RBZ Tax Alert eNews: Estate Planning


Estate Planning For those of you who have been tracking and managing your assets, you may have noticed that the stock markets have recovered from March lows but are still down, interest rates have started to rise but are down from prior years and residential and commercial real estate values may have started to stabilize but are also still down from prior years. Although not the happiest of circumstances, good use could be made of the situation by addressing your estate planning needs in this reduced asset value and lower interest rate environment. If you need more encouragement to act now, changes are coming in estate and gift tax rules which may restrict or eliminate valuation discounts in family controlled entities and the use of short-term Grantor Retained Annuity Trusts (GRATs) in estate tax planning. These changes will further reduce your ability to lower your estate taxes. With lower interest rates and valuations currently available, you can enhance the benefit of using a number of different estate planning techniques to maximize wealth transfer to the next generation while minimizing taxes. Here are some suggested ways that you can apply these techniques within the framework of overall estate planning: Consider making outright gifts while valuations are lower. Lower valuations will generate lower gift taxes. For long-term GRATs, lower interest rates reduce the value of the gift portion of the contribution to the trust. Also, current lower valuations could provide for greater post-contribution capital appreciation, which will escape further gift or estate taxation. Short term GRATs could be of significant benefit if the current lower valuation environment is followed by greater post-contribution appreciation. As with the longer term GRATs, post-contribution appreciation will escape further gift or estate taxation. Setting up a qualified personal residence trust (also referred to as “QPRT”) will freeze today's value of your personal residence in a trust, while transferring future appreciation to your heirs. Consider a sale of an interest in your corporation, FLP or LLC to an intentionally defective grantor trust (IDGT) in return for a promissory note at current statutory interest rates. Lower interest rates and reduced asset values add to the potential freeze benefits attainable with an IDGT. Keep in mind that changes may be coming to the estate tax rules involving valuation discounts, which may reduce the value of this approach in the future. If you desire to make charitable donations as part of your estate plan, the lower interest rate and reduced asset value environment can also enhance the potential benefits from the use of charitable lead trusts. For more tax planning tips, click here for our Winter 2008 tax-planning edition of The Bottom Line. This edition of our newsletter includes more information about the IDGT along with other helpful tips that you may find applicable to other aspects of your financial life. If you have any additional questions about estate planning, please contact your RBZ representative or other appropriate advisor. We would be glad to answer any questions you may have. RBZ, LLP is one of the largest public accounting and strategic consulting firms in Los Angeles and has been providing tax services for over 34 years. We are located at 11755 Wilshire Blvd., Ninth Floor, Los Angeles, CA 90025. Phone: 310.478.4148 \| Fax: 310.312.0358 \| Web site: www.rbz.com

Estate Planning

For those of you who have been tracking and managing your assets, you may have noticed that the stock markets have recovered from March lows but are still down, interest rates have started to rise but are down from prior years and residential and commercial real estate values may have started to stabilize but are also still down from prior years. Although not the happiest of circumstances, good use could be made of the situation by addressing your estate planning needs in this reduced asset value and lower interest rate environment.

If you need more encouragement to act now, changes are coming in estate and gift tax rules which may restrict or eliminate valuation discounts in family controlled entities and the use of short-term Grantor Retained Annuity Trusts (GRATs) in estate tax planning. These changes will further reduce your ability to lower your estate taxes.

With lower interest rates and valuations currently available, you can enhance the benefit of using a number of different estate planning techniques to maximize wealth transfer to the next generation while minimizing taxes. Here are some suggested ways that you can apply these techniques within the framework of overall estate planning:

Consider making outright gifts while valuations are lower. Lower valuations will generate lower gift taxes.
For long-term GRATs, lower interest rates reduce the value of the gift portion of the contribution to the trust. Also, current lower valuations could provide for greater post-contribution capital appreciation, which will escape further gift or estate taxation.
Short term GRATs could be of significant benefit if the current lower valuation environment is followed by greater post-contribution appreciation. As with the longer term GRATs, post-contribution appreciation will escape further gift or estate taxation.
Setting up a qualified personal residence trust (also referred to as “QPRT”) will freeze today's value of your personal residence in a trust, while transferring future appreciation to your heirs.
Consider a sale of an interest in your corporation, FLP or LLC to an intentionally defective grantor trust (IDGT) in return for a promissory note at current statutory interest rates. Lower interest rates and reduced asset values add to the potential freeze benefits attainable with an IDGT. Keep in mind that changes may be coming to the estate tax rules involving valuation discounts, which may reduce the value of this approach in the future.
If you desire to make charitable donations as part of your estate plan, the lower interest rate and reduced asset value environment can also enhance the potential benefits from the use of charitable lead trusts.

For more tax planning tips, click here for our Winter 2008 tax-planning edition of The Bottom Line. This edition of our newsletter includes more information about the IDGT along with other helpful tips that you may find applicable to other aspects of your financial life.

If you have any additional questions about estate planning, please contact your RBZ representative or other appropriate advisor. We would be glad to answer any questions you may have.

RBZ, LLP is one of the largest public accounting and strategic consulting firms in Los Angeles and has been providing tax services for over 34 years. We are located at 11755 Wilshire Blvd., Ninth Floor, Los Angeles, CA 90025.

Phone: 310.478.4148 | Fax: 310.312.0358 | Web site: www.rbz.com