Posted on January 28, 2010 by Beverley Rogers

Yes, Virginia, there is an Estate Tax

According to Investment News, Virginia became the first state to pass a law requiring that estates be treated as if it is still 2009 -- unless Congress acts first.

Why would Virginia do that? Many wills include formulas that are based on the existence of an estate tax. This article points out how the formulas can distort the intentions expressed in someone’s will - - to the extent of leaving one’s children nothing instead of $3.5 million.

Of course the issue does not apply at all to most estates because they are too small to be taxed in the first place. There was no tax on small estates in 2009, and there is none in 2010.

In our practice, for estates that might have been taxable, we have been using “disclaimer” provisions that allow a surviving spouse to decide whether tax-minimizing steps are necessary. The “disclaimer” technique is not a cure-all for an uncertain tax environment, but it works in many cases.

It would be better if Congress simply decided to end the uncertainty and pass some kind of estate tax law.

 


 
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Posted on January 4, 2010 by Angelo Tartaro

Reversal of Fortune: The Estate Tax Law Update

As of January 1, the federal estate tax went away for a year. Under current law, it’s scheduled to return at a higher rate next year. Personally, I’m surprised that Congress allowed the estate tax law to lapse, and I'm curious to see the ramifications.

According to the Wall Street Journal, families facing end-of-life decisions in the immediate future are finding that the change is making one of life's most trying episodes only more complex. Beneficiaries stand to inherit a lot more for a death this year than a death after December 31, 2010. The ethical dilemma is clearly significant.

Of course, what Congress giveth, Congress can taketh away. As discussed in the Journal article, the repeal of the federal estate tax is accompanied by reinstatement of the capital gains tax on property passing to beneficiaries.  Previously, when property passed to beneficiaries, the property received a “step up” in basis, wiping out the capital gains tax. The net result is that many estates, including smaller estates, will be taxed anyway but it just won’t be called an estate tax.

The Journal says that the uncertainties of the new tax law (will it be changed? will it be retroactive?) are “forcing family legal advisers to craft various provisional financial-planning strategies that can be undone later if the rules do change.” According to the article, at least one person has added the prospect of euthanasia to his estate-planning mix.  That might be a little extreme.

For a more conventional planning environment, we look forward to some kind of retroactive resolution.
                                                                

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Posted on December 6, 2009 by Angelo Tartaro

Follow-Up Info: Inheritance Tax

As we have mentioned before, under current law, the federal estate tax is scheduled to temporarily disappear next year before returning in 2011 at an even higher 55 percent rate. During the year without an estate tax, all estates would be subject to capital gains taxes that they now avoid.

The House approached a vote Thursday on permanently extending a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax set to begin next month.

According to an article in the Hartford Business Journal, under the House bill, estates smaller than $3.5 million would continue to be exempt from the tax, and married couples, with a little estate planning, could exempt a total of $7 million.

Under current law, the estate tax would return in 2011 with a $1 million exemption and top rate of 55 percent, unless Congress acts.

We will continue to keep you updated. 

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Posted on October 2, 2009 by Beverley Rogers

It's a Dog's Life - (as far as estate planning goes)

Connecticut pets can rest easy now.

The Ridgefield Press reports that Governor Jodi Rell signed a law ensuring that animals will be properly cared for if their owners die.

The new pet law, An Act Concerning the Creation of a Trust for the Care of an Animal, requires that the owner designate a “trust protector;” someone whose sole duty is to act on behalf of the animal, ensuring that the pet receives the proper care. In other words, when you’re making arrangements for your children, make them for Fido and Fluffy, too.

Prior to the new law, which went into effect October 1, pet owners could set up trusts for their animals but those arrangements were considered honorary since animal beneficiaries could not enforce them.

The new law complements a standing Connecticut law which states that pets are personal property. This particular legislation actually created a bit of an issue for a divorcing Connecticut couple, according to A Connecticut Law Blog. The couple encountered substantial veterinary bills after seeking treatments for their ill pets. The court ordered that the husband and the wife equally divide the costs of medical treatment for dogs. After all, they were just part of the marital debt.

As pet owners ourselves, Bev and I support the new legislation. Providing for a pet is a matter of personal preference and values and there should be some comfort in knowing such provisions are enforceable and not academic exercises or empty words in a will. But, the more important issue is whether one has gotten around to having an estate plan at all to provide for the objects of one’s affection and bounty, human or not.

 

 

 

 

 

 

 

 
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Posted on September 23, 2009 by Angelo Tartaro

A Life Lesson From Charles Kuralt: Don't Put Off 'Till Tomorrow...

I used to enjoy watching Charles Kuralt on Sunday mornings. But a recent post in the Pennsylvania Fiduciary Litigation Blog shows his soothing voice and well written dialogues masked the real story in his personal life.

