The federal estate tax is scheduled to disappear next year (in 2010); and although most people expect lawmakers to pass legislation keeping the estate tax alive, they also vaguely hope that the estate tax (also sometimes called the “death tax”) does disappear—at least for a little while. But this article in the Wall Street Journal asserts that for all the noise that is sometimes made about the estate tax, we may actually be better off with the estate tax than without it.

This assertion is not based on what is best for the government, but what is best for the tax-payer, and has to do with something called the “step-up in cost basis”:

“Step-up means that the property heirs receive is valued as of the date of death. So if Grandma leaves a grandchild stock selling for $75 a share that was bought in 1970 for $2 per share, the heir’s “cost basis” in the stock is $75. If the grandchild then sells the stock for $80, the taxable gain is $5 per share.”

If the estate tax disappears it is likely that the step-up in cost basis will as well. This means that the stock Grandma leaves you would be valued at the original $2 per share rather than the stepped up $75 per share, and when that same stock is sold for $80 per share the taxable gain would be $78 instead of $5!

The disappearance of the step-up in cost basis is just one of the concerns people have about the possible elimination of the estate tax and Congress’s failure to act. Other concerns mentioned in the Wall Street Journal article include:

• A retroactive estate tax
• A prohibition (or scaling back) of techniques used to trim estate taxes (such as family limited partnerships, grantor retained annuity trusts, and qualified personal residence trusts)

With all of these possible changes on the horizon, the time to take advantage of tax saving techniques offered by your estate planning attorney is now, while they are still available.

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The Ohio Supreme Court has recently taken strong action against two co-owners in a company participating in an illegal “trust mill” operation. According to this article from the Associated Press, the two owners, Jeffrey and Stanley Norman, have been permanently barred from marketing or selling their trust products in Ohio after they were found to have committed “more than 3,800 acts of unauthorized law practice.”

Unfortunately, Jeffrey and Stanley Norman are not the first unscrupulous characters to try to pull one over on the general public. Trust mills exist in every state, and although seniors are often the main targets, anyone can fall victim if they aren’t careful. These trust mills may offer inexpensive documents, but the cheap product is exactly that—cheap. At best these cheap documents are nothing but generic forms with your name slipped in, they do nothing to reflect your family’s needs or desires. At worst the documents delivered by trust mills won’t even adhere to the laws of your state.

So be wary of any will or trust that is offered at a price too good to be true. Be wary of anybody who tries to sell you a trust or estate plan at a “great price” and at the same time tries to sell you other “related” products such as life insurance or annuities. Be wary of anybody who will come to your home or meet you at a restaurant, but has no local office or local phone number. And be wary of anybody who will have you fill out a form and sell you a trust online.

A good trust should be drafted by an experienced attorney who specializes in estate planning and who practices (and usually lives) in your state of residence. A good trust is drafted after that attorney has met with you, interviewed you, and given you a chance to ask questions as well.

Don’t fall victim to con artists like Jeffrey and Stanley Norman. Be wary, be aware, and be willing to pay for an estate plan that will legally protect your assets and your family.

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