Estate Planning and Tax Lawyer Blog

Builders often pay lower property taxes for undeveloped property. Real property taxes owed for a newly built home often do not take effect until some requirement takes place that causes the local taxing body to increase the taxes to the appropriate level. But the difference in taxes does not mean that the builder misled the buyer.
If using a real estate agent, a buyer should learn from the agent the expected taxes on new homes. Those buyers who shop for a house without a real estate agent may not be aware of the real estate taxes they will pay for a newly built home. In fact, a buyer may not be aware of the proeprty taxes owed until it comes time to pay the local tax authorities. Please be sure to ask the builder, your lender and your real estate agent to find out what your taxes may be. This willyou a good idea of what they actually will be instead of just one person's opinion.

To read more on this article, visit Buyer beware of confusion over property taxes for newly built homes.

Continue reading "Do not be Confused over Property Taxes on Newly Built Homes " »

The IRS’ marital deduction allows a spouse to pass on his or her assets to a surviving spouse without those assets being taxed.

A marital deduction trust is created to protect the assets of both spouses from federal estate taxes when they die.  So how does a marital trust work?

When the first spouse dies – let’s say the husband – his assets pass not to his surviving wife but to the marital deduction trust and no federal estate taxes are due.  While the wife is still living, the trust generates income for her.  When she dies, the assets in the marital deduction trust are not part of her estate, so are therefore not subject to federal estate taxes.

To qualify for a marital deduction trust:

• The surviving spouse must be the only beneficiary of the trust during his or her lifetime


• The surviving spouse must have unrestricted power over how the trust assets are bestowed upon his or her death


• All trust income must be given to the surviving spouse on an annual basis during his or her lifetime


• The trust must specify who will receive the trust assets upon the death of the surviving spouse

A trustee must also be appointed, and all the assets in the trust must be specified in the trust document.

For more information on marital deduction trusts and Florida estate planning, contact our Jacksonville Florida estate planning law firm.

Marriage may be complicated. Not being married is even more complicated.
Unmarried couples are not eligible for many of the same legal protections or advantages as married couples. However, the number of unmarried couples living together has jumped, leaving financial planners with the task to help these couples determine a fair way to share monthly expenses and, sometimes, big-ticket purchases. Also, the lack of legal structure in a breakup for unmarried couples leads those individuals to manage retirement-savings accounts differently.

Financial planning does not only involve the threat of a breakup, but tax and estate planning becomes more difficult for unmarried couples as well. An unmarried couple should make sure to work with a certified accountant and estate-planning attorney who understands the couple’s circumstances. Unmarried couples should also have proper asset titling, have health-care directives, document their wishes for their estates and draft wills.

“Unmarried couples shouldn’t underestimate the importance of documentation.”

To learn more about this article, visit The (Un) Marriage Penalty.

Continue reading "The (Un) Marriage Penalty" »

Prior to the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation act of 2010, all the talk was that if Congress did pass a bill to deal with the estate tax, that the personal representative would have the choice to choose between the no estate tax/carryover basis rules in place this year or use the 2009 estate tax rules ($3.5 million per estate with a 45% tax rate for everything above and a full step-up in basis).

However, Congress, as always, is unpredictable and passed a law which still gives the personal representative an election. The election is to have the estate be under this year’s estate tax rules (or lack thereof) or be treated under the 2011 rules. The 2011 rules allow a $5 million per person exemption with a 35% tax rate and a full step-up in basis. Further, the 2011 rules allow any unused exemption to be carried over to the surviving spouse to be used upon their death. This allows for more planning to be done upon the second spouse’s death and also gives some flexibility to planning for blended families.

To learn more about the new estate tax rules laid out in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation act of 2010, please contact our Jacksonville estate planning attorney to discuss how these new rules could benefit you and your family.

The estate tax was first enacted in 1916. Since then, the rates have varied and slowly faded away. In 2009, the estate tax applied to estates above $3.5 million in value, or $7 million for a couple, at a rate of 45%. The estate tax disappeared entirely this year due to 2001 Bush tax cuts, only to be scheduled to return in January.

President Obama signed a bill to extend the estate tax for two years at a rate of 35% that will be applied to estates above $5 million in value, or $10 million for couples.

To learn more about this article, visit Inheritance and Estate Tax.

