Estate Planning Opportunities in a Down Market
By Jordan Cypert
I think it goes without saying, but economic times have been very hard for many people and their families. There may however be a silver lining in the form of future planning. Some tax and estate planning techniques are more effective now than ever before. This article discusses two planning techniques that may offer opportunities in down markets.
Roth Now, Save Later
No doubt many people with Individual Retirement Accounts (IRAs) have noticed a sharp decline in their retirement savings. This may provide the opportunity for you to convert your IRA into a Roth IRA. If your current income is less than $100,000 (whether you file individually or jointly if married), you can convert your IRA and pay income tax on the current lower value of your IRA. Once converted, the new Roth IRA will grow completely tax-free, even if the assets double or triple. Additionally, unlike a traditional IRA, you will not be forced to take a distribution, and if you choose to make a withdrawal, it will be entirely tax free. An added bonus in converting to a Roth IRA for estate planning purposes is that prepaying income taxes upon conversion may help those who will inherit your Roth IRA when you pass. The deadline for conversion is December 31 of the year you want to convert, and there are qualifications, so check with your CPA, estate planning attorney or tax advisor.
Business Owners, Family Men and Women
Do you own a business and have a family to take care of. Many people do, and those businesses take up the bulk of their time and make up the bulk of their estates. Through hard work, and some luck, your business may have become successful enough to subject you to estate taxation upon your death. One of the most popular estate planning techniques in this situation is to transfer shares in the business for the benefit of your family members. Doing this however, may trigger gift tax consequences depending on the value of your business and size of the transfer. But, a down market would allow you to take advantage of any diminished value in your business by transferring a larger portion out of your taxable estate by gifting or transferring that portion to, for instance, an irrevocable trust. Another technique that can be utilized in this situation is putting the business into a Family Limited Partnership (FLP) or a Family Limited Liability Company (FLLC). Because of certain restrictions that can be drafted into the partnership or operating agreement, you can get a valuation discount on the assets placed into the entity. In order to qualify for such discounts, you would have to be willing to give up control over distributions and dissolution. However, the business would remain in the family, and you could have control over day to day operations. Ultimately, you could get valuation discounts of 25% or 40% below true value, which may have already been diminished by the economy. While FLPs and FLLCs are important techniques to consider, the Internal Revenue Service has been examining these entities more carefully. Therefore, it is essential that you consult an estate planning attorney who is knowledgeable in the use of advanced planning techniques, so that he or she can help you achieve your estate planning and business succession goals.
Whatever the status of the economy, there is one constant that your financial and personal success depends on: planning. As the saying goes, if you fail to plan, you must plan to fail. Regardless of your situation, there are opportunities to take advantage of today's environment. A qualified estate planning attorney can help you implement these and other tax and estate planning strategies to achieve your goals.
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Contact an Austin estate planning attorney at Cypert Law Firm today. They help businesses and individuals throughout Travis, Williamson, and Hays counties including the cities of Austin, Round Rock, Kyle, Buda, Lakeway, Cedar Park, and West Lake Hills with Business Startup and Entity Formation, Estate Planning, Wills and Trusts, Probate and Guardianship issues.
The firm offers free initial consultations, payment plans (after an initial deposit), flat fees and other affordable solutions to your legal problems. Call today to see if Cypert Law Firm can help you.
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Austin, Texas 78746
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