Estate Plannning

Tuesday, December 21, 2010

The tax debate is over: legislation sent to the President

 The House, by a vote of 277-148, voted to pass the Senate’s amendment to H.R. 4853, “The Middle Class Tax Relief Act of 2010,” late Thursday night.  An attempt by several House Democrats to amend the language of the estate tax, from the Senate plan of a 35% tax on estates of $5 million or more, to a 45% tax on estates of $3.5 million or more, was defeated by a vote of 194-233.  Earlier, on Monday, the Senate voted 81-19 to pass the bill on to the House.  The President, who negotiated the tax framework with the Republican leadership in the Senate, signed the bill into law on December 17th: http://www.cnn.com/2010/POLITICS/12/17/tax.deal/index.html?hpt=T2

Saturday, May 22, 2010

UPDATE: Estate Tax

The news on the future of the estate tax for the week of May 10 was mixed. Senate Minority Whip Jon Kyl (R-AZ), who along with Sen. Blanche Lincoln (D-AR) is leading estate tax negotiations, said a proposal is near completion.  Although Senator Kyl did not provide details, reports are that the proposal may give taxpayers the option of prepaying their estate tax to earn a lower tax rate; set a maximum tax percentage of 35 percent; and include a per-person exemption of $3.5 million which would increase over time to $5 million but which would not be indexed for inflation.  Kyl’s hopeful message was contradicted, however, by reports that negotiations have been hampered by the need to comply with pay-as-you-go rules, which require that the cost of the bill be offset.
 

Source: The NAELA eBulletin --  May 18, 2010
 

Saturday, March 13, 2010

Letting a Computer Plan Your Estate: Is It Worth the Risk?

Many Web sites offer customized, do-it-yourself wills and other estate planning documents. These computer-based services appear to offer a cost-effective and convenient alternative to visiting an estate planning or elder law attorney. But is online estate planning worth the convenience and initial savings? How do the documents created compare to those that a qualified attorney would produce?

To answer these questions, ElderLawAnswers asked two experienced estate planning and elder law attorneys to evaluate three leading online will preparation and estate planning programs: Nolo's Online Will, BuildaWill and LegalZoom. Their findings and ElderLawAnswers' conclusions are presented in a five-page White Paper that is available for free on ElderLawAnswers Web site.

To download the White Paper, available in PDF format, click here.

(If you do not have the free PDF reader installed on your computer, download it here.) 

Their conclusion:

"We conclude that while online estate planning could possibly work for people who have little or no property, small savings or investments, and a traditional family tree, the significant remainder of the population should not rest easy using one of these programs and should instead consult with a qualified estate planning attorney. In other words, in all but the most commonplace estate planning situations (and only an attorney can determine what is "commonplace"), do-it-yourself estate planning programs can be a risky, and often quite costly, substitute for in-person planning with an experienced estate planning attorney."

Thursday, February 11, 2010

2010: HOW HAVING NO ESTATE TAX COULD DISINHERIT YOUR SPOUSE!

by Robert W. Haley

The federal estate tax expired on January 1, 2010. It remains to be seen whether Congress will reinstate it before it returns in 2011, but the fact that there is currently no estate tax can have unintended consequences for spouses. Standard language found in many current estate plans could leave spouses with nothing. It is important to check with an elder law or estate planning attorney to make sure your estate plan does what you want it to do.

In previous years, estates could pass a certain amount of assets tax free (up to $3.5 million in 2009). In addition, spouses can receive an unlimited amount tax free. To take advantage of these rules, estate plans often contain a "bypass trust" (or "credit shelter trust") and a will with language in it that is designed to allow estates to pass without any estate tax. For example, the will may state: "I leave to my trustees the maximum amount that can pass free of estate tax and leave the residual to my spouse." Because there is currently no estate tax, individuals who die in 2010 with this language in their estate plan would wind up leaving nothing to their spouses.

While Virginia allows spouses the opportunity to claim a portion of the estate (usually one-third), even if they don't receive anything under a will, this can be a time-consuming and expensive process. Some states are considering legislation to fix this problem created by congressional inaction, but to ensure your spouse is covered, you should talk to an attorney.

Tuesday, October 13, 2009

Recession pulls seniors back into workforce

Thursday, August 20, 2009

Estate Taxes

ESTATE TAXES: What's a Taxpayer to Do?

After almost a decade of changes in the federal estate tax code, and many states changing their tax structure in response to the federal changes, clarity appears to be on the horizon. Congress's recently passed budget resolution would make the current estate tax rules permanent, taxing only estates over $3.5 million in value with the tax rate set at 45 percent. Although no actual legislation has yet been voted on, the nonbinding budget resolution sets guidelines for Congress to follow when writing tax and spending legislation later this year.

In light of this and other changes, taxpayers need to review their estate plans with the following issues in mind:

 

1. Simplify if possible. The increase in the tax threshold from $600,000 at the beginning of the decade to $3.5 million today, coupled with the drop in most taxpayers' net worth over the past year, means that many people who had taxable estates no longer do. They may be able to significantly simplify more complicated estate plans that were necessary in the past to eliminate or decrease taxes due at death.

    

2. But beware state tax laws. In the past, most states had very similar estate tax laws that were tied to the federal laws. As a result of changes in the federal estate tax, though, many states that were tied to the federal system found that their estate tax revenue was dropping to zero. To increase their revenue, these states "decoupled" and established their own estate tax plans. Taxpayers need to learn what the law is in their state and whether their existing plan is up to date. This is especially true for taxpayers who have moved from one state to another since signing estate planning documents.