Continue reading "Inheritance and Estate Tax" »

A recent article in Forbes provided some good information on how to deal with inherited IRAs:

Know before you act. Once you inherit an IRA, you should not do anything until you become fully informed about the IRS rules that apply to it. Do not assume that you can treat an inherited IRA the same as you would your own because you cannot.

Beneficiary forms control an inherited IRA. How the beneficiary forms are filled out control what can be done with an inherited IRA. To provide beneficiaries with the most flexibility, there should be both primary and alternate beneficiaries specified on this form. This provides the primary beneficiary with the choice of turning down the account, which can then pass on to the alternates. If an estate is named, then tax deferral is cut short. In addition, the IRA custodian’s default policy will rule if there is no beneficiary form on file.

Spouses have options. A spouse who inherits an IRA has one option that is not available to other beneficiaries: rolling the assets into their own IRA and postponing distributions from a traditional IRA until they reach the age of 70 ½. However, the inheriting spouse may have to pay an early withdrawal penalty of ten percent if they take the money before turning 59 ½ from their own IRA. So the inherited spouse should wait until they are at least 59 ½ before doing the rollover.

There are other cautions that apply to inherited IRAs, so if you need more information on the rules that apply to maximize your benefit or that of your heirs, consult with a Florida estate planning attorney.

A Forbes.com personal finance columnist writes that October may be the best month to set up a GRAT (grantor retained annuity trust) or to loan money to a member of your family.

Why October? Because this month, the hurdle rate for a GRAT is just two percent, and the short-term loan rate for a family member loan is a measly 0.4 percent.

The purpose of a GRAT is to take an asset that is expected to appreciate and place it in a trust for a defined number of years. After those years are up, the beneficiaries of the GRAT receive the amount of the appreciation minus the hurdle rate, free of estate or gift tax. The timing is also right to fund a GRAT because Congress is considering various types of legislation that would put new restrictions GRATs – including a 10-year minimum and a 10 percent gift tax that comes due when the GRAT is established.

The October rate of 0.4 percent is for a family loan of less than three years. For family loans of more than nine years, the rate is still low at 3.3 percent. So if there is a family member out of work who could use a short-term loan, October is a good time to bestow one.

For more strategies to save on taxes, contact our Jacksonville estate planning law firm.

The Wall Street Journal’s Wealth Adviser section takes up the great estate tax debate with two points of view in an article entitled, What Should We Do With the Estate Tax?

Michael J. Graetz, co-author of the book, Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth who is currently a Columbia University law professor, is in favor of maintaining the estate tax. His argument is based on fairness – he argues that the estate tax just affects the small number of Americans who can afford it, and they should be willing to let go of some of their “windfall’ to support the government.

Ed McCaffery, author of Fair not Flat: How to Make the Tax System Better and Simpler and a USC law professor, is an advocate of abolishing the estate tax. He argues that estate taxes are nothing more than an incentive for Americans to “die broke”, that that those who work hard to earn their fortunes are being unjustly penalized for being successful. McCaffrey says that allowing people to keep what they earn is a moral issue.

Until Congress votes – which will now not be until November at the earliest, following the elections – the best advice on what to do about the estate tax is to keep informed and be prepared to act. You can also contact our Jacksonville estate planning law firm.

Assistant Secretary of the Treasury Michael Mundaca said that allowing the estates of people who died in 2010 to be taxed as if it was 2009 is “one of the options on the table” in talks between Congress and the Obama administration, according to a Dow Jones newswire story.

As the story notes, this would help some heirs who might have been exempt from the estate tax if the owner had died in 2009, but who now are facing capital gains taxes if they sell the inherited assets. While the no-estate-tax rule was great for some of the families of billionaires who passed this year, it has subjected more heirs of estates worth less than $3.5 million to higher taxes.

Why? Under 2009 estate tax rules, when heirs sold inherited assets, they owed capital gains taxes only on the appreciation of the asset between the dates it was inherited and when it was sold. Under 2010 estate tax rules, capital gains taxes apply to the full appreciation in value from the time it was acquired by the decedent.

While there are some limited exceptions, there are undoubtedly more people who would not have owed estate taxes under the 2009 rules who now face higher capital gains taxes under the 2010 rules.

Mundaca said that providing an option for 2010 heirs to revert to 2009 rules is one possibility lawmakers are looking at to fill the gap period. But, he said, “We have to work through all this stuff with Congress.”

