It is officially dead....for now. On April 30th, the bill died in the Committee on Finance and Tax. So for now, nonresdients with property in Florida upon their death do not have to worry about having to pay a Florida estate tax. As stated before, there are still PLENTY of other reasons though to become a Florida resident.
The primary reason that people engage an estate planning attorney or financial planner is to ensure they have enough money for their retirement. So how do you know how much is enough?
To get a realistic picture of what your retirement expenses will likely be, you should do the following:
Calculate your current expenses. If you currently operate with a good household budget, this should be simple. To get a quick snapshot, consult your latest tax return. Take your after-tax income, deduct your savings and charitable contributions and the total will generally tell you what your cost of living is now.
Subtract the expense you will no longer have in retirement. Perhaps your mortgage will be paid off by the time you retire. Subtract any child-related expenses, expenses associated with a job (clothing, commute costs, etc.), entertainment and leisure expenses (don’t forget you’ll have those senior discounts!) and any other expense you think you’ll leave behind once you retire.
Add expenses you may have in retirement. Your healthcare expenses may be more. You may decide you want to spend more to travel. Or you may have children or grandchildren that need financial assistance.
Once you’ve done this exercise, your next step will be to engage some professional help to develop a comprehensive retirement plan.
For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.
There are a number of myths surrounding retirement plans and when you are in the process of doing your estate planning, you should be able to sort truth from fiction. So here, finally, are some unvarnished truths about retirement plans:
You can take money out of your 401(k) before you retire without penalty. Most 401(k) plans have exemptions to early withdrawal penalties. You can take early withdrawals to pay medical expenses, if you lose your job and you are between the ages of 55 and 59 ½, if you set up substantially equal periodic payments (which you can do at any age) or if you are taking dividend distributions from employer stock within an employee stock ownership plan (ESOP). You won’t have to pay early withdrawal penalties, but the IRS will be expecting you to pay income tax on those withdrawals.
You can take money out of your traditional IRA before retirement age without penalty. Yes, there are several ways you can take money out of a traditional IRA before you are 59 ½ without an early withdrawal penalty (but not without paying income tax!). Your estate planning attorney can provide you with information on how to do this – including setting up installment payouts, paying for college or buying a first home.
You do not have to automatically take money out of an IRA or 401(k) when you turn 70 ½. You are required to take a minimum amount out of an IRA once you reach the age of 70 ½; however, if you own a number of IRAs you can subtotal the amount from each and take the grand total out of just one. If you are still employed at age 70 ½, you do not have to take money out of your 401(k) unless you are the owner of a business.
If you need more information about retirement plans, contact our Jacksonville Florida estate planning law firm.
A charitable trust is truly the gift that keeps giving since it allows you to generously donate assets to charity and provides you and your heirs with tax breaks.
Establishing a charitable trust is fairly easy. First, the charity you choose must have tax-exempt status from the IRS. With the help of an estate planning attorney, you can then set up the trust and transfer the assets you wish to donate to that trust. The charity serves as the trustee, and manages or invests the property to provide income for you or your beneficiaries. Then, upon your death, the property reverts to the charity.
Usually, the income you receive from a charitable trust is through a fixed annuity or a percentage of the trust assets (at least 5% of the value of the trust per IRS rules).
By setting up a charitable trust, you receive significant tax advantages. You can take an income tax deduction over five years for the entire value of your gift, minus the income you are likely to receive from it.
If you donate property, stocks or bonds, the charity will sell these to acquire property that will produce income for you – and since charities are not subject to pay capital gains tax, all the proceeds remain in the trust.
When you die and the trust property reverts to the charity, it is no longer a part of your estate, so it is exempt from any federal estate tax.
For more information on establishing a charitable trust, consult a Florida estate and tax planning attorney.
If you’re like most people, you may believe that your estate planning duties are done once you make a will. Wrong. There are several important things a will can do for you, like distribute family heirlooms, but there are just as many – if not more – important things it cannot do:
Avoid probate – if you leave property to someone through your will, it will not be passed on to them except through probate court proceedings, which can take a year or more.
Reduce estate taxes – a will won’t help you reduce estate taxes; you will need to set up some kind of a trust to do that.
Provide care – if you wish to provide for someone with long-term care needs, a will cannot do this for you.
Distribute some types of property – a will cannot allow you to distribute property that you co-own with someone else or have transferred to a living trust, the proceeds of a life insurance policy, stocks or bonds held in transfer-on-death form, money in a payable-on-death account, or money in a pension plan, IRA, 401(k) or other investment account.
