Stephanie Fierro 0000-00-00 00:00:00
I Don't Want to Pay Taxes - Attorney, Get Me to Singapore! The preservation of wealth and minimization of taxes are invariably key estate planning objectives for high net worth clients. As an estate planning attorney, my role is to determine how best to accomplish those objectives. When we successfully minimize the tax implications with an estate plan, we automatically preserve wealth. There are a variety of strategies that can be implemented, and they range from simple to downright drastic. For example, a fair amount of media attention lately has been focused on the strategy of renouncing U.S. citizenship for tax purposes. Why are taxes such a big concern? Taxes frustrate the masses and befuddle even the savviest individual. Consequently, U.S. tax laws have long been a topic of great debate. But, the complexities of the tax code afford a wealth of tax planning opportunities if you know where to look and what to implement. These "loopholes" are the epicenter of any tax debate. The word loophole evokes an image of a back room filled with the aged, wealthy elite plotting ways to amass their fortunes and decimate the less fortunate. So it is ironic that recent media attention regarding tax and estate planning has revolved around the newest and youngest members of that elite class - the founders of Facebook, the oldest of which is merely thirty years old. Facebook co-founder Eduardo Saverin recently renounced his US citizenship in favor of Singapore, a move presumed to have been planned in anticipation of Facebook's IPO. The move was designed to save Saverin tens of millions of dollars in capital gains and income taxes. Singapore has no capital gains tax, limited income tax and, more importantly for purposes of this article, no estate tax. Though the immediate media focus is on capital gains and income tax, it is the potential estate tax savings that may prove most significant. Forget the pittance he will save on capital gains and income tax, this move could save Saverin several hundred million dollars in estate tax. The ubiquitous estate tax we all hear so much about is a very real planning consideration, though how, and how many, people need to plan for estate tax changes nearly every year. Although reference is to the federal estate tax, depending upon a decedent's state of residence, there may also be a state imposed estate tax. Given that fewer than half of all states impose a separate estate tax and Arizona is not one of them, this article focuses exclusively on the federal estate tax. The Estate Tax. Federal estate tax is imposed "on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States." 26 U.S.C. § 2001(a). Rate. The tax rate has varied over the years reaching a high of fifty-five percent (55%) in 2001. The tax rate through December 31, 2012 is thirty-five percent (35%). The current estate tax rate and exemption amount were signed into law on December 17, 2010 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Exemption. As mentioned a moment ago, a certain amount of a decedent's estate is exempt from inclusion in the taxable estate a.k.a. the exemption amount. This year, the exemption amount is $5.12 million dollars per person meaning that a person can transfer $5.12 million dollars to his heirs estate tax free. Portability. In addition to setting a new tax rate and exemption amount, the new law also made the exemption amount portable between a husband and wife. As a result, any exemption amount unused by a deceased spouse can be passed to the surviving spouse, allowing married couples to leave their heirs as much as $10.24 million dollars estate tax free. Application. Let's be frank; assuming that estate tax remains the same, the vast majority of individuals will never need to concern themselves with it. If the tax is only imposed on estates valued at more than the exemption amount, a client's estate must exceed $5.12 million dollars. But if that is the case, (and the client does not implement a proper estate plan), the value of the estate that exceeds the exemption amount effective at the time of the decedent's death, is subject to tax at the then applicable rate. For example, in 2012, if a decedent's taxable estate is valued at $6,000,000 the estate would owe $308,000 in estate tax. $6,000,000 taxable estate -$5,120,000 exempt from tax $880,000 subject to tax x 0.35 estate tax rate $308,000 due in estate tax The problem is that the federal estate tax does not remain the same and changes to it dramatically impact estate planning. The current estate tax is scheduled to expire on December 31, 2012. If that happens, the New Year will bring with it a reversion to a non-portable $1,000,000 estate tax exemption amount and a fifty-five percent (55%) tax rate. If that happens, a lot more people are going to concern themselves with estate and tax planning. Becoming a citizen of Singapore is an extreme and drastic measure to undertake for estate and tax planning purposes exclusively. Though not without historical precedent, it is not a common occurrence. In fact, I would venture to guess that tax avoidance does not usually top the list of reasons people renounce their home country. After all, compared to war, starvation, genocide, poverty, slavery, and oppressive government regimes, tax avoidance seem fairly trivial or worse, greedy. Then again, I don't have a billion (or even a couple million) dollars. I do, however, spend a considerable amount of time planning for clients who do. What is a millionaire to do? There is nothing illegal about planning in ways to minimize a client's tax exposure, and there are dozens of far less drastic measures that can be implemented for such purposes. You just need to know where to look.
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