Warning! Warning! Warning!


By now, you’ve probably heard the new buzz word and may wonder what the “Fiscal Cliff” means to you and your family.  To say that our nation’s current deficit problem is comparable to a cliff is an understatement.  It’s more like a “Fiscal Mt. Everest!”  No matter where your allegiance lies, you can’t argue with Budgeting 101.  In your household and mine, if the Expenses exceed our Income, we’re in trouble.  In our great nation’s case, the lopsided equation is compounded by new debt, outstanding debt, and budget cuts.  No matter how you slice it and dice it, “Houston, we’ve got a problem.”  And I do mean a BIG one.


If things continue on as is, when January 1st, 2013 rolls around, the Bush era tax cuts will expire and income and transfer tax rates and exemptions automatically return to pre-2001 levels.  At the moment, the gift, estate and generation tax exemptions are all $5,000,000, adjusted for inflation. The transfer tax rate is historically low at 35%.  If it expires, the exemptions will return to $1,000,000 adjusted for inflation and the top rate will go back to 55%.


The thought of falling off any cliff leaves little to be desired, so we may as well focus on a few perks that are presently available to us.  Here’s the “Low” down:

Interest Rates are Low                                (as low as 1% for intra-family gifts)
Estate/Gift Tax Rates are Low                     (35% not 55%)
Capital Gains Rates are Low                        (15% not 20% or more)
Dividend Rates are Low                                (15% not 39.6% or more)


Charitable Deductions are also attractive.  They’re fully deductible and not limited to 28%.  I’m a big believer in the value of information and choice.  I never share information to attempt to scare people into action.  I simply believe that information is power.  Once you have it, you can do – or not do – whatever you like; but you can’t say that you weren’t warned.  The clock is ticking.  As an Estate Planner, I sometimes feel like a robot that has short-circuited and is stuck in “Warning!  Warning!  Warning!” mode.  As the old saying goes, the only thing that you have to do is die and pay taxes… and even that’s up for debate.  If you happen to die before December 31st, you’re officially off the hook (smile).  If not, you may want to consider giving some gifts to your loved ones or making gifts/sales into irrevocable trusts.  It’s a beautiful thing when tax laws permit you to transfer assets in a way that’s favorable while protecting the very assets that have been transferred.  There’s no guarantee around how long you’ll be able to do this, so I highly recommend kicking things into gear.


Just as chocolate marries well with peanut butter, irrevocable trusts blend nicely with your estate plan because parents can take great care of their children and grandchildren by providing asset (and divorce) protection, help to avoid estate taxes, create income tax advantages and opportunities for intra family loans, provide a structure for the ownership of life insurance in a transfer tax free environment, and they permanently grandfather the state and federal estate tax avoidance.  Single, married, young, old, Democrat or Republican, it would be wise to camp out with a good estate planner at the top of the “Fiscal Cliff” now – before you get shoved off!

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