Archive for Estate Tax Law
ESTATE PLANNING FOR SAME-SEX COUPLES IN 2014
The Heckerling Institute on Estate Planning, held every January, is the nation’s leading conference for estate planners. This year’s most-discussed topic was big changes in planning for same-sex couples.
The discourse focused on last year’s major decision of United States v. Windsor. In Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) which defined “marriage” and “spouse” for federal purposes as only applicable to heterosexual couples. The result is that a marriage between any two persons now will be recognized under federal law if it is recognized under the law of the state where it occurred.
The practical result is that same-sex married couples now have access to federal estate and tax planning tools. This includes use of the marital deduction, portability, disclaimers, joint income tax returns, grantor trusts, spousal rollover of qualified retirement accounts, joint ownership of property, split gifting to maximize annual gift tax exemption, marriage settlement agreements, and GST transfer planning (i.e., reverse QTIP).
On the other hand, same-sex married couples will feel the impact of the “Marriage Penalty” on their tax rates, mortgage interest deductions, and more, just like heterosexual married couples.
Although the Windsor decision has clearly brought about significant change, it did not invalidate DOMA as a whole. Instead, it left intact Section 2 of DOMA, which allows the states, U.S. territories, and Indian Tribes to refuse to recognize same-sex marriages performed in other states, territories, or tribes. As a result, the lack of uniformity of laws among the states will continue to create issues for same-sex couples to navigate with the assistance of tax and estate planning professionals.
The focus at Heckerling was on the tax and financial implications of these new laws. Stay tuned for our “Relationship Series” where we will focus on the more personal and human side of planning in different relationships.
WHY SHOULD I PLAN NOW THAT I’M NOT WORRIED ABOUT PAYING AN ESTATE TAX?
As discussed in our last newsletter, the New Year brought with it significant changes to the estate tax law. Without these changes, individuals with estates of $1,000,000 or more would have been subjected to estate and gift taxes. Now, only estates over $5,250,000 (or $10,500,000 for married couples) will be taxed.
So, you are asking, why plan? Here are just three of many reasons:
1. Asset Preservation
Estate planning can help to protect both your current assets, and also the assets you leave for your children and grandchildren, keeping them in the family for many years into the future and making sure they are used for good purposes. Failure to take advantage of available protections could mean that your hard earned assets end up being lost or wasted. Asset preservation is a key benefit of estate planning that should not be ignored.
2. Disability Planning
Proper estate planning also makes sure that you and your loved ones are taken care of in the event that you become disabled. An annual review, such as we provide through our annual maintenance and updating program, is key to ensuring that your disability planning documents are up to date when/if you ever need them.
3. Planning to make a difference
Several clients are asking about ways they can use their wealth to make a difference in their community or in the world. Again, estate planning provides opportunities and solutions. A well-drafted estate plan can teach children and grandchildren how to be responsible with significant sums of money. It can also reach farther through philanthropic giving (which can be rewarding personally, as well as financially, through income and/or estate tax reduction.)
Of course, these are just three ideas out of many that could provide benefits to you and your family. We are here to help.
NEW ESTATE TAX LAW – TIME TO EXHALE?
So, it appears that we did not go off the first “Fiscal Cliff” and some momentary “permanence” has been given to the Estate Tax Law. In the just passed “American Taxpayer Relief of 2012,” Congress kept in place the 2010 estate tax law with its Five Million Dollar ($5,000,000.00) personal exemption, adjusted annually for inflation. The only thing the lawmakers actually changed is the gift and estate tax rate, which has gone up to a top rate of forty percent (40%) from a previous maximum of thirty-five percent (35%). The exemption amount in 2012 was 5.12 million dollars, per person. The 2013 exemption amount is reported to be 5.22 million dollars per person. This amount of money either can be given away during lifetime or after death; it also can be given or devised to grandchildren without occurring any additional generation skipping tax.
Congress also increased the gift tax annual exclusion to Fourteen Thousand Dollars ($14,000.00). Remember, you can give away $14,000.00, per year, per person, to any individual(s) you choose, without it counting against your 5.22 million dollar lifetime exemption.
Can we now exhale? Will we ever have to worry again about the personal exemption reverting back down to $1,000,000, per person, as was only hours away from happening on January 1? I must give you the typical lawyer answer, “it depends”, and here’s why: the estate tax has been around almost 100 years. Throughout that time, an average of about 2% of all adult deaths resulted in taxable estate tax returns being filed. Under the current law, it is estimated that only 0.2% of all adult deaths will result in taxable estate tax returns. In order for the estate tax to continue to generate taxable estates at its historic 2% average, the personal exemption would have to be reduced to about 1 million dollars ($1,000,000.00). Yes, we have the lowest estate tax rates ever and yes, Congress seems to have made those tax rates permanent. However, in looking at the historical perspective, coupled with upcoming “fiscal cliff” (automatic spending cut) deadlines and a growing federal deficit, you have to wonder how long these historically low rates can be sustained.
The best way to stay abreast of continuing congressional volatility and changes in the estate tax laws is to have an ongoing relationship with an estate planning attorney, such as we provide with our Annual Maintenance and Updating Program.