PFLB reports that when Mr. Kuralt died at age 62, his estate passed to his wife and his two daughters. However, after his death, it was discovered that Kuralt had a second, “secret” family for over 30 years. Kuralt’s will stated that his wife was the beneficiary of his estate, but before he passed away, Kuralt wrote a letter to his companion stating his desire to have her inherit the 90 acres of land he owned in Montana. A court found that the letter was considered a codicil, and was acceptable under Montana law.

 In New York, where Mr. Kuralt’s original will was probated (declared to be genuine by a court), a codicil must be executed with the same formalities as the original will- - you can’t just write a letter to amend your will. However, if Mr. Kuralt executed the codicil with the requisite formalities but the format just happened to be that of a letter, then it is truly a codicil in almost any state.

Interestingly, change the facts a little and the situation is not so unusual: a prior marriage and divorce . The estate plan would have to provide for the children from a prior marriage, a spouse and children from the second marriage. Conflicts abound.

There were also tax issues associated with the Montana land. Wills are often written with the provision that taxes are paid from the residuary estate. The taxes paid on the Montana property that went to his “secret family” came out of funds that were left to Mr. Kuralt’s known family. A complicated life requires a complicated plan, or inequities like this may ensue.


According to the PFLB report, Mr. Kuralt had other plans in mind but was suddenly stricken ill. This sad and unfortunate aspect of the story offers a valuable life lesson - - don’t put off your planning. Who knows what events may intervene?

 

 

 

 

 

 

 

 

 

 

 


 

 
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Posted on September 17, 2009 by Beverley Rogers

"Cliff Notes" on Connecticut's Estate Tax Changes

Connecticut has eliminated the “cliff” from its estate tax. The Danbury News-Times, along with other media and legal blogs, reports that this change to Connecticut’s estate tax law, along with other significant changes, will go into effect for decedents who die on January 1, 2010 or later.

The aforementioned “cliff” refers to the fact that under prior tax law, an estate of $2,000,000 was exempt from taxation. However, add one more dollar to that, and the entire $2,000,001 was taxed, resulting in a tax liability of $101,700. With the new law, estates of $3,500,000 or less will not be taxed. This is similar to the federal estate tax threshold (or at least this year it is).

Under current law, the federal estate tax will be abolished next year, only to come back in 2011 with a threshold of only $1,000,000. The expectation is that the federal estate tax will be modified. On the other hand, that expectation has existed for some 8-10 years.  A clear explanation of the status of the federal estate tax is provided by this recent Wall Street Journal article.

In New York, the state estate tax threshold is a mere $1,000,000. But, in either Connecticut or New York, the federal tax takes a far bigger bite, with a marginal rate up to 45%. That’s right, 45%.

Here’s some good more news for Connecticut: estate tax rates are now being reduced by 25 percent, with a new maximum rate of 12%. But the estate tax and a return will be due six months after date of death instead of the current nine months.

In all three jurisdictions, (federal, Connecticut and New York), your “estate” for tax purposes includes almost everything you own: property, IRA’s, 401(k)’s, pension plans, the proceeds of life insurance and “In Trust For” accounts.

And one more point of potential confusion, specifically with respect to life insurance: the fact that beneficiaries do not pay income tax on the proceeds does not mean that the estate won’t pay estate tax.  A substantial life insurance policy can be enough to "tip: an estate into a taxable bracket.

A final piece of advice: take care of yourself and your loved ones.

 

 

 

 

 

 

 

 

 


 

 
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Posted on July 6, 2009 by Beverley Rogers

We Know Not What Tomorrow Will Bring: Estate Planning

The ubiquitous media coverage of Michael Jackson’s death last week mentioned the plight of his children and the state of his financial assets and woes. This unfortunate situation should serve as a reminder that careful estate planning is not just for the wealthy or Hollywood Elite. Taking care of your affairs now ensures that your loved ones are cared for in the manner you wish once you pass.

Many people believe their estate automatically passes onto the spouse, when in fact the spouse may actually receive less than intended.  In Connecticut and New York, the laws of "intestacy" (estates without a will) provide for fractional shares for the spouse if there are children.  By contrast, many married couples who write wills give all to the other and only at the death of both do assets pass to the children.  Without legal planning, how an estate will be distributed or who the administrator will be is determined by impersonal laws without considering individual circumstances..

Although there are no laws that require the assistance of an attorney in estate planning, we highly recommended  it. A "do-it-yourself" will or generic trust may actually be more expensive than consulting a lawyer. Generic forms often do not address the legal requirements of New York or Connecticut. They also will not take into account individual wishes. And then, of course, there may be tax issues that will need to be resolved.

The death of a loved one is always difficult, but with no estate plan, the loss can be compounded by family squabbles and feelings of betrayal -- not to mention an overwhelming amount of paperwork.

Visit some of our archived blog entries for more information.

Image:  Last will & testament of Alfred Nobels, dated November 27th, 1895.  Courtesy Wikimedia
 

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