In the waning days of 2010 President Obama and the United States Congress agreed to a variety of compromise tax measures designed to “extend” the Bush Era tax cuts.  Tax rates were largely maintained at the current levels through December 31, 2012 at which time they are once again set to revert to their old (higher) levels.

Under the original Bush tax cuts the estate tax was scheduled to be phased out by 2010, but because of the “sunset provision” it would have come back in full force January 1, 2011.  The estate tax issue proved to be the most difficult area for Republicans and Democrats in Congress to find a compromise.  Republicans saw the estate tax elimination as a previously won battle designed to help small and medium size businesses stay intact from one generation to the next.  Democrats pointed to billionaires such as New York Yankees owner George Steinbrenner whose estate paid no taxes at his death.

Finally both sides agreed upon a temporary measure to unify the gift and estate tax at a $5,000,000 exemption level, with another “sunset” of the law set to take effect on December 31, 2012.  What any new law will look like on January 1, 2013 is anyone’s guess. Most practitioners believe that it will be less favorable than the current law.  Current law allows for some aggressive asset protection and estate planning which will reduce estate taxation, even after 2013, if proper planning is undertaken now.

For married couples utilizing their lifetime gift and estate tax exemption, a maximum of $10,000,000 can be gifted away with no taxation.  If the funds are transferred to a family asset protection trust, for example, they can remain inside the trust and continue growing well beyond the $10,000,000 level and still escape all estate tax.  If assets are invested inside an insurance wrapper they can escape not only future estate taxes, but current income taxation as well on both realized and unrealized gains.

Legal structures to achieve this type of asset protection and estate planning can be accomplished within the United States or outside.  We recommend non US structures and planning for three simple reasons:

1. An international structure provides better protection against future lawsuits.  It makes sense to select the most secure jurisdictions around the world to create structures that will better enhance legal protection of assets.
2. A foreign structure is often viewed as a “foreign” legal person rather than as a US legal person.  This may open doors to a variety of global investments and financial accounts not available to US citizens.  For those looking to diversify away from the dollar into other currencies and foreign investments, a foreign structure is the best method to achieve that goal.
3. An international structure allows for better estate planning.  Asset Protection Trusts, Dynasty Trusts, Special Purpose Trusts, Foundations, International Business Companies (IBCs) are just some of the tools available to achieve one’s legal objectives during their lifetime as well as attain maximum flexibility and control of assets after death.

Integrating planning opportunities created by the current gift and estate tax regime with global asset protection is a powerful combination that can benefit you and your heirs for many generations to come.  But like many good opportunities, the window to take advantage of them is brief and is closing month by month until it shuts completely on December 31, 2012.

Action to Take:       Create an international legal structure outside the country to protect some of your wealth prior to December 31, 2012.  Protect yourself from lawsuits, currency devaluation and open up the world of global business and investment opportunity with some or all of your $5,000,000 harmonized gift and estate tax exemption.