Showing posts with label Estate Tax. Show all posts
Showing posts with label Estate Tax. Show all posts
Thursday, January 30, 2014
Grantor vs Non-Grantor Trusts
I received a call a couple of days ago from previous clients who asked whether or not they needed to get a tax number for their trust. They did not understand that as their trust was a revocable trust (also known as a grantor trust) meaning they had full control of trust assets, their social security numbers were automatically the tax identification numbers for the trust and any trust income should be filed on the grantors' 1040. Only when a trust is or becomes irrevocable (or is known as a non-grantor trust) do the trustees acquire a separate tax identification number and file a 1041 as long as the irrevocable trust is in existence.
Tuesday, October 4, 2011
Purpose Of Estate Planning
The purpose of estate planning is to transfer assets to beneficiaries at the times and in the manner desired by the owner efficiently, with minimal taxes, and without conflicts. This concise definition of the purpose of estate planning involves a lot of issues. The individual participating in estate planning must gain an understanding of all the issues. Look at the following site for an in-depth introduction to the various issues involved with estate planning.
Wednesday, July 14, 2010
2011 Estate Tax
Six months to go . . . . .
Read this Wall Street Journal Article:
http://online.wsj.com/article/SB10001424052748703609004575355572928371574.html
Read this Wall Street Journal Article:
http://online.wsj.com/article/SB10001424052748703609004575355572928371574.html
Wednesday, April 28, 2010
Heavy Estate Taxes to Hit Middle Class in 2011
Why Planning Now is More Important Than Ever.
For 93 years there has been an estate tax. 2010 is an historical year, the only year since 1916 there has been no estate tax. This does not mean the estate tax has been repealed. No, no! The estate tax has only been suspended for one year. The tax comes back with a fury in ten short months in 2011.
Numerous proposals have been made to lift this suspension and reimpose the estate tax on all those who die in 2010, retroactive to January 1. The following is my analysis of why there will be no estate tax in 2010, and why 2011 will hit the heirs of estate planning procrastinators right between the eyes.
No Political Motivation to Reinstate the Estate Tax.
The first reason why there will be no estate tax in 2010 is that both Republican and Democrat members of Congress have no political reason to do so.
Consider. In this important midterm election year, the Republicans are in a beautiful political position regarding the estate tax. Those Republicans up for reelection can brag to their constituents that they (and the Bush Administration) successfully rid the country of the dreaded death tax. They can brag that there is currently no estate tax, thanks to their untiring efforts. They can point to their nasty Democrat opponents who, lockstep with the Obama Administration, want to reinstate the death tax. For the Republicans, it plays exceptionally well to sit tight right up to November and not encourage any reinstatement of the estate tax.
Of course, the Republicans will not emphasize that the estate tax is set to return in 2011, exempting only $1 million from estate taxes, instead of the $3.5 million that was exempted from estate taxes just last year. Rather, the Republicans will be content to bask in the glory of their temporary 2010 victory over estate taxes and not push for any change.
From the Democrat's perspective, this is also a critical election year politically. The Democrats (including key leaders such as Harry Reid) are in tight races this November against conservatives with conservative agendas. These Democrats don't want to be in a position in their reelection campaigns to be arguing for reinstatement of the nasty death tax. A couple of years ago, the Democrats were in a good negotiating position with the Republicans in arguing how much the estate tax exemption should be: $3.5 million, $5 million, $7 million. This year, the picture is very different. There is no estate tax at all and the Democrats are in the unenviable position of essentially arguing whether there should even be a death tax! For the Democrates, this is not a good position to be in. So even though they may approve of the estate tax philosophically, they are unlikely to push for reinstatement of the estate tax for 2010 for their own political survival.
And this is all in 2010. It is 2011 politics that is also driving the picture this year. While the Democrats may be the guys down in 2010 on the estate tax issue, come 2011, the Republicans will be the guys being kicked in the head. Remember, the Republicans can crow this year in their reelection campaigns that there is no estate tax (and again, for their short-term political gain, they are very unlikely to emphasize the estate tax will return in 2011). Now if the Democrats simply avoid the estate tax fight this year, just bide their time and not push for estate tax reinstatement, then in 2011 when there is an estate tax on every dollar above a measly $1 million (Insurance policies alone push vast numbers of middle class taxpayers above the $1 million threshold.), then guess who is going to be on the hot seat in regard to estate taxes? That’s right, the Republicans.
You can hear the Republicans already in 2011: “Oh,” they will say, “look at this terrible death tax we are facing: it is all the fault of those limousine liberals, those terrible Democrats.” The Republicans can play off the Democrats in this way politically. But in reality, it is the Democrats who are sitting pretty on the actual issue of the estate tax. The Democrats are in the perfect position in 2011 to negotiate a low estate tax exemption or just not negotiate at all, and keep it at $1 million and let the Republicans sweat and start the fight for estate tax reform! Once the Republicans begin the fight for reform, the Democrats can argue, “well, we will agree to increase the estate tax exemption to . . . oh, let's say $2 million.”