If you have estate planning “stuff” you have to work through, contact our Jacksonville Florida estate planning law firm.

Abigail Disney, a great niece of Walt Disney, is speaking out on estate taxes. And believe it or not, she is all for it!

Estate taxes only affect 1% of American estates. They are reserved for the extremely wealthy class of Americans and those that inherit from these lucrative estates.

Ms. Disney has been to other countries where estate taxes are not enforced. She explains that these governments suffer extreme financial hardship and are not able to provide the common necessities to its citizens that we as Americans take for granted.

Although the estate tax is currently not in effect, she hopes Congress will reconsider and impose the tax as soon as possible. To check out more from this article, visit Mickey Mouse, the Estate Tax and Me.

Continue reading "Disney Heir Favors Estate Taxes" »

There have been recent discussions and rumors that Congress will retroactively impose an estate tax in 2010. The windfall inheritances and distributions among the wealthy are just a few reasons why Congress would go back and enforce an estate tax.

But the constitutionality of this action will surely be litigated upon. Also, there are new capital gain exemptions, up to $1.3 million from the carryover basis rule and $3 million for spouses who inherit.

This "carryover basis" rule says that in determining gains you use what you paid for an asset as your cost basis rather than the market value of the asset at the time of the grantor's death.

This treatment will result in higher capital gains (assuming the asset appreciates in value) and higher income taxes. But applying the exemptions should ease some of this burden.

Continue reading "Estate Tax Retroactively Applied?" »

One of the estate tax proposals is by independent Vermont Sen. Bernie Sanders and three Democratic senators includes what some are calling a “billionaire’s surtax” of 10 percent as part of a 65 percent estate tax on estates of $500 million or more.

The Sanders proposal imposes a 55 percent tax on estates above $50 million and a 50 percent tax on estates with assets of between $10 million and $50 million. In addition, the 2009 exemptions rates for an individual ($3.5 million) and a couple ($7 million) would be reinstated with anything above that taxed at a rate of 45 percent.

The proposal wants all new estate tax rates to be retroactive to Jan. 1, 2010. The Sanders bill would also put a term limit of ten years on grantor retained annuity trusts and make other changes that impact gifting and estate planning.

The Senate continues to be gridlocked on the estate tax issue, brought about in 2001 by the Bush tax cut legislation that reduced estate taxes slowly before eliminating them altogether in 2010. When those tax cuts expire in 2011, the estate tax will return to its previous level, with only a $1 million exemption per estate and a 55 percent estate tax rate unless Congress acts this year to make changes.

A bi-partisan proposal put forth earlier this year by senators Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) would impose taxes on estates of more than $5 million with a top tax rate of 35 percent.

Keep in touch with your Florida estate planning attorney to learn how evolving estate tax legislation will affect you and your family.

George Steinbrenner, who was known to spend money on New York Yankee player contracts, died June 13, 2010 at the age of 80. Although Steinbrenner spent millions, his family just saved millions by passing in 2010. Details of Steinbrenner’s estate plan have yet to be released.

They saved so much money due to the fact that there is no estate tax in place in 2010. Congress tried to get a patch in place by the end of 2009 but were unsuccessful in getting anything passed. Congress will miss out on almost $15 billion this year due to their inactions. Remember though that the estate tax is scheduled to return in 2011 with an exemption of $1 million per person at a tax rate of 55% for anything above the exemption.

Steinbrenner is the fourth billionaire to pass away this year. Mary Janet Cargill (worth approximately $1.6 billion), Dan Duncan (worth approximately $9.8 billion) and Walter Shorenstein (worth approximately $1.1 billion) all passed away earlier this year.

Continue reading "Steinbrenner Family Saves Millions in Estate Taxes" »

A recent article in Forbes magazine rightly noted that, with the prospect of only a $1 million per estate exemption looming as a possibility for 2011, many more Americans need to have an estate plan in place, especially if they have children.

The report gave some good information on simple steps you can take now to protect your assets for your heirs, including:

Don’t die owning life insurance. If you die leaving life insurance to someone who is not your spouse or a charity, money from that policy will be subject to estate tax. Instead, put the policy in the name of the recipient and gift them enough every year to pay the premiums.

Put assets in each spouse’s name. Dividing assets (except retirement accounts) and putting some in each spouse’s name allows a couple to properly fund a bypass trust that will provide more benefits to the surviving spouse and children.

