Monday, December 12, 2011 Estate Tax Update / 4 Common Estate Planning Questions
|
Q&A: Four Commonly Asked Estate Planning Questions
1. Most of my assets are jointly titled, or they are qualified accounts with beneficiaries named. So do I still need a Will? Having a Will is still a necessity, but it can be more or less important to you depending on your estate. A Will is always needed to make sure an Executor is named, and take care of assets that are not titled jointly or with beneficiaries. It always makes sense to have a Will no matter what your circumstances.
2. How can I plan for avoiding Pennsylvania Inheritance Taxes? Most assets are subject to PA Inheritance Tax. However, one asset that's typically not subject to PA Inheritance Tax is life insurance. Life insurance also provides liquidity upon death to pay taxes, fees, etc. The inheritance tax rates are 0% between spouses, and 4.5% to kids and grandkids.
3. I have two kids, can't I just name both of them as Co-Executors? That may seem harmless, but could cause big problems for your estate later on. Putting two or more people in charge of one task is a recipe for conflict. Would it make sense to have two CEO's in charge of a company? Both children can be treated equally under the Will while one serves as Executor. Bottom line: Choose one primary, and two backup Executors.
4. What is the "Five Year Lookback Period"? When a client is in a nursing home or will be heading there and wants to qualify for Medicaid, federal law requires that any gifts made within the five previous years be accounted for. A gift made within five years could cause a penalty (based on a formula) that will prevent one from receiving benefits for a certain period of time. Qualifying for Medicaid is become increasingly complicated, and the best advice is to plan early while you're still healthy.
Have more questions? Email us at info@jawatlaw.com.
|
|
Latest News on the Federal Estate Tax
What's happening with the federal estate tax? Recently, a Democratic Congressman proposed a bill in the House of Representatives to lower the federal estate tax to a $1 Million exemption per person. Currently, the exemption is $5 Million. If the bill passed, many more people would be hit by the tax.
The bill has no chance of passing, and the estate tax exemption will remain at approximately $5 Million for 2012. However, we will be watching 2013 closely, when the current law expires. Congress and the President will need to act at some point in 2012 to avoid the estate tax going back to $1 Million in 2013. Who knows what Congress will do... or when they will do it. We'll keep a watch and keep you updated.
Article Link: McDermott Tries To Rewrite Estate Tax
|
|
Monday, November 21, 2011 Executors; Estate & Gift Tax Update
THE ROLE OF THE EXECUTOR... The Executor is the CEO of an estate. The individual or institution filling that role is, in essence, the owner of your estate when you pass on, and has a “fiduciary duty” to do what is in the best interests of your beneficiaries, the people you leave your stuff to.
Executors and trustees (if you have a living trust instead of a Will) need to be careful and diligent about their work, and consider hiring outside assistance (attorney, CPA, etc.) as needed to ensure accountings are filed correctly, and inheritance tax and estate tax returns are prepared properly.
Transparency is key when you are an Executor. For instance, sharing a full accounting and a copy of the Will with the beneficiaries goes a long way.
Also, if an estate has creditors, you must be diligent in ensuring they receive proper notice. If an Executor fails to give proper notice to creditors and the Executor distributes the estate, there is a possibility that the creditor could later appear, make a demand, and hold the Executor personally liable.
Being Executor is not impossible to handle without a lot of outside help, especially for simple estates. But where there are complexities, beneficiaries with some conflict, creditors, etc., it makes good sense for your estate for the Executor to consider outside assistance. Remember, the Executor has a legal obligation and a fiduciary obligation.
FEDERAL TRANSFER TAX UPDATE... The so-called “super-committee” had apparently floated the ideas of changing the gift tax and federal estate tax before the year is out. Fun rumor, but not going to happen, as we have heard over the weekend that Congress is... surprise, surprise… deadlocked!
The gift tax exclusion stays basically the same in 2012. You can make $13,000 annual gifts to as many people as you want, no tax due and no filing needed. Over $13k, you have a $5.12 million lifetime gifting exemption. Anything above $13k, you need to file a Gift Tax Return (IRS Form 709). Any gift over $5.12 Million in 2012 is taxable at a 35% rate. This will potentially change again in 2013. Now is the time to make large gifts.
The federal estate tax remains at a $5.12 Million exemption in 2012, affecting very few people. Anything above $5.12 Million, or $10.24 Million for a married couple, is taxed at 35%. Again, 2013 could see major changes in this scheme.
