By Kim Dixon
WASHINGTON (Reuters) - The scheduled expiration of the tax on wealthy estates in the United States, unthinkable just days ago, has whipped the wealthy and their estate planners into a flurry of confusion over the changes to the controversial tax.
Under a quirk in the law, beginning on January 1 there will be a one-year repeal of a 45 percent tax on the value of estates over $3.5 million for individuals and $7 million for families.
"I'm going to be fending calls from people saying, 'Should I keep mom plugged in?'" said Carol Harrington, head of the private client group at law firm McDermott Will & Emery. "This is a disaster even if you are in favor of repeal."
Now, those who die on December 31 will pay the tax, while those who die a day later will not. In addition, the law's expiration unleashes a slew of changes, including for capital gains treatment of estates.
And because of the same quirky 2001 law that repeals the tax for a year, the estate tax is due to spring back to life in 2011 at a higher rate of 55 percent rate, which would be levied on estates with a value over $1 million for individuals.
The conventional wisdom had been that the Democrat-controlled Congress would pass an extension of current law. But opposition from Republicans to the tax and a U.S. Senate mired in a partisan health-care debate has prevented that from happening.
Once the current estate tax expires on December 31, those inheriting states will have to pay capital gains taxes on any assets sold based on the original price paid for the asset, after an exemption for the first $1.3 million in capital gains.
That is changed from the current law, which uses the market value of an asset at the time the estate is inherited as the basis for calculating capital gains on any future sale.
This will mean higher taxes for as many as 70,000 taxpayers, according to House Democrats, many more than will be impacted by elimination of the estate tax itself.
Tax experts say that the change will create a major problem because of the paperwork needed to establish the original investment price. Without documentation, the original basis goes to zero, meaning that the full sale price would be taxable after $1.3 million.
"Many people don't keep records," said Brenda Schafer, manager of tax analysis at the Tax Institute at H&R Block. "It's not like we can go back in time and get those records."
The estates of about a quarter of 1 percent of Americans would be subject to the estate tax under an earlier bill introduced by Democrats to extend it permanently, according to the Brookings Institution-Urban Institute Tax Policy Center.
CONSTITUTIONALITY OF A FIX
An aide to Senate Finance Committee Chairman Max Baucus said Baucus still holds out hope for an 11th-hour extension of the current tax, though most analysts are dubious.
"I am stunned that the Democrats, who have professed undying support for estate taxation all these years, have been in power for now this time, and not enacted" an extension," said Bill Ahern, policy and communications director at the conservative Tax Policy Foundation, which backs a repeal of the estate tax.
The tax has divided some Democrats, with conservatives from the party teaming with Republicans to propose a lower tax with a greater exemption level.
The battle will likely begin anew next year. Baucus said he will aim to retroactively reenact the tax at current levels, a policy backed by most Democrats.
But Clint Stretch, a former legislative counsel to the joint congressional committee on taxation, said there is a debate about the constitutionality of such a fix.
"Since scholars are divided in their opinions on whether the Constitution allows Congress to retroactively reimpose those taxes, litigation will result," he predicted.
And the politics are complicated by the reinstatement of the tax at a higher rate in 2011.
Progressive groups such as the Citizens for Tax Justice see this as the silver lining of a one-year repeal.
The specter of higher rates has led traditional opponents of the tax, such as the Chamber of Commerce and small business groups, to back a permanent extension of current policy.
Friday, December 18, 2009
Wednesday, December 16, 2009
Baucus to Try Next Year to Extend Estate Tax Retroactively
Washington Post
December 16, 2009
WASHINGTON -- Senate Finance Committee Chairman Max Baucus (D., Mont.) said he will try early next year to pass legislation ensuring no lapse in the estate tax, after Republicans blocked another effort to extend the tax for a three-month period.
Democrats had sought to extend the tax at its current, 2009 levels, but it now appears likely the tax will be repealed as scheduled Jan. 1. Mr. Baucus said he will try to move legislation early in 2010 that ensures that there won't be a window where wealthy estate owners who die will escape the tax.
"We clearly will work to do this retroactively, so that when the law is changed, it will have retroactive application," Mr. Baucus said on the Senate floor Wednesday.
Mr. Baucus sought unanimous consent from the Senate for a two-month extension of the tax, warning that allowing the tax to be repealed pending congressional action would create unnecessary confusion.
But Republicans said the repeal should be allowed to take effect, as provided under current law. "The problem doesn't have to exist if they'll just leave the existing law alone, and let the rate go to zero, where everyone wants it anyway," said Sen. Jon Kyl (R., Ariz.).
In 2009, estate wealth above $3.5 million, or $7 million for married couples, is taxed at a 45% rate. The estate tax will disappear in 2010, replaced by a capital-gains tax paid when heirs sell inherited assets. Then in 2011, unless Congress acts, the estate tax will return to tax estates above $1 million, or $2 million for couples, at a 55% rate.
Mr. Baucus called that a "yo-yo effect."
"It's so irresponsible to further the yo-yo effect by allowing current law to expire, and create this massive confusion," he said.
December 16, 2009
WASHINGTON -- Senate Finance Committee Chairman Max Baucus (D., Mont.) said he will try early next year to pass legislation ensuring no lapse in the estate tax, after Republicans blocked another effort to extend the tax for a three-month period.
Democrats had sought to extend the tax at its current, 2009 levels, but it now appears likely the tax will be repealed as scheduled Jan. 1. Mr. Baucus said he will try to move legislation early in 2010 that ensures that there won't be a window where wealthy estate owners who die will escape the tax.
"We clearly will work to do this retroactively, so that when the law is changed, it will have retroactive application," Mr. Baucus said on the Senate floor Wednesday.
Mr. Baucus sought unanimous consent from the Senate for a two-month extension of the tax, warning that allowing the tax to be repealed pending congressional action would create unnecessary confusion.
But Republicans said the repeal should be allowed to take effect, as provided under current law. "The problem doesn't have to exist if they'll just leave the existing law alone, and let the rate go to zero, where everyone wants it anyway," said Sen. Jon Kyl (R., Ariz.).
In 2009, estate wealth above $3.5 million, or $7 million for married couples, is taxed at a 45% rate. The estate tax will disappear in 2010, replaced by a capital-gains tax paid when heirs sell inherited assets. Then in 2011, unless Congress acts, the estate tax will return to tax estates above $1 million, or $2 million for couples, at a 55% rate.
Mr. Baucus called that a "yo-yo effect."
"It's so irresponsible to further the yo-yo effect by allowing current law to expire, and create this massive confusion," he said.
Monday, December 7, 2009
House votes to make estate tax permanent
By Kim Dixon
December 3, 2009
WASHINGTON (Reuters) - The U.S. House of Representatives passed a permanent extension of the federal estate tax on Thursday, but the measure, which taxes estates at rate of 45 percent after exempting the first $3.5 million, is likely to be changed in the Senate.
The current tax is due to expire on December 31 but return in 2011, when it will exempt just the first $1 million of an estate while taxing the remainder at a rate of 55 percent.
Keeping the current rate would cost the government $234 billion of revenue over 10 years, according to a congressional tax committee.
The bill passed 225 to 200, drawing all its support from Democrats.
"The estate tax is critical to prevent a permanent aristocracy from arising in this country," said Jared Polis, a Colorado Democrat who said, as one of the wealthiest members of the House, he would pay the tax under the bill.
Republicans blasted the bill and called for complete repeal of the tax. "Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.
Preserving the 45 percent rate and the $3.5 million exemption indefinitely will be much harder in the U.S. Senate because of the cost. In addition, Senate lawmakers are consumed by the healthcare reform bill debate, which could continue into January.
Given the price tag, the bill is "pretty much a non-starter" in the Senate, analyst Anne Mathias at Concept Capital said.
A likely compromise in the Senate is a one-year extension of current law, which would raise some money because of the 2010 phase out.
The estates of about a quarter of one percent of Americans would be subject to the tax under the House bill, according to the Brookings Institution-Urban Institute Tax Policy Center.
The non-partisan Congressional Budget Office reported in 2005 that fewer than 2 percent of all estates have had to pay estate taxes in recent years.
Republicans warned Democrats would suffer at the ballot box if they extend the tax, citing Americans' general dislike of any new taxes.
Democrats countered by citing prominent estate tax proponents, including investors George Soros and Warren Buffett, who has argued the tax helps keep America a meritocracy.
BUSINESS GROUPS SPLIT
Business groups are divided on the legislation.
The Chamber of Commerce has long called for the abolition of the estate tax, although recently said it was willing to back a continuation of the current law.
"The uncertain nature of the estate tax regime over the next two years is a major concern for business, many of which are struggling in this current economic downturn," Bruce Josten, a lobbyist for the Chamber, said in a letter to lawmakers on Wednesday backing the Democrat's bill.
The National Association of Manufacturers urged rejection of the bill, saying its members pay tens of thousands of dollars in fees for estate planning.
CAPITAL GAINS RELIEF
The House bill contains capital gains tax relief for those inheriting estates by repealing so-called carry-over basis rules.
With no action, those inheriting estates after December 31 will have to calculate capital gains taxes based on the original price paid for the property.
"People will be stuck with large tax bills forcing liquidation if they were forced to pay a capital gains tax on a 1959 basis," said Polis, the Colorado lawmaker. "Do opponents truly believe making families pay capital gains is better?"
The American Farm Bureau, the nation's largest agricultural group representing all sizes of farms, opposes any estate tax but backs the portion of the bill that repeals the cost basis rules. The group had no data on how many of its members would be impacted by the tax.
(Editing by Steve Orlofsky and Tim Dobbyn)
December 3, 2009
WASHINGTON (Reuters) - The U.S. House of Representatives passed a permanent extension of the federal estate tax on Thursday, but the measure, which taxes estates at rate of 45 percent after exempting the first $3.5 million, is likely to be changed in the Senate.
The current tax is due to expire on December 31 but return in 2011, when it will exempt just the first $1 million of an estate while taxing the remainder at a rate of 55 percent.
Keeping the current rate would cost the government $234 billion of revenue over 10 years, according to a congressional tax committee.
The bill passed 225 to 200, drawing all its support from Democrats.
"The estate tax is critical to prevent a permanent aristocracy from arising in this country," said Jared Polis, a Colorado Democrat who said, as one of the wealthiest members of the House, he would pay the tax under the bill.
Republicans blasted the bill and called for complete repeal of the tax. "Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.
Preserving the 45 percent rate and the $3.5 million exemption indefinitely will be much harder in the U.S. Senate because of the cost. In addition, Senate lawmakers are consumed by the healthcare reform bill debate, which could continue into January.
Given the price tag, the bill is "pretty much a non-starter" in the Senate, analyst Anne Mathias at Concept Capital said.
A likely compromise in the Senate is a one-year extension of current law, which would raise some money because of the 2010 phase out.
The estates of about a quarter of one percent of Americans would be subject to the tax under the House bill, according to the Brookings Institution-Urban Institute Tax Policy Center.
The non-partisan Congressional Budget Office reported in 2005 that fewer than 2 percent of all estates have had to pay estate taxes in recent years.
Republicans warned Democrats would suffer at the ballot box if they extend the tax, citing Americans' general dislike of any new taxes.
Democrats countered by citing prominent estate tax proponents, including investors George Soros and Warren Buffett, who has argued the tax helps keep America a meritocracy.
BUSINESS GROUPS SPLIT
Business groups are divided on the legislation.
The Chamber of Commerce has long called for the abolition of the estate tax, although recently said it was willing to back a continuation of the current law.
"The uncertain nature of the estate tax regime over the next two years is a major concern for business, many of which are struggling in this current economic downturn," Bruce Josten, a lobbyist for the Chamber, said in a letter to lawmakers on Wednesday backing the Democrat's bill.
The National Association of Manufacturers urged rejection of the bill, saying its members pay tens of thousands of dollars in fees for estate planning.
CAPITAL GAINS RELIEF
The House bill contains capital gains tax relief for those inheriting estates by repealing so-called carry-over basis rules.
With no action, those inheriting estates after December 31 will have to calculate capital gains taxes based on the original price paid for the property.
"People will be stuck with large tax bills forcing liquidation if they were forced to pay a capital gains tax on a 1959 basis," said Polis, the Colorado lawmaker. "Do opponents truly believe making families pay capital gains is better?"
The American Farm Bureau, the nation's largest agricultural group representing all sizes of farms, opposes any estate tax but backs the portion of the bill that repeals the cost basis rules. The group had no data on how many of its members would be impacted by the tax.
(Editing by Steve Orlofsky and Tim Dobbyn)
Friday, October 30, 2009
Interesting Estate Update- Howard Hughes
Real-Estate Slump Hits Howard Hughes's Heirs
General Growth Bankruptcy Filing Puts Payout in Limbo.
Wall Street Journal
By KRIS HUDSON
Reclusive billionaire Howard Hughes was an only child, dying in 1976 with no will or children.
Mr. Hughes's estate now has more than 1,000 heirs and beneficiaries who are hoping for one last, big payout from a swath of Las Vegas land bought by the tycoon in the 1940s to establish an inland base for his aerospace operations.
They are likely to get little. The housing bust has shriveled the value of the 7,000 acres left in what is now called the Summerlin development in Las Vegas, once thought to be worth as much as $2 billion. The property also has gotten bogged down in the bankruptcy of mall giant General Growth Properties Inc., which controls the land and was supposed to make a final payment to the Hughes group early next year.
"There's terrible disappointment," says Platt Davis, a retired lawyer in Houston and second cousin of Mr. Hughes who leads the group of heirs along with two other beneficiaries. The 2010 payment is supposed to be equal to half the appraised value of the remaining land at the end of this year.
Summerlin represents the last chapter of the Hughes-estate saga, which is almost as extraordinary as the life of the aviator, film director and entrepreneur who set world speed records for flight, romanced Katharine Hepburn and founded Hughes Aircraft Co.
Eric Kayne for The Wall Street Journal Howard Hughes's heirs -- led by, from left, David Elkins, David Lummis and Platt Davis -- will be hard-pressed to get final payment on the Summerlin development in LasVegas, below, after General Growth filed for bankruptcy.
. Olga Minkevitch for The Wall Street Journal ..When Mr. Hughes died, his holdings encompassed 26 disparate companies that included seven Las Vegas casinos, a struggling helicopter maker, several aircraft, a television station, private airport, regional airline, mining claims and a bag of casino chips he neglected to redeem. Summerlin was then 22,500 undeveloped acres of desert and scrub.
Because Mr. Hughes had no will or children, his estate initially was divided among his cousins, aunts, uncles and other relatives. Law firms and other professionals that did the initial work to sort out the estate and fix up some assets for disposition accepted small shares of the proceeds as payment for their services.
The number of claimants and their beneficiaries has grown to more than 1,000 people, including more than 200 relatives of Mr. Hughes. They so far have collected more than $1.5 billion from the liquidation of his estate, according to figures provided by the group.
The heirs include schoolteachers, ministers, college professors, homemakers, architects, a federal judge and a rancher. Mr. Davis and the other co-leaders of the group, second cousin David Lummis and former lawyer David Elkins, say they have fielded questions and concerns by phone, email and even in person at reunions of various Hughes family branches.
Catherine Russell received her share of Mr. Hughes's estate in her 1986 divorce from her husband, a lawyer whose firm did work for the Hughes heirs. The money she received every year amounted to at least a few thousand dollars but never more than half her annual salary, helping to cover college for her son and daughter and medical costs after a drunken driver hit her in 1989.
Ms. Russell, a deputy commissioner in California's Department of Real Estate, also steered yearly proceeds toward the care of her son, now 38 years old and mentally disabled because of a 1994 motorcycle accident. She planned to use the final Summerlin payout to establish a trust for her son and put a deposit on a house.
Now that the payment is on hold with General Growth's other debts and obligations, Ms. Russell describes her situation as "very disconcerting and depressing." While many people assume that all of the beneficiaries of the Hughes estate are rich, she says, "it is very depressing to be 60 years old and no longer be able to afford a piece of property and to pass something on to my children, especially considering my son's disability."
General Growth, owner of more than 200 U.S. shopping malls, says it wants to resolve the Hughes claim.
"The company is optimistic that a fair resolution will be reached with the Hughes heirs, as with all of our stakeholders, as we proceed through the process of emergence from bankruptcy," President and Chief Operating Officer Tom Nolan says.
Mr. Hughes bought the Las Vegas land, which the heirs later named Summerlin after his grandmother, because he was concerned that the Japanese attack on Pearl Harbor in 1941 had exposed the vulnerability of the aircraft industry along coastal California.
By the mid-1990s, the area was hot real estate. In 1996, the Hughes group agreed to sell the property to Rouse Co., a large developer.
In the negotiations, Rouse and the Hughes group couldn't agree on a purchase price because so much of Summerlin had yet to be developed. Instead, they formulated a profit-sharing agreement, in which the heirs would receive half of each year's profits from sales of Summerlin land to home builders over 14 years. And instead of cash, the heirs decided to receive payments in stock, which helped them defer taxes.
Those payments amounted to roughly $570 million in stock as Summerlin was developed. Roughly 95,000 people live there now. But land values have fallen so drastically in Las Vegas that the Summerlin claim might now be worth less than $100 million, says analyst Kevin Starke of CRT Group LLC.
One other problem facing the Hughes group: General Growth bought Rouse in 2004, inheriting the pact with the heirs. In April, the mall owner, struggling under $27 billion of debt, sought Chapter 11 bankruptcy protection. Heirs who held on to General Growth stock from earlier payments saw its value fall 92% from its high of $67 in March 2007.