Maximize your gifts. An individual can give up to $13,000 every year to as many beneficiaries as he or she likes; a couple can gift up to $26,000 jointly to anyone every year. But before you give, make sure you have enough for your own retirement.

Pay medical expenses and tuition. You can pay tuition and healthcare expenses for anyone you want as long as you pay the providers directly. Such payments are not calculated toward your $13,000 annual gift limit, either.

Fund a college savings plan. You can fund a Section 529 college savings plan and earnings are exempt from federal and state income taxes as long as the money is used to pay tuition or certain college expenses.

Roth IRA conversion. Converting a traditional IRA or 401(k) to a Roth IRA will allow you to avoid having to take the annual minimum distributions once you hit the age of 70 ½, which can leave more for your beneficiaries. Plus, once you pay any income taxes on pretax contributions or earnings, all future growth is tax-free.

Need more help in preparing for the future? Contact our Jacksonville estate planning law firm.

Currently, there is no federal estate tax. Although it is coming back next year, there is great debate over what the tax will look like. Unless Congress acts, the estate tax will only exempt $1 million of a person’s estate—under the previous estate tax $3.5 million was the max amount to be exempt. And you’re not off the hook if you have an heir who passes in 2010, you may still have a federal tax liability on your inheritance. So, how are estate planning attorneys dealing with the legal uncertainties? They try to do as little as possible and when they absolutely have to do something, they just hope you did the right thing, suggests Steve Hartnett, associate director of education at the American Academy of Estate Planning Attorneys.

Estate planning attorneys are also facing equally confusing questions when asked to draft an estate plan for someone who is living now and plans on doing so, at least until 2011. To read more on this topic see Legal uncertainties over the federal estate tax.

With all the confusion over the current state of the federal estate tax it is wise to seek legal counsel. Drafting your own documents could result in some significant problems in the future. If the current legal uncertainties are perplexing attorneys who have been practicing in the field for decades, it is sure to confuse someone who has no legal background whatsoever. Contact an Estate Planning Attorney to ensure you avoid any future problems with your estate.

Houston billionaire Dan L. Duncan became the unwitting poster child for the 2010 estate tax lapse when he died in March, allowing his $9 billion fortune to pass to his children and grandchildren tax-free.

Had he died three months earlier, his estate would have been poorer by 45 percent – in other words, that’s $4 billion the U.S. Treasury did not collect because of no estate tax in 2010.

This year is the first since 1916 when there has been no estate tax. The estate of America’s first billionaire, John D. Rockefeller, was taxed at a rate of 70 percent upon his death in 1937.

The history of estate taxes in the U.S. goes back to the Stamp Act of 1797, which required a federal stamp on wills in probate. Revenues were used to pay off war debts. The Stamp Act was repealed in 1802, but several more sporadic estate tax laws were enacted over the next century to help finance wars. When the wars ended, the acts were repealed.

The Senate Finance Committee is currently working on a compromise to reinstate the federal estate tax, and it still remains clear whether or not it will be made retroactive and applied to estates like Duncan’s.

One thing most estate planning attorneys agree on: the Duncan family has a vast war chest to fund a constitutional challenge to any retroactive tax.

If you need more information about business exit strategy planning, contact our Jacksonville Florida estate planning law firm.

The Section 7520 rate, a minimum interest rate that the IRS makes you use, is at 2.8% for July. This rate is published on a monthly basis. An example of when this rate is used is when you create a note. Recently, I prepared a short term note, less than three years, using an interest rate of .76%.

With rates being this low, it is a great time to do some advanced estate planning. A few great planning ideas include:

1) Grantor Retained Annuity Trusts (GRATs). A GRAT is a trust where the grantor retains the annuity interest for a period of years with the remainder going to the beneficiaries. The annuity payment is calculated using the 7520 rate. With a low rate, the assets should be able to increase faster than the interest rate. Therefore, the investment returns above and beyond the interest rate is passed on to the beneficiaries of the GRAT.

2) Charitable Lead Annuity Trust (CLAT). The same reasoning for doing a GRAT applies to a CLAT. The difference is that a charity has the annuity interest instead of the grantor.

