Fiscal Cliff Not All Doom and Gloom
While the fiscal cliff has cast a dark shadow over the nation's economy, for some, there's what you might call a platinum lining. Individuals or families, who own estates or businesses worth five million dollars, can cash in on what appears to be a chance of a lifetime. But the clock is ticking. Rebecca Huntington has more.
RECEPTIONIST: Good afternoon, Long, Reimer, Winegar and Beppler, this is Hannah....
HUNTINGTON: The phone rings a lot these days at this law firm, located in a sleek new building on Jackson's Pearl Avenue. Among the attorneys working here is Christopher Reimer, who specializes in estate tax law.
REIMER: The phone has essentially been ringing off the hook with people scrambling to learn about the so-called fiscal cliff changes in the estate tax realm.
HUNTINGTON: Reimer says many clients are scrambling to take advantage of the current tax law before either the fiscal cliff or a deal to avert it changes the tax code. He says what's at stake are millions of dollars.
REIMER: We're describing it as a chance of a lifetime.
HUNTINGTON: For decades, tax law allowed estates to transfer just six hundred and seventy five thousand dollars before paying any taxes.
REIMER: It then jumped up to a million and crept its way up to three and a half million dollars, which was the rule in 2009.
HUNTINGTON: Then things got a little wacky.
REIMER: We then had a weird year, which was 2010, where you could actually die and have an unlimited estate. You could transfer an unlimited amount. Now the really bad news about that was you had to die to do it.
HUNTINGTON: That's because Congress let the estate tax expire. Although Congress quickly reinstated the tax, lawmakers raised the amount of assets that could be passed from one generation to the next without paying any taxes.
REIMER: So if you are a person that has five million dollars today, you can call your lawyer and go in and make a transfer and pay zero tax.
HUNTINGTON: Reimer says the $5 million dollar tax exemption is unprecedented, and it will sunset at the end of this year. If lawmakers take no action, the tax exemption reverts to one million. Even if Congress and President Obama reach a deal to reform the tax code and avoid the fiscal cliff, Reimer says he expects the exemption to decrease.
HUNTINGTON: So that means the clock is ticking and many families are facing tough conversations about whether to pass on their family business. (Can you cut the bite to look like this?)
REIMER: Ranchers tend not to like the idea of giving up ownership and control to the next generation. So that's the delicate conversation and plan that we try to help the family work with. And this year there is a tremendous pressure to do it that there wouldn't be in a normal year.
HUNTINGTON: Reimer says it's not an easy decision, especially for younger clients, who have built up a business worth five to 10 million dollars and are not quite ready to retire.
REIMER: The first thing I tell people is you have to want to just give this away. If you'd rather just spend it for the rest of your life then don't give it away. But people hate taxes.
HUNTINGTON: Reimer says that dilemma is leading clients and attorneys to come up with some pretty creative estate plans to allow them to transfer their assets while still maintaining some kind of control or ability to draw income from those assets.
REIMER: And all sorts of planning mechanisms have really cropped up this year.
HUNTINGTON: Plans that, for example, give away an asset, but retain the ability to still draw future income from it. With so many millions at stake, Reimer expects to be working on such complicated plans right up until the New Year.
HUNTINGTON: For Wyoming Public Radio, I'm Rebecca Huntington in Jackson