Friday, February 03, 2012 529 Plans Are Useful for College Tuition AND Estate Planning
As the cost of college tuition rises, so do parents’ stress levels. According to one website, the cost of tuition for one year at some schools can be enough to make a decent down-payment on a house. By the time you’ve paid for your child to spend 4 or 5 years at a university you could almost have bought a vacation home!
This is why 529 plans are an appealing savings tool for many parents. Parents and grandparents already know most of the benefits of a 529 plan: Money inside the plan is outside of the parent’s taxable estate; additionally, funds held inside a 529 plan belong to the parent, not the child, which means not only that parents can choose to reclaim the money if needed in the future, but also that the money in a 529 plan won’t count against the student when he or she applies for financial aid.
What many parents (and grandparents) may not know, and which this article on Investors.com points out, is that 529 plans can also be a useful estate planning tool. “In 2012, the annual gift tax exclusion is $13,000. If you wish, you can put $65,000 into a 529 account for, say, your grandson now. That contribution will be treated as five annual installments of $13,000 in a row for gift tax purposes.” This can be quite a boon for parents or grandparents looking to provide some financial help to their college-age loved ones and avoid gift-taxes.
As beneficial as this sounds, it is important to always remember that no two families are alike, and what may be a useful strategy for one family can be detrimental to another. Please contact your financial planner or estate planning attorney for more information about how a 529 plan may benefit your family.
Wednesday, February 01, 2012 You Can Help Your Child Become a Homeowner—But Do Your Research First
American culture is one that respects independence and self-reliance; but with the current tough economic situation, and the fact that more young adults are graduating from college without jobs, or living at home until well into their 20’s, many families are opting to do things the old-fashioned way—with parents giving kids the financial help they need to buy their first home.
Helping your child make such a significant purchase, however, requires foresight and planning in order to do it without hurting your own tax- and estate-planning potential, and without creating family conflict later on. This article from CNN Money has some good advice for would-be parental mortgage-lenders.
The first thing to remember ANY time you make a monetary gift is that the federal government will only let you give away so much each year without incurring a gift tax. “In 2012, a taxpayer can give $13,000 to an individual without triggering so-called gift taxes. Married couples may underwrite their child to the tune of $26,000 a year.”
If you’d like to contribute more than $13k or $26k toward your child’s first home there are ways to go about it without hurting your own tax status later on. Your best option in this case might be to “lend money to your child -- and you can offer terms far more generous than any bank's. To make sure the money is considered a loan and not a gift for tax purposes, you'll need to charge interest based on the IRS's ‘applicable federal rate’ minimum for various loan maturities.” These rates are generally very good, “as low as 0.19% for loan terms of three years or less to 2.63% for loan maturities of over nine years.”
Of course, if you become your child’s mortgage lender the government isn’t going to just take your word for it; you’ll want to be sure you have the proper contracts drawn up and signed, and that you keep good records of all payments. “If the loan is properly structured as a mortgage and filed, the interest will be tax-deductible for your child. Having a contract also makes estate planning easier.”
Friday, January 13, 2012 What Will You Be Doing With This Year’s IRA Withdrawal?
Many of our clients who are 70 ½ or older have chosen in the past to give a certain portion of their required IRA withdrawal to charity each year; doing so has allowed them to take the required withdrawal, keep their taxable income down, and give to a cause they care about all at the same time. Unfortunately, the individual-retirement-account donation rule expired at the end of 2011 and has yet to be restored by Congress.
This recent article in the Wall Street Journal explains that “under current rules, the first dollars out of an IRA count as the required withdrawal. So if an IRA owner makes a withdrawal before Congress extends the law, he or she can't redeposit the funds and make a donation of IRA funds after lawmakers act.”
The expiration of this rule may not be a big deal for many of our readers who intend to make charitable donations as they always have, regardless of retirement-account donation benefits; but for some, not knowing what Congress may choose to do is making it hard to design a financial plan for the year, and causing increasing stress. “The problem arises for IRA owners [who are] over 70½ and must take an annual payout from the account. They want to withdraw as little as possible in order to let the assets expand but also want to donate some or all of the required payout directly to charity.”