3) Gift of a remainder in personal residence or farm. A lot of clients give a piece of real estate to charity upon their death. With low interest rates, the life estate retained by the property owner is worth less and the remainder to the charity is valued higher. The higher the gift to a charity, the bigger the tax deduction.

4) Notes to family members. With banks still being reluctant to give loans to new businesses, some clients are giving intrafamily loans. The interest rate will be low on the note, very low if the note is for less than 3 years.

The above are just a few great advanced planning opportunities available now while the 7520 rates are low. However, Congress and the IRS have recognized some of these and are discussing how to increase the taxes being paid. So plan now while the planning is good.

To discuss planning opportunities while the 7520 rate is low, please consult with an estate planning attorney.

State estate taxes, like federal estate taxes, are constantly changing. The federal estate tax expired on January 1, 2010. Since the federal tax expiration, its restoration has been uncertain and federal lawmakers have been putting off action in some cases. Some of the states fluctuation instability stems from the federal mess. In the interim, 19 states and the District of Columbia have imposed their own estate and/or inheritance tax on estates not left to a spouse or charity. Some of these individual state taxes are even taxing modest estates. Hopefully the federal lawmakers will make some decisions, because largely what happens in the states will depend on what happens federally.

Summary of the 19 states plus Washington D.C.:

• 11 States and Washing D.C. – levy an estate tax only
• 6 states – levy an inheritance tax only w/ a rate dependent upon the relationship of the heir to the deceased
• New Jersey and Maryland – levy both an estate and inheritance tax

To read more about this topic see 19 States impose tax on estates not left to a spouse or charity or Disappearance of the federal estate tax creates confusion.

To discuss the current and future estate tax situation, please consult with an estate planning attorney.

Contingency planning for estate taxes has never been more critical than it is this year.  Why?

The federal estate tax expired on Jan. 1, 2010.  In addition, a long-standing provision that "stepped up" the basis of someone's assets to their market value at his or her death (which allowed them to be sold immediately with no capital gains taxes), also lapsed in 2010.  The federal estate tax will come back to life on Jan. 1, 2011.  

Do you know how this will end?  If so, forget about the contingency planning.  If not, then you need to consult with your estate planning attorney to ensure your estate plan has taken into consideration a year with no estate tax as well as the minimum $1 million exemption for 2011.

If you are married, chances are your estate plan has been designed to use each spouse’s estate tax exemption; when one spouse dies, the amount of the exemption goes to a “bypass trust” for other heirs and the rest goes to the surviving spouse.  But with no estate tax in place, this plan doesn’t work.

Some states have passed laws addressing this, but Florida decided to require the heirs to go to court to sort it out.  Consulting with a Florida estate planning attorney can help you bypass this requirement.

For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

 

My last blog on gifting between spouses discussed an irrevocable trust that allows spouses to gift into irrevocable trusts while still maintaining control and allowing the assets to grow income tax free and pass estate and gift tax free to the beneficiaries.  However, doing so is not as easy as it sounds. 

The type of assets that may hold are cash, stocks, bonds, insurance, real property and business interests to name a few.  The amount that may be transferred into the trusts though is the tricky part.  The IRS has a rule, called the 5 and 5 rule, which states that when an annual exclusion gift is placed into an irrevocable trust for a spouse, a portion of the transfer will be included in the spouse's estate if the transfer is greater than $5,000 or 5% of the value of the trust property. 

Taking the 5 and 5 rule into account, if the trust has no asset in it, then $5,000 will be the limit for transferring assets into the trust until such a time arises that 5% of the value of the trust becomes greater than $5,000.  At that point, then the amount that may be transferred per year will be 5% of the trust assets until you reach the annual gift exclusion amount (currently $13,000 per year in 2010).  You can transfer $260,000 in year one into the trust tax free by filing a gift tax return and borrowing against your lifetime gift exemption ($1,000,000).  By doing this, 5% of $260,000 is $13,000 and you may then transfer the maximum amount per year.  This second technique is super charging the trust and dramatically increases the amount that passes to your beneficiaries completely tax free.  By creating these trusts, you are creating a second estate tax exemption above and beyond the exemption that the IRS currently allows. 

To discuss the benefits of these trusts, please contact an estate planning attorney.

Generally, when clients make gifts, they make them to their children and grandchildren in an amount that is completely free from the gift tax (currently in an amount equal to $13,000 per year).  However, you may use the same logic to make gifts between spouses.  The best part...you do not lose control of the money and it passes to your beneficiaries free from the estate tax.  It must be done correctly though.

