Pension Protection Act of 2006 and Deficit Reduction Act of 2005

Prepared November 27, 2006

As a result of the mid-term elections, there has been a clear shift of control in Congress which may have a significant impact on the tax laws (both income and estate). Although the specifics of the new tax laws are yet to be determined, it is fairly clear that the idea of eliminating the estate tax is most certainly dead and reducing the size of the applicable exclusion amount is very possible. In addition, income tax breaks with respect to dividends and capital gains may also be scrutinized.

As such, reducing the size of one’s estate by a carefully planned asset transfer strategy is going to continue to be an important aspect of all estate plans. Gifting must be completed by December 31st of each calendar year. The annual exclusion for 2006 from gift tax is now $12,000.00 per person; $24,000.00 for married couples. We believe that it is in your best interest not only to review your asset allocation and net worth, but also to review all estate planning documents to be sure that your Wills, Trusts, Power of Attorney and Health Care Power of Attorney are adequate.

The Pension Protection Act of 2006 and the Deficit Reduction Act of 2005 may affect planning. The first law among other things, will allow children to inherit IRA’s in much the same way as a spouse does currently. The second law, among other provisions, has made divestment strategies in anticipation of long term care much more difficult. For example, most gifts within five years of one’s application for medicaid assistance will be subject to being reclaimed.