The Pennsylvania Inheritance Tax rates will remain the same in 2012.
Of course, we’ll keep you updated on any changes.
Have a Happy Thanksgiving! Best wishes to you and your family.
Friday, December 17, 2010 Federal Estate Tax Now Certain
Good news for most of our clients: The Federal Estate Tax exemption for 2011 and 2011 will be $5 Million per person and $10 Million for a married couple. Any assets over that amount will be taxed at a 35% rate. That means the vast majority of people are not affected by the Federal Estate Tax.
If your assets are nowhere near the $5/$10 Million amount, and you have an old credit shelter/A-B trust when the exemption was much lower, you need to immediately have your estate planning documents revised.
Keep in mind that this is the rate for the next two years. As we get into 2012, it could get interesting.
Stay Tuned... Tuesday, December 07, 2010 Federal Estate Tax Breaking News
Under the bipartisan compromise between the White House and republicans, the federal estate tax will return in 2011 and 2012.
The exemption amount will be $5 million per person, or $10 million for a married couple. That means that as an individual, you must have over $5 million of assets to ever be hit by this tax. Once you are over that exemption amount, the amount over the limit is taxed at a 35% rate.
So far, this is only a deal in theory, and has not been passed by either house, nor signed by the President.
Assuming this compromise becomes law...
-
The good news: The vast majority of people aren't going to be hit by this tax.
-
The bad news: Congress has punted on creating a coherent, long term tax structure yet again. By only extending the tax cuts for two years, they have promised more uncertainty in the near future. As a client of our firm, we will keep you updated on any tax changes that could effect your plan.
Your estate planning documents should be updated to reflect the new federal estate tax once the legislation is passed into law. If your estate planning documents are more than a few years old, and you had a A-B or credit shelter trust in place, these should be reviewed because they likely will not work as you intended. Please call our office today at (215) 706-0200 for your complementary review. Monday, October 18, 2010 Top 10 Signs It's Time To Review Your Plan
Your estate plan should be reviewed on a regular basis. Here are ten signs that it is time to review it. If you are not sure whether your plan needs to be altered, get in touch with our office at anytime.
-
Your plan was crafted over five years ago.
-
You moved to a different state.
-
You got re-married, or got divorced.
-
You’ve been blessed with grandchildren.
-
You no longer talk to one of your kids, or you have reconnected with your child.
-
You are now widowed.
-
You have acquired significant assets, or lost substantial assets.
-
You don’t feel that your plan really meets the test for a good estate plan: “Give what you want, to whom you want, when you want and how you want.”
-
You have over $1 million in assets, or you and your spouse together have over $2 million in assets, which means there may be pending estate tax implications for you.
-
You’re worried about your kids, either because they spend too much, they are in a high risk profession, they may get divorced, etc.
In general, any time that an event occurs that changes your life or your family should prompt you to review your plan. We are pleased to provide a complementary consultation to you if you wish for our office to review your plan.
Let our firm assist you: Our firm offers a complementary estate plan review and consultation. Please call us today at (215) 706-0200 or email us.
Pass the word on: If you know someone who can benefit by reading this blog, please forward it on to them, or subscribe your friend or family member through this link. Thursday, September 02, 2010 Bring Estate Tax Back in 2010??
There was an interesting article in yesterday's Wall Street Journal by Robert Rubin, the former treasury secretary. Rubin advocates bringing back the estate tax in 2011 at a $3.5 million exemption (the 2009 levels). Many people agree with Rubin on this. Where many will part ways with him is his push to retroactively apply an estate tax in 2010, and bring it back for the remainder of this year. It's unlikely to happen, but we'll keep an eye on it. Check out the article with this link. Thursday, August 05, 2010 What's up with the Federal Estate Tax?
2010 has been quite a year already... The U.S. Congress has failed miserably at giving us direction on what the tax landscape will look like come 2011. Folks, we're only five months away from 2011, believe it or not. And in 2011, the federal estate tax comes back with a roar. If Congress does nothing, many more people will potentially be effected by the tax. For married couples, you will be able to pass on about $2 Million to your heirs, estate tax free. If your estate is worth more than $2 Million, every dollar past the $2 Million mark will be taxed at a 55% rate. $2.5 million estate? Count on your heirs paying Uncle Sam $275,000.
