Federal Estate Tax News

Estate planning is about as exciting as going to the dentist. But just like the upkeep of your teeth to prevent cavities, root canals, etc., keeping up your estate plan can help avoid bigger problems and conflicts later down the road.

Everyone should have a plan, no matter how much or little wealth you have. Furthermore, your life and circumstances will continue to change, and so should your plan. Get a check-up at least every few years!

Here are the five things you can do NOW to enhance your current plan:

1. Organize - Your plan won't be helpful to you or your family if no one can find it. Make sure you keep the originals in a fire-proof safe at home, and leave instructions for your Executor and Agent to be Power of Attorney.

2. Communicate - Surprises when a plan is needed is never fun. Talk to your Executor and Power of Attorney in advance
 

3. Supplement - Funeral instructions, last wishes, health care concerns - these are all things with which you can supplement your plan.
 

4. Consider an irrevocable burial reserve and make all of your last arrangements now - it will be one less step for your family
 

5. Electronic data - make a plan for your electronic data. Think of all of the "stuff" we have on our computer today. Photos, sensitive financial information, etc. What's your plan to ensure that your electronic data is handled the way you want it to be handled?

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.

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...

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.

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.

1. Your plan was crafted over five years ago.
    
2. You moved to a different state.
    
3. You got re-married, or got divorced.
    
4. You’ve been blessed with grandchildren.
    
5. You no longer talk to one of your kids, or you have reconnected with your child.
    
6. You are now widowed.
    
7. You have acquired significant assets, or lost substantial assets.
    
8. 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.”
    
9. 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.
    
10. 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.

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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.

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.

• What's next for the federal estate tax? Pittsburgh Post-Gazette. This article is great for Pennsylvanian's to read.

• Ways to shelter your money should the estate tax return. NJ Star Ledger. Provides a couple of ideas for reducing the estate tax if you're effected.

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.

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:

https://online.wsj.com/article/SB10001424052748704227304575327131250814258.html?mod=googlenews_wsj

CBS 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: https://moneywatch.bnet.com/retirement-planning/article/estate-tax-what-you-need-to-know-for-2010/378294/

Welcome 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.