Two Mistakes Attorneys Are Currently Making

According to Martin Shenkman (Attorney, Paramus, N.J.), even though 2012 is not a normal year for tax planning, attorneys should not sit idly by as Congress grapples with the approaching decision deadline concerning taxes. Shenkman claims that attorneys are making two huge mistakes this year when it comes to tax planning: doing nothing and looking for the “magic” fix. These two mistakes are discussed below:

Mistake Number 1: Some attorneys are so caught up in the uncertainty surrounding taxes that they refuse to take any action at all. Shenkman suggests that attorney continue to protect assets, especially through trusts and IRAs, in case the tax exemption reverts back to $1 million. Attorneys should also help unmarried couples evaluate ownership of assets and make appropriate changes now because a reduction in the $5 million exemption could make it increasingly difficult for the couple to transfer assets back and forth.

Mistake Number 2: Clients and attorneys alike are searching for a simple fix to very complex matters. Some individuals have opted to sell assets now to avoid an increase in capital gains tax, but Shenkman argues that this is a bad idea as it is uncertain whether there will be an increase, and even if there is, the individual can harvest losses to eliminate the gain. Shenkman suggests using multi-dimensional tax planning strategies so that if one purpose for the strategy becomes moot, the strategy still serves other ends (e.g. Purchasing an insurance policy to cover estate taxes but having a second purpose for the funds in the event they are not needed to cover taxes.)

See Marlene Y. Satter, Two Tax Mistakes to Avoid With Clients: Tax Expert Shenkman, Advisor One, Mar. 7, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.