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News from Katz Baskies LLC
In This Issue
Now is the time to establish GRATs
Estate Tax Update
Income Tax Increases with Healthcare Bill
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April, 2010

In a prior newsletter, we highlighted the benefits of gifting - especially in 2010 when the gift tax rate has dropped to 35%. In addition to outright gifts, there are a variety of ways to "leverage" gifting opportunities. An effective technique in periods of low values and low interest rates is a "Grantor Retained Annuity Trust" or "GRAT". As discussed below, the ability to use GRATs most effectively may be legislated-away by Congress, which is why now may be the best time to act. Please contact us if you think a GRAT might be right for your family.
Although Congress has not yet taken any action on the estate tax, there are some rumblings of change. While many thought Congress would extend the estate tax rules from 2009 (an exemption of $3,500,000 and a rate of 45%), nothing has happened yet. What is the future of the estate tax? House Ways and Means Chairman Levin has some thoughts - read below.  
While the tumultuous changes in the estate tax law have garnered a great deal of press, and they are still worthy of holding your continued attention (particularly with the top marginal gift/estate tax rate scheduled to increase to 55% in 2011), you should also be aware of pending increases in income taxes. The top rate for individuals on ordinary income is headed back to 39.6% in 2011, and the top rate on capital gains will be increasing from 15% to 20%. The recent health care legislation introduced two additional taxes for high income taxpayers. A brief summary is provided.
Whether for these or other matters, please don't hesitate to contact us for your personal wealth preservation and transfer needs. As noted last month, that isn't all that we do to assist clients. Visit us at www.katzbaskies.comto learn more.

Now is the time to establish GRATs
living trust document imageNew Bill would dramatically alter GRAT planning

For years, GRATs ("Grantor Retained Annuity Trusts") have offered clients a convenient estate planning tool.  GRATs are irrevocable trusts which offer an essentially zero-risk transfer tax savings opportunity.  Due to legislation passed by the House of Representatives in late March and pending before the Senate, anyone that has considered using a GRAT in his or her estate planning should act now while many of the benefits are available. To read more about why now is the time to act, read more here.

If you would like to learn more about how a GRAT could fit into your estate plan, please contact us.

Estate Tax Update

House of Representatives will soon take up Estate Tax Reinstatement and Possibly add an Election for Estates to Choose the Current No-tax Regime


Bloomberg News reports the House Ways and Means Committee will begin to address the federal estate tax in April, after the Easter recess.  According to the  linked article, Sander Levin, the acting chairman of the House Ways and Means Committee (which drafts tax policies), reported that the committee will work on a retroactive reinstatement of the federal estate tax.  The article also reports that one possibility being considered would allow the estates of those who died since January 1 to choose which regime they prefer - the new retroactive regime (whatever it may be) or the existing no-estate-tax/carryover basis regime. Read more here. 


New Income Taxes in Healthcare Bill
New Taxes Ahead to pay for Healthcare Legislation
One effect of the health care overhaul bill will be to apply additional taxes on wages and on unearned income of high-income families. Although the higher tax on "Cadillac" health plans doesn't apply until 2018, these other changes apply to wages and income earned in 2013. It may not be too early to think about how these changes will affect you.
All employed and self-employed individuals are subject to the Medicare tax on wages and self-employment income. That tax is currently 2.9%, with the employer bearing half and the employee bearing half (or all in the case of self-employed persons). Unlike the Social Security payroll tax, there is no cap on earnings for the Medicare tax.
Beginning in 2013, the Medicare tax will increase to 3.8% for individuals earning more than $200,000 and couples earning more than $250,000. The employee (or self-employed) will be responsible for all of the increased tax, whether through payroll withholding or on the individual's tax return.
Moreover, also beginning in 2013, the Medicare tax will no longer be limited to wages or self-employment income. It will also apply to "net investment income" of single taxpayers with adjusted gross income in excess of $200,000, and in excess of $250,000 for joint filers.
"Net investment income" is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business).  However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans.
Even with certain tax changes in flux, there continue to be opportunities for clients ready to act now. If you think GRAT or other planning might be right for you, or if you want to find out more about these or other matters, please do not hesitate to contact us.

Thomas O. Katz and Jeffrey A. Baskies
Katz Baskies LLC
2255 Glades Road, Suite 240W
Boca Raton, Florida 33431