Q: As president-elect of the American College of Trust and Estate Counsel, what other hot topic is on your agenda this year?
A:
Our organization has pushed a concept called portability [of the
estate, gift, and generation-skipping transfer tax exemptions].
Portability would allow husband and wife, in effect, to combine their
exemption amounts. A deceased spouse could transfer their unused
exemption amount to a surviving spouse. Here's how it would work: This
year, each spouse's estate gets an exemption of $3.5 million before the
estate tax is assessed. When one spouse dies, and they leave their
estate to the surviving spouse, it passes free of taxes to the
surviving spouse. The surviving spouse, however, only gets to use their
exemption. So, if I die, I can give $3.5 million to anybody I want and
not pay any taxes. If I leave my $3.5 million estate to my wife and my
wife has an estate of her own of $3.5 million, she will now have an
estate of $7 million, but currently only a $3.5 million exemption. With
portability, she could use her husband's $3.5 million exemption and
avoid estate tax exposure. Portability would eliminate the need for
complicated estate planning.
Q: In the current economic
environment, with significantly lower interest rates and depressed
asset values, are there any unique estate planning opportunities?
A:
Some clients see this time as a great opportunity. If you own stock in
a strong company with good long-term prospects and value, until
recently, it might have been very expensive to transfer that stock to
your children or grandchildren. But now with very depressed values you
may be able to transfer many more shares for that same amount of money.
One client a few weeks ago said this is a wonderful opportunity to make
transfers to his children. You can't time your death, but you can time
the transfer. Rather than wait and let my children inherit the stock, I
can transfer General Electric stock at $7 bucks a share because the
value is determined when the gift is made. But the first thing is to
take care of yourself. One parent can support multiple kids but
multiple kids can't support one parent. The advice I always give is you
don't want to be dependent on your children. It changes the
relationship. You don't want to mess up the fabric of that relationship
you have with your children by giving away too much and regretting
making the gift. But if you have taken care of yourself and those who
are dependent on you like your spouse and children, it can be a
wonderful time to make a transfer.
Q: Amid the current financial duress, how have your clients been impacted?
A:
The financial meltdown has made clients rethink what they should be
doing right now. In other words, maybe I shouldn't be making this
charitable gift right now because I need to take care of myself first.
I've seen a real concern in that area, people saying I wanted to do
this for charity but I don't know if I can afford it now. Also, there
were a lot of people depending on and living off the dividends many
blue-chip companies were paying and in many cases those dividends have
gone to zero. We are just starting to see the sad tales now. If you
think about this entire meltdown, it occurred so quickly. When you get
to clients who have $100 million in assets and above, this down market
hasn't bothered them as much. It's at $50 million and below where it
has made a huge difference. They don't feel as wealthy as they did
before. This market meltdown is deeper and it happened much quicker and
it's more widespread. Other bear markets in the past never hit the
blue-chip stocks like this time. The GMs, the Fords, the Citigroups,
the AIGs. This is worse than when the tech bubble popped because that
decline was very secularized. It hit certain areas but not mainstream
America. It hit those people on the cutting edge. People in mainstream
America hadn't jumped into that bubble wholeheartedly. But this bear
market has hit mainstream America big time.