Now that General Growth is in bankruptcy, the Hughes group must get in line with the hundreds of other creditors, submitting a claim to U.S. Bankruptcy Judge Allan Gropper next month. Stuck in the pecking order with shareholders, Mr. Hughes's heirs and beneficiaries get nothing unless General Growth's lenders and debt holders recoup the full amounts of their claims.
As part of the process, General Growth and the Hughes group will need to decide whether to keep the old deal, revise it or strike a new one subject to the judge's approval
General Growth Bankruptcy Filing Puts Payout in Limbo.
Wall Street Journal
By KRIS HUDSON
Reclusive billionaire Howard Hughes was an only child, dying in 1976 with no will or children.
Mr. Hughes's estate now has more than 1,000 heirs and beneficiaries who are hoping for one last, big payout from a swath of Las Vegas land bought by the tycoon in the 1940s to establish an inland base for his aerospace operations.
They are likely to get little. The housing bust has shriveled the value of the 7,000 acres left in what is now called the Summerlin development in Las Vegas, once thought to be worth as much as $2 billion. The property also has gotten bogged down in the bankruptcy of mall giant General Growth Properties Inc., which controls the land and was supposed to make a final payment to the Hughes group early next year.
"There's terrible disappointment," says Platt Davis, a retired lawyer in Houston and second cousin of Mr. Hughes who leads the group of heirs along with two other beneficiaries. The 2010 payment is supposed to be equal to half the appraised value of the remaining land at the end of this year.
Summerlin represents the last chapter of the Hughes-estate saga, which is almost as extraordinary as the life of the aviator, film director and entrepreneur who set world speed records for flight, romanced Katharine Hepburn and founded Hughes Aircraft Co.
Eric Kayne for The Wall Street Journal Howard Hughes's heirs -- led by, from left, David Elkins, David Lummis and Platt Davis -- will be hard-pressed to get final payment on the Summerlin development in LasVegas, below, after General Growth filed for bankruptcy.
. Olga Minkevitch for The Wall Street Journal ..When Mr. Hughes died, his holdings encompassed 26 disparate companies that included seven Las Vegas casinos, a struggling helicopter maker, several aircraft, a television station, private airport, regional airline, mining claims and a bag of casino chips he neglected to redeem. Summerlin was then 22,500 undeveloped acres of desert and scrub.
Because Mr. Hughes had no will or children, his estate initially was divided among his cousins, aunts, uncles and other relatives. Law firms and other professionals that did the initial work to sort out the estate and fix up some assets for disposition accepted small shares of the proceeds as payment for their services.
The number of claimants and their beneficiaries has grown to more than 1,000 people, including more than 200 relatives of Mr. Hughes. They so far have collected more than $1.5 billion from the liquidation of his estate, according to figures provided by the group.
The heirs include schoolteachers, ministers, college professors, homemakers, architects, a federal judge and a rancher. Mr. Davis and the other co-leaders of the group, second cousin David Lummis and former lawyer David Elkins, say they have fielded questions and concerns by phone, email and even in person at reunions of various Hughes family branches.
Catherine Russell received her share of Mr. Hughes's estate in her 1986 divorce from her husband, a lawyer whose firm did work for the Hughes heirs. The money she received every year amounted to at least a few thousand dollars but never more than half her annual salary, helping to cover college for her son and daughter and medical costs after a drunken driver hit her in 1989.
Ms. Russell, a deputy commissioner in California's Department of Real Estate, also steered yearly proceeds toward the care of her son, now 38 years old and mentally disabled because of a 1994 motorcycle accident. She planned to use the final Summerlin payout to establish a trust for her son and put a deposit on a house.
Now that the payment is on hold with General Growth's other debts and obligations, Ms. Russell describes her situation as "very disconcerting and depressing." While many people assume that all of the beneficiaries of the Hughes estate are rich, she says, "it is very depressing to be 60 years old and no longer be able to afford a piece of property and to pass something on to my children, especially considering my son's disability."
General Growth, owner of more than 200 U.S. shopping malls, says it wants to resolve the Hughes claim.
"The company is optimistic that a fair resolution will be reached with the Hughes heirs, as with all of our stakeholders, as we proceed through the process of emergence from bankruptcy," President and Chief Operating Officer Tom Nolan says.
Mr. Hughes bought the Las Vegas land, which the heirs later named Summerlin after his grandmother, because he was concerned that the Japanese attack on Pearl Harbor in 1941 had exposed the vulnerability of the aircraft industry along coastal California.
By the mid-1990s, the area was hot real estate. In 1996, the Hughes group agreed to sell the property to Rouse Co., a large developer.
In the negotiations, Rouse and the Hughes group couldn't agree on a purchase price because so much of Summerlin had yet to be developed. Instead, they formulated a profit-sharing agreement, in which the heirs would receive half of each year's profits from sales of Summerlin land to home builders over 14 years. And instead of cash, the heirs decided to receive payments in stock, which helped them defer taxes.
Those payments amounted to roughly $570 million in stock as Summerlin was developed. Roughly 95,000 people live there now. But land values have fallen so drastically in Las Vegas that the Summerlin claim might now be worth less than $100 million, says analyst Kevin Starke of CRT Group LLC.
One other problem facing the Hughes group: General Growth bought Rouse in 2004, inheriting the pact with the heirs. In April, the mall owner, struggling under $27 billion of debt, sought Chapter 11 bankruptcy protection. Heirs who held on to General Growth stock from earlier payments saw its value fall 92% from its high of $67 in March 2007.
Now that General Growth is in bankruptcy, the Hughes group must get in line with the hundreds of other creditors, submitting a claim to U.S. Bankruptcy Judge Allan Gropper next month. Stuck in the pecking order with shareholders, Mr. Hughes's heirs and beneficiaries get nothing unless General Growth's lenders and debt holders recoup the full amounts of their claims.
As part of the process, General Growth and the Hughes group will need to decide whether to keep the old deal, revise it or strike a new one subject to the judge's approval
Tuesday, October 27, 2009
Estate Tax Update
WASHINGTON -- House Majority Leader Steny Hoyer (D., Md.) said Tuesday he supports a move to permanently fix the estate tax at 2009 levels and expects it will be adopted by Congress before the end of the year.
The staff on the tax-writing Ways & Means Committee is working on legislation that would set the rate of the tax at current levels.
The House legislation would continue the 2009 estate tax parameters indefinitely. It would exempt estate wealth under $3.5 million, or up to $7 million for a married couple, and tax inheritances above that amount at 45%.
If Congress does nothing, the estate tax would be repealed for one year in 2010. It would then snap back in 2011 to levels not seen since before President George W. Bush signed landmark tax legislation in 2001. That rate would only allow a $1 million exemption and charge any income over that amount with a 55% levy.
The extension would cost the taxpayer $233 billion over the next decade, because currently the federal budget assumes the rate will increase sharply from 2011.
The House measure would attach language requiring implementation of pay-as-you-go budget rules for most other mandatory spending. The Senate opposes this effort, which could set up an end-of-year battle between House and Senate lawmakers.
Some lawmakers are advocating a more generous exemption, lifting the threshold to $5 million for individuals and lowering the effective rate charged to 35%.
Write to Corey Boles at corey.boles@dowjones.com and Martin Vaughan at martin.vaughan@dowjones.com
The staff on the tax-writing Ways & Means Committee is working on legislation that would set the rate of the tax at current levels.
The House legislation would continue the 2009 estate tax parameters indefinitely. It would exempt estate wealth under $3.5 million, or up to $7 million for a married couple, and tax inheritances above that amount at 45%.
If Congress does nothing, the estate tax would be repealed for one year in 2010. It would then snap back in 2011 to levels not seen since before President George W. Bush signed landmark tax legislation in 2001. That rate would only allow a $1 million exemption and charge any income over that amount with a 55% levy.
The extension would cost the taxpayer $233 billion over the next decade, because currently the federal budget assumes the rate will increase sharply from 2011.
The House measure would attach language requiring implementation of pay-as-you-go budget rules for most other mandatory spending. The Senate opposes this effort, which could set up an end-of-year battle between House and Senate lawmakers.
Some lawmakers are advocating a more generous exemption, lifting the threshold to $5 million for individuals and lowering the effective rate charged to 35%.
Write to Corey Boles at corey.boles@dowjones.com and Martin Vaughan at martin.vaughan@dowjones.com
Saturday, October 3, 2009
The Higher Lifetime Costs of Being a Gay Couple
Interesting article that shows the complexity of life and estate planning for LGBT couples.
BY TARA SIEGEL BERNARD and RON LIEBER
The New York Times
Much of the debate over legalizing gay marriage has focused on God and Scripture, the Constitution and equal protection.
But we see the world through the prism of money. And for years, we’ve heard from gay couples about all the extra health, legal and other costs they bear. So we set out to determine what they were and to come up with a round number — a couple’s lifetime cost of being gay.
It was much more complicated than we initially imagined, and that’s probably why we’ve never seen similar efforts. We looked at benefits that routinely go to married heterosexual couples but not to gay couples, like certain Social Security payments. We plotted out the cost of health insurance for couples whose employers don’t offer it to domestic partners. Even tax preparation can cost more, since gay couples have to file two sets of returns. Still, many couples may come out ahead in one area: they owe less in income taxes because they’re not hit with the so-called marriage penalty.
Our goal was to create a hypothetical gay couple whose situation would be similar to a heterosexual couple’s. So we gave the couple two children and assumed that one partner would stay home for five years to take care of them. We also considered the taxes in the three states that have the highest estimated gay populations — New York, California and Florida. We gave our couple an income of $140,000, which is about the average income in those three states for unmarried same-sex partners who are college-educated, 30 to 40 years old and raising children under the age of 18.
Here is what we came up with. In our worst case, the couple’s lifetime cost of being gay was $467,562. But the number fell to $41,196 in the best case for a couple with significantly better health insurance, plus lower taxes and other costs.
These numbers will vary, depending on a couple’s income and circumstance. Gay couples earning, say, $80,000, could have health insurance costs similar to our hypothetical higher-earning couple, but they might well owe more in income taxes than their heterosexual counterparts. For wealthy couples with a lot of assets, on the other hand, the cost of being gay could easily spiral into the millions.
Nearly all the extra costs that gay couples face would be erased if the federal government legalized same-sex marriage. One exception is the cost of having biological children, but we felt it was appropriate to include this given our goal of outlining every cost gay couples incur that heterosexual couples may not.
Our analysis is not exact science. Not every couple would get married if they could, and others would not want to have children. We also made a number of assumptions based on average costs, life spans, state of residence and gender.
Our gay family is made up of two women living in New York State in a committed partnership that lasts 46 years, until the first partner dies at age 81. We ran two sets of calculations: in the one that turned out to be our worst case financially, one woman earned $110,000 and the other $30,000. In our second couple, both partners earned $70,000. We started running the numbers when both were age 35.
We received assistance from Roberton Williams, a senior fellow at the Tax Policy Center, who performed our tax analysis, which required simulating more than 900 income tax returns, in part because we followed the partners for 50 years. We also decided to run all scenarios across the three states so that the results would not be skewed by different state taxes. We’ve outlined all the detail in a workbook linked to the online version of this column.
As for the emotional costs of living with these added complexities, they can’t be quantified. Frederick Hertz, a lawyer in Oakland, Calif., who works with same-sex couples, likens heterosexual marriage to being in the car pool lane. “Being part of a same-sex couple, it’s always stop. Wait. Pay a toll,” he said.
Harvey Hurdle, who lives in Philadelphia with his partner and their young son, said he was reminded of the disparities every time his Social Security statement arrived in the mail. “It’s pretty insulting,” he said. “It says your spouse would get this much. And it’s like, ‘Oh no he won’t!’ ”
Health Insurance
In our worst case, the lower earner’s employer did not provide health insurance and her partner’s employer didn’t cover domestic partners. So the lower earner had to buy coverage on the private market, while the higher-earning partner provided coverage for herself and the two children. All this cost the gay couple $211,993 more than their heterosexual married counterparts, who were able to take advantage of the higher-earner’s family coverage.
In our best case, health coverage cost the gay couple $28,595 more. We assumed both gay partners were eligible for employer-provided coverage. The higher-earner’s employer also provided domestic partner coverage, which covered her partner for the five years she stayed at home. When she returned to work, she used her own employer’s insurance.
Even though the couple paid nearly $29,000 more in premiums than an identical heterosexual married couple, it was cheaper than using domestic partnership coverage throughout because of the onerous tax implications, according to Mr. Williams of the Tax Policy Center. A nondependent partner’s coverage is taxable income, and she can’t use pretax dollars to pay the premiums, according to Todd A. Solomon, a partner in the employee benefits department of McDermott Will & Emery in Chicago.
Social Security
All our hypothetical individuals started collecting Social Security when they were 66. Same-sex couples are not entitled to a variety of Social Security benefits, including spousal benefits (heterosexual spouses can receive up to 50 percent of a spouse’s benefits while the spouse is alive, if they are higher than their own); survivor benefits (surviving spouses can receive their deceased spouse’s benefits in lieu of their own, if they are higher); and a flat death benefit of $255.
In the worst case, the gay partner who earned $30,000 could not receive higher spousal benefits or survivor benefits from her partner’s much higher earnings record. Nor was she entitled to the death benefit. In total, the gay women collected $88,511 less in Social Security than a similar heterosexual couple. Some couples might try to buy life insurance in an attempt to replace the benefit.
In our best case, when the gay partners had largely identical incomes, neither was at a huge disadvantage because they ended up with about the same monthly benefits. So the only extra benefit a heterosexual married couple received was the $255 death benefit.
Estate Taxes
Heterosexual married couples can transfer an unlimited amount of assets to each other during their lives and at death without paying estate taxes. Everyone else, including married same-sex couples, must pay federal estate taxes on amounts that exceed the 2009 exemption of $3.5 million. Many states also levy their own estate or inheritance taxes, though same-sex couples may be shielded from those in states that recognize their unions. Our couple lived in New York, where the estate tax exemption is $1 million. And though New York recognizes marriages performed elsewhere, that recognition does not extend to state income or estate taxes.
In our worst case, the gay partner who died first in 2055 left an estate that exceeded the state’s threshold by $171,528. That meant a tax bill of $43,378, according to Ron L. Meyers, an estate-planning lawyer with a significant same-sex clientele at Cane, Boniface & Meyers in Nyack, N.Y.
Meanwhile, their identical heterosexual counterparts owed nothing.
The gay couple in our best case had a smaller estate, in part because they were careful to title their home as tenants-in-common, so only the deceased partner’s half of the home was taxable. The estate didn’t exceed the federal or state threshold. So they owed nothing.
Childbearing
Two women who want to have a biological child together need sperm to do it. They may need to purchase sperm from a bank and use a medical professional to inseminate one of the partners. There are also legal adoption costs.
The worst case here totaled $40,000. It included 12 months of sperm and insemination costs, but the big wild card was the possible need to move to a state where same-sex second-parent adoptions were legal. While this may seem extreme, couples often do it, according to Joyce Kauffman, a lawyer in Cambridge, Mass., who has worked with many of them. We estimated a minimum of $20,000 for this cost, including real estate brokerage fees to sell a home and moving costs.
In the best case, there might be no cost at all: the couple could use sperm from a relative of the partner who isn’t bearing the child or from a friend, inseminate at home and take their chances with free legal forms on the Web. Ms. Kaufman does not recommend such a cavalier approach to vital documents.
The cost for men to have a biological child would be much higher if they used a surrogate.
Pension
We assumed that one partner, in both best and worst cases, received a small pension. In both cases, the partner with the pension plan died first.
Employers do not have to provide survivor pension benefits to a same-sex spouse, but many do anyway (which would put our best case at $0). In our worst case, however, the higher-earning partner died first and did not work for such a company. So the surviving partner got nothing. A similarly situated heterosexual surviving spouse would receive $32,253 before dying herself several years later.
Spousal I.R.A.
You generally need to earn income to contribute to an Individual Retirement Account. But heterosexual married couples can contribute up to $5,000 annually to a spousal I.R.A. for a nonworking spouse. Stay-at-home gay partners, however, cannot make these contributions. So they end up with smaller retirement accounts.
We assumed that all the couples would have either saved 7 percent of the stay-at-home parent’s previous year’s salary, or $5,000, the maximum contribution. So the gay couple with one partner who started out earning just $30,000 would have saved less (had she been legally able to) than someone earning $70,000. In both cases, that five-year gap in savings early on in the partners’ lives haunted them later because they weren’t able to benefit from decades of compounding returns.
The couple with the lower-earning partner at home ended up $48,654 behind by the time that partner died, assuming she invested in a portfolio mixed equally between stocks and bonds that returned 5.94 percent annually. The surviving spouse from the gay couple with equal incomes ended up $112,192 behind.
Tax Preparation
Instead of filing one joint federal tax return and one state income tax return, same-sex couples must file two sets of returns. In both best and worst cases, those couples paid an additional $12,300 in tax preparation fees over the 46 years they are together.
Financial and Legal Planning
Even married same-sex couples are encouraged to create a number of documents that try to replicate the protections and rights of heterosexual marriage because their unions are not universally recognized. In the worst case, our gay couple spent $5,500 more than their heterosexual counterparts on their additional paperwork. That included a revocable living trust, which is more difficult to contest than a will, and what is known as a pour-over will, which ensured that anything left out of the trust would be included. They also each set up financial powers of attorney, health care proxies, living wills and a domestic partnership agreement.
In the best case, our couple didn’t spend any more than a prudent heterosexual couple would. Both couples created two wills, financial powers of attorney, health care proxies and living wills.