Your best bet right now may be to consider your ultimate goal both for your IRA payout and for your charitable giving for the year, and then talk to a trusted advisor. One thing any estate or financial planner will tell you is that there is almost always more than one way to accomplish your goals. We cannot stress enough, however, how important it is to stay on top of any legal requirements or changes in the law when it comes to IRAs and retirement savings.
Monday, December 12, 2011 Friendly Reminder to Take Advantage of Tax Deductions Before Year’s End
As 2011 draws to a close just about everybody has their minds on vacation, travel, and gift-buying, so we just wanted to take a moment to remind all of our readers to take advantage of your tax deductions and allowances before the year is over. These may include sending a check to your favorite charity, giving a generous cash gift to children or grandchildren, or selling securities that have lost money this year.
This isn’t all you can do to wrap up your 2011 tax package. This article in the New York Times explains that the next two years of tax policy are likely to be a bit rocky, and that “beyond the usual recommendations... you should use this year to get your affairs in order for what promises to be an uncertain two years of tax policy.”
If you’re not sure which deductions might apply to you, our office (along with the article mentioned above) has come up with a list of tax breaks to consider:
1. Charitable gifts to most non-profit organizations are tax deductible; and while you can’t deduct any time you spend volunteering, you can deduct any out-of-pocket expenses incurred while volunteering.
2. You can give monetary gifts of up to $13,000 to as many individuals as you would like without incurring the gift tax.
3. The 30% energy tax credits of 2010 expired at the end of last year, but new (albeit lower) credits were passed for 2011. Check the energy star website for information if you made any energy-efficient improvements to your home this year.
4. If you are over 70½ you are currently allowed “to directly donate the required minimum withdrawal from [your] retirement account to charity.” (This is something that may disappear with new tax laws in 2012.)
5. Teachers are allowed to deduct up to $250 spent on classroom expenses.
6. A significant tax loophole set to end this year is one that “allows people whose marginal tax bracket is under 15 percent to pay no capital gains tax when selling securities held for more than a year.”
These are only a few of the tax strategies you may want to consider before the end of the year. For more tax-saving strategies please talk to your financial advisor.
Friday, December 09, 2011 Long Term Care Insurance Is Tax Deductible for Business Owners
By now most people, when planning for their “Golden Years”, know that they need to consider the possibility that they may need long-term care at some point in time, and that long-term care insurance is a logical option for this purpose. What most people don’t know is that if you are self-employed or own your own business the cost of your insurance premiums could be tax deductible.
A recent article in Forbes reveals that “self-employed folks with business income that passes through onto their personal returns... can deduct 100% of the premiums paid for themselves (and spouse) as a business expense, just like health insurance. These folks are still subject to the age-related premium limits, but that doesn’t necessarily limit [their] deduction.”
This could be a HUGE incentive for self-employed business owners who tend to lag behind their traditionally-employed counterparts in saving for future retirement expenses. It’s not that business owners are less concerned about their futures than their peers, but that as entrepreneurs struggle to get their small business off the ground in the early years they are more likely to put any extra income back into their business, rather than investing it for retirement. This tax-deduction for long-term care insurance can be just what entrepreneurs need to put them back on equal footing.
In today’s economy traditional employees and entrepreneurs alike need all the help they can get saving for the future and protecting the assets they have. To find out more about this, or other strategies to prepare yourself and your family for what we hope will be a long and prosperous retirement, please contact our office.
Wednesday, October 26, 2011 Entrepreneurs, Family Business, and Estate Planning
If you’re an entrepreneur, or a small or family business owner, you have more to lose if you don’t have an estate plan. An estate plan help you protect not only your family and your assets, but also the business you’ve spent years (or decades) building. A recent article at Entrepreneur.com, entitled What Entrepreneurs Should Know About Estate Planning, describes some of the main components of an estate plan and how they can be useful to a business owner.
That article covers eight estate planning components, beginning with a will and a living trust and ending with long term care insurance and disability insurance. All of these components are extremely useful (and in some cases absolutely necessary) and we highly recommend reading through the entire article. We would also suggest that there are three more documents that an entrepreneur should consider to help preserve business and wealth for future generations.
