November 7, 2012 – Post Election Strategy Selection and Wow! The RNC and DNC as Co-Defendants



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The following is a client letter that we have sent out this week, and that you can feel free to adapt for your own client base, or simply forward this and ask them to call you with any questions – or 2 aspirin may be better.

Dear Clients:

We write this letter on the eve of President Obama’s re-election and the continuing gridlock between the House of Representatives and the Senate.

This makes for a very interesting playing field from the point of view of taxpayers who want to know what the situation is with respect to their income and estate tax planning.

On the income tax side, the significant increases already programmed into the law for January 1st may actually occur, and this will be a significant burden upon single individuals who earn more than $200,000 per year and married couples who earn more than $250,000 per year.

The tax increases include a highest bracket of 39.6% instead of the present 35%, and a 3.8% tax on interest, dividend, net rent, and other passive income to the extent that the taxpayer has total earnings exceeding the $200,000 and $250,000 thresholds above.

In the estate tax arena the chips are even higher, as the present $5,120,000 gifting and estate tax exemptions would go to $1,000,000 on January 1!  This is why so many clients have been working with us to make gifts exceeding $1,000,000 in value to make use of all or part of the $5,120,000 temporary gifting allowance which may never exist again during our lifetimes.  In addition to this the estate tax rate would go up to 55% – it is now at 35%.

Many clients do have a concern that if they gift too much away they could run out of assets.  Popular solutions to this have been (1) have a spouse as a beneficiary of the trust and assume that as long as the spouse is alive the donor can derive indirect benefit by being supported by the spouse while the spouse is being supported by the trust, and (2) forming the trust in an asset protection jurisdiction, since the IRS has ruled in at least one case that the contributor can be a discretionary beneficiary and actually receive the benefit of trust assets if and when ever needed.

Hopefully there will be a compromise between now and year-end, but most experts who have significant political/legal observation histories feel that this will probably not be sorted out until 2013, with the compromise to hopefully be retroactive to January 1, 2013.

Last week we co-presented a webinar for tax lawyers and CPAs for Bloomberg BNA Tax & Accounting with Professor Jerry Hesch who is a well respected tax professor, author, and the Chairman of the annual Notre Dame Tax & Estate Planning Institute.

Professor Hesch suggested that every affluent person should consider putting an irrevocable trust into place that can hold assets that would not be subject to federal estate tax, but would be considered as owned by the grantor for income tax purposes.

This is because two very important estate and gift tax loopholes that presently exist for these trusts would be eliminated if President Obama’s February 2012 budget suggestions are adopted, which are as follows:

1. Presently the grantor can pay the tax on dividends, interest and other income earned by such a trust, so that the trust can grow faster to increase the assets that would pass free of estate tax.

Under President Obama’s proposal this type of trust would be subject to estate tax on the death of the grantor.  Professor Hesch observed that this type of trust existing before the end of this year would be grandfathered.  The effect of being able to pay the income tax on behalf of this type of trust, and be able to sell assets or discounted family interests to this type of trust in exchange for a low interest note has an incredible mathematical value.

2. Presently this type of trust can be used to avoid estate tax not only at the grantor’s level, but also at the level of generations of descendants going for as long as 360 years if the trust is formed in Florida.

President Obama’s proposal would limit this “generation skipping dynasty” trust effect to 90 years.

In addition, many clients are making sure that they make their sales of family company interests to these types of trusts before year-end because we can presently value non-voting or minority interests in family entities using discounts.  President Obama’s 2012 budget proposal would eliminate discounts.

Fortunately for taxpayers we have a Republican House of Representatives who can hopefully resist having these new restrictive estate tax provisions enacted, but what will the trade-off be for raising the estate tax exemption above $1,000,000 per taxpayer?  President Obama’s February 2012 budget called for a $3,500,000 per taxpayer estate tax exclusion and did not make mention of what the gifting exclusion would be.

Since the majority of super wealthy individuals have probably used their $5,120,000 gifting exemption in 2011 and 2012 we may not see significant resistance to allowing the gift tax exemption to go down to $1,000,000.

It is a stressful time for individuals who have a net worth of well over $1,000,000 and may find themselves in intensive care with their families wondering whether making it until after December 31, 2012 will cause significant additional estate tax.  It is very sad to see that this situation that we have been fearing since December 2010 is now almost upon us.

So what are people to do between now and December 31, 2012?

If you fail to plan then you are planning to fail.

And, if In Doubt Gift It Out! – Many clients with net worths in the $2,000,000 to $4,000,000 range have stopped annual gifting in the hopes that the $5,120,000 exemption will continue.

Since that now seems unlikely it may be a good idea to complete normal 2012 year end gifting to make maximum use of the $13,000 per person annual exclusion.

Also, do not forget that the Obama budget proposals would largely curtail grantor retained annuity trust planning by requiring a minimum 10 year term and a positive remainder interest.

