Estate Taxes

February 6, 2013

E-Planning: Estate Planning in our Digital World

Like it or not, our world is infatuated with technology. Smartphones conduct intercontinental transactions. Friends across the country communicate through instantaneous text messaging, and telephones and tablets close distances and miles through face to face conversations. Because technology plays such an important role in our daily lives, today’s estate planning should include an arrangement for organizing and protecting technological and digital assets.

Dividing Up Digital Assets

We have frequently discussed how there are different kinds of digital assets to think about when drafting your estate plan. First, there are your personal digital assets, which would include any email accounts, personal social media accounts and maybe even a personal web site or personal blog. Personal digital assets might also include any photos or documents stored on different websites, like Snapfish, Shutterfly or Dropbox. Information stored in any cloud storage should also be considered personal digital assets.

January 30, 2013

Trusting Kids with Large Inheritances Remains a Challenge

by Ettinger Law Firm

One of the most common concerns that parents have when creating an estate plan in New York is worrying about passing on too much wealth to children who cannot properly handle it. After a lifetime of hard work, ingenuity, and prudent planning, the last thing many families want is to see a child obtain an inheritance and then lose it. One need only check newspapers headlines to see celebrity examples of younger individuals with too much money whose lives take a turn for their worst as they fail to handle their wealth carefully.

A Wall Street Journal article last week discussed this issue in the context of the now seemingly permanent federal estate tax rates. Per the “fiscal cliff” agreement, the estate tax law will allow each individual to shield up to $5.25 million. For a couple, that allows $10.5 million to be given to others tax-free.

While this is good news for those who have this much wealth to pass along, it does raise some questions for families. Is your child–no matter what age–prepared to handle an inheritance of this size? Will it be lost to creditors? Taken by a spouse? WIll the money change the child’s motivation or long-term goals?

January 8, 2013

More Rumblings That Estate Tax Still Not Finalized?

by Ettinger Law Firm

Like the monster from a horror movie that will not stay still no matter what is thrown at it, there are already suggestions that the apparent “final” decisions related to the estate tax may not actually be all that final.

As we previously explained, as part of the fiscal cliff compromise bill certain estate tax issues were seemingly made permanent. The exemption level was kept at $5.12 million and indexed to inflation. The top rate was set at 40%. Both of these figures were less intrusive than that original proposals from the White House and far less severe than those mandated by the fiscal cliff itself. Many observers were happy with the outcome, no matter what their personal preferences, for the fact that it at least offered some stability. Having an uncertain tax rate is never a welcome prospect when planning for the future.

Also, as pointed out in a recent article discussed the estate tax components of the bill, the tax will continue to be “portable.” This means that one spouse may use their deceased spouse’s “unused” portion of the exemption level. This is a very helpful tool which allows more assets to pass tax-free without the need for more complex estate planning techniques.

January 4, 2013

Potential Heir in Huguette Clark Case Dies During Inheritance Feud

by Ettinger Law Firm

Timing is of critical importance with estate planning matters. Obviously, a plan must be in place early enough to be of use before one falls ill or suffers from mental issues. For example, creating a will or trust may be impossible after one suffers a stroke or succumbs to serious effects of Alzheimers. This is why we continue to encourage residents to make plans early and consistently update them.

Time also factors into matters after a death. Many beneficiaries may face hardship if they are forced to wait months (or even years) to have an estate settled. One of the key benefits of an inheritance plan is to minimize the risk of a long delay between the actual passing on of assets, often focused on avoiding probate and preventing feuding.

Celebrity Example

January 3, 2013

The Fiscal Cliff Agreement & What It Means For You

by Ettinger Law Firm

Chances are you have already heard that a bipartisan agreement was reached on New Years Day which averts the significant tax increases and spending cuts demanded by the so-called “fiscal cliff.” The agreement certainly went down to the wire, with the Senate passing a bill on the last day of the year and the House passing the same bill the following day. Up until the end it was unclear if a compromise could be reached, as House leaders initially claimed that they would amend the Senate bill and send it back to that chamber. In the end, however, a vote was taken on the Senate bill without any changes, passing with support from members of both parties.

The compromise legislation does not resolve all of the issues in disagreement between the parties. More negotiation and legislation will be needed in the coming months to settle those other matters.

The Basics of the Deal

December 26, 2012

End of Year Estate and Gift Tax Dilemma

by Ettinger Law Firm

Only a few days remain in the year, and most financial activity for 2012 has come to a close. However, the end of year action has already brought one of the most active seasons ever. Financial advisors, estate planning attorneys, and others have all seen community members of all different income brackets seek out help understanding how possible legal changes in the new year might affect their own financial health and long-term prospects.

A Forbes story last week explored one of the main reasons for confusion and the seeking out of help: the “give now or pay later” problem. This is an issue that mostly affects those with significant assets who may be affected by gift and estate tax changes. As has been documented exhaustively, Congress is considered what to do with the gift and estate tax. Over the past ten years the tax rate has steadily fallen and the exemption level has risen. In 2010, the estate tax was eliminated altogether. However, what will happen in the new year remains to be seen.