Provide for pets – pets cannot own property, so to provide for them properly after your death, you will need to designate a caretaker for your pet and leave appropriate pet care funds for them.
To learn more about the proper uses of wills and trusts, consult a Florida estate and tax planning attorney.
A buy-sell agreement is an agreement between business owners that states what is to happen upon one of the owners becoming disabled or upon their death. The surviving owner usually does not want to go into business with the surviving spouse or children of their deceased owner. However, buy-sell agreements can be very tricky as they usually attempt to set a price for the value of the ownership interests and getting the IRS to accept that valuation is the key. Below are several things to keep in mind when drafting a buy-sell agreement.
Again, buy-sell agreements are very important but also very tricky to draft and require an attorney to be involved. This is not a do-it-yourself type of deal. There are plenty of cases out there where DIY buy-sell agreements came back to haunt the deceased's estate along with the surviving business owner(s). To learn more about buy-sell agreements, consult a business, tax or estate planning attorney.
Our income taxes fund the U.S. Treasury, and those of us who earn more than $100,000 annually contribute more than 60% – so it is no surprise that this is the group scrutinized the most by the IRS.
The IRS has refocused its priorities to target the wealthy (those earning more than $1 million), the self-employed, small businesses and tip-income workers, so if you fall into any of these categories, you need to ensure your return doesn’t attract unwanted attention from IRS auditors.
Some red flags:
Offshore accounts – bank accounts and credit cards issued by offshore banks virtually shout to the IRS: “Audit me!” If you bank outside the U.S., be prepared to show good reason why.
Shady trust accounts – attempting to shelter income or assets in a family or business trust generally does not fly with the IRS. Any trust accounts you set up should be done so with the input and advice of an estate planning and tax attorney.
Illegitimate business expenses – there are strict rules on what constitutes a legitimate business expense; one cannot convert personal expenses into business expenses simply by reclassifying them as such.
Tax protest schemes – many have been tried and failed; there is no “secret” way to shield your income from taxes.
To ensure you are not vulnerable to an IRS audit, consult an estate and tax planning attorney.
What happens to your property located in the United States upon your death if you are a Canadian citizen? That is the situation with quite a few Canadians who have homes here in Florida that they live in during the winter months. Prior to this year, a non-resident had an estate tax exemption of only $60,000. Meaning upon their death, all they could pass tax free to a beneficiary was $60,000. After that, they were subject to a tax rate of 45% (for 2009).
If your surviving spouse is a non-resident, then you can defer the estate tax with the use of a qualified domestic trust, also known as a QDOT. However, the trustee for a QDOT must be a U.S. trustee with the power to withhold taxes as withdrawals are made for the benefit of the surviving spouse. The purpose of thise requirement is to ensure the non-resident spouse pays the taxes on the assets and does not just leave the U.S. without paying the tax.
However, this year specifically, there is no estate tax...even for a non-resident. That being said, there are specific basis rules in play this year since the full step-up in basis is not available. The basis rule specifically relating to non-residents is that they may only step-up $60,000 worth of assets this year. If Congress does nothing to change the estate tax in its current form, the pre-2010 rules will again be in place on January 1, 2011 with a limited amount of $60,000 available to be passed tax-free to your beneficiaries.
For more information on estate planning for non-residents, please consult with an estate planning attorney.
Most of us have submitted our 2009 taxes and breathed a sigh of relief that we don’t have to pay attention to another tax return until 2011 rolls around. Not so fast. New laws enacted over the past year have made figuring taxes a challenge, and that trend will continue with 2010 returns due to the passage of the new health care legislation.
Do you have a healthcare savings account (HSA)? In 2010, the penalty for non-qualified distributions double, from 10 to 20 percent. In 2011, over-the-counter drugs will no longer qualify as a HSA expense – only prescription drugs and eyeglasses and insulin qualify. And if you do not use all the money you have set aside in your HSA during the year, you will likely lose any remaining balance. Beginning in 2013, there will be a $2,500 cap on how much you can put into your healthcare savings account.
Also taking effect in 2013 is a 3.8 percent tax on net investment income for those single taxpayers earning $200,000 or more, or joint filers with gross income of more than $250,000. This is in addition to capital gains and other required taxes. This tax does not apply to qualified pension plans, IRAs, 401(k) plans, municipal bonds or tax-exempt interest. A higher Medicare tax will also go into effect in 2013 for higher-income households. See my blog posts from April 19th, April 21st ad April 23rd.
