Estate Taxes

End of Year Estate and Gift Tax Dilemma

Published on: December 26, 2012 | by Ettinger Law Firm

Only a few days remain in the year, and most financial activity for 2012 has come to a close. However, the end of year action has already brought one of the most active seasons ever. Financial advisors, estate planning attorneys, and others have all seen community members of all different income brackets seek out help understanding how possible legal changes in the new year might affect their own financial health and long-term prospects.

A Forbes story last week explored one of the main reasons for confusion and the seeking out of help: the “give now or pay later” problem. This is an issue that mostly affects those with significant assets who may be affected by gift and estate tax changes. As has been documented exhaustively, Congress is considered what to do with the gift and estate tax. Over the past ten years the tax rate has steadily fallen and the exemption level has risen. In 2010, the estate tax was eliminated altogether. However, what will happen in the new year remains to be seen.

Many different options are on the table–from a permanent elimination of tax (unlikely) to a return to pre-2001 rates. A table from the Tax Policy Center (viewed here) offers a helpful snapshot of the options and how many people would be affected by each. One comparison offers the range of possibilities. If the current rate continues, about 3,800 estates will be affected next year. Those estates would bring in about $12 billion in taxes. Conversely, if the 2001 rates returned then 47,000 estates would be affected and over 300% more tax revenue would be generated.

Fiscal Cliff Negotiations Move on to Estate Taxes

Published on: December 20, 2012 | by Ettinger Law Firm

The political wrangling to avoid the so-called “fiscal cliff” continued this week. Many different issues are all tied up in the negotiations, including income tax rates, defense spending, entitlement spending, and control of the debt limit. However, various reports suggest that the both sides in the political battle–primarily the Obama White House and U.S. House Republican leaders–are now trying to work out some agreement on estate taxes.

Still Wide Disagreement

Most discussion of tax issues and the fiscal cliff affecting upper income Americans revolved around the income tax. There is disagreement about whether current income tax rates for those in the highest bracket should increase slightly or stay the same. Both sides publicly believe that current rate should be extended for middle tax brackets. Because of the focus on income taxes, real negotiation of estate taxes has been pushed to the side. That appears to be changing.

First “Fiscal Cliff” Proposal Made — What It Means for Estate Planning

Published on: December 4, 2012 | by Ettinger Law Firm

You cannot turn on the TV, flip open a newspaper, or pull up a news website this month without seeing the words “fiscal cliff.” As many are aware, this refers to sweeping, mandatory federal tax and budgetary changes that are set to take effect January 1st unless the Congress and White House pass legislation with an alternative plan. Essentially the “cliff” is about $7 trillion worth of tax increases combined with significant spending cuts across the board–including everything from Medicare and Medicaid to the military.

What is interesting about the cliff is that virtually no one on either side of the aisle actually wants it to take effect. Instead, it was only put into place as a compromise over a previous debt ceiling legislative fight. The idea was that that the cliff would be so abhorant to both sides that its impending appearance would force a compromise. However, as the end of the year gets closer, more and more observers are worrying that even with the serious consequences of the cliff, no compromise is in sight.

Currently, the Obama Administration and Congressional leaders (most notably, the Republican House leaders) are trying to reach agreement on an alterantive to prevent the mandataory changes. As part of that effort, President Obama recently released his “first offer.” As summarized in a recent article, the offer is far from what the Republican leaders have proposed, so it is unlikely that it will be taken seriously. Essentially, it calls for around $1.6 trillion in tax increases over a ten year period–mostly related to expiration of the so-called “Bush tax cuts.” In addition, it calls for modest stimulus spending. The proposal would also permanently eliminate Congressional control over the debt ceiling level (which caused the current crisis to begin with).

Forbes Estate Tax Article Catches Fire on Social Media

Published on: November 15, 2012 | by Ettinger Law Firm

The popularity of social media sites has led to an outburst in use of the word “viral.” “Viral” videos and articles are frequently pointed to as a product of the mega-popularity of sites like Facebook and Twitter. This just refers to stories and movies/clips that spread very quickly from person to person over these channels.

It isn’t very often that any story related to estate planning in any way “goes viral.” However, this week one story in Forbes on the estate tax was shared, re-tweeted, and “liked” far more than anything else on the topic. In the world of financial planning and long-term legal preparation it is fair to say that this artcle went viral. You can take a look at the story here.

The issue discussed in the article is one that we have frequently touched on–the likely changes to the estate tax starting January 1st. The summary is that while over $5 million can be used on gift and estate tax exemptions per individual this year (double that for married couples), the exemption will likely drop to $1 million on the first of the year. In other words, large chunks of assets can be given without any tax implications right now, but hundreds of thousands (or even millions) might be lost in taxes if that transfer does not occur until 2013.

Less Than 90 Days Left Before “Estate Tax Time Bomb”

Published on: October 22, 2012 | by Ettinger Law Firm

Concerns are rising among many in the financial and estate planning fields as the year winds down without any more clarity on the future of the estate tax. A recent post from Advisor One, for example, explained that the shrinking 2012 calendar means that there are less than three months until the “ticking estate tax time bomb” explodes.

Here’s the reality: without Congressional action, on January 1, 2013 the current $5.13 million exemption level will drop to $1 million and the current 35% top tax rate will increase to 55%. In other words, many more families will face an inheritance tax and the bite will be much stronger than in the past. While it may seem like any time is a good time for estate planning (that is true), it is undeniable that taking proactive steps in the next few months to plan for possible estate tax changes may prove incredibly beneficial down the road.

