2012 Estate Planning: Tax Planning Steps to Take Now

By Martin Shenkman and Jonathan Blattmachr

2012 may be the most important year in history for tax planning. More wealth may be transferred in the waning months of 2012 than any other year. What can and should you do to take advantage of the potentially astounding planning opportunities that are available? What are the risks associated with this planning and how can you minimize those risks? With much of the planning so complicated how can you make decisions as to which of various alternatives are best fore you?

Three of the nation's leading tax experts have addressed all these critical issues and so much more in this timely and authoritative book. This book is written to be accessible to sophisticated taxpayers who can personally benefit from this planning. But because of the broad coverage of even esoteric topics, some discussions are a bit tough.

This book will also prove an invaluable resource for CPAs, financial planners, insurance consultants, and attorneys. The supplemental appendices for professional advisers with practical forms, sample legal provisions, and client letters practitioners can use will all prove a useful resource making this book a must read for professionals.

• Language: English
• Publisher: eBookIt.com
• Release date: Apr 26, 2016
• ISBN: 9781456610401

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ACKNOWLEDGMENTS

A number of people were instrumental in turning around a book in an incredibly short time, less than two months from the initial idea to publication on Amazon as an e-book.

Most importantly I want to thank my co-authors Jonathan Blattmachr and Robert S. Keebler for such quick turn around of materials and insightful comments and planning ideas.

Andrew Wolfe, Esq. of Hartman and Winnicki, Paramus, New Jersey, proofread the entire manuscript, saving us from numerous errors caused by the incredibly tight time constraints.

Nancy Land, Publications Development Company of Crockett, Texas, did an amazing job of producing and publishing a book in record time.

Amber Gatewood of Printing For Less of Livingston, Montana, produced the postcard made available to readers in the Appendix and on the website and for offering a discount and webpage exclusively to readers of our book.

Any mistakes, typographical or other errors are my own.

—Marty Shenkman

Paramus, New Jersey

September 16, 2012

FOREWORD

By Sidney Kess

2012 may be the most important year in history for tax planning. More wealth may be transferred in the waning months of 2012 than any other year. Why is planning now so vitally important? What can and should you do to take advantage of the potentially astounding planning opportunities that are available? What are the risks associated with this planning and how can you minimize those risks? With much of the planning so complicated how can you make decisions as to which of various alternatives are best fore you?

You are left to wonder no more... three of the nation’s leading tax experts have addressed all these critical issues and so much more in this timely and authoritative book. This book is written to be accessible to sophisticated taxpayers who can personally benefit from this planning. But because of the broad coverage of even esoteric topics, some discussions are a bit tough.

This book will also prove an invaluable resource for CPAs, financial planners, insurance consultants, and attorneys. The supplemental appendices for professional advisers with practical forms, sample legal provisions, and client letters practitioners can use will all prove a useful resource making this book a must read for professionals.

Blattmachr, Shenkman, and Keebler are nationally known educators as well as technicians. Their skills as educators are evident in this book. This book will educate you about the practical information you need to act quickly to take advantage of what might prove to be fleeting planning opportunities. Anyone considering planning in 2012 (and that should be anyone and everyone of means), and their advisers, should read this book and study its advice.

The book addresses and explains not only a plethora of estate, asset protection, legal and tax planning concepts, but tells you how you can apply these concepts in the unique circumstances of planning right now in 2012:

• Gifts

• Dynasty trusts

• Self-settled or domestic asset protection trusts (DAPTs)

• Note sale transactions to intentionally defective irrevocable trusts (IDITs)

• Private annuities

• Self-cancelling installment notes (SCINs)

• Applicable federal rates (AFRs) and how they affect loan and sale transactions

• Family limited partnerships (FLPs)

• Limited liability companies (LLCs)

• S corporations

• Charitable trusts

• Qualified personal residence trusts (QPRTs)

• IRAs and other retirement plans

• Harvesting gains and losses

• The inter-relationship of income and estate taxes

• Grantor retained annuity trusts (GRATs)

• And much more

Most importantly, reading this book will give you the advice of three estate planning experts as to how you should plan now, avoid major planning pitfalls, and minimize the risks associated with 2012 planning. The result of this will be better protection and tax savings for you and your loved ones. You will learn about many of the techniques that America’s wealthiest families use in their planning. And the authors know, because America’s wealthiest families seek them out for advice.

