Thursday, January 27, 2011 Why Young Families Need to Create an Estate Plan
As the father of two young children, I am acutely aware of how vulnerable my children would be if something happen to me and/or my spouse. My children are completely dependent on us for the next 20 or so years.Creating an estate plan is not just for the elderly or the wealthy, anyone with children needs to create an estate plan. Not only do I need to decide who would take care of my children but also how they will be financially supported. Here's how a good estate plan will protect your family and your assets.
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Guardianship: First and foremost your plan will nominate a back up guardian in your will for your children if something should happen to the parents. If you don't have a will, a judge will make the decision for your kids and you will not have any input.
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Asset Preservation: By having a properly prepared and funded estate plan, you can ensure that as much of your assets that you currently have will be available to support your children. By creating and funding a Living Trust, you can minimize the impact of legal fees and expenses on your assets.
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Income Replacement: One of the primary issues if something should happen to the wage earners of the family is that their income will be lost forever. The money earned to pay for food, clothing, shelter and education will need to be replaced. Evaluating how much life insurance your family needs if something should happen to you is a critical to the financial protection of your family.
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Inheritance Planning: Without an estate plan, your children could inherit all your assets when they turn 18. For most people, 18 is too young to handle that kind of responsibility. If you want to ensure that the assets you have worked so hard to earn are not wasted, you need to have an estate plan to regulates when and how your children will receive your assets.
It is never too soon to contact your local estate planning attorney to make sure your family and assets are protected. Tuesday, January 25, 2011 Don't let the government make decisions for your family or your assets!
Take Control of Your Family and Assets with an Estate Plan
Estate planning is mostly about you making choices regarding the welfare of your family and management of your assets. If you don’t have an estate plan, the government will be making these choices for you, even if you are only incapacitated and most people do not want the government controlling their lives. Here are some examples of the decisions the government can make on your behalf if you don’t document your choices;
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They can place your children with child protective services or foster care.
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They will decide who will raise your children.
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They will give your children all of your assets at age 18.
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They may cause your estate to hire a probate attorney who will charge your heirs tens of thousands in attorneys fees
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They can tie up your assets for one or more years.
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They can choose who will manage and spend your assets even if you are alive.
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They have an inheritance plan that may give your assets to someone whom you do not like.
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They can charge your heirs an estate tax of 35%-55%
A properly drafted and executed estate plan can ensure that you will have input on these important decisions even if you are incapacitated or have passed on. Wednesday, January 05, 2011 2011 Estate and Gift Tax Update
2011 Estate Tax Update
In December of 2010, President Obama has reached a deal with Republicans on the status of the estate tax for 2011 and 2012. The highlights of the bill include
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The estate tax exemption for individuals is now 5 million dollars. This is up from 3.5 million in 2009 and $600,000 in 2000
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The lifetime gift tax exemption is now 5 million dollars. This is up from 1 million dollars in 2010
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The estate and gift tax rate is now 35%. Thus any estates or gifts larger than 5 million dollars will be taxed at a rate of 35% for every dollar above the 5 million dollar threshold
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Portability of the estate tax exemption: Married couples may not need to split up their estate when one spouse passes in order to take advantage of both spouses estate tax exemption. In other words if you and your spouse are worth ten milllion dollars, the surviving spouse can still directly inherit the deceased spouses share of the estate without having to worry about not taking advantage of the deceased spouses's exemption. When the surviving spouse passes, their estate can now not only use the current exemption but also the unused portion of the estate tax exemption not used by the deceased spouse to whom they were last married.
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This new estate tax law will expire at the end of 2012 unless the government renews it and if they fail to do so, we will go back to the 1 million dollar exemption.
While I would not expect the estate tax exemption to fall after 2012, no one has an idea exactly what will happen after 2012. With the rising deficit and sluggish economy it is possible that the estate tax exemption could fall after 2013 although it is more likely that they would increase the tax rate rather than reduce the exemption. With that in mind, it is still imperative that married couples make sure that their living trust is set up in such a way to minimize the impact of the estate tax regardless of what the exemption amount turns out to be. In addition, those couples who set up their trusts when the estate tax exemption was $600,000 should also have their trusts reviewed as they may contain cumbersome provisions that are no longer necessary. Sunday, March 21, 2010 2010 Estate Tax update
Due to the inaction of Congress at the end of 2009, we enter 2010 with the estate tax law in a state of flux. We have new estate tax law that went into affect at the first of the year that will likely be superceded by a new estate tax law sometime this year. In all likelihood, the new estate tax law will look very much like the estate tax law we had in 2009.
In 2009, the House of Representatives (supported by most Democrats and Obama) have passed a law with a 3.5 million dollar estate tax exemption, 45% top tax rate and continued stepped up basis for inheritied property. The Senate meanwhile passed a bill (supported by the Republicans and 10 Democrats) with a 5 million dollar exemption, 35% top tax rate and continued stepped up basis on inherited property. Unfortunately the two houses never were able to reconcile the two bills and probably won't get to it until healthcare reform is resolved. However, I would expect the new law to be within the ranges of these two bills.