Income Taxes
Married heterosexual couples with two working spouses with similar incomes often pay more in federal taxes than if they remained single because of the so-called marriage penalty. This occurs when a couple’s combined income pushes them into a higher tax bracket than they would have been in if they filed as singles. But some couples — especially those with a wide disparity in income or with a stay-at-home parent — usually pay less when they file jointly. They benefit from what’s known as a marriage bonus.
In our worst case, where one gay partner earned $110,000 and one earned $30,000, the couple paid $15,027 less in taxes over their lifetimes than their heterosexual counterparts. Though the gay and heterosexual married couple had identical salaries, the married couple collected more income in retirement — a direct result of their marriage status — and thus owed more in taxes (though they still benefited from the marriage bonus). For instance, the married couple collected higher Social Security spousal benefits and survivor benefits, pension income and income derived from a spousal I.R.A. The gay couples weren’t entitled to any of these benefits.
In our best case, where the partners each earned $70,000, the gay couple paid $112,146 less in income taxes. “That is the marriage penalty rearing its ugly head,” Mr. Williams said.
BY TARA SIEGEL BERNARD and RON LIEBER
The New York Times
Much of the debate over legalizing gay marriage has focused on God and Scripture, the Constitution and equal protection.
But we see the world through the prism of money. And for years, we’ve heard from gay couples about all the extra health, legal and other costs they bear. So we set out to determine what they were and to come up with a round number — a couple’s lifetime cost of being gay.
It was much more complicated than we initially imagined, and that’s probably why we’ve never seen similar efforts. We looked at benefits that routinely go to married heterosexual couples but not to gay couples, like certain Social Security payments. We plotted out the cost of health insurance for couples whose employers don’t offer it to domestic partners. Even tax preparation can cost more, since gay couples have to file two sets of returns. Still, many couples may come out ahead in one area: they owe less in income taxes because they’re not hit with the so-called marriage penalty.
Our goal was to create a hypothetical gay couple whose situation would be similar to a heterosexual couple’s. So we gave the couple two children and assumed that one partner would stay home for five years to take care of them. We also considered the taxes in the three states that have the highest estimated gay populations — New York, California and Florida. We gave our couple an income of $140,000, which is about the average income in those three states for unmarried same-sex partners who are college-educated, 30 to 40 years old and raising children under the age of 18.
Here is what we came up with. In our worst case, the couple’s lifetime cost of being gay was $467,562. But the number fell to $41,196 in the best case for a couple with significantly better health insurance, plus lower taxes and other costs.
These numbers will vary, depending on a couple’s income and circumstance. Gay couples earning, say, $80,000, could have health insurance costs similar to our hypothetical higher-earning couple, but they might well owe more in income taxes than their heterosexual counterparts. For wealthy couples with a lot of assets, on the other hand, the cost of being gay could easily spiral into the millions.
Nearly all the extra costs that gay couples face would be erased if the federal government legalized same-sex marriage. One exception is the cost of having biological children, but we felt it was appropriate to include this given our goal of outlining every cost gay couples incur that heterosexual couples may not.
Our analysis is not exact science. Not every couple would get married if they could, and others would not want to have children. We also made a number of assumptions based on average costs, life spans, state of residence and gender.
Our gay family is made up of two women living in New York State in a committed partnership that lasts 46 years, until the first partner dies at age 81. We ran two sets of calculations: in the one that turned out to be our worst case financially, one woman earned $110,000 and the other $30,000. In our second couple, both partners earned $70,000. We started running the numbers when both were age 35.
We received assistance from Roberton Williams, a senior fellow at the Tax Policy Center, who performed our tax analysis, which required simulating more than 900 income tax returns, in part because we followed the partners for 50 years. We also decided to run all scenarios across the three states so that the results would not be skewed by different state taxes. We’ve outlined all the detail in a workbook linked to the online version of this column.
As for the emotional costs of living with these added complexities, they can’t be quantified. Frederick Hertz, a lawyer in Oakland, Calif., who works with same-sex couples, likens heterosexual marriage to being in the car pool lane. “Being part of a same-sex couple, it’s always stop. Wait. Pay a toll,” he said.
Harvey Hurdle, who lives in Philadelphia with his partner and their young son, said he was reminded of the disparities every time his Social Security statement arrived in the mail. “It’s pretty insulting,” he said. “It says your spouse would get this much. And it’s like, ‘Oh no he won’t!’ ”
Health Insurance
In our worst case, the lower earner’s employer did not provide health insurance and her partner’s employer didn’t cover domestic partners. So the lower earner had to buy coverage on the private market, while the higher-earning partner provided coverage for herself and the two children. All this cost the gay couple $211,993 more than their heterosexual married counterparts, who were able to take advantage of the higher-earner’s family coverage.
In our best case, health coverage cost the gay couple $28,595 more. We assumed both gay partners were eligible for employer-provided coverage. The higher-earner’s employer also provided domestic partner coverage, which covered her partner for the five years she stayed at home. When she returned to work, she used her own employer’s insurance.
Even though the couple paid nearly $29,000 more in premiums than an identical heterosexual married couple, it was cheaper than using domestic partnership coverage throughout because of the onerous tax implications, according to Mr. Williams of the Tax Policy Center. A nondependent partner’s coverage is taxable income, and she can’t use pretax dollars to pay the premiums, according to Todd A. Solomon, a partner in the employee benefits department of McDermott Will & Emery in Chicago.
Social Security
All our hypothetical individuals started collecting Social Security when they were 66. Same-sex couples are not entitled to a variety of Social Security benefits, including spousal benefits (heterosexual spouses can receive up to 50 percent of a spouse’s benefits while the spouse is alive, if they are higher than their own); survivor benefits (surviving spouses can receive their deceased spouse’s benefits in lieu of their own, if they are higher); and a flat death benefit of $255.
In the worst case, the gay partner who earned $30,000 could not receive higher spousal benefits or survivor benefits from her partner’s much higher earnings record. Nor was she entitled to the death benefit. In total, the gay women collected $88,511 less in Social Security than a similar heterosexual couple. Some couples might try to buy life insurance in an attempt to replace the benefit.
In our best case, when the gay partners had largely identical incomes, neither was at a huge disadvantage because they ended up with about the same monthly benefits. So the only extra benefit a heterosexual married couple received was the $255 death benefit.
Estate Taxes
Heterosexual married couples can transfer an unlimited amount of assets to each other during their lives and at death without paying estate taxes. Everyone else, including married same-sex couples, must pay federal estate taxes on amounts that exceed the 2009 exemption of $3.5 million. Many states also levy their own estate or inheritance taxes, though same-sex couples may be shielded from those in states that recognize their unions. Our couple lived in New York, where the estate tax exemption is $1 million. And though New York recognizes marriages performed elsewhere, that recognition does not extend to state income or estate taxes.
In our worst case, the gay partner who died first in 2055 left an estate that exceeded the state’s threshold by $171,528. That meant a tax bill of $43,378, according to Ron L. Meyers, an estate-planning lawyer with a significant same-sex clientele at Cane, Boniface & Meyers in Nyack, N.Y.
Meanwhile, their identical heterosexual counterparts owed nothing.
The gay couple in our best case had a smaller estate, in part because they were careful to title their home as tenants-in-common, so only the deceased partner’s half of the home was taxable. The estate didn’t exceed the federal or state threshold. So they owed nothing.
Childbearing
Two women who want to have a biological child together need sperm to do it. They may need to purchase sperm from a bank and use a medical professional to inseminate one of the partners. There are also legal adoption costs.
The worst case here totaled $40,000. It included 12 months of sperm and insemination costs, but the big wild card was the possible need to move to a state where same-sex second-parent adoptions were legal. While this may seem extreme, couples often do it, according to Joyce Kauffman, a lawyer in Cambridge, Mass., who has worked with many of them. We estimated a minimum of $20,000 for this cost, including real estate brokerage fees to sell a home and moving costs.
In the best case, there might be no cost at all: the couple could use sperm from a relative of the partner who isn’t bearing the child or from a friend, inseminate at home and take their chances with free legal forms on the Web. Ms. Kaufman does not recommend such a cavalier approach to vital documents.
The cost for men to have a biological child would be much higher if they used a surrogate.
Pension
We assumed that one partner, in both best and worst cases, received a small pension. In both cases, the partner with the pension plan died first.
Employers do not have to provide survivor pension benefits to a same-sex spouse, but many do anyway (which would put our best case at $0). In our worst case, however, the higher-earning partner died first and did not work for such a company. So the surviving partner got nothing. A similarly situated heterosexual surviving spouse would receive $32,253 before dying herself several years later.
Spousal I.R.A.
You generally need to earn income to contribute to an Individual Retirement Account. But heterosexual married couples can contribute up to $5,000 annually to a spousal I.R.A. for a nonworking spouse. Stay-at-home gay partners, however, cannot make these contributions. So they end up with smaller retirement accounts.
We assumed that all the couples would have either saved 7 percent of the stay-at-home parent’s previous year’s salary, or $5,000, the maximum contribution. So the gay couple with one partner who started out earning just $30,000 would have saved less (had she been legally able to) than someone earning $70,000. In both cases, that five-year gap in savings early on in the partners’ lives haunted them later because they weren’t able to benefit from decades of compounding returns.
The couple with the lower-earning partner at home ended up $48,654 behind by the time that partner died, assuming she invested in a portfolio mixed equally between stocks and bonds that returned 5.94 percent annually. The surviving spouse from the gay couple with equal incomes ended up $112,192 behind.
Tax Preparation
Instead of filing one joint federal tax return and one state income tax return, same-sex couples must file two sets of returns. In both best and worst cases, those couples paid an additional $12,300 in tax preparation fees over the 46 years they are together.
Financial and Legal Planning
Even married same-sex couples are encouraged to create a number of documents that try to replicate the protections and rights of heterosexual marriage because their unions are not universally recognized. In the worst case, our gay couple spent $5,500 more than their heterosexual counterparts on their additional paperwork. That included a revocable living trust, which is more difficult to contest than a will, and what is known as a pour-over will, which ensured that anything left out of the trust would be included. They also each set up financial powers of attorney, health care proxies, living wills and a domestic partnership agreement.
In the best case, our couple didn’t spend any more than a prudent heterosexual couple would. Both couples created two wills, financial powers of attorney, health care proxies and living wills.
Income Taxes
Married heterosexual couples with two working spouses with similar incomes often pay more in federal taxes than if they remained single because of the so-called marriage penalty. This occurs when a couple’s combined income pushes them into a higher tax bracket than they would have been in if they filed as singles. But some couples — especially those with a wide disparity in income or with a stay-at-home parent — usually pay less when they file jointly. They benefit from what’s known as a marriage bonus.
In our worst case, where one gay partner earned $110,000 and one earned $30,000, the couple paid $15,027 less in taxes over their lifetimes than their heterosexual counterparts. Though the gay and heterosexual married couple had identical salaries, the married couple collected more income in retirement — a direct result of their marriage status — and thus owed more in taxes (though they still benefited from the marriage bonus). For instance, the married couple collected higher Social Security spousal benefits and survivor benefits, pension income and income derived from a spousal I.R.A. The gay couples weren’t entitled to any of these benefits.
In our best case, where the partners each earned $70,000, the gay couple paid $112,146 less in income taxes. “That is the marriage penalty rearing its ugly head,” Mr. Williams said.
Monday, September 28, 2009
Kennedy’s will reveals more roles for Kirk
Just an interesting update on Senator Kennedy's estate.
Longtime friend is executor, trustee
Boston Globe, By: Jonathan Salzman
Three years to the day before he died, Senator Edward M. Kennedy named Paul G. Kirk Jr. as executor of his estate, according to a will filed yesterday with Barnstable Probate Court.
The five-page document signed by Kennedy on Aug. 25, 2006, underscores his close relationship with Kirk, a former Democratic National Committee chairman who was named yesterday as Kennedy’s interim successor by Governor Deval Patrick.
The same day Kennedy finalized his will, he named Kirk, along with himself, as a trustee of a trust in Kennedy’s name that will handle the senator’s assets.
The will says the trust will provide for Kennedy’s widow, Victoria R. Kennedy, his three adult children, and other unnamed descendants. But it gave no indication of the value of Kennedy’s assets, which came as little surprise to seasoned probate lawyers.
“It’s perfectly in line with what I would do for a wealthy client,’’ said Nancy E. Dempze, a Boston lawyer and former cochairwoman of the trust and estate section of the Boston Bar Association who was not involved in preparation of the will but reviewed a copy. “You want to keep all of that private,’’ she said.
A 2008 federal financial disclosure report indicated that the senator’s family fortune was worth tens of millions. The report, which included Kennedy’s assets and those of Victoria Kennedy and their dependents, listed a string of publicly and nonpublicly traded trusts and assets and a range of values. The report placed the net worth of his publicly traded assets somewhere between $15 million and $72.6 million.
Under the terms of Kennedy’s will, assets from two blind trusts that Kennedy established in his name in 1978 and 1987 were to be transferred after his death to the 2006 trust. The trustee of the 1978 blind trust is John C. Culver, a former Democratic senator from Iowa and a longtime Kennedy friend who played on the Harvard football team with him and spoke at his Aug. 28 memorial service. The trustee of the 1987 blind trust is Joseph A. Kouba of Los Angeles.
Politicians and business leaders often use blind trusts, in which they have no knowledge of their holdings, to shield themselves from accusations of making political or business moves to benefit their finances.
If Kirk cannot serve as executor of Kennedy’s estate, that duty will fall to Kennedy’s son, Edward M. Kennedy Jr., according to the will, which was filed by Kevin J. Willis, a lawyer at Ropes & Gray in Boston.
Dempze said it was possible that some of Kennedy’s assets might be disclosed in the next few months if a probate inventory is filed with the court. Such an inventory excludes jointly owned assets.
Kennedy’s one-page death certificate was also filed in Probate Court yesterday. It said Kennedy died at home at 11:33 p.m. on Aug. 25, 2009, and listed the cause of death as glioma, the malignant brain tumor with which he was diagnosed 15 months earlier. No autopsy was performed.
Longtime friend is executor, trustee
Boston Globe, By: Jonathan Salzman
Three years to the day before he died, Senator Edward M. Kennedy named Paul G. Kirk Jr. as executor of his estate, according to a will filed yesterday with Barnstable Probate Court.
The five-page document signed by Kennedy on Aug. 25, 2006, underscores his close relationship with Kirk, a former Democratic National Committee chairman who was named yesterday as Kennedy’s interim successor by Governor Deval Patrick.
The same day Kennedy finalized his will, he named Kirk, along with himself, as a trustee of a trust in Kennedy’s name that will handle the senator’s assets.
The will says the trust will provide for Kennedy’s widow, Victoria R. Kennedy, his three adult children, and other unnamed descendants. But it gave no indication of the value of Kennedy’s assets, which came as little surprise to seasoned probate lawyers.
“It’s perfectly in line with what I would do for a wealthy client,’’ said Nancy E. Dempze, a Boston lawyer and former cochairwoman of the trust and estate section of the Boston Bar Association who was not involved in preparation of the will but reviewed a copy. “You want to keep all of that private,’’ she said.
A 2008 federal financial disclosure report indicated that the senator’s family fortune was worth tens of millions. The report, which included Kennedy’s assets and those of Victoria Kennedy and their dependents, listed a string of publicly and nonpublicly traded trusts and assets and a range of values. The report placed the net worth of his publicly traded assets somewhere between $15 million and $72.6 million.
Under the terms of Kennedy’s will, assets from two blind trusts that Kennedy established in his name in 1978 and 1987 were to be transferred after his death to the 2006 trust. The trustee of the 1978 blind trust is John C. Culver, a former Democratic senator from Iowa and a longtime Kennedy friend who played on the Harvard football team with him and spoke at his Aug. 28 memorial service. The trustee of the 1987 blind trust is Joseph A. Kouba of Los Angeles.
Politicians and business leaders often use blind trusts, in which they have no knowledge of their holdings, to shield themselves from accusations of making political or business moves to benefit their finances.
If Kirk cannot serve as executor of Kennedy’s estate, that duty will fall to Kennedy’s son, Edward M. Kennedy Jr., according to the will, which was filed by Kevin J. Willis, a lawyer at Ropes & Gray in Boston.
Dempze said it was possible that some of Kennedy’s assets might be disclosed in the next few months if a probate inventory is filed with the court. Such an inventory excludes jointly owned assets.
Kennedy’s one-page death certificate was also filed in Probate Court yesterday. It said Kennedy died at home at 11:33 p.m. on Aug. 25, 2009, and listed the cause of death as glioma, the malignant brain tumor with which he was diagnosed 15 months earlier. No autopsy was performed.
Sunday, August 16, 2009
Is a Roth IRA Right for You?
New rules beginning in 2010 will allow higher-income holders of traditional IRAs to convert to a Roth IRA. But it pays to run the numbers first. You should consult with your financial advisor, estate planning attorney, and accountant before converting.
Business Week
By Amy Feldman
It has been one of those perverse things. The wealthier you are, the more sense it makes to convert a traditional IRA, where you pay taxes when you withdraw the money, to a Roth IRA, where you pay taxes on money when it goes in. But the rules have only allowed people with modified adjusted gross income no greater than $100,000—those less likely to have big IRAs—to convert a traditional IRA to a Roth. Come 2010, however, the option opens up to everyone. "For 2010 we're going to hire extra analysts to run the numbers," says Christopher Cordaro, a wealth manager with RegentAtlantic Capital in Morristown, N.J.
