Change of Estate Tax Law

Wednesday, August 19th, 2009

Wealthy residents from Connecticut usually flee to Florida in avoiding the estate tax in the state.  But now, they don’t need to do that because there’s a new law (House Bill 6802) enacted on Sept. 8.  The law states that deaths occurring from January 1, 2010 onwards, as much as $3.5 million worth of estates and gifts will be exempt from tax.  This raised the threshold for taxable gifts and estates from the existing $2 million level.

In Connecticut today, when the estate is exactly $2 million, there will be no estate taxes paid.  However, an estate of $2,000,001 pays Connecticut $101,700 in taxes.  Fortunately, this will change beginning 2010.  The new legislation will not only increase the threshold exemption, it will also reduce the rates by 25%.  For instance, a $5.1 million estate which currently pays Connecticut $402,800 will only pay the state $130,200 if the death occurred after year-end. 

This means that you can now stop avoiding Connecticut in planning and establishing your residence.  State Rep. (R-149^th Dist.) Livvy Floren said, “These changes may be considered good step toward the right direction.”  So if you’re a resident of Connecticut or you have real property there, you might want to revisit and make current your estate plan with an attorney soon.  

Tags: attorney, Connecticut, estate plan, estate tax, Florida, gifts, law, Livvy Floren, state, wealthy
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USA Death and Taxes

Sunday, August 16th, 2009

In Canada, there is deemed disposition of the fair market value of your property.  The increase in value starting from the date of purchase up to the owner’s death is taxable as capital gain on the financial tax return.  On the other hand, the system in the U.S. works differently.  They impose an estate tax that’s levied on fair market value across all property owned on date of death instead of deemed disposition with potential tax liability.

The future of the U.S. estate tax is the most talked about issue today.  At the end of the year, the current regime would be expired.  This issue is critically important to two groups of people: Canadians owning a U.S. property and U.S. citizens that are living in Canada.  This U.S. tax applies to all citizens, even to those living in other countries.  It also covers non-U.S. citizens who died with properties in the U.S. (like stocks in U.S. companies or U.S. real estate).

Currently, U.S. citizens have a $3.5 million exemption from their estate.  However, non-citizens, such as Canadians owning U.S. assets, would only be entitled to pro-rated exemption under Canada-U.S. tax treaty.  This means that when you have a worldwide estate (like a Canadian home for instance) that would total below US$3.5 million, you don’t need to worry about taxes - for now at least.

Tags: Canada, citizens, death, estate, estate tax, financial tax fair market value, market value, property, tax, U.S.
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Future of Estate Taxes

Saturday, August 15th, 2009

Legislative gurus, estate attorneys, and financial planners are bustling about the estate tax’s future.  A lot of people already know that under the 2001 EGTRRA (Economic Growth and Tax Relief Reconciliation Act), federal estate tax changed almost annually for the past few years.  In fact, it’s most likely to phase out entirely next year but will come back in 2011 if things don’t change in Washington. 

Currently, estate tax exclusion rests at $3.5 million (for married couples, $7 million) and top tax rate is at 45%.  When federal estate tax goes back in 2011, the exclusion would drop back - $1 million for individuals and $2 million for married couples, with top tax rate rising to 55%.

Today, most experts would agree that estate taxes are here to stay considering that budgetary challenges occupy congress and the current administration.  Also, economic crisis is still underway.  Legislation has been introduced to keep exclusion at current levels and marry this exclusion to lifetime gift tax exemption. 

At this point, it’s still too early to tell the ultimate fate of the current proposal and all others that are bound to be proposed during the coming months.  In the meantime, those in the know solidly believe that it’s important to revisit your current estate plan as well as undertake proactive tax planning.

Tags: attorneys, EGTRRA, estate attorneys, estate plan, estate tax, federal, financial planners, legislation, legislative gurus, proposal, tax planning, Washington
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Never Ignore Estate Tax Planning

Monday, August 10th, 2009

At this point, a high percentage of Americans don’t need to worry about federal death tax.  Federal government allows tax-free exemption up to $3.5 million net worth for individuals and $7 million combined for married couples if they do some basic planning.  When they don’t have a basic estate plan, they could miss this full exemption and actually pay a seven-figure tax bill.

Currently, the federal law is hoping that in 2010, all states would pass this estate-tax-free.  However, off-the-record word from Congress says that there’s no way this law will survive 2009.  The states are re-evaluating their existing death tax rule.  There are some states that have no death tax, such as Florida.  While others, like Massachusetts or Connecticut have death taxes as high as 10% for a one million estate.

Therefore, it’s foolish to ignore the issue of estate tax.  Imagine people evading the local sales tax in their state, purchasing in another state, moaning about their annual income tax, yet doing nothing to plan for the largest tax they’ll ever pay?  It sounds ridiculous but it’s so common.

Ben Franklin may be right when he said “There are only two guarantees we have in life - death and taxes.”  And when death comes, taxes are voluntary.  Therefore, plan your estate wisely.

Tags: Americans, Ben Franklin, death, death tax, estate plan, Estate Planning, estate tax, federal, law, tax
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Retirement and Tax Law Changes in 2010

Saturday, August 8th, 2009

This fall, advisers of people who are planning for retirement will hear changes in federal law which can have a huge impact when it comes to their financial plans.  According to a taxation and estate planning professor emeritus at Northwestern University Law School, Roy Adams, “Things that will happen in the succeeding months could cause the biggest changes in the estates and trusts fields.”  From estate tax to Roth IRA conversions, there’s a lot to consider on the horizon for individuals who will leave inheritance to their heirs or to charity, ensure continuation of their family business, and have enough retirement money.

