DATE: July, 2000

The following is intended as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.

FEDERAL ESTATE TAX DEBATE UPDATES | SCAM ARTISTS TARGET ELDERLY FOR TRUSTS | TIPS TO SELECTING A FINANCIAL ADVISOR | OIL MARKETS REACT BULLISHLY TO OPEC NEWS

Traveler, there are no paths; paths are made by walking. --Antonio Machado

Elimination of Federal Estate Tax Update

(see further information regarding senate vote)

(Information taken from The American College of Trust and Estate Counsel)
On June 9 the House of Representatives passed the "Death Tax Elimination Act of 2000," which would phase out and then eliminate (by 2010) the Federal estate, gift and generation-skipping transfer tax. The bill passed the House by a vote of 279-136, or more than 2/3's of those present and voting. Thus, although President Clinton has promised to veto the measure, House Republicans are declaring it "veto-proof" despite strong opposition to that conclusion by House Democrats.

Of the total votes cast, 213 Republicans, 65 Democrats and one independent supported the repeal, and 135 Democrats and one independent opposed it.

Although the repeal provision was supported by more than a 2-1 majority of those present and voting (and thus, standing alone, is veto-proof) 20 members of the House were absent, including 9 Republicans and 11 Democrats.

Six of those Democrats said that they would vote to sustain a veto, as would 4 of the Democrats who voted in favor of repeal. Thus, according to Democratic Whip David Bonior (D-Mich), the Democrats would have one more vote than is necessary to sustain a veto.

President Clinton left no doubt, in a letter to Speaker Dennis Hastert(R-Ill), that he intends to veto H.R. 8 if (after favorable consideration by the Senate) it reaches his desk. The President did, however, express his support of the Democratic alternative proposed by Representatives Rangel(D-NY) and defeated in the House, which would cut rates across-the-board, create a $4 million per family exclusion for farms and closely held businesses and immediately increase - to $1 million - the unified credit exemption equivalent (currently $675,000) which is otherwise scheduled to reach $1 million in 2006.

The bill, as passed by the House, is the same measure which was reported by the House Ways and Means Committee and described in our Bulletin No. 00-47.

In addition to repealing the estate tax effective January 1, 2010, it

It was anticipated that the House would pass H.R. 8. However, the size of the voting margin was a substantial surprise and may be a forerunner of similar action by the Senate. If the Senate does vote in favor of the bill, we can, as noted above, anticipate a Presidential veto. Although the judgment that most Washington observers have had (i.e., that the Republicans in Congress will not be joined by enough Democrats to overturn that veto) has clearly been shaken by the size of the House vote, it is still the majority view that estate tax repeal is not likely to occur this year. We will, of course, be watching the situation closely.

Assuming we are correct in our anticipation that repeal legislation will not be enacted this year, it can fairly be said that the fate of this legislation next year may depend substantially on the results of the election this November.

Senate OKs estate tax bill

July 15, 2000 While the Senate passed a bill Friday that would eliminate the federal estate tax, there were not enough votes to overcome the promised Presidential veto.

The House already passed the bill on June 9. It would gradually repeal the federal tax levied on an estate after a person dies.

The new plan would cost the government $105 billion in lost revenue as it is phased in over the next 10 years. Thereafter, it would cost at least $50 billion a year. Although nine Democrats joined 50 Republicans to pass the bill, Clinton renewed his pledge Friday to veto it.

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Scam Artists use Estate-Planning Tool

It appears that scam artists and high pressure salesmen are using the debate in Congress over the estate tax (see above story) to push unnecessary and unneeded "living trusts" to the elderly. Making claims that their life savings will be whisked away by the Internal Revenue Service, these con artists are even using the name of the AARP, though the AARP is not associated with nor does it endorse any group or company marketing or selling living trusts.

At best, these documents are simply a waste of time and money. They are often simply copies of a master document that pays little attention to recent changes in the law or to various state laws. It certainly does not take into consideration the unique needs and circumstances of each individual.

However, at worst, they can have disastrous consequences, potentially creating serious complications should the owner of a living trust seek to qualify for nursing-home care under Medicaid, the government state-federal medical-insurance program for the poor.

The AARP has done a survey that appears to show as many as four million older Americans who do not have large estates may have set up these trusts. Part of the survey revealed that people with incomes of less than $25,000 a year who are over 50 years old showed an increase of nearly 125% in the number who owned living trusts.

Living trusts, which can be revocable or irrevocable, are estate-planning tools beneficial to those with large estates or to families who have special needs, such as those caused by severe medical conditions. A reputable CPA or attorney can offer advice and counsel on the benefits and applicability a living trust might have considering each person's unique circumstances

For those whose assets are below $675,000 (and this amount rises to $1 million in 2006), the estate tax is of little concern and to purchase a living trust for estate planning purposes is probably a waste of time and money.

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Selecting a Financial Advisor

Here are tips to remember when selecting living trusts and other financial planning services:

• Choose your financial planning adviser carefully.
• Ask for a written list of credentials. Check licenses with the state bar association, the state insurance bureau, and state consumer agency.
• Call references.
• Talk to several experienced estate planning attorneys who are licensed in your state about the anticipated costs of drafting estate planning documents. Ask how much probate in your state would cost and how much time it would take.
• Don't do business with someone if their answers to your inquiries about their credentials make you uncomfortable.
• Before creating a living trust, review the amount and type of your assets and decide how you want your assets distributed.
• Compare the prices of products of door-to-door salespeople with those of experienced estate planning attorneys.
• Take your time to decide what are the best financial planning tools for your circumstances.
• You must fund a living trust by transferring money or property to the trust to make the document effective. Be aware of extra costs you may incur if you need to sell property after you put it into a revocable trust, for instance, to pay for extended nursing home care.
• Be aware of the personal liabilities that may be imposed on the trustee when distributing the trust assets after your death to creditors and beneficiaries.

Source: Senate Special Committee on Aging

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Oil Markets react bullishly to OPEC news

July 13 - prices for crude oil and heating oil futures rose significantly Thursday as the market received news of increased uncertainty over future supplies. Crude prices topped $31 per barrel for the first time this month while heating oil futures for the autumn and early winter months climbed above 82 cents per gallon.

While Saudi Arabia had proposed increased production, traders appeared to have no faith in the possibility of additional supplies. OPEC reportedly planned to hold a summit next Tuesday to possibly revisit plans announced by Saudi Arabia to add another 500,000 barrels of oil per day to the 708,000 barrel per day increase previously agreed to in June.

As the United States refineries are already running at or near full capacity, additional crude oil on the market would have a minimal effect on prices - perhaps only a few cents per gallon.

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