All the Democrats have to do is wait another ten months for the above scenario to play out, and the country may well be faced with an estate tax exemption of $1 million (maybe $ 2 million after some negotiating), where it was $3.5 million just last year. The Democrats are in the perfect position to beat up on the Republicans in 2011, by just sitting tight and taking their lumps this year.
Monetary Motivations to Postpone Reinstatemetn of the Estate Tax.
The second reason why there will be no estate tax in 2010 is that both Republican and Democrat members of Congress have monetary motivations to postpone reinstatement of the estate tax.
In this election year both the Republicans and the Democrats can enrich themselves and their reelection coffers by playing to both sides of the estate planning debate. The more smoke they can create (saying, “oh, we need to do something about this estate tax”), the more money the pro-estate tax lobbyists will throw at the Democrats and the more money the anti-death tax lobbyists will throw at the Republicans. As we know, these funds thrown at politicians can be used for a variety of purposes to their advantage and even for their ultimate personal benefit. So why cut off the hand that feeds you, by actually doing something?
The Obama Administration is Monetarily Motivated
to Create Uncertainty by Delaying Reinstatment of the Estate Tax
What about the IRS–the Treasury Department? Don’t they want to push estate tax reinstatement? Let’s look at the estate tax reform from the prospective of the Obama Treasury Department. The Treasury will in fact lose a bit of revenue if the estate tax is not reinstated for the year 2010. A bit of revenue (relatively speaking) will be lost on those wealthy individuals who die this year and avoid paying any estate tax.
However, the heirs of anyone dying a few seconds into the new day of January 1, 2011 (and thereafter) are in for a big surprise–to the benefit of the IRS. A meager one million dollar exemption from estate taxes in 2011 will hit wealthy and many middle class tax payers dying in 2011. The heirs of these decedents will be writing out checks that very likely will make up for the lost revenues in 2010.
In reality, the IRS and Obama Administration have no extraordinary motivation to push reinstatement of the estate tax in 2010. The Treasury Department will get theirs. It may be in 2011 and thereafter, but they will get theirs. (What the Obama Administration would really like is to eliminate certain advantages to taxpayers under current estate tax law, such as GRAT terms and partnership discounts. However, this desire of the Administration could happen under the radar, with reinstatement of the estate tax for 2010 being quietly abandoned or not emphasized.)
But there is something even nastier about all this. Consider the uncertainty regarding the estate tax. The IRS in fact takes full advantage of this uncertainty to bring in more revenue. Uncertainty in estate tax planning has benefitted the Service immensely. Many individuals potentially subject to estate taxes procrastinate and delay and say, “well there may not be an estate tax this year” or “the exemption will probably increase” or “my congressman will make sure there’s no estate tax” or “something good will happen.”
Uncertainty motivates people to inaction. It prompts people not to do any planning and in the process of failing to do planning, the IRS ultimately benefits because existing laws often require effective planning to be done several years before an individual dies. So the more uncertainty there is, the more people will delay planning, and the more likelihood hefty checks will be written to the IRS down the road. All the political machinations and maneuvers currently underway, all the talk by the Administration or members of Congress, plays out perfectly for the Service in creating uncertainty and motivating inaction.
Escape Clause
To save face here, I must say that my entire analysis above fails in one scenario: the Republicans recognize the long-term advantage to them of agreeing with the Democrats to reinstate the estate tax this year, despite the short-term political damage that may cause. What do you think? Will the Republicans look long term or short term on this issue this election year?
What to Do?
What does this mean for clients? Consider reality. There will be an estate tax. THERE WILL BE AN ESTATE TAX! It is time for individuals to face reality. The estate tax will come back with a vengeance and it may be too late by then for all those individuals who keep on waiting to plan “until things settle down.” A time of uncertainty is the perfect time to plan.
My advice in regard to taxes is to plan for the worst; pray for the best; and then accept with optimism and peace that the worst will in fact happen.
Craig E. Hughes
170 South Main, Suite 375
Salt Lake City, Utah 84101
801.364.5600
www.estateessentials.com
For 93 years there has been an estate tax. 2010 is an historical year, the only year since 1916 there has been no estate tax. This does not mean the estate tax has been repealed. No, no! The estate tax has only been suspended for one year. The tax comes back with a fury in ten short months in 2011.
Numerous proposals have been made to lift this suspension and reimpose the estate tax on all those who die in 2010, retroactive to January 1. The following is my analysis of why there will be no estate tax in 2010, and why 2011 will hit the heirs of estate planning procrastinators right between the eyes.
No Political Motivation to Reinstate the Estate Tax.
The first reason why there will be no estate tax in 2010 is that both Republican and Democrat members of Congress have no political reason to do so.
Consider. In this important midterm election year, the Republicans are in a beautiful political position regarding the estate tax. Those Republicans up for reelection can brag to their constituents that they (and the Bush Administration) successfully rid the country of the dreaded death tax. They can brag that there is currently no estate tax, thanks to their untiring efforts. They can point to their nasty Democrat opponents who, lockstep with the Obama Administration, want to reinstate the death tax. For the Republicans, it plays exceptionally well to sit tight right up to November and not encourage any reinstatement of the estate tax.