Confused? The bottom line is that regardless of what happens to the law relatively few Americans will affected by these laws. Thus most estate planners are advising their clients not to do anything with regards to their estate planning documents until a long term estate tax is put in place by Congress. I continue to advise my client of high net worth to assume a 3.5 million dollar exemption. We assume this will happen in the coming months but inaction by Congress is always a possibility( which we create even more havoc as the current law will expire and the old system of a 1 million dollar estate tax exemption and a 55% tax will be the new law).
If you have any further questions, please feel free to contact me anytime.
For a summary of the estate tax laws for 2009, 2010 and 2011, click here. Monday, March 30, 2009 Estate Planning Law Changes in 2009
Changes in Estate Planning for 2009
In 2009, several changes have occurred that impact estate planning including: (1) A rise in the Annual Gift Tax Exclusion for Gifts to $13,000 from $12,000, (2) The unified estate tax credit (if you pass on with assets below the credit, your estate will not owe any estate taxes) increases to $3.5 million dollars from $2 million dollars., (3) The Annual Gift Tax Exclusion for Gifts to Non-Citizen Spouses increses to $133,000 from $128,000
Proposed Changes in 2009 for Estate Planning
H.R. 436: 2009-2010 Certain Estate Tax Relief Act of 2009 is a bill that is working its way through congress that will go into effect on January 1, 2010. This bill proposes the following: (1) The unified estate tax credit shall be for 2010 and beyond $3.5 million dollars, (2) The estate tax above the credit will be 45%, (3) Current carryover tax basis laws will continue for 2010 and beyond, (4) Estates over $10 million dollars will phase out the graduated rates in the form of an additional 5% tax, (5) IRS valuation discounting of non-business assets owned by a corporation or LLC will no be allowed. The lifetime gift tax exclusion shall remain $1 million dollars.
What does this all mean?
Assuming H.R. 436 is passed, the bottom line for all of these changes is that the estate tax is here to stay but only a small percentage(less than 2%) of Americans will need to worry about the estate tax. For those high net worth individuals with estate tax issues, they will no longer be able to use Corporations or LLC's to discount the value of passive assets such as cash and securities. This does not affect the ability to discount the value of businesses and investment real estate in an LLC or Corporation.
If this bill or a similar bill is not passed this year, in 2010 there will be no estate tax and in 2011 and beyond, the estate tax exemption will drop to 1 million dollar with maximum tax rate being 55%. Monday, March 30, 2009 The Hazards Using a Will and Joint Tenancy as Your Estate Plan
If you have friends, family or clients that currently hold title to property in California as Joint Tenants, you will want to urge them to change the way they have their property titled. While joint tenancy has the advantage of immediate transfer of ownership to the survivor upon the passing of one of the joint owners, joint tenancy can also result in significant increase in income tax liability. Also, if they still have real estate titled as joint tenants, it is a pretty good indication that either they have not done any estate planning or have done estate planning and have failed to change the title of the property into their living trust.
Under current law, if you inherit property, your tax basis in the property will be stepped up to market value as of the day the owner died. In other words if the property is worth $500,000 when you inherit it and then you sell it for $500,000, you will not owe any income or capital gains taxes. If the property is held as community property , this scenario is also true as the surviving spouse gets a stepped up basis on both halves of the community property.
However, if a property is held as joint tenants, the surviving owner(s) only get a stepped basis on the ownership of the deceased owner. Thus if a couple pasy $200,000 for a property, one spouse passes when the property is worth $500,000, the surviving spouse's basis in the property will be stepped up to $350,000 ($100,000 of original basis plus deceased spouses stepped up basis of $250,000). If the spouse then sells the property for $500,000, taxes may be owed on the $150,000 profit. If the couple had title the property as community property, the surviving spouse would have received a stepped up basis of $500,000 and then would not have owed any taxes on the sale of the property.
In California, married couples now have the option to hold title as community property with the right of survivorship. This form of ownership offers the tax advantages of commnity property with the immediate transfer of ownership of joint tenancy. There is no good reason for property owners to continue to use joint tenancy. Better yet. when my firm drafts a Living Trust for our clients, one of the documents we create for married couples is a marital property agreement which will convert all joint tenant titled properties into community property once the property is retitled into the name of the trust. Thus property owners will be able to avoid probate and potentially reduce the tax liability of their heirs.
One additional reason not to rely on joint tenancy to serve as your estate plan is that you may not want the surviving spouse to own the property 100%. If you intend that your share of the community property including your real estate go to your children, there is no assurance that your spouse will include your children in their estate planning. This is especially an issue when you have children from a prior marriage for whom you would to pass on your share of the property to.
If you have any questions, please feel free to contact us at 949.242.4514 or use the contact us link to the left. |