Your Time for Asset Protection and Estate Planning is Almost Over - Part Three
I've covered a lot of ground in part one and part two of this article but in part three, I'm going to talk about how all of this impacts the estate taxes of a single person and the middle class.
So, if you are a single person with a net worth of $1.1 million and you die next year, your estate will owe $55,000. If you have $2 million, your estate will owe $550,000. If you have $3 million, your estate will pay $1.1 million. If you have $4 million, your estate tax bill will be $1.65 million and if your assets are $5 million, your estate will pay $2.2 million. In all of these cases, if the proper planning and transfers were made to a trust prior to December 31, 2012, the applicable tax rate would be zero. That is right, ZER0!
Now a number of folks, both lay persons and tax professionals have told me I'm wrong, that Congress will act and come up with a new compromise that will avoid the above from taking effect. I say, no, no and h#?@ NO. President Obama believes the election gave him a mandate to charge the rich more. They need to pay their fair share (whatever that is).
The House believes it got a mandate from its voters to hold the line on spending and CUT, not RAISE taxes. Anyone that thinks these groups will come together and sing "Kumbaya" around the campfire are na�ve, stupid or both.
The Laffer Curve
Neither side really understands the Laffer curve which says that as tax rates increase, government revenues increase at a much slower rate, until eventually, they stop going up and then begin going down. I believe we are at the point on the Laffer curve where new tax increases will in fact bring in less revenue to the Government. This in turn will eventually force higher tax increases including consumption and wealth taxes along with cuts in government spending.
A few days before the election the Laffer curve was driven home to me as I helped one of my wealthier clients with some asset protection and estate planning. This client's solution was very simple. He announced that if President Obama won the election, he would simply "sit out" taxes for the next four years. His strategy was simply to sell several million dollars worth of stocks, pay the 15 percent capital gains tax rate for 2012 and then spend the money slowly over the next four years. He wouldn't earn a dime of income and wouldn't pay a penny of taxes. Watch the stock market between November 6 and December 31. If there are other folks who think as my client does, you can expect a broad sell off in the markets as people cash out before tax rates go up January 1.
How it Impacts the Middle Class
Obviously, the middle and working class folks in America can't simply "not work" or "not make money" for the next four years as the rich may very well do. The politicians' inability to understand the Laffer curve, however and how it translates into real tax revenues (or lack thereof) is a problem that will have very real financial impact to our country. And while solving the country's financial woes is beyond the scope of this article, helping individuals understand the coming changes and to protect themselves and their assets for their families is exactly the focus. I will discuss that further in the final part of this article on Thursday.
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.