More than $3 trillion sits in IRA accounts, excluding IRAs that are already Roths. Deciding whether to convert (and how much to convert) is complex. It involves some variables—such as future tax rates—that are unknowable. That, plus the pain of paying taxes now instead of later, may be why many people have been loath to consider conversion in advance of 2010.
But if you have substantial assets—and especially if you want to leave money to the next generation—run the numbers. Online calculators like the one at rothretirement.com can help, but the myriad rules and tax ramifications make talking to an adviser worthwhile. There is an out if you convert and then wish you hadn't—perhaps because your portfolio subsequently shrank as the market fell. The Internal Revenue Service allows you to undo a conversion in a process called "recharacterization."
Here are some guidelines to help you think through the decision.
CASH FOR TAXES
When you convert a traditional IRA to a Roth, you'll face an immediate tax hit. If you own solely IRAs funded with nondeductible contributions, then you will owe taxes on the earnings only (you paid income tax on the original amount before you set up the account). If you have only IRAs with deductible contributions, then you'll owe taxes on the full amount you want to convert (since you contributed on a pre-tax basis). In that case, your tax hit could be a third of the account's value or higher.
If you contributed both ways, all those assets are considered a lump sum for conversion purposes, and you'll need to figure out the tax implications based on the pro-rata share of each. This prohibits you from cherry-picking among IRA assets to avoid paying taxes on the conversion.
Whatever amount you owe, don't convert if you need to tap tax-deferred savings to pay the taxes. "If you have to use some of that money to pay taxes, this is not a good strategy, and if you are under 591/2, it's even worse because you'd pay a penalty [for early withdrawal] just to pay taxes," says Joan Crain, senior director of wealth strategies at BNY Mellon Wealth Management in Fort Lauderdale.
For 2010 only there is an extra loophole: You can choose to postpone the taxes and pay them in two installments over the next two years.
TAX RATE GUESSWORK
If you can pay the taxes on the conversion, the next question is tax rates. One of the big benefits of a Roth is your ability to play your current tax rate off your potential future one: If you expect your rate to be higher in retirement, you can pay the taxes up front at the lower rate. While it's impossible to know what your rate will be in the future, it seems likely it will be higher (at least, in the near future). "A lot of people think they can postpone the taxes until they retire and pay them in a lower tax bracket, but that is not how it is likely to work for a lot of people now," says BNY Mellon's Crain.
There are benefits to conversion even for those whose tax rates remain the same, says T. Rowe Price (TROW) senior financial planner Christine Fahlund. She argues that since you don't know where your tax rate will be in the future, you should think about tax diversification—holding some assets in a regular IRA and some in a Roth—in the same way you'd spread wealth among different asset classes.
You'll want an accountant to calculate the impact of the conversion on your taxes in the year you make the move. For some, the additional taxable income from the conversion could push them into a higher tax bracket or into the Alternative Minimum Tax. That could cause them to lose deductions and pay more overall tax than they otherwise would. If you fall into that category, you may want to hold off or convert only a small piece of your IRA assets in 2010.
THE BIG PAYOFF
The further off retirement is, the more worthwhile the Roth conversion, thanks to the value of tax-free compounding. Similarly, the less likely you are to need the money in retirement, the more valuable the Roth. That's because Roths aren't subject to the rules that force traditional IRA holders to begin drawing down assets at 701/2. If you're nearing retirement and haven't saved enough, you're likely better off not converting. But if you can keep your Roth intact in retirement, the power of tax-free compounding is enormous.
The really big payoffs for conversion come to those who hope to leave assets to kids or grandkids. For those worried about the estate tax, the amount you pay in tax on the conversion lowers the value of your future estate (though Roth assets are still included in the estate value). The inheritors will never owe income tax. While there are required minimum distribution rules for inheritors other than a spouse, those amounts are also tax-free. T. Rowe Price ran numbers (below) showing the benefits of converting $25,000 from a traditional IRA to a Roth for a 45-year-old who won't need the money in retirement, and the even-larger benefits for the adult child who inherits that Roth 40 years later. As Fahlund says: "It's a way to leverage that money throughout a family."
Feldman is an associate editor with BusinessWeek in New York
Friday, August 14, 2009
Tax Secrets of the Wealthy: Solve your business succession problem
Just in case the last article was not enough, here is another article on business secession planning. There are lots of options, but only if you plan. If we can be of any assistances, please do not hesitate to contact us.
Tax Secrets of the Wealthy: Solve your business succession problem
Marco Eagle
By: Irv Blackman
Own a family business? Want to transfer it to your kids? Then you’ll love this article. It’s about an old IRS letter ruling that is one of my favorites. It might be labeled “the lazy man’s way to plan your business transfer.” The ruling shows you how to take advantage of some favorable tax law while avoiding pitfalls. Good stuff!
There is a bit of a problem to using the technique: You see, you must drop dead before your family can enjoy the benefits of Letter Ruling 9116031.
But wait, the ruling has one redeeming quality. Really! First, the facts.
Joe, his wife Mary and their children owned all the stock in a family business. Joe died in 1990 and Mary inherited all of his stock. (Note: Mary’s tax basis — for computing capital gains — is the fair market value (FMV) of the stock on the day Joe died. For example, if the FMV was $1 million and she sold it for $1 million, there would be no capital gains tax.) Mary immediately sold all of her stock back to the corporation.
Here’s the general rule: When you or any member of your family sells stock back to your corporation (called a redemption), the redemption is usually taxed as a dividend — a tax disaster.
But there is a special tax-saving exception for a family member who has owned the stock for 10 years or more: If he/she divests all interest in the company (including any position as an officer or director), the redemption is treated as a sale (gets favorable capital gains treatment, instead of being a dividend). Since Mary sold all (stock she owned before Joe died and stock she inherited from him) of her remaining interest in the corporation, the purchase by the corporation of her shares was considered a bone fide sale (redemption) and not a dividend — a big tax victory.
When all the smoke cleared, not only had Mary escaped a big dividend income tax bill, but she has succeeded in effectively transferring the business to her children. How? Since the kids now owned all the remaining issued and outstanding stock, they owned 100 percent of the business. To sum it up: Mary walked off with a near-tax-free capital gain, (the price paid to Mary for the stock was a bit more than the exact FMV of the stock inherited from Joe) while the kids walked off with the business. A fantastic tax result.
Here’s some more good stuff about succession planning. Over the years, we have used the above ruling dozens of times with real-life clients and have nicknamed the strategy “The little guy redemption technique.” Here’s why. We use it when the seller is (1) in a very low or zero income tax bracket; (2) the stock price is (by a sort of rule-of-thumb) $600,000 or lower and (3) the seller is not worth enough to have a potential estate tax problem.
For example, the last one we did was for $380,000 for Dad No. 1, who owned 5 percent of the stock. The corporation redeemed all the stock paying the full $380,000 with a note payable over 10 years with interest at 6 percent on the unpaid balance.
Simple! Effective. Really a nice little flow of spendable cash for Dad No. 1, whose total net worth was only $800,000.
Let’s change the facts, just a bit.
Dad No. 2 (a real client from New York) is in the highest income tax bracket and estate tax bracket. Tax heaven would be to transfer his interest in the corporation (valued at $3 million) tax-free to his kids.
Dad No. 2’s succession plan must be centered around a strategy called an intentionally defective trust (IDT). An IDT is a tax-saving machine. It’s tax-free to Dad No. 2. Best of all the “buyer” of the stock (Dad’s kids) do not pay a single penny for the stock. Instead, the kids get the stock tax-free as a beneficiary of the IDT.
The lesson to be learned. Never, but never sell your stock to your kids, unless you are a little guy (as spelled out above). If transferring the stock of your family business to one or more of your children will be a tax burden to (a) you or (b) the children or (c) (in most cases) both, it is a must to find out just how much the family will save in taxes using an IDT. The rule of thumb: The savings are over $600,000 for every $1 million of the stock’s price. In real life, Dad No. 2 and his kids saved $1,920,000 in taxes (on a stock price of $3 million).
Tax Secrets of the Wealthy: Solve your business succession problem
Marco Eagle
By: Irv Blackman
Own a family business? Want to transfer it to your kids? Then you’ll love this article. It’s about an old IRS letter ruling that is one of my favorites. It might be labeled “the lazy man’s way to plan your business transfer.” The ruling shows you how to take advantage of some favorable tax law while avoiding pitfalls. Good stuff!
There is a bit of a problem to using the technique: You see, you must drop dead before your family can enjoy the benefits of Letter Ruling 9116031.
But wait, the ruling has one redeeming quality. Really! First, the facts.
Joe, his wife Mary and their children owned all the stock in a family business. Joe died in 1990 and Mary inherited all of his stock. (Note: Mary’s tax basis — for computing capital gains — is the fair market value (FMV) of the stock on the day Joe died. For example, if the FMV was $1 million and she sold it for $1 million, there would be no capital gains tax.) Mary immediately sold all of her stock back to the corporation.
Here’s the general rule: When you or any member of your family sells stock back to your corporation (called a redemption), the redemption is usually taxed as a dividend — a tax disaster.
But there is a special tax-saving exception for a family member who has owned the stock for 10 years or more: If he/she divests all interest in the company (including any position as an officer or director), the redemption is treated as a sale (gets favorable capital gains treatment, instead of being a dividend). Since Mary sold all (stock she owned before Joe died and stock she inherited from him) of her remaining interest in the corporation, the purchase by the corporation of her shares was considered a bone fide sale (redemption) and not a dividend — a big tax victory.
When all the smoke cleared, not only had Mary escaped a big dividend income tax bill, but she has succeeded in effectively transferring the business to her children. How? Since the kids now owned all the remaining issued and outstanding stock, they owned 100 percent of the business. To sum it up: Mary walked off with a near-tax-free capital gain, (the price paid to Mary for the stock was a bit more than the exact FMV of the stock inherited from Joe) while the kids walked off with the business. A fantastic tax result.
Here’s some more good stuff about succession planning. Over the years, we have used the above ruling dozens of times with real-life clients and have nicknamed the strategy “The little guy redemption technique.” Here’s why. We use it when the seller is (1) in a very low or zero income tax bracket; (2) the stock price is (by a sort of rule-of-thumb) $600,000 or lower and (3) the seller is not worth enough to have a potential estate tax problem.
For example, the last one we did was for $380,000 for Dad No. 1, who owned 5 percent of the stock. The corporation redeemed all the stock paying the full $380,000 with a note payable over 10 years with interest at 6 percent on the unpaid balance.
Simple! Effective. Really a nice little flow of spendable cash for Dad No. 1, whose total net worth was only $800,000.
Let’s change the facts, just a bit.
Dad No. 2 (a real client from New York) is in the highest income tax bracket and estate tax bracket. Tax heaven would be to transfer his interest in the corporation (valued at $3 million) tax-free to his kids.
Dad No. 2’s succession plan must be centered around a strategy called an intentionally defective trust (IDT). An IDT is a tax-saving machine. It’s tax-free to Dad No. 2. Best of all the “buyer” of the stock (Dad’s kids) do not pay a single penny for the stock. Instead, the kids get the stock tax-free as a beneficiary of the IDT.
The lesson to be learned. Never, but never sell your stock to your kids, unless you are a little guy (as spelled out above). If transferring the stock of your family business to one or more of your children will be a tax burden to (a) you or (b) the children or (c) (in most cases) both, it is a must to find out just how much the family will save in taxes using an IDT. The rule of thumb: The savings are over $600,000 for every $1 million of the stock’s price. In real life, Dad No. 2 and his kids saved $1,920,000 in taxes (on a stock price of $3 million).
Monday, August 3, 2009
Business Secession Planning Primer
We work with many clients who start to think about business secession planning. with both experienced estate planning and business attorneys here at the firm, we are able to assist clients in managing this process. This is a good article for things to begin to think about when you want to start to create a succession plan. This article is about a presentation to contractors, but it can apply to almost any business.
In Need of a Succession Plan? Here Are the Basics
American Chronicle
Have you been at the helm of your company for longer than you can remember? Do you know who will succeed you and how? Well, the experts say these are some indicators that you need to start thinking about succession planning.
While the prospect of the loss of control probably produces anxiety for you, you undoubtedly recognize the need for planning not just for your own future, but also for your employees' future as well. Shannon Affholter, a senior managerof the construction and real estate group of the accounting firm Moss Adams (Shannon.offholter@mossadams .com) and his colleague, Glenn Wattum, CPA (also of Moss Adams) presented a session at the Construction Financial Management Association's 2009 Annual Conference on succession planning for contractors.
CBMR spoke with Affholter to focus on how to get started and what is involved in the planning process. Affholter says that succession planning is an important business issue because approximately 60 percent of family-owned businesses will be changing hands in the next 10 years.
Thoughts of succession planning in the context of a family business conjure up images in my mind of the fights between J.R. and Bobby Ewing on the television series Dallas for control of the family oil business and actual "discussions" I have had with my brother and my dad (our company's president) in our company's conference room. Although we all get along well and are fairly unlike the Ewing family, power issues frequently bubble up especially when we discuss our company's long-term plans. The issues presented by a change in the business leader in a family business are often sensitive. What should happen if the company president becomes incapacitated? Which child (or should any of them) be in charge? Should the children be treated equally? Will the employees stay on with someone else as leader?
Before heading to your lawyer or accountant for planning services, it is a good idea to get a handle on the components of the process and to start thinking of the answers to some of the tough questions you'll be confronting along the way.
Affholter points out that succession planning involves more than who is next in line to take over. It has five components that need to be integrated and are interdependent. The components are business planning, ownership transition planning, succession planning, estate and tax planning, and personal wealth planning.
Business planning. This is the strategic plan that identifies where you want your business to be. It is the time to identify your long-term goals for your business. Do you want to perpetuate your business, cash out for the best possible value, or a . combo? While these are not the only options available, you need to establish what your goal is.
Ownership transition planning. If you are considering perpetuating your business, identifying viable candidates to succeed you is elemental. You will need to establish in your own mind what skills the successor needs and what level of competency is required in each. The skills you are likely evaluating are overall business competency, commitment, personal character, and leadership ability.
Frequently, the owners of family businesses begin looking at their children or other family members as their first choice for their successor. Affholter cautions that you should objectively look at the family member's skills to see whether he or she will be able to fill the role of leader. It may be difficult for you to accurately assess the person's real strengths, weaknesses, and potential. It may be helpful to have an outsider evaluate them. Affholter suggests seeing whether additional training or outside experience will get the family member to the level needed to fulfill the company's needs. It is really going to be a hard sell to your current employees to get them to respect and follow a family member who has little experience and placed at a high level in your company.
In my company, the rule of thumb seems to be that the family employee needs to work twice as hard as nonfamily employees to garner the respect of long-term employees. Your employees are looking for the same traits and confidence in your family member as they see in you. If his or her ability is not close to yours or his or her leadership skill is not readily apparent to your employees, your employees will be hard to motivate.
If you don't think you have good candidates from within your company or your family, consider a strategic hire. At this point, a tremendous amount of high-quality talent is available for hire in the industry.
If your timeline is long enough, you might consider having an in- house development program that rotates potential leadership candidates through various departments in the company, Affholter suggests.
Ownership transition planning also includes looking at how your economic interest in the business will be handled. You will need to consult your tax counsel on the most advantageous way to address this. There are quite a few options for intrafamily business transfers Affholtersuggests investigating. Some of the options include creating a limited liability company where you can establish membership interests and transfer business assets now rather than later and having a buy-sell agreement that pre-establishes purchase price and sale terms for a transfer in the future. I have also seen other owners who decided they did not want to sell their company to a third party and had no family members who could be appropriate leaders use an employee stock ownership program (ESOP) to cash out equity in their business and transfer ownership to their employees.
Management succession planning. This is the road map for read/ ing your business for your departure or readying your successorfor his or her new leadership role. If you are going to sell your business, then the plan needs to include steps and a process for making your business an attractive purchase.
If you have a successor in mind that needs additional experience or knowledge, the plan will set out the method for supplying the experience.
Personal wealth planning. In many cases, the answer to the question "What will be your monetary needs in retirement?" will determine significant elements of your business and ownership transition plan. So be prepared with at least a general answer to the question before approaching your counsel or advisor to do your succession plan.
Estate planning. The estate planning component involves developing a strategy that minimizes your estate tax burden. The strategy will have to dovetail your business plan with your other assets and your goals for the distribution of your assets upon your death. Before pursuing an integrated strategy, you might consider consulting with a tax attorney to see what options and choices you should be exploring in fashioning your overall plan. Expect that the estate planning component will involve at least your accountant and a tax attorney.
Affholter suggests that accomplishing a comprehensive succession strategy either with one professional or multiple professionals generally takes a few years. The final succession plan, Affholter cautions, often has to be fine-tuned, or modified as circumstances change.
Copyright Institute of Management & Administration Aug 2009
In Need of a Succession Plan? Here Are the Basics
American Chronicle
Have you been at the helm of your company for longer than you can remember? Do you know who will succeed you and how? Well, the experts say these are some indicators that you need to start thinking about succession planning.
While the prospect of the loss of control probably produces anxiety for you, you undoubtedly recognize the need for planning not just for your own future, but also for your employees' future as well. Shannon Affholter, a senior managerof the construction and real estate group of the accounting firm Moss Adams (Shannon.offholter@mossadams .com) and his colleague, Glenn Wattum, CPA (also of Moss Adams) presented a session at the Construction Financial Management Association's 2009 Annual Conference on succession planning for contractors.
CBMR spoke with Affholter to focus on how to get started and what is involved in the planning process. Affholter says that succession planning is an important business issue because approximately 60 percent of family-owned businesses will be changing hands in the next 10 years.
