The Present Future of the Estate Tax
Many are aware that under current law, people dying in 2009 can generally pass $3.5 million estate tax free. Amounts above that limit are taxed at 45%. (This amount has gradually increased from $600,000 in 1997, when the top estate tax rate was 55%.)
Under current law, the estate tax is set to be completely repealed in 2010. However, under current law, in 2011 the estate tax exemption is scheduled to return to $1 million, with a tax rate of 55% on assets above that limit.
Hardly anyone expects the current law to run its course. Most observers anticipate that a new law will be passed in 2009, even if it's just a 1-year extension of the current $3.5 million/45% arrangement.
This Wall Street Journal article provides a good overview of the political forces that will shape the estate tax debate in the coming months...
Jeff Holman
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PrintIncentive Trusts
Many parents are concerned about their children receiving too much money too soon. Would their college-age children quickly squander a multi-million dollar inheritance? Would their high school-age kids lose the incentive to work hard if they knew that significant sums will automatically be handed over to them at a certain age?
Estate planning is not just about passing as much wealth as possible to your heirs. Perhaps more important is knowing that the assets you worked a lifetime to build will be protected, and that your children will inherit not only your money, but also your values.
Well-drafted trusts can play an important role in protecting your heirs from themselves. And certain "incentive trusts" take a very proactive approach to shaping your beneficiaries' behavior.
Catherine M. Allchin reported on these issues in a January 29, 2006, New York Times story: In Some Trusts, the Heirs Must Work for the Money.
A warning for do-it-yourselfers
I know the temptation to do it yourself. I took pride for many years for never having had to call a plumber, electrician, painter or serviceperson of any other sort.
Tony Sowder thought he could save himself a few bucks as well and drafted his own will…a mistake that the IRS claimed should have cost his family over $950,000.
Fortunately for the Sowders, a U.S. District Court recently ruled against the IRS in the case of Marie L. Sowder v. United States (96 AFTR 2d 2005-7177). However, this decision came only after 10 years of litigation and battling with the IRS.
Beware the broad net of U.S. international estate taxation
If you think you're safe from U.S. estate taxes just because you're not a U.S. citizen or because the bulk of your assets are located overseas, you had better think again. Many people are shocked to learn just how broad an estate tax net the U.S. casts.
How to Turn a Modest Retirement Account into Millions for Your Family
How would you like to turn your IRA or 401(k) into a multi-million dollar legacy for your family? With proper planning, you can secure tax-deferred growth of your retirement money not only for the lifetimes of you and your spouse, but also for the lifetimes of your children or grandchildren.
IRS Circular 230
The IRS has issued new rules (known as "Circular 230") that will affect how tax professionals communicate with clients. The rules, which took effect in June, apply whenever a practitioner provides written advice, including e-mails, faxes and letters, on tax issues. While the rules are motivated by the government's well-founded concern with abusive tax shelters, they unfortunately also apply to many common and perfectly legitimate planning arrangements.
Keeping life insurance out of your taxable estate
Few people realize that even though they may have a modest estate, their families could owe hundreds of thousands of dollars in estate taxes because they own a life insurance policy with a substantial death benefit. This is because life insurance proceeds, while not subject to federal income tax, are considered part of your taxable estate and are subject to federal estate tax at a current rate of 47%.
Advance Health Care Directives
You are no doubt aware of, if not moved by, the Theresa Schiavo case. The world has watched her family's agonizing personal battle as the highest levels of the judicial, legislative and executive branches grappled with her fate. While Terri's case has received unprecedented public attention, situations such as these occur with unfortunate regularity.
Whatever your views on the rights and wrongs of Terri's case, one thing is clear: much of the turmoil, time, expense and anguish could have been avoided if Terri had prepared a living will.