Family Limited Partnership (FLP): A Family Limited Partnership is an asset protection tool which allows parents to take business assets out of their taxable estate and transfer the value of that asset to their children while still remaining in control of the business.
Buy-Sell Agreement: A buy-sell agreement is a formal plan or contract between business partners establishing what will happen to the business should one of the partners die. This document specifies whether a partner may or may not buy your ownership shares for your heirs and for what price, or if you want to block certain family members or individuals from having any ownership share in the business.
Succession Plan: A succession plan should be a key element in any business plan, but especially for small or family businesses. A succession plan is exactly what it sounds like, a formal plan outlining your wishes for passing your business on to your successors. You may design a succession plan to facilitate your retirement, or to provide a smooth transition in the event of your death. In any case, a succession plan is essential for any business owner.
Don’t leave your business—or your family—out in the cold. Take the necessary steps to protect them both in the event of your death with a well-designed estate plan.
Wednesday, September 14, 2011 IRS Announces Another Extension for Estate Tax Filing Deadline
Just a few weeks ago the IRS announced the November 15, 2011 estate tax filing deadline for large estates of decedents who passed away in 2010; but some executors might be relieved to know that the IRS recently extended the deadline to January 17, 2012.
This extension gives executors of large estates more time to determine whether or not its in the best interests of the heirs to take advantage of the 2010 estate tax repeal. The decision facing executors of the 2010 estates is this:
* Choose not to pay estate taxes, but subject the assets of the estate to carryover basis rules (meaning heirs will pay capital gains taxes based on the price of an asset when it was initially acquired by the decedent); or
* Pay estate taxes under the 2011 rules, with a $5 million per-person exemption and a 35 percent top rate, but with a stepped-up income tax basis (meaning heirs will pay capital gains taxes on the price of an asset when it was inherited.)
For any executors who haven’t already made the decision, they can now take more time to weigh the pros and cons, and maybe even enlist the advice of an estate planner, tax planner, or probate attorney to help walk them through any possible unexpected consequences. If you are an executor or an heir faced with this particular and time-sensetive issue, please don’t hesitate to contact our office for assistance. Wednesday, August 24, 2011 Some Tax Saving Strategies from the Wall Street Journal
Income, estate,
and other federal tax levies have commonly been a bone of contention between
those with different political ideologies; but the current conflict has reached
unusual heights, with various million- and billionaires publicly expressing
their views (pro or against) about current tax laws. Of course, million- or
billionaires aren’t the only ones with strong opinions about taxes.
If you feel
that you pay too much in taxes, Brett Arends of the Wall Street Journal has some
tips to help you save on taxes in the future. Much of his article is
tongue-in-cheek, but the suggestions are valuable ones. Of special interest to
our firm and our clients are four of the tips nestled in the middle of the
article:
Give to your family. “Until the end of 2012 you can give
$5 million, tax-free... In addition you can give $13,000 a year to each
recipient -- each child or grandchild -- and a spouse can do the same. So a
married couple with, say, three children and eight grandchildren can give another
$286,000 a year, on top of that one-off $10 million. Over ten or twenty years
that really adds up.”
Put your grandkids—and great grandkids—through
college. “Money paid
directly to schools or colleges escapes estate taxes.” Furthermore, if you
contribute to a 529 educational savings account that money can be tucked away—and
eventually used by the student for whom it is intended—tax free (so long as it
is used for educational purposes.)
Buy life insurance. Proceeds from a life insurance
policy can go to your beneficiaries tax-free upon your death, although you may
have to make some arrangements ahead of time.
The article states that “Typically you put the policy in an Irrevocable
Life Insurance Trust... The premiums that you pay annually are gifts to the beneficiaries...
And when you die, the proceeds of the policy go to the trust, for the beneficiaries,
free of estate tax.”
Talk to an estate planner. “There are other moves that can cut
your estate tax, too. A Qualified Personal Residence Trust can slash the estate
taxes on a residence. A Grantor Retained Annuity Trust, or GRAT, can slash them
on an investment portfolio. So, too, can setting up a Family Limited
Partnership. Financial planners say this is a great time to put investments --
like stock -- into a GRAT.”
