No Estate Tax Means No Need to Plan, Right? . . . Wrong.
July 19, 2010
Since the estate tax was repealed at the beginning of this year many people have rejoiced in the thought that there’s no need to create an estate plan. While it may be true that for the moment, at least, your assets don’t need to be protected from outrageous estate taxes, there are still a number of reasons why it is not only beneficial but essential to have a plan in place for your finances after you pass away.
Attorney and accountant Bob Carlson has written an article in InvestingDaily.com in which he enumerates four reasons to create an estate plan even without the motivating factor of estate taxes (he calls this Legacy Planning):
- Financial Security
- Continuing management and caretaking
- Protection (from creditors, predators and lawsuits, if not from taxes)
- Other tax burdens (such as state taxes, capital gains taxes, gift taxes, etc.)
There are many things we do in our lives not because we have to, but because we know it’s the right thing to do. Estate planning is no different. Creating an estate plan is not just about taxes, it’s about you and your family planning for the future. Creating an estate plan is about being there for your children even after you’ve passed away; it’s about protecting them, providing for them, and even teaching them fiscal responsibility.
Will the lack of estate taxes in 2010 lead you to ignore these other important reasons to protect your family and plan for the future?
Will Billionaire Steinbrenner’s Death Inspire Congress to Reinstate the Estate Tax?
July 15, 2010
Common superstition says that famous deaths come in threes, but the death of New York Yankees owner George Steinbrenner on July 13 makes four billionaire deaths in 2010. It’s hard to deny the significance of such events in a year when there is no estate tax.
According to the Associated Press Steinbrenner’s family is set to receive a tax break of “about $328 million” because of the estate tax repeal this year. This number, along with the millions of dollars saved (that would otherwise have gone to pay estate taxes) by the families of Dan L. Duncan, Walter Shorenstein, and Mary Janet Morse Cargill may inspire Congress to take action on the issue of the estate tax before the year is over. The Washington Post quotes Senator Bernard Sanders of R.I. as saying, “In the midst of this terrible recession, the idea of giving billionaires a massive tax break is obscene… Already we have four billionaire families who are not paying taxes — Steinbrenner’s being the last one. Many billions are being lost. We have to address that reality right now.”
Although there is still some talk of the possibility of the estate tax being reinstated retroactively, most lawmakers and attorneys agree that the further into 2010 we get the less likely this becomes. But missing out on the estate taxes of four billionaires has to hurt, and the members of Congress are not likely to drag their feet much longer. One way or another, we can soon expect to see the issue of the estate tax become a hot topic of debate in Washington. Our firm will keep you abreast of any changes to the law that could affect you, your loved ones, or your estate.
More News About the Repealed Estate Tax
June 17, 2010
Six months into 2010 and the estate tax repeal is still making news. This time it’s a story about Texas billionaire Dan L. Duncan who died in March, leaving all of his billions to his spouse, family and various charitable organizations… and none to the government:
“Had his life ended three months earlier, Mr. Duncan’s riches — Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world — would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher… Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.”
According to the NY Times article this news is meeting with mixed reactions. Opponents of the estate tax (sometimes called the death tax) are hoping to make the repeal permanent. Others, however, don’t agree:
“’The ultrawealthy in this country will still be able to pass on enormous wealth to the next generation,’ said Chuck Collins, who studies income inequality and has worked with billionaires like Warren E. Buffett and Bill Gates to promote an estate tax. Mr. Collins argues that the tax is a ‘recycling program for economic opportunity.’”
Whatever happens in future years, considering that this year is already half over, it can only be hoped that heirs and executors won’t have to worry about the tax being reinstated for persons dying in 2010, although Congress could still reinstate it retroactively; this leaves us free to look ahead and plan for 2011 when the estate tax is now set to return at a whopping 55%. If you’re wondering how all these changes will impact your estate planning, we may be able to help with some answers and with some techniques to “hedge” against the return of the estate tax.
Recent Deaths Bring Home the Consequences of No Estate Tax in 2010
May 8, 2010
There was too much confusion to be much rejoicing when the estate tax was repealed for a year on January 1st, 2010. Although the words “no estate tax” may sound good, nobody really expected the state of affairs would last. Most experts believed that Congress would never actually let it happen in the first place; then when ’09 became ’10 without any action on the estate tax repeal that the George W. Bush administration had put into place experts warned people not to get too comfortable, that a retroactive estate tax would likely be implemented.
Well, we’re 4 months into 2010 and there is still no retroactive estate tax—but there is also still no rejoicing. This is because the lack of estate tax has actually created more problems than it has solved for the wealthy and affluent. According to this article in Financial Advisor Magazine the recent deaths of Texas billionaire Dan Duncan and Taco Bell founder Glen W. Bell, Jr. have only made it clear to tax attorneys that “lawsuits of various kinds will blossom in the estate-tax vacuum. The more money left on the table when the wealthy die, the more likely heirs are to fight for years over who should inherit.”
And you don’t have to be a billionaire to feel the consequences of the lack of tax. This article in Bloomberg Businessweek explains that those who think they’re catching a break on the estate tax could instead “…wind up paying stiff capital-gains taxes on inheritances. That’s because of the disappearance of what’s known as the “step-up” in basis, which allowed assets to be revalued for tax purposes at the time of death.”
