Some people might think they are wealthy, but law professor Samuel A. Donaldson has a way of setting them straight.

The so-called fiscal cliff legislation has changed the world of estate planning with its $5.34 million exclusion before the estate gift tax kicks in.

People with $4 million in assets might have been craved as estate planning clients before the change, but now they are just poor folks when it comes to estate taxes, says Donaldson.

“They are so cute. They think they are rich. They come in with their $4 million dollars and say, “Haven’t we done good.” Yeah, you are a loss leader,” Donaldson said during a presentation to an audience filled with wealth managers and attorneys.

Donaldson, a professor at the Georgia State University College of Law, spoke on Oct. 28 as part of the 13th Annual Joint Tax & Estate Planning Seminar at Nova Southeastern University. The event was presented by United Way, the Community Foundation of Broward and the Jewish Community Foundation of the Jewish Federation.

The event attracted the who’s who in the estate and tax planning fields with about 650 attendees.

Donaldson drew another laugh when he talked about a 35 percent tax bracket that only spans a range of $405,100 to $406,750 for an unmarried filer.

“That’s Angelina Jolie, good God, get a meal thin,” he said.

What matters most in estate planning these days are income tax rates and the 3.8 percent tax on net investment income for single filers with taxable income of $200,000 to $250,00 for joint filers.

Donaldson gave two examples of how strategies have changed.

One involves the so-called “kiddie tax.” There’s a long-standing rule that if you have a minor child with unearned income, the child who files will be taxed at a parent’s rate. 

“Congress sniffed out that you are putting investment assets in the name of your four year old to get a lower rate,” Donaldson said.

As a result, parents frequently just put their children’s unearned income on their own tax return to avoid the cost of preparing an additional return.

Now, the cost of the 3.8 percent surcharge may make it a better option to actually file a return for the children despite the additional fee to the tax preparer.

A popular strategy in the past has been deferred payment sales instead of an outright gift so the giver would not have to pay gift taxes and defer capital gains.

People who did a sale three to four years ago might want to forgive the balance due under the note now, because the gift isn’t high enough to trigger the gift tax.

The Catch 22, though, is that long-existing income tax laws pretend you are fully paid even if you forgive payments, he says. That could create a tax liability.

As Donaldson says, “There are some old rules that can come and bite you.” ?