Trusts aim to find silver lining in economy's plunge by ProQuest


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                    Hoping estates
                    can find shelter
 Steven J. Dundas

Christopher G. Rohde, a partner in the Nutley law firm Piro, Zinna, Cifelli, Paris & Genitempo, says if Congress makes the tax exemption permanent, it should consider inflation, in order to avoid annual adjustments.

Financial advisers expect Congress will make $3.5M exemption permanent this year                                                                 having this argument” over how generous the federal estate tax
                                                                                                                                                 exemption should be, he said.
                     BY BETH FITZGERALD                                 Zinna, Cifelli, Paris & Genitempo, is among those predicting                  Tax advisers are looking forward to a stable, predictable
TAXPAYERS WHO DIE in 2009 can shelter $3.5 million from fed-            Congress will pass legislation before year’s end, rather than allow      estate tax exemption, so they can do long-term tax planning. In
eral estate taxes — an all-time high for the estate tax exemption,      the estate tax to expire in 2010. “I don’t know anybody who              recent years, given the volatility of estate tax law, “especially with
and one experts say Congress is likely to extend.                       thinks we will have no estate tax come January 1, 2010,” he said.        younger, high-net-worth individuals, a lot of attorneys have
      Insiders say Congress needs to take action, because under         “But I’m surprised we haven’t seen legislation yet.”                     taken a wait-and-see approach,” Rohde said.
a bizarre quirk in the current law, if lawmakers do nothing, the             Rohde said he is hoping Congress makes the $3.5 million                  Over the past decade, the federal estate tax has been any-
federal estate tax disappears entirely in 2010. Then, in 2011, the      exemption permanent, and “builds in an adjustment for infla-             thing but stable and predictable.
estate tax returns — but with an exemption of just $1 million.          tion.” If the exemption is indexed to inflation, “we won’t have to            In 2001, only the first $675,000 of the estate was exempt
      Christopher G. Rohde, partner in the Nutley law firm Piro,        address this issue every few years, and we won’t have to keep                                                      ➤➤ See   TAX on page 19

                                                                                                                                                                   $102,800. After a withdrawal of $52,110 for the
Trusts aim to find silver lining in economy’s plunge                                                                                                               first annuity payment, there is $50,690 left, which
                                                                                                                                                                   at 2.8 percent grows to
                                                                                                                                                                   $52,110, which is the sec-
             BY BETH FITZGERALD                       stock values and low interest rates “means there      worth of stock — plus the interest rate the Inter-     ond annuity payment.
THE STOCK MARKET plunge, coupled with the             are some transactions that are really important       nal Revenue Service uses to value annuities. That             But with stocks now so
chance that Congress may rein in techniques           to do right now,” Presser said.                       interest rate, known as the “Section 7520 rate,”       depressed, the value of the
used to reduce gift and estate taxes, might moti-          Here’s how GRAT works: The investor              now stands at 2.8 percent, near a historic low.        shares may rise significant-
vate investors to act now and take advantage of       decides how long the trust should remain in                So, the investor would have to remove             ly in the next two years —
any tax breaks that still remain.                     effect, choosing a date the investor expects to       $52,110 in stock from the trust in each of the next    and       anything      above
      Attorney Lisa Presser, a partner with           outlive — say, two years. Suppose the investor        two years. When the 2.8 percent rate is applied to     $104,220 would remain in            Lisa Presser
Drinker Biddle, in Princeton, who heads the           owns stock that has lost half its value in the past   a $100,000, two-year annuity, it yields two annu-      the trust, and pass to his or her loved ones,
firm’s Private Client Group, said now is an espe-     year, and is worth $100,000 today. The investor       al payments of $52,110, which have a combined          exempt from gift and estate taxes.
cially good time to consider a grantor-retained       can put that stock in the two-year GRAT, and          present value of $100,000. At the end of year one,            Presser said the administration of Barack
annuity trust, or GRAT. The combination of low        each year remove half the principal — $50,000         at 2.8 percent, the $100,000 has increased to                              ➤➤ See    TRUST on page 19                                                                                                                                                                        NJBIZ   ◆    June 8, 2009 17
                                                                                                                                                                                                                                            New Jersey
TAX Congress ‘will have to do something’
➤➤ Continued     from page 17

from federal estate taxes. Congress                       exemption to $5 million, but lowering the tax
increased the exemption to $1 million for                 rate to 35 percent. “Congress clearly will have
2002 and 2003; $1.5 million for 2004 and                  to do something,” she said.
2005; $2 million for 2006 to 2008; and $3.5                     Steven Kaye, president of the financial
million in 2009. The federal estate tax rate is           planning firm American Financial Planning
45 percent, levied on the amount of the                   Group, in Watchung, said the steady increase
estate over $3.5 million.                                 in the federal estate tax exemption has had
     Christine G. Pronek, a CPA and senior                one clear impact on estate planning: “It has
manager in the trust and estate group at                  caused a significant reduction in the need to                                                                                                                                     Shine your shoes.
Amper, Politziner & Mattia, in Bridgewater,               buy life insurance for estate tax purposes.”
said she also expects Congress to take action                   Individuals may still decide they want life                                                                                                                                 Raise your glass.
on the estate tax before year-end.                        insurance, but the higher estate-tax exemp-
     She said the House is leaning toward                 tion has eliminated the need to buy life insur-
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making the $3.5 million exemption perma-                  ance to pay estate taxes “for a significant por-
nent, and keeping the tax rate at 45 percent,             tion of our client base,” he said. ◆
while the Senate is looking at raising the                                     E-mail to                         Nationally sponsored by     
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