Senate Finance Committee Chairman Chuck Grassley, a leading proponent of estate tax repeal, told a farm broadcasters news conference yesterday that there is “zero” chance of full repeal. He was hopeful about a compromise bill with a higher exemption (currently $1.5 M) and lower rates (currently up to 47%). He hopes a compromise can be achieved with 45 Republican votes and 15 Democrat votes to reach the required 60. I’m not holding my breath.

When a U.S. Citizen and non-U.S. Citizen are married, I always take special care in explaining U.S. Federal Estate Taxes. This is because a non-Citizen spouse receives no special exemption from estate taxes on any inheritance from a Citizen spouse. Compare this to inheritances left to spouses who are U.S. Citizens: these inheritances are entirely exempt from estate tax.

Spouses and advisors should be aware that this is also a lifetime gift tax issue that can crop up in joint tenancy accounts. If a U.S. Citizen has separate property (usually this is property acquired before marriage or through inheritance), and places that property in a joint tenancy account with her non-Citizen spouse, gift tax may be due. Half of the value of the account may be subject to gift tax at rates up to 47%. If the gift goes unreported, the IRS can levy a 25% penalty plus interest in addition to the tax.

Joint tenancy accounts can often create unintended tax and liability consequences. Always consider tax treatment carefully before putting property into joint tenancy.

California has long been a “creditor-friendly” state, which means that “debtors” or defendants have difficulty preserving any of their assets from a catastrophic lawsuit.

I will never forget the elderly couple who came to see if I could help them protect their home. The husband was at fault in an auto accident — perhaps he should have stopped driving sooner — and they were facing a lawsuit with damages far above the $50,000 limit provided by their auto insurance policy. Under California law, nothing they owned was protected. Their paid-off home, their savings: everything could go to pay off the lawsuit. And the options I could offer them were dramatically reduced from what I could have offered had they come to me before the accident.

The recent federal Bankruptcy Act of 2005 has changed the rules for better and worse. But planning ahead still makes sense. The good news is that we now have protection for Retirement Accounts in all states, including California.

You may be asking “What does bankruptcy have to do with me? I’m worried about a car accident, not bankruptcy.” Well, bankruptcy law forms the backdrop against which settlements are negotiated because both parties know that if they don’t settle, the bankruptcy court will decide how much the plaintiff gets and how much the defendant gets to keep.

The law is good and bad news for Californians who don’t want to lose everything to a single lawsuit.

Here’s the bad news: Californians with income above the median (currently $69,000 for a family of four) can rarely file a “clean slate” Chapter 7 Bankruptcy protection. Instead, these families will be forced into Chapter 13 in which you have to use all of your disposable income for five years to pay debt. Even worse is Chapter 11 for those whose debts exceed about $900,000; you can be required to use your disposable income for 11 years. (And don’t think that disposable income means what it sounds like. The court expects you to live on much less than most people consider an average standard of living.)

Moving to Florida or Texas (a.k.a. “The O.J. Simpson Strategy”) to get the benefits of their more generous laws is less doable now because you can’t rely on the full protection unless you’ve owned your home there for at least 40 months.

Here’s the good news: your ERISA-qualified plans (401K s and the like) are fully protected, even if they only have one member (as in a small business). For those of you who’ve been reading my newsletters for awhile, this is even better news than theYates case! There is no limit to what can be protected in a qualified plan.

Non-qualified retirement savings (mostly IRAs) are protected up to $1 million. But if the non-qualified plan is a “roll-over” from a qualified plan (for example, when you switched employers, you rolled over your 401K balance into an IRA), it is fully protected.

Inherited IRAs are probably not protected, which underscores the importance of naming your trust, rather than your spouse or child as the beneficiary of your IRA. (Please note that this advice only applies to clients of the Law Office of Diedre Wachbrit, APC. Check with your attorney to see if your trust has been drafted to protect IRAs from creditors and taxes.)

Other plan ahead strategies are also available. So if asset protection is important to you, brush up on this new law. An ounce of prevention is worth a pound of cure.