Elder Law, Estate Planning, Special Needs Blog Long Island New York

New York Times Article on Ronald Lauder and The Tax Code: One Man's Opinion

The recent New York Times article on Ronald S. Lauder and what is described at its kindest as the “shrewd use of the United States tax code” presents him as a clever man who has preserved his family fortune, estimated at more than $3 billion, for decades, through the use of strategies that combine philanthropy with tax law acumen. Should he be faulted for this?

Judge Learned Hand, one of most respected Federal judges in our history, addressed this issue in a 1935 case stating:

     Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to  choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes.

     Over and over again the Courts have said that there is nothing  sinister in so arranging  affairs as to keep taxes as low as possible.  Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

While the sheer size of the Lauder wealth is staggering, I don’t believe that his use of existing law should be vilified. Individually and collectively, the Lauders are known for their philanthropic leadership. Are their donations purely self-centered? I doubt it. If he intended to solely to preserve assets, he could have accomplished his goals with strategies that did not include philanthropy. Furthermore, despite everything, he still pays plenty in taxes.

 For those who would criticize his strategies, here is my two cents worth: if you don’t like the results of the legislation that governs tax planning, change the laws. Personally, I find it annoying to listen to people who complain about wealthy individuals using federal and state law to minimize their tax liability and maximize the assets they pass to the next generation. Those who work to build their fortunes are entitled to use legal methods to protect their assets. If you have a problem with the law, call your representatives.

 

Super Committee May Be Planning to Cut Gift Tax Exemptions In Two Weeks

Rumours are circulating that the Super Committee may be planning to cut Gift Tax Exemptions from $5,000,000 to $1,000,000.  The really scary part of the rumors is that the change may have an effective date of November 23, 2011.  How real are the rumours ? Well consider the sources.  This is from the Florida Trusts and Estates Blog of Dean Mead

The Joint Select Committee on Deficit Reduction (the “Super Committee”), a 12 member bipartisan Congressional committee, is scheduled to announce its proposals on November 23rd for reducing the national deficit by at least $1.5 trillion over the next 10 years. The Super Committee proposals may include changes to the current estate, gift and generation-skipping transfer tax laws. Of immediate importance to you or your clients, we have heard rumors that the Super Committee may propose a reduction in the Federal gift tax exemption from the current $5 million exemption to $1 million. It is possible that the Super Committee may recommend these changes to become effective as early as November 23, 2011.

Here is another source for the rumour.

What to Do ?

Making a major wealth transfer gift in a time frame of not much more than a week is fraught with peril.  Select some assets.  Value them.  Contribute them to a family limited partnership.  Operate the partnership for a while.  Value the partnership interests. Make gifts of the partnership interest.  This is not going to happen in a week. 

What you can do though is make a gift of cash or marketable securities to an intentionally defective grantor trust.  Then you can select assets that have better wealth transfer attributes and sell them to the trust in a more orderly manner. 

If you have questions, send me an email or call to discuss.

Emotional Attachments to Family Relics Can Pose as Many Problems to Heirs as Finances

Unlike financial assets, which can generally be divided easily amongst heirs, tangible personal property is unique and sometimes not easily shared.   The complexity of distributing a lifetime’s worth of possessions is something that many people overlook when focusing on estate planning.  But when fond childhood memories are attached to an object, even the simplest things can lead to deep family rifts.

Unfortunately, tangible assets are important to families and, as Deborah Jacobs recently pointed out in an article in Forbes, they are often the things that tear apart a family.  She explains how a small, cheap plastic bowl created a fierce family argument.

Of course, this particular bowl wasn’t just any bowl… it was the bowl that these sibling’s grandmother had always used to feed them breakfast when they stayed over as children. Emotional attachments to family relics are really hard to quantify, as there’s no science to it, no calculator to cheat by, and not even the IRS issues guidelines.

When it is all said and done, it’s the family attachments you’re planning for in the first place. Therefore, in order to plan properly, first you need to understand your family. It could be a small plastic bowl, or it could be something even more complicated like a painting, a gun collection, or the family cottage.

Proper planning needs to include discussing these issues with your family and then making the necessary decisions. Communication is key. Remember: The IRS may define an “asset” entirely differently from how you and your family would define it.