Thoughts of succession planning in the context of a family business conjure up images in my mind of the fights between J.R. and Bobby Ewing on the television series Dallas for control of the family oil business and actual "discussions" I have had with my brother and my dad (our company's president) in our company's conference room. Although we all get along well and are fairly unlike the Ewing family, power issues frequently bubble up especially when we discuss our company's long-term plans. The issues presented by a change in the business leader in a family business are often sensitive. What should happen if the company president becomes incapacitated? Which child (or should any of them) be in charge? Should the children be treated equally? Will the employees stay on with someone else as leader?
Before heading to your lawyer or accountant for planning services, it is a good idea to get a handle on the components of the process and to start thinking of the answers to some of the tough questions you'll be confronting along the way.
Affholter points out that succession planning involves more than who is next in line to take over. It has five components that need to be integrated and are interdependent. The components are business planning, ownership transition planning, succession planning, estate and tax planning, and personal wealth planning.
Business planning. This is the strategic plan that identifies where you want your business to be. It is the time to identify your long-term goals for your business. Do you want to perpetuate your business, cash out for the best possible value, or a . combo? While these are not the only options available, you need to establish what your goal is.
Ownership transition planning. If you are considering perpetuating your business, identifying viable candidates to succeed you is elemental. You will need to establish in your own mind what skills the successor needs and what level of competency is required in each. The skills you are likely evaluating are overall business competency, commitment, personal character, and leadership ability.
Frequently, the owners of family businesses begin looking at their children or other family members as their first choice for their successor. Affholter cautions that you should objectively look at the family member's skills to see whether he or she will be able to fill the role of leader. It may be difficult for you to accurately assess the person's real strengths, weaknesses, and potential. It may be helpful to have an outsider evaluate them. Affholter suggests seeing whether additional training or outside experience will get the family member to the level needed to fulfill the company's needs. It is really going to be a hard sell to your current employees to get them to respect and follow a family member who has little experience and placed at a high level in your company.
In my company, the rule of thumb seems to be that the family employee needs to work twice as hard as nonfamily employees to garner the respect of long-term employees. Your employees are looking for the same traits and confidence in your family member as they see in you. If his or her ability is not close to yours or his or her leadership skill is not readily apparent to your employees, your employees will be hard to motivate.
If you don't think you have good candidates from within your company or your family, consider a strategic hire. At this point, a tremendous amount of high-quality talent is available for hire in the industry.
If your timeline is long enough, you might consider having an in- house development program that rotates potential leadership candidates through various departments in the company, Affholter suggests.
Ownership transition planning also includes looking at how your economic interest in the business will be handled. You will need to consult your tax counsel on the most advantageous way to address this. There are quite a few options for intrafamily business transfers Affholtersuggests investigating. Some of the options include creating a limited liability company where you can establish membership interests and transfer business assets now rather than later and having a buy-sell agreement that pre-establishes purchase price and sale terms for a transfer in the future. I have also seen other owners who decided they did not want to sell their company to a third party and had no family members who could be appropriate leaders use an employee stock ownership program (ESOP) to cash out equity in their business and transfer ownership to their employees.
Management succession planning. This is the road map for read/ ing your business for your departure or readying your successorfor his or her new leadership role. If you are going to sell your business, then the plan needs to include steps and a process for making your business an attractive purchase.
If you have a successor in mind that needs additional experience or knowledge, the plan will set out the method for supplying the experience.
Personal wealth planning. In many cases, the answer to the question "What will be your monetary needs in retirement?" will determine significant elements of your business and ownership transition plan. So be prepared with at least a general answer to the question before approaching your counsel or advisor to do your succession plan.
Estate planning. The estate planning component involves developing a strategy that minimizes your estate tax burden. The strategy will have to dovetail your business plan with your other assets and your goals for the distribution of your assets upon your death. Before pursuing an integrated strategy, you might consider consulting with a tax attorney to see what options and choices you should be exploring in fashioning your overall plan. Expect that the estate planning component will involve at least your accountant and a tax attorney.
Affholter suggests that accomplishing a comprehensive succession strategy either with one professional or multiple professionals generally takes a few years. The final succession plan, Affholter cautions, often has to be fine-tuned, or modified as circumstances change.
Copyright Institute of Management & Administration Aug 2009
Wednesday, July 22, 2009
They’re finally off to college, but we are still their parents
What a great accomplishment. After 18 wonderful (and quick years) your child is now off to start this amazing new chapter in their life. They couldn’t wait to get settled in their new digs. Perhaps off to explore a new city. And, at a school you both really like, perhaps for different reasons.
In fact, your college age child is also of legal age – although it’s hard to imagine them making all the adult decisions they will need to make without you. And, as such, your ‘parental rights’ in a legal sense, are effectively terminated. Well, they still need you to help with the finances and you have a good relationship – so –nothing to worry about – right ?
Wrong. Being legally independent gives your child a host of new rights and terminates ones you used to have. One important example of this is in the area of making medical decisions. Everyone knows that it makes sense to appoint a Health Care Agent when they do their Will. Most people prepare these documents later in life (usually after the children are born). But, what if something happened to your college age child (now legally an adult) and someone needed to make medical decisions ? Is it clear that you will be the one ? Without a properly drafted and signed Health Care Agent appointment, the answer is no.
But, what if something even worse were to happen. We all hope that another VMI incident never occurs. But, if it were to, chaos ensues. People rushing to an emergency room to find out the condition of loved ones. Surely the hospital personnel would speak to you and help you understand the condition of your loved one ? Not so. Federal law (HIPAA) has now tightened up medical providers’ ability to disclose confidential information about a patient without their prior consent. The fix is easy: A HIPAA Release. This pre-authorizes medical providers to speak with the named individuals about a patient’s condition. Also a form typically done later in life when one does one’s estate plan documents.
Why wait ? Why not begin to teach your children about keeping their affairs in order early by suggesting that they consider (as a legal adult) already appointing a health care agent to act on their behalf if they ever were to have a catastrophic accident and couldn’t speak for themselves ? And, while they’re at it – do a HIPAA Release so that not only Mom & Dad can get through easily to the nurses station to see how they’re doing – but – so too could grandparents or siblings.
These documents are easy to prepare and simple to make available in a time of need. Consider a trip to the family lawyer’s office when they’re home for holiday break and give them a gift of guidance around very important issues. And, for the college student reading this article – think about taking initiative yourself and contacting a lawyer to draw up these simple papers for you.
For more information, or to schedule an appointment for your college age child, contact info@squillace-law.com
In fact, your college age child is also of legal age – although it’s hard to imagine them making all the adult decisions they will need to make without you. And, as such, your ‘parental rights’ in a legal sense, are effectively terminated. Well, they still need you to help with the finances and you have a good relationship – so –nothing to worry about – right ?
Wrong. Being legally independent gives your child a host of new rights and terminates ones you used to have. One important example of this is in the area of making medical decisions. Everyone knows that it makes sense to appoint a Health Care Agent when they do their Will. Most people prepare these documents later in life (usually after the children are born). But, what if something happened to your college age child (now legally an adult) and someone needed to make medical decisions ? Is it clear that you will be the one ? Without a properly drafted and signed Health Care Agent appointment, the answer is no.
But, what if something even worse were to happen. We all hope that another VMI incident never occurs. But, if it were to, chaos ensues. People rushing to an emergency room to find out the condition of loved ones. Surely the hospital personnel would speak to you and help you understand the condition of your loved one ? Not so. Federal law (HIPAA) has now tightened up medical providers’ ability to disclose confidential information about a patient without their prior consent. The fix is easy: A HIPAA Release. This pre-authorizes medical providers to speak with the named individuals about a patient’s condition. Also a form typically done later in life when one does one’s estate plan documents.
Why wait ? Why not begin to teach your children about keeping their affairs in order early by suggesting that they consider (as a legal adult) already appointing a health care agent to act on their behalf if they ever were to have a catastrophic accident and couldn’t speak for themselves ? And, while they’re at it – do a HIPAA Release so that not only Mom & Dad can get through easily to the nurses station to see how they’re doing – but – so too could grandparents or siblings.
These documents are easy to prepare and simple to make available in a time of need. Consider a trip to the family lawyer’s office when they’re home for holiday break and give them a gift of guidance around very important issues. And, for the college student reading this article – think about taking initiative yourself and contacting a lawyer to draw up these simple papers for you.
For more information, or to schedule an appointment for your college age child, contact info@squillace-law.com
Monday, July 20, 2009
Charitable Remainder Trusts May Provide Benefits
We’ve attached a worthy article about Charitable Remainder Trusts “CRT”). These are important vehicles that can help client’s accomplish life planning goals (like reduced taxes and enhanced retirement income planning) while at the same time benefiting their favorite charity or group of charities. It is one piece of a bigger puzzle that could fit into your own estate plan – depending on your overall goals and objectives.
Many people don’t understand CRT’s. Hopefully, this will help bridge that gap.
CRTs may provide benefits
Times Herald Record
by Laura Medigovich
Charitable remainder trusts are gifting vehicles that provide for two sets of beneficiaries, a current income beneficiary and a remainder beneficiary.
CRTs can also provide the donor with substantial income tax savings and estate tax savings as well. In a nutshell, the donor donates an asset to a charity through a trust. The charity sells the assets and invests the proceeds. The income beneficiary receives an income stream for a term, not to exceed 20 years. At the end of the term, the remaining proceeds belong to the charity.
For illustration purposes, let's assume you are 50 years old, and you have $1 million worth of ABC stock. You purchased the stock 30 years ago for $200,000. So you have a low cost basis (the amount you paid for the stock) of $200,000. If you sold ABC stock for $1 million you would have to pay capital gains tax on $800,000 ($1 million minus $200,000 minus your cost basis equals $800,000). The federal tax bite alone would be $120,000 ($800,000 x 15 percent = $120,000).
Provides income stream
Instead, you can create an irrevocable charitable remainder trust and donate the ABC stock to "favorite" charity through the trust. The trust sells ABC stock on behalf of "favorite" charity and invests the $1 million of proceeds at a 6 percent rate of return. For the next 10 years, you receive an income stream of $50,000 a year as the income beneficiary. At the end of 10 years, "favorite" charity receives the remaining principal assets from the trust, approximately $582,065.
The above example illustrates the many benefits the donor and charity receive through a charitable remainder trust. First, our donor would receive a federal income tax deduction based on the $582,065 (the remainder amount) the charity would receive at the end of the 10-year term. Second, by gifting $1 million worth of assets, the donor has reduced his or her taxable estate, therefore creating estate tax savings. Third, the donor has also created a stream of income for himself or herself. Of course the donor has also provided the charity with a sizable donation, which is good for everyone involved.
One of the major disadvantages with a CRT is that it is irrevocable. Which means once you have donated the asset, you have lost all claims to it. So you should be confident that you have enough other assets to live comfortably, before you make the donation.
This has been a simplified discussion regarding charitable remainder trusts. When it comes to CRTs, there are several variations on the theme, such as CRATs, CRUTs and NIM-CRUTs. Each has its own nuances. As with any estate planning strategy, it is important to consult with your attorney and tax adviser to determine which is best for you and your family.
Laura Medigovich is a financial planner and assistant vice president for M&T Bank's Hudson Valley region.
Many people don’t understand CRT’s. Hopefully, this will help bridge that gap.
CRTs may provide benefits
Times Herald Record
by Laura Medigovich
Charitable remainder trusts are gifting vehicles that provide for two sets of beneficiaries, a current income beneficiary and a remainder beneficiary.
CRTs can also provide the donor with substantial income tax savings and estate tax savings as well. In a nutshell, the donor donates an asset to a charity through a trust. The charity sells the assets and invests the proceeds. The income beneficiary receives an income stream for a term, not to exceed 20 years. At the end of the term, the remaining proceeds belong to the charity.
For illustration purposes, let's assume you are 50 years old, and you have $1 million worth of ABC stock. You purchased the stock 30 years ago for $200,000. So you have a low cost basis (the amount you paid for the stock) of $200,000. If you sold ABC stock for $1 million you would have to pay capital gains tax on $800,000 ($1 million minus $200,000 minus your cost basis equals $800,000). The federal tax bite alone would be $120,000 ($800,000 x 15 percent = $120,000).
Provides income stream
Instead, you can create an irrevocable charitable remainder trust and donate the ABC stock to "favorite" charity through the trust. The trust sells ABC stock on behalf of "favorite" charity and invests the $1 million of proceeds at a 6 percent rate of return. For the next 10 years, you receive an income stream of $50,000 a year as the income beneficiary. At the end of 10 years, "favorite" charity receives the remaining principal assets from the trust, approximately $582,065.
The above example illustrates the many benefits the donor and charity receive through a charitable remainder trust. First, our donor would receive a federal income tax deduction based on the $582,065 (the remainder amount) the charity would receive at the end of the 10-year term. Second, by gifting $1 million worth of assets, the donor has reduced his or her taxable estate, therefore creating estate tax savings. Third, the donor has also created a stream of income for himself or herself. Of course the donor has also provided the charity with a sizable donation, which is good for everyone involved.
One of the major disadvantages with a CRT is that it is irrevocable. Which means once you have donated the asset, you have lost all claims to it. So you should be confident that you have enough other assets to live comfortably, before you make the donation.
This has been a simplified discussion regarding charitable remainder trusts. When it comes to CRTs, there are several variations on the theme, such as CRATs, CRUTs and NIM-CRUTs. Each has its own nuances. As with any estate planning strategy, it is important to consult with your attorney and tax adviser to determine which is best for you and your family.
Laura Medigovich is a financial planner and assistant vice president for M&T Bank's Hudson Valley region.
Wednesday, July 8, 2009
Women, Wisdom, & Wealth: Being prepared means peace of mind
Here is a great little article from a paper down in Florida that stresses the importance of proper estate planning. I really like when she comments: “Over a decade ago as new residents of Southwest Florida, we educated ourselves on proper hurricane preparedness procedures. We took the necessary actions and implemented a plan. We share the details with family members and revisit our plan each year; just in case. The peace of mind of being prepared is priceless. In the event of an emergency the last thing we need is to be searching and scrambling for important documents or contact information. Instead we’re available to help our friends and neighbors.”
By DARCIE GUERIN
Macro Eagle
Tuesday, July 7, 2009
Last week you were introduced to my friend Grace who was recently widowed. She and her husband had the difficult conversations while he was alive and discussed what the future may hold if one of them were to pass. In doing this while he was alive, she was much better prepared to handle the financial responsibilities of widowhood. The rewards were most worthwhile and helped make a very difficult time a little bit easier for her to deal with. Below are a few practical financial matters to be dealt with by widows and widowers.
PROPERTY
How are your assets owned? Is everything titled as joint tenants with rights of survivorship (JTWROS)? If the answer is yes, transfers occur immediately, but this isn’t always the best choice. If property was owned as tenants in common it will go through probate. If property was owned by a trust, the terms of that trust will determine how the property will be distributed. If there is no will, you’ll need to go through probate. You’ll also need to identify ownership of and transfer titles of bank accounts, real estate, stocks, bonds, mutual funds and retirement plans. Call your lawyer and financial advisor for assistance.
LIFE INSURANCE
Be sure to contact the Social Security Administration, current and past employers and any life insurance companies to determine and obtain all benefits you may be entitled to. Don’t forget to check on military benefits if your spouse was in the service. This may be an overwhelming task so start with just one phone call at a time.
RETIREMENT
If you’re the beneficiary of your spouse’s plans you have several options and choices to make on how to receive the benefits. Start by contacting the custodian or trustee of the plan. The selections you make on how to receive these funds are critical to your future financial well-being, so be sure to consult a trusted financial professional for guidance. And don’t forget to update your beneficiaries on retirement plans and life insurance policies.
HEALTH INSURANCE
Coverage will depend on your age and your spouse’s employment status. If covered by an employee group plan you’re probably eligible for continued coverage at a cost through COBRA or you may qualify for Medicare.
TAXES
Seek professional tax advice and request IRS Publication 559 for survivors. You may file a joint tax return and claim an exemption for your spouse in the year he or she dies. If there was a life insurance policy owned by your spouse or if proceeds of a policy were payable to the estate, the death benefit may be included in the estate for estate tax purposes.
INVESTMENTS
Grace’s husband was a savvy investor. He enjoyed keeping up with the markets and monitoring their investments each day. Grace’s primary concern was to identify income sources and evaluate her expenses. Then she determined if the investments were suitable for her needs and risk tolerance. This allowed her to ensure that her immediate and longterm financial needs would be met. Again, it’s helpful to seek professional advice as you work through these choices.
As you can see, there are many important financial matters to consider. You’ll want to coordinate efforts among the team of professionals you already have in place. It’s much easier to develop these relationships over time rather starting from scratch during a crisis.
KEY PLAYERS
Here are a few of the key players in your important decision making: Financial advisor, accountant, attorney, employer’s benefit department and insurance agents.
Over a decade ago as new residents of Southwest Florida, we educated ourselves on proper hurricane preparedness procedures. We took the necessary actions and implemented a plan. We share the details with family members and revisit our plan each year; just in case. The peace of mind of being prepared is priceless. In the event of an emergency the last thing we need is to be searching and scrambling for important documents or contact information. Instead we’re available to help our friends and neighbors.
Lack of preparation is one reason many widows and widowers face financial hardship. It doesn’t have to happen to you. Give yourself the gift of organizing and arranging ahead of time. If you do experience the unfortunate loss of a spouse, at least you’ll be as ready as you can be. There’s no better time than now to take control of the things you can. And in the meantime, after you’ve done your homework, enjoy each other’s company.
