CINCO DE MAYO: THE BATTLE TO END CONFUSION

CINCO DE MAYO: THE BATTLE AGAINST CONFUSION

In the practice of estate planning, whether it concerns building your estate in these volatile financial times, to estate distribution by guessing if Congress is repealing the estate tax for 2010, to whether real property will be passed on to your children next year by them inheriting their parent’s cost basis on the property, then being taxed on the capital gains valued between when it was originally purchased until the time of sale. Mutual funds, reverse mortgages, annuities, refinancing, government bailouts and every other aspect of estate planning seems to be summed up in one word: confusing.

It is time to clear the air and although I have no laws edged in stone to support it, it is time to use common sense to predict what is going to happen this year. First, time enough has elapsed to confidently say there will be no estate tax for all those dying in the year 2010. Although it is possible Congress could attempt to pass a new estate tax law prior to September 1, 2010, the last date possible to pass a retroactive estate tax beginning January 1, 2010, it isn’t going to happen. That is the last thing on their mind this election year, for so many reasons they do not even have anything in the hopper.

There is a good and a bad side of this lack of Congressional inaction. The good side, as one estate attorney mentioned, his client passed away in mid-January with an $18 million estate. This entire $18 million will pass to his heirs tax free, which in prior years would have cost the heirs $9 million dollars. Congratulations if you are in that extremely small sector of America.

The down side, according to the IRS actuary tables upon which they rely for determining the duration of the average life, the chances of your rich grandpa passing away in 2010 is minimal. (Or maybe that’s the good side.) If you are 73 years old, the probability of your living well into the next year is 96.85 per cent. If you are 80 the probability for living one more year is 93.85 per cent, and if you are 90 years old, don’t worry about it, the probability of living another year is 84.91 per cent.

Secondly, according to the Time’s magazine I saw in Dr. Woolf’s dental office, all you have to do is read it and it will tell you about the remarkable economic recovery that America has undergone. Unfortunately, this is where you have to ask yourself, “What has the economic recovery done for me? The wiser you are, the least susceptible you will be to believing the enormous opportunity that many conmen and women are taking advantage of in this fast talking age of confusion with incredible offerings in annuities such as those that cannot possibly make you less than 6 per cent interest per year for the rest of your life. In fact, it can only go higher, never downward.

Senior citizens are those most prone to become involved in scams and Ponzi schemes. That is certainly not to say there are not ethical and extremely honest people in every facet of financial advice, but do your home work. Stop and think of Bernie Madoff, Goldman Sachs, AIG, and all the other names you thought you could trust, or read about in the news on a daily basis. They are cropping up even in your little town. To make it easy, if you are 65 years old or older, and you feel yourself being pressured into a state of urgency by having to respond by a date certain or pay for another expensive product, and that product is “deferred variable annuities,” just run away. Always get a second opinion.

Even attorneys are not immune to cheats and frauds on the internet. One recent story told in the Lawyer Magazine involved an internet scam originating in Japan and targeting attorneys in the sector of divorce settlements. A lady from Japan asks a lawyer for help in obtaining the rest of a large settlement and discusses the possibility of a large advance. If the attorney agrees he receives a very authentic looking check for a large amount and is asked to cash the check for legal fees and return the remainder to the client, usually by depositing the check in a foreign account.

Don’t be confused. It can happen to you! Now have a nice Cinco de Mayo.

— No opinion herein is a “marketed opinion” and no information provided herein can be used to avoid tax penalties for which the taxpayer would otherwise be responsible. Mark S. Cornwall has lived in Santa Barbara for more than 30 years and practiced law there for 25 years. He is accepting new clients. His book, "Estate Planning: The Heroes Way for Baby Boomers," can be purchased via his Web site, www.MarkCornwall.com; www.Amazon.com; or Borders bookstores. To schedule an appointment, contact him at mark@babyboomerpublishing.com.