Adams will explain these changes in his presentation at Minneapolis Convention Center on September 14.  At the heart of these changes is estate tax.  In one year, it’s scheduled to be repealed and in 2011, its 2000 version will be followed.  There will also be changes in gift tax and estate rules.  Therefore, these changes could have a huge impact on heirs and family-owned businesses as well as affect gift taxes and charitable contributions.

Furthermore, income limitation to convert 401(k) accounts, 403(b) accounts, and regular IRAs to Roth IRAs shall be removed in 2010 and will be opened up to wealthy individuals.  It is expected that many would want to capitalize on an opportunity like this.   

Tags: charitable, estate plan, estate tax, federal law, gift taxes, income, law, Minneapolis Convention Center, Northwestern University, retirement, Roy Adams, taxation, trusts
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Legislation Complicates Taxes and Estate Planning

Thursday, August 6th, 2009

Florida Bar requires Florida attorneys to report a certain number of CE (Continuing Education) credits each year.  Most teleconferences and online meetings cost around $100.  So it’s a treat when a sponsor, Regents Bank, came in and paid for a series of lectures from Cannon Financial’s Attorney Roy Adams.  The bank offered local attorneys the chance to attend free, meet their staff in trust department, and receive CE credits for two hours.

Adams is a well- respected and known by estate planning attorneys in the area of speaking every January at Heckerling Conference in Orlando.  The event is attended by over 2,000 attorneys.

One of the topics was the several pending estate tax legislation in Senate and the House.  Most people will not be subject now to estate tax but when the unified credit amount or lifetime exclusion is $3.5 million (less gifts made) per person, this may reduce the lifetime exclusion (it may also be $7 million for a couple if properly planned).  If the lifetime exclusion will be reduced to $1 million (which is already scheduled after 2010) and new legislation doesn’t change the existing law, there is no estate tax.

However, many legislators feel that eliminating estate tax (even for only a year) will greatly contribute to increase of federal deficit - this will eventually be paid back by the taxpayers in the future.

Tags: attorney, attorneys, Cannon Financial, CE, Estate Planning, estate tax, Florida, Heckerling Conference, legislators, Orlando, Regents Bank, Roy Adams
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Deal with Estate Taxes: Plan Ahead

Thursday, July 23rd, 2009

The golden rule in estate planning is: “Do it before you need it.”  Prudence actually suggests that we plan ahead because only a few people know when death can fall upon us.

In Oregon, there may be some last-minute opportunities for the residents despite its imposition of death tax on top of federal estate tax.  When federal estate tax exemption has been scheduled to dramatically increase, many states including Oregan became nervous since the federal exemption 10 years ago was $600,000 with 55% top marginal tax rate on the excess.  Simply put, the feds collect a large tax from a decedent’s estate - this includes taxable gifts that are made by decedents, and then, throws a portion back in state credit form.

Most states simply accept this “throwback” by imposing tax on its residents - this is the exact amount of credit permitted by feds.  However, when the feds have lowered the rates and increased exemption (currently $3.5 million and 45% flat tax rate), the state credit was also phased out.  Oregon reacted by simply enacting its death tax.  In other words, if the gross estate of the decedent exceeds $1 million (fixed Oregon exemption today), the excess will be taxed by the state.

Tags: decedent, Estate Planning, estate tax, feds, Oregon, plan, tax
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Trust Meaningless Unless with Assets

Monday, July 13th, 2009

Two siblings consulted an attorney about the estate of their father who passed away in 2006.  Both their parents have revocable trusts and a $3 million combined net worth.

Both their trusts were adequate and well-written.  It has the necessary language and complete documents to ensure that the first deceased spouse’s estate would be divided into family trust and shelter the whole $1.5 million (husband’s share) from future estate tax lasting for 12 generations because it will not be added to the other $1.5 million taxable estate (wife’s share).

Instead of writing a will, which could have resulted in tax worth $460,000, the family trust saved them from this expense.  However, even if their trust was adequate, it would be meaningless unless it has assets.  What’s worse is that the children can’t sue the attorney who drafted the trust - he has included a firm warning that there are negative consequences if the couple failed to fund the trust and even included a separate sheet on how they can do so.

As a result, they need to file probate, which would cost them an additional $210,000 for court costs, attorney’s fees, and representative fees in addition to the $460,000 tax payable to the IRS upon their mother’s death.  All of these problems could have been avoided if only their parents funded the trusts.

Tags: assets, attorney, estate, estate tax, Family Trust, probate, revocable trusts, trusts, will
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You Need a Basic Will

Thursday, June 18th, 2009

It’s a pretty good advice to say that “if you are not doing anything to care for your legal affairs, then you should write a will.”  It’s a known fact that if you don’t create a will before you pass away, the state law will determine who will get your property.  Also, a judge may be the one to decide who will take care of your children.  It’s scary to think that their choice may not be whom you will choose.

You might think that it’s a daunting task to write such an important document.  However, you can confidently purchase software or use a self-help book to create a legal binding will that will:

• -Name a guardian to take care of your children (minors)
• -Name someone to manage the property that you will leave to your children
• -Leave your property to organizations or people you choose
• -Name your executor, or the person authorized to carry out the terms of your will

The safest way for you to make a will is to consult an attorney experienced in helping people create it.  The rule of thumb is that if you’re below 50 years old and don’t expect to pass on valuable assets subject to estate tax, then you can probably have a basic will.  However as you acquire more property in your old age, you’ll most likely engage in a more sophisticated planning.                                                                                                                                               

Tags: advice, attorney, basic will, estate tax, executor, property, state law, valuable assets, will
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