Estate Taxes

April 4, 2011

New Estate Tax Rules for 2011: Portability

Over the last two years, four sets of estate tax rules have been in effect, with the individual exemption ranging from $2 million (2008) to $3.5 million (2009) to unlimited (2010) to $ 5 million (2011). Besides these varying exemption levels, another major change in the new estate rules includes the “portability” factor.

Portability allows each partner of a married couple to use the rest of the other’s estate-tax exemption. It facilitates planning when one spouse has a relatively large, indivisible asset.

The Tax Relief Act of 2010, Title III provision illustrates how portability works:

February 11, 2011

“Nice” Lawyer Costs Family $300,000.00

by Ettinger Law Firm

by Michael Ettinger, Esq.

A couple came in to see me today for the husband’s 88 year old father who is a nursing home in Florida. They now wish to bring him up to New York to be nearer to the family. He has about $600,000 in assets, including his home.

They told me about the very nice lawyer he has down on the west coast of Florida, who set up a revocable living trust for Dad and for Mom who died last year, in February of 2006, and amended it in March of 2010.

December 20, 2010

How Disclaimer Trusts Work

by Ettinger Law Firm

by Michael Ettinger, Esq.

Commonly used in estate planning today, disclaimer trusts allow the surviving spouse great flexibility in optimizing estate tax savings.

Here’s how they work. Each spouse sets up their revocable living trust. Husband and wife are co-trustees of his trust, using his social security number and, similarly, they are both co-trustees of her trust with her social security number. Let’s say husband dies first. His trust says “leave everything to my wife except that, whatever she disclaims, i.e. refuses to take, will remain in my trust. The disclaimer is a legal document that lists the assets disclaimed and their value. Wife remains as trustee on husband’s trust after he dies and may use the funds in his trust for her health, maintenance and support. She may also remove 5% of the trust every year for any reason or $5,000, whichever is greater.

October 18, 2010

Estate Planning for Art Collections

by Ettinger Law Firm

With the economy improving, seasoned collectors are now watching the fine art estimates in New York’s upcoming auctions. Collecting art, a passion and hobby for many, is also a way to accumulate and transfer wealth for next generations. The disposition of art, however, should include careful planning with a trusted and experienced New York estate planning attorney.Families often employ the “empty hook” method when it comes to art collections. When a collector dies, heirs quietly take valuable art work out of a home, sometimes claiming what is “theirs” by name tags placed on the objects. This creates an “empty hook.”

There are many potential pitfalls when attempting to avoid the Internal Revenue Service’s various taxes on the purchase, sale and transfer of fine art. The first and most dastardly is the limitless statute of limitations on estate tax fraud or on a taxable gift for which no return was ever filed (Internal Revenue Code Section 6501(c)). Because art never truly “disappears,” one does well to remember that neither does a tax liability. An error of disclosure, e.g. not properly planning to gift art in adherence to IRS rules and regulations, may become a costly legacy to bestow on the next generation. (Tax fraud is not something to pass on.)

Heirs can also be liable for a penalty of 20 percent of the tax due if there is an underreporting of an asset’s value by 50 percent, and a penalty of 40 percent of the tax due if the value of the property is underreported by 75 percent (IRC Section 6662). Failure to report assets at all subjects the owner to a fraud penalty set out in IRC Section 6663. These fines can also raise the transfer cost on an unreported piece of artwork to over 80 percent.

September 22, 2010

55% Federal Estate Tax Rate Returns on 1/1/11

by Ettinger Law Firm

by Michael Ettinger, Esq.

The year 2001 was a space odyssey in more ways than one. It was also the last time we faced Federal estate tax rates as high as 55%, and exempt amounts as low as one million dollars. Nevertheless, this appears to be what we are going to see take effect on 1/1/11, due to the expiration of Bush era tax cuts enacted in 2001. No one would have predicted what has come to pass.

Taking effect on January 1, 2002, The Economic Growth and Tax Recovery Act was to be amended at some point during the next nine years. It was widely expected that something close to the high water exemption of 3.5 million dollars, existing at the end of 2009, would be made permanent. Health care reform, however, dominated the legislative agenda at the end of 2009, pushing estate tax reform to the sidelines. Political bickering then prevented an extension of the 2009 exemption, at least until a solution was found.

September 14, 2010

Charitable Remainder Trust (CRT) as an Estate Planning Tool

by Ettinger Law Firm

Historically, charitable giving rises about one-third as fast as the stock market. While the stock market gains of 2010 remain slight (Dow is up 1.13% at the time of this writing), New York residents may still want to consider using the charitable remainder trust (CRT) in their estate planning.

This trust works well for those who:

• hold highly appreciated assets • desire an income stream off of the assets • want to donate to charity; and • achieve tax benefits.

September 8, 2010

What is Elder Law Estate Planning?

by Ettinger Law Firm

by Michael Ettinger, Esq.

“Elder Law Estate Planning” is a niche area of the law which combines the features of elder law and estate planning that pertain most to the needs of the middle class.

Estate planning was originally for the wealthy few. Middle class families did not consider themselves as having “estates” to plan. During the Reagan years (1980-1988), a great economic expansion occurred, raising the asset level of the middle class into the realm of estate planning. With middle class people suddenly exposed to “estate taxes”, the need arose for estate planning, to reduce or eliminate those taxes. A few years later, in 1991, the American Association of Retired Persons (AARP) published “A Consumer Report on Probate” which concluded that probate was a process to be avoided, in all but the most exceptional cases. This marked the beginning of the end of traditional will planning and started the “living trust revolution”. AARP recommended that families start using trusts rather than wills, to avoid probate and save their beneficiaries tens of thousands of dollars in the estate settlement process.

August 13, 2010

The Irrevocable Life Insurance Trust (ILIT)

by Ettinger Law Firm

by Michael Ettinger, Esq.

Many clients are surprised to learn that the death proceeds of their life insurance are subject to federal estate taxation. They believe that life insurance escapes estate taxes and passes to their loved ones intact.

This confusion probably began when the client was told that life insurance is income tax-free. For married clients, the confusion is compounded by the belief that the unlimited marital deduction somehow magically insulates the client’s death proceeds from ever being taxed. Often the marital deduction merely postpones the heavy tax burden on such death proceeds until the second spouse dies.

June 28, 2010

“You Give Lawyers a Good Name”

by Ettinger Law Firm

By Michael Ettinger, Esq.

Reflecting on this comment made to us by a client recently, the following thoughts came to mind. What do we actually do at Ettinger Law Firm?

All we do is save our clients a lot of time, many thousands of dollars and the not so petty annoyances they might otherwise have in settling their family’s affairs on the death of a loved one. We help them reduce or eliminate taxes on the estate so that more passes down to help their children and grandchildren. These days, we also protect the inheritances our clients leave so that it is not lost should the heirs get sued or divorced and, better yet, we assure them that their wishes will carry on for decades after they are gone, by passing the inheritance on to their grandchildren one day. Should disability occur, our clients have had their assets protected years earlier through asset protection planning. For many who come to us in their hour of need, without preparation, we take on the burden of helping them through the Medicaid maze and help them save and protect much more of their assets than they ever thought possible.

May 3, 2010

The Stealth New York Estate Tax

by Ettinger Law Firm

By Michael Ettinger, Esq.

In our experience, a majority of New Yorkers are unaware (blissfully?) that New York State levies an estate tax.

New York’s estate tax starts on estates over one million dollars. What is your estate for tax purposes? All of your real and personal property, your bank accounts, investments, IRA’s, etc. as well as any life insurance that you own. Add it all up and, if you’re under a million, then no problem.