If you have
questions about these tax-saving strategies, or other strategies that can help
you preserve your estate for your heirs, please contact our office. We can help
you determine what your best options
are to help protect your assets—and your family—in the years to come. Monday, August 22, 2011 Don’t Let Tax Laws Limit Your Generosity
The past two
years have been tough on the average American family. The economy has been floundering and the
unemployment rate has been hovering around 9-10% since 2009, not to mention the
roller coaster ride we’ve all been through with the stock market. But through
it all some families and individuals have fared better than others—and many of
these lucky ones are eager to extend a helping hand to their family and
friends... if only the tax laws would let them.
A recent
article in Forbes, entitled 6
Ways to Give Family and Friends Financial Aid, explains that “the tax law
regulates your [financial] generosity... This kind of assistance is considered
a lifetime gift unless it’s for someone whom you are legally obligated to
support, such as a child.” This is important because “lifetime gifts” over a
specific amount (currently $5 million per person) are subject to taxation.
“Gifts of
cash or other assets can count against your $5 million exclusion from gift or
estate tax. If you exceed that limit, you could wind up owing gift tax of up to
35%. Even if you don’t, your lifetime gifts would reduce how much you can pass
tax-free through your estate plan.”
But if you
are willing to work within the system there are
ways to give financial assistance to friends and family without having to pay
gift tax. Here are a few strategies suggested in the Forbes article:
1. Don’t give more than $13,000 (or $26,000 if you are giving as a
married couple) per person per year. $13,000 is the current annual gift exclusion amount, and giving
more than this can count against the $5 million lifetime exclusion.
2. Pay medical, dental, or tuition
expenses directly to the provider. “Without using your annual exclusion or dipping into the
lifetime limit, you can pay for tuition, dental and medical expenses of anyone
you want. Note that you must make the payments directly to the providers of
those services.”
3. Contribute to 529 educational
savings plans. While
contributing to a 529 savings plan does
still count as a financial gift, once in the account the money can grow and be
withdrawn tax-free, “provided it is used to pay for college, a graduate,
vocational or another accredited school, or for related expenses.”
These are
only a few of the suggestions offered in the article, and a consultation with
your attorney or financial planner could reveal even more options available to
you should you wish to offer aid to friends or family without coming up against
the lifetime gift or estate tax. Please
contact our office for more information. Monday, July 25, 2011 Charitable Lead Trusts Can Benefit Your Heirs AND Your Favorite Charity
2011 and 2012 are good years not only for heirs but also for charities; high estate- and gift-tax exemption amounts (as much as $5 million per person) have many wealthy families exploring their options for gift-giving, and record-low interest rates are prompting many financial advisors to recommend that their clients set up charitable lead trusts to leave money to both their favorite charity and their heirs with little or no tax hit.
When setting up a charitable lead trust the grantor puts the desired assets into a trust for a specified number of years, naming a charitable foundation as the first beneficiary, and a non-charity (children or grandchildren) as the remainder beneficiary. Each year during the specified time period payments are made from the trust to the grantor’s designated charity, once the trust's term expires, what is left goes to the grantor’s heirs.
Charitable lead trusts have fallen in and out of favor with financial advisors over the years, and were most recently popular after Ms. Jacqueline Kennedy Onassis used one to great effect. This recent article in the New York Times describes the pros and cons of the charitable lead trust:
“Over the years, charitable lead trusts have been a way to give money to charity with the possible benefit of passing what was left to children without paying estate taxes.” Although the payout (to both beneficiaries) of a charitable lead trust is highly dependent on the starting interest rate, “the likelihood today that one of these trusts would have money left for heirs [is] 95 percent. The trusts are written so that the assets appreciate substantially over time, but even if they do not, the designated charity — often a family foundation — will still get the money.”
One of the downfalls of a charitable lead trust is that rules and regulations can be confusing, “they are hard for someone who is not a tax lawyer to understand.” Furthermore, some families have “used these trusts to give money to their family foundation. This runs the risk of being deemed self-dealing if the person who set up the trust names his foundation as the recipient and then parcels out the money himself.”