Congress has not stepped up to the plate at this point, and there have been no meaningful committee votes or full member votes on any estate tax fix. A couple of senators and house members have spoken up, but that's not enough when you have 535 such members. Therefore, I am not optimstic right now that there will be a fix come 2011. If you think your estate is worth around $1 million or more if you're single, or $2 million or more if you're married, you need to start thinking about planning now. There are things we can do to minimize the estate tax if you were effected by it.
Here are a couple of great articles I've found this morning on the federal estate tax.
The best time to plan is now. Please do not hesitate to reach out to my firm to get started on planning. Call us at (215) 706-0200. Friday, June 25, 2010 Federal Estate Tax News
The U.S. Senate continues to kick around ideas for how to deal with the Federal Estate Tax in 2011 and beyond. Right now, there is no estate tax if you die this year, 2010.
The estate tax is scheduled to come back in 2011 at a 55% tax rate for any estate over about $1 million.
Looks like most middle class Americans will not have to worry much about the estate tax under two different proposals in the Senate right now. The first proposal fell apart a month or two ago, and the new proposal likely won't gain much traction.
Therefore, there is still much uncertainty about estate planning. We see many wills, trusts, etc of married couples that have outdated language regarding A-B trusts, credit shelter trusts, and marital deduction planning. Make sure these documents are reviewed now, and in 2011.
Here is the link to the latest article:
http://online.wsj.com/article/SB10001424052748704227304575327131250814258.html?mod=googlenews_wsj Wednesday, January 06, 2010 Great Planning TipsCBS News MoneyWatch came out with a great article today entitled "Estate Tax: What You Need to Know for 2010." The article is full of great information... Here is one essential point:
* Most estate planning attorneys, including myself, agree that it is more likely than not that Congress will retroactively apply a federal estate tax effective 1/1/2010. The exemption would likely be at the 2009 rates of $3.5/7 Million. Therefore, in 2010, the estate tax would again affect relatively few estates.
Link: http://moneywatch.bnet.com/retirement-planning/article/estate-tax-what-you-need-to-know-for-2010/378294/ Saturday, January 02, 2010 Estate Planning 2010Welcome to 2010 and a happy and healthy new year to everyone. We can all use a fresh start from time to time, and the new year is ripe for new, innovative ideas and resolutions to grow and improve. Furthermore, as we enter the next decade, we are reminded (most of us anyway) how quickly time passes, and that we need to make the most of every day with our loved ones...family, friends and others.
With that said, 2010 is going to be an important year for estate planning for many people. We are in a state of flux right now. Here are some updates and some ideas to consider in 2010:
- The federal estate tax is currently on hiatus, but with that, step up in basis was also repealed for the year. This could put a squeeze on many people.
- Your retirement assets are probably one of the largest assets you own, yet they are often not protected. We can help you build an IRA Inheritance Trust or retirement trust to protect this asset and also allow them to grow, especially if you wish to see these assets passed on to your heirs and grandkids.
- So many people have not updated their estate plans for a long time. I hear people all the time saying things like, they do not know where their will is... they don't know who their executor is... they had a will amendment (codicil) written but they never signed it... they haven't updated their will since 1985. I recommend in any of these situations to schedule an appointment with us as soon as possible to make sure your estate plan is up to date.
- Related to that, in modern estate planning, regardless of tax planning, a will is often not adequate to protect your assets especially if you have minor children (or even grown children!). Think about coming in to sit down with us and evaluate whether your estate plan needs some new tools from our toolbox.
Have a great 2010 and be sure to keep reading our blog for the latest in estate planning news and techniques. Wednesday, December 23, 2009 Federal Estate Tax UpdateOur office has been following the latest developments on the Federal Estate Tax, as this important tax could be significant for a large number of individuals and families. Depending on what Congress does, your Will or Living Trust will need to be updated accordingly. With the end of the year rapidly approaching, the possibility is much greater that Congress will not act on the Federal Estate Tax before January 1, which would mean that there would be no estate tax in 2010. However, good estate planning attorneys know that it is possible Congress could enact the tax retroactively after the first of the year. However, my sources who are experts in Constitutional Law say that may be ripe for a Supreme Court challenge. We shall see. But meanwhile, we will keep you updated on the latest developments... Thursday, December 03, 2009 U.S. House Passes Estate Tax FixBreaking estate tax news from the Associated Press... Stayed tuned for further developments right here on our blog.
