Estate and Gift-Tax Planning Vital to Many Local Residents

The most obscene four-letter words probably don’t raise the same ire as the words “estate tax” and “gift tax” do to people who have been pummeled by those penalties.

However, relief is likely on the way.

Greg Jones, a lawyer with the Fayetteville firm of Jones, Jones & Doss, said President George W. Bush’s administration will, at worse-case scenario, raise the federal tax applicable exemption bar.

Under current law, the applicable exemption is set at $675,000. Any gift valued at more than that is subject to taxes. By 2006, that figure will increase to $1 million. The individual can currently give up to an additional $10,000 annually tax-free to as many individuals as that person wishes. The $10,000 also is in addition to the $675,000 for the first year.

This is not just a one-time exemption. Should the value of the gift exceed the exclusion down the line, it will not affect the giver. If it grows in value, it grows outside of the giver’s estate.

Anything exceeding the exclusion is taxed at a marginal rate up to 55 percent. Anything over $3 million is taxed at the full 55 percent.

Republicans previously tried to get estate and gift taxes repealed altogether by 2010 in a plan then-President Bill Clinton eventually vetoed.

In Bush’s initial overall package, he is proposing another plan to do away entirely with estate and gift taxes.

“I think there will be a compromise,” Jones said. “As opposed to to repealing it altogether, I think you’ll see [the exclusion] will increase over a period of time to $5 million. But that will affect a large percentage, a very large percentage.”

Currently, should an individual receive a gift of $675,000 in value, that person would still have to fill out the gift tax return, but there would be no Federal tax on it. Parents can give as much as $1.35 million without facing estate taxes since each has the right to the total applicable exemption amount.

“There are estate planning techniques we use all the time for high net-worth individuals,” Jones said.

Property value is determined by its appraised value at the date of death or the date of the gift.

But those who inherit farm land, perhaps land that has been in the family for generations, are finding it more and more difficult with the cost of acreage skyrocketing in Northwest Arkansas.

Northwest Arkansas is unique compared to similar-sized areas nationwide due to its percentage of extreme wealth with the likes of Wal-Mart Stores Inc., Tyson Foods Inc. and the high property value due to upscale growth in Benton and Washington counties.

Jones said the current exclusion of $675,000 affects many in Northwest Arkansas.

“Many of the naysayers of repealing the estate tax say it will affect only the super wealthy,” Jones said. “That’s absolutely not true. A large percentage of my clients are elderly, perhaps widows or widowers, that live very modestly. It’s not just the Waltons getting hit by this. We’ve got a lot of young business people it affects, too.

“It’s not uncommon at all,” Jones said. “That’s why they need to do tax planning.”

Jones, who received accounting and law degrees from the University of Arkansas, earned a master’s degree in law taxation from Georgetown University. He was an attorney advisor for Federal Judge Charles Simpson and Special Trial Judge Norman Wolfe of the United States Tax Court in Washington, D.C.

“I’ve been back in Fayetteville since 1989 and there is no question that individuals’ wealth here has increased during that period of time,” Jones said. “And more people are becoming aware of the need to do tax planning.

“There are a lot of high net-worth individuals with a large portfolio of land around here. I’ve see a lot of others, too, like small business owners. It’s not hard to get up to that threshold [of $675,000].”

An estate planning advisor such as Jones can cover many areas of taxes — naming legal guardians for minors, setting provisions in revocable trusts, etc.

“Tax is not the only issue, but it is the primary issue,” Jones said.

“Basically, what estate and tax planning are is utilizing what codes you can. A lot of people procrastinate about their taxes. But tax planning is merely utilizing the codes to their full extent.”

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