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Estate Planning Expert Cautions on Tax Shelter Use

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Advisors need to use caution regarding some estate-planning tax shelters because they can harm clients, according to Jonathan Ackerman, an attorney in private practice at Jonathan Ackerman LLC in Owings Mills, Md. Ackerman’s law practice specializes in tax and estate planning and charitable planning.

In an interview with AdvisorOne, after his speech on April 28 at the 2011 Conference on Philanthropy in Chicago, Ackerman said some of the shelters that were causing harm to investors were offered by “bad apples.” With some it’s “inadvertent; there’s some greed; but they affect [clients] equally,” Ackerman said. Wealth managers need to perform “due diligence” on experts to whom they refer clients for estate tax or philanthropic advice.

Ackerman encourages wealth managers to use “referrals” to find experts to help clients with their estate tax and philanthropy planning. “Ask how long” they have been advising clients on estate tax or philanthropic planning and “how many gifts” to charities their clients have made, he adds. Check out the charities clients are interested in by consulting “GuideStar,” and other online resources that vet nonprofit organizations. “The rascals and rogues will do their thing in every industry,” Ackerman told AdvisorOne.

Wealth managers should “learn about philanthropy,” Ackerman said. It is a “value-added service,” to clients. Start “the conversation,” he advises; wealth managers are “not expected to be the expert. If you bring some philanthropic ideas to the table, you’ll be looked at as a valued advisor.”

During his speech, “In Philanthropy Planning, Are Congress & the IRS our Friends or Foes?” Ackerman noted that Congress is considering “eliminating the charitable deduction” as a way to raise tax revenue. This would, of course, make giving less attractive—not that philanthropists will stop, he said. But Ackerman also mentioned that if the estate tax was eliminated, it could “be detrimental to estate planning.”

The Tax Act

Although the Tax Relief Act of 2010 hiked the estate and gift tax exemption to $5 million per individual or $10 million for a married couple, sheltering much more than before, the exemptions and the lower estate tax rate enacted in the bill are due to expire at the end of 2012. Ackerman noted that the expiration leaves estate planning “uncertain” as nobody can say for sure what will happen once these provisions expire.

There are some bright spots in the Tax Relief Act, Ackerman asserts. One is that “the IRA rollover is valid to the end of 2011, and there’s no annual limit,” said Ackerman. He added that clients who are 70-1/2 years of age can make “outright contributions to all charities and they can make gifts at 59-1/2 to CRTs [charitable remainder trusts] and gift annuities.”

Ackerman had a few choice words about the idea of “patenting tax planning strategies.” There are currently, he said, “130 patented, and 150 are pending. There is a “real effect for planners,” because if you are planning for a client and come up with a creative plan, then “do I have to check the patent records?”

Ackerman had another note of caution about using planning strategies that have a patent: “Just because a plan has a patent doesn't mean IRS approves.”