On a personal note, I’ve worked for many years, even decades with each of these authors and I am thrilled to see them pool their talents to make a book for sophisticated consumers and professional advisers alike at this crucial time.

I’ve been privileged to work in the fields of accounting and tax law for 50 years and have taught more than 750,000 people over that time. My overarching goal over all these years has been to help others navigate through the complexities inherent in the financial world while they try to build a comfortable future for themselves and their families. I am proud to write the Foreword to a book that is so consistent with my own personal mission.

I encourage you to take advantage of the knowledge and planning ideas provided by this timely book. A wealth of information is at your fingertips.

Do bear in mind, as the authors point out many times, state laws differ, everyone’s circumstances differ, and cutting edge planning always has risks. So plan and benefit but do so with professional guidance.

Sidney Kess, CPA, JD, LL.M., AEP® (Distinguished) is of counsel at Kostelanetz & Fink, LLP, New York, NY, and was recently selected Most Influential Practitioner by CPA Magazine. He is a nationally renowned tax expert and author/coauthor of hundreds of tax books on financial and estate planning. Having lectured to more than 750,000 practitioners on tax, financial, and estate planning, he is one of the nation’s best known lecturers in continuing professional education.

In 2011, Mr. Kess received AICPA’s Gold Medal Award for Distinguished Service that is given to individuals who have made a major contribution to the CPA profession and is the highest award granted to a CPA by the Institute.

CHAPTER ONE

INTRODUCTION TO 2012 PLANNING

This may be one of the most important estate and tax planning years in history. For instance, 2012 may prove to be the best and last great wealth-transfer planning opportunity for high net worth individuals. It may also be the best year to recognize income including dividends and long-term capital gains. Then again, it might not! The real issue is deciding what can and should be done with respect to estate, gift, and generation-skipping transfer (GST) tax planning in the waning days of 2012. (In very simplistic terms, the GST tax is a separate wealth transfer tax, similar to a gift or estate tax, on transfers to skip persons, such as grandchildren.) For many taxpayers, the cost, complexity, and hassle of significant 2012 planning is relatively insignificant in comparison to the tremendous benefits that might be achieved. But a large number of taxpayers are simply not jumping on this opportunity. Never before has so much wealth been considered for transfer in such a short period of time. The goals of this book include:

• Helping to educate you on what planning options are available, and why you should consider moving quickly to address these options.

• Discussing what arrangements, traps, and special considerations affect 2012 planning.

• Explaining the unique issues created by the necessary compression of the planning sequence and how you can effectively plan within such a short timeframe.

This book is being written for both taxpayers and their advisers. While advisers may hunger for more citations and technical jargon, and taxpayers may struggle to understand some of the more technical discussions, the time compression of 2012 planning necessitates this approach. Taxpayers and their advisers will have to work together in an efficient and cohesive manner to complete planning steps in time. Thus, everyone has to be on the same page—hence one book. It is hoped that this unique approach will make 2012 planning a successful endeavor for readers of all backgrounds.

THE BIG GIFT

Gift planning is the topic of the moment for estate planners, tax practitioners, and their clients. But the sound bytes the media has disseminated (the current $5 million—inflation adjusted to $5.12 million—exemption and 35 percent rates in 2012 could become $1 million exemption with a slight upward adjustment for GST tax purposes and a 55 percent rate in 2013) masks a myriad of essential details, complexities, and planning nuances that you need to consider on a rather urgent basis.

PERSPECTIVE ON THE ESTATE TAX ROLLER COASTER

If you love roller coasters, there are only two places to go: Cedar Point in Sandusky, Ohio, or a visit to your estate planner.

