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Estate Tax Update - Yes, You Will Still Need an Estate Plan in 2010

Mon, 21 Dec 2009 08:25:17 +0000

Back in January I wrote a series of articles about the changing tide in estate planning which has gone from the traditional approach that was focused on avoiding probate and minimizing estate taxes to the emphasis today on estate protection: Modern Estate Planning Equals Estate Protection. With the impending repeal of the federal estate tax scheduled to take place on January 1 - Federal Estate Taxes Will Die on January 1! - estate planning to achieve estate protection will become even more apparent in 2010.

Of course, when I started out in the estate planning field in 1995 the federal estate tax exemption was only $600,000, so minimizing estate tax liability was a major concern for many clients. But as the federal estate tax exemption increased, the need for estate planning did not decrease. Why? Because as the years passed by the focus of estate planning has shifted dramatically from worrying about estate taxes to worrying about how mom will function if dad became incapacitated or died, or how the partners of a same sex or unmarried heterosexual relationship will function if one partner became incapacitated or died, or how the minor children of parents who die prematurely will be taken care of, or how a child who does not know how to handle money or is in a bad marriage or is in a high risk profession can be protected, and on and on.

In order to understand this shift it helps to take a look at the basic definition of estate planning - a systematic approach to planning for the possibility of mental incapacity and certain death. Who will take care of you and your finances if you lose your mental capabilities? Who will be in charge of paying your final bills, settling your debts, and then dividing what is left over among your heirs after you die? Who will inherit your estate, and how and when will they inherit it? Who will take care of your minor children if you die prematurely? What will happen to your business if you become incapacitated or die? All of these things have nothing to do with probate or estate taxes and without an estate plan these decisions will be left up to a judge. But of course avoiding probate is still one of the most common reasons why people create an estate plan, and for those who are unfortunate enough to live in a state that collects a state estate tax, estate tax planning will still be important for them.

The bottom line is that while statistics show today only about 0.2% of estates are subject to federal estate taxes in the first place, even if the estate tax does come back as it is expected to many people will become mentally incapacitated and 100% of the population will die, so yes, you will still need an estate plan in 2010.

Estate Tax Update - Yes, You Will Still Need an Estate Plan in 2010 originally appeared on About.com Wills & Estate Planning on Monday, December 21st, 2009 at 08:25:17.

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Update on Michael Jackson's Estate - Executors and Myriad of Attorneys File for Initial Fees and Costs

Sat, 19 Dec 2009 09:25:34 +0000

On Tuesday attorneys for the executors handling the probate of Michael Jackson's estate, along with a slew of other attorneys involved in the matter, filed documents with the Los Angeles County probate court requesting that the executors and attorneys be paid for services rendered on behalf of the estate.

According to the documents filed, to date none of the attorneys have been paid a dime and denying the fees would create a "financial hardship" for many of those involved. It is estimated that the estate has earned well over $100 million in connection with the film "This Is It" as well as music royalties and the sale of Jackson merchandise, but the estate is also plagued by a multitude of creditors' claims that total into the millions and a number of lawsuits.

Executors Branca and McClain are each seeking to be paid 5% of the estate's earnings to date, while their attorneys and several other attorneys, including those representing Jackson's three minor children, are also requesting to be paid from the estate's earnings. A hearing has been scheduled for January 4 in order for the judge presiding over the matter, Judge Mitchell Beckloff, to determine how much, if any, of the requested fees should be paid.

Update on Michael Jackson's Estate - Executors and Myriad of Attorneys File for Initial Fees and Costs originally appeared on About.com Wills & Estate Planning on Saturday, December 19th, 2009 at 09:25:34.

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Estate Tax Update - Federal Estate Taxes Will Die on January 1!

Fri, 18 Dec 2009 08:15:43 +0000

Way back on June 2 I wrote about a seminar that I attended at the end of May titled "Federal Legislative Expectations in 2009-10" given by Emory law school professor Jeffrey N. Pennell: Estate Tax Repeal Update - Predictions About the New Law. At the seminar Professor Pennell suggested among other things that Congress may do nothing in 2009 about the impending repeal of the federal estate tax scheduled to take place on January 1, 2010, and instead act to reinstate the tax right before the first federal estate tax return for 2010 is due, which is on or before September 1, 2010.