The bottom line is that while a charitable lead trust can be an incredible useful tool benefitting both your heirs and your favorite charity (especially if set up during the next year and a half), it is not something to be done lightly, without the advice and help of an experienced attorney or financial planner. Monday, July 18, 2011 QPRTs Offer A Chance to Have Your Cake and Eat It Too
Since the burst of the housing bubble a few years ago and the subsequent crash of real property value, many of the clients who have come into our office have bemoaned the lowered value of their homes, but we have good news for these clients: You do have options.
One of those options is a QPRT (Qualified Personal Residence Trust) a specific kind of trust which allows you to continue living in your home, while at the same time removing it from your taxable estate. Sound too good to be true? It almost is. In fact, this article in Reuterscalls it “a chance for clients to have their proverbial cake — a sweet vacation home in Florida, for example — and eat it, too.”
Here is how it works: “In a QPRT, the grantor transfers up to two residences into an irrevocable trust and retains the right to use the home for a pre-determined period, or trust term. Terms can vary widely — 10 years is typical, but can run for 40 — and the idea is to make sure grantors outlive the term... Once the term concludes, the grantor then pays rent to the trust. The beneficiaries become landlords, and open a brokerage-type vehicle to receive payments titled to the trust. There’s no income tax on those payments, a big plus for beneficiaries.”
The reason the QPRT is such a boon right now, while property values are low, is that grantors are able to “gift” the residence into the trust while the value is low and still under the gift tax exemption amount. If the value of the property increases over the term of the trust (which it almost certainly will) the grantor does not have to pay gift tax on that increase, but the recipients of the trust will still benefit from the increased value.
The QPRT appears to be a perfect tool for gifting property to children, but you do want to be careful about how you structure the trust, and consider carefully your relationship with your children. Once the trust term is over the property belongs to the beneficiaries (your children.) Many families arrange to have the grantor continue to live in the home, but begin paying rent to the beneficiaries once the trust term is up; however, the beneficiaries have no obligation to allow the grantor to continue living in the property.
And if you think you can escape the eviction concern by simply making the term of the trust so long you’re likely to pass away before the term is up, think again. “Die before the term’s up and your property reverts to the estate and takes an estate tax hit. That’s why planners stress picking a term you and your spouse expect to outlive.”
If you feel a QPRT may be a good planning tool for your family, give us a call. We can answer any questions you have and help you determine whether a QPRT could benefit you. Friday, June 24, 2011 New Tax Breaks Could Have Huge Benefits for Grandchildren
Last year was a fairly big year for tax news; with the repeal of the estate tax, the increase in the GST tax exemption, changes to 401(k) and IRA rules, and eventually the agreement on the new estate tax laws, we never wanted for something to write about. But one of the biggest stories may be just hitting the news now. A recent article in the Washington Post reveals that with the right planning, your grandchildren may now have “the ability to receive a tax-free inheritance of $400 million or more.” This isn’t just big news, “this is by far the biggest estate-planning break on record… a tax break you could drive 10 Mack trucks through.”
With so much political huffing and puffing over the state of taxes one might well wonder how a tax break this big could come about. Washington Post writer Karen Hube explains: “This massive estate-tax break was created last year in two steps. First Congress lifted a $100,000 income restriction on who can convert a 401(k) or IRA to a Roth IRA, allowing even the wealthiest investors to convert. Then late in the year, it raised the generation-skipping transfer tax exemption (GST) to $5 million until 2013...Both of these provisions on their own create possibilities for significant tax savings. But used in combination, the results are exponentially greater.”
Of course, taking advantage of this opportunity may not be as easy as it is laid out in the article. With so much at stake, interested investors will definitely want to consult with their estate planners and financial advisors before jumping into anything. But an opportunity like this one won’t come along every year, and this particular opportunity won’t last forever—the $5 million GST tax exemption will only last until 2013. If you think this tax break may benefit your family don’t wait, contact your financial advisor immediately. Wednesday, June 22, 2011 Make Financial Decisions a Family Activity
When it comes to chores many families are not so different from businesses, with members tending to “specialize” in something they enjoy or are good at. Certain chores will often become the domain of one family member or another, lessening the daily burden all around. This may work well for tasks such as cooking, doing the laundry, mowing the lawn, etc.; but when it comes to finances this “specialization” can create long term problems.