First, set up an irrevocable trust, where the donor spouse is the trustmaker and the other spouse, the donee, is the beneficiary.  The donee spouse may also be the Trustee so you do not lose any control over the assets.  The Trustee then may pay out of the trust for the beneficiary’s health, education and maintenance.  By limiting the distributions to this standard, the assets held in the irrevocable trust are asset protected for the beneficiary.Further, the trust is generally structured as a grantor trust, meaning that the income taxes that would be owed by the trust are actually paid by the trustmaker.  By structuring it as a grantor trust, then the assets in the trust will grow income tax free as well!  In my next blog, I will discuss the rules that apply to transfers to the trust as there are specific requirements for gifts between spouses to ensure that they are free from gift taxes.

To learn more about spousal gifitng, please consult with an estate planning attorney.

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.

To learn more on becoming a Florida resident, please consult a Florida estate planning attorney.

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.

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.

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.

There are many couples in the Jacksonville, Florida and throughout the State of Florida who face the problem of setting up an estate plan for their partner when they choose not to be married or are not legally allowed to be married.  Married couples may take advantage of the unlimited marital deduction when creating their estate plan both to balance their estates (gifting while alive) and deferring estate taxes (upon the death of the first).  This is deduction is not available to partners who are not married.  However, Florida specifically has additional hurdles to overcome for those of you who are in this specific situation. 

Florida homestead laws state that the homestead must pass to the surviving spouse and then lineal descendants free of the creditors of the first spouse to die.  Since surviving partners are specifically not given the protection under Florida’s homestead laws, it is very important that the first partner to die does not have any unexpected medical bills or large creditors.  The creditors may cause the home to be sold in order to satisfy the outstanding debt, leaving your partner without your home.

The Florida Health Care Surrogate and Durable Power of Attorney statutes do not include partners as next of kin in determining who you may serve as your surrogate/power of attorney.  If you do not have any documentation in place for this, your partner will be left out of the decision making process for you.

Finally, if you have no estate plan in place at all, a partner will receive nothing under the will that the State of Florida has set up for you.  So if it is your intent to pass assets onto your partner, you will want to have a valid estate plan set up.

If you would like to discuss the estate planning issues relating to same sex or unwed couples in the Jacksonville, Florida and throughout the State of Florida, please consult with an estate planning attorney who is knowledgeable with the issues being raised by your specific situations.

I was given a plan to review for a potential client who is a physician with significant wealth.  The plan was drafted about two months ago and the initial concern from the financial advisor was that funding was not discussed with the client.   So I began reviewing the plan and noticed that the attorney who drafted it did no tax planning at all.  The plan gave everything to the surviving spouse in a trust that qualified for the marital deduction.

Although the plan works great for this year, as of January 1, 2011, the estate tax returns.  So unless both spouses passed away this year, the plan would cause more taxes to be owed upon the second of them to pass away than they would had they done some VERY simple tax planning.

Just because there is no estate tax for this year does not mean that there is no longer a need to do tax planning.  In fact, the tax rules this year require even more tax planning to take place to make sure you effectively pass assets that will increase the basis in the assets to their maximum amount permitted under this years basis rules.  This will all change of course in 2011.

Unfortunately there is no crystal ball that I can look into to give anyone a clear answer to where things will be a year from now.  However, your plan should be reviewed, no matter how new, to ensure that the plan is still tax efficient.  To have your plan reviewed, please consult an estate planning attorney to set up an appointment.

As I blogged about last week, the Florida House and Senate has introduced a set of companion bills that will introduce an estate tax on the estates of nonresidents who have property in the state of Florida.  The bills, having read them, are quite confusing. 

My interpretation of them is that they will tax any property of a nonresident that is located in Florida when the nonresidents estate will also be taxed in their home state.  The tax rate in Florida would be the exact same tax rate that is used in the nonresident’s home state.

The tax returns would be due either at the same time as the nonresident’s home state requires it be due or twelve months after death, depending on which bill you read.

Again, the bills are quite confusing and need some work by both the Senate and House to reconcile their differences.   I will update the status of the bills as updates come available.  Again, this may be a great time for snowbirds to begin thinking about becoming a Florida resident.  To consult with an attorney in regards to whether or not you should make Florida your residence, please consult with an estate planning attorney to discuss whether or not to become a Florida resident.