Of course, the Republicans will not emphasize that the estate tax is set to return in 2011, exempting only $1 million from estate taxes, instead of the $3.5 million that was exempted from estate taxes just last year. Rather, the Republicans will be content to bask in the glory of their temporary 2010 victory over estate taxes and not push for any change.
From the Democrat's perspective, this is also a critical election year politically. The Democrats (including key leaders such as Harry Reid) are in tight races this November against conservatives with conservative agendas. These Democrats don't want to be in a position in their reelection campaigns to be arguing for reinstatement of the nasty death tax. A couple of years ago, the Democrats were in a good negotiating position with the Republicans in arguing how much the estate tax exemption should be: $3.5 million, $5 million, $7 million. This year, the picture is very different. There is no estate tax at all and the Democrats are in the unenviable position of essentially arguing whether there should even be a death tax! For the Democrates, this is not a good position to be in. So even though they may approve of the estate tax philosophically, they are unlikely to push for reinstatement of the estate tax for 2010 for their own political survival.
And this is all in 2010. It is 2011 politics that is also driving the picture this year. While the Democrats may be the guys down in 2010 on the estate tax issue, come 2011, the Republicans will be the guys being kicked in the head. Remember, the Republicans can crow this year in their reelection campaigns that there is no estate tax (and again, for their short-term political gain, they are very unlikely to emphasize the estate tax will return in 2011). Now if the Democrats simply avoid the estate tax fight this year, just bide their time and not push for estate tax reinstatement, then in 2011 when there is an estate tax on every dollar above a measly $1 million (Insurance policies alone push vast numbers of middle class taxpayers above the $1 million threshold.), then guess who is going to be on the hot seat in regard to estate taxes? That’s right, the Republicans.
You can hear the Republicans already in 2011: “Oh,” they will say, “look at this terrible death tax we are facing: it is all the fault of those limousine liberals, those terrible Democrats.” The Republicans can play off the Democrats in this way politically. But in reality, it is the Democrats who are sitting pretty on the actual issue of the estate tax. The Democrats are in the perfect position in 2011 to negotiate a low estate tax exemption or just not negotiate at all, and keep it at $1 million and let the Republicans sweat and start the fight for estate tax reform! Once the Republicans begin the fight for reform, the Democrats can argue, “well, we will agree to increase the estate tax exemption to . . . oh, let's say $2 million.”
All the Democrats have to do is wait another ten months for the above scenario to play out, and the country may well be faced with an estate tax exemption of $1 million (maybe $ 2 million after some negotiating), where it was $3.5 million just last year. The Democrats are in the perfect position to beat up on the Republicans in 2011, by just sitting tight and taking their lumps this year.
Monetary Motivations to Postpone Reinstatemetn of the Estate Tax.
The second reason why there will be no estate tax in 2010 is that both Republican and Democrat members of Congress have monetary motivations to postpone reinstatement of the estate tax.
In this election year both the Republicans and the Democrats can enrich themselves and their reelection coffers by playing to both sides of the estate planning debate. The more smoke they can create (saying, “oh, we need to do something about this estate tax”), the more money the pro-estate tax lobbyists will throw at the Democrats and the more money the anti-death tax lobbyists will throw at the Republicans. As we know, these funds thrown at politicians can be used for a variety of purposes to their advantage and even for their ultimate personal benefit. So why cut off the hand that feeds you, by actually doing something?
The Obama Administration is Monetarily Motivated
to Create Uncertainty by Delaying Reinstatment of the Estate Tax
What about the IRS–the Treasury Department? Don’t they want to push estate tax reinstatement? Let’s look at the estate tax reform from the prospective of the Obama Treasury Department. The Treasury will in fact lose a bit of revenue if the estate tax is not reinstated for the year 2010. A bit of revenue (relatively speaking) will be lost on those wealthy individuals who die this year and avoid paying any estate tax.
However, the heirs of anyone dying a few seconds into the new day of January 1, 2011 (and thereafter) are in for a big surprise–to the benefit of the IRS. A meager one million dollar exemption from estate taxes in 2011 will hit wealthy and many middle class tax payers dying in 2011. The heirs of these decedents will be writing out checks that very likely will make up for the lost revenues in 2010.
In reality, the IRS and Obama Administration have no extraordinary motivation to push reinstatement of the estate tax in 2010. The Treasury Department will get theirs. It may be in 2011 and thereafter, but they will get theirs. (What the Obama Administration would really like is to eliminate certain advantages to taxpayers under current estate tax law, such as GRAT terms and partnership discounts. However, this desire of the Administration could happen under the radar, with reinstatement of the estate tax for 2010 being quietly abandoned or not emphasized.)
