Estate Taxes

New Decision on Valuation of New York LLC for Estate Tax Purposes

Published on: December 2, 2013 | by Ettinger Law Firm

Last month the United States tax court issues a decision in a case which caught the eye of many involved in estate planning matters. The main issues in the case, Tanenblatt v. Commission of Internal Revenue, was the value of a deceased individual’s interest in a limited liability company. As most know, estate taxes are based on the value of the total assets owned by an individual at the time of passing. Consequently, determining the exact value of items like a business interest are critical in determining the tax burden. As you might imagine, there is frequently disagreement between surviving family members and the IRS regarding the overall assessments.

LLC Value

The tax court opinion (viewed in full online here) explains how the case involves a family that received a notice of deficiency from the IRS, claiming that an additional $309,000 in federal estate taxes was due. The discord was caused by confusion over the value of the decedent’s interest in a New York LLC (the 37-41 East 18th Street Realty Co.). As the name implies, the LLC’s main asset was a building on 18th Street in New York City. In preparing their tax return, the family essentially determined the value of the building (using an income capitalization approach), added a few smaller assets, applied “net asset value” (discounts for various reasons), multiplied by the individual’s percent interest and determined the value of the share in the LLC — around $1 million.

Congressman on Future of Estate Tax

Published on: November 27, 2013 | by Ettinger Law Firm

At the beginning of 2013, a federal compromise was reached which seemed to put to rest the uncertainty surrounding the estate tax. Based on the January law, the federal estate tax excludes property up to $5.25 million this year, with that figure set in the future and pegged for inflation. The top tax rate for assets over that amount is 40%, representing a slight increase from the previous level of 35%. In addition, the new law keeps transfers between spouses tax-free and makes “portability” permanent. Portability is the tool that allows one spouse to take advantage of the other spouse’s unused exemption.

Importantly for New York residents, all of those details apply only to the federal estate tax. There are still New York inheritance taxes to consider which take effect at a far lower level–$1 million.

The Future

Tax Evasion Case – Hiding Inheritance from IRS

Published on: September 10, 2013 | by Ettinger Law Firm

One important purpose of estate planning is to ensure that as many assets as possible pass on to friends, families, and charities–instead of Uncle Sam. Using trusts and other legal arrangements to structure an inheritance is a prudent move for all New York families, but particularly those with sizeable assets. Taxes at both the state and federal level can take a significant chunk out of any inheritance. There are many high-profile cases of individual who failed to take advantage of all the planning tools at their disposal, resulting in an inflated tax bill. The estate of actor James Gandolfini’s, settled in New York, is just one recent example of how millions can be lost to taxes.

Illegally Cutting Corners

Unfortunately, some families may be tempted to cut corners and resort to illegal conduct in order to prevent the government from collecting on a large tax bill. The temptation to act in this manner is even higher when prudent estate planning is not conducted at the outset.

How Does New York Stack Up for Retiree Taxes?

Published on: August 26, 2013 | by Ettinger Law Firm

Do you have enough money to retire? It is a questions that tens of thousands of New Yorkers ask themselves every day. When talking with attorneys and financial advisers, many factors are weighed to determine whether enough resources are available for one to have the type and length of retirement that they want and need.

One of those factors, as always, is taxes. Retirement income is frequently taxed, with a portion of money going to state and local government. These are not necessarily trivial amounts, as the exact size of the tax burden may affect whether or not the nest egg is large enough to cash in one’s chips and begin the next phase of life.

Federal taxes will obviously be the same everywhere, but the rules about retirement taxes vary considerably from state to state. When making long-term plans regarding finances, it is critical to understand how state tax rules will affect your retirement

IRS Valuation & Taxes – The Michael Jackson Examples

Published on: August 23, 2013 | by Ettinger Law Firm

Death and taxes; the two constants in life. There has been significant discussion in the past few years over the one tax that is itself most closely tied to death: the estate tax. At the federal level, the President and Congress have debated the exact rate of the the tax and at one point it should kick in.

But once those details are set, it is still not entirely easy to determine what one’s total estate tax bill is. That is because most individuals have assets whose value is hard to gauge. It would be straightforward if all of one’s wealth was in a bank account with a set balance or stocks with a clear value.

That’s not how it works in the real world, however. Instead, many have assets that must be “valued” before added to a tax bill. Who does the valuing and what decisions they reach may ultimately have significant effects on how much of an estate goes to Uncle Sam. As you might imagine there is frequently considerable disagreement regarding this matters.

Federal Estate Tax — Back on the Agenda?

