Tag Archive for 'estate tax'

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.

Same Sex Marriage, The Estate Tax & The [Possible] Death of DOMA

“There is nothing more powerful than an idea whose time has come.” – Victor Hugo

I posted last week about Hawaii having approved civil unions for same sex and couples (and for the rest of us breeders too).  Then the Obama administration one-upped that news by deciding to stop defending DOMA in the federal courts which lead directly to a number of posts and articles out there on the blog-o-nets about how a possible repeal of DOMA may have estate tax implications for same-sex couples.  It gets a little technical but my man Joel Shoenmeyer does a great job of getting us started in his post, DOMA, Same-Sex Marriage, and the Estate Tax.  Joel writes:

Federal estate tax law allows for a “marital deduction” for gifts made to a spouse at death, but the deduction is “equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse.” And, because of DOMA, same-sex married couples were not deemed to have a surviving spouse. This created a larger burden on same-sex married couples with estates subject to tax.

Some commentators have called this additional burden a “Gay Tax.”  FamilyFairness.org writes here:

The Williams Institute of UCLA School of Law has released a study [pdf] that shows that same-sex couples are assessed an average of $3.3 million more in taxes upon the death of their partner than a similarly situated opposite-sex couple. Because estate taxes are set federally, the Defense of Marriage Act prohibits even married same-sex couples from taking advantage of the marital deduction.

The Edith Windsor case, detailed here (and in this NYT article),  illustrates the point:

On November 9, 2010, Ms. Windsor, who shared her life with her late spouse, Thea Spyer, filed a lawsuit against the federal government for refusing to recognize their marriage. In the lawsuit, Ms. Windsor alleged that DOMA violated the equal protection clause of the U.S. Constitution because it recognized marriages of heterosexual couples, but not those of same-sex couples, despite the fact that New York State treats all marriages the same. Edie and Thea were married in Canada in 2007, and were considered married by their home state of New York.
When Thea died in 2009, Edie was the sole beneficiary of Thea’s estate. Because they were married, Thea’s estate normally would have passed to her spouse Edie without any tax. But because the federal government refuses to recognize otherwise valid marriages of same-sex couples due to DOMA, Thea’s estate had to pay more than $350,000 in federal estate tax. Earlier in 2010, Edie requested a full refund from the government. The IRS rejected that claim, citing DOMA.
These cases are going to come like a flood into the courts.  This NYT article describes how,  back in July of 2008, Judge Joseph L. Tauro of United States District Court in Boston sided with the Plaintiffs and ruled that DOMA “compels Massachusetts to discriminate against its own citizens in order to receive federal money for certain programs.” The other case [pdf], brought by Gay and Lesbian Advocates and Defenders, focused more narrowly on equal protection as applied to a handful of federal benefits. In that case, Judge Tauro again sided with Plaintiffs in ruling that DOMA violated the equal protection clause of the Constitution by denying benefits to one class of married couples — gay men and lesbians — but not others.
DOMA feels like its on its way out folks.  1996 was a long time ago and, though opinions on gay marriage have changed dramatically since then, the real force of change here looks to be the writing of unfair checks to Uncle Sam.  The insecurity over the future of the federal estate tax and a potentially lower exemption can only mean that we will see more of these cases.  And thus, another test of Mr. Hugo’s maxim may not be too far away…

The Future of The Estate Tax – Rumor Round-Up

Much has been written of late about our evolving federal estate tax so I thought it prudent to aggregate the claims, guesses and rumors that are out there.  I don’t know if this is meant to assist you with planning decisions or just to get a sense of which way the prevailing winds are a-blowin’ , but I just thought it would be interesting.

There are a couple different camps out there and I’ll try to organize them thusly below:

1. The 1-Year Extension

In summary this school of thought is of the opinion that congress won’t get into any real debate over the FET this year.  Instead, they’ll merely pass a 1 year extension of 2009’s rates and exemptions through 2010 thus allowing the FET to drop down to $1 million per person in 2011 with an additional 10% added on to the applicable rate per the existing law.

  • This article at TheHill.com on 9/15 as linked-to by Professor Berry in this post.
  • Greg weighs in on this possibility in this post, also from September of this year.
  • Via this post, Jim Gust links to an article similar to the above putting him in some pretty good company in this category.