While it may be convenient for one partner to pay bills every month, if both partners aren’t aware of the family budget and month-to-month financial status there can be a tremendous disconnect in spending habits, leading to resentment and often a slow decline into debt. Even more frightening, disaster can strike quickly if the “accountant spouse” dies or becomes incapacitated. Quite often the surviving spouse has no idea what the family financial status is, or even where accounts or investments are located and how to access that money.
The best solution is for couples to talk about their finances often, or take turns being the family CFO. You may even want to consider involving the kids in the family financial planning once they’re old enough. Having a regular allowance or earning pocket money for chores not only teaches kids about money management, but also helps them understand when they have to wait to get that new video game, or when the family may have to cut back on certain luxuries.
Furthermore, children are natural problem solvers and activists, and including them in financial decisions such as which charities the family should support, or how to spend surplus cash can make them feel useful and important, as well as teaching them financial accountability.
Many of us look upon our finances with dread; but it doesn’t have to be that way. Skill with money matters can bring us just as much pride and joy as skill with a paintbrush, tennis racquet, or any other skill that must be acquired with practice and hard work. With a little education, and the involvement of the entire family, we can all become the masters of our own financial futures. Friday, March 04, 2011 Tough Decisions Await Executors of 2010 Estates
If you are the executor of the estate of a decedent who died in 2010 you may think you’re in the clear. After all, there was no estate tax in 2010 right? Making distributions should be a piece of cake. Wrong. Because of the estate tax election available on the estates of 2010 decedents, administering those estates will actually be more work than you may think.
The repeal of the estate tax in 2010 also brought with it a repeal of the “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death. This generally resulted in a higher tax paid on assets than the normal estate tax rate—not good for taxpayers. But 2010 estates don’t have to go by these rules. The legislation passed in December of 2010 gave 2010 estates the opportunity to elect whether they wanted to use the 2010 estate tax laws, or the new laws for 2011. This article in Forbes explains what this means:
“The 2010 Tax Relief Act restored the estate tax for individuals dying in 2010 with a $5 million per person exemption and a maximum rate of 35%. It also repealed the modified carryover basis rules for property acquired from a decedent who died in 2010. However, estates of individuals dying in 2010 can elect zero estate tax and the modified carryover basis rules that would have applied before they were repealed. That means the basis of assets acquired from the decedent would be the lesser of the decedent’s adjusted basis (carryover basis) or the fair market value of the property on the date of the decedent’s death.”
In general this tax election is a good thing, it allows executors to choose which tax formula will cost the beneficiaries the least in taxes; but it does mean a lot more paperwork and a lot more attention to detail. If you are the executor of an estate of a decedent who died in 2010, don’t hesitate to call us. We can answer your questions and help you explore your options. Wednesday, March 02, 2011 Coming in 2012: Change for Retirees
Last month the Obama administration released their budget for the 2012 fiscal year, and included in that budget were a few things that retirees (or those close to retiring) will want to be aware of. If you own a business you may want to keep reading as well, as some of the proposals within the budget would affect not only retirees, but also small business owners. This article in the US News and World Report describes some of the proposals included in the budget, including:
Automatic workplace pensions.This would require employers (with the exception of very small businesses) that do not currently offer a retirement plan to enroll their employees in a direct-deposit IRA account. Employees would have the ability to opt-out if desired.
Tax incentives to create retirement plans.This proposal would increase the value of the tax credit to small businesses that start new retirement plans. The current maximum credit is $500/year for up to 3 years, the new proposal would increase that to $1000/year.
More Social-Security funding.Obama’s budget would allocate $12.5 billion to the Social Security Administration, up $1 billion since 2010. The primary aim of this increase would be to “reduce the backlog of disability claims and decrease Social Security fraud.”