---
House Votes to Extend Tax on Wealthy Estates at Reduced Rate
AP
WASHINGTON -- The House voted Thursday to permanently extend a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax set to begin next month.
A similar effort is afoot in the Senate, but the health care debate there could preclude action on the estate tax before Congress breaks later this month for holidays. There are also disagreements among senators over the tax rate and the size of estates that should be exempt, further clouding the bill's prospects.
Lawmakers, however, don't want to delay action until next year because they are wary of enacting retroactive tax changes. Under the House bill, estates smaller than $3.5 million would continue to be exempt from the tax. Married couples, with a little estate planning, could exempt a total of $7 million. That leaves less than 1 percent of all estates subject to the tax.
The bill passed by a 225-200 vote, with all Republicans opposed. Majority Democrats argued that a permanent tax rate makes it easier for families and small business owners to do estate planning, noting that fewer than 1 percent of all estates are subject to the tax. "In America, it's not a sin to be rich nor is it a crime to die rich," said Rep. Jared Polis, D-Colo. "This bill gives our nation's wealthiest families the ability to know exactly what their obligation to the nation that fostered their wealth will be, and it is fair and it is just."
The bill follows the federal budget proposed by President Obama. But many Republicans called for permanent repeal of the estate tax, arguing it hurts families that pass down farms and small businesses to their children. "The majority claims to be offering certainty to taxpayers and I suppose in a way they are -- they are certainly repealing the hope of ever eliminating the death tax," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee. Under current law, the federal estate tax is scheduled to temporarily disappear next year before returning in 2011 at an even higher 55 percent rate.
During the year without an estate tax, all estates would be subject to a 15 percent capital gains tax that they now avoid. "If Congress does not act on this issue this month, you would have a wildly fluctuating scenario of different estate tax levels, making it impossible for families to plan," said Rep. Earl Pomeroy, D-N.D., chief sponsor of the House bill. Some liberals have complained that the bill is a giveaway to the rich because it would result in lower rates in future years than what current law provides.
Conservatives have labeled the estate tax a "death tax" and argue it should be repealed permanently. "We're trying to forge a compromise that resolves this issue once and for all," Pomeroy said. Rep. Louie Gohmert, R-Texas, likened the estate tax to stealing from the dead. "After someone dies and someone comes in and steals from them, we consider that in most society reprehensible," said Gohmert, a former judge. "I have sentenced people personally to prison for doing that."
The quirk in the law, in which the estate tax would disappear for only a year, came out of a series of tax cuts enacted in 2001. Many Republicans, who controlled Congress at the time, wanted to permanently repeal the estate tax then. But they settled on a gradual reduction, with a one-year repeal, to reduce the impact on the federal budget deficit.
Under current law, the estate tax would return in 2011 with a $1 million exemption and top rate of 55 percent, unless Congress acts. Permanently extending the tax with a top rate of 45 percent on estates larger than $3.5 million would raise about $14 billion a year. However, it would raise less tax revenue than current law over the next 10 years -- an estimated $234 billion less -- because the tax rate would be lower in future years. The lost revenue would be covered with increased borrowing. Under current law, if someone inherits a $5 million estate in 2009, they would pay $675,000 in federal estate taxes, according to an analysis by Deloitte Tax. In 2010, they would pay no estate tax but the estate would be subject to a 15 percent capital gains tax. If they inherit the $5 million estate in 2011, they would pay $2,045,000 in estate taxes, according to the analysis.
Under the House bill, they would pay $675,000 in estate taxes, regardless of which year the estate is inherited. Currently, the tax affects few estates. In 2009, about 5,500 estates will be subject to the tax, according to projections from the Tax Policy Center, a Washington think tank. That's 0.23 percent of all estates. Tuesday, December 01, 2009 Federal Estate Tax in 2010?There is possible movement in Congress this week on crafting an estate tax "fix" (some people may have other names for it) in 2010 to keep the highly regarded tax at the current 2009 levels. Previously, the federal estate tax was to be repealed in 2010, and then was to come back in 2011. If that wasn't bad enough, now it looks as though Congress may actually find a way to keep the tax in 2010 at the last minute. We will keep you updated on the latest developments. Right now, the federal estate tax is 45% if your assets are worth more than $3.5 Million, and $7 Millon for a married couple. Below those numbers, you are exempt from the federal estate tax. |