Congress and the President have enacted new laws on estate taxes.
Congress yesterday passed new legislation including changes to the federal estate tax laws. As a result, on January 1, 2011 the federal estate tax will return with a maximum tax rate of 35% on estates over $5 million. The new law also includes a provision that allows a surviving spouse to benefit from any exemption not used by the other spouse. (For example, if Husband dies leaving a $3 million estate and Wife dies a few years later leaving a $6 million estate, neither estate would be taxable.)
What is the result of all of this for you? Two immediate thoughts:
First, if your estate plan includes the common A-B planning, you should consider revising the plan. (To determine whether your plan has this technique, read the distribution provisions after the first spouse to die. If you see terms such as 'Marital Trust', 'Marital Gift', 'Family Trust', 'Credit Shelter Trust' or similar references, it's a good bet that you have the A-B plan.) This A-B plan may result in the disinheritance of the surviving spouse, so it's a good idea to have the planning reviewed.
Second, with the exception of 2010 (when the estate tax was repealed for one year), the new estate tax rules mean that fewer folks will be subject to the estate tax than has been the case for many years. As a result, fewer people will require more sophisticated planning (such as Grantor Retained Annuity Trusts, Irrevocable Life Insurance Trusts, family limited partnerships and similar techniques). This is great news for taxpayers who would otherwise be required to give up significant control over the assets in an effort to reduce their tax exposure.
Friday, December 17, 2010
Wednesday, December 15, 2010
Personal Representatives
In most states, it's 'executor', but in Florida, we say 'Personal Representative'.
A state court of appeals in Florida recently ruled on an issue relating to the choice of Personal Representative. The decedent never made a Will, so the question before the court was 'who decides what individual or entity would serve as Personal Representative?'. The decedent's sole heirs were his two children. They agreed on a Personal Representative, but their choice was challenged. The court held that the two children, as the sole heirs of the estate, were entitled to choose the Personal Representative, so long as the person they chose was otherwise qualified.
This holding is not very surprising. Nonetheless, the case does serve as a reminder to consider the individuals you name to make decisions for you. (These choices also arise with you consider someone to make medical and financial decisions for you when you are not able to make those decisions yourself.)
Under Florida law, a probate court will not appoint a Personal Representative who does not satisfy certain statutory qualifications. One example is that, under Florida law, a Personal Representative must be a Florida resident or a close relative of the deceased.
This issue arises with some frequency when folks move down to Florida in retirement. They may have a Will from up north that names their best friend as executor. This nomination will be ignored by the Florida probate court. If the Will then names a successor to serve, the successor may be named (if qualified). If there is no qualified successor, any interested person may petition the court to be named as Personal Representative. That's likely not what the decedent wanted!
A state court of appeals in Florida recently ruled on an issue relating to the choice of Personal Representative. The decedent never made a Will, so the question before the court was 'who decides what individual or entity would serve as Personal Representative?'. The decedent's sole heirs were his two children. They agreed on a Personal Representative, but their choice was challenged. The court held that the two children, as the sole heirs of the estate, were entitled to choose the Personal Representative, so long as the person they chose was otherwise qualified.
This holding is not very surprising. Nonetheless, the case does serve as a reminder to consider the individuals you name to make decisions for you. (These choices also arise with you consider someone to make medical and financial decisions for you when you are not able to make those decisions yourself.)
Under Florida law, a probate court will not appoint a Personal Representative who does not satisfy certain statutory qualifications. One example is that, under Florida law, a Personal Representative must be a Florida resident or a close relative of the deceased.
This issue arises with some frequency when folks move down to Florida in retirement. They may have a Will from up north that names their best friend as executor. This nomination will be ignored by the Florida probate court. If the Will then names a successor to serve, the successor may be named (if qualified). If there is no qualified successor, any interested person may petition the court to be named as Personal Representative. That's likely not what the decedent wanted!
Wednesday, December 8, 2010
Tax Deals in the Ninth Inning
Politicians are discussing last minute deals to alter next year's estate and gift tax laws.
As of this writing, the President has announced a tax deal that, if signed into law, would include a federal estate tax with a maximum tax rate of 35% and a $5 million exemption amount. This deal represents a compromise between having no estate tax (which is the case this year) and an estate tax of 55% after a $1 million exemption amount (which is scheduled to occur on January 1 under current law).
Whether the deal passes is uncertain at this point. Some politicians have expressed dissatisfaction with the terms of the deal and there is always the possibility that proposed laws are changed during the legislative process.
What to do in the midst of such uncertainty? Estate planners have long been close companions with uncertainty, thanks to the abundance of tax law changes over the past decade. From this experience, we have adopted the Golden Rule of Estate Planning: 'Plan for today and make changes as needed tomorrow'.
Planning for today means making decisions based on the laws today, not on what they might be tomorrow. The law today provides for a 55% estate tax as of January 1, 2011. Accordingly, the golden rule suggests you arrange your affairs now so as to minimize the impact of this potential tax. If the law changes later, you can change your estate plan according to the terms of the new law (whatever they might be!).
As of this writing, the President has announced a tax deal that, if signed into law, would include a federal estate tax with a maximum tax rate of 35% and a $5 million exemption amount. This deal represents a compromise between having no estate tax (which is the case this year) and an estate tax of 55% after a $1 million exemption amount (which is scheduled to occur on January 1 under current law).
Whether the deal passes is uncertain at this point. Some politicians have expressed dissatisfaction with the terms of the deal and there is always the possibility that proposed laws are changed during the legislative process.
What to do in the midst of such uncertainty? Estate planners have long been close companions with uncertainty, thanks to the abundance of tax law changes over the past decade. From this experience, we have adopted the Golden Rule of Estate Planning: 'Plan for today and make changes as needed tomorrow'.
Planning for today means making decisions based on the laws today, not on what they might be tomorrow. The law today provides for a 55% estate tax as of January 1, 2011. Accordingly, the golden rule suggests you arrange your affairs now so as to minimize the impact of this potential tax. If the law changes later, you can change your estate plan according to the terms of the new law (whatever they might be!).
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