2. The Retroactive Option

This one is even scarrier.  Gideon Alper of the Gay Couples Law Blog writes in this post: Don’t be surprised if Congress does nothing about the estate tax this year, not even a one year extension. Instead, it can wait and pass an amendment that retroactively taxes the estates of people who die in 2010.  Ugh right!  He continues, citing multiple other sources:  Lots of people have written about the consequences of Congress doing nothing by the end of the year and letting the estate tax expire in 2010 . Expect to hear even more from people the longer Congress waits to do something.

However, it looks like Mr. Alper falls into the 1-Year Extension group above as he follows the above quoted nightmare with his opinion that congress isn’t likely to do anything based on this article in the WSJ.

3. Not Sure What’s Going to Happen But The FET WILL Go Up

Finally, in this post Greg links to this article by Evan Cooper at Investment News.  No real conclusions came from the panel but they all agreed that FET is much more likley to go up than down – meaning either that rates will go up, exemptions will come down or both.  Again, ugh.


It appears that the one year patch is the favored school of thought among those who care about this particular tax but all bets are off when dealing with congress so no real advice is available right now.  I think Greg said it best when he said that it is no longer safe to rely on $3.5 million being the exemption.  Given all that congress is trying to do right now and all that they have to pay for, it seems highly unlikey that this tax will go down.

My opinion:  the 1 year patch seems the most reasonable scenario because it allows congress to do nothing.  That way the D’s can blame the R’s for passing the law in the first place.  And really people, why do something when its so much easier to do nothing and blame someone else for having screwed it up before you even got there?


The CBO – Estate Tax Alternatives

The Congressional Budget Office has published the creatively titled:  The Estate Tax and Charitable Giving. (warning, link is a PDF)

The preface reads in pertinent part:

This paper by the Congressional Budget Office (CBO) […] examines the effect that changing the estate tax would have on donations to charity. Because charitable bequests lower the taxable amount of estates, the tax gives people an incentive to contribute to charity at death rather than leave assets to heirs. Furthermore, the estate tax provides an incentive to make charitable contributions during life. The paper finds that increasing the amount exempted from the estate tax from $675,000 to either $2 million or $3.5 million would reduce charitable giving by less than 3 percent. However, repealing the tax would have a larger impact, decreasing donations to charity by 6 percent to 12 percent.

The following three alternatives are presented:

Alternative 1 would set the exemption for the combined
tax at $5 million starting in 2010, index that
amount for inflation, and set the tax rate equal to the
top rate on capital gains (currently set for 15 percent
in 2010 and 20 percent thereafter). Stepped-up basis
would apply to assets transferred from a decedent. No
deduction or credit would be given for state death
taxes. This alternative would reduce revenues by
$128 billion over the period from 2010 to 2014. In
2014, approximately 5,300 estates would be required
to pay some federal estate tax under this alternative,
compared with about 58,000 under current law (after
EGTRRA’s expiration).

Alternative 2 would make the same changes, except
that instead of a single tax rate, two would apply. The
first $25 million of the taxable estate would be taxed
at the top capital gains rate, and taxable transfers
above $25 million would be taxed at 30 percent. (The
$25 million threshold would be indexed for inflation.)
Through 2014, revenues would fall by $117 billion.
In that year, some 5,300 estates would have federal
estate tax liabilities, compared with about 58,000
under current law.

Alternative 3 would set the exemption at $3.5 million
beginning in 2010, index that amount for inflation,
and set the tax rate at 45 percent. The stepped-up
basis would continue to apply to assets transferred
from a decedent, but unlike the other three
approaches, this alternative would retain EGTRRA’s
deduction for state death taxes. Those changes would
reduce revenues by $65 billion over five years. About
9,400 estates would pay some federal estate tax in
2014 under this alternative, compared with about
58,000 under current law.

Alternative 4 would make EGTRRA’s provisions for
estate and gift taxes in 2010 permanent rather than
temporary. Thus, the estate tax would not be reinstated,
and the gift tax exemption would remain at
$1 million. In addition, this alternative would permanently
retain the modified carryover basis that
EGTRRA specifies in 2010 for some transferred
assets. Together, those changes would reduce revenues
by $163 billion between 2010 and 2014, and no one
would pay federal estate taxes in 2014.

All three proposals use the $1 million federal estate tax exemption as their baseline, which, in light of my previous post, suddenly doesn’t seem all that unlikely.  “Alternative 3 is closest to what the President proposed in his May budget.”  (see this post by Jim Gust of the Trust and Wealth Management Marketing Blog.)

