Your Time for Asset Protection and Estate Planning is Almost Over - Part Two
In Tuesday's article, I talked about the Bush Era Tax Cuts and how they were phased out. Today I'm going to continue that discussion and further talk about those tax cuts and what it means to your asset protection plan.
First, President Obama Has Been Elected
He will never stand for re election meaning he is much more free to pursue his own agenda rather than appease a variety of constituencies. He also knows that for at least two years, he will have a House that will offer him very little support to pursue the tax and spending agenda that he wants. But the elimination of the Bush era tax cut extensions, means President Obama does not need any support from Congress to effect higher taxes on the wealthy and a vast elimination of the estate and gift tax exemptions, which he views as a "give away" to the wealthy.
The chart below shows the tax rates and estate tax reductions set to go into effect January 1, 2012. It has been mentioned that the "rich" (defined as individuals who earn over $200,000) will have to pay "a little bit more", but the chart below shows rates ranging from 16 percent to almost 300 percent (in the case of dividend income).
Of Course Funds in an Estate Have Already Been Subject to Income Tax
These assets represent hard work, saving, investing and thrift over a lifetime. Yes, sometimes it is generational wealth (which the person didn't earn), but even then the most important thing to remember is that taxes were already paid BEFORE the funds could pass to the next generation. In effect, the estate tax is double taxation and in many cases destroys productive wealth such as business interests, farms, etc., because the heirs cannot afford to pay the taxes without selling the assets to pay the tax. This, in my opinion is the greatest reason to NOT have an estate tax. Yes, some folks may get what is perceived to be a free ride (i.e. the Steinbrenners), but the alternative only hurts the middle and working classes which lose jobs whenever productive assets are destroyed in order to pay taxes.
For folks who have more than $1,000,000 per person or $2,000,000 per couple in assets, just a brief window of one month exists to put your asset protection and estate planning into effect. Of course if your assets are below those thresholds, there is no reason to rush. You'll still be able to do your planning next year. But for those folks who have a net worth of more than those amounts, the time to act is right now!
A couple, for example, can still create a foreign or domestic trust to protect their assets and plan for their children and grandchildren's future and fund that structure with up to $10,240,000 in assets up until the end of this year without any estate or gift tax liability. If that same couple where to die January 1, 2013, their estate would receive only a $2,000,000 exemption and the balance would be subject to a 55 percent tax amounting to over $4,400,000 leaving their heirs with under $5.8 million.
I know this is an extreme example, but the important thing to know is that the 55 percent tax kicks in immediately after the exemption is gone.
In next week's article, we'll talk more about estate taxes, the Laffer curve and how you can protect your assets now and for future generations.
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.