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Archive for January, 2011


Friday, January 21st, 2011 by

In our last newsletter, we outlined some of the highlights of the temporary extension of the estate tax that will be effective from January 1, 2011 through December 31, 2012. What will happen next? Is the estate tax likely to disappear or even remain “as is” with lower rates and a more generous personal exemption than at most any time in history? Well, let’s take a look at the history of this tax.

American governments have taxed estates, at least on a temporary basis, since the founding of this country. The first estate duty was imposed by the Federalists to finance an undeclared war with France. Abraham Lincoln imposed a temporary inheritance tax during the civil war. A third, temporary estate tax was enacted to fund the Spanish-American War. Then, in 1916, the current estate tax law was enacted and has remained in existence ever since.

Who were the champions of the idea of an estate tax in the early part of the 20th Century? It was a Republican President, Theodore “Teddy” Roosevelt (“TR”), who was the modern champion of the estate tax. In 1910 TR stated: “We grudge no man a fortune in civil life if it is honorably obtained and well used.”… “We should permit it to be gained only so long as the gaining represents benefit to the community…” The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed of men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”

TR was not alone in advocating for an estate tax. Supreme Court Justice, Louis Brandeis, said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we can’t have both.” Even one of the nation’s wealthiest men at the time, Andrew Carnegie, testified in Congress in favor of an estate tax as the best way to address wealth concentration. So, the estate tax never was intended to be solely a device for raising revenue for the federal government. Rather, it was meant to address the phenomenon of a small number of Americans controlling large amounts of the country’s wealth, which was considered a national problem at the beginning of the 20th Century. This period has been referred to as the “Gilded Age”.

When the estate tax was enacted in 1916, the richest 1% of Americans owned more than 50% of the country’s wealth. By 1976, the amount of the nation’s wealth controlled by the richest 1% had fallen to only 20%. Over that time, this greater disbursement of wealth fostered growth of a strong middle class. However, the tax policies of the last 35 years have reversed the trend. Today, the wealthiest 1% own more than 33% of the country’s wealth.

So, has the estate tax accomplished the goals of its supporters? Is it a necessary component of our democracy? Only time will tell how the political debate over the estate tax plays out.

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Thursday, January 6th, 2011 by

            We begin the New Year with temporary estate tax relief.  The key word is “temporary.”  Congress, at the last minute, finally has acted to modify the estate, gift and generation-skipping transfer taxes.  However, this modification of the estate, gift, and generation skipping transfer taxes will last only for two years, unless Congress passes a more permanent law.  If Congress does nothing, on January 1, 2013, the estate tax exemption will be reduced to $1,000,000.00 and the estate tax rate will increase to 55%.  Essentially, the last Congress has “punted” forward the sunset provisions of EGTRRA (the Economic Growth Tax Relief Reconciliation Act) for two years.  No one can predict what will happen then.  This newsletter will highlight the key elements of this temporary estate tax relief.

1.         First, the estate tax has returned.  However, it has returned with a much larger personal exemption of $5,000,000.00 and a lower 35% tax rate. 

2.         Second, the gift tax is reunified with the estate tax, so that everyone now also has a $5,000,000.00 lifetime gift tax exclusion amount and a 35% gift tax rate. 

3.         Third, the generation skipping transfer tax exemption will be Five Million Dollars ($5,000,000.00) in 2011, indexed for inflation beginning in 2012.  The GST tax rate for 2011 and 2012 will be 35%. 

4.         Fourth, there is now “portability” of the unused exemption between spouses.  This means that a husband and wife together essentially have a $10,000,000.00 exemption, the unused portion of which can pass between spouses without any special estate planning being required.  In the past, we have often used two trusts, in husband and wife planning, to obtain such a doubling effect of the exemption amount.  However, such portability is assured only for two years and the availability of this portable exclusion amount requires an election to be made on a timely filed estate tax return.  Moreover, the provision does not allow a surviving spouse to use the unused generation skipping transfer tax exemption of a predeceased spouse.  So, we likely will continue to recommend trust planning for many of our clients.

            What is the effect of this temporary estate tax relief on estate planning going forwardThe $5,000,000.00 gift exclusion amount and GST exemption beginning in 2011 provide an individual with the ability to make $5,000,000.00 in lifetime gifts to family members or others without having to pay gift taxes; and provide couples with the opportunity for making gifts of up to $10,000,000.00 without having to pay gift taxes.  This paves the way for immediate gift planning opportunities to reduce the value of your gross estate.  This can be done by giving simple gifts or by utilizing leveraging strategies such as gifts to grantor trusts and other techniques to effectively transfer far more than $10,000,000.00 out of your estate.  However, gifting strategies should consider the cost basis rules.  Let us know if we can assist you in the gift planning process.

