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Newsletter: January 2011

January 18, 2011

In this issue: Estate Tax Planning Strategies For Married Couples; Year End Tax Planning; 17th Annual Select Strategies For Insurance And Estate Planning Seminar

ESTATE TAX PLANNING STRATEGIES FOR MARRIED COUPLES

When you don't really want to make a gift: How to utilize each spouse's applicable exclusion amount to minimize estate taxes without making outright transfers.

We all have client couples who have more assets than they will be able to pass to their ultimate beneficiaries free of estate tax, whether it be the Ohio estate tax or the anticipated return of the federal estate tax. Often times, however, the ownership of the assets is concentrated in one spouse or the other. If the less wealthy spouse, often the wife, dies first, she may not own enough assets to fully utilize her estate tax exemption, and the family may pay unnecessary estate taxes upon the later death of the wealthier spouse. While we often recommend to clients that the wealthier spouse gift assets to the poorer spouse in order to equalize their holdings in the event that the poorer spouse dies first, many are reluctant to do so. Sometimes the reluctance is a reflection of the uncertainty about the state of the marriage while other times it merely reveals the desire to remain in control of the assets.

There is a solution. The wealthier donor spouse may make an irrevocable gift of assets to a trust for the benefit of the poorer donee spouse for her lifetime. She must be entitled to income from the trust for her lifetime but there is no requirement that she be entitled to principal of the trust. The donor spouse may retain an income interest in the spousal trust if his spouse dies first and may determine the remainder beneficiaries to receive the assets when the last survivor dies. If the trust meets various requirements and the donor makes the appropriate tax elections, the value of the trust will be included in the estate of the poorer spouse should she die first and will not be included in the estate of the donor spouse. This allows the maximum use of her applicable exclusion amount and still allows him the ability to control who ultimately receives the property.

Are your clients concerned that there may be a divorce in their future and that an irrevocable gift into a spousal trust that continues to benefit a divorced spouse until her death is not an attractive alternative? Are they concerned that their spouse may not die before them and then the need to equalize the estates will not arise? There are two other revocable trust options that can be created to benefit the poorer spouse that may offer the wealthier spouse the ability to change his mind when circumstances change while obtaining the estate tax benefits of the irrevocable lifetime QTIP trust discussed above.

Consulting a knowledgeable attorney is critical so that a plan can be developed to obtain the desired tax treatment and to provide the best possible outcomes.

YEAR END TAX PLANNING

Current uncertainty regarding the fate of tax cuts may create planning opportunities for both individuals and businesses.

The end of the year always presents an opportunity to do planning both from an individual and a business standpoint. Income taxes are a key factor for businesses and individuals to keep in mind when planning. With the possibility that the "Bush tax cuts" which were instituted by President Bush may expire at the end of this year, it is important for both businesses and individuals to review year end planning to determine whether there are some advantages to utilizing the lower tax rates and credits should they expire in 2011.

An example could be as follows. If the tax rates increase in 2011, it may be beneficial to sell a business or a business interest or a piece of equipment before the end of 2010 so that it is not taxed at the higher ordinary income or capital gains tax rates in 2011. Similarly, purchases of furniture and equipment or other assets of a business can often be expensed in the year of acquisition under Internal Revenue Code section 179. With the possibility that the rules may expire in 2010, the amount of property that qualifies for Code section 179 expense deduction in 2011 may be reduced. Acquiring the property in 2010 rather than in 2011 may in certain circumstances save on income taxes. Although this article is not to address in detail the specifics of the expiring tax provisions, each business owner needs to review their specific facts and circumstances with their tax advisor and determine if there are some potential savings with solid planning.

The bottom line is that with the potential expiration of the Bush tax cuts, year-end tax planning is as important now as ever. Therefore we suggest that you contact your accountant or tax advisor so that planning and action on year-end planning can be done timely. If you do not have an accountant or tax advisor, we can recommend someone to you. If the strategies you determine involve the sale of an interest in a business or the business as a whole, we can help you with the legal aspects of the transaction.

17TH ANNUAL SELECT STRATEGIES FOR INSURANCE AND ESTATE PLANNING SEMINAR

A review of our recent Annual Seminar!

On October 29th, we held the second session of our popular Select Strategies Seminar. It was attended by over 300 people. At the first seminar, held on October 1st, we had well over two hundred attendees. At Smith and Condeni, we believe as you do that professional education is a key component of professional success.

This year, for the first time, we had respected economists with national reputations speaking at each event. Ken Mayland of Clearview Economics spoke at the October 1st event and Markus Schomer, Chief Economist for PineBridge Investments presented at the October 29th seminar. The economy is the number one concern for all of us right now and we wanted to hear different viewpoints on where we might be headed.

We appreciate very much all of the nice comments that we receive from you. We also want to hear any suggestions that you may have. Please forward them to Gerri, the Program Director, at gerri@smith-condeni.com. Along with our sponsors, we are committed to maintaining the Select Strategies Seminars as the premiere education event for our allied professionals in insurance, financial planning and accounting.

A special thanks to all of our sponsors whose financial support helps us to provide these seminars at no cost!

Please keep them in mind when working with your clients.

Shortly, we will be announcing the dates for next Fall. Yes, we will again have two seminars.