Archive for the 'Estate Planning' Category

Ohio’s Estate Tax Is No More!

Its official folks!  Just this afternoonGovernor Kasich signed the bill repealing the Ohio estate tax .

“By repealing this suffocating tax, Gov. Kasich and the Ohio legislature have made their state stronger – and made it a model for the remaining 21 other states who continue to impose state estate or inheritance taxes, including three of Ohio’s neighbors: Indiana, Kentucky, and Pennsylvania,” says Dick Patten, president of the American Family Business Institute, a no-death-tax lobbying group.

The repeal takes effect January 1, 2013.

For 2011, Ohio is still one of 22 states that along with the District of Columbia currently have estate and/or inheritance taxes. (Yes, that’s separate from the federal estate tax). Among estate tax states, Ohio currently has the lowest exemption amount per estate, just $338,333, but the lowest top rate at 7%. The more dollars in an estate, the more the rate matters as opposed to the exemption amount– that is the amount an individual can leave without paying tax.

Once the Ohio repeal becomes law, New Jersey will have the distinction of being the state with the lowest estate exemption at $675,000.

Click here for a map of where not to die.

My man Brad picked up on this earlier today.   The above quotes were lifted from this article at

What Now For Same Sex Couples In New York? – Estate Planning Thoughts


Having not posted anything for a while it seems appropriate that my return-post – if I can be dramatic about it – should be on the subject that I’ve dedicated a fair amount of screen space to, that of marriage equality.  So thanks to NYC for bring me back to the blog-o-webs!

Now that the GLBT community can finally *really* ask people to buy them stuff from a wedding registry there are likley to be a number of changes relevant to estate planning for them, not all of which can be forseen.  From Professor Beyer though comes a list of some of the most likley changes.

  • Couples can file a joint state tax return but will have to file separate federal tax returns. For couples who earn less than $65,000 a year jointly, the amount they pay in state income taxes may decrease because they will receive a marriage bonus. Couples in a higher bracket, however, may end up paying more by filing a joint tax return.
  • Couples may spend more time and money preparing their tax returns as they must prepare a dummy federal tax return using a married status in order to use that data while filing their state joint tax return.
  • New York allows spouses to transfer an unlimited amount of assets at their death; individuals must pay state estate tax on estates over $1 million. (Couples will still be considered as individuals with regard to federal estate and gift taxes).
  • Spouses of state employees will be eligible for health insurance, pension survivor benefits, and any other benefits available for state employees.
  • For married lesbian couples having a baby, the woman who did not give birth to the couple’s child will also be recognized as a parent on the child’s birth certificate. (It may still be wise to have a formal adoption to secure the child’s legal status to both women).
  • For married gay men using a surrogate, only the biological father will be listed on the child’s birth certificate. In New York, the surrogate mother must relinquish her maternal rights before the other father can adopt the child.
  • Spouses may now bring wrongful death claims and receive worker’s compensation benefits if their spouse dies in a work-related injury.
  • Couples will receive federal benefits if the Defense of Marriage Act (which defines marriage as being between a man and a woman) is ever struck down.

Now, we’ll have to wait for the family law blawgers to update us on the new state of their businesses!

Posthumously Conceived Children And Their Uphill Battle For Inheritance Rights

This story from yesterday’s highlights the difficulty faced by children who were conceived after one of their parents dies.

Melissa Amen conceived her 3-year-old daughter, Kayah, seven days after Kayah’s father died of cancer.

Melissa and her husband, Joshua, struggled for two years to have a child before she conceived through intrauterine insemination. Joshua had stored his sperm in a bank in case treatments for his cancer rendered him sterile. They were planning to raise a family together despite his three-year battle with cancer.

The use of assisted reproductive technology, such as in vitro fertilization and artificial insemination, is becoming more widespread among U.S. troops and cancer patients as they are increasingly banking their sperm to prevent a premature death or sterility-inducing injury from allowing them to have children, observers say.

Yet only 11 states recognize the biological relationships of children conceived posthumously: California, Colorado, Delaware, Florida, Louisiana, North Dakota, Texas, Utah, Virginia, Washington and Wyoming.

Other states grant inheritance rights to children born after one parent dies only if conceived naturally. And although the Social Security Administration generally oversees benefits, it defers to states when determining parentage and children’s inheritance rights.

After the Social Security Administration denied Melissa’s application seeking survivor benefits for Kayah because she was conceived after the death of her father, Melissa took the issue into federal court.  Iowa is close to changing its law to allow children conceived up to two years after a parent dies to receive inheritance rights and Social Security benefits. The Iowa House passed the bill last month and the Senate approved it this week.

I am unaware of any efforts in Ohio or any other states to accomplish the same worthy goal and, though it may not assist with the granting of federal survivorship benefits, an estate plan drafted by a qualified estate planning attorney in your area will most certainly simplify the apportionment and provisioning of assets for your after-born and after-conceived children.

So you gave some property to a relative and didn’t file a gift tax return. The IRS is coming.