Many different options are on the table–from a permanent elimination of tax (unlikely) to a return to pre-2001 rates. A table from the Tax Policy Center (viewed here) offers a helpful snapshot of the options and how many people would be affected by each. One comparison offers the range of possibilities. If the current rate continues, about 3,800 estates will be affected next year. Those estates would bring in about $12 billion in taxes. Conversely, if the 2001 rates returned then 47,000 estates would be affected and over 300% more tax revenue would be generated.

December 20, 2012

Fiscal Cliff Negotiations Move on to Estate Taxes

by Ettinger Law Firm

The political wrangling to avoid the so-called “fiscal cliff” continued this week. Many different issues are all tied up in the negotiations, including income tax rates, defense spending, entitlement spending, and control of the debt limit. However, various reports suggest that the both sides in the political battle–primarily the Obama White House and U.S. House Republican leaders–are now trying to work out some agreement on estate taxes.

Still Wide Disagreement

Most discussion of tax issues and the fiscal cliff affecting upper income Americans revolved around the income tax. There is disagreement about whether current income tax rates for those in the highest bracket should increase slightly or stay the same. Both sides publicly believe that current rate should be extended for middle tax brackets. Because of the focus on income taxes, real negotiation of estate taxes has been pushed to the side. That appears to be changing.

December 10, 2012

U.S. Supreme Court to Hear Two Same-Sex Marriage Cases

by Ettinger Law Firm

The U.S. Supreme Court made headlines on Friday when it agreed to hear two cases which may have significant implications on the rights for same-sex couples in New York and throughout the country. The stage is now set for a few months of speculation and commentary on possible outcomes before the Court finally hears the cases. It is important for same-sex couples to understand the implications of each case, as the legal issues in each are different.

DOMA & State Bans on Marriage

One of the cases which the Court will hear is United States v. Windsor. As we have often discussed, at the center of the Windsor case is the Defense of Marriage Act (DOMA). Several appellate courts have now found that parts of DOMA violate the U.S. Constitution in that they deny federal benefits to legally married same-sex couples solely on the basis of their sexual orientation. In granting the petition of those appealing the lower court rulings, the U.S. Supreme Court will likely settle the matter once and for all.

December 4, 2012

First “Fiscal Cliff” Proposal Made — What It Means for Estate Planning

by Ettinger Law Firm

You cannot turn on the TV, flip open a newspaper, or pull up a news website this month without seeing the words “fiscal cliff.” As many are aware, this refers to sweeping, mandatory federal tax and budgetary changes that are set to take effect January 1st unless the Congress and White House pass legislation with an alternative plan. Essentially the “cliff” is about $7 trillion worth of tax increases combined with significant spending cuts across the board–including everything from Medicare and Medicaid to the military.

What is interesting about the cliff is that virtually no one on either side of the aisle actually wants it to take effect. Instead, it was only put into place as a compromise over a previous debt ceiling legislative fight. The idea was that that the cliff would be so abhorant to both sides that its impending appearance would force a compromise. However, as the end of the year gets closer, more and more observers are worrying that even with the serious consequences of the cliff, no compromise is in sight.

Currently, the Obama Administration and Congressional leaders (most notably, the Republican House leaders) are trying to reach agreement on an alterantive to prevent the mandataory changes. As part of that effort, President Obama recently released his “first offer.” As summarized in a recent article, the offer is far from what the Republican leaders have proposed, so it is unlikely that it will be taken seriously. Essentially, it calls for around $1.6 trillion in tax increases over a ten year period–mostly related to expiration of the so-called “Bush tax cuts.” In addition, it calls for modest stimulus spending. The proposal would also permanently eliminate Congressional control over the debt ceiling level (which caused the current crisis to begin with).

November 15, 2012

Forbes Estate Tax Article Catches Fire on Social Media

by Ettinger Law Firm

The popularity of social media sites has led to an outburst in use of the word “viral.” “Viral” videos and articles are frequently pointed to as a product of the mega-popularity of sites like Facebook and Twitter. This just refers to stories and movies/clips that spread very quickly from person to person over these channels.

It isn’t very often that any story related to estate planning in any way “goes viral.” However, this week one story in Forbes on the estate tax was shared, re-tweeted, and “liked” far more than anything else on the topic. In the world of financial planning and long-term legal preparation it is fair to say that this artcle went viral. You can take a look at the story here.

The issue discussed in the article is one that we have frequently touched on–the likely changes to the estate tax starting January 1st. The summary is that while over $5 million can be used on gift and estate tax exemptions per individual this year (double that for married couples), the exemption will likely drop to $1 million on the first of the year. In other words, large chunks of assets can be given without any tax implications right now, but hundreds of thousands (or even millions) might be lost in taxes if that transfer does not occur until 2013.