2001 Tax Reform Act

OH, WHAT A RELIEF IT ISN’T… THE DEATH TAX LIVES

THE REAL STATUS OF THE 2001 TAX REFORM ACT

BY DAVID PHILLIPS
PRESIDENT, ESTATE PLANNING SPECIALISTS

RELIEF is defined as: “something that lessens pain, anxiety, etc.” as in “Oh, what a RELIEF it is.” Perhaps that was the underlining goal of the Economic Growth and Tax Relief and Reconciliation Act of 2001 (EGTRAA), but now that the dust has settled, little RELIEF was actually realized.

EGTRAA, among other things, was to have eventually eliminated estate taxes. However, it appears evident all we will realize is a temporary increase in the amount we can pass to our family estate tax free. Known as the Unified Credit, this amount has been increased to $1 million per person. While that does provide some relief, it is a far cry from the total abolition of estate taxation.

Unfortunately, most affluent Americans are under the misconception that estate taxes will be totally eliminated and have put planning their estates in the attic of the mind, along with other forgotten “things-to-do’s”. But as John Goodson, J.D., Dean of the College of Estate Planning Attorneys puts it: “Never let political rhetoric plan your estate. Like the wind, it can change in a capricious moment. With the passage of EGTRRA it is even more critical for Americans to plan their estate, to review their estate plan, to build a wall around their castle and it all begins with an updated, comprehensive ESTATE ANALYSIS.”

On June 12, 2002, the Senate emphasized its true position on the issue by voting against the permanent of Estate Taxes, not even a full year after the ink dried on the initial bill. The Wall Street Journal reported the next day: “The death tax lives.” Not only does it live, it thrives, beginning at 37% and rapidly increasing to 50%.

In reality, there is very little RELIEF. Mr. Goodson continues: “It’s time for Americans to wake up from their nap and focus on protecting their fortunes from predators, creditors and the IRS. If we don’t, we stand to loose the bulk of our estates.”

Gauge your preparedness by asking yourself the following questions:

• Are you absolutely positive your pre-EGTRAA estate plan will not disinherit your spouse?

• Is your estate plan prepared for the potential surge in state inheritance taxes?

• Based on EGTRAA, have you planned the most tax efficient transfer of your pension, IRA, 401k, and annuities?

• Now that the courts have eliminated the asset protection of your pension, IRA, and 401k, do you have the proper strategy in place to insulate these assets?

• Are you prepared to have your heirs liquidate a major portion of your assets to pay your income tax, estate tax and capital gains tax?

• Are you prepared for the enormous impact EGTRAA “Sunset Provision” will have on your estate?

• Is your estate properly prepared to avoid taxes on capital gains?

• Are you prepared for the huge cost of Long Term Medical Assistance?

• Most likely your assets have changed in value and nature, have you changed your estate plan accordingly?

• Will your estate plan avoid the expense, publicity, and hassle of probate?

• Are your assets titled properly to avoid unnecessary taxation?

• Does your estate plan take full advantage of the $2 million gift EGTRAA allows?

• Have your family and business goals changed? If so, have you updated your planning?

• Have you changed your mind on who will be your trustee, personal representative, conservator and guardian of you and your children? If the answer is yes, have you changed your plan?

• Are you properly leveraging your assets?

• OR, ARE YOU LIKE 70% OF TODAY’S AFFLUENT AMERICANS… WITHOUT AN ESTATE PLAN AT ALL?

If your answers to any of these questions are NO, with exception, of course, a YES answer to the last question, then you need to update your Estate Plan. EGTRRA only provides RELIEF if you know how to extract the pain relievers.

Where to begin? Answer… have your estate analyzed by experts that know the laws. Professionals that can recommend a course of action that will insulate your estate and maximize your family’s inheritance, no matter the direction of the prevailing political wind.