But not all of the proposals included in the budget are beneficial to retirees. Here are a few things you may want to watch out for:
Pension insurance premium increases.“The budget proposes giving the Pension Benefit Guaranty Corporation... the authority to adjust premiums and take into account a company’s financial condition when setting premiums.” Although this is certain to result in premium increases, the increases would be gradually phased in.
Senior Community Service Employment Program funding cut.The proposed budget would reduce funding for the Senior Community Service Employment Program by 45 percent, and would transfer the program from the Department of Labor to the Department of Health and Human Services. Seniors who hope to retrain for new jobs in their retirement years may find this more difficult to do than they expected. Monday, February 28, 2011 Where Should You Live to Escape the Estate Tax?
Do you live in a state that has a friendly attitude toward the estate tax or inheritance tax? You may think you do, but according to this article in Forbessome states made changes to their estate or inheritance tax policies in 2010 as a response to the lengthy uncertainty over the federal estate tax: “Congress took so long to agree on what to do about the federal estate tax, allowing it to lapse in 2010, and many states take their lead from the federal system.”
The federal estate tax is set (for now) but you may still expect some states to continue making changes to their own estate tax. The fact is that state governments are caught between a rock and a hard place; “The changing state landscape... reflects a lot of ambivalence by state officials themselves. They want the estate tax revenue, but worry about chasing wealthy seniors across state borders.”
If you’re looking for an estate-tax-friendly state to which to retire you can check out the link to the map in the Forbes article; but before you move be sure to do your research. Just because a state has no estate tax (or a high exemption amount) one year doesn’t mean it won’t change the next. The best strategy is to be familiar with the state’s history. How long has their estate tax been in place? Has there been any legislation proposed recently regarding the tax? How likely is it that their tax policies will remain the same as they are when you move?
Illinois recently made changes to the state laws regarding estate tax, and other states that are most likely to make changes in the future include Hawaii, Ohio, Connecticut and Vermont. “But don’t count on these efforts... even if you get relief one year, the levy can go up again the next.”
As always, the best strategy is to plan ahead, review your plan often, and have a knowledgeable estate planning attorney on your side. Wednesday, February 23, 2011 The Tax-Man Cometh
It’s that time of year again; the time of year when everyone starts gathering receipts, assessing income and expenses, and making appointments with tax advisors. Tax time can be a very stressful time for many families, but—with the help of this article from MSN Money—perhaps tax season can be made a little bit easier. The article lists 13 tax breaks from 2010 that can help save you money, including:
-
The tax credit for first time homebuyers (if you’re not a first time homebuyer don’t give up, there’s a credit for existing homeowners too.)
-
The parking and transit credit
-
The college tuition tax credit
-
The credit for energy-saving home improvements
And then of course there are the two we’ve been mentioning here on our blog for the past few months:
-
The estate tax exemption, and
-
The annual gift tax exemption
Of course, not every item on the list is going to apply to every reader, but if even one or two credits apply to you or your family it can be a huge help.
Don’t rely only on this article to ease your 2010 tax burden, your own advisors and tax planners—who know more about your family’s personal and business finances—will be able to give you much more in-depth advice on how best to address your own tax situation. In addition, talking to a professional advisor right now provides the perfect opportunity to tackle any issues in 2011, hopefully making this time next year a much happier and less stressful time for everybody. Wednesday, January 12, 2011 No More Excuses, It’s Time To Plan Your Estate
The dust surrounding all the estate tax law “remodeling” is finally settling, and it’s time now for families to give their old (or future) estate plans some serious scrutiny. For all of you who were waiting until Congress made some firm decisions on the estate tax laws—there are no more excuses. Forbes writers Janet Novack and Ashlea Ebeling explain in their recent article why—now that the estate tax is no longer in flux—it is so important to move quickly on your estate plan.
Many first time planners will be ready to take advantage of the new laws, now that the “hefty $5 million exemption, combined with a new portability provision, should allow many affluent couples to simplify their planning.” Couples with estate plans already in place will be able to take advantage of the new laws as well, but the motivation to update their existing plans may have more to do with the need to undo outdated formulas in wills and trusts that, with the new laws in place, may now do more harm than good.
