Would Estate Tax Changes Affect My Revocable Trust?

Also, can you take deductions on club dues? Are trips to shareholder meetings deductible?
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What if you're currently having documents drawn up for the creation of a revocable trust? All this talk of changing the estate tax rules makes me think that I'll have to revise whatever documents are presented to me, once the final changes to current law are agreed upon. Do you advise holding off on the finalization of these documents for now? Or is the revocable trust going to be just as valid and useful after these changes as before?

-- Bill Marozas

Bill,

There are no estate tax benefits to setting up a revocable trust. The main reason to create a revocable trust is to control your assets and avoid pesky probate fees at your death. So whether

Congress

decides to keep the estate tax or repeal it, the original purpose of your trust should be unaffected.

Just to recap, the big perk of a revocable trust, also known as a living trust, is the privacy. Think of a revocable trust as a private will. Since it's private, you may be able to avoid probate fees -- the fees your estate pays to review your will and distribute your assets.

You can amend, modify or cancel a revocable trust at any time while you are alive. So it doesn't really matter what Congress decides to do. "The reasons to set up a revocable trust are just as good today or better because you can modify all or any of it to accommodate any changes," says Laura Peebles, director of estates, gifts and trusts at

Deloitte & Touche

in Washington.

But putting assets in a revocable trust does not get them out of your estate. Technically, they're still yours. That means any income or appreciation generated from these assets while they are in the trust flows back to you, and you'll owe income tax on that money.

And the trust will pay estate tax on these assets when you die. So there are no real income or estate tax advantages to setting up a revocable trust. (For more on these trusts, see this previous

Tax Forum.)

While you may not need the trust to save estate tax, you still probably want it to manage your property after you're gone, says Bill Fleming, director of personal financial services for

PricewaterhouseCoopers

in Hartford, Conn. "You're protecting your heirs from themselves." And you can never plan enough for that.

Can I Deduct My Club Dues?

In your column that discussed the deductibility of summer fun, what about club memberships? Can I deduct those costs if I used the club with the intent of getting more business? -- Adam Gevanthor

Adam,

The

Internal Revenue Service

has a very clear answer to this question: No.

Amounts paid for a membership to any club organized for business, pleasure, recreation or other social purpose are not deductible, according to

Section 274(a)(3) of the tax code.

To be more specific, "you can not deduct dues paid to country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions," says IRS

Publication 17

-- Your Federal Income Tax

.

But if you bring clients to your club and buy them lunch or pay for a round of golf, then as long as you can prove you were discussing business, you can deduct the costs that your employer does not reimburse to you. Remember, as with all meals and entertainment costs, your deduction is limited to 50% of the cost. Check out

Section 274(n) of the tax code for more details.)

Report these fees as unreimbursed employee expenses on line 20 of

Schedule A

-- Itemized Deductions

. Note that your unreimbursed expenses must exceed 2% of your adjusted gross income before you can take a deduction for them.

Of course, if you're self-employed, you report these costs on

Schedule C

- Profit or Loss from Business

-- and do not have worry about the 2% limitation.

"Just keep record of who, what, where and when in case the IRS comes knocking," reminds Fleming.

How About Road Trips to Shareholder Meetings?

If my wife and I own stock in Cisco (CSCO) - Get Report, could we attend their annual stockholders' meeting, spend some time in San Jose, Calif., and write it off? I've always been curious about this one. -- Ryan Wedel

Ryan,

If attending the annual shareholders' meeting was deductible, I'd buy stock in

Telecom Italia

(TI)

, just to spend a few days in Rome.

Unfortunately, as an investor, you can't deduct travel costs or any other expenses incurred while attending a shareholders' meeting. (Unless, of course, you're a majority shareholder or your presence is required at the meeting -- then, deduct away.)

If you meet the

stringent rules to qualify as a trader for tax purposes, you can deduct the costs associated with your trip to a shareholders' meeting, assuming you can prove that it's a potential investment.

Check out this previous

Tax Forum for more investor-related deductions.

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TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.