Our Privacy Policies and Practices

I. Acquisition of Client Information

The firm collects nonpublic personal information about our clients from the following sources:

· Information You Provide:  Our client engagements routinely require us to obtain private information about our clients so that we can proceed with the various services we perform for our clients as part of the business relationship.

· Other Sources:  Depending upon the particular service a particular client has engaged the firm to complete, we may request nonpublic personal information concerning the matter at hand.  However, this information is never obtained without our client’s specific authorization of the type of information and the source(s) from which it may be obtained.

II. Disclosure of Nonpublic Personal Information

It is the policy of the firm to never disclose nonpublic personal information, or any other information,  about our clients.  Nonpublic personal information is defined in the regulations as:  any publicly available information that we acquire by using information you have provided us in connection with any professional services we perform for you, which is not public information.  An example would be a bank account number that is somehow used to acquire information regarding a court trial or other public record that would not have been found by us without using the bank account number acquired from you.  In a generic sense, any information that a client provides us which involves a financial product or service is likely considered nonpublic personal information and receives the same protection from disclosure as any other information about our clients.  For purposes of our business relationships with our clients, all information acquired is only disclosed under the following conditions:

* Employees of the firm:   Employees who need such information to conclude a transaction for which the client has engaged the firm.

*  Service Providers: As with any business, we have our own accounting, insurance and other service firms which we may need to provide information that the regulations consider nonpublic personal information.  An example might be your account activity for our accounting firm to prepare billings and financial statements for our internal or external purposes.  Another example would be computer consultants that must have access to certain client records so as to be able to increase the efficiency of our computer processing systems. We have always insisted that any such information that needed to be disclosed for a business purpose be considered confidential and not used for any purpose other than the specific business need.  That well-understood business policy of confidentially will be reinforced by a contractual agreement between such service providers to the firm referencing the FTC regulations.

* Others:  Other than as stated above, we do not disclose nonpublic personal information, or any other information, to any outside party that the client has not specifically authorized to allow the firm to disclose such information.  An example would be other professionals that are assisting the firm in carrying out a client engagement.  In such a case, we would require the client’s approval for such a disclosure.

In addition to the privacy protection that the new FTC regulations provide you, the Internal Revenue Code prevents the disclosure of client information provided for tax planning or preparation services without the client's written permission.  Further, most, it not all, professionals who are licensed by a state to practice, are precluded by the ethics rules that govern the operating principles that the professional must follow, from disclosing client information.

* Security Arrangements: We maintain physical, electronic and procedural safeguards that comply with federal regulations to guard our clients’ nonpublic personal information, or any other information, so as to ensure our clients that their privacy is a major part of the firm’s commitment to provide the finest service possible.

The Federal Trade Commission regulations provide that this notice must include a provision for you to request that the firm not release your nonpublic personal information.  While such a request is unnecessary because the firm does not disclose your nonpublic personal information in a manner that would allow you to opt out, in the interests of satisfying the regulations, we include this Opt Out Provision.

Selected Highlights of the Tax Relief Reconciliation Act of 2001

Estate and Gift Taxes. Beginning in 2002, the estate and generation skipping transfer (GST) taxes will increase until eventually resulting in repeal of the estate and GST taxes in 2010. The highest estate and gift tax rates will gradually decrease from 2002 through 2009 while the lifetime exemption will gradually increase in this same time frame. Additionally, the gift tax will remain in place and the gift tax rates will follow the estate tax rates until 2009. Starting in 2010, the top gift tax rate will be the top individual income tax rate under the Act and the gift tax will have a lifetime exemption amount of $1,000,000. The following table illustrates the new law:

Sunset Provisions. "To ensure compliance with the Congressional Budget Act of 1974, the conference agreement provides that all provisions of the bill generally do not apply for taxable, plan or limitation years beginning after December 31, 2010." Unless President Bush or his successor and Congress extend the Act, the estate tax will be back in place as it currently exists.

Basis of Property Received. After the estate tax repeal in 2010, the basis of property received from a decedent will be the lesser of the adjusted basis of the decedent or the fair market value of the property on the date of death. This is a significant and costly change. For example, assume that D purchased $10,000 worth of Microsoft stock in the mid eighties and at D’s death, the MSFT stock is worth $1,000,000. Under the current law, the basis of MSFT in D’s estate is $1,000,000. Under the new law, if D passes away after 2009, the basis of MSFT in D’s estate will be $10,000, resulting in a significant capital gain upon subsequent sale of the stock. However, an executor can increase the basis of assets owned by the decedent and transferred to heirs by a total of $1.3 Million. In addition, if property is transferred to a spouse, the property can be increased by an additional $3 Million. Therefore, you must keep very detailed and organized records.

Section 529 Plans. Additionally, "Section 529 Plans" or college savings plans, whereby earnings accumulate tax deferred until withdrawn, now allow tax-free distributions for qualified higher-education expenses. For more information see www.savingforcollege.com.

How Does the New Law Affect My Current Estate Plan?

Living trusts are just as important under the new law as they were under the old law. All the non tax advantages of trust continue to exist, such as avoiding probate, protecting against incapacity, privacy of information, the potential for creditor protection for later generations, protection of beneficiaries from the beneficiary’s own imprudence or incapacity, etc.

Unmarried Individuals. Lifetime gifting, even if taxable, can always produce significant tax savings for beneficiaries. With the increase in the gift tax exemption beginning next year, lifetime gifts will become even more important. However, a gift in excess of the exemption amount will be taxable, and after 2010, the estate tax will be eliminated.  However, unless Congress extends the Repeal, the estate tax will come back into existence in 2011.

Married Individuals. All married couples should review their estate plans at least every year. This is crucial in 2002. Nearly all marital deduction formula provisions now in use are designed to allocate to the credit shelter trust (By-Pass Trust or B Trust) the maximum amount that can pass free of tax without claiming a marital deduction or incurring a state death tax under the current state death tax credit provisions. The problem is that the increasing estate tax exemptions may shift too much to the credit shelter trust. The following example illustrates the potential problem:

Example: Clients H and W have a $1.5 Million estate. H has $1 Million in his living trust and W has $500,000 in her living trust. H passes away in 2002. Under the terms of H’s living trust, H’s trust splits into two trusts, the A Trust (Marital Trust) that passes to the surviving spouse free of estate tax and the B Trust (Credit Shelter Trust). Under the terms of the B Trust, all income is paid to the surviving spouse for life and principal is available for the surviving spouse and the children under "ascertainable standards" (health, support, maintenance and education).

The potential problem is that too much may be allocated to the Credit Shelter Trust and not enough goes to the surviving spouse. This may or may not have been what H wanted after his death.

Two potential solutions are the disclaimer trust and the credit shelter with a limit. First, the disclaimer trust is a trust that leaves all of the estate outright to the surviving spouse with a provision that any property disclaimed by the spouse would be added to a credit shelter trust. At the first death, the surviving spouse and the attorney for the estate review the asset situation in light of the existing estate tax law and decide how much to allocate to the credit shelter trust. Note that with this approach, the surviving spouse may not utilize any of these assets until this planning is accomplished. The rules for disclaimers are very specific and you should consult a qualified estate planning/tax attorney.

The second approach is to simply add language to the existing credit shelter trust placing a limitation upon how much is to be added to the credit shelter trust. This alternative allows the decedent to control the amount passing to the credit shelter trust and takes the burden off the surviving spouse.

Because each estate planning situation is unique, each of you must review your estate plan to see exactly how the new law may affect your particular plan. We will be happy to schedule an appointment with you to review your specific situation.