A Worst Case Scenario For The Estate Tax

Greg Herman-Giddens of the North Caroline Estate Planning Blog cites inside sources in the U.S. Senate for the following prediction:  Congress will do nothing to reform the present estate tax laws.  Rather, they will pass a one year extension of the status-quo and let the exemption fall to $1 million per person – which will happen without legislative intervention – in 2011.

This, in addition to the coming increases in income taxes, will help pay for health care reform and all the other hemorrhaging of taxpayers’ money.

Time to start polishing those time-to-do-your-estate-planning letters to all those recalcitrant clients of yours?  I don’t know…  Its no secret the government is strapped for cash and that healthcare reform, regardless of what form it finally takes, will probably be the most expensive legislation since the New Deal so the government will have to find a way to pay for it, but I don’t know.  We’ll see I guess.

This would be great for us estate planners…  We’d have so much more work to do (’cause yeah, that’s really what I need right now) but this would truly be a worst case scenario for tax-payers.

C’mon congress!  The status ain’t quo right now guys.  There’s three proposals in congress – that I know of – so pick one and lets move on so I can finally give some relaible planning advice to my clients!

The Estate Tax = Smart (The Universe In Balance)

Well, maybe not the universe, but at least this blog.

Balancing my earlier post on why the estate tax is bad comes this April Fools Day Editorial in the NYT:  The Forgotten Rich

I don’t think the rich have been entirely forgotten recently even though many of them wish they had been, but the article makes some strong points.  Speaking to the recent proposal by Senator Blanche Lincoln, Democrat of Arkansas, and Senator Jon Kyl, Republican of Arizona, the author derides what s/he says the point of their proposal:  America’s wealthiest families need help. Now

The two senators plan to propose an amendment to deeply cut estate taxes for the fraction of the top 1 percent of the population still subject to those levies.

The proverbial millionaires next door — the plumbers, contractors and accountants who amass substantial wealth through hard work and modest living — are not the intended beneficiaries of the proposed cut. The Obama budget already takes care of them, because it retains today’s law, which imposes the estate tax only on couples with property worth more than $7 million, or individuals with property worth more than $3.5 million. That means 99.8 percent of estates will never — ever — pay a penny of estate tax.

The heirs of the remaining 0.2 percent of estates are who Ms. Lincoln and Mr. Kyl are so worried about. Their amendment would increase to $10 million the level at which the estate tax kicks in. It would also lower the top estate-tax rate to 35 percent from 45 percent.

$10 million sounds high.  We’ve been talking around the office about $5 million as a reasonable exemption, but $20 million per married couple sounds high and starts to feel like we’re ratchening up the exemption at a geometric rate.  Their proposal seems an obvious foot-in-the-door for the wealthiest (and the loudest and fewest) of their constituents.

In addition to creating the false impression that the estate tax eventually hits everyone — by mislabeling it a “death tax” — opponents routinely denounce the 45 percent top tax rate as confiscatory. In fact, the rate applies only to the portion of the estate that exceeds the exemption. As a result, even estates worth more than $20 million end up paying only about 20 percent in taxes.

Another misleading argument is that the estate tax represents double taxation. In truth, much of the wealth that is taxed at death has never been taxed before. That’s because such wealth is often accrued in the form of capital gains on stocks, real estate and other investments. Capital gains are not taxed until an asset is sold. Obviously, if someone dies owning an asset, he or she never sold it and thus never paid tax on the gain.

If those arguments aren’t enough to stop the Lincoln-Kyl show, lawmakers should consider this: The estate tax creates a big incentive for high-end philanthropy, because charitable bequests are exempt.

The latter point cannot be ignored.  Charities should be all over this but their lobby is oddly silent.

The second point is observably verifiable, at least in my practice.  The vast majority of the assets of an individual’s gross taxable estate that I see on a daily basis have not yet been taxed.  The assets are often present in a qualified plan of some sort that were contributed pre-tax, are unrealized gains on marketable securities or are present in real property.  The obvious rebuttal to saying the latter two asset classes haven’t been taxed is by saying that those assets were purchased with post-tax dollars and taxing those asset’s values at death is double-taxation.  And that may be true, however, what is not taxed is the gain on those investments until they are sold.  You may have  purchased the stock at $50/share but when you pass away and its at $60 having split 3 or 4 times you haven’t paid a tx on any of those gains; gains which may have doubled or tripled the value of the stock.  The same holds true for real estate.  And when both assets are passed to your beneficiaries, they enjoy a stepped up basis so the assets then have truly never been taxed by that recipient.