But there is something even nastier about all this. Consider the uncertainty regarding the estate tax. The IRS in fact takes full advantage of this uncertainty to bring in more revenue. Uncertainty in estate tax planning has benefitted the Service immensely. Many individuals potentially subject to estate taxes procrastinate and delay and say, “well there may not be an estate tax this year” or “the exemption will probably increase” or “my congressman will make sure there’s no estate tax” or “something good will happen.”
Uncertainty motivates people to inaction. It prompts people not to do any planning and in the process of failing to do planning, the IRS ultimately benefits because existing laws often require effective planning to be done several years before an individual dies. So the more uncertainty there is, the more people will delay planning, and the more likelihood hefty checks will be written to the IRS down the road. All the political machinations and maneuvers currently underway, all the talk by the Administration or members of Congress, plays out perfectly for the Service in creating uncertainty and motivating inaction.
Escape Clause
To save face here, I must say that my entire analysis above fails in one scenario: the Republicans recognize the long-term advantage to them of agreeing with the Democrats to reinstate the estate tax this year, despite the short-term political damage that may cause. What do you think? Will the Republicans look long term or short term on this issue this election year?
What to Do?
What does this mean for clients? Consider reality. There will be an estate tax. THERE WILL BE AN ESTATE TAX! It is time for individuals to face reality. The estate tax will come back with a vengeance and it may be too late by then for all those individuals who keep on waiting to plan “until things settle down.” A time of uncertainty is the perfect time to plan.
My advice in regard to taxes is to plan for the worst; pray for the best; and then accept with optimism and peace that the worst will in fact happen.
Craig E. Hughes
170 South Main, Suite 375
Salt Lake City, Utah 84101
801.364.5600
www.estateessentials.com
Wednesday, February 10, 2010
Will the Estate Tax Die January 2010?
Under the current Economic Growth and Tax Relief Reconciliation Act ("EGTRRA")if a person dies in 2009 with less than $3.5 million in their estate, their are no estate taxes. Well over 95% of U.S. citizens who die in 2009 will have less than $3.5 million in their name. Under EGTRRA, the estate of anyone who dies in 2010 will not be subject to estate taxes--regardless of how much their estate is worth. For example, if you had assets worth $100 million and died in 2010, your heirs would pay nada, zero, zilch in estate taxes. This is only for 2010. The estate tax returns for those who die in 2011 and thereafter.
Will Congress pass a law in time to prevent the death of the estate tax for the year 2010? Beth Shapiro Kaufman in July's issue of Estate Planning points to the fact that a few congressmen have tried to repeal the estate tax completely, but most think there should be an estate tax of some sort. The sticking point is what the ceiling amount or exemption from taxes should be--something less than the existing $3.5 exemption, $3.5 million, 5 million, or some other amount? No matter the exemption amount, Ms. Kaufman indicates that time is of the essence for Congress to do something now in 2009 in order to prevent the death of the estate tax exemption in 2010.
There is no question in our mind at Hughes Estate Group that there will be an estate tax of some sort imposed on those who die in 2010 with more than $3.5 million to their name. To plan or postpone planning in the hope that there will be no estate tax in 2010 is unwise.
Will Congress pass a law in time to prevent the death of the estate tax for the year 2010? Beth Shapiro Kaufman in July's issue of Estate Planning points to the fact that a few congressmen have tried to repeal the estate tax completely, but most think there should be an estate tax of some sort. The sticking point is what the ceiling amount or exemption from taxes should be--something less than the existing $3.5 exemption, $3.5 million, 5 million, or some other amount? No matter the exemption amount, Ms. Kaufman indicates that time is of the essence for Congress to do something now in 2009 in order to prevent the death of the estate tax exemption in 2010.
There is no question in our mind at Hughes Estate Group that there will be an estate tax of some sort imposed on those who die in 2010 with more than $3.5 million to their name. To plan or postpone planning in the hope that there will be no estate tax in 2010 is unwise.
Friday, July 17, 2009
You Can't Take It With You, But. . . .
You can't take it with you. But some executives have made sure they'll still get their pay even if they're dead.
Nabors Industries Ltd. will owe the estate of Eugene Isenberg, the 78-year-old chief executive of Nabors Industries Ltd at least $263.6 million if he died tomorrow. That's more than the first-quarter earnings at the Houston oil-service company.
The CEO of Shaw Group, whom the article didn’t mention by name, will rake in more than $17 million with his cold, dead hands in exchange for not competing with the company after he dies. Competing with a dead man?
Ceos, when they sign their hiring contracts, acquire fat severance packages, vested shares, a continuation of salaries, bonuses, and even “supercharged pensions”–after they die.
In many cases death benefits are for estate planning purposes a deferred compensation package often structured for tax reasons.
See the article referred to in this blog here.
See here for additional information regarding estate planning.
Nabors Industries Ltd. will owe the estate of Eugene Isenberg, the 78-year-old chief executive of Nabors Industries Ltd at least $263.6 million if he died tomorrow. That's more than the first-quarter earnings at the Houston oil-service company.