Darcie Guerin, Financial Advisor & Branch Manager, Raymond James & Associates, Inc. located at 606 Bald Eagle Drive, Suite 401, Marco Island, and FL 34145 provides this article. If you have questions please contact Darcie Guerin via e-mail at Darcie.Guerin@RaymondJames.com. Phone (239) 389-1041, toll free (866)-343-0882 or at RaymondJames.com/Darcie. Past performance may not be indicative of future results.
Information contained in these postings is for educational purposes only. No warranty, expressed or implied, is made as to their use. No one should consider this legal advice. If you have a question about your own affairs, you should seek the advice of a licensed attorney.
By DARCIE GUERIN
Macro Eagle
Tuesday, July 7, 2009
Last week you were introduced to my friend Grace who was recently widowed. She and her husband had the difficult conversations while he was alive and discussed what the future may hold if one of them were to pass. In doing this while he was alive, she was much better prepared to handle the financial responsibilities of widowhood. The rewards were most worthwhile and helped make a very difficult time a little bit easier for her to deal with. Below are a few practical financial matters to be dealt with by widows and widowers.
PROPERTY
How are your assets owned? Is everything titled as joint tenants with rights of survivorship (JTWROS)? If the answer is yes, transfers occur immediately, but this isn’t always the best choice. If property was owned as tenants in common it will go through probate. If property was owned by a trust, the terms of that trust will determine how the property will be distributed. If there is no will, you’ll need to go through probate. You’ll also need to identify ownership of and transfer titles of bank accounts, real estate, stocks, bonds, mutual funds and retirement plans. Call your lawyer and financial advisor for assistance.
LIFE INSURANCE
Be sure to contact the Social Security Administration, current and past employers and any life insurance companies to determine and obtain all benefits you may be entitled to. Don’t forget to check on military benefits if your spouse was in the service. This may be an overwhelming task so start with just one phone call at a time.
RETIREMENT
If you’re the beneficiary of your spouse’s plans you have several options and choices to make on how to receive the benefits. Start by contacting the custodian or trustee of the plan. The selections you make on how to receive these funds are critical to your future financial well-being, so be sure to consult a trusted financial professional for guidance. And don’t forget to update your beneficiaries on retirement plans and life insurance policies.
HEALTH INSURANCE
Coverage will depend on your age and your spouse’s employment status. If covered by an employee group plan you’re probably eligible for continued coverage at a cost through COBRA or you may qualify for Medicare.
TAXES
Seek professional tax advice and request IRS Publication 559 for survivors. You may file a joint tax return and claim an exemption for your spouse in the year he or she dies. If there was a life insurance policy owned by your spouse or if proceeds of a policy were payable to the estate, the death benefit may be included in the estate for estate tax purposes.
INVESTMENTS
Grace’s husband was a savvy investor. He enjoyed keeping up with the markets and monitoring their investments each day. Grace’s primary concern was to identify income sources and evaluate her expenses. Then she determined if the investments were suitable for her needs and risk tolerance. This allowed her to ensure that her immediate and longterm financial needs would be met. Again, it’s helpful to seek professional advice as you work through these choices.
As you can see, there are many important financial matters to consider. You’ll want to coordinate efforts among the team of professionals you already have in place. It’s much easier to develop these relationships over time rather starting from scratch during a crisis.
KEY PLAYERS
Here are a few of the key players in your important decision making: Financial advisor, accountant, attorney, employer’s benefit department and insurance agents.
Over a decade ago as new residents of Southwest Florida, we educated ourselves on proper hurricane preparedness procedures. We took the necessary actions and implemented a plan. We share the details with family members and revisit our plan each year; just in case. The peace of mind of being prepared is priceless. In the event of an emergency the last thing we need is to be searching and scrambling for important documents or contact information. Instead we’re available to help our friends and neighbors.
Lack of preparation is one reason many widows and widowers face financial hardship. It doesn’t have to happen to you. Give yourself the gift of organizing and arranging ahead of time. If you do experience the unfortunate loss of a spouse, at least you’ll be as ready as you can be. There’s no better time than now to take control of the things you can. And in the meantime, after you’ve done your homework, enjoy each other’s company.
Darcie Guerin, Financial Advisor & Branch Manager, Raymond James & Associates, Inc. located at 606 Bald Eagle Drive, Suite 401, Marco Island, and FL 34145 provides this article. If you have questions please contact Darcie Guerin via e-mail at Darcie.Guerin@RaymondJames.com. Phone (239) 389-1041, toll free (866)-343-0882 or at RaymondJames.com/Darcie. Past performance may not be indicative of future results.
Information contained in these postings is for educational purposes only. No warranty, expressed or implied, is made as to their use. No one should consider this legal advice. If you have a question about your own affairs, you should seek the advice of a licensed attorney.
Thursday, July 2, 2009
Who would have thought?
When our Firm receives calls from three people (around the age of 50) in one day to suddenly get started with their estate planning, you know there has been a seismic shift in terms of how people think about this work. It’s not just for the elderly. It’s for everybody !
There are very few deaths that will garner more attention than that of a celebrity. Michael Jackson’s recent passing at the age of 50 is one such death that serves as a wake-up call. High-profile deaths often bring about interesting responses from people. In one day we witnessed two. Farah Faucett’s, though tragic, was not unanticipated given her battle with cancer. Michael Jackson’s however, was a surprise for most and a reminder that it can happen at any age.
From what we have been able to ascertain so far (simply by what is made publically available from court filings), Jackson’s Will is similar to the Wills we often provide our clients. It is known as a Pour Over Will and intended to place all of his assets in trust for the children and other beneficiaries in his Family Trust. The Family Trust was likely a Revocable Living Trust (which, if properly drafted, becomes Irrevocable at death.) If handled correctly, we should never know the detailed provisions of the Family Trust since it is not required to be filed with the Court.
However, depending on whether his Family Trust was ‘funded’ during his lifetime, will inform whether we learn more details about his assets. Typically people do not complete this funding process (which essentially involves re-titling of assets from one’s personal name to the name of one’s trust) and instead rely on the Pour Over Will after death to get the assets into the trust. This process is the Probate process that we all know about and usually try to avoid. We will not know for some time yet whether the Pour Over Will is actually going to be used to re-title assets into Jackson’s Family Trust. My guess is yes – and – it will cost the family considerable time and money with lawyers and other professionals to do this which is why we usually recommend to our clients to fully fund, and keep updated and funded, their trusts during their lifetime.
Concern about privacy is obviously important for celebrities – but – it is also important for families wanting to protect their loved ones from unwarranted solicitations from any number of vendors. Keeping details of a family’s finances out of the public eye is an important benefit to doing estate planning with these types of trusts – and funding them during your lifetime and keeping them updated. There is always the risk that somehow (from a beneficiary or otherwise) Jackson’s Family Trust could be leaked to the press and would become publically available anyway.
People have asked us: “What about his debts?” Revocable Living Trusts usually do not a provide any way to avoid debts you accumulate during your lifetime. (This can vary based on state law.) Generally speaking, you are your revocable living trust for purposes of creditors and therefore your debts are not extinguished at death. (There are other types of planning vehicles for asset protection that sometimes can address these issues.) A trust can, if properly drafted, provide certain creditor protections, remarriage protections and other types of protections, but only after the funds have been properly placed into that trust. Michael Jackson’s affairs will need to be put in order including selling property, paying debts, settling claims, etc. After that, any assets left will be available to his children and other beneficiaries through the terms of his Family Trust.
So, while Michael Jackson did indeed have a Will, it is still unclear how the trusts were set up and funded. We will not know for some time whether these were properly drafted to provide the important protections they should. We cannot stress how important it is to update your estate plan.
There are very few deaths that will garner more attention than that of a celebrity. Michael Jackson’s recent passing at the age of 50 is one such death that serves as a wake-up call. High-profile deaths often bring about interesting responses from people. In one day we witnessed two. Farah Faucett’s, though tragic, was not unanticipated given her battle with cancer. Michael Jackson’s however, was a surprise for most and a reminder that it can happen at any age.
From what we have been able to ascertain so far (simply by what is made publically available from court filings), Jackson’s Will is similar to the Wills we often provide our clients. It is known as a Pour Over Will and intended to place all of his assets in trust for the children and other beneficiaries in his Family Trust. The Family Trust was likely a Revocable Living Trust (which, if properly drafted, becomes Irrevocable at death.) If handled correctly, we should never know the detailed provisions of the Family Trust since it is not required to be filed with the Court.
However, depending on whether his Family Trust was ‘funded’ during his lifetime, will inform whether we learn more details about his assets. Typically people do not complete this funding process (which essentially involves re-titling of assets from one’s personal name to the name of one’s trust) and instead rely on the Pour Over Will after death to get the assets into the trust. This process is the Probate process that we all know about and usually try to avoid. We will not know for some time yet whether the Pour Over Will is actually going to be used to re-title assets into Jackson’s Family Trust. My guess is yes – and – it will cost the family considerable time and money with lawyers and other professionals to do this which is why we usually recommend to our clients to fully fund, and keep updated and funded, their trusts during their lifetime.
Concern about privacy is obviously important for celebrities – but – it is also important for families wanting to protect their loved ones from unwarranted solicitations from any number of vendors. Keeping details of a family’s finances out of the public eye is an important benefit to doing estate planning with these types of trusts – and funding them during your lifetime and keeping them updated. There is always the risk that somehow (from a beneficiary or otherwise) Jackson’s Family Trust could be leaked to the press and would become publically available anyway.
People have asked us: “What about his debts?” Revocable Living Trusts usually do not a provide any way to avoid debts you accumulate during your lifetime. (This can vary based on state law.) Generally speaking, you are your revocable living trust for purposes of creditors and therefore your debts are not extinguished at death. (There are other types of planning vehicles for asset protection that sometimes can address these issues.) A trust can, if properly drafted, provide certain creditor protections, remarriage protections and other types of protections, but only after the funds have been properly placed into that trust. Michael Jackson’s affairs will need to be put in order including selling property, paying debts, settling claims, etc. After that, any assets left will be available to his children and other beneficiaries through the terms of his Family Trust.
So, while Michael Jackson did indeed have a Will, it is still unclear how the trusts were set up and funded. We will not know for some time whether these were properly drafted to provide the important protections they should. We cannot stress how important it is to update your estate plan.
Friday, June 26, 2009
Massachusetts Probate Code Changes
After years of work and debate, Massachusetts is about to begin implementation of its new Uniform Probate Code (“UPC”). Part of the UPC will become effective next week on July 1, 2009 and the remaining provisions will go into effect on July 1, 2011.
The biggest change for now will be that guardianships and conservatorships will be split and require separate filings and separate plans for implementation. A new limited guardianship and ability to file petition for a single financial transaction without the need for a conservator will also go into effect on July 1. Since this is new, it is still a bit unclear how useful some of these provisions will be, but some commentators believe they could provide a valuable alternative to a full conservator process.
There is also a change in the language and certain definitions used for these proceedings. A guardianship will address the personal needs of an “incapacitated person” while a conservatorship will focus on the assets of a “protected person.” One of the other language changes was the definition of “ward.” Wards will now refer only to minors.
There are also some new rules concerning Powers of Attorney that will be effective on July 1, 2009. In the past, people may have had problems with various institutions questioning the validity of a Power of Attorney if it was older than three or five years. The UPC now requires any properly executed Power of Attorney to be honored regardless of age. It also provides statutory remedies for damages caused by a third party’s refusal to accept an otherwise valid Power of Attorney. It will take some time for businesses and other institutions to recognize these new rules.
Another element with the new rules is that in the past there has often been a waived sureties on any type of bond when initiating a guardianship or conservatorship proceeding. That is no longer the case. You will be required to have sureties unless you specifically waive them in your Power of Attorney. It is suggested that anyone holding Powers of Attorney consider updating them to allow this waiver. It could be a significant savings each year to not have posted any type of bond. Our clients will automatically receive the new updated Powers of Attorney if they are participating in our Annual Client Maintenance Program.
As always, if we can help you with any of these matters, please feel free to contact us.
Scott E. Squillace, Esq.
Boston Estate Planning Attorney
The biggest change for now will be that guardianships and conservatorships will be split and require separate filings and separate plans for implementation. A new limited guardianship and ability to file petition for a single financial transaction without the need for a conservator will also go into effect on July 1. Since this is new, it is still a bit unclear how useful some of these provisions will be, but some commentators believe they could provide a valuable alternative to a full conservator process.
There is also a change in the language and certain definitions used for these proceedings. A guardianship will address the personal needs of an “incapacitated person” while a conservatorship will focus on the assets of a “protected person.” One of the other language changes was the definition of “ward.” Wards will now refer only to minors.
There are also some new rules concerning Powers of Attorney that will be effective on July 1, 2009. In the past, people may have had problems with various institutions questioning the validity of a Power of Attorney if it was older than three or five years. The UPC now requires any properly executed Power of Attorney to be honored regardless of age. It also provides statutory remedies for damages caused by a third party’s refusal to accept an otherwise valid Power of Attorney. It will take some time for businesses and other institutions to recognize these new rules.
Another element with the new rules is that in the past there has often been a waived sureties on any type of bond when initiating a guardianship or conservatorship proceeding. That is no longer the case. You will be required to have sureties unless you specifically waive them in your Power of Attorney. It is suggested that anyone holding Powers of Attorney consider updating them to allow this waiver. It could be a significant savings each year to not have posted any type of bond. Our clients will automatically receive the new updated Powers of Attorney if they are participating in our Annual Client Maintenance Program.
As always, if we can help you with any of these matters, please feel free to contact us.
Scott E. Squillace, Esq.
Boston Estate Planning Attorney
Thursday, June 25, 2009
New Website Released
We are proud to announce our new website: www.squillace-law.com
You can also check out our new video on the right.
You can also check out our new video on the right.
Sunday, June 21, 2009
Update on NH and RI Estate Tax
It looks like most of the NH papers now agree, a NH Estate Tax is on hold. Several new taxes were thrown out, and instead, the legislature will raise user fees. It also appears the proposed capital gains tax will not be approved.
A legislative committee in Rhode Island has proposed raising the estate tax exemption in Rhode Island from $675,000 to $850,000 and index it to inflation. Stay tuned as this is just the first step in a very long process. (By the way- a proposed changes has also been made to tax capital gains at normal income rates.)
A legislative committee in Rhode Island has proposed raising the estate tax exemption in Rhode Island from $675,000 to $850,000 and index it to inflation. Stay tuned as this is just the first step in a very long process. (By the way- a proposed changes has also been made to tax capital gains at normal income rates.)
Wednesday, June 17, 2009
Probate and Passwords
From Attorney Scott E. Squillace
We attempt to provide considerable information on our webpage (www.squillace-law.com) concerning probate and trust administration. We describe the process, court proceedings, etc. There are, however, some important practical issues that people run in to when probating an estate or settling a trust. These issues are not unique to Boston or Massachusetts. We would like to highlight some of these for you in this posting.
One of the challenges we see more and more has to do with electronic passwords. If you bank on-line, pay bills on-line, have automatic drafts, on-line savings account, or any other type of electronic payments, your executor and/or trustee could run into problems.
If the account is in the trust’s name, the successor trustee could step in and have automatic withdrawals stopped as long as the payments were made from the account. The challenge appears when the payments are set up through the credit card company or on an automatic withdraw. The only way to know there is a withdrawal is to wait and see if it happens. If it is not a trust account, your executor or successor trustee would have to wait months to access the account (assuming you were the sole owner).
While everyone is nervous about secrecy of passwords, and they should be, it does create a probate if you pass away unexpectedly.
Of course, before you embark on any suggestions contained in this posting you should consult with an estate planning attorney for the pros and cons of each suggestion.
To help alleviate the problem created by electronic passwords, you could:
1. Put the cash account into the name of your trust- could be a hassle, but a successor trustee can step in immediately. May require you to close the account and open a new one.
2. Keep a password list in safe place- let your loved ones know you have a password list and that it is stored in safe place. You could store it in a home safe (assuming someone else has the code to get in) or a safety deposit box (again, hoping that someone else’s name is on the box to have access after passing). Or, better yet – give a copy to your estate planning attorney for them to keep in your file at a safe location in their office and be sure to keep it UPDATED when you update your estate plans annually.
If you need help with a probate matter, estate planning, or family business, please do not hesitate to contact us at (617) 716-0300 or info@squillace-law.com.
We attempt to provide considerable information on our webpage (www.squillace-law.com) concerning probate and trust administration. We describe the process, court proceedings, etc. There are, however, some important practical issues that people run in to when probating an estate or settling a trust. These issues are not unique to Boston or Massachusetts. We would like to highlight some of these for you in this posting.
One of the challenges we see more and more has to do with electronic passwords. If you bank on-line, pay bills on-line, have automatic drafts, on-line savings account, or any other type of electronic payments, your executor and/or trustee could run into problems.
If the account is in the trust’s name, the successor trustee could step in and have automatic withdrawals stopped as long as the payments were made from the account. The challenge appears when the payments are set up through the credit card company or on an automatic withdraw. The only way to know there is a withdrawal is to wait and see if it happens. If it is not a trust account, your executor or successor trustee would have to wait months to access the account (assuming you were the sole owner).
While everyone is nervous about secrecy of passwords, and they should be, it does create a probate if you pass away unexpectedly.
Of course, before you embark on any suggestions contained in this posting you should consult with an estate planning attorney for the pros and cons of each suggestion.
To help alleviate the problem created by electronic passwords, you could:
1. Put the cash account into the name of your trust- could be a hassle, but a successor trustee can step in immediately. May require you to close the account and open a new one.