On the horizon: the Obama administration’s proposal to increase the top 15 percent capital gains tax to 20 percent in 2011 for those with household incomes exceeding $250,000. And if the 2001 and 2003 federal tax cuts are allowed to expire, tax rates for high-income households can go even higher.
If you have questions about how new legislation may affect your estate and tax planning, consult an estate planning attorney.
Florida, like many other states, has a slayer statute. The statute states that a murderer is not able to receive property or any other benefits by reason of killing someone. So if you kill your parents and you are a beneficiary of their will, you are not able to take your share of their estate under the will. Florida treats you as if you had died before your parents.
The IRS recently released a private letter ruling (PLR 201008049) which came to a different result. While Florida law may prohibit an individual who kills an IRA owner from benefitting under the IRA, the letter ruling states that a murder conviction in and of itself does not have the effect of retroactively removing the individual as the designated beneficiary of the decedent's IRA as of the measuring date. Therefore, an individual convicted of and imprisoned for the murder of the decedent will still be treated as the designated beneficiary of the decedent's IRAs despite the state law slayer statute treating him as predeceased for purposes of inheriting property from the decedent. The decedent's life expectancy will be used to calculate required minimum distributions.
To speak further about the private letter ruling, please consult an estate planning or tax attorney.
Most people think that to receive tax benefits from a charitable trust, they have to have large sums of money to donate and an army of tax lawyers to set up and administer the trust. But with a pooled charitable trust, you can donate as little as $5,000 and receive tax benefits.
A pooled charitable trust is just what it sounds like – a trust set up by a charity or investment company that accepts donations from anyone, then pools the donations into one investment fund. Dividends are paid to donors according to the fund’s earnings and the donor’s contribution.
Most pooled charitable trusts have minimum initial donation levels, but then allow donors to contribute subsequent amounts in as little as $1,000 increments. You can make contributions via cash, stocks or bonds.
Each time you make a donation to the pooled charitable trust, you can take an income tax deduction. If you donate stocks or bonds, you can convert those assets into income-generating vehicles without paying capital gains taxes. If you owned the stocks or bonds for over a year, the charity doesn’t have to pay capital gains either.
Any payments you receive from the trust are considered regular income, but you can request that your earnings be retained until you reach a certain age. Upon your death, the charity receives your donations outright, without probate.
If you’d like more information on pooled charitable trusts, consult a Florida estate and tax planning attorney.
The average income tax refund in 2009 will be over $3,000 and if you are like many Americans, you may be tempted to spend it all on a vacation or shopping spree. However, there are wiser ways to spend that refund check that will pay dividends for a more secure financial future:
Pay off debt – by paying off credit card debt that may be costing you 15% or more in interest, you can save yourself a significant amount of money over time.
Save – for retirement, for college, or for an emergency. Keep emergency funds in an interest-bearing account that is accessible at any time; invest retirement money in a traditional or Roth IRA. Start or contribute to a 529 college savings account.
Buy energy-efficient appliances – beginning April 16, 2010, Florida will implement a program that pays you a 20% rebate for replacing an old appliance with ENERGY STAR® qualified appliances. Eligible products include refrigerators, freezers, dishwashers, clothing washers, room air conditioners and gas tankless water heaters. You can also receive an additional $75 rebate with proof that you recycled the old appliance.
To determine the best ways to provide a secure financial future for you and your family, consult an estate and tax planning attorney.
With the uncertainty still there as far as what Congress will do with the estate tax, many are waiting to see where it all ends up. However, there are many non-tax related reasons to plan your estate that have nothing to do with Congress lack of clarity.
Disability planning is a very important part of estate planning. Most insurance plans and Medicare do not cover long-term care, meaning the money will come from your own pockets. You should always consider using long-term care insurance for protect your assets. Statistics says that almost half of Americans 65 or older will end up in a nursing home at some point.
A living trust can also include disability provisions to make sure you are taken care of according to your wishes. It is best to plan now just in case something happens to you tomorrow and you are no longer competent to sign your estate planning documents.
Special needs planning is also an important reason to do your estate planning now. A special needs trust ensures that your special needs beneficiary (usually your child) is taken care of financially without being disqualified for government benefits. Usually this type of planning is done with life insurance to ensure that money is there to care for the beneficiary after your death.