Published on: April 12, 2013 | by Ettinger Law Firm

Earlier this week we touched on the fact that estate tax issues need to be on all New Yorkers’ radar, because the state tax kicks in at a far lower level than the federal tax. The federal rate was seemingly fixed as part of the compromise legislation that averted the “fiscal cliff” earlier this year. While any law can be changed, the passage of this legislation was assumed by most to signal some level of finality on the matter. Debate had raged for months (even years) about the exemption level and rate. The uncertainty was a challenge for estate planners, because it is more difficult to craft complex protection plans when the tax rules are a moving target

In that vein, regardless of one’s own opinion of the estate tax, passage of the compromise bill was a welcome relief–offering stability. But that stability may be short lived, as proposals about changing the federal estate tax have are already making their way back into national political discussions.

Here We Go Again

Don’t Forget: There is a New York Estate Tax on Top of Federal Tax

Published on: April 10, 2013 | by Ettinger Law Firm

Much discussion at the end of last year dealt with the estate tax. As federal officials groped for a compromise to avoid the so-called “fiscal cliff,” details about the federal estate tax were one part of the negotiations. Democrats wanted it returned to levels during the Clinton Administration while Republicans wanted it eliminated altogether.

Just before the deadline, a law was passed which apparently settled some of the matters of contention. In so doing, it seemed to finally provide some permanence to the federal estate tax. The tax rate now tops off at 40% (a jump from the previous 35%) and begins on parts of the estate over $5.25 million. The exemption level is pegged to inflation, and so it will rise slightly each year.

With news of this new estate tax compromise (and its relatively high exemption level), many have pointed out that the federal tax is now only a concern to a small slice of the population. After all, the majority of residents will not die with assets over $5.25 million, and so estate planning to avoid that federal tax is unwarranted.

DOMA Case Update: Amicus Briefs Mount in New York Couple’s Case

Published on: March 7, 2013 | by Ettinger Law Firm

We have frequently discussed the federal law known as the Defense of Marriage Act. Passed in 1996, the law essentially prevents the federal government from recognizing as married same-sex couples who are legally wed in individual states. Of course, New York allows gay couples the right to marry. Under state law, all couples, gay and straight alike, are treated the same. However, while in most cases the federal government defers to state law on legal marriages, that is not so for same-sex couples. To this day they are treated as legal strangers for federal purposes, creating a whole host of complex long-term planning, tax, and government support complications.

New York DOMA Challenge

Over the past few years a few legal challenges have been heard in federal courts arguing that DOMA violates federal constitutional principles. In virtually all of those cases the courts have ruled in favor of the plaintiffs, agreeing that parts of the law are unconstitutional. However, considering the magnitude of the issue, it was almost guaranteed that the decision would ultimately lie with the U.S. Supreme Court.

E-Planning: Estate Planning in our Digital World

Published on: February 6, 2013 | by Ettinger Law Firm

Like it or not, our world is infatuated with technology. Smartphones conduct intercontinental transactions. Friends across the country communicate through instantaneous text messaging, and telephones and tablets close distances and miles through face to face conversations. Because technology plays such an important role in our daily lives, today’s estate planning should include an arrangement for organizing and protecting technological and digital assets.

Dividing Up Digital Assets

We have frequently discussed how there are different kinds of digital assets to think about when drafting your estate plan. First, there are your personal digital assets, which would include any email accounts, personal social media accounts and maybe even a personal web site or personal blog. Personal digital assets might also include any photos or documents stored on different websites, like Snapfish, Shutterfly or Dropbox. Information stored in any cloud storage should also be considered personal digital assets.

Trusting Kids with Large Inheritances Remains a Challenge

Published on: January 30, 2013 | by Ettinger Law Firm

One of the most common concerns that parents have when creating an estate plan in New York is worrying about passing on too much wealth to children who cannot properly handle it. After a lifetime of hard work, ingenuity, and prudent planning, the last thing many families want is to see a child obtain an inheritance and then lose it. One need only check newspapers headlines to see celebrity examples of younger individuals with too much money whose lives take a turn for their worst as they fail to handle their wealth carefully.

A Wall Street Journal article last week discussed this issue in the context of the now seemingly permanent federal estate tax rates. Per the “fiscal cliff” agreement, the estate tax law will allow each individual to shield up to $5.25 million. For a couple, that allows $10.5 million to be given to others tax-free.

While this is good news for those who have this much wealth to pass along, it does raise some questions for families. Is your child–no matter what age–prepared to handle an inheritance of this size? Will it be lost to creditors? Taken by a spouse? WIll the money change the child’s motivation or long-term goals?