The CEO of Shaw Group, whom the article didn’t mention by name, will rake in more than $17 million with his cold, dead hands in exchange for not competing with the company after he dies. Competing with a dead man?
Ceos, when they sign their hiring contracts, acquire fat severance packages, vested shares, a continuation of salaries, bonuses, and even “supercharged pensions”–after they die.
In many cases death benefits are for estate planning purposes a deferred compensation package often structured for tax reasons.
See the article referred to in this blog here.
See here for additional information regarding estate planning.
Tuesday, June 16, 2009
The State of the Estate Tax in Vermont
State of vermont is getting $13 million in estate taxes from the estimated $80 to $100 million dollar estate of a resident who died last year.
In a report on the Vermont estate tax done in 2001 by the Vermont Joint Fiscal Office, in Fiscal year 2001, 221 estate tax returns were filed in Vermont. Roughtly half (108 returns) had no tax liability. Of the 87 returns with liability, five estates valued over $10 million paid 75% of total estate tax that was collected.
In a report on the Vermont estate tax done in 2001 by the Vermont Joint Fiscal Office, in Fiscal year 2001, 221 estate tax returns were filed in Vermont. Roughtly half (108 returns) had no tax liability. Of the 87 returns with liability, five estates valued over $10 million paid 75% of total estate tax that was collected.
Tuesday, April 14, 2009
Tuesday, April 7, 2009
Walton Welfare?
Matt G at talkingtaxes.org thinks he knows why Sen Blanche Lincoln put a provision in the Senate bill that would slash the estate tax rates.
"For much of the last 20 years, Arkansas estate tax collections have been pretty flat, hovering between $10 and $30 million a year. But in fiscal 1996, the state collected just under $120 million in estate taxes. While the state is (understandably) not telling what the source of the single-year bump was, it's generally understood to have been largely due to the death of Wal-Mart co-founder "Bud" Walton in 1995."
Could also account for this.
"For much of the last 20 years, Arkansas estate tax collections have been pretty flat, hovering between $10 and $30 million a year. But in fiscal 1996, the state collected just under $120 million in estate taxes. While the state is (understandably) not telling what the source of the single-year bump was, it's generally understood to have been largely due to the death of Wal-Mart co-founder "Bud" Walton in 1995."
Could also account for this.
Monday, April 6, 2009
They Just Can't Kill The Beast
Senate vote on the estate tax showed support is lacking forincreasing the exemption and lowering the tax rate.Congress is expected to act later this year to re-write estate tax rules to head off the repeal of the tax scheduled to take effect next year.
Obama wants to extend the policy in effect this year, indefinitely. It exempts from estate taxes individual worth of less than $3.5 million or $7 million for married couples, and tax wealth above that amount at 45%.
The proposal voted on today would have increased exemptions to $5 and $10 million, and lowered the tax to 35%. This is estimated to save the wealthiest 0.28 percent of estate owners about $440 billion over 10 years.
But it doesn't look like there's enough support.
Unlike the simple majority needed to approve the budget amendment, 60 votes would likely be required to alter that plan on the Senate floor, according to the Wall Street Journal.
What passed today was called the "Deficit Neutral Reserve Fund for Estate Tax Relief." It reserves the right to review reform later. A deficit-neutral reserve fund reserves your right to lift spending or lower your revenue floor in a way that doesn't harm the deficit. So if they can fund the tax cut, they can hold a vote to cut it.
Passing the bill would means they would have to find billions of dollars to cut from other government spending. The economic hardship facing ordinary Americans right now makes doing that very unpopular with the Democratic Congress.
Wednesday, March 25, 2009
War of Amendments
By a 51-48 vote, the Senate embraced a nonbinding but symbolically important amendment by Arkansas Democrat Blanche Lincoln D-Walmart AR
and Arizona Republican Jon Kyl to exempt estates up to $10 million from the estate tax. Estates larger than that would be taxed at a 35 percent rate.
The amendment is taking heavy fire.
NY York Times snarks, "for Senator Blanche Lincoln, Democrat of Arkansas, and Senator Jon Kyl, Republican of Arizona, the most pressing issue is clear: America’s wealthiest families need help. Now."
Even from the tax-cut friendly Washington Post.
It asks
More Tax Cuts for the Rich?
"The hypocrisy here is breathtaking. Reducing the estate tax would harm charities because it eliminates some of the incentive for making charitable bequests -- yet some of the very senators who back estate tax cuts were quick to denounce Obama administration tax proposals that they argued would hurt charitable giving. More fundamentally, it is hard to stomach those who argue for more tax cuts -- and then bemoan the failure to stanch rising deficits. A vote for this amendment, at this time of so much red ink and so much suffering, would reflect the most skewed of priorities."