2. Keep a password list in safe place- let your loved ones know you have a password list and that it is stored in safe place. You could store it in a home safe (assuming someone else has the code to get in) or a safety deposit box (again, hoping that someone else’s name is on the box to have access after passing). Or, better yet – give a copy to your estate planning attorney for them to keep in your file at a safe location in their office and be sure to keep it UPDATED when you update your estate plans annually.
If you need help with a probate matter, estate planning, or family business, please do not hesitate to contact us at (617) 716-0300 or info@squillace-law.com.
Monday, June 15, 2009
Fees, taxes eyed to balance state's books
New Hampshire Legislature looks to 8% Estate Transfer Tax on estates larger that $2,000.000. Stay tuned on the budget details that should be passed by July 1, 2009.
Foster's Daily Democrat
By: Adam D. Kraus
CONCORD — Maybe you're a smoker, or every so often enjoy a cheap cigar, a meal at your favorite restaurant and, for whatever reason, need a copy of your driver's license or vehicle registration.
It's going to cost you more — if the New Hampshire Legislature agrees on a budget that includes some form of the tax and fee increases approved by the House and Senate.
The Senate wants to increase the $1.33 tax on cigarettes by 45 cents, while the House has eyed 35 cents. The proposals would bring in between $56 million and $66 million over the biennium for the general and educational trust funds.
Both houses agree on taxing cigars and a 30 percent hike to the 19 percent tax on the wholesale price of other tobacco products, with the measure bringing in $6 million over two years for the funds.
Representatives and senators back a .75 percent increase in the 8 percent rooms and meals tax, which would bring in as much as $40 million over two years.
The budget process remains very fluid, those involved stress, so any proposal can change up until both chambers reach agreement, which could come this week.
Neither chamber is behind a sales or income tax, a position that is the backbone of the state's cherished low tax status.
New Hampshire government is heavily dependent on property taxes, but the state's overall tax burden, estimated at 7.6 percent of income, has ranked among the nation's lowest in nearly every year of the past three decades, according to the nonpartisan Tax Foundation in Washington, D.C.
The budget contains proposals to tax capital gains and estate transfers, but the N.H. Center for Public Policy Studies says the state won't lose its "low tax, low fee" advantage.
"Every other state in the country is in the same boat we're in" because of the recession, said Dennis Delay, the center's deputy director. Just about every state is eyeing revenue enhancers in hopes of closing budget shortfalls that average between 10 to 15 percent, he said.
Gov. John Lynch and lawmakers are seeking consensus on a two-year budget, which kicks in July 1, as they try to close what The Associated Press reported last week is a $650 million revenue gap. The shortfall is in the $3.2 billion general fund portion of the budget, while the total spending package is closer to $11.6 billion with federal and other funds included.
Economic slowdowns tend to ratchet up tax burdens, Delay said.
And it appears few, if any, Granite Staters will escape the pain this time around, according to a compilation of some of the proposed tax and fee increases that passed each chamber.
A slew of changes to motor vehicle-related items could be on tap, including:
— A $4 increase for electronic motor vehicle record requests and a $7 hike for others so it costs $8 and $12, respectively;
— Adding $5 to the $10 fee for certified copies of registrations, licenses or driving records;
— Increasing the cost of getting a vanity plate by $15 so it costs $40, with a similar increase to the service fee;
— Adding $10 to driver's license fees, $15 to motor vehicle registrations, with a $15 surcharge for vehicles more than 8,000 pounds, and increasing motorcycle registrations by $10.
The Senate version includes a 75-cent jump on inspection stickers, from $2.50 to $3.25, while the House likes a 40-cent change.
Elsewhere, the $150 charge for the Department of Environmental Services to review subdivision plans and site plan inspections could go up by $150, and the $140 charge for review of sewage or waste disposal plans could go up to $300.
Courts would be able to increase the penalty assessment fee by 4 percentage points, making it 24 percent, and the Department of Safety will be able to charge $100 for the annulment of criminal records.
Plus, boat registration fees are set to double; they currently range from $12 to $46 depending on the boat's size. Registration, agent, ownership transfer and licensing fees would also rise.
It would also cost someone from out of state $80 more to carry a concealed weapon under the Senate plan.
The House and Senate disagree on major areas.
Whereas the Senate's budget relies on more than $200 million in projected revenue from expanded gambling, the House proposal envisions a 10 percent tax on gambling winnings, a 5 percent capital gains and an 8 percent tax on transfers of estates greater than $2 million. The estate tax is projected to collect $10 million.
Proponents say more than 90 percent of those impacted by taxing capital gains — the sales of assets like stocks, businesses and real estate investments — earn $200,000 or more. The measure also increases the exemption for the interest and dividends tax from $2,400 to $5,000.
Lynch is set to present a plan today for $150 million in new revenue, including from a mortgage refinancing tax, that could do away with gambling and the capital gains tax, the governor told the AP.
The Senate has also gotten behind the temporary suspension of the business enterprise tax credit, which is used against the state's business profits tax. That could bring in $40 million.
The House opted to freeze the insurance premium tax, which lawmakers agreed to begin lowering four years ago. That could bring in $5.1 million.
Elsewhere, the House also got behind a 15-cent hike in the gas tax over three years while the Senate is on board with Lynch's plan to modify the E-ZPass discount program and restructure the funding relationship between highways and turnpikes.
The deficit exists despite deeps cuts throughout the budget, particularly to health and human services, said Sen. Jackie Cilley, D-Barrington. And further cuts are challenged by the need to meet residents' rising needs, maintain infrastructure and funding tied to federal stimulus dollars, she said
"We have a choice of building a budget that tries to address the needs of the people of this state or willy-nilly cut this budget in a way that's going to send these problems back in bigger droves to the community," she said.
Foster's Daily Democrat
By: Adam D. Kraus
CONCORD — Maybe you're a smoker, or every so often enjoy a cheap cigar, a meal at your favorite restaurant and, for whatever reason, need a copy of your driver's license or vehicle registration.
It's going to cost you more — if the New Hampshire Legislature agrees on a budget that includes some form of the tax and fee increases approved by the House and Senate.
The Senate wants to increase the $1.33 tax on cigarettes by 45 cents, while the House has eyed 35 cents. The proposals would bring in between $56 million and $66 million over the biennium for the general and educational trust funds.
Both houses agree on taxing cigars and a 30 percent hike to the 19 percent tax on the wholesale price of other tobacco products, with the measure bringing in $6 million over two years for the funds.
Representatives and senators back a .75 percent increase in the 8 percent rooms and meals tax, which would bring in as much as $40 million over two years.
The budget process remains very fluid, those involved stress, so any proposal can change up until both chambers reach agreement, which could come this week.
Neither chamber is behind a sales or income tax, a position that is the backbone of the state's cherished low tax status.
New Hampshire government is heavily dependent on property taxes, but the state's overall tax burden, estimated at 7.6 percent of income, has ranked among the nation's lowest in nearly every year of the past three decades, according to the nonpartisan Tax Foundation in Washington, D.C.
The budget contains proposals to tax capital gains and estate transfers, but the N.H. Center for Public Policy Studies says the state won't lose its "low tax, low fee" advantage.
"Every other state in the country is in the same boat we're in" because of the recession, said Dennis Delay, the center's deputy director. Just about every state is eyeing revenue enhancers in hopes of closing budget shortfalls that average between 10 to 15 percent, he said.
Gov. John Lynch and lawmakers are seeking consensus on a two-year budget, which kicks in July 1, as they try to close what The Associated Press reported last week is a $650 million revenue gap. The shortfall is in the $3.2 billion general fund portion of the budget, while the total spending package is closer to $11.6 billion with federal and other funds included.
Economic slowdowns tend to ratchet up tax burdens, Delay said.
And it appears few, if any, Granite Staters will escape the pain this time around, according to a compilation of some of the proposed tax and fee increases that passed each chamber.
A slew of changes to motor vehicle-related items could be on tap, including:
— A $4 increase for electronic motor vehicle record requests and a $7 hike for others so it costs $8 and $12, respectively;
— Adding $5 to the $10 fee for certified copies of registrations, licenses or driving records;
— Increasing the cost of getting a vanity plate by $15 so it costs $40, with a similar increase to the service fee;
— Adding $10 to driver's license fees, $15 to motor vehicle registrations, with a $15 surcharge for vehicles more than 8,000 pounds, and increasing motorcycle registrations by $10.
The Senate version includes a 75-cent jump on inspection stickers, from $2.50 to $3.25, while the House likes a 40-cent change.
Elsewhere, the $150 charge for the Department of Environmental Services to review subdivision plans and site plan inspections could go up by $150, and the $140 charge for review of sewage or waste disposal plans could go up to $300.
Courts would be able to increase the penalty assessment fee by 4 percentage points, making it 24 percent, and the Department of Safety will be able to charge $100 for the annulment of criminal records.
Plus, boat registration fees are set to double; they currently range from $12 to $46 depending on the boat's size. Registration, agent, ownership transfer and licensing fees would also rise.
It would also cost someone from out of state $80 more to carry a concealed weapon under the Senate plan.
The House and Senate disagree on major areas.
Whereas the Senate's budget relies on more than $200 million in projected revenue from expanded gambling, the House proposal envisions a 10 percent tax on gambling winnings, a 5 percent capital gains and an 8 percent tax on transfers of estates greater than $2 million. The estate tax is projected to collect $10 million.
Proponents say more than 90 percent of those impacted by taxing capital gains — the sales of assets like stocks, businesses and real estate investments — earn $200,000 or more. The measure also increases the exemption for the interest and dividends tax from $2,400 to $5,000.
Lynch is set to present a plan today for $150 million in new revenue, including from a mortgage refinancing tax, that could do away with gambling and the capital gains tax, the governor told the AP.
The Senate has also gotten behind the temporary suspension of the business enterprise tax credit, which is used against the state's business profits tax. That could bring in $40 million.
The House opted to freeze the insurance premium tax, which lawmakers agreed to begin lowering four years ago. That could bring in $5.1 million.
Elsewhere, the House also got behind a 15-cent hike in the gas tax over three years while the Senate is on board with Lynch's plan to modify the E-ZPass discount program and restructure the funding relationship between highways and turnpikes.
The deficit exists despite deeps cuts throughout the budget, particularly to health and human services, said Sen. Jackie Cilley, D-Barrington. And further cuts are challenged by the need to meet residents' rising needs, maintain infrastructure and funding tied to federal stimulus dollars, she said
"We have a choice of building a budget that tries to address the needs of the people of this state or willy-nilly cut this budget in a way that's going to send these problems back in bigger droves to the community," she said.
Wednesday, June 10, 2009
State receives $13 million from single estate
Here is a reminder about state estate taxes. While this article is from Vermont, don’t forget that Massachusetts imposes a significant estate tax for estates valued above $1 million (which can include Life Insurance!). In these current economic times, we do not expect that any state to eliminate or even reduce this revenue source. Careful planning, however, can reduce or eliminate this tax for your heirs. The choice is often whether you will engage in ‘voluntary philanthropy’ (like naming a charity as a beneficiary) or ‘involuntary philanthropy’ – meaning the State will take a chunk. Careful planning can help make these choices.
Burlington Free Press
By Terri Hallenbeck, Free Press Staff Writer
MONTPELIER — As lawmakers were stretching the last nickels and dimes to pull together the 2010 state budget last week, an unlikely thing happened: A $13 million windfall blew through the door.
That’s how much the state received in estate tax from one person’s estate last month.
“That’s a very unusual, large, one-time estate tax,” said Tax Commissioner Tom Pelham. He is precluded by law from identifying the estate’s owner. Somewhere in Vermont, someone died last year who was worth something on the order of $80 million to $100 million.
For the state, the $13 million in unexpected revenue is like an inheritance from a long lost relative and couldn’t have come at a better time. Various revenue that fund state spending have shrunk in the last year because of the ailing economy, forcing program cuts and layoffs.
As they put the last pieces of the 2010 budget together, legislators found the estate-tax money a welcome bandage to stop the bleeding. They earmarked $1.5 million of it for college scholarships that would otherwise have gone unfunded. The rest will be used as insurance in case revenue takes another dive in June. If the revenue doesn’t materialize, the money could help spare various state special funds from being cut and could give the state the first step out of a $67 million hole in the 2011 budget.
Because of that one estate, estate tax revenue was up $13.6 million above what economists had predicted in May, said state Finance Commissioner Jim Reardon. Other revenue continued to lag, he said, and the estate tax windfall left state $11.6 million over the expected General Fund revenue mark.
“Relying on a large settlement to balance your books is not the greatest position to be in,” he said, “but a worse position is not to balance your books.”
Estate taxes of that size are rare, said Joseph Bilodeau, a certified public accountant with Bilodeau Wells & Co. in Essex Junction. He estimated that a person’s estate would have been worth about $80 million to yield a $13 million tax bill. Many people with such a sizeable estates donate at least a portion to charity, making it tax-free, Bilodeau said.
Reardon said the state’s economist estimated the estate could have been worth $100 million, depending on whether all the assets were held in Vermont.
Burlington Free Press
By Terri Hallenbeck, Free Press Staff Writer
MONTPELIER — As lawmakers were stretching the last nickels and dimes to pull together the 2010 state budget last week, an unlikely thing happened: A $13 million windfall blew through the door.
That’s how much the state received in estate tax from one person’s estate last month.
“That’s a very unusual, large, one-time estate tax,” said Tax Commissioner Tom Pelham. He is precluded by law from identifying the estate’s owner. Somewhere in Vermont, someone died last year who was worth something on the order of $80 million to $100 million.
For the state, the $13 million in unexpected revenue is like an inheritance from a long lost relative and couldn’t have come at a better time. Various revenue that fund state spending have shrunk in the last year because of the ailing economy, forcing program cuts and layoffs.
As they put the last pieces of the 2010 budget together, legislators found the estate-tax money a welcome bandage to stop the bleeding. They earmarked $1.5 million of it for college scholarships that would otherwise have gone unfunded. The rest will be used as insurance in case revenue takes another dive in June. If the revenue doesn’t materialize, the money could help spare various state special funds from being cut and could give the state the first step out of a $67 million hole in the 2011 budget.
Because of that one estate, estate tax revenue was up $13.6 million above what economists had predicted in May, said state Finance Commissioner Jim Reardon. Other revenue continued to lag, he said, and the estate tax windfall left state $11.6 million over the expected General Fund revenue mark.
“Relying on a large settlement to balance your books is not the greatest position to be in,” he said, “but a worse position is not to balance your books.”
Estate taxes of that size are rare, said Joseph Bilodeau, a certified public accountant with Bilodeau Wells & Co. in Essex Junction. He estimated that a person’s estate would have been worth about $80 million to yield a $13 million tax bill. Many people with such a sizeable estates donate at least a portion to charity, making it tax-free, Bilodeau said.
Reardon said the state’s economist estimated the estate could have been worth $100 million, depending on whether all the assets were held in Vermont.
More wealthy Americans donating through foundations
We work with The Boston Foundation that also has donor advised funds. There are, of course, other options for charitable giving, some which can also produce an income for you during your lifetime. We are happy to discuss charitable giving with new estate planning clients or with clients that already have estate plans that may want to add a charitable giving compenent.
The Bradenton Herald
By Grace Gagliano
BRADENTON — The charitable giving of wealthy Americans like Warren Buffett and Bill Gates has called attention to philanthropy as a way to give back to the community while you are still living.
Instead of leaving behind large estates that are taxed heavily before distributed, the wealthy can give through charitable organizations and protect their portfolios from government taxes.
The current estate tax, often known as the death tax, charges all estates worth $3.5 million or more at a 45 percent rate.
A tax-cut package enacted in 2001 called for the estate tax to be phased out over 10 years. The tax cut expires next year if Congress doesn’t act. However, an estate tax repeal is expected to go before Congress soon. It would reduce the amount of the exception from $3.5 million for individuals to $600,000 with a top tax rate of 55 percent after 2009. Estates valued at more than $1.2 million would be subject to estate taxes.
The benefit to charitable giving is tax write-offs that range between 30 percent and 50 percent of the actual amount donated depending upon a person’s adjusted gross income and the charity receiving the donation, financial advisers say. While donors are giving away a portion of their wealth, tax benefits and giving back to their community can make it worthwhile.
Tom Kubik, president of Kubik Financial Services, advises his clients to review estate plans every five to seven years to assure they are kept up to date with changes in the estate laws. He also wants them to avoid probate, a process that takes nine to 12 months during which the wealth shrinks by 6 percent, the legal fee charged to settle the estate.
“In estate planning you have two choices,” Kubik said. “You can do nothing and let the state of Florida and IRS decide what’s left over after you die. Or you can set it up in a will or a trust that a certain amount of your estate is going to go to your church, the Salvation Army, Red Cross or wherever. That’s a decision for your estate and at least that amount is not going to be subject to the estate tax.”
People don’t have to postpone charitable giving until after death, experts say.
Jim Brennan, president of the Sarasota division of GenSpring, an asset management firm, guides clients to help them manage charitable giving.
The initial step is a capital sufficiency analysis in which Brennan helps clients determine how much capital they’ll need to achieve life goals and whether they can simultaneously afford charitable giving.
“Assuming the answer is yes they’re able to (donate), we sit down and walk them through their goals through philanthropy,” Brennan said. “We look at why do you want to give, is it compassion, legacy, honoring loved ones or tax motivated.”
By completing a survey that helps determine a client’s basis for charitable giving, Brennan is able to build a mission statement for the family that includes how much control clients want of their financial gifts and what charities they want to support.