Quite frankly back then I thought the idea was absurd because after that there was much speculation about Congress at the very least enacting a one year patch that would extend the current $3,500,000 estate tax exemption and 45% tax rate into 2010, thereby repealing the repeal of the tax. But on October 22 I wrote about a comment that I received in response to my June 2 post which stated that a retroactive law as predicted by Professor Pennell "would be an invalid ex post facto law as to the estates of persons dying earlier in the year": Update on Predictions About the New Federal Estate Tax Law. In that post I quoted from an article written by Kay Bell titled R.I.P. estate tax ... maybe for Bankrate.com:

"The big issue remains, however, as to when the estate tax repeal will be stopped. Congress is notorious for letting tax laws lapse and then reinstating them retroactively. Many argue that dealing with estate tax issues in that way would be difficult and possibly unconstitutional.

Not so, says Jeffrey N. Pennell, professor at Emory University Law School in Atlanta, Ga. A specialist in income tax, wealth transfer tax, trusts and estates and estate planning, Pennell's treatise on the subject examines a unanimous 1994 Supreme Court decision that held a retroactive change to the estate tax was constitutional.

As for practical issues, an estate tax return generally is due nine months after the date of death. So, notes Pennell, that gives lawmakers until September 2010, the first filing due date for estates of those who pass away next January."

Well at last it appears that Professor Pennell's prediction that I heard all the way back in May and thought was absolutely crazy is about to come true, since according to John McKinnon and Martin Vaughan for The Wall Street Journal in their article titled Effort to Extend Estate Tax Fails: "Senate Democratic leaders Wednesday [Dec. 16] failed in a last-ditch effort to pass a short-term extension to override the [estate] tax's expiration, a process put into motion during the Bush administration. That virtually ensures that the [estate] tax will disappear Jan. 1."

Boy will my job as an estate planning attorney become extremely interesting in 2010 because even if Congress acts to reinstate the estate tax there will be considerable debate over whether the law can really be made retroactive. In fact, for the heirs of a wealthy person who dies during the time period when the tax is repealed, they will have nothing to lose and everything to gain in challenging the retroactive application of the law.

Estate Tax Update - Federal Estate Taxes Will Die on January 1! originally appeared on About.com Wills & Estate Planning on Friday, December 18th, 2009 at 08:15:43.

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Estate Planning Term of the Week - Trustmaker

Thu, 17 Dec 2009 08:25:16 +0000

Unfortunately the estate planning term of the week, which I usually publish on Wednesdays, got bumped yesterday due to some breaking news on the status of the repeal of the federal estate tax that is scheduled to take place on January 1, 2010: Estate Tax Update - Is a Two Month Extension in the Works?

So here is this week's estate planning term a day late - Trustmaker - which has a direct connection to last week's estate planning term of the week, Revocable Living Trust.

What exactly is a Trustmaker? Just what it sounds like - the person who creates a trust, be it a revocable trust, an irrevocable trust, a living trust, or a testamentary trust. Other terms for a Trustmaker include Grantor, Settlor, Trustor, and even Trust Maker, but in the estate planning context these terms all mean the same thing.

Estate Planning Term of the Week - Trustmaker originally appeared on About.com Wills & Estate Planning on Thursday, December 17th, 2009 at 08:25:16.

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Estate Tax Update - Is a Two Month Extension in the Works?

Wed, 16 Dec 2009 08:26:27 +0000

Yesterday Ryan Donmoyer reported over at Bloomberg.com that because members of the U.S. House doubt that the U.S. Senate will be able to agree on an estate tax fix prior to the end of 2009, the House is working on a bill that will extend the current $3,500,000 estate tax exemption and 45% tax rate for at least two months into 2010. But regardless of what members of the House are thinking, according to Senate Finance Committee Chairman Max Baucus (D-MT), the Senate is looking at piggybacking a temporary estate tax fix to some other pending legislation such as a defense spending bill that is set to expire on December 18 - "There'll be an extension, one-year, two-year; we don't know."

Of course, not so fast says Rep. Earl Pomeroy (D-ND), sponsor of H.R. 4154 - Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 - which was passed by the House on December 3 and calls for the $3,500,000 estate tax exemption and 45% tax rate to become permanent. Rep. Pomeroy predicts that Congress will not be able to agree on a temporary fix before the end of 2009 because "There is no interim solution in the works."