But even this is preferable to finding yourself unintentionally disinherited by standard estate tax clauses included in older wills and trusts, a scenario that is more likely to happen than you may think if your spouse or parent hasn’t had their estate plan reviewed yet this year. For more on this see Attorney Gene Osofsky’s article, “Estate Tax Repeal Creates Planning Dilemmas: Some Spouses May Now Be Left ‘Out In The Cold’”.
What is the bottom line? Every silver lining has a dark cloud, and you want to take every precaution possible to keep your heirs safe from the storm during this “gap year” in the estate tax.
Keep Your Estate Safe in 2010
January 11, 2010
Now that it’s 2010 and congress has failed to take action regarding the repeal of the estate tax, we see a lot of articles discussing whether the lack of taxation for a year is a good or bad thing; sometimes these articles go even further, arguing whether estate tax in general is a good or bad thing. These are all interesting discussions, but our firm is more concerned with how your estate plan will hold up this year when it was likely designed to weather very different circumstances.
To this end, we have found that CBS’s Money Watch.com has published a very useful article about what the lack of estate tax in 2010 could mean for you and your family. The entire article is educational, but if you scroll about 1/3 of the way down the page you get to the crux of the article, a section titled “Steps to Take Now.” This section provides you with practical advice on what you can do, and what in your estate plan may need to change in order to keep up with the changing times and taxes:
- Keep good records
- Have an attorney review the “formula clauses” in your estate plan
- Be aware of the tax laws for your state of residence
- Give your estate plan a “check-up” as soon as possible!
As you and your attorney are reviewing your estate plan, keep in mind that the estate tax situation is likely to change again in 2011 (and may even change before 2011, effective retroactively), and try to plan accordingly. As Money Watch author Deborah Jacobs writes, “Whatever might be happening in Washington, no one should postpone the necessary steps. Just because Congress is inefficient and disorganized doesn’t mean that you must follow suit.”
Estate Tax Repeal Creates Dilemma: Some Spouses May Now Be Left Out in the Cold
January 2, 2010
With the New Year has come a dramatic change in the estate tax: for persons dying in 2010, there is suddenly no estate tax no matter how large the decedent’s estate. Although that may sound good, you had better think again. Many couples set up their estate plans years ago on the assumption that at least a portion of their estate would be subject to tax upon the death of the 1st spouse. They then designed their trusts or wills so as to allocate the tax free portion to the children, allocating only the remainder to the surviving spouse. That often made sense when the tax free portion was only a part of the estate and there was substantial additional value to allocate to the surviving spouse. But for 2010, the tax free portion is suddenly 100% of the estate! Thus, for estate plans that still describe the children’s portion in terms of the tax free portion (or use legal formulae with similar effect), that may now suddenly require that– for the estate of a parent who dies in 2010 — the children may now get the entire estate! This is of special concern where the parent has remarried and the bulk of his / her estate is the decedent spous’s own separate property.
As noted in the Wall Street Journal article entitled “Repeal of Estate Tax Creates Planning Dilemmas“,
“You could be in a situation now where everything would go into a trust downstream to the kids and nothing is left to the spouse,” said Greg Rosica, a tax partner at Ernst and Young. “There is a need to revisit the basic estate planning documents to make sure that what you intend to have happen really does happen.”
There are more surprises waiting: the estate tax is scheduled to return with a vengeance in 2011. Beginning in that year, only the first One Million Dollars will be free of estate tax (as compared with $3.5 million in 2009). Complicating the matter still further is that Congress could enact remedial legislation later this year to address these concerns. If it does so, Congress may attempt to make the changes retroactive to the beginning of this year; but, whether this effort at retroactivity will be upheld will likely ultimately be decided by the courts, perhaps years down the road. In a word, there is suddenly much uncertainty in the estate planning arena, and this uncertainty may be with us for a long time. Couples concerned about this should have their plans reviewed by a competent professional. At a minimum, they might revise their plans to build in flexibility mechanisms in order to address future changes in the law as they unfold.
New Developments in the Estate Tax Arena
December 10, 2009
The question on every estate planning attorney’s mind (and on the minds of our clients) is what will happen to the estate tax next year? There is less than a month left before the estate tax expires, and although nobody expects our representatives in Washington to actually let that happen, as of yet there are no firm resolutions regarding the matter. We are, however, getting closer.
The House recently voted not to let the estate tax expire, but instead to let it continue indefinitely at the current rate. Unfortunately the legislation has yet to make it through the Senate, and considering the gridlock that body is experiencing over health care reform, holding our breath for a decision on the estate tax before year’s end isn’t recommended.
The issue that estate planners are most concerned about at this time is not actually what the final decision will be (although that certainly is important), but how long it will take our government representatives to reach that decision. It is generally assumed that any decision reached in 2010 regarding the estate tax will be retroactive, which means that any estates opened next year before the decision is made might at some point have to pay estate taxes retroactively. The possibility of retroactive estate taxes means that holding off on your estate planning until after the legislation has passed is not as wise a decision as you may think.
We know our lawmakers have a lot to think about as 2010 approaches, but so do you—the taxpayers. Let us help you start the New Year off on the right foot: Making your own decisions about your estate planning, and keeping one step ahead in the game.
Jinies.com