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News from Katz Baskies LLC
In This Issue
Low Interest Rates are Great for Planning
Family LImited Partnerships - Follow the Formalities
Low Rates May Help Existing Plans
Katz Baskies a Best Law Firm
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October, 2010

Many clients face the frustrating process of finding decent returns on investments during this period of low interest rates. But for estate planning purposes, low interest rates can present tremendous opportunities. Read below for what that could mean for new planning, and well as revisiting existing plans.

Some families use limited partnerships (thus known as "family limited partnerships") as part of their overall wealth management. It is very important to remember to follow all of the formalities of a limited partnership, because if you don't, the IRS definately won't. A helpful reminder is provided.
Clients continue to ask "What will Congress do about the estate tax?" Like most congressmen, we have no idea. But absent action in Washington, the "exempt" amount is only going to be $1,000,000 as of January 1, 2011, with a top estate tax rate of 55%. The dip in the markets and legislative uncertainty resulted in many clients deferring their planning. But there are some great opportunities that are best captured in 2010. We are happy to discuss whether any of these ideas can benefit you and your family. 
How Low Can You Go?
Record Low Interest Rates Provide Wealth Transfer Opportunities 
For estate planning transfers, the Applicable Federal Rate (the interest rate used by the IRS for valuing such transfers) will drop in October to 2.0%.  That ties an all-time low set in February 2009 and is the lowest rate since the IRS began publishing the AFR in 1989.
This is an important development for clients interested in taking advantage of this unique time to make estate planning transfers.  Because the lower the AFR the better for making certain wealth transfers, the low interest rate makes GRATs (grantor retained annuity trusts), CLATs (charitable lead trusts) and sales to grantor trusts (sometimes called dynasty trusts or "intentionally defective grantor trusts") even more attractive.
To put it simply: the lower the AFR, the more likely your assets will grow at a rate in excess of the AFR, and the more likely the trust/transaction will have a positive estate planning effect for your family.
Moreover, in 2010, there is a unique gift tax opportunity to consider with a rate of 35% (10% lower than the gift tax rate in 2009 and 20% lower than the top gift tax rate will be in 2011).  Thus, gifts to GRATs or CLATs or making gifts to "seed" grantor trusts for sale transactions are even more attractive right now than ever before.
Finally, with many clients owning depressed value assets - such as real estate (directly or in entities) and closely held businesses -  and with many in Congress talking about eliminating or restricting some of these favorable techniques, now is the time to implement advanced estate planning techniques such as these for your families.
We are happy to talk about how October 2010 could be the "perfect storm" of estate planning opportunities for you.
Family Limited Partnerships - Be Sure to Follow the Formalities
Is it Time for a Check-Up? 
family meetingMany clients have formed family limited partnerships (FLP) for a variety of reasons, including the desire to centralize the management of various assets for multiple family members, asset protection benefits, state and local tax benefits, and transitioning asset management to future generations. Some senior members of the families might also make gifts or sales of limited partnership interests to trusts for younger generations. Such gifts and sales are often at discounted values (from the value of the underlying assets) because limited partnership interests, by definition, have a lack of control and are not readily marketable.
There is a growing body of case law where the IRS has challanged both the amount of the discounts claimed by taxpayers, as well as the ability to claim discounts at all. But one thing is certain - you can only ask the IRS to recognize the validity of the FLP planning if you are willing to maintain the formalities of ownership. What does that mean? At a mimimum, it should mean the following:
  • Properly account for all income and expenses
  • Maintain capital accounts in accordance with the applicable Treasury Regulations
  • Make distributions in proportion to ownership interests
  • Document any meetings of the partners, and make sure any corporate general partners have annual meetings of the directors and shareholders
 If you have any questions about maintaining your FLP, please do not hesitate to contact us.
Time to Follow-Up on Prior Plans?
Low Interest Rates May Mean Looking Back as Well as Forward
rear view mirror 
As noted earlier, IRS-published interest rates can be used for a variety of estate planning purposes, including the sale of interests in family limited partnerships to specific types of trusts known as "grantor" trusts. Such sales generally are made in exchange for a promissory note, with the interest rate based on the U.S. Treasury's published tables. For example, a note executed in January 2005 having a term of more than 3 years and less than 9 years may have called for an annual interest rate of 3.76%. That same note, if executed and delivered in October 2010 would only bear interest at 1.73%. The lower the interest rate, the better, because it means that more of the return on the investment by the Grantor Trust will be preserved for future generations, rather than being paid to the seller (and ultimately adding to the estate tax liability). So now might be the perfect time to consider refinancing the interest rate on older notes to take advantage of the lower rates.
Most notes are prepayable without penalty, and therefore there shouldn't be much problem with simply executing a new note in exchange for the old note or modifying the old note with a letter agreement.  There is no precedent in this area, and many practitioners recommend that there be some consideration for the renegotiation to a lower rate, such as a prepayment of principal on the note. We are happy to discuss the tax saving opportunities from a refinancing.
Katz Baskies named as a Best Law Firm

US News We are pleased to report that in the first-ever "Best Law Firms" ranking published by U.S. News and Best Lawyers, Katz Baskies has been selected as a "Tier 1" firm (the highest rating) in South Florida in the area of Trusts & Estates Law. Both Tom and Jeff have regularly been selected as Best Lawyers in the areas of Tax Law and Trusts & Estates Law, and we can now add the Firm to this prestigious listing. It is also meaningful because we are one of the very few boutique firms in all of South Florida to be in the Tier 1 category in Trusts & Estates Law.

As we have noted previously, there are many great estate planning opportunities available right now. If you have any questions 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