So while it is clear that both the House and Senate do not want the estate tax to expire as it is scheduled to do on January 1, 2010, don't be surprised if January 1 rolls around and the estate tax appears to disappear.

Federal Estate Taxes Will Die on January 1!

Estate Tax Update - Is a Two Month Extension in the Works? originally appeared on About.com Wills & Estate Planning on Wednesday, December 16th, 2009 at 08:26:27.

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More Year End Estate Planning Tips - Sign Up for an Estate Plan Review

Tue, 15 Dec 2009 08:25:45 +0000

This is the time of year that many clients call me to arrange for a complete review of their estate plans. In fact, over the past month I've met with multiple clients who have required a yearly estate planning "tune up." The reasons for the tune ups are as diverse as the clients themselves - from clients in a second marriage with blended families to clients with problem children to clients whose main fiduciary has become mentally incapacitated, moved, or died, to clients who have had fights with their beneficiaries and want to adjust their estate plans accordingly.

If you have an estate plan that is more than a few years old, then let this be a reminder to you - make it your 2010 resolution to have an estate planning "tune up" to insure that your estate plan will still work when it's needed and in the way you intended. This is particularly important if you've purchased new assets (did you title them in the name of your Revocable Living Trust?), bought or sold a business, retired, had or adopted children, gotten married or divorced, or moved to a new state. All of these things and many others will have a direct impact on your estate plan and sticking your estate planning documents in a drawer and forgetting about them won't do you or your loved ones any good.

More Year End Estate Planning Tips - Sign Up for an Estate Plan Review originally appeared on About.com Wills & Estate Planning on Tuesday, December 15th, 2009 at 08:25:45.

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More Year End Estate Planning Tips - Find Out if You Need an Estate Plan

Mon, 14 Dec 2009 08:25:00 +0000

As we approach the end of 2009, it's time to get back to the basics. If you don't already have an estate plan, then one of your 2010 resolutions should be to find out if you need one. Why? Because if you don't have an estate plan but should, then you're going to be leaving your loved ones in the dark about what you would have wanted if you become mentally incapacitated or die.

So how do you go about determining if you need an estate plan? The first step is to figure out your net worth since this will tell you if your estate will be taxable for federal and/or state estate tax purposes. And even if your estate won't be taxable, your net worth coupled with the type of assets that you own and how your assets are titled will give you an indication of whether you need a will-based estate plan or trust-based estate plan.

But figuring out your net worth is only the beginning, because there are many reasons why you should have an estate plan that have little or nothing to do with your overall wealth:

You should have a plan for someone to make life ending decisions on your behalf if you become terminally ill;
You should have a plan that will make the settling of your estate after you die as simple as possible for your loved ones;
You should have a plan that will allow your minor children to be raised by who you want rather than having them placed in temporary care because you failed to name a guardian for them;
You should have a plan to protect your surviving spouse, children, or other beneficiaries from their own bad decisions, an overbearing or divorcing spouse, and unforeseen creditors and lawsuits; and/or
You should have a plan that preserves your assets for your own beneficiaries, not those of your spouse, if you are in a second or later marriage.

Regardless of your age or net worth, it's smart to make a basic estate plan to insure that you're taken care of if you become mentally incapacitated and your loved ones are taken care of after you die.

More Year End Estate Planning Tips - Find Out if You Need an Estate Plan originally appeared on About.com Wills & Estate Planning on Monday, December 14th, 2009 at 08:25:00.

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Estate Taxes by State - Does New Hampshire Have an Estate Tax?

Sat, 12 Dec 2009 09:35:29 +0000

Does New Hampshire have an estate tax? The answer is no, currently New Hampshire does not collect a state estate tax, although things were different a few years ago before major changes took effect with regard to federal estate tax laws. Prior to January 1, 2005, New Hampshire, like many other states, collected a separate state estate tax, called a "pick up tax," that was actually equal to a portion of the overall federal estate tax bill. New Hampshire also does not collect a state inheritance tax as it was abolished effective January 1, 2003.