Please contact us if you have any questions or if we can be of assistance between now and year end, or in early 2013 for a planning update.


One recent case out of United States Court of Appeals Fifth Circuit,Janvey v. Democratic Senatorial Campaign Committee, et al., caught our eye. Sir Allen Stanford, also known as “Sir Scam-a-Lot,” made headlines back in 2009 when he was charged by the SEC for running a “massive Ponzi scheme.” The size of the scheme was estimated to be $7 billion. The SEC filed a six-count complaint against Stanford. Click here for a copy of the original complaint. In March of 2012, Stanford was convicted of all charges except wire fraud.

While running the scheme, Stanford donated at least $1.6 million worth of Ponzi scheme proceeds to the RNC and DNC. Presumably, the funds were an attempt to curry political favor. Following Sir Scam-a-Lot’s conviction, the court appointed a receiver, Ralph Janvey. Janvey brought suit under the Texas Uniform Fraudulent Transfer Act, seeking to recover the Ponzi scheme proceeds Stanford donated to the RNC and DNC. The trial court granted Janvey summary judgment, which the Fifth Circuit affirmed on October 23, 2012. Click here for a copy of the opinion.

The big lesson from Stanford is to never accept gifts from strangers, particularly if they are running a Ponzi scheme.

In addition, we feel that it should be pointed out that both parties knew, at least after the fact (and maybe even earlier), that Stanford’s donations were stolen directly from hardworking Americans and had to be sued to get the money back. It is hard to believe that this can happen.

This case also raises an important question: Why doesn’t the Patriot Act apply to large political party donations?


To view a chart of this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3 please click here.


TUESDAY, DECEMBER 4, 2012 12:30 – 1:30 pm 
Pension actuary Jim Feutz will join Alan Gassman for a webinar on Update of Pension, Labor and Tax Laws, Including 2012 Law Changes and Anticipate Changes for 2013.  This webinar qualifies for 1 hour of continuing education credit.  To register for the webinar please click here.

TUESDAY, DECEMBER 4, 2012, 5:30 – 6:00 pm 
Alan S. Gassman will be joined by health care attorney Lester Perling to speak on What Physicians Need to Know About “Excluded Persons” and How to Make Sure You Do Not Have One.  To register for the webinar please click here.

WEDNESDAY, DECEMBER 5, 12:30  – 1:00 pm
The Whistleblower Threat: Do You Have It and What Can You Do About It?  Lester Perling, J.D., M.H.A. and Alan S. Gassman, J.D., LL.M. will be presenting a webinar on the whistleblower threat.  To register for the webinar please click here.

WEDNESDAY, DECEMBER 5, 5:00 – 5:30 pm
An Overview of a Professional Job Search Process with Darry Griffs.  To register for the webinar please click here.

Christopher Denicolo, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law.  He has co-authored several handbooks that have been featured in Bloomberg BNA Tax & Accounting, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters and the Florida Bar Journal.  is also the author of the Federal Income Taxation of the Business Entity Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition Mr. Denicolo received his B.A. and B.S. degrees from Florida State University, his J.D. from Stetson University College of Law and his LL.M. (Estate Planning) from the University of Miami.  His email address is

Kenneth J. Crotty, J.D., LL.M., is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. Mr. Crotty has co-authored several handbooks that have been published in BNA Tax & Accounting, Estate Planning, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters, Estate Planning magazine, and Practial Tax Strategies.  Mr. Crotty is also the author of the Limited Liability Company Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition. He, Alan Gassman and Christopher Denicolo are the co-authors of the BNA book Estate Tax Planning in 2011 & 2012. His email address is

Thank you to our law clerks that assisted us in preparing this report:

Kacie Hohnadell is a third-year law student at Stetson University College of Law and is considering pursuing an LL.M. in taxation upon graduation. Kacie is also the Executive Editor of Stetson Law Review and is actively involved in Stetson’s chapter of the Student Animal Legal Defense Fund. In 2010, she received her B.A. from the University of Central Florida in Advertising and Public Relations with a minor in Marketing, and moved to St. Petersburg shortly after graduation to pursue her Juris Doctor. Her email address is  

Alexandra Fugate earned her B.A. in English from the University of Florida in 2008, and J.D. from Stetson University College of Law in 2012. She has been a Guardian ad Litem for the past two years, a judicial intern for the Twelfth Circuit in Bradenton, and was recently admitted to the Florida Bar. She wants to pursue a career in business, employment, and labor law. Her email is

Eric Moody is a third-year law student, scheduled to graduate in December 2012, at Stetson University College of Law and is considering pursuing an LLM in estate planning upon graduation. Eric is also an Articles and Symposia Editor for Stetson Law Review. In 2009, Eric received a B.S. in Business Management from the University of South Florida. Eric’s email address is