The election is over, and the people of the United States have spoken. Barack Obama has been re-elected to serve four more years as President. As a result of his re-election, we are faced with a strong division in our government. The President has expressed his views. The Senate is once again in Democratic hands and the Democrats there will support the President (subject to the filibuster (veto) power of the Republican minority). The House of Representatives is in Republican hands, and despite some losses to the Democrats, the Republicans are still in the majority in the House.
Article I, Section 7 of the Constitution requires that “All bills for raising revenue shall originate in the House of Representatives.” This provision means that the Republican House must start all legislation regarding taxation. The President and the House of Representatives do not agree about what should happen next, when it comes to taxation.
So what does this situation mean to Americans right now?
It means that the people we have elected to power, have strongly differing views and may, or may not, be able to come to consensus about what our tax laws will look like over the next four years. The very serious problem we face, is that if the President and the Republicans do not find common ground before the end of the year, the tax laws will change automatically. The law which will come into place in 2013 will eliminate all of the Bush era tax cuts, all of the Obama era tax cuts and it will also require huge cuts to the federal government and its programs. The media calls this situation “Falling off the Cliff”.
Estate and Business Planning are about CONTROL. It is difficult to find control in this situation. We don’t know what the income and estate tax structure will be next year. That being said, we know what the income and estate tax structure is NOW. Now is the time to get your assets in order, take note of any big changes in your life (either personally or financially) and get in touch with Ilene L. McCauley to update your estate plan.
We have a few suggestions for things to do right now. They are:
- Update your foundation planning.
- Consider making gifts to loved ones this year, rather than next. This year the gift tax coupon is $5,000,000 per person but it is slated to go down to $1,000,000 on January 1st.
- Consider some asset and tax planning protection with an Irrevocable Life Insurance Trust. Life insurance trusts allow you to leverage your gifting with life insurance and provide for your loved ones and any big tax bills later on with insurance dollars. This choice also allows you to maintain control over all of your other assets.
- Transfer assets to loved ones in a separate box (trust, business, LLC, FLP, GRAT, CRT and the alphabet soup goes on). The transfer gets assets out of your estate today and provides some wonderful asset protection strategies. The down side of these types of plans is that in order for you to get the asset protection, you may have to give up some or all of the control.
- If you have over $300,000 in an IRA or other Retirement account, consider setting up a Retirement Plan Trust. This type of trust will protect your loved ones from paying income taxes immediately upon your death and is a wonderful asset protection device. Plus, you keep total control over your IRA or other Retirement account during your lifetime.
- If you lost a beloved spouse in 2012, you might consider filing a Form 706 U.S. Estate Tax Return this year, even if you do not have $5 Million in assets. The Form 706 U.S. Estate Tax Return will preserve your spouse’s unused estate tax coupon. Later on, your family will be able to use your coupon as well as your spouse’s upon your death. This choice could save hundreds of thousands of dollars in estate taxes in the future.
Procrastination is our biggest enemy! Get on board right now, and contact Ilene L. McCauley at 480.296.2036 or email her at Ilene@gandmlaw.net or ilenetaxlaw@aol.com. Let’s make certain no matter what they do in Washington, DC, we don’t lose control over our lifestyles or our finances.