Since news broke of the legislation to avoid the fiscal cliff, our firm, just like many commentators and news outlets, has written about the impact of the new legislation. Many have maintained that the true impact of the new deal would not be realized until individuals became personally affected. Almost immediately, stories have surfaced of public figures, private figures, celebrities, politicians and every day Americans being affected by the new law. Furthermore, as tax day for tax year 2012 approaches, many have begun to look forward to tax year 2013 and the impact of the new law.
For example, iconic and well known PGA tour pro golfer, Phil Mickelson, recently stated in an interview that drastic life changes were on the horizon for him in order to combat the new tax laws. Mickelson, a California resident is weighing the effects of both the new Federal laws and California’s new proposition 30, which passed in November (which raises income taxes for earnings over $250,000). Taking into consideration Mickelson’s multimillion dollar income, he has hinted that the combination of both new laws will require that approximately 60% of his income will be swallowed by income taxes alone. Reports from various news sources have suggested Mickelson may leave the State of California for another taxpayer friendly state such as Texas or Florida. Mickelson himself merely stated that he and his advisors would consider the level of aggressive tax planning that is needed.
What should Phil do? The answer to the big picture question is, “it depends”. However, to figure out what he should do, his first phone call should be to an estate planning attorney. The answer is not simply to move your principal residence. Yes, in the past we have pointed out that different states have different laws and establishing a new domicile can assist one in avoiding things like state estate taxes. However, you cannot run from the federal government.
The answers are never clear. In Phil Mickelson’s situation, or for anyone worried about the new law, the only clear answer is that the guidance of an estate planning attorney is needed to navigate the pitfalls of the new law and maximize wealth preservation. Everyone needs a plan. For Phil, every time he plays a round of golf, he has a plan. He knows where he can be aggressive and where he needs to be conservative, where he can take advantage of the course and what areas he needs to avoid. This plan is crafted with the help of an expert who knows the minutest details of each course and every rule, his caddy. This situation is no different. A skilled estate planning attorney is similar to a caddy in this analogy and is needed to provide guidance on the minutest details of each law and every IRS rule. For the wealthiest of clients, comprehensive planning is necessary to avoid the pitfalls and penalties of the new law. For those who the law does not yet affect, comprehensive planning is still necessary to make sure that your plan provides for any situation where future wealth may be acquired. Therefore, if you are looking to come out on top of the new law, your first call should also be to your local estate planning attorney to help craft an estate plan that takes into account the new rules.
- Adam Abramowitz, Esq.