Estate Planners Urged To 'Act Now'
Estate planning and gifting are set to undergo a seismic shift at year-end, yet many wealthy Americans so far have failed to adjust their plans.

Absent new federal legislation, Bush-era tax exemptions will expire in December, ending the temporary $5.1 million gift, estate and generation-skipping transfer tax exemptions, and likely reverting to the $1 million level in place before December 17, 2010, when the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act became law. As well, the maximum transfer tax rate could jump from the current 35% rate to 55%.

In June, U.S. Bank's Private Client Reserve sponsored a talk in New York by Jonathan Blattmachr, a trust and estates attorney, in which he discussed the looming changes and strategies to address them. Blattmachr is a principal of InterActive Legal, which licenses its trademarked Wealth Transfer Planning software to assist attorneys in drafting documents that are current with federal and state law.

"For estate planners and their clients, this will be a remarkably challenging period," Blattmachr said. "Rarely has the industry faced so many unknowns."

In his presentation entitled "Why 2012 Is the Best Year for Sophisticated Estate Planning Strategies," Blattmachr said clients should act now rather than wait until after the presidential election because the exemptions could very well go away. In addition, some of the strategies they might pursue require time that will not be available from mid-November.

Even if a deal is struck and the exemptions are extended, he said, the time to act is now because of the "power of compounding." A gift of $5 million at the time of death is $5 million, he said, whereas that amount compounded at 3% over 30 years (likely longevity for those in the 40s, 50s or even 60s) would amount to $12 million; at 6%, $29 million; and at 10%, $80 million.

Blattmachr urged his audience, made up mainly of attorneys, to contact their wealthy clients immediately, informing them of the necessity to act promptly and setting up appointments for them to discuss their estate plans.
He wasn't crying wolf. Many wealthy Americans appear unprepared to take action to mitigate the effects of the tax changes, because they either are uninformed or lack good advice. 

Consider this finding from U.S. Trust's 2012 Insights on Wealth and Worth, a survey of 642 high-net-worth and ultra-high-net-worth American investors released mid-June. Despite the possibility of tax law changes in 2013, many wealthy people have not proactively taken steps to reduce the size of their taxable estate. Sixty-seven percent of survey respondents said they had not made, nor did they intend to make, a financial gift to a loved one before year-end. Only 17% had made a financial gift to a charitable organization.

"This is a significant transitional period, and it's vital for high-net-worth families and individuals to remain informed about the tax laws expiring at the end of 2012 and how the new tax laws could affect future generations," said Heidi Steiger, east region president for The Private Client Reserve. "To be forewarned is to be forearmed."
-Michael S. Fischer

UHNW Investors Favor Commodities, Real Estate In 2012
Commodities, real estate and private equity are the top investment choices among ultra-high-net-worth families this year, according to an investment tracking survey by the Institute for Private Investors (IPI).

Those results were in line with where this group of investors was putting its money at the beginning of the year, according to IPI.

According to the Family Performance Tracking survey conducted by IPI, 45% of respondents increased their allocation to commodities, 31% increased real estate investments and 22% increased their holdings in private equity. In a forward-looking survey at the beginning of the year, 48% of investors said they planned to increase their investments in commodities and 45% said they planned to increase real estate holdings.

So far this year, ultra-high-net-worth investors also have increased their municipal bond holdings but decreased their investments in hedge funds and funds of funds. A year ago, hedge funds were holding their own and municipals were down 4% from 2010.

Investment trends of ultra-high-net-worth families are important because they historically foreshadow trends in mainstream investing, according to IPI.

"This year's data reinforced the investment trends we have been seeing among the ultra-affluent as far as the rise in allocation to commodities and real estate, and the continuing popularity of direct investment in private companies," said Mindy Rosenthal, IPI executive director.
-Karen DeMasters