Estate Planning

The term asset protection often evokes visions of high rollers and Swissbank accounts or, on the other end of the spectrum, bankrupt deadbeats trying to avoid their just debts and obligations. While asset protection may, for some, involve off-shore accounts or trusts and other more exotic means of removing assets from the reach of creditors, such approaches are often well beyond what is typically required to achieve a reasonable level of security. Likewise, asset protection is largely ineffective (and insome cases illegal) for those teetering on the banks of or already in insolvency. Instead, asset protection is most appropriate for individuals who have achieved or are in the process of achieving some degree of financial success and who are accumulating assets with which they would prefer not to part in the event of some unforeseen future financial setback, lawsuit or liability.

In the July edition of FJY's Quarterly Newsletter, asset protection was defined and the need for asset protection by those of modest wealth - not just high rollers and bankrupt deadbeats - was discussed. Despite claims to the contrary, asset protection strategies can not guarantee that all of one's property will be completely removed from the reach of creditors. Rather, the goal of asset protection is to create as much distance as is reasonably (and legally) possible between one's assets and his or her creditors or potential creditors. The importance of timing in structuring and implementing an asset protection plan was also addressed. We will now explore several offundamental considerations of effective asset protection.

Unfortunately, with health care reform dominating much of the 2009 legislative agenda, Congress could manage little more than light banter regarding the final stages of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). As the ball dropped to close out 2009, the estate tax was repealed ... at least for the time being. Estate planning attorneys, clients, and their advisors are now left to examine three questions previously thought to be moot, given the anticipation of pre- 2010 estate tax reform: (1) Where are we now (what rules govern 2010)? (2) Where might we go from here (what directions may the estate tax system take as we draw near, and enter, 2011)? and (3) How does this picture affect existing estate tax planning arrangements?

As financial planners, we are sometimes asked to make assumptions about clients’ life expectancies.  To assist us with that process, we can turn to generic data provided by the federal government:  IRS Rule 2002-62 provides a life expectancy table used to determine annual required distributions; IRS Table CM90 (1999) provides actuarial values relating to estate, gift, and charitable issues; and Treasury Regulation Subchapter A, Sec. 1.72-16 provides the life expectancy table used for annuities and life insurance contracts purchased under qualified employee plans.

The Commonwealth of Virginia will no longer impose a state estate tax, effective for estates of decedents who die after July 1, 2007. On August 28, 2006, the state's General Assembly approved changes to two House bills, which effectively repealed Virginia's estate tax. The changes were proposed by Governor Timothy Kaine.