Down to the wire

"Really it's a short-term Band-Aid that can be replaced with a longer-term solution if necessary," he explains. "By buying a guaranteed death benefit or guaranteed death benefit survivorship product, you could be throwing away a year's premium, depending on what happens with the estate tax. So it's worth spending a couple thousand dollars now on a term policy to protect a couple million dollars and also to guarantee insurability.

"You don't need a 20-year product. Buy a five-year product if you can find it. And do it with a company with good conversion practices."

Life insurance, Schlossberg adds, will only grow in importance — and value — as a wealth protection and transfer tool if the $1 million exemption does indeed return in 2011, thus exposing larger chunks of many estates to taxation.

3. Beware of changing basis and step-up rules
Confusing matters further are step-up rules, found in Section 1022 of the tax code, that apply only this year in computing the tax liability associated with assets transferred in an estate. While there's no step-up to date-of-death value for assets owned by people dying in 2010, there is a $1.3 million exemption from gains, plus a $3 million exemption on assets inherited from a spouse.

But those parameters are currently due to give way in 2011 to more familiar step-up provisions. All this should weigh heavily in deciding on a type of trust and how to configure it, DesRosiers says.

"A client's heirs could end up getting slammed if they inherit low-basis assets in 2010," DesRosiers says.

4. Get more generous with gifting. For wealthy clients, it's worth considering large gifts in 2010 while the gift tax rate is 35 percent. And because there's no generation-skipping tax this year, also consider a generation-skipping gift.

"If the client has highly appreciated assets, it might be worth transferring those now," Schlossberg says.

5. Use GRATs and IDGTs to exploit the current low-interest-rate environment. The Section 7520 interest-rate used by the IRS to value charitable interests inside trusts is as low as it's been in recent memory, DesRosiers says, so it makes sense to consider putting assets that are expected to appreciate significantly, such as a business, inside an intentionally defective grantor trust or a grantor retained annuity trust.

"Those are ripe options right now," he asserts. "A lot of clients, especially those with large estates, are using them to reduce the size of their taxable estates."

In the case of GRATs, there's an extra sense of urgency, DesRosiers says, because Congress could soon move to extend the minimum term of such a trust to 10 years. Existing law allows more favorable shorter-term GRATs, he notes.

6. Design an irrevocable trust so it can be decanted. Depending on state law, an irrevocable trust can be decanted, meaning all or some of the assets in one trust are shifted into a new trust. The ability to decant is vital when there's flux in estate tax law, DesRosiers says.

7.Weigh whether to convert traditional IRAs to Roth IRAs. The one-year window is still open for direct, one-step conversion of a qualified plan to a Roth IRA without the limitation of a $100,000 adjusted-gross income cap. That's a potentially huge opportunity for high-income, high-net-worth individuals with qualified IRAs.

Instead of leaving heirs on the hook to pay both estate and income taxes on those IRAs once ownership transfers, they can convert those accounts to Roth IRAs and pay income taxes on the transfer amount upfront in the 2010 tax year. Any subsequent growth in the converted Roth IRAs is income-tax-free, as are distributions from the accounts to those who inherited them.