should at least consider partial steps.

* Trusts. If a trust or entity is set up now and minimally funded, it may be feasible on short notice to ramp up the funding in the future. That's better than having nothing in place.

* Family limited partnerships. One reason they have traditionally been formed is to take advantage of gift- and estate-tax discounts. Discounts, however, may soon be history, so clients seeking to leverage wealth transfers with these should act soon. The proposals floating around, if enacted, could make these partnerships useful for another purpose: shifting income to younger generations in lower income tax brackets. If restrictions on itemized deductions are enacted, investment and other expenses may prove more tax advantageous if they are made part of the family limited partnership business and deducted by the partnership.

* Contributions. One proposal has been put forward to limit the charitable deduction for individuals to amounts exceeding 2% of adjusted gross income. Evaluate whether contributions should be made and deductions taken now.

* Medicare tax on investment income: The 3.8% Medicare tax on passive income, scheduled to take effect in 2013, might not apply to earnings of charitable trusts. Depending on the outcome of various proposals, including the estate-tax changes and the increase in marginal tax rates on high income taxpayers, using charitable remainder trusts and non-grantor charitable lead trusts might become more popular. Clients could use these to shift investment income to the trust formed and avoid the new Medicare investment income tax.

* State residency: With proposals under consideration that would restrict state income tax deductions, high income taxpayers who reside in high-tax states may want to evaluate moving to states with no state income tax or low state income tax.


Martin M. Shenkman, CPA, PFS, J.D., is an estate planner in Paramus, N.J. He runs, a free legal website.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access