You also can provide asset protection for the assets left to your surviving spouse and beneficiaries. This is really important to ensure that they assets go to your ultimate beneficiaries instead of anyone else, including a surviving spouse's new spouse should they get remarried. Speaking of getting remarried, estate planning should be done in a blended marriage situation. A lot of blended marriages have children from previous marriages and the one spouse usually wants their assets to go to their children only. To prevent any legal disputes upon death, an estate plan must be completed.
To speak with someone on why you should still do your estate plan in 2010, please consult with an estate planning attorney.
Last week Senator Max Baucus (D-Mont) stated that action on a small business tax cut bill should be coming forth and then shortly thereafter, a bill on the estate tax. He stated that discussions will begin with the estate tax exemption from 2009 which was $3.5M per person with a tax rate of 45% for anything above and behond $3.5M.
Having read the above in an article, this is what it really means. It is very unlikely that anything will be up for a vote or passed until after the November election. If they made good time on the small business bill, that means they would not get to the estate tax bill until June or July, making it likely a vote would not take place on it until late September or October. Due to the mid-term elections in November, there will not be anyone available to vote on the bill. This subject will show up in the November elections and will be politicized. Stay tuned to further updates...
To learn more about the estate tax, please consult with an estate planning attorney or other estate planning professional.
The Wisconsin Supreme Court ruled last week that personal estates -- not those who inherit from them --are responsible for paying state and federal estate taxes.
From the Associated Press article on the ruling:
Writing for a unanimous court, Chief Justice Shirley Abrahamson said state and federal law is clear in making estates responsible for tax liabilities that can be up to 50 percent on the accounts and not the recipients.The court declined to adopt a so-called apportionment rule that would divide tax liabilities among beneficiaries of an estate when the deceased does not specify who is responsible. Abrahamson said state lawmakers, not the court, should decide whether that is the policy in Wisconsin.
The decision was a victory for Jessica Schleis, who was 17 when she inherited more than $3.7 million in two accounts from her deceased godfather, James Sheppard.
Sheppard, a co-founder of the Menomonee Falls, Wis.-based Cousins Subs sandwich chain who died in 2007, had an estate worth $12 million and other heirs scattered across the country.
Her parents signed an agreement with the estate to keep 50 percent of the money in the accounts to cover any "required" state and federal taxes on them.
Attorneys for Jessica Schleis and her parents later said the agreement was not binding since they were not required to cover the tax bill under Wisconsin law.
The estate filed a lawsuit to require Schleis to pay all the taxes generated by the two accounts she received. Its attorneys argued she would receive a windfall at the expense of other heirs if she wasn't required to pay the taxes as originally envisioned.
A Washington County judge dismissed the case, saying the estate was responsible for the inheritance taxes.
Are you up to speed on the latest developments concerning estate taxes? If not, contact our Jacksonville Florida estate planning law firm.
On April 28, 2010, Indiana Democrat, Brad Ellsworth, introduced a bill, H.R. 5168, to extend the first-time homebuyer credit through December 31, 2010. The orignal credit ran out on April 30, 2010. The tax credit for first-time home buyers is $8000 while the tax credit for repeat home buyers is $6500. To qualify as a repeat buyer, you must have owned your home for five consecutive years out of the prior eight years.
Further, if you are a single taxpayer, your income must be lower than $125,000. The limit is $225,000 for married couples filing jointly. The home being purchased must be valued at $800,000 or less to qualify. If the home is purchased from a relative or your spouse, it also will not qualify for the tax credit.
If you purchased your home in 2010, you may amend your 2009 return to include the tax credit. The IRS requires a copy of the HUD statement along with form 5405 to be filed along with the tax return.
To speak more about the first-time homebuyer credit, please contact a tax professional to answer all your questions.
My last blog began a series of questions you should ask yourself to see if your estate plan needs to be updated. Again, if you answer “No” or “I don’t know” to any of the questions, please set up a consultation with us so that we may review your estate plan with you to either tell you what it says or update it so that you have an estate plan that works for you and your families needs:
If your estate plan needs updated, please conult with an estate planning attorney to set up a review of your current estate plan.
Does your estate plan need a tune up? Although most Americans do not have an estate plan, those who do have an estate plan set up their estate plan, shove it in a file drawer in their homes and completely forget about it afterwards. Below are a series of questions to quickly ask yourself to make sure that your estate plan still does what you originally wanted it to do. If you answer “No” or “I don’t know” to any of the questions, please set up a consultation with us so that we may review your estate plan with you to either tell you what it says or update it so that you have an estate plan that works for you and your families needs.
Again, if you answered "No" or "I don't know", please consult with an estate planning attorney to review your estate plan and ensure it still works for you and your family.
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