On the flip side, Senator Durbin D-IL introduced and passed an amendment 56 to 43 that provides that no additional estate tax relief beyond that which is already assumed ($3.5/$7.0)in this resolution, which protects over 99.7 percent of estates from the estate tax, shall be allowed under any deficit-neutral reserve fund unless an equal amount of aggregate tax relief is also provided to Americans earning less than $100,000 per year.
and Arizona Republican Jon Kyl to exempt estates up to $10 million from the estate tax. Estates larger than that would be taxed at a 35 percent rate.The amendment is taking heavy fire.
NY York Times snarks, "for Senator Blanche Lincoln, Democrat of Arkansas, and Senator Jon Kyl, Republican of Arizona, the most pressing issue is clear: America’s wealthiest families need help. Now."
Even from the tax-cut friendly Washington Post.
It asks
More Tax Cuts for the Rich?
"The hypocrisy here is breathtaking. Reducing the estate tax would harm charities because it eliminates some of the incentive for making charitable bequests -- yet some of the very senators who back estate tax cuts were quick to denounce Obama administration tax proposals that they argued would hurt charitable giving. More fundamentally, it is hard to stomach those who argue for more tax cuts -- and then bemoan the failure to stanch rising deficits. A vote for this amendment, at this time of so much red ink and so much suffering, would reflect the most skewed of priorities."
On the flip side, Senator Durbin D-IL introduced and passed an amendment 56 to 43 that provides that no additional estate tax relief beyond that which is already assumed ($3.5/$7.0)in this resolution, which protects over 99.7 percent of estates from the estate tax, shall be allowed under any deficit-neutral reserve fund unless an equal amount of aggregate tax relief is also provided to Americans earning less than $100,000 per year.
Friday, March 20, 2009
That's no way to say goodbye
Excellent article by Paul Sullivan of the NY TimesSmaller Though It May Be, It’s Time to Look at the Estate
For all the upheaval that has attended Barack Obama’s presidency so far, at least one initiative has caused little commotion: a proposal to extend the estate tax at the current level.
Estate planning is not primarily about avoiding a tax that few have been subject to since it was instituted in 1916. The primary goal has always been how to bequeath what you have to the heirs you picked. And if handled wrongly, wills can become a vehicle that destroys families.
The biggest issue, given both the recession and the flux in federal estate tax laws, is whether wills already drawn up still fulfill their intent.
While estate-planning advice for the wealthy is more complicated, this is a time when all Americans can stand to re-emphasize the basics.
The article cites some stories from “Where There’s an Inheritance: Stories From the World of Two Wills Lawyers”
In one, a favored sibling begged her mother not to cut her sister out of the will entirely. The mother gave in and left the other daughter 10 percent of the estate. That act dogged the favored daughter for years as her sister disputed every value in the estate to get her full 10 percent. A lump sum payment would have eliminated this.
It ends with an interesting story about the estate of Charles Kuralt. It's no way to sign off. Read the article here.
Thursday, March 12, 2009
Death Tax by Foot Note - Inheritance Tax Subterfuge
From Human Events
Obama Hides Death Tax Proposal in a Footnote
by Dick Patten
03/12/2009
"Footnotes are generally used to disclose sources or to explain an obscure fact. They are not used to recommend massive tax policy changes. Yet this is just what Obama does in his Fiscal Year 2010 Budget Proposal.
Slog through the budget to page 127, and see footnote 1, which states, “[T]he estate tax is maintained at its 2009 parameters.”
"Clearly, if Obama can’t be upfront about the [inheritance] tax plans in his budget proposal, he knows that he faces strong opposition.
Let’s see how long he can keep his secret."
Secret's out!!!
July 25, 2008
Tax Foundation's Tax Policy Blog
McCain does not favor permanent repeal of the estate tax. And Obama does not want it fully restored. Obama would impose a 45 percent tax rate with $3.5 million exclusion, which is lower than pre-Bush tax cuts, yet significantly higher than 2010 scheduled law ($0).
______________
Obviously neither humanevents.com or the author Dick Patten are reliable sources of information on the "death tax." Actually when it comes down to it, "death tax" is a pretty accurate clue that the information forthcoming is going to be misleading or outright false.
Friday, February 20, 2009
Without the Estate Tax would we be more peaceful or would we be French?
The history of the estate tax has historical ties to the nation's history of war according to this report to Congress dated April 9, 2003. A History of the Federal Estate, Gift, and Generation-Skipping Taxes
Federal taxes for most its history were imposed mostly to finance wars or the threat of war. The first Federal tax on such transfers was imposed from 1797 - 1802 as a stamp tax on inventories of deceased persons to pay for the development of a navy in response to strained trade relations with France. After its repeal no other death-related taxes were imposed until the Civil War and went from 1862 and 1870.
The estate tax was imposed in 1898 to finance the Spanish-American War and repealed in 1902.
In 9106 Pres. Theodore Roosevelt proposed a progressive tax on all lifetime gifts and death-time bequests specifically for the purpose of breaking up large concentrations of wealth. No legislation resulted from his proposal.
In response to WWI, the Feds in 1916 adopted a progressive estate tax on all property owned by the a decdent at death, certain lifetime transfers, transfers not intended to take effect until death, and transfers made in contemplation of death.