As the Advisor One post explains, that need to plan is critical because changes are undoubtedly coming no matter who wins the elections next month. Each Presidential candidate has very different ideas about the estate tax. On top of that, of course, a President cannot make changes to these laws on their own. The final partisan make-up of both the U.S. House of Representatives and the Senate will play into any ultimate resolution. In addition, it is not just exemption levels and tax rates that are at issue. Different policymakers also have different ideas about what assets are or are not included in the “gross estate” which determines the amount to be taxed. For example, the President has suggested that he supports including certain assets held in grantor trusts in the estates.

Creating a Trust & Funding It Are Different

Published on: October 9, 2012 | by Ettinger Law Firm

Failing to use a living trust as part of one’s estate planning is one of the most common mistakes that local residents make. Relying solely on a will or (even worse) the intestate rules of succession, means that a family is forced to endure complex, stressful, and conflict-inducing hoops to pass on assets and otherwise handle end of life affairs. Trusts are far superior methods of ensuring one’s wishes are carried out in as direct a manner as possible.

However, as a Yuma Sun article this week reminded, creating the trust is only half the battle–it must also be funded.

What does it mean to fund a trust?

Keeping an Eye on Upcoming Supreme Court Cases

Published on: September 27, 2012 | by Ettinger Law Firm

Late September is well-known as the official start of autumn. In the legal world, it also marks the beginning of the new United States Supreme Court term. Many legal observers keep close watch of court actions at this time to figure out what major issues might be decided in the upcoming year. That is because the Court is currently deciding exactly what cases to take for the upcoming term (which begins in October). Thousands of appeals are filed, but only a small fraction will actually be accepted. In many ways it is much harder to get a legal case heard than it is to actually win the case in front of the Court.

Some cases that the high court might hear this year could have implications on elder law or estate planning issues. The most high-profile of these related to same-sex marriage. There are two separate cases that the Court might take, both which would have different effects on the rights of same-sex couples–and their planning.

1) Constitutionality of DOMA: The Defense of Marriage Act (DOMA) has long been a bane for same-sex couples seeking equality in their planning. The law defines marriage as only between a man and a woman for federal purposes. That means that even couples legally married in their state, like New York, receive no federal recognition of their union. Appeals Courts have consistently found DOMA unconstitutional. The law continues to force same-sex couples to work around their lack of recognition of their union in estate planning and long-term care strategizing.

Fundamentals of Estate Planning: Naming a Trustee

Published on: September 12, 2012 | by Ettinger Law Firm

A trust is the central legal tool used to provide the flexibility and protection most residents use when planning for their long term financial, inheritance, and health care needs. There are many different types of trusts which provide different benefits to residents; each type comes with its own rules. However, one common theme is that the when creating a trust a trustee must be named. Deciding upon the right trustee in your case is crucial to ensure that things proceed as you intend when you are gone.

The exact role of a trustee varies, depending on the long-term plans of the individual who creates the trust. Yet, in general the trustee will manage the assets and make distributions from it according to predetermined rules and wishes. Some trusts will last for decades, and so the choice can truly can set the course for one’s long-term legacy.

A Wall Street Journal post this week touched on the importance of the trustee selection topic, and provided a list of key factors that should influence the final decision, including:

Estate Planning Challenges For the “Asset Rich and Cash Poor”

Published on: March 29, 2012 | by Ettinger Law Firm

This week the USA Today shared a helpful story that analyzed some estate planning difficulties faced by certain families, often farmers, who have many physical assets but few liquid cash stockpiles. One obvious challenge for these families is dealing with the uncertainty of the estate tax. Estate tax considerations are of clear concern, because the family may be unable to pay the tax burden that comes with inheriting the assets without being forced to actually sell those very assets.

Currently, there is a $5 million exemption level for the estate tax. However, without federal action, that exemption level will drop to $1 million by the end of the year. All inherited assets that exceed that level will then be taxed at various rates up to 55%, with a 5% surcharge on estates over $10 million.

Our New York estate planning attorneys appreciate that these estate tax issues are of paramount importance to certain community members, like farm families or those with family-owned businesses. For example, it does not take much for farms of various sizes to cross over that $1 million threshold when taking into account land, buildings, and equipment. In addition, for many farmers, land values have risen steadily with advances in natural resource technology because of the increased profitability of available minerals. Many resources can now be extracted from land that was previously unattractive to the mineral industry. This increases the value of land but makes estate tax considerations a real concern for more families.

Farm Assets Protected By Estate Plan

Published on: December 28, 2011 | by Ettinger Law Firm

Western Farm Press published a story yesterday reminding readers of the importance of conducting proper estate planning. The publication, geared toward those in the agricultural industry, explained that many farms had been saved that otherwise would have been split up because of savvy planning ahead of time. The story reminded readers of a basic principle that ourNew York estate planning lawyers wholeheartedly endorse. It noted that planning is important regardless of the size of one’s estate so that “if something happens to you today, your assets will go where you want them to go, to the people you want to have them.”

In the context of farms, it is particularly important to consider the tax implications of asset transfers upon death. It was explained that many farms have been lost when one party in the operation dies, leaving others unable to pay the taxes that come due. Estate taxes are hard to pay without selling the very property that one acquires. Farmers are often asset and land rich, but cash poor. That means that those who inherent a farm are often required to sell the land itself to come up with the cash needed to pay the tax bill. Estate tax issues may not be a problem for those in certain income brackets, but there remains constant volatility in the area. For many families their tax liability could change dramatically from year to year depending on what the laws happen to be at the time that one passes on.

Regardless of estate tax concerns, however, there are many basic estate and inheritance planning issues that are important for farmers to consider. The story suggests that it is helpful to think of one’s estate as in either accumulation mode, conservation mode, or transfer mode. The younger generations are often still acquiring assets, while older community members are likely to want to preserve what they have or pass it along. Estate planning helps most clearly with preservation and transfer.