Senate Passes Amendment to Reduce Estate Tax & Raise Exemption

Lots of movement on this in the last week.

This morning Brad Wrightsel wrote here about the Senate having passed “a nonbinding but symbolically important amendment” rasing the exemption to $5 million and lowering the rate to 35%.

The Hill, The New York Times, Fox News and the Wall Street Journal all carry their own versions of the story, most of which focus on the “larger” story (get it!?) of the overall budget itself.

From The Hill:

One key fight was settled early in the evening, when senators passed an amendment increasing the estate tax exemption to up to $10 million, a move that seeks to force Democrats to cut spending from their budget. Couples currently enjoy only a $7 million exemption from the estate tax, called the “death tax” by Republicans because it applies to the transfer of property of the deceased.

The amendment increases the exemption for individuals from $3.5 million to $5 million, and it cuts the estate tax rate from 45 percent to 35 percent. The amendment, proposed by Sens. Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.), passed 51-48 with bipartisan support. All 41 Republicans supported it, along with a group of centrist Democrats.

Despite all of the attention, however, the estate tax relief proposal is unlikely to survive conference talks since those will include House Democrats who have not backed the idea previously.

From The NYT:

Among the amendments that won Senate approval was a bipartisan proposal that would raise the estate tax exemption by $1.5 million, to a total of $5 million, and reduce the tax’s maximum rate by 10 percentage points, to 35 percent.

Fox News (as usual) has their facts wrong, but its the most entertaining read:

Under Obama’s plan, the tax would have expired in 2010 and remained at its 2009 level — meaning the government would get 45 percent of a dead person’s estate valued over $3.5 million.

The amendment would reduce the estate tax rate to 35 percent and increase the exemption to $5 million [per person.]

Busy morning!

The Estate Tax = Stupid

Professor Beyer beat me to it…  He found this great article on why the estate tax is dumb/evil.  He credits Patrick Sylvester of The Sylvester Law Firm, PC, and its really so good that I had to thank Mr. Sylvester in this post as well.  The Good Professor excerpts the following and I thought it appropriate to repeat the same on this blog.

So, thank you Mr. Sylvester!  And thank you again Professor!

In most cases, people who inherit wealth are lucky by an accident of birth and really don’t “deserve” their inheritance any more than people who don’t inherit wealth. After all, few of us get to choose our parents. It’s also arguable that inherited wealth sometimes induces slothfulness and overindulgence. But the facts that beneficiaries of inheritances are just lucky and that the actual inheritance may make beneficiaries less productive don’t justify having an estate tax.

These same observations about serendipitous birth can be made for intelligence, education, attractiveness, health, size, gender, disposition, race, etc. And yet no one would suggest that the government should remove any portion of these attributes from people simply because they came from their parents. Surely we have not moved into Kurt Vonnegut’s world of Harrison Bergeron. * * *
Advocates of the estate tax argue that such a tax will reduce the concentrations of wealth in a few families, but there is little evidence to suggest that the estate tax has much, if any, impact on the distribution of wealth. To see the silliness of using the estate tax as a tool to redistribute wealth, realize that those who die and leave estates would be taxed just as much if they bequeathed their money to poor people as they would if they left their money to rich people. If the objective were to redistribute, surely, an inheritance tax (a tax on the recipients) would make far more sense than an estate tax. * * *

Clearly, taxing estates at death will induce people who wish to leave estates to future generations to leave smaller estates and to find ways to avoid estate taxes. On a conceptual level, it makes no sense to tax estates at death.

Study after study finds that the estate tax significantly reduces the size of estates and, as an added consequence, reduces the nation’s capital stock and income. * * *

Today in America you can take your after-tax income and go to Las Vegas and carouse, gamble, drink and smoke, and as far as our government is concerned that’s just fine. But if you take that same after-tax income and leave it to your children and grandchildren, the government will tax that after-tax income one additional time at rates up to 55%. I especially like an oft-quoted line from Joseph Stiglitz and David L. Bevan, who wrote in the Greek Economic Review, “Of course, prohibitively high inheritance tax rates generate no revenue; they simply force the individual to consume his income during his lifetime.” * * *

The estate tax in and of itself causes people to waste resources.