The 1916 estate tax provided an exemption of 50,000 and rates from 1 to 25 percent.
Following the end of WWI the estate tax was retained but rates on transfers under 1million were reduced.
In 1926 the gift tax was repealed and estate tax rates reduced, but with the coming of the depression and falling government revenue, estate taxes were increased in 1932a 10% surchared added for revenue for the military build up proper to WWII. Estate and gift taxes were increased in 1941 to 77% on transfers in excess of $50 million.
Federal taxes for most its history were imposed mostly to finance wars or the threat of war. The first Federal tax on such transfers was imposed from 1797 - 1802 as a stamp tax on inventories of deceased persons to pay for the development of a navy in response to strained trade relations with France. After its repeal no other death-related taxes were imposed until the Civil War and went from 1862 and 1870.
The estate tax was imposed in 1898 to finance the Spanish-American War and repealed in 1902.
In 9106 Pres. Theodore Roosevelt proposed a progressive tax on all lifetime gifts and death-time bequests specifically for the purpose of breaking up large concentrations of wealth. No legislation resulted from his proposal.
In response to WWI, the Feds in 1916 adopted a progressive estate tax on all property owned by the a decdent at death, certain lifetime transfers, transfers not intended to take effect until death, and transfers made in contemplation of death.
The 1916 estate tax provided an exemption of 50,000 and rates from 1 to 25 percent.
Following the end of WWI the estate tax was retained but rates on transfers under 1million were reduced.
In 1926 the gift tax was repealed and estate tax rates reduced, but with the coming of the depression and falling government revenue, estate taxes were increased in 1932a 10% surchared added for revenue for the military build up proper to WWII. Estate and gift taxes were increased in 1941 to 77% on transfers in excess of $50 million.
Western lands and the Estate Tax
I'm digesting a couple of articles on Ranching, Conservation easements and estate planning. One by the AP and in the High Country News.
From HCN - "The most heart-wrenching losses happen one piece of land at a time, one family at a time. The old man dies. The estate is a mess. The kids have other jobs. They can't afford the taxes."
Land-rich, cash poor Western ranchers are also lobbying Washington to exempt them from the estate tax. “I don’t like subdivisions and I don’t like development, a second-generation cattle rancher is quoted as saying to the High Country News, “There’s a lot of us around here that have got that feeling. We just don’t want to see houses built all over our land.”
The rancher in the A/P story is a a southern Colorado rancher who is afraid the estate tax will make it impossible for him to pass is 4,200 acre ranch to his children. He says estate tax issues "complicate the life of a simple man."
"I'm not an educated man and I'm not a moneyed man," he said. "I'm just a cowboy... an 80-year-old cowboy now."
Even so, ranchers who don't deal with estate planning could find themselves in trouble.
Since 1980 the Western population has almost doubled. There is tremendous pressure on the land away from agriculture to residential, commercial and industrial uses. The most attractive land left for development is the same land that is most productive for ranching and wildlife. These are lands in mid-elevation mountain valleys and near rivers and streams. This immense economic pressure to develop and subdivide the land can actually help ranchers and conservationists alike with or with out an estate tax repeal.
The Salazar Brothers
Obama’s new Interior Secretary, John Salazar hails from Colorado and grew up on a ranch in the in the Southern part of the State and is sympathetic. His brother Rep. John Salazar has introduced a bill that would eliminate the tax for ranchers.
The Department of Agriculture Economic Research Service opposes this approach and argues for a different way. They say using special valuations and conservation easements can reduce the value of an estate and let families escape the tax. A special valuation can occur if heirs agree to use the land for agriculture and agree to hold it for at least 10 years.
Conservation easements are ways for conservation, non-profit groups, or government entities to buy the rights to develop someone else’s private land and then not to develop it. It keeps the rancher on his land, puts a chunk of cash into his hands, and reduces the inheritance taxes by lowering the value of the estate. Adding up all exemptions, less than 1% of farms will be subject to estate tax the Department says.
Wednesday, January 14, 2009
Obama and the Estate Tax
President-elect Barack Obama and other Democrats want to keep the federal estate tax in place, rather than accepting its planned repeal in 2010. The tax was set to be repealed in January 2010, with a restoral to pre-2001 rules in 2011. It has been very difficult to create long-term estate plans in light of such uncertainly.
But it looks like the attempts to repeal the estate tax ended in final defeat in 2007. The focus instead is on reform.
The various proposal include:
A higher estate tax exemption.
Indexing exclusion to adjust for inflation\Reintegrating the estate and gift tax exemptions
Allowing a surviving spouse to take advantage of a deceased spouse’s unused applicable exclusion amoung (portability)
Restoring the state tax credit and repealing the state tax deduciton.
Limiting perpetual dynasty trusts by making the GST exemption only generation of skips.
Eliminating the use of valuation discount planning for investment assets
Eliminating or limiting the use of Crummey withdrawal powers.