“Many couples have old wills designed mainly to preserve the estate tax exemption of the first spouse to die, something the law now does. Under these old "formula" wills, when the first spouse dies assets equal to his or her federal estate exemption go into a "bypass trust" for their kids. The surviving spouse has access to the trust's earnings and, if need be, principal, but what's in the trust "bypasses" the survivor's estate. Problem is, with the exemption jumping to $5 million (it was only $2 million in 2008) the survivor could be left with nothing outside the trust.”
The new estate tax laws are much friendlier to middle-income families, but don’t let that fool you into thinking you don’t need to plan at all. “Whatever your age, marital status or net worth, you need a will (saying who gets your stuff); a living will (stating your wishes about end-of-life care); a health care proxy (naming someone to make medical decisions for you if you can't); and a durable power of attorney (designating someone to act on your behalf in financial and legal matters if you can't).” Not to mention you still may have state taxes to contend with in your estate plan.
Now is the time to call your attorney and talk about estate planning in the New Year. There is no more reason to procrastinate, and it’s your family’s legacy that’s on the line. Monday, December 20, 2010 At Long Last: What to Expect from Estate Taxes in 2011
It has been a long and uncertain year for anybody interested in the future of the estate tax, filled with a few ups, a few downs, and a lot of speculation. But after the recent passage of the new bipartisan tax bill all of the confusion and speculation is finally at an end, and it’s very close to what we anticipated early last week. The bill is good news for most taxpayers; the Wall Street Journal says there are “many winners, a few losers,” and according to the New York Times “Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.”
Here is a brief overview of what you can expect in 2011:
New Estate Tax Exemptions and Rates:The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate. This is opposed to the $3.5 million exemption and 45% rate some lawmakers were hoping for.
Tax Election Option for 2010 Estates:As mentioned in a previous post, this is one of the biggest parts of the new bill. There may have been no estate tax in 2010, but there was also no “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death, as is usually the case. This led to a higher tax paid on the assets if and when they were sold, in spite of the lack of estate tax. Tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules—a happy option for 2010 heirs.
Estate, Gift, and Generation-Skipping Taxes: In recent years these three levies have had varying exemption levels, making gift giving and succession planning and challenging exercise at best. The unification of all three makes tax planning and giving gifts to grandchildren much easier than it used to be.
Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.
How Long Will It Last? We’re all glad that the waiting is over and we finally know what to expect, but the new law is only effective through 2012, at which point the provisions will “sunset.” This new tax package sets our minds at ease now, but the estate tax issue is far from over. It looks as if we may have to revisit the issue in 2012-2013.
With the threat of high estate taxes out of the way does any reason remain to create (or update) your estate plan? Absolutely!
Estate planning is about more than just planning for taxes, it’s about taking control of your assets and choosing how your estate will be distributed. Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is essential regardless of the state of the estate tax.
At the very least, the recent fluctuation of the law means that you’ll want to call our office and make an appointment to have your existing plan reviewed and updated to ensure you don’t have any outdated clauses that could negatively affect your heirs. Wednesday, December 01, 2010 A Good Year for Giving
The season of giving is upon us... and thanks to 2010’s unusual tax laws we may see some very large gifts before the year is out! If you are considering being particularly generous this year, this article from Reuters explains why the federal government is making 2010 an exceptionally good year for giving.
Most people know that for this year only there is no estate tax. But the year is almost over, and next year the estate tax is slated to go up to an astounding 55%. The more you can afford to give away now, the less that will eventually be subject to the estate tax. However, “the incentive to give stems not just from a looming increase in the estate tax, but also from the lowest tax rate on gifts in a generation -- a maximum of 35 percent. That top rate was 45 percent in 2009 and jumps to 55 percent next year unless Congress acts.”
Those last three words, “unless Congress acts,” carry a lot of weight. Congress could choose instate lower and more reasonable tax rates in 2011; but right now we just don’t know, and the clock is ticking to the end of this “golden year.” There is nothing wrong with waiting to see what happens, but you may want to at least have the conversation with your estate or financial planner, so you know your options and can act swiftly when the time comes.
Very few people really want to give away their hard-earned money; but as the saying goes, you can’t take it with you, and most people would rather leave their legacy to their family rather than the government. |