Estate Tax News: Proposed Exemption Fixed at $3.5 Million

On 3/26, Senate Finance Committee Chairman Max Baucus (D-Mont.):

announced legislation that would make existing tax breaks permanent for working families and individuals including the child tax credit, marriage penalty relief, and lower middle-income tax rates among other provisions. The measures were originally passed as part of tax legislation in 2001 and 2003, but are set to expire in 2010. Baucus unveiled his proposal after a Finance Committee hearing today that examined the affect of the current economy and the U.S. tax code on America’s middle class.

“Today we’re offering a piece of certainty during an uncertain time for millions of hardworking, honest Americans. These measures are not excessive or outrageous, but timely and targeted, and will build on earlier efforts to stabilize the economy,” said Baucus. “By guaranteeing a little extra cash in the pocket of working moms and dads, and by making sure that the AMT and the estate tax can move with the economy, we avoid sweeping tax increases for millions of American families. By promising spouses tax fairness in marriage, giving help to those helping others through adoption, and by giving lower-wage workers confidence at a critical time, we can restore our footing, and begin to climb back to a position of national strength and economic security.” 

The estate tax is the biggest piece of this particular legislation, in my opinion anyways:  Rather than being repealed in 2010 (as its set to do under current law), the estate tax exemption would sit at $3.5 million and be indexed for inflation in $10,000/year increments starting in 2011.  The tax rate would be fixed at 45% – the same as it is now.  The biggest news though is the “marital deduction portability.”  Under the proposed law, when one spouse passes away, their estate can pass to the surviving spouse without the need for a credit shelter trust.  If the surviving spouse passes away with an estate larger than the then applicable individual exemption amount, they can elect to use the “aggregate deceased spousal unused exclusion amount.”  The use of the first deceased spouse’s deduction requires an election on the tax return of the second to die and can be up to the full amount of the unused exemption.  Thus, $7 million can pass free of estate tax on the death of the second spouse.

Greg Herman-Giddens of the North Carolina Estate Planning Blog, wisely writes:

If this bill becomes law, the first tendency of many couples with [federally] taxable estates will be to revise their wills or trusts to do away with the credit-shelter (bypass) trusts.  However, there will still be compelling reasons to have such trusts.  With a credit-shelter trust, growth in the value of the assets is also protected from estate taxes, while that is not necessarily true if a couple relies on exemption portability.  In addition, the credit shelter (or marital) trust provides valuable protection from mismanagement, creditors, and future spouses.

Awesome Greg.  I couldn’t have said it better myself.

A full summary of the bill is below:

The Taxpayer Certainty and Relief Act of 2009

I. Permanent Middle Class Tax Relief

Individual Tax Rates. Current ordinary income tax rates are imposed at 10, 15, 25, 28, 33, and 35%. These tax rates expire at the end of 2010. The proposal would make permanent the 10, 25, and 28% tax rates. (The 15% tax rate is already permanent law.)

Capital Gains and Dividends. The proposal would make permanent the reduced tax rate on capital gains and dividends for taxpayers in the 10, 15, 25, and 28 percent brackets. The 2003 tax bill created a new tax rate of 15 percent (5 percent for low-and middle-income taxpayers, going to zero percent in 2008) for dividends. Prior to passage of this bill, dividends were taxed at ordinary income rates. The 2003 bill also reduced the capital gains tax rate from 20 percent (10 percent for low- and middle-income taxpayers) to 15 percent (5 percent for low- and middle-income taxpayers, going to zero percent in 2008). These reduced tax rates were originally set to expire at the end of 2008, but were extended until the end of 2010 in the “Tax Increase Prevention and Reconciliation Act of 2005” (TIPRA).

Child Tax Credit.Generally, a taxpayer may claim the child tax credit to reduce income tax liability by up to $1,000 for each qualifying child under the age of 17. If the amount of a taxpayer’s child tax credit is greater than the amount of the taxpayer’s income tax liability, the taxpayer may receive a refund if the income threshold is met. The Economic Growth and Tax Relief Reconciliation Act of 2001 set the income threshold for child tax credit refundabilityat $10,000 (indexed). The American Recovery and Reinvestment Act decreased the threshold for the 2009 and 2010 tax years to $3,000. The proposal would make these changes to the child tax credit permanent.

Marriage Penalty. A “marriage penalty” exists when the combined tax liability of a married couple filing a joint return is greater than the sum of the tax liabilities of each individual computed as if they were not married. A “marriage bonus” exists when the exemption amounts and rate brackets are larger for the joint returns filed by married couples than for singles’ returns. As part of the 2001 tax cuts, the standard deduction for married filers was scheduled to increase annually until 2009. In addition, the bill eliminated the marriage penalty in the 15% tax bracket and for the earned income tax credit. The marriage penalty relief expires on December 31, 2010. The proposal would make the marriage penalty relief permanent.

