* Estate planning advisers very busy in final weeks of 2012
* Myriad of tax changes seen prompting more to seek tax
* Some higher earners expected to seek ways to defer income
* Real estate appraisers also benefit from increased gifting
By Suzanne Barlyn and Casey Sullivan
Jan 10 The imposition of increased U.S. tax
rates on the nation's highest earners is expected to provide a
mini-bonanza for the army of lawyers, accountants and tax
advisers who can devise ways to reduce clients' taxable income.
They were already run off their feet at the end of last year
as many wealthy people sought advice on estate planning and
gifting on fears that tax exemptions would be slashed. Vacations
were canceled and staff added to handle mountains of work.
Now the deal to avert the "fiscal cliff" that was reached in
Congress on Jan. 1 will likely give rise to additional work for
lawyers and accountants specializing in tax affairs and the
middle men who help seal tax-friendly real estate deals.
"With so many (tax) triggers kicking in, people are really
confused," said Robert Lickwar, an accountant in Farmington,
Connecticut. "I think it is going to be busy."
Tax changes imposed by the U.S. health-care reform law,
particularly a separate investment income tax, add to the
confusion, he said.
At Cadwalader, Wickersham & Taft LLP, five lawyers and three
accountants specializing in trust and estate administration
became well acquainted with the wee hours of the morning as they
handled nearly five times their typical December workload,
sometimes working as late as 3 a.m., said Robert Lawrence,
chairman of the firm's private client group in New York.
They were not alone.
"I don't want it to be at that level again, said Philip
Michaels, a trust and estates partner with Fulbright & Jaworski
who said the lawyers in his group billed 45 to 60 percent more
hours than normal in December.
The group - six lawyers, two paralegals and four or five
secretaries - stopped accepting clients the first week of
December, turned away business later in the month, canceled
vacations and allowed no time off, save for Christmas day,
Under the new law, individuals earning more than $400,000
($450,000 for couples) see their top income tax rate rise to
39.6 percent from 35 percent and their capital gains tax
increase to 20 percent from 15 percent. In addition, the
nation's U.S. health care reform law imposes a 3.8 percent tax
on investment income for those with adjusted gross income over
$200,000 ($250,000 for couples). The deal also caps exemptions
and itemized deductions for adjusted gross income above $250,000
($300,000 per household).
Tax exemptions on estates are little changed, though the tax
rate on estates of more than about $5.25 million for an
individual and $10.5 million for married couples increases to 40
percent from 35 percent.
While a brief lull is likely as clients digest the
implications of the changes on their wealth planning, people who
didn't make the deadline to gift assets are among those who will
be back in 2013, since the exemption is now permanent and will
rise with inflation, said Michaels.
Lawyers also expect a surge in their estate planning
business - with a price tag of about $3,000 to more than $10,000
per plan. Many wealthier Americans put off estate decisions
because of tax uncertainties, said Gary Altman, an estate
planning lawyer in Rockville, Maryland.
"People who haven't done planning will start now because
they know it's final rather than something that can be changed
at whim," he said of the estate and gifting exemptions and tax
Accountants will be in particularly high demand as the
wealthy seek to minimize the blow of higher income and capital
gains taxes, lawyers and accountants say.
Demand for advice on income and capital gains deferral
strategies will likely be strong, said Matt Hilbert, an
accountant and senior tax manager at Pitcairn, a
Pennsylvania-based family office.
One deferral strategy, like-kind exchanges, lets investors
sell real estate or some other types of assets, and defer the
gain by buying an asset of a similar type and value within a
certain period. But sellers cannot directly hold the sale
proceeds they are using to buy the replacement asset.
That's a boon for "qualified intermediary" companies that
federal tax rules require handle the exchange transactions. For
a fee of between $750 and $2,000 - and sometimes interest on the
funds they escrow - these middleman hold the sale proceeds
temporarily and transfer the property to the buyer. The
middleman also buys the replacement property with the funds from
the sale, then transfers the new property to the original
customer, who avoids taxes on gains.
One such intermediary company, Asset Preservation Inc, a
unit of Stewart Information Services Corporation, saw a
30 percent jump in business in 2012 from the previous year,
according to Scott Saunders, senior vice president. The firm is
expanding its work force by 25 to 30 percent - to about 43
employees - in preparation for an expected increase in business
this year because of the tax changes.
REAL ESTATE APPRAISALS
The surge in demand for tax advisers also sparked a boom for
real estate appraisers, who were called to determine the market
value of properties clients were gifting.
The year-end workflow was triple the norm at Miller Samuel
Inc, a New York-based real estate appraisal firm. Jonathan
Miller, president and chief executive, said he began turning
down tax-related appraisals in early December so the firm could
service its mortgage and refinance clients.
Appraisal costs vary widely by geographic area, but can run
between $2,500 to $6,000 for a high-end property.
"I was calling it Bedlam in appraiserville," Miller said.
Some appraisers, including the Appraisers Group Inc in
Belmont, Massachusetts, also enlisted the help of accountants
specializing in the valuation of so-called partial real estate
shares, which wealthy individuals can use to score a tax break
by gifting just a portion of a property, or another asset.
An owner who gifts 51 percent of a vacation home, for
example, can discount the value of his or her estate to reflect
the portion of the asset that is now outside his or her
control. Specialized appraisers and accountants are usually
needed to determine the discounted value, according to Richard
Goulet, Appraisers Group president.
Higher capital gains taxes will likely spark more interest
among the ultra wealthy - typically those with more than $100
million in assets - in charitable remainder trusts, one of the
few ways to defer gains on assets that balloon in value over
time, according to David Stoll, a trusts and estate lawyer for
Milbank Tweed Hadley & McCloy in New York.
Via a trust, a person may donate an asset, such as stock, to
a charity. Afterwards, any profits on the sale of the asset are
exempt from the capital gains tax and the proceeds can be
reinvested. The donor also scores by receiving annual payments
from the trust and an income tax break, provided certain
conditions are met. The charity gets what is left of the assets
when the donor dies.