On January 1, 2005, the pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). In response to these changes in federal law, 18 states and the District of Columbia chose to enact laws that allow the assessment of a state estate tax. Just this year the New Hampshire legislature attempted to push through a state estate tax that would have taken effect on January 1, 2010, but in the end the New Hampshire legislature did nothing and as a result New Hampshire does not currently collect a state estate tax.

One thing to keep in mind is that the pick up tax, and therefore the New Hampshire estate tax, is scheduled to come back in 2011 due to the sunset of EGTRRA. But no one really believes that Congress and President Obama will allow this to happen. In fact, on December 3 the U.S. House of Representatives voted to repeal the repeal of the federal estate tax, lock in the current $3.5 million estate tax exemption and 45% tax rate for 2010 and beyond, and permanently repeal the pick up tax. The federal estate tax debate now moves to the U.S. Senate.

Estate Taxes by State - Does New Hampshire Have an Estate Tax? originally appeared on About.com Wills & Estate Planning on Saturday, December 12th, 2009 at 09:35:29.

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More Year End Estate Planning Tips - Make Other Gifts That Are Not Really Gifts

Fri, 11 Dec 2009 08:25:57 +0000

Yesterday I wrote about annual exclusion gifts - transfers of property that do not exceed $13,000 per person this year or in 2010 - which under the Internal Revenue Code are not considered gifts at all. Well, there are actually two specific types of transfers of property that do not even count against the annual gift tax exclusion. They are:

Payments that qualify for the educational exclusion; and
Payments that qualify for the medical exclusion.

Payments that qualify for the educational exclusion are payments made directly to a qualifying domestic or foreign institution as tuition for the education of an individual. What does this mean? That you can pay your grandchild's college tuition in the amount of $20,000 and also give your grandchild an additional $13,000 by December 31, 2009, and another $13,000 on or after January 1, 2010, without incurring any federal gift tax. But note that the payment must be made directly to the institution providing the education, not to the individual receiving the education, and the payment must be for tuition and not for books, supplies, room and board, or other types of college expenses, otherwise the payment will be considered a taxable gift.

Payments that qualify for the medical exclusion are payments made directly to an institution that provides medical care to an individual or to a company that provides medical insurance to an individual. Expenses for medical care are the same as those deductible for income tax purposes. What does this mean? That you can pay for your grandchild's emergency appendectomy in the amount of $20,000 and also give your grandchild an additional $13,000 by December 31, 2009, and another $13,000 on or after January 1, 2010, without incurring any federal gift tax. But note that the payment must be made directly to the institution providing the medical care or company providing the medical insurance, not to the individual receiving the medical care or insurance benefit, otherwise the payment will be considered a taxable gift.

More Year End Estate Planning Tips - Make Other Gifts That Are Not Really Gifts originally appeared on About.com Wills & Estate Planning on Friday, December 11th, 2009 at 08:25:57.

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Year End Estate Planning Tips - Make Annual Exclusion Gifts

Thu, 10 Dec 2009 08:23:15 +0000

At this time of the year I get calls from clients who are ready to make their year end "estate planning" (as opposed to holiday) gifts to their loved ones. This will usually include gifts of cash, stocks, bonds, portions of real estate, or forgiving debt on a family loan in an amount that do not exceed the annual gift tax exclusion. What is the purpose of these "estate planning" gifts? To reduce the value of the gift giver's taxable estate.

This year the annual gift tax exclusion is $13,000 per person and in 2010 the exclusion will remain the same. What this means is that you can gift up to $13,000 to as many individuals as you choose before December 31, 2009, and an additional $13,000 on or after January 1, 2010, and neither you nor the recipients of the gifts will have to file a gift tax return (IRS Form 709). In other words, transfers of property valued at or under the annual gift tax exclusion are not really considered gifts at all.

Married couples can take double advantage of the annual exclusion and gift $26,000 on or before December 31, 2009, and then another $26,000 on or after January 1, 2010. But note that in some situations even if a couple limits their gift to the annual exclusion amount, they may still need to file a gift tax return to report any "split gifts" - they will need to consult with their accountant to be sure. And if the couple does need to file a gift tax return, then it will be due on April 15 of the year following the year in which the gift was made.

Year End Estate Planning Tips - Make Annual Exclusion Gifts originally appeared on About.com Wills & Estate Planning on Thursday, December 10th, 2009 at 08:23:15.

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