The tax legislation enacted under President Bush, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), made dramatic changes to the federal estate (and other) taxes. EGTRRA phased-down the estate and generation-skipping transfer taxes until they were fully repealed in 2010. That temporary repeal of the estate tax became an optional result for one year, spawning incredible complexity, but also some unbelievable tax windfalls. EGTRRA lowered the gift tax rate to 35 percent for 2010, but left the gift tax exemption at $1 million for 2010. These substantial tax reductions became known as the Bush tax cuts. The Bush tax cuts were scheduled to sunset or end in 2010 so that in 2011 the estate, gift, and the GST tax would all have increased. The GST exemption (a separate exemption amount that may be allocated to either lifetime or death transfers in order to minimize or avoid the GST tax) was scheduled to decline to $1 million, but that amount would have been indexed for inflation since 1997. The inflation-adjusted amount would have been $1,360,000. The estate tax exemption would have decreased in 2011 to $1 million. Finally, the estate, gift, and GST tax rates would have risen to 55 percent. Some believed that this increase in the estate, gift, and GST taxes would be detrimental to the economy and that lessening the sting of such an increase would support further economic recovery.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Act) P.L. 111-312, which became law on December 17, 2010, increased the estate tax exemption (the amount that a taxpayer can leave at death free from federal estate tax) from $3.5 million, as it was in 2010, to an unprecedented $5 million, inflation adjusted. The 2010 Act unified the gift and estate tax exemptions, increasing the gift tax exemption to an unprecedented $5 million, again inflation adjusted. In 2012, that amount is $5,120,000. As a result, any taxpayer can give away in aggregate (whether during life or at death) without a federal transfer tax over $5 million! This presents a tremendous opportunity to shift wealth that no one of means (including taxpayers with far less wealth than $5 million) should ignore. Now is truly the time for many taxpayers to act.

Many of the favorable extensions and tax law changes contained in the 2010 Act could end in 2013. Thus, the window of opportunity to act may soon be over.

2013—THE TAX YEAR TO FEAR ... MAYBE

Here we go again! In 2013, the gift and estate tax rates and exemptions may revert to previous levels—before the generosity of the 2001 and 2010 Acts. If this were to occur, the pre-2001 Tax Act (EGTRRA) $1 million exemption and 55 percent rate would be in effect. For the wealthy, this would be incredibly costly.

While many tax advisers would probably wager with good odds that the $1 million exemption and 55 percent rate will never return, these are likely the same advisers that assured clients that the estate tax would never be repealed. No one really has a clue whether Congress will allow the exemptions to fall back to $1 million for estate, gift, and GST tax exemption purposes, extend the $5 million plus 2010 Act exemptions temporarily or permanently, or settle for something in between. (As you are probably aware, the Obama Administration has proposed $3.5 million exemptions for estate and GST tax purposes with a 45 percent rate.)

So how should you proceed? Basically, you need to weigh the cost, time, and effort of planning aggressively (even though it may prove to be for naught), against the potentially devastating tax costs of taking inadequate tax-minimizing steps during the remaining window of opportunity in 2012. This decision requires more than just a tax calculus. Even if the political winds in Washington result in another year or two extension of the current law (and don’t count on that!), if to-day’s low interest rates ratchet up as the economy recovers or other external events push them up, many of the interest-sensitive estate tax planning arrangements will lose their luster. The old adage all things come to he who waits never applied to tax planning, and it is certainly the wrong perspective on the estate tax in 2012.

Here are some possible 2013 outcomes, although most tax advisers have long ago tossed out their crystal balls and Ouija boards:

• In 2013, the 2010 Tax Act changes will expire (sunset). In very simple terms, the exemption for gift and estate tax purposes will decline to $1 million, the gift/ estate tax rate will increase to 55 percent, and the GST exemption will decline to $1 million (but inflation adjusted to a slightly higher level). The difference between the gift and estate tax exemptions and the inflation-adjusted GST exemption will add considerable complexity to planning for those taxpayers wisely looking to squeeze every drop of GST tax benefit out of their plans. Although few advisers believe these increases in the transfer tax system are likely to occur, the increases are on the books today and will automatically come into effect unless Congress takes affirmative action. Ignoring this possibility, whatever probability you may choose to assign to it, does not seem prudent.

• Continuation of the current 2012 paradigm with a $5 million (inflation adjusted or not) gift, estate, and GST tax exemption and a 35 percent rate.

• Continuation of the current 2012 paradigm with a $5 million exemption and a 35 percent rate, but elimination of many favorite transfer tax techniques: valuation discounts for certain intra-family transfers, grantor retained annuity trusts (known as GRATs), grantor trusts, and others. This approach could increase tax revenues while giving politicians the ability to boast that the exemptions stayed high.

• Go back to the $3.5 million exemption (but only $1 million for gift tax purposes) and the 45 percent rate that were law in 2009 and which President Obama has proposed for 2013. This could be with, or without, GRATs, discounts, and other wealth-transfer techniques affected.

• Repeal the estate tax in its entirety. This is looking like less and less of a possibility in light of the massive federal deficit. If Congress did the inconceivable and repealed the estate tax in 2013, then what revenue raising steps might they enact to replace it?

The possibilities are broad and unpredictable given the inaccuracy of everyone’s guesses about taxes for the past few years. One possibility is to repeal the estate tax and instead assess a capital gains tax on all appreciation in a taxpayer’s assets held at death. This is the system Canada adopted many decades ago to replace its estate tax system. This ultimate capital gains tax could be assessed on every decedent’s final income tax return. This approach isn’t subject to attack under the theory that you shouldn’t tax what was already taxed (which has been quite a powerful argument in the arsenal of those endeavoring to eliminate the evil death tax). This is because untaxed appreciation simply wasn’t previously taxed. This solves the step-up in basis issue at death as well. Taxpayers would have to value all assets owned at date of death (with certain exceptions) and their estates would pay a capital gains tax on all appreciation.

The ultra-wealthy who complained about the estate tax rates being confiscatory should not be able to fight this approach because the rate would be the lower capital gains rate (and any tax assessed would also be reduced by the tax basis in assets owned). If a capital gains on death tax is enacted, the gift tax will likely remain because it would be needed to backstop the capital gains tax to prevent taxpayers from making deathbed gifts of appreciated property (or the tax system may adopt a gains tax upon gift as well). That could mean a $1 million lifetime gift exemption. This provides yet another reason certain groups of taxpayers need to plan now and plan fast.

A number of these scenarios portend a possible return to a $1 million gift tax exemption whether the gift tax retains its historical role as a backstop to protect the estate tax, or whether the gift tax is enlisted again as it was in 2010 as a backstop to the income tax. In any event, a decline in the gift tax exemption to $1 million would severely limit the ability to shift substantial wealth for millions of taxpayers, not only the ultra-wealthy. This is why taking advantage of the large gift and GST tax exemptions now is very important.

TIMING ISSUES

Is 2013 really the deadline? Tax practitioners and taxpayers alike should be mindful that while the buzz consists almost entirely about planning in 2012 before the 2013 changes, it is possible, albeit remote, that a lame duck session of Congress, which follows the November election, may enact changes as well. So if you are really concerned, an early November target date (not December 31, 2012) should be pursued.

PLANNING NOTE: Let the White Rabbit from Alice in Wonderland be your mantra to 2012 planning: I’m late / I’m late / For a very important date. / No time to say Hello, goodbye, / I’m late, I’m late, I’m late.

INCOME TAX CONSIDERATIONS CANNOT BE IGNORED

With the potential for significant income tax increases in 2013 and considering the interconnectedness of estate and income tax planning, income tax issues cannot be ignored. Assets included in a taxpayer’s estate at death will generally receive a step up in income tax basis to their fair market value as determined for estate tax purposes and without income tax recognition. Assets given away before death will not step up (i.e., in general, the recipient of a lifetime gift assumes the donor’s tax basis in the gifted asset). Depending on the capital gain and ordinary income tax rates applicable to the taxpayer and his or her heirs on future sales, as compared to the federal (and state, if applicable), estate tax rates that may apply to assets held at death, gifting versus holding assets until death can have widely different results. Hence planning is essential.

With the possibility of income tax rate increases, should you convert your IRA to a Roth IRA before the year’s end? If the IRA is converted in 2012, the resulting income tax might prove to be much lower than in a future year. Also, the income tax paid upon conversion will remove those assets from the taxpayer’s estate and could generate a 55 percent marginal estate tax savings if 2013 brings a $1 million exemption and a 55 percent rate. On the other hand, if the estate tax exemption remains at the $5 million inflation-adjusted level and rates remain at 35 percent, a very different result may follow. Just to complicate matters, it is also appropriate to consider that annual distributions from an IRA (or pension plan) may be taxed at a lower rate than the entire amount of the IRA would be subject to upon conversion to a Roth IRA. Remember that income and estate tax planning decisions are interconnected, often in complicated or unobvious ways.

This book discusses a number of income tax considerations and how they may affect 2012 planning. Your income tax situation will be unique. Because of a myriad of factors (including exposure to state and local income taxes and the ability to avoid them) that ultimately affect how much income tax may be due, it is appropriate to do a thorough study of your income tax matters when doing estate tax planning.

WHY GIFT NOW

The real $64,000 question (if it were only so insignificant!) is why should taxpayers make gifts now? What should taxpayers give away now? And how should they do it? By now, you should be well aware of the significant incentives to consummate large 2012 gift and other transfers. But it’s still worthwhile to review these basic details to help clarify their urgency and importance. It is critical to acknowledge that there are so many misconceptions that many taxpayers are simply not planning, and many advisers may be approaching planning in less than an optimal manner. This book reviews some of the most significant potential benefits of 2012 gifts. This will prove helpful in guiding and encouraging you, in appropriate circumstances, to move forward with planning or, at a minimum, to make an informed decision not to do so.

Save on Federal Estate Tax

While you may be aware of the potential federal estate tax savings of gifts, it bears repeating given the potential significance. If you make a gift of $5.12 million in 2012 and die in 2013, and the exemption in fact drops to $1 million, having made the gift will have removed $4.12 million from your taxable estate, along with any income tax paid on trust income that is reported on your income tax return as a result of grantor trust status, plus any post-gift appreciation in the value of the gifted assets. The tax savings can be tremendous.

While there has been some talk of a tax concept called clawback (relates to the recapture at your death of a portion of the exemption used in 2012) that could unwind some of the 2012 tax planning benefit, few tax commentators believe the risk is real and, even if it is, in most cases it won’t eliminate all 2012 planning benefits. The issue of clawback is discussed in greater detail in Chapter 6.

While you might be concerned about the cost of the 2012 planning, the transfer tax savings alone, if any of several potential adverse scenarios do in fact occur, could easily exceed several millions of dollars, and, for ultra-high net worth taxpayers, it could be in the tens or even hundreds of millions. Even factoring in uncertainty and costs associated with planning, for a substantial number of taxpayers, 2012 planning should have a worthwhile cost to potential benefit payoff ratio.

Save on State Estate Tax

Many states have their own estate tax and about 20 states have disconnected from the federal estate tax system. Many of these state estate tax regimes have lower exemption amounts than the current 2012 $5.12 million federal exemption amount. These states are said to have decoupled their estate tax from the federal estate tax system. Planning to minimize state death tax for taxpayers domiciled in these decoupled states is more important for many taxpayers than the federal estate tax (which under 2012 law may not apply because of the large federal exemption). Next year, 2013, could dramatically change that paradigm.

While those living in decoupled states may be aware of the tax impact of decoupling, most people are predominantly or solely focused on the federal estate tax. The fact that you would not face an estate tax on a federal level today does not mean that you cannot save hundreds of thousands of dollars, or more, in state estate tax with some basic gift planning. But this type of planning could be curtailed by a 2013 reduction in the gift exemption to $1 million. It is important to note that while most people seem to believe that the exemption will never be permitted to drop as low as $1 million (President Obama’s proposal was for a $3.5 million exemption), this does not assure that the gift tax exemption may not revert to its pre-2010 Tax Act level of $1 million.

Under current law, if you have a $5 million estate, are domiciled in a decoupled state with a $1 million exemption, you could gift $4 million and avoid all (or almost all depending on the calculation) state estate tax. This does, however, assume no state gift tax to be factored into the analysis which isn’t the case in Connecticut and Tennessee—the two states with such taxes. However, if the gift tax exemption reverts to $1 million, that gift will no longer be practical since you would have to pay a federal gift tax on the $3 million federal gift ($4 million gift less $1 million possible 2013 exemption). If the exemption remains unified (the same for gift, estate, and GST taxes) but is reduced to the $3.5 million proposed by President Obama, you could face a $225,000 gift tax [45% rate x ($4 million gift - $3.5 million exemption)] if the same gift were made in 2013. That could be an incredible payoff for an elderly or a terminally ill person to make. However, see the discussions that follow concerning income tax basis. The decision whether to proceed is not simple.

PLANNING NOTE: For many taxpayers, the 2010 Act made the state estate tax the only estate tax they need to consider. The calculus for these people became such that more traditional planning steps, such as transfers to irrevocable trusts, became impractical if evaluated in the vacuum of only the state estate tax sting. For some of these taxpayers, the focus of planning shifted to a change of their domicile from a high estate tax state (e.g., New Jersey) to a no estate tax state (e.g., Florida). Some of these purported changes in domicile were questionable at best as ties with the home state were insufficiently severed to break domicile. If, in fact, the federal exemption declines sufficiently in 2013, these taxpayers may again find themselves in the position of having to undertake more significant estate tax minimization planning to avoid both a federal and state estate tax. However, if many of the planning techniques now available are restricted or curtailed, this may be more difficult to accomplish. Taxpayers who fall in this under $5 million category living in decoupled states should consider the benefits of planning in 2012.

Grandfathering Trusts for GST Purposes

The generation-skipping transfer (GST) tax is quite complex and is explained in greater detail in Chapter 2. For multi-generational planning (that is, planning for children, grandchildren, and even more remote descendants), optimizing the amount of family wealth that can be transferred free of the GST tax is clearly the elixir that drives much of the estate planning effort for high net worth clients.

President Obama has proposed limiting the number of years for which a donor’s GST exemption can be allocated to gifts made to a multi-generational trust. If the trust is formed in 2012 and the gifts made to it are completed prior to the effective date of any such legislation, the amounts gifted to the trust may be grandfathered for GST purposes and thus not affected by any such restriction, if enacted in the future. The benefits of obtaining favorable grandfathering for GST purposes could have a dramatic impact on future transfer taxes of your descendants younger than children (e.g., grandchildren). But the transfer tax savings are not the only potential benefit. If the assets are paid out of the trust when the GST allocation ends, that would also undermine the asset protection planning and other benefits that such a spendthrift trust affords the future generations.

This will all be discussed in greater detail and planning techniques illustrated later in Chapters 5 and 10. The key point for this introduction is that this incredibly valuable transfer tax benefit could be eliminated by the laws scheduled to take effect in 2013 and by other tax proposals that might be enacted.

Grandfathering for Grantor Trust Purposes

A grantor trust is a trust that you establish and for which you will remain liable for all income taxes. You, as the grantor, pay the income tax on trust earnings. At the heart of much sophisticated estate planning is an irrevocable (you cannot change it) grantor trust to which you make a completed gift (so that the future value of that gifted asset will not be included in your estate). Even though you remain liable for the income tax on income and gains generated from the assets held in that trust, the trust assets are removed from your estate. This is a rather incongruous result. It is treated as a completed gift for gift, estate, and GST tax purposes, but the gift is essentially ignored for income tax purposes (i.e., you as the grantor are still treated as owning the trust property for income tax purposes only).The benefits of making a completed gift to a grantor trust cannot be overstated. Grantor trust status is a keystone of much of modern estate and trust planning. For example:

• A trust’s status as a grantor trust for income tax purposes permits the much coveted estate tax burn in your estate. As you pay income taxon earnings accumulating inside an irrevocable trust, your estate is further diminished by the annual tax payments. For many taxpayers, the impact of this estate tax burn can far exceed the benefit of pushing the envelope on valuation discounts that many practitioners continue to focus on.

• With grantor trust characterization, highly appreciated assets can be sold to an irrevocable trust without triggering any capital gains tax. For wealthy taxpayers seeking to shift large asset values (e.g., well above the $5.12 million exemption amount) out of their taxable estates, and for those of more modest wealth seeking to shift assets into the protective envelope of a trust in order to protect them from potential claims of future creditors, including divorce or lawsuits, grantor trust status may be critical. See the discussions that follow concerning DAPTs and BDITs.

• Grantor trust status can often help to avoid some of the thorny income and estate tax issues associated with transfers of life insurance policies to and from trusts.

President Obama’s Greenbook proposal (the General Explanations of the Ad-ministration’s Fiscal Year 2013 Revenue Proposals, released February 13, 2012), if enacted, would undermine this critical component to many estate plans by requiring that assets held in any grantor trust (even an irrevocable completed gift trust) will be included in the grantor’s taxable estate. Distributions out of such grantor trusts will be treated in the future as completed gifts by the grantor at that time. If an irrevocable grantor trust is created and funded in 2012, it may be exempt from the provisions of the new law (i.e., grandfathered), at least as to transfers completed prior to any law change. This can have a tremendous planning benefit and is yet another reason you should plan before the end of 2012.

PLANNING NOTE: You might consider incorporating express language in your Trust Agreements so as to permit trustees to create separate sub-trusts for pre- and post-grantor trust law changes. This would allow the trust to be bifurcated as to any future component of the trust that either will be anon-grantor trust or would be included in the grantor’s estate at death under President Obama’s proposal.

Other grantor trust planning opportunities are discussed in later chapters.

Lock in Discounts

Favorable valuation discounts often provide the leverage that has