Portability and a 3.5 million estate exemption will probably simplify planning for a lot of people. But they still can’t provide shelter for income and growth in assets, or provide other benefits associated with a trust such as asset protection, and safeguards in the event of a second marriage. So in spite of all the current uncertainty, estate and tax planners should be looking forward to long and rewarding careers.
But it looks like the attempts to repeal the estate tax ended in final defeat in 2007. The focus instead is on reform.
The various proposal include:
A higher estate tax exemption.
Indexing exclusion to adjust for inflation\Reintegrating the estate and gift tax exemptions
Allowing a surviving spouse to take advantage of a deceased spouse’s unused applicable exclusion amoung (portability)
Restoring the state tax credit and repealing the state tax deduciton.
Limiting perpetual dynasty trusts by making the GST exemption only generation of skips.
Eliminating the use of valuation discount planning for investment assets
Eliminating or limiting the use of Crummey withdrawal powers.
Portability and a 3.5 million estate exemption will probably simplify planning for a lot of people. But they still can’t provide shelter for income and growth in assets, or provide other benefits associated with a trust such as asset protection, and safeguards in the event of a second marriage. So in spite of all the current uncertainty, estate and tax planners should be looking forward to long and rewarding careers.
Monday, January 12, 2009
More Audits Likely
Santa Rosa Press Democrat reports that with the increase in the estate-tax exemption raising to $3.5 million this year, there will be fewer returns, but there more likely will be more audits and that the IRS has hired more estate and gift-tax auditors.
More audits will take place, in part at least, because of lost revenue due to the increase in exemption.
More audits will take place, in part at least, because of lost revenue due to the increase in exemption.
Elections Matter
Democrats are determined to act quickly to prevent the repeal of the estate tax. The Obama plan would lock the estate tax in permanently at the exemption levels that took effect this year. 3.5 million / 7 million for couples. Estates above that would be taxed at 45%.
Tuesday, January 6, 2009
It's More than Avoiding Taxes
New York Times published a great article on Estate Planning December 30, 2008 called "Estate Planning Is More Than Avoiding Taxes, by Paul Sullivan
The estate tax can be 45%, which can be a big chunk of change. Even with all the planning and armies of lawyers, it can all be undone by mistake. A program developed by J P Morgan called ATLAS (Analysis of Taxes, Liquidity and Structures) has identified the top oversights in estate planning:
1. Wrong Heirs - People fail to update 401K beneficiary forms and others, leaving their money to a wrong heir or a dead heir.
2. Liquidity Deficit - JP Morgan estimates that about half of its clients don't have enough cash to pay estate taxes and have assets that cannot be easily sold. This can force heirs into forced sales in bad markets.
3. Estate Management - Leaving everything to heirs upon death is not the most efficient strategy to minimize the estate tax.
4. Executor - Too often people chose relatives who, however close and trustworthy, don't have the legal and financial background needed.
Lessons
1. Review your estate plans and beneficiary forms once a year and after changes in your personal circumstances.
2. Buy life insurance to cover any deficits in liquid assets needed to pay your estate tax.
3. Effective estate management can help reduce the size of a taxable estate. The examples they reducing estate by $776,000 by purchasing life insurance that paid out $12 mil upon death, an amount that passes out of the estate tax-free. Purring low-value stock into a trust allows it to appreciate tax-free.
4. As your estate grows, so will the need for expertise in managing it. This brings us back to lesson #1. If your estate was worth two million dollars when you appointed your brother and now it's 100 million, it might be time to re-evalute your needs.
Friday, November 14, 2008
Will my love for you die in 2010?
The 2001 tax act repealed the estate tax for one year, 2010. In the intervening years, the amount exempt from estate tax has steadily risen. This year it will be 2.5 million and next year $3.5 million. The tax rate is currently 45%. It will vanish for a year and come back 2011 with $1 million exemption and 55% maximum tax rate that applied before 2001.
A few wealthy families have lobbied hard for a total repeal, but insurance and estate planning interests are against it. Politicians, have hedged their bets.
Now, however, now we have a tax code that creates an incentive for heirs in late 2010 to off their aging benefactor.
President-elect Obama has called for a permanent 3.5 million exemption and a rate close to 45%.
If the law passes, people in that wealth bracket will need to review their plans to make sure they take advantage of the increased exemption in 2009, and for whatever congress does going forward.
If congress doesn't act, it's time to think hard about health care and appoint a trusted person to take care of your medical decisions, if you can't.
A few wealthy families have lobbied hard for a total repeal, but insurance and estate planning interests are against it. Politicians, have hedged their bets.
Now, however, now we have a tax code that creates an incentive for heirs in late 2010 to off their aging benefactor.
President-elect Obama has called for a permanent 3.5 million exemption and a rate close to 45%.
If the law passes, people in that wealth bracket will need to review their plans to make sure they take advantage of the increased exemption in 2009, and for whatever congress does going forward.
If congress doesn't act, it's time to think hard about health care and appoint a trusted person to take care of your medical decisions, if you can't.
Subscribe to:
Posts (Atom)
