It has been hard for any international lawyers dealing with
US clients to ignore the sweeping provisions of the FATCA Act, but this tax
compliance juggernaut is not the only issue that wealthy US citizens must grapple with, a
specialist in the field told this publication.

By the end of this year, the US
gift tax exemption will be reduced back down to $1 million from the $5 million
that has been in force since 2010, which means would-be gift-makers have fewer
than eight months to make any transfers, Beth Tractenberg, partner at Katten
Muchin Rosenman in New York,
said in an interview.

And with the presidential elections in November, any uncertainties
over who will be in the White House next year could also encourage clients to
adjust their affairs against any potential tax hikes, she said.

“You
will see a major emphasis over the next eight months in planning for the
additional $4 million of gift exemption. Some clients are just starting to
think about additional gifting now and will need to act quickly. It is going to
get very tight as we get closer to year-end and I am urging people to start
acting now,” she said.

“Appraisals
are needed, decisions have to be taken and documents drawn up,” she said.

She
is not the first advisor to fire a warning about the gift tax exemption deadline.
In April, DeYoe Wealth Management advised clients to start preparing
immediately for the end of the Bush tax cuts. 
Wilmington Trust pointed out the need to seize wealth transfer
opportunities this year. (To view an article on that issue, click here).

FATCA

But
while this process is driving a good deal of her firm’s work, the FATCA Act,
due to start taking effect from next year, is a piece of legislation that looms
large.

“People
are moving around the world a lot more and we now have so many US requirements
in terms of reporting on foreign accounts and foreign financial assets. 
In addition, foreign banks will now be subject to withholding rules as to US
account holder's foreign accounts,” she continued.

A
big headache for US expats – as has been recounted by this publication and
others – is how rising compliance costs associated with handling the affairs of
Americans means some of the world’s biggest financial institutions have, to all
intents and purposes, put a “US clients unwelcome” sign over their front doors.

The issue can be particularly tricky in countries already in
dispute with the Internal Revenue Service and other US
departments over tax, as in the case of Switzerland. “It’s very difficult
for US people to have a bank in Switzerland.
They have found some small private banks that will take their business,” Tractenberg
said.

HSBC Holdings, Deutsche Bank, Bank of Singapore and DBS Group
Holdings all say they have turned away business (source: Bloomberg). In the UK, for
example, C Hoare & Co, one of the country’s most exclusive private banks,
has closed its portfolio management service for US clients.

Experience

Tractenberg has plenty of experience handling cross-border
wealth structuring issues for clients. She focuses on estate planning, estate
administration, prenuptial agreements and not-for-profit organizations. She also
acts for several wealthy individuals and families with significant real estate
and business holdings in the US
and abroad.

At Katten, she works for a nationwide US business that has one of the largest trusts
and estates practices in the country; it also has an office in London. Katten is a full-service legal
powerhouse: it covers every field from commercial litigation to anti-trust and
environmental issues.

Tractenberg’s
clients often come from other law firms that cannot or do not specialise in her
line of work; from accountants, independent financial planners, banks and other
institutions, as well as word of mouth recommendations.

So
where are clients coming from? 

“I am starting to see more clients coming from Asia,” she said. She also, due in part to her background
experience, gets work from Canada.

The November US elections – and the risk of a hike to tax
rates – could produce a surge in work as people seek to front-load any income possible to recognize that income this year when income tax
rates are lower than they may be next year,” she said. “It is going to
be extremely busy.”  

And her business means a tight focus on the web of different
trust structures and protections that vary from state to state across the US. She
discussed how attractive trust structures in states such as Delaware
and Nevada
create a regular source of business from clients seeking tax-advantaged, secure
trusts. If someone wants to set up a discretionary trust, say, and is the
discretionary beneficiary, they have to be in a state where the creditor cannot
get his/her hands on the trust to avoid possible estate
tax inclusion of the trust assets. Besides Delaware
and Nevada, other states that offer
attractions of this sort are South Dakota, New Hampshire and Alaska.

She and her colleagues are going to be busy.