Congress Dithers While the Rest of Us Work

And we actually pay these people?

            In case you didn’t know it, the Thanksgiving Holiday has already begun – for Congress, that is.  They’ve already recessed, of course, for turkey day – while any number of problems continue to languish in the back room, awaiting solutions.

            Like tax policy, for one, including the matter of the “Bush tax cuts,” the estate tax, the alternative minimum tax, and whether/to what extent to extend a myriad of provisions which will otherwise expire.

            And get this –  that brilliant mind from Montana, Max Baucus (D-MT), Chairman of the Senate Finance Committee told members of the press, last week, with reference to the fact that maybe something might get done in December, “Get your snow boots on.”

            Just hilarious, isn’t he?

            And we hear from the Congressional Research Service that the Treasury Department estimates the Obama administration’s proposals to raise taxes on upper-income taxpayers would collect $41 billion in additional revenue in FY 2012 and $680 billion over 10 years.  Not chump change, exactly, but this action would reduce the net cost of extending the Bush tax cuts for the rest of the folks by a mere 16% in FY 2012, and reduce the net ten year cost by about 19%. 

            And this at the risk of keeping the job creators on the sidelines for the foreseeable future?

            So – even though you don’t know what all of the rules will be next year and thereafter, don’t lose sight of the potential opportunities which lurk in the present environment of very low interest rates.  When it comes to tax and estate planning, that is.

            Recall that the value of certain annuities, life estates, term interests and other tax creatures is determined for various tax purposes by using tables issued by IRS under Code Section 7520.  And that interest rate for December 2010 is a paltry 1.8% – the lowest ever.

            F’rinstance, consider one popular device, the grantor retained annuity trust, or GRAT, which entails the creation of this special type of trust, funded with certain property to be later used to generate an annuity stream back to the grantor for a number of years, with the remainder to a child, typically.  Creation of a critter like this usually creates an obligation for gift tax, but the amount is calculated as the present value of the remainder interest, or the value of the property transferred to the trust less the value of the retained annuity interest.

            Got that?

            Any way, the lower the interest rate at formation, the larger the value of the annuity retained by the grantor, and thus the lesser the value of the remainder interest – the gift.  Also don’t forget that the post-transfer appreciation in the value of the trust asset(s) will escape estate tax as long as the grantor survives the term of the trust determined at the beginning.  Sharpen your pencil – this can be powerful.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

            Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He is also a contributor to the 13th edition of Tax Savvy for Small Business, published by Nolo.  He can be reached at 831-7288, and welcomes comments below.

Leave comment