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The Keys to Successful Long-Term Wealth Management Planning

by Bryant Asset Advisors on 04/12/13

Acting now, not later, will ensure more long-term options.

Estate tax laws have been in flux for the last decade. Most recently, Congress passed the American Taxpayer Relief Act of 2012 (ATRA) on January 1, 2013. This new law just narrowly prevented sunset provisions that would have reinstated pre-2001 exemptions of $675,000 (down from $5.12 million in 2012). The uncertainty about whether ATRA would pass caused a sense of urgency when it came to long-term estate planning. But, just because ATRA did pass doesn’t mean that Advisors and their clients should wait to enact long-term plans.

Far From “Permanent”
If anything, the last 10 years have taught us that the Transfer Tax is in a constant state of flux. While ATRA claims to “permanently” extend the $5 million gift, estate, and GST exemptions as well as the portability provisions that allow surviving spouses to take advantage of unused gift and estate tax exemptions, recent history proves that Congress is not averse to changing the law. These latest exemptions and provisions are not set in stone and could change at any time. 

Congress and the Obama administration continue to wrestle with the debt ceiling and instituting broader tax reform. Every piece of tax legislation in the past 10 years under multiple administrations has included reform of the Transfer Tax. While Congress and the White House work to decrease the national debt, it is completely within the realm of possibility that the exemptions and provisions provided under ATRA could be repealed.

How to Protect Your Assets
With such an unstable tax climate, it is extremely risky to delay planning long-term wealth management. While some of the immediate urgency has been removed with the implementation of this new law, the uncertainty surrounding ATRA’s shelf life should make every Advisor, and their clients, nervous.

L. Timothy Halleron, a partner in the private client group at McDermott Will & Emery LLP, has identified some of the most common wealth planning techniques available under current law. These techniques and transfer vehicles have been the subject of interest by the IRS and a topic of discussion on Capitol Hill as legislators search for solutions to our country’s dismal fiscal situation. Acting now to implement a comprehensive estate plan, including asset valuation and transfer, may just be the most important move Advisors can make for their clients.

Grantor Retained Annuity Trusts
GRATs have become an invaluable tool for protecting assets from the Transfer Tax. But, the White House has suggested that a 10-year minimum should be imposed on GRATs. This minimum would not prevent younger, wealthy individuals from using GRATs but would ensure that older high net-worth clients could no longer use them as a short-term, “rolling” solution. GRATs have been particularly useful for assets that are difficult to value.

If clients are considering using GRATs, they should set them up now so as to avoid any minimums that new legislation might impose. Alternatively, high net-worth individuals could make it a priority to begin the process of assessing the value of the assets they’re most concerned about in order to use other methods to shelter those assets from the Transfer Tax.

Valuation Discounts
Valuation discounts are perhaps one of the most important techniques for long-term wealth management, and they’re under fire. The IRS has scrutinized (and the White House has proposed eliminating) valuation discounts for family-controlled entities like operating businesses and investment entities. While the IRS continues to challenge valuation discounts for family-controlled entities, valuation discounts that consider lack of control or lack of marketability are excellent ways to protect high net-worth estates. The proper counsel, combined with excellent appraisals by a certified appraiser, can work in tandem to ensure valuation discounts are claimed whenever possible.

GST Exempt Trusts
GST Exempt Trusts have been a popular technique for ensuring that assets pass from generation to generation free of the Generation-Skipping Transfer Tax. The Obama administration has proposed limiting the duration of these trusts to 90 years. If Congress enacts this 90-year limit, it will become more difficult for families to increase or even maintain their wealth past 2 generations. Advisors should talk to their clients about GST Exempt Trusts now, before a time limit is imposed.

Grantor Trusts
The administration has not announced a specific position on grantor trusts, but based on their positions on other wealth planning techniques, it stands to reason that grantor trusts may not be available forever. Because grantor trusts could be eliminated in the near future, high-net worth individuals should consider enacting a grantor trust this year. They are an excellent way to ensure long-term wealth management goals are met.

Halleron’s warnings only serve to underline the need for immediate action in long-term wealth management planning. Proper asset valuation by a certified appraiser is key to any successful wealth management plan. Bryant Asset Advisors provides certified commercial, residential, and personal property appraisals to assist Advisors and their clients as they choose the best course of action for their long-term wealth management plan.

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