          There still are several reasons for continuing to use bypass trusts at the first spouse’s death, such as asset protection and flexibility, which we will discuss in detail at our “Truth About Estate Planning” workshops throughout the upcoming year.

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Wednesday, January 5th, 2011 by

           As a Jacksonville, Florida Probate Lawyer, I often am asked who can be appointed personal representative in a Florida probate estate.  In Florida, the term “personal representative” is used, rather than the term “executor” or “executrix” as the title of the person who is under a duty to settle and distribute the estate of a decedent in accordance with the terms of the decedent’s Will and the Florida Probate Code. 

          If there is a Will (a testate estate), the person nominated in the Will to serve as the personal representative, or his or her successor, has preference in appointment.  If the persons nominated are unwilling or unable to serve, then the person selected by a majority in interest of the beneficiaries (persons entitled to the estate) has the next priority.  A third priority in a testate estate is any devisee (person who inherits) under the Will.  If more than on e devisee applies to serve as personal representative, the court may select the one best qualified.

          If there is no Will (an intestate estate), then the surviving spouse has first priority to serve as personal representative.  Next would be a person selected by a majority in interest of the heirs.  Third would be the heir nearest in degree.  Again, if more than one such heir applies, the court may select the one best qualified. 

          Who is not qualified?  A person is not qualified to act as a personal representative if the person has been convicted of a felony, is under the age of 18 years, or is mentally or physically unable to perform the duties.  A nonresident cannot qualify as a personal representative unless that person is a blood relative of the decedent, a legally adopted child or adoptive parent of the decedent, or the spouse of a blood relative. 

          As a Jacksonville, Florida Probate Lawyer, I can answer your questions about qualifications and preferences in appointment of personal representatives in probate cases in Clay, Duval, Nassau, and St. Johns counties, and any other area in Northeast Florida.

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Tuesday, January 4th, 2011 by

       As a Jacksonville, Florida Estate Planning Attorney, I frequently am preparing prenuptial (or “antenuptial”) agreements for clients.  Prenuptial Agreements are not just necessary to plan for divorce.  A prenuptial agreement is also an essential estate planning tool, particularly in second marriages. 

      From an estate planning perspective, we most often see prenuptial agreements in cases of second marriages when one or both of the parties individually owns real and personal property which they are bringing into the marriage.  In Florida, married parties acquire certain rights in the property of their spouse unless an interest in that property is waived through a valid prenuptial agreement effectively segregated in some fashion. Florida laws concerning the “elective share” and “homestead” property convey certain rights to spouses and dictate how certain assets will be divided at the death of the first spouse. 

     Thus, an antenuptial agreement should address property acquired before the marriage, property which will be acquired during the marriage, debts which preexisted the marriage, how assets acquired during the marriage are to be divided, who can manage and dispose of certain assets during the marriage and how will property be divided in the event of a divorce.  So, in cases of second marriages, particularly when there are children from prior marriages, the prenuptial agreement is an important part of the planning process.  You can protect your wealth and your children by signing a prenuptial agreement, having a current trust or will and paying very close attention to how assets acquired during the marriage are titled.  This way, you can have peace of mind even if you don’t live “happily ever after.”  That is why we are preparing prenuptial agreements as Jacksonville, Florida Estate Planning Attorneys.

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Monday, January 3rd, 2011 by

     As a Jacksonville, Florida Estate Planning Lawyer, I frequently have clients ask about planning for their pets.  Sure, there have been many jokes and stories about the dog or cat who inherits a fortune.  The truth of the matter is that many people want to ensure that their pet is cared for if they become disabled or pass away.  Considering how much like members of the family many pets become, this just makes sense.  So, pet trusts and other estate planning tools are becoming more common as means to ensure that a beloved pet is cared for even if you are no longer able to care for the pet yourself.

     As a pet owner, you can take effective steps to make sure your pets not only are well cared for, but also that the funds left are used properly.  You do not need a complex estate plan to carry out your wishes.  Here are just a few ways that you might provide for the care of your pet:

   1.  Make no specific plans, but leave it up to your personal representative, family, or friends to find the pet a new home after your death.

   2.  Leave your pet (in a will or a trust) to a specific caregiver that you trust.  The caregiver is then responsible for the pet’s care. 

   3.  Along with the pet, leave the caregiver a sum of money to offset their expenses in caring for your pet.

   4.  Create a trust to benefit the caregiver, with specific instructions on how to provide funds for the pet’s care.

   5.  Create a trust for the pet, along with instructions for overseeing the pet’s care, by naming a trustee or possibly a panel of people to care for the pet.

     These are just a few examples of ways that we assist clients in planning to care for their pets as Jacksonville, Florida Estate Planning Lawyers.

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