Legal News

By Robert H. Louis
 
At mid-February, 2010, we still have no indication of the future of estate tax legislation. There was a suggestion that it might be included in the jobs bill that could be considered by Congress soon. All that we know is that every prediction, guess and inside tip from every commentator and tax lawyer has so far proved wrong.
 
But there is still planning that can and should be done now. The values of business and investment assets are generally lower than they were a few years ago and that, we hope, they will be in a few more years. The interest rates used to value such interests and the rates used by the IRS to determine the gift element of transfers are both at historic lows. Those two circumstances make it important to consider planning techniques such as grantor retained annuity trusts (GRATs), which are forms of deferred gifts. In addition, because housing values are still low, it's worthwhile to consider qualified personal residence trusts (QPRTs). Conventional wisdom suggests that QPRTs work best in a high interest environment and, all other things being equal, that's true. But all other things aren't equal: the continued "dip" (recession, collapse, depression?) in housing values make QPRTs a good technique even while interest rates are low.
 
To these techniques should be added the value of outright gifts and other forms of gifts in trust, since the federal gift tax rate has fallen to 35 percent this year. And, thought should also be given to Roth IRA conversions, another subject of continued discussion now that the rules permitting such conversions have been relaxed.
 
We expect that the federal estate tax will return, either this year or next, and it may be that Congress will act to restrict one or more of the techniques described above. Until then, estate planners should consult with clients to review the advantages of planning right now.

Robert H. Louis is a partner and co-chairman of the personal wealth, estates and trusts department at Saul Ewing. His practice includes estate, tax and retirement planning for individuals and closely held businesses. He is a fellow of the American College of Tax Counsel and a graduate of the Wharton School and the Harvard Law School. Louis can be reached at rlouis@saul.com and 215-972-7155.