Sarasota resident Jean Hendry went through an estate planning with Kubik years ago and decided she wanted to begin distributing her wealth to Mote Marine Laboratory. She started volunteering at the aquarium in 1984 after her husband died and about 10 years ago began giving contributions — some of which have been in the six figures.
And when Hendry, 84, dies, she will leave her home valued at $887,100 to Mote Marine.
“It’s been my pleasure to give to them,” Hendry said. “To me, it is just the satisfaction of giving to Mote now rather than me trying to invest it someplace. I can give to them and they can spend it now or as necessary.”
At the Manatee Community Foundation, Executive Director Marilyn Howard said tax savings are not the sole reason clients are setting up family or charitable funds.
“The economy is tough on everybody right now. It’s tough on profits and it’s making people feel, in some ways, as if they have less to be charitable with,” Howard said. “However, we still have some very, very generous people out there.”
The philanthropic organization manages 110 donor funds and 36 donor advised funds worth about $12.5 million and has distributed grants and scholarships over the past year totaling $842,556.
Setting up a fund at the Manatee Community Foundation starts with a consultation in which officials help clients determine what would be their most suitable fund: restricted, unrestricted, field of interest, donor advised, scholarship or agency endowment funds.
The donor advised fund allows a client to distribute charitable contributions and make recommendations about their fund while they are living.
“It’s like having your own small private foundation,” Howard said. “It’s one of our more popular funds because people want to take a much more active role in making decisions about where their charitable dollars go.”
Bob Firkins, owner of Firkins Chyrsler in Bradenton, set up a charitable fund with the Manatee Community Foundation about six years ago to support local charities. “You never know what the future holds,” Firkins said. “So it’s nice to put it away in good years so in years when they’re not as good it is already there.”
Bob Blalock, of the Bradenton law firm Blalock, Walters, Held & Johnson, PA and a board president for the Manatee Community Foundation, set up a family fund with the foundation.
Neither Firkins nor Blalock would say how much they contribute each year but their funds with the Manatee Community Foundation are classified as founders funds, which have a minimum donation of $25,000.
Money from the fund is distributed annually to local non-profits such as the Bishop Animal Shelter, Ringling Museum, United Way and the Anna Maria Island Community Center.
“There’s just so much need out there right now, you might as well distribute what you can while you’re here,” Blalock said.
Monday, June 8, 2009
The Bradenton Herald
By Grace Gagliano
BRADENTON — The charitable giving of wealthy Americans like Warren Buffett and Bill Gates has called attention to philanthropy as a way to give back to the community while you are still living.
Instead of leaving behind large estates that are taxed heavily before distributed, the wealthy can give through charitable organizations and protect their portfolios from government taxes.
The current estate tax, often known as the death tax, charges all estates worth $3.5 million or more at a 45 percent rate.
A tax-cut package enacted in 2001 called for the estate tax to be phased out over 10 years. The tax cut expires next year if Congress doesn’t act. However, an estate tax repeal is expected to go before Congress soon. It would reduce the amount of the exception from $3.5 million for individuals to $600,000 with a top tax rate of 55 percent after 2009. Estates valued at more than $1.2 million would be subject to estate taxes.
The benefit to charitable giving is tax write-offs that range between 30 percent and 50 percent of the actual amount donated depending upon a person’s adjusted gross income and the charity receiving the donation, financial advisers say. While donors are giving away a portion of their wealth, tax benefits and giving back to their community can make it worthwhile.
Tom Kubik, president of Kubik Financial Services, advises his clients to review estate plans every five to seven years to assure they are kept up to date with changes in the estate laws. He also wants them to avoid probate, a process that takes nine to 12 months during which the wealth shrinks by 6 percent, the legal fee charged to settle the estate.
“In estate planning you have two choices,” Kubik said. “You can do nothing and let the state of Florida and IRS decide what’s left over after you die. Or you can set it up in a will or a trust that a certain amount of your estate is going to go to your church, the Salvation Army, Red Cross or wherever. That’s a decision for your estate and at least that amount is not going to be subject to the estate tax.”
People don’t have to postpone charitable giving until after death, experts say.
Jim Brennan, president of the Sarasota division of GenSpring, an asset management firm, guides clients to help them manage charitable giving.
The initial step is a capital sufficiency analysis in which Brennan helps clients determine how much capital they’ll need to achieve life goals and whether they can simultaneously afford charitable giving.
“Assuming the answer is yes they’re able to (donate), we sit down and walk them through their goals through philanthropy,” Brennan said. “We look at why do you want to give, is it compassion, legacy, honoring loved ones or tax motivated.”
By completing a survey that helps determine a client’s basis for charitable giving, Brennan is able to build a mission statement for the family that includes how much control clients want of their financial gifts and what charities they want to support.
Sarasota resident Jean Hendry went through an estate planning with Kubik years ago and decided she wanted to begin distributing her wealth to Mote Marine Laboratory. She started volunteering at the aquarium in 1984 after her husband died and about 10 years ago began giving contributions — some of which have been in the six figures.
And when Hendry, 84, dies, she will leave her home valued at $887,100 to Mote Marine.
“It’s been my pleasure to give to them,” Hendry said. “To me, it is just the satisfaction of giving to Mote now rather than me trying to invest it someplace. I can give to them and they can spend it now or as necessary.”
At the Manatee Community Foundation, Executive Director Marilyn Howard said tax savings are not the sole reason clients are setting up family or charitable funds.
“The economy is tough on everybody right now. It’s tough on profits and it’s making people feel, in some ways, as if they have less to be charitable with,” Howard said. “However, we still have some very, very generous people out there.”
The philanthropic organization manages 110 donor funds and 36 donor advised funds worth about $12.5 million and has distributed grants and scholarships over the past year totaling $842,556.
Setting up a fund at the Manatee Community Foundation starts with a consultation in which officials help clients determine what would be their most suitable fund: restricted, unrestricted, field of interest, donor advised, scholarship or agency endowment funds.
The donor advised fund allows a client to distribute charitable contributions and make recommendations about their fund while they are living.
“It’s like having your own small private foundation,” Howard said. “It’s one of our more popular funds because people want to take a much more active role in making decisions about where their charitable dollars go.”
Bob Firkins, owner of Firkins Chyrsler in Bradenton, set up a charitable fund with the Manatee Community Foundation about six years ago to support local charities. “You never know what the future holds,” Firkins said. “So it’s nice to put it away in good years so in years when they’re not as good it is already there.”
Bob Blalock, of the Bradenton law firm Blalock, Walters, Held & Johnson, PA and a board president for the Manatee Community Foundation, set up a family fund with the foundation.
Neither Firkins nor Blalock would say how much they contribute each year but their funds with the Manatee Community Foundation are classified as founders funds, which have a minimum donation of $25,000.
Money from the fund is distributed annually to local non-profits such as the Bishop Animal Shelter, Ringling Museum, United Way and the Anna Maria Island Community Center.
“There’s just so much need out there right now, you might as well distribute what you can while you’re here,” Blalock said.
Monday, June 8, 2009
Monday, June 8, 2009
Deciding if Your Kid Is Trust-Worthy
Parenting is more than reading to your children or getting them to eat their vegetables. It's also about securing their financial future. One way to do that is by drafting a trust and naming a trustee. In this excerpt from her new book "The Wall Street Journal Financial Guidebook for New Parents," Stacey L. Bradford explains why parents may want to consider estate-planning tools beyond a will.
You don't need to be Bill Gates to consider setting up a trust for to manage your child's assets until he reaches 18 or 21, depending on the state.
That property guardian may be a complete stranger who won't understand your values. Perhaps more important, the guardian could add one more layer of bureaucracy to an already complicated situation. When your child needs money, the guardian may have to make a formal request that then goes through the court system. It can be a real headache for your kids to get funds when they need it, and it's not an arrangement that's always in their best interests.
One way around the court system is to set up a custodial account for your kids through your will. In that case, you get to name the custodian, and he decides how the money is spent. Once your son or daughter is legally considered an adult, he or she inherits the money outright. The problem with this setup is that your kid might blow through the money and have nothing left over for college or grad school.
For many parents, setting up a trust is a better alternative that allows them more control over how their money is spent once they're gone. If you have the means and want your child to go to private school, for example, include that in the trust document. A trust can also delay the age at which your kids get their hands on the money.
This is often the biggest selling point for parents. Most people, looking back, would probably agree that they didn't necessarily make the most responsible decisions about money when they were 18 or 21, a time of life when it may have seemed perfectly reasonable to rack up credit-card debt. Even delaying a few more years -- until, say, 25 -- makes the money more likely to be put toward, for example, education or a down payment on a house.
While setting up a trust is a bit more complicated than a custodial account -- it requires a lawyer's assistance, for one thing -- it also provides more financial security for your children and is therefore worth considering. Ideally, you should set up a trust when you draft your will. But you can always add a trust later as your estate gets more complicated or your assets grow. For most parents, a simple trust will do. For more advanced planning purposes, such as reducing estate taxes, you could consider other options, such as a marital bypass trust or a grantor-retained annuity trust.
Here are a few questions to ask yourself to determine if a trust is right for your family:
Do you anticipate leaving your children more than a modest sum of money? A trust may not be worth the effort if you think you'll only be leaving a child (or children) $100,000 or less. On the other hand, if you're leaving life insurance money to cover four years of school and you own a home, there's a good chance a trust would make sense for you.
Do you want to have some say in how your children's money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can't be done with a custodial account. If the custodian is a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little left for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large "support" checks to help cover his other expenses.
Would you prefer that your children not inherit the money when they turn 18 or 21?
If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance was the main draw for drafting a trust for Laurie and Greg Wetzel, a New York City couple in their mid-30s with three small children. Should something happen to both of them, they decided, their kids will each receive half of their inheritance at age 30, and the remaining amount when they reach 35. "Your 20s are such a transitional time that we don't want our children to have significant financial decisions to make," Ms. Wetzel says.
Do you want the money to be used for a college education?
If you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you'll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma.
Would you like your children to have recourse if their money is mismanaged?
One more benefit of a trust that you don't get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.Choosing a trustee. The trustee holds the purse strings, so don't delegate this job lightly. You need someone who is trustworthy, is good with money and has great attention to detail. In other words, don't choose your brother who has trouble remembering to pay his own bills.
Your trustee is going to be working with your guardian, so they had better get along. While they don't need to be best friends -- in fact, it's probably better if they aren't -- they also can't be archenemies. You want your trustee to be able to tell your guardian she can't use the money to buy your son a new sports car, but you also want your trustee to take your guardian's phone calls when she needs more money to pay for your son's braces.
Then there's the issue of naming a family member as your trustee. There's no general rule here, and many people prefer to name a sibling since there's no one in the world they trust more. Siblings also typically don't charge to perform the service. On the other hand, my husband and I chose a close family friend. In our case, we felt he would be less biased and more likely to follow through with our wishes without passing judgment on how we want our child's money spent.
You'll also face the debate over naming your children's guardian as the trustee. On one hand, it's rather convenient. The person raising your kids won't have to ask anyone for permission about how the money will be spent. But a division of power can be a safer route. Some estate-planning attorneys worry that having one person fill the dual role leads to a conflict of interest and the risk that the guardian could take money for herself.
If you have a lot of money -- more than a million dollars -- you may want to name a bank or a lawyer to act as trustee. An institution has a lot of experience handling accounts and taking care of all the investments and necessary tax paperwork. You could also offer your trustee the option to hire a bank and act as co-trustee or as an agent, so that he or she still has ultimate control. He or she would basically keep an eye on the bank. Just be aware that a bank's services aren't free. They typically charge an annual fee of 1% to 2% of the principal.Drafting the trust.
Now that you've gotten this far, it's time to hire a lawyer, or use the same one who drafted your will. An attorney may ask you to sign standard forms, but don't feel locked in; you can personalize the trust to better meet your family's needs.
As much as trusts are about maintaining some say in how your money is spent, the language in the document should be vague enough to allow your trustee some leeway should your child's needs change or should something come up that you couldn't have anticipated.
Finally, you'll want to write your trustee a letter expressing your wishes for how you want the money spent on your children. Some parents go so far as to say that some of the money can be used to help raise the living standard of the other kids they may be living with, so everyone feels equal. Of course, it's up to the trustee to crunch the numbers and make sure there is still money left over to meet your main goals.
Adapted from 'The Wall Street Journal Financial Guidebook for New Parents,' by Stacey L. Bradford. Copyright 2009 by Dow Jones & Co. Inc. Published by Three Rivers Press, an imprint of the Crown Publishing Group.
You don't need to be Bill Gates to consider setting up a trust for to manage your child's assets until he reaches 18 or 21, depending on the state.
That property guardian may be a complete stranger who won't understand your values. Perhaps more important, the guardian could add one more layer of bureaucracy to an already complicated situation. When your child needs money, the guardian may have to make a formal request that then goes through the court system. It can be a real headache for your kids to get funds when they need it, and it's not an arrangement that's always in their best interests.
One way around the court system is to set up a custodial account for your kids through your will. In that case, you get to name the custodian, and he decides how the money is spent. Once your son or daughter is legally considered an adult, he or she inherits the money outright. The problem with this setup is that your kid might blow through the money and have nothing left over for college or grad school.
For many parents, setting up a trust is a better alternative that allows them more control over how their money is spent once they're gone. If you have the means and want your child to go to private school, for example, include that in the trust document. A trust can also delay the age at which your kids get their hands on the money.
This is often the biggest selling point for parents. Most people, looking back, would probably agree that they didn't necessarily make the most responsible decisions about money when they were 18 or 21, a time of life when it may have seemed perfectly reasonable to rack up credit-card debt. Even delaying a few more years -- until, say, 25 -- makes the money more likely to be put toward, for example, education or a down payment on a house.
While setting up a trust is a bit more complicated than a custodial account -- it requires a lawyer's assistance, for one thing -- it also provides more financial security for your children and is therefore worth considering. Ideally, you should set up a trust when you draft your will. But you can always add a trust later as your estate gets more complicated or your assets grow. For most parents, a simple trust will do. For more advanced planning purposes, such as reducing estate taxes, you could consider other options, such as a marital bypass trust or a grantor-retained annuity trust.
Here are a few questions to ask yourself to determine if a trust is right for your family:
Do you anticipate leaving your children more than a modest sum of money? A trust may not be worth the effort if you think you'll only be leaving a child (or children) $100,000 or less. On the other hand, if you're leaving life insurance money to cover four years of school and you own a home, there's a good chance a trust would make sense for you.
Do you want to have some say in how your children's money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can't be done with a custodial account. If the custodian is a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little left for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large "support" checks to help cover his other expenses.
Would you prefer that your children not inherit the money when they turn 18 or 21?
If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance was the main draw for drafting a trust for Laurie and Greg Wetzel, a New York City couple in their mid-30s with three small children. Should something happen to both of them, they decided, their kids will each receive half of their inheritance at age 30, and the remaining amount when they reach 35. "Your 20s are such a transitional time that we don't want our children to have significant financial decisions to make," Ms. Wetzel says.
Do you want the money to be used for a college education?
If you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you'll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma.
Would you like your children to have recourse if their money is mismanaged?
One more benefit of a trust that you don't get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.Choosing a trustee. The trustee holds the purse strings, so don't delegate this job lightly. You need someone who is trustworthy, is good with money and has great attention to detail. In other words, don't choose your brother who has trouble remembering to pay his own bills.
Your trustee is going to be working with your guardian, so they had better get along. While they don't need to be best friends -- in fact, it's probably better if they aren't -- they also can't be archenemies. You want your trustee to be able to tell your guardian she can't use the money to buy your son a new sports car, but you also want your trustee to take your guardian's phone calls when she needs more money to pay for your son's braces.
Then there's the issue of naming a family member as your trustee. There's no general rule here, and many people prefer to name a sibling since there's no one in the world they trust more. Siblings also typically don't charge to perform the service. On the other hand, my husband and I chose a close family friend. In our case, we felt he would be less biased and more likely to follow through with our wishes without passing judgment on how we want our child's money spent.
You'll also face the debate over naming your children's guardian as the trustee. On one hand, it's rather convenient. The person raising your kids won't have to ask anyone for permission about how the money will be spent. But a division of power can be a safer route. Some estate-planning attorneys worry that having one person fill the dual role leads to a conflict of interest and the risk that the guardian could take money for herself.
If you have a lot of money -- more than a million dollars -- you may want to name a bank or a lawyer to act as trustee. An institution has a lot of experience handling accounts and taking care of all the investments and necessary tax paperwork. You could also offer your trustee the option to hire a bank and act as co-trustee or as an agent, so that he or she still has ultimate control. He or she would basically keep an eye on the bank. Just be aware that a bank's services aren't free. They typically charge an annual fee of 1% to 2% of the principal.Drafting the trust.
Now that you've gotten this far, it's time to hire a lawyer, or use the same one who drafted your will. An attorney may ask you to sign standard forms, but don't feel locked in; you can personalize the trust to better meet your family's needs.
As much as trusts are about maintaining some say in how your money is spent, the language in the document should be vague enough to allow your trustee some leeway should your child's needs change or should something come up that you couldn't have anticipated.
Finally, you'll want to write your trustee a letter expressing your wishes for how you want the money spent on your children. Some parents go so far as to say that some of the money can be used to help raise the living standard of the other kids they may be living with, so everyone feels equal. Of course, it's up to the trustee to crunch the numbers and make sure there is still money left over to meet your main goals.
Adapted from 'The Wall Street Journal Financial Guidebook for New Parents,' by Stacey L. Bradford. Copyright 2009 by Dow Jones & Co. Inc. Published by Three Rivers Press, an imprint of the Crown Publishing Group.
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