Wealth Preservation, Trusts and Estates

The Grantor Retained Annuity Trust (GRAT) has

been an excellent and widely used federal estate tax savings tool.  However, President Obama took aim at the GRAT in his 2011 budget proposals.  Additionally, the House has included provisions targeting short-term and rolling GRAT planning tools in legislation that has passed at that level.  Although that particular House legislation has not made it through Senate, there is a significant amount of discussion and proposed legislation in the Senate that would require a GRAT to be for a term no less than 10 years.  This would not eliminate the GRAT as a planning tool, but would curb its use.   Read this recent Forbes article that outlines how the GRAT is used, how it is being attacked and how it will be used into the future.

Keep in mind that it is likely that the Federal Estate Tax will return in 2011 and we will need every resource available to help limit what could be a tax in excess of 45% for every dollar over $1,000,000 in an estate.  We encourage all clients and friends to keep their out for the final legislation of the federal estate tax system and to be ready to update estate plans accordingly.

Doug is a Partner with Unruh, Turner, Burke & Frees, P.C. which is a full service law firm with offices located in Malvern, Phoenixville and West Chester, PA. Doug can be reached at 610 933 8069 or at dkaune@utbf.com. The Law Practice serves Chester County, Montgomery County, Delaware County, Bucks County, Berks County, Philadelphia County Pennsylvania (PA).

No Federal Estate Tax Answers forthcoming this Summer. By: Douglas L. Kaune, Esq.
Congress is entering its August recess and there has been no progress made on the topic of Estate

Tax Reform. Analysts are clearly thinking that the Estate Tax issue will not be addressed until the Fall or later. Interestingly, everyone, including members of Congress, attorneys and financial advisers, agrees that it is unfair to the American tax payer to be without a solid tax law upon which to base their estate planning. Despite this universal recognition, the lawmakers are not rushing to reach a resolution. This Investment News article is helpful in outlining the Congressional time line leading to the end of the year.

Contact Douglas L. Kaune at 610-933 8069 or dkaune@utbf.com to review your estate plan in light of the changing federal estate tax landscape.
Doug is a Partner with Unruh, Turner, Burke & Frees, P.C. which is a full service law firm with offices located in Malvern, Phoenixville and West Chester and also serving Philadelphia and other towns in Chester County, Montgomery County, Delaware County, Bucks County, Berks County, Philadelphia County Pennsylvania (PA).

Need a quick overview of the federal estate tax to make this crazy situation make sense? I found a good overview that just takes a few minutes. Since you’re probably from Pennsylvania (most of our clients are from South Eastern Pennsylvania) just ignore the last fifteen seconds on the Ohio inheritance tax. I’ll write a little overview for you on the Pennsylvania Inheritance tax down below.

But for now, click here for more on the current state of the federal estate tax.

The Pennsylvania inheritance tax overview: By: David M. Frees III, Esquire

Transfers on death to a spouse in Pennsylvania are taxed at a zero percent tax rate.

Transfers to children, grandchildren and linear descendants are taxed at 4.5% for Pennsylvania inheritance tax purposes.

Transfers to brothers and sisters are taxed at 12%.

Transfers to charities are taxed at a zero percent rate.

Transfers to all others are taxed at 15%.

There are many nuances, discounts, deductions, and specifics that cannot be covered here. If you’re an executor, make sure to get good advice before filing a form 1500 Pennsylvania Inheritance Tax Form.

P.S. Here’s another view on the federal estate tax and the problems created by congressional inaction.

David M. Frees III, Esquire practices law with Unruh, Turner, Burke and Frees with offices in Phoenixville, Malvern and West Chester, Pennsylvania. Mr Frees Chairs the Trust and Estate Section of the firm with clients throughout the Main Line, Devon, Wayne, Exton, and surrounding areas.

610-933-8069
dfrees@utbf.com

P.P.S. Want the estate tax and inheritance tax secrets that they don’t want you to know? Do you know the pros and cons of using joint accounts in estate planning? Call for a complimentary consultation or for a free will update. Mention this code avidFrees for the free consult. with David or one of the attorneys at Unruh, Turner, Burke and Frees.

The Latest Attempt To Pass A Federal Estate Tax Is Dead – What Now?
By: David M. Frees III – 2010 Pennsylvania “SuperLawyer” Trusts and Estates
Phoenixville * Malvern * West Chester Law Offices

Executive Summary of Federal Estate Tax News:

As you may recall, we recently reported to our clients that a motion was pending
before the Senate to pass a bill that would finally end the agony of not knowing
what was going to happen to the federal estate – or death tax.

Currently, the uncertainty is creating problems for many families and if the law falls
back, as now expected, in January of 2011, many families will need to radically
alter their existing estate plans to avoid the massive 55% tax.

Current Details:

Senator Jon Kyl and Blanche Lincoln’s proposal to phase in a permanent
top estate tax rate of 35 percent and to raise the individual exemption
to $5 million, indexed for inflation appears to be dead.

There has been a discussion by many democratic Senators that
the federal estate tax is a tax break for the “wealthiest of the wealthy.”

But, since the tax includes the proceeds
of life insurance, IRAs and other assets, many middle class and moderately
affluent families will be drastically impacted if congress fails again to act.

The “wealthiest of the wealthy” statement by Pennsylvania Sen. Robert P. Casey Jr.
is a good indication of the strong position Democratic leaders have taken. Currently, the
democratic leadership is proposing – rather than let the exemption sink back to a mere $1,000,000 and the rate rise to 55 percent – a top rate of 45 percent and a $3.5 million exemption.

Yet, nothing seems to be happening. Even the IRS doesn’t know what to do.

However, the political pressure on both parties is increasing dramatically.
Articles abound about George Steinbrenner’s death as estate planning and the windfall to his family
are according to Steve Limberg Esquire “driving people bats and putting pressure on both parties to stop the hemorrhaging blood flow of lost revenue.”

CONCLUSIONS:

I have (and I am not alone in this) been wrong about Congress quite a few times.

However, I believe that there is not likely to be any congressional action until
after the November elections. I also think it is possible but unlikely that the Senate
will really allow the limit to fall back to One Million dollars. Finally, I believe that 3.5 million
would help to exempt most families from a massive tax. And, while many affluent
families will still have a significant tax ( probably at a 45% rate) planning will be vital for any
family.

Recommendations:

Planning should include flexibility, attention to IRA and deferred tax assets, use of trusts – when appropriate, and planning to protect yourself and your heirs from creditors claims, divorce and law suits. You should also pay careful attention to life insurance to avoid it being included and taxed in your estate.

Keep the faith and check in for the latest and for a different analysis in the Post click: Estate Tax Changes Needed in The Washington Post.

David M. Frees III is the Chairman of Unruh, Turner, Burke and Frees’ Wealth Preservation, Trust and Estate Section.

You can schedule a consultation with David Frees at 610-933-8069 for any of the firms office in West Chester, Malvern, and Phoenixville.

He is a regular contributor to blogs at www.utbf.com/trust-estate
www.PaEstatePlanners.com where there are a number of free reports available for download, or in print.

Future Federal Estate Tax System: Still Looking For Answers for 2011
By: Douglas L. Kaune, Esquire
Estate planning attorneys and their clients would like to know what the future of the federal estate tax system holