COMMENTARY: Planning in a world of unknowns

By Andrew Bass

In recent years, long-term estate and financial planning has become very difficult due to the fluid nature of our tax system and the fact that taxing wealth has become a ping pong ball between the White House and Congress. The last minute and very favorable interim law changes that came about at the end of 2010, just as the existing tax law was set to revert to the law in place in 2001, created an environment where no one is comfortable committing to a long-term tax strategy.

While no one can predict the future, attorneys and financial advisors should work together and consider how planning vehicles today can be used to protect the potential of a growing future estate tax bite for their clients.

The current estate tax law, in place since only last year, is again set to expire at the end of 2012 and revert once more to the 2001 tax law, perpetuating the state of confusion and avoidance of planning. However ignoring planning is probably one of the worst strategies, as there is potentially a once-in-a-lifetime opportunity to avoid or minimize estate taxes currently and for future generations.

As an attorney and counselor, clients likely ask you for advice. Like most professionals, you probably provide guarded or conditional responses. As financial advisors and asset managers, we find ourselves working more closely than ever with our clients' legal counsel, as developing solutions now involves different approaches and strategies. Usually, solutions are ongoing processes, rather than one-time actions.

In fact, when an ultra high net worth client with a potential estate well in excess of $10 million looks for solutions, the goals are generally more straightforward than for other clients. In most cases, the goal is to leverage the remaining lifetime exemptions as much as possible, thereby maximizing transfers out of the estate. However, it is the client with an estate below the current estate tax exemption ($5 million per person, $10 million per couple) for whom the answer is more difficult. In these situations, a long-term analysis must be made to consider not only today's estate size but also what it will grow to in the future, especially if future inheritances or liquidity events are possibilities.

For example, a family with heads of household in their early forties and a current net worth of $2 million can easily anticipate an estate growing to more than $12 million in the next 30 years, even before considering any infusions via inheritances or other life events. While we have no clue what estate or income tax laws will be in the future, it is probable they will be significantly higher than today given the state of the economy and the emphasis on taxing those with wealth.

A discussion of Dynasty Trusts is a perfect example of why planning must be done now. The concept has existed in estate planning for years; however such trusts are now in the sights of the current administration's tax guns as described in the administration's 2012 budget proposal. Such trusts are rather simple in concept but technically complex. Until recently, they only were used by the ultra wealthy. However, in today's world of uncertainty, Dynasty trusts are potentially an ideal vehicle to protect against the unknown and potentially lethal estate tax bullet of the future. As an added benefit, such trusts may also provide current and future beneficiaries with protection from creditors.

In essence, these trusts provide current income rights to existing and future generations, while keeping trust value out of the range of estate taxes for years to come. Given the appropriate fact pattern, Dynasty trust concepts can be incorporated into irrevocable life insurance trust (ILIT) planning and similar trusts to enhance their usefulness. In addition to these trusts, there are many other estate planning ideas and structures available today that may not be available in the future. These should be considered before they are legislated away.

In short, attorneys and licensed financial advisors must find ways to collaborate in the best interest of their clients. Relationship managers at financial firms must realize they are part of a trusted team, focused on meeting the client's needs. We enjoy working with attorneys who share that same commitment to a holistic approach.


Andrew R. Bass, CPA, PFS, CWM is managing director at Telemus Capital Partners in Southfield and Ann Arbor. Ranked first among Michigan-based financial advisers and among the top 30 nationwide by Barron's, Telemus Capital creates investment strategies for high net worth and ultra high net worth individuals and institutions across the country. Bass can be reached at

Published: Fri, Aug 12, 2011


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