Trusts

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.

Donor-Advised Funds for Charitable Giving

Published on: December 18, 2012 | by Ettinger Law Firm

The holiday season is a popular time for charitable giving. It is helpful for those considering gifts–particular sizeable donations–to properly think through all of the tax and legal implications. There are smart ways to make contributions and clumsy ways. As always, an estate planning lawyer or similar professional can explain how any such decision is best carried out.

For example, the Wall Street Journal reported recently on the rise of “donor-advised” funds. The use of these tools is likely spurred by two tax uncertainties in the upcoming year. Will charitable deductions on taxes be limited in the future, counseling toward a large gift this year? Will income tax rates increase next year, counseling toward using the deduction next year instead of this year? It is a somewhat tricky problem, as no one knows for sure what lawmakers might decide.

That is where these donor-advised funds come into play. They are accounts managed by national charities and foundations. The basic idea is that a donor can give the gift this year–locking in a tax deduction–while waiting to actual disperse the funds to the charities as they see fit over time. The funds grow tax-free throughout this period.

The Hobbit & Long-Term Estate Planning

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

One of the biggest movies set to debut this holiday season is “The Hobbit,” based on the well-known fantasy novel by J.R.R. Tolkien. This film follows in the footsteps of the very successful “Lord of the Rings” movies made over the last decade and a half. However, the release of the film is coinciding with a lawsuit filed by Tolkien’s estate against certain companies using material from the series. The case is a testament to the fact that proper estate planning can have implications many years after a passing –even half a century later . That is because the assets passed on at death are not necessarily just physical property, bank accounts, and other material that is finite at the time of the passing. Instead, trademarks, copyrights, and patents can also be given which may have implications far into the future.

Estate Lawsuit

In this case, according to a story published recently by Guardian News, Tolkien’s estate is claiming damage to his legacy as a result of certain gambling products and games using the Hobbit character and themes. The defendants in the case include the producers of the upcoming film version of The Hobbit. More specifically, the estate claims that the copyrights which were granted to the producers were infringed by use of the material in this way–for gambling and online games.

Estate Planning, Values, & Spirituality

Published on: November 21, 2012 | by Ettinger Law Firm

A perennial hot-button topic in estate planning and the creation of inheritance documents involves the passing on of personal values. Of course, the majority of work related to estate plans invovles physical assets: who gets the house, the bank accounts, the stocks, the insurance, the family china, and more. Making these allocations efficiently and saving on taxes are the hallmarks of these preparations. But our team often discusses the other aspects of estate planning, including setting in place material that ensures one leaves a legacy for those they are leaving behind.

This often includes spiritual issues but can just as well include secular notions like hard work, the importance of charity, and other values.

But how are these issues woven into an estate plan?

Hurricane Sandy, Pets, & Planning

Published on: November 19, 2012 | by Ettinger Law Firm

Many lessons can be taken from the beating that our state took in recent weeks as a result of Hurricane Sandy, not least of which is the resiliency of New Yorkers. However, as we piece things back together, some advocates are reminding community members of one overlooked victim of lack of preparation: pets. A story from Today discussed how many families were forced to make tough choices about their pet, partiularly when they had to evacuate or seek other shelter that did not allow animals.

Of course, there were no easy answers, but in all cases it was a reminder of the need to have some preparations in place ahead of time so that beloved animals are taken care of no matter what the circumstances. While few expect severe weather patterns to disrupt the care of an animal, there are some events which we all must plan for: death and disability.

The article points to statistics from the American Society for the Prevention of Cruelty to Animals (ASPCA) that nearly 100,000 pets are forced into shelters each and every year as a result of guardians who pass away or become disabled without planning for their care. The future for those animals is unclear. Resources are incredibly tight, and so, depending on where the animal is taken, their long-term prospects are varied. It is truly a tragic sitaution that affects far too many pets that were devoted companions to their owners throughout their lives.

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.

Charitable Giving Tips: What to Consider

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

Charitable giving is a critical part of many estate plans and not just for the super-wealthy. Many New Yorkers have worked hard their entire lives to ensure the financial well-being of their families. Besides passing on assets to loved ones, many local residents consider it an incredibly important testament to their values to share some wealth with charitable organziations that they hold dear. That does not have to mean donating enough money to have your name placed on the side of a new building. Instead, it often simply means providing a concrete indication of one’s commitment to having a goal beyond oneself and the merit of giving back to others.

However, it is important to be educated about some pitfalls in charitable giving and the ways to make the donations prudently. For example, a brief article from The Hill this month provided a helpful “Do and Don’t” list with regard to charitable donations. The issues shared in the story are worthwhile for donations made at any point in the year as well as long-term gifts like those crafted into estate plans. The underlying theme of the article is a basic checklist of tips to ensure the money you give actually acts to help the individuals that you hope it will and will be used in the manner you desire.

The story points to a list of “charity watchdog” groups that offer comprehensive analysis and recommendations to ensure that your donation is used as efficiently as possible. Those websites include: Charity Navigator, GuideStar, CharityWatch and The American Institute of Philanthropy.

Business Finally Reopens After Bitter Estate Dispute

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

It is an all-too-common problem: A family business is decimated following a patriarch’s death because of feuding and fighting between family members over the estate. Preventing family feuds and ensuring seamless transfers of assets is the centerpiece of all estate planning efforts. But that need is paramount when certain issues are at play–such as a family business. It is important to remember that this planning invovles much more than just creating a will. Instead, long-term thinking is needed which looks not just as who should inherit certain pieces of property immediately, but instead considers how the business might look decades into the future. Thinking only about who will receive the assets immediately upon a death can lead to mistakes, particuarly because once those assets are transfered, the new owner can do whatever he or she likes with them.

The dangers of thinking too provincially on these issues are demonstrated in a high-proifile family estate planning feud that raged over the past few years. The Journal-Sentinel reported on the fighting surrouding the assets once own by David Derzon–the founder of a well-known coin and collectibles business. Mr. Derzon died in 2008, leaving all of his assets to his second wife (who he had been married to for 30 years). Mrs. Derzon ultimately died 8 months after her husband. However, within that 8 month time-frame Mrs. Derzon apparently drafted a new will which cut out Mr. Derzon’s own two sons and entirely removed the family fortunate from the Derzon name. Instead, the new will provides mostly for Mrs. Derzon’s half sister. This is surprising, considering that the half-sister admits to not seeing her sibling for decades at at time before befriending her again only shortly before her death.

As expected, this led to a protracted legal battle with upwards of $3 million at stake–including ownership of the business itself.

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.