This comes to us from today…

As part of a new national hunt for gift tax evaders, the Internal Revenue Service has asked a federal court for permission to order a California state tax agency to hand over its computer database of everyone who transferred real estate to relatives for little or no consideration from 2005 to 2010.

If granted, the sweeping request could expose many Californians–especially those who didn’t file federal gift tax returns–to audits as well as penalties or even substantial back taxes.

The little-known lawsuit, called “In the Matter of the Tax Liabilities of John Does,” was filed in December on behalf of the IRS in federal court in Sacramento, the state capital. That’s the home of the California Board of Equalization, which oversees property tax issues across the state. No action has been taken yet on the request.

From Professor Berry:

The IRS nearly admits that it is going on a fishing trip for John Does. However, it considers it to be in well-stocked waters as evidenced by the widespread noncompliance in 15 other states that have already been targeted. Gift tax returns were filed 0% of the time in Ohio and 10% of the time in Virginia and Florida. Other states that gave up this data include: Connecticut, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.

It may not amount to much in the way of dollars to the government giving the rise in the federal estate tax exemption during the targeted years and because of the way the estate and gift taxes are linked but audits are terrible.  So, if you want to transfer some property, contact a qualified estate planning attorney in your area to advise you on the gift tax consequences of doing so and on the propriety of doing so generally.

Estate Planning and Divorce

I’ve written here and here before on the unique challenges planners face when drafting a plan for people who are not in their first marriage.  One such challenge is advising clients whether they have any lingering rights or responsibilities from their divorce decree or another agreement that arose when their prior marriage ended.  Such decrees and judgments can have serious effects on any proposed plan and must be considered by your estate planner before signing anything.

Yesterday’s decision out of Oregon deals with a common aspect of divorce decrees when children are involved, the mandatory life insurance requirement.

In this case, decedent was required, pursuant to the terms of the stipulated judgement entry that ended the parties’ marriage, to maintain life insurance on herself – the requirement was reciprocal.  When she allowed the policy to lapse and subsequently died without such life insurance, her former spouse made a claim against her estate for the money he would have received had she not allowed her policy to lapse.  There was some discussion in this case about whether the surviving ex-spouse should be able to make such a claim given that he was the life insurance agent who issued the policy and therefore, the argument went, he should have known that the policy lapsed so he can’t now complain about his failures, but the court dismissed this argument almost out of hand and awarded the surviving ex-spouse his claim.

The point here is two-fold:  1) Pay attention to the documents that ended your prior marriage when doing planning now.  As much as you may want to, you can’t just pretend you were not previously married and, 2) Do what those documents tell you!

(As always there is a third point here:  Please, don’t try this at home!  For any planning needs, contact a qualified estate planning lawyer in your area. )

I’m Doing A Lot of Gifting Right Now

Well, not me personally but I’m working on a lot of gifting for clients.

High net worth individuals should consider making substantial gifts now and next year while the lifetime exemption for gifts is still $5 million.  No one knows what will happen to the law in 2013 but as it is presently written the exemption on lifetime gifts (and the still-unified estate tax/GST exemption) will come back down to $1 million.  Most folks don’t think this will happen, but then those are the same folks (me included) who would have bet their right arm that estate taxes would not disappear in 2010 as they did…  So, not only can crazy things happen, they already have!

If you want to make gifts to eliminate or reduce your or someone in your family’s possible federal estate tax liability before they die, contact a qualified estate planning attorney in your area.  Consider also making gifts from your/the gifting person’s trust if they don’t need the money for their care and support…  If done right, you could save some serious cash down the road.

Another Article on the Possible Demise of DOMA

Professor Berry this morning linked to a very interesting article [pdf] on the possible demise of DOMA by Jerry Simon Chasen (Attorney at Law, Miami, FL).

Within a four-week period last summer, three U.S. district court decisions were handed down that call into question the constitutional viability of the federal Defense of Marriage Act (DOMA). Because this law bars legally married same-sex couples from enjoying the 1,138 rights, benefits, and privileges extended to married couples under federal law—probably chief among which, for estate planners, are the unlimited marital deduction (when there is an estate tax) and the additional step up (when there is not)—the demise of this law would have a significant effect on planning for this population.

Read on!

90 Year Limit To Dynasty Trusts Proposed In 2012 Budget

If the estate planning lawyers you know are looking even more pallid than usual this morning, its likely because of this story in today’s WSJ:

A type of trust used by the wealthy to shelter assets from estate taxes for hundreds of years, or even forever, is under fire.

The proposal, which first appeared a few weeks ago on a hit list of estate provisions in President Obama’s 2012 budget, would limit tax-free “dynasty trusts” to 90 years.


Example: Robert, a widower, has a net worth of $15 million and his heirs include children, grandchildren and great-grandchildren. If he leaves everything to his children and they in turn leave everything to theirs and so on, there could be an estate tax toll with each generation.

Robert would like to put his entire estate into a trust and skip layers of tax. But if he does, the generation-skipping tax kicks in and replaces the lost taxes—except for an exempted amount, which is currently $5 million per individual or $10 million per married couple. That $5 million can be pumped up using discounts, life insurance and other leveraging techniques.

