Your Time for Asset Protection and Estate Planning is Almost Over

Ten years ago President George W. Bush came just one vote in the Senate from ending the dreaded estate tax once and for all. In fact he had 59 Senators who favored his tax cuts and were willing to vote for them.

The cuts included a phase out of the estate tax in 2010. It takes 60 votes, however to end debate on an issue and there were 41 Senators who had dug in their heels to filibuster the tax cuts as being "give aways" to the rich. The filibuster would probably still be going on to this day, but eventually President Bush backed down and agreed to a compromise in which he got his tax cuts, and the gift and estate tax would be phased out by 2010.

What the Democrats got in return was a firm expiration date of December 31, 2010 to eliminate all of the tax cuts that had just been agreed upon, so that without future congressional action the tax rates, including the estate tax, would come roaring back on January 1, 2011 to their pre cut levels. Both sides were able to claim victory in the new law and both were prepared to leave it up to future Congresses to extend or modify the Bush tax cuts.

So, in 2010, the Estate Tax was Completely Eliminated

For folks who died in 2010, neither they nor their heirs paid a dime in estate taxes. If you happened to own a professional sports franchise like the New York Yankees, as George Steinbrenner did and that asset was worth an estimated $2 billion, your heirs were very happy that your passing came in 2010 and not 2009 or 2011.

As the end of 2010 approached, the economic situation was still in the doldrums; official unemployment was over 10 percent; the midterm elections had just handed the House of Representatives back to the Republicans and President Obama's popularity was at historic lows. In that back drop, the Republicans were not about to achieve a permanent solution in extending the Bush Tax cuts and neither was President Obama able to increase taxes on the wealthy as he has continuously proposed to do.

Several days before the end of the year, a simple compromise was reached between Congress and the White House. Income tax rates as reduced by the Bush tax cuts would be extended two more years intact. The Estate tax would come roaring back, but exemptions from the tax were set at $5,000,000 per person ($10,000,000 per married couple) to protect family businesses and farms. Over that the tax rate would return to a punishing 55 percent.

Nobody knows how they came up with that number, except that at least one commentator has opined that the median net worth of a US Senator is $5,000,000 and hence that amount was selected. In the end, the elimination of the "unlimited estate exemption" became the sacrificial lamb to buy two more years of lower income tax rates. But just like the original Bush tax cuts, the new rates were only for two years, rather than permanent. Once again, Congress and the White House kicked the can down the road for two more years to the other side of the US Presidential Elections.

Back to Square One

Two years and a $2 billion White House election later, we seem to be right back where we were before. The inflation index caused the $5,000,000 personal gift/estate exemption to rise to $5,120,000 in 2012, while Income Tax rates stayed the same. This means that more folks are already paying higher tax rates as inflation forces them into higher tax brackets without any increase in their inflation adjusted incomes. But in some ways this time IS different.

We’ll talk about those some specific differences in part two of this article on Thursday so please make sure you bookmark this blog post and revisit the website then. As always, we welcome your thoughts in the comment section below.

Joel M. Nagel is an international lawyer and entrepreneur focusing his practice in the area of asset protection, cross-border transactions, and global investment. He speaks all over the world on the topics of asset protection, global banking and investment, and international legal compliance.

Joel has written articles and has been quoted by Forbes, Fortune, Live and Invest Overseas, Hemispheres Publishing, Sovereign Society, Sovereign Man, Stansberry Research, Oxford Club, Pirate Investor, True Wealth, Islands magazine, Business Times, Physician’s Money Digest, and the Simon Letter. He also hosts a weekly radio program called the “Global Legal Advisor” broadcast over the Web on the Overseas Radio Network. Joel can be reached via email or 001-412-749-0500.