I have written several blogs in the past on the benefits of being a Florida resident (see my blogs on February 12, 2010).  However, the Florida legislature has added yet another.  On February 22^nd the House and on February 26^th the Senate introduced companion bills that, if passed, would introduce an estate tax in Florida for non-residents.  The Senate's version cites the bill as the Florida Taxpayers Protection Act.  If passed, the bill will go into effect on July 1, 2010.

The bill states that a non-resident, who owns property in the state of Florida and whose state of domicile has an estate tax, will be subject to a separate Florida estate tax on the assets owned in Florida.  This means that those of you who are snowbirds who have a secondary home down in Florida, will be subject to an estate tax here in Florida if your home state has their own estate tax.  There are currently sixteen states have their own separate estate tax.  Now may be a good time to think about becoming a Florida resident.

If you spend your winter months in Florida but claim another state as your residence, you may be much better off by making Florida your state of residence.  To consult with an attorney in regards to whether or not you should make Florida your residence, please consult with an estate planning attorney to discuss whether or not to become a Florida resident.

Although there currently is no estate tax in place, it is scheduled to rear its ugly head once January 1^st rolls around again.  This time though, it comes back with a vengeance at a $1,000,000 exemption and a 55% tax rate for anything over the exemption.  However, if you plan now, there are ways to effectively pay or reduce your estate taxes.

First, you can just pay the taxes.  It is a very rare sight to see, but some folks like to pay taxes.  They feel it is their civic duty.  Again, this is VERY rare.  Second, you can spend all your money.  Clients have told me that they hope to spend every last penny before they die.  Although very admirable and probably the most enjoyable of all the alternatives, it most likely will not happen.  If you have an estate that is taxable, the estate grew to become a taxable estate due to saving and not spending.

Third, you can make charitable donations.  You can make them during your life or at death.  Fourth, you can start a family gifting program.  You may currently give $13,000 per year per person to anyone you want.  So you may give a $13,000 to everyone in your family this year and then on January 1^st, do it again.  The earlier you do this, the more money you will be able to get out of your estate.  Further, you may give an unlimited amount to anyone for education and medical expenses, as long as the money goes directly to the education or medical provider.

Fifth, you may create an irrevocable life insurance trust, also known as an ILIT.  An ILIT is a special type of trust that will own your life insurance and be the beneficiary of it upon your death.  Since you no longer own the life insurance at death, it cannot be included in your estate.  There are a lot of pitfalls though which much be avoided for this to work correctly.

Finally, you can do other advanced planning techniques to shrink your estate.  One technique removes your primary or secondary home from your taxable estate.  Another technique deals with setting up a business and gifting a percentage of the business away on an annual basis.  There are well over 60 different techniques that can be used and each offers a different level of complexity.

If you would like to further discuss ways of reducing your estate taxes, please consult an estate planning attorney.

A very popular estate planning technique is to transfer assets into a Family Limited Partnership (FLP) and then claim a valuation discount on the interests that the estate still owns upon a person’s death.  The IRS has questioned this technique and is starting to litigate cases that fall within certain parameters.  In fact last year, the IRS hired 14 new estate tax attorneys and plans on hiring 10 more this month.  In doing so, the IRS is looking at estate tax returns that claim reduced values of the estate based upon FLP interests.  The IRS has hinted as to what “red flags” they look at when determining whether or not to litigate a case where an estate valuation discount is taken.  The following is a list of some, but not all, of those “red flags”:

• Near death creation of the FLP
• Decedent retained no assets for living expenses
• No contributions by other partners
• Nature of assets (person use assets)
• Failure to observe partnership formalities
• Commingling of personal and partnership  assets
• Post-death distributions or borrowing from the FLP (ex. Loan taken out by estate to pay taxes)
• Non pro rata distributions if the decedent is the only person receiving distributions
• No real business or investment purpose or creditor protection purpose
• Achieving discounts seems to be the real reason for creating the FLP

If you have created a FLP or are thinking about creating a FLP, please consult with an estate planning or tax attorney for advice or to review how you have been conducting business through the FLP.

Although there is currently no estate tax (which could change any day), there are eight basic estate planning steps that everyone should take, no matter what your net worth is. 