Dynasty trusts push that generation-skipping tax exemption to the max, putting the exempted amount beyond the reach of estate taxes for the life of the trust. That, in turn, means the heirs don’t have to “spend” their own exemptions on those assets. These trusts are now allowed in 23 states and the District of Columbia[.]

It looks next to impossible that this would actually happen this year but its at least interesting that the idea is on the table.

I tend to agree with the gentleman quoted in the article who pointed to the asset protection features of such trusts as being their most beneficial aspects and its unclear from the article how the proposed limitation may effect a creditor’s ability to get at the trust assets after the 90 years expires.  Impossible to say at this point what effect this proposed limitation may have on how frequently these trusts are used, so stay tuned.

Special thanks to Professors Beyer and Caron for their respective posts on this topic here and here.

One of The Top 3 Estate Planning Mistakes

One of the top 3 estate planning mistakes – in both frequency and severity –  is families not planning after second marriages.

These mistakes are so bad because there usually has not been any undue-influencing or other wanton shenanigans that would allow the plan to be set aside, its just that mom/dad or their attorney didn’t think things through when drafting their plan.  There are just so many options to consider and no one plan will fit all scenarios.

Professor Berry here links to an article on just subject and, in my opinion, its a must read for anyone who is either in a second (or third or fourth, etc…) marriage, or for anyone who is the child of a parent in a second marriage.

The below text is taken from the Professor’s post but I have reformatted it and added some additional content:

  • The first situation to consider is how money will be divided if both spouses die at the same time. This is actually the easier of all the scenarios.
    • One option is for each parent to pass property to his or her biological children.  This seems the most equitable on the surface, however, accomplishing such a distribution is a very difficult thing to do because very detailed attention must be paid to what assets are owned by mom and dad and, more importantly,  how they’re titled.  This option likely precludes joint ownership in any of their asset.  So while it sounds nice to pass each parent’s property down to their biological children, it would be quite a feat to accomplish this cleanly.
    • Another option is for all the assets to be divided among all of the children equally.  However, this could cause one heck of a rift where one of the parents has substantially more assets than the other.
    • Yet another is to divide assets based upon merit or need, but this can quickly become an emotional mess.
  • The more common—and complicated—situation occurs when one spouse dies first, usually dad.
    • If everything is left to the surviving spouse, she may spend those assets before spending her own (hey, its all hers so she is certainly allowed to), leaving nothing for dad’s surviving children. And at dad’s death, if his will leaves everything to mom or if his property is just passed to her via joint ownership or beneficiary designation, there is likely nothing that dad’s kids can do to change this result.
    • If at dad’s first death all of his assets are then left to his kids so that nothing goes to mom (or vice-versa, she  may not be able to maintain her standard of living during retirement.  (Again, this may sounds ok to dad’s kids but its usually anathema to dad’s wishes.)
    • Another possibility is for the surviving spouse to inherit half of the decedent’s property with the rest going to decedent’s biological children, but this non-need based decision model does not necessarily avoid any of the above problems, in fact, it could make them worse.

The best solution for planning for second marriages is to place assets in a trust.  And, because you can’t know who will die first, both mom and die typically need their own trust – avoid the dreaded joint trust! A properly drafted trust can allow the surviving spouse’s access to the deceased spouse’s assets during her lifetime, with reasonable restrictions, and on her death what remains will pass to dad’s surviving children.

“There is no one-size-fits-all solution to estate planning for couples in second marriages. Each situation is different and requires a different solution.”

What I do know, with certainty, is this is the situation which leads to more litigation than almost any other.  This is also the situation that is most likely to end the combined family by leaving everyone angry at everyone else.  But it doesn’t have to be this way.  Contact a qualified estate planning attorney in your area anytime you have a family with a second marriage.  Estate planning for “regular” families is tough enough; the second marriage – an arrangement that has almost become the norm – is doubly so.

You’re POA For Mom/Dad And They Have a Trust… Can You Change The Trust?

This question comes up frequently…  Someone is the power of attorney for someone else, let’s say mom or dad, and the POA wants to  change mom or dad’s trust (in their capacity as power of attorney) to conform to some new wish of mom or dad.  Can the POA holder do so after mom or dad has become incompetent and unable to make the change themselves? What’s the big deal?  Usually the POA holder has been making decisions for mom or dad for some time now – writing checks, making investment decisions and maybe even changing beneficiary designations on life insurance policies or retirement plans to avoid probate – so this would seem a small thing.

Not so.

The Ohio Trust Code clearly states in Section 5806.02(E): “An agent under a power of attorney may exercise a settlor’s powers with respect to revocation, amendment, or distribution of trust property only to the extent expressly authorized by both the terms of the trust and the power.”

So unless both your POA and the trust you want to modify explicitly authorize you to do so, in Ohio, you’re out of luck.  Such specifically delegated powers in both documents are not default.  And for good reason. So if you’re uncertain about your ability to make a change to your Principal’s trust, contact a qualified estate planning attorney in your area to answer this common (but not always simple) question

I was reminded of this point by Gregg’s post today about this same issue in North Carolina.