Estate Taxes

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.

U.S. Supreme Court to Hear Two Same-Sex Marriage Cases

Published on: December 10, 2012 | by Ettinger Law Firm

The U.S. Supreme Court made headlines on Friday when it agreed to hear two cases which may have significant implications on the rights for same-sex couples in New York and throughout the country. The stage is now set for a few months of speculation and commentary on possible outcomes before the Court finally hears the cases. It is important for same-sex couples to understand the implications of each case, as the legal issues in each are different.

DOMA & State Bans on Marriage

One of the cases which the Court will hear is United States v. Windsor. As we have often discussed, at the center of the Windsor case is the Defense of Marriage Act (DOMA). Several appellate courts have now found that parts of DOMA violate the U.S. Constitution in that they deny federal benefits to legally married same-sex couples solely on the basis of their sexual orientation. In granting the petition of those appealing the lower court rulings, the U.S. Supreme Court will likely settle the matter once and for all.

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.

Updates in Gay Marriage Cases That Might Head to Supreme Court

Published on: November 13, 2012 | by Ettinger Law Firm

The uncertainty about whether or not the United States Supreme Court will intervene and decide the constitutionality of the Defense of Marriage Act or determine whether the Equal Protection Clause of the U.S. Constitution requires marriage equality will soon be over. That is because, as discussed in a recent, helpful ABA article on the subject, the members of the Court are set to meet next week, November 20th, to determine what cases (if any) they will hear on the subject.

This November 20th meeting will be a private conference. That means that it will occur behind closed doors, and the public will not be appraised of the discussions. In general, it takes 4 members (out of 9 total) for the Court to agree to hear a case. Maneuvering around these sorts of issues is very delicate, and filled with legal strategy. That is because the high court only considers the exact facts and arguments presented before it when hearing a case. But there are several cases that might be considered on any given topic, and so advocates on all sides of an issue, including this one, often jockey to have their preferred case used as the one the Court hears to decide the legal matter.

Observers note that the most likely case to be heard on DOMA is Windsor v. United States. This is the high-profile case involving a plaintiff from New York who was forced to pay several hundreds thousands of dollars in estate taxes that she otherwise would not have paid because the federal government, pursuant to the “Defense of Marriage” Act, did not recognize her marriage to another woman. Earlier the 2nd Circuit Court of Appeals struck down the part of the law that prevents federal benefits from going to married same-sex couples in states that permit such unions.

Selling Memorabilia Before Estate Tax Changes

Published on: October 31, 2012 | by Ettinger Law Firm

As the end of the year gets closer, and possible increases in the federal estate tax become more likely, many are coming up with various ways to take advantage of the current favorable rates. For exampe, a story at the National Review this week suggested that a move by several former sports stars to sell various memorabilia might be motivated, in part, by the possible tax changes to take effect January 1st.

The article explained how New York Yankee great Don Larsen was planning to sell the baseball jersey that he wore in 1956 when he pitched a perfect game in the World Series–the only time that has ever happened. Larsen explained that he was motivated by a desire to help out his grandchildren. He plans to use the proceeds to pay for their college education. He indicated that while the jersey obviously has importance to him, the value of helping his loved one’s outweighs the value he places on the 56-year old jersey.

Don Larsen is not the only sports figure selling valuable items. Apparently well-known college basketball coach Bobby Knight is selling NCAA championship rings along with several other valuable sports items. Like Larsen, his motivation is to acquire funds to use on his family member’s education. Former world heavyweight champion boxer Evander Holyfield has also sold various items related to his boxing days in recent months.

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?

Will Estate Tax Burdens Affect More Families in 2013?

Published on: October 2, 2012 | by Ettinger Law Firm

The occupancy of the White House and party control in the U.S. House and Senate will undoubtedly influence the future tax situation at a federal level That includes the tax that most immediately think of when considering their inheritance–the estate tax.

Last week the Wall Street Journal picked up on a new report that argues that the estate tax burden may affect a large number of households next year. The report–crafted by the well-known consulting group, LIMRA–suggest that without changes from the current trajectory, 15 million U.S. families may have some estate tax liability next year. That would represent 1 in 8 households–a far cry from the assumption that this is a concern only for the super-rich.

The findings were reached by analyzing the Survey of Consumer Finance from the Federal Reserve Board. LIMRA noted that many households might be pulled into the bracket where the estate tax applies because of the wide range of assets included in estate tax calculations–things like real estate, business ownership, and life insurance values.

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.