    

3. Review life insurance. All consumers should have their life insurance policies reviewed if they have had them for more than a few years. Some universal life policies that were based on projections made when the economy was stronger may be "underwater" and may need more robust premium payments to sustain them over the long term. With other policies where the premiums were based on old tables measuring life expectancy, the consumer may be able to lower her premium payments or increase the death benefit. Finally, consumers should never simply drop policies they no longer need or can afford. They may be giving up a large benefit for their heirs and they may be able to sell the policy for a larger return than the policy's cash surrender value.

    

4. Refocus estate planning. The threat of the estate tax had the beneficial effect of prompting many consumers to do estate planning. But it also sometimes diverted them and their advisors from the real purpose of estate planning: to leave the legacy they want. The estate plan people leave can benefit children and grandchildren for decades to come, or it can cause familial strife that tears the family apart. The choice of executor and trustee and the terms under which heirs will receive property are vital issues that deserve your full consideration, regardless of whether taxes are an issue.

http://www.elderlawanswers.com/resources/article.asp?id=7657&Section=4&state=

Friday, May 01, 2009

Amateur Efforts to Avoid Probate Can Be Disastrous

Unfortunately, all sorts of tellers, clerks, customer service representatives, brokers, account managers, and other employees of financial institutions give customers advice about how to title accounts and name beneficiaries. This wreaks havoc with many estate plans and causes problems.

New Account Forms at financial institutions routinely ask you to name a beneficiary. Do not feel that you have to name a beneficiary. In most cases you're better off leaving that section of the form blank. When the representative wants you to fill it in, say, "No, thank you. I have a carefully thought out will and estate plan which I intend to use to dispose of my assets."

Here is an example of what can go wrong: Mom visits her attorney and makes an estate plan. The estate plan provides that her estate should pass equally to children, and if a child is predeceased, that child's share goes to a trust for that deceased child's issue.

Later, a financial institution representative tells Mom that the could avoid probate by changing the title on her brokerage account to read POD (pay on death) in equal shares to children. A couple of years later, son dies, leaving 3 children of his own. Then Mom passes away.

According to the beneficiary designation on the brokerage account, it is now divided between the two surviving children, and the grandchildren, deceased son's children, get nothing. That is clearly not what Mom wanted; but thanks to the advice from the "expert" who advised the beneficiary designation, her wishes are not carried out.

Here is another example: A financial institution representative tells Mom that she could avoid probate by changing the title on her brokerage account to read POD (pay on death) to Number One Son, Baby Brother, Daughter One, and 3 grandchildren (sons of deceased Daughter Two). That's six beneficiaries. Mom passes away.

The broker says he needs everyone to agree on any sales or distributions from the account since all 6 are now co-owners. Number One Son is not on good terms with Baby Brother who blames Number One Son that nothing has been done in the three months since Mom passed away. Number One Son is executor but since this account is not probate property, the Executor has no authority over it, so it really is not Number One Son's responsibility. (But tell that to Baby Brother.) Daughter One is not speaking to any of her co-owners because she says the three grandsons (who are getting half of the account, one-sixth each) are getting more than their share. Daughter One says that the grandsons should only receive the one-fourth share that would have been Daughter Two's if she lived. After all, that's what Mom's will says. Of course, the will doesn't operate on the POD account thanks to the advice of the "expert."

The accountant says that since Mom died last year, the account's income and any sale proceeds should not be reported to Mom's social security number. That makes sense, but not one of the six named beneficiaries is willing to have the entire sale proceeds reported to him on a 1099-B; and the broker can only use one social security number for the transaction. Mom's lawyer, who is the other Co-Executor, is angry because the plan he designed is messed up, and it looks like the six beneficiaries of the brokerage account are going to have to be treated as a partnership comprised of the six beneficiaries for income tax purposes. The partnership's tax ID number then can be used for the 1099 instead of any one of the 6 beneficiaries. That will require a tax ID number, a partnership agreement, and federal and state partnership income tax returns - all very costly, time-consuming and unnecessary. Since some of the beneficiaries are unhappy and hostile to each other, getting them to understand and cooperate looks like many hours of legal work.

The three grandsons are begging for money. Since their mother died, they are in need of money to pay college tuition. They can't get financial aid because they have an asset that they must spend first. Each owns 1/6 of the brokerage account. One of them is under 18, and the brokerage house will not pay out anything to the minor nephew unless a legal guardian is appointed for them. Ironically, the probate proceeding required for guardianship is much more onerous and expensive than probate of a will.

If the brokerage account had not been POD or TOD, it would have passed under Mom's will. The 3 grandsons would have shared their deceased mother's one-fourth share. The Executors would have authority to sell the investments. Any income tax consequence would be reported and paid by the estate. The grandson could have received distribution for tuition. The payment could have been made to the college or to a custodian for the benefit of the minor. No partnership would have to be created, and no partnership income tax returns filed.

Certainly, for Mom in our example, avoiding probate caused many, many problems. The so-called "expert" who advised her really did not have any knowledge, training or experience in estate settlement and the various property law and tax issues involved. She should not have named beneficiaries.

http://www.pennsylvaniatrustsandestates.com/2009/04/amateur-efforts-to-avoid-proba.html