Dependent and Child Care Credit.The dependent care credit allows a taxpayer a credit for paid child care expenses for qualifying children under the age of 13 and disabled dependents. The credit is 35% of eligible expenses. This rate decreases by 1% for each $2,000 of income above $15,000, but the rate never falls below 20%. Eligible expenses are limited to $3,000 for one child, and $6,000 for two or more children. (After 2010, the amount of eligible expenses returns to the pre-2001 amounts of $2,400 for one child and $4,800 for two or more. In addition, the 35% credit rate decreases to 30% and the income threshold decreases to $10,000.) The proposal would make 2009 law permanent.

Earned Income Tax Credit. The EITC is a refundable tax credit available to low wage workers. Because the credit is refundable, a taxpayer will receive a refund if the amount of the EITC is greater than the amount of the income tax liability or if no income tax liability exists. The American Recovery and Reinvestment Act increased the credit rate for taxpayers with three or more children from 40% to 45% and increased the phase out range for all married couples filing a joint return (regardless of the number of children) by $1,880. The proposal would make these changes permanent.

Adoption Credit and Adoption Assistance Programs. Current law allows a maximum adoption credit of $10,000 per eligible child and a maximum exclusion of $10,000 per eligible child. These benefits are phased-out for taxpayers with modified adjusted gross income in excess of certain dollar levels. These tax incentives go back to $5,000 per child ($6,000 for child with special needs) after 2010. The proposal would make 2009 law permanent.

II. Permanent Alternative Minimum Tax Fix

For the 2009 tax year, the American Recovery and Reinvestment Act provided a patch for the AMT, setting the exemption amount at $46,700 (individuals) and $70,950 (married filing jointly), and allowed the personal credits against the AMT. When this patch expires, the exemption amounts will return to $33,750 (individuals) and $45,000 (married filing jointly) and the personal credits will not be allowed against the AMT. The proposal would make the 2009 exemption levels permanent and index them for inflation. In addition, the proposal will permanently allow the personal credits against the AMT.

III. Permanent Estate Tax Relief

Under current law, U.S. citizens and residents must pay taxes on transfers of property both during life and at death. These taxes are due under three separate tax systems: the estate tax, the generation-transfer skipping tax, and the gift tax. Currently, the top tax rate for all three taxes is 45%. Both the estate and generation-skipping transfer taxes currently have a $3.5 million exemption for individuals ($7 million for couples). The gift tax has an exemption of $1 million ($2 million for couples). For the 2010 tax year, the estate and generation skipping transfer taxes are repealed. In the same year, the gift tax rate will fall to 35%. In 2011, the estate, generation skipping transfer, and gift taxes are scheduled to revert back to pre-2001 levels, with an exemption of $1 million, a 55% rate, and a 5% surtax on large estates.

Thanks to this story at Scottrade for the great detail.

Where Not To Die

couldn’t not steal that title from Forbes


The above states (and the District of Columbia) are the remaining states that still impose their own estate tax.  Eight states (shaded in orange) impose an inheritance tax, meaning the tax rate (in black) depends on who gets the money. New Jersey and Maryland impose both types of tax.

Both David and Greg picked up on this last week and I thought it sufficiently important to post due to some of my recent experiences/conversations with clients.

Ohio’s estate tax is (roughly) 7% on every dollar above (roughly) $338,000 <– this credit is indexed for inflation per statue so its constantly changing.  It doesn’t matter if the property of the decedent was probate or non-probate either – the tax still applies.  If the decedent owned the property immediately before the time of their death, the tax applies.  I say “immediately before” because those assets that pass by beneficiary designation or by payable on death (“POD”) / transfer on death (“TOD”) designation are deemed to not have been owned by the decedent at the moment of their death…  Its this legal fiction that is applied to effectuate the transfer of the property, but don’t think that prevents the man from taking his share.  I point this out because to confuse the the probate/non-probate disctiction vs what is taxable, can lead to some big problems.  Big problems that are easily avoided if you just seek the right counsel.

If you’re looking at doing some planning, or feel that planning is perhaps and imminent need of yours (or someone in your family), please don’t wait, call someone who knows what they’re talking about…  Maybe its not me, that’s fine, just call someone.  You cannot do this stuff on your own.  You need help; and some of us do this for a living.