The first step is to have a financial power of attorney.  The financial power of attorney appoints someone to handle your financial affairs if you are unable to do so yourself.  This document ensures that all of your assets are taken care of and your bills are being paid.  The person appointed can be appointed immediately or only upon your disability.  Without a financial power of attorney, your family will have to go to court to have permission to deal with your assets.  State laws change frequently, make sure your financial power of attorney is valid under your state’s law.

Step two is to make sure you have a valid health care power of attorney and living will.  The health care power of attorney allows someone to make health care decisions for you if you are unable to make them for yourself.  A living will states what your intent is if you are in a persistent, vegetative state.  More commonly stated as “whether or not to pull the plug”.  Your health care power of attorney needs to have the HIPAA authorizations within it, otherwise it is not a valid document.

Step three is to calculate your net worth.  You may be surprised where you stand financially.  This is important from a tax standpoint but you will also get a hold of everything you own.  Sometimes assets fall through the cracks and are not properly planned for because they were not brought up during the estate planning discussion.

Step four is to review your beneficiary designations.  Upon your death, your beneficiary designations control how that specific asset will pass.  A will or trust has no say.  If your ex-spouse is named accidently, the ex-spouse will receive that asset.  Beware, it happens everyday!

Step five is to create or update your will.  A will allows you to determine how your assets pass to your loved ones.  If you do not have a will, the state where you live has graciously set one up for you but it probably does not pass your assets according to your wishes.  This is especially true when you are remarried and have children from your current and/or previous marriage. 

Step six is to plan for your state’s estate tax.  The District of Columbia and23 other states have their own estate or inheritance taxes.   If you don’t plan for them, you could inadvertently cause a state estate tax upon your death.

Step seven is to check how your assets are currently titled.  Do you have everything titled jointly?  If you have a trust, does your trust own your assets?  If you are unsure how your assets are titled, please review the title of your assets as it makes a big difference upon your death.

Finally, the last step is to gift while you are alive.  Currently, you can give $13,000 per year to anyone you wish.  You can stand outside of your church and write a $13,000 check to everyone who passes by.  Additionally, you can pay anyone’s college or private school tuition or medical bills so long as they money goes directly to the educational facility or medical provider.

If you need help with any of the above estate planning steps, please consult an estate planning attorney for estate planning legal counsel.

Currently, the basis of property acquired from a decedent generally is the fair market value of the property on the decedent’s     date of death.  Property included in the decedent’s gross estate for estate tax purposes must be valued at its fair market value on the date of death.

A donee’s basis in property received by gift generally is the donor’s adjusted basis in the property, increase by the gift tax, if any, paid on the transfer.  If the donor’s basis exceeds the fair market value of the property on the date of the gift, the donee’s basis is limited to that fair market value for purposes of determining any subsequent loss.

President Obama recently proposed a consistency and reporting requirement to the above basis in his proposed budget rules.  He is proposing that the basis of inherited property equal the value of that property determined for estate tax purposes.  He is also proposing that the basis of property received by gift must equal the donor’s basis.  The reporting of the basis would be imposed on the executor of the estate and on the donor of a lifetime gift to both the recipient of the property and the IRS.

This may mean that every estate may have to file an estate tax return or any gift may require a gift tax return to report the basis of the property transferred.

If you require assistance with tax planning, please contact a tax attorney for tax planning legal counsel.

There are many reasons why the State of Florida is a great state to declare your residency in besides the year round golfing.  I meet with clients and prospective clients all the time who are residents of another state and talk to them about why they should consider becoming a Florida resident.

The first reason to become a Florida resident is that there is no Florida income, estate, inheritance, gift, intangibles or generation-skipping tax.  Most states impose at least one of the above taxes on its residents.  Real property and tangible personal property are generally subject to estate tax by the state in which the property is located.  All other property such as bank and investment accounts are generally subject to the estate tax laws in place in the state the decedent resided in prior to their death.

An example that demonstrates this is Bob.  Bob has a checking account in a Florida bank, has him home in Florida homesteaded, a car, an IRA and a vacation home in New York.  Upon Bob’s death, his vacation home in New York would be subject to New York estate taxes but the rest of his property would pass estate tax free under Florida law.  I won’t discuss the federal estate tax as that is a completely different animal.

Florida residents and others should consult with an estate planning and tax attorney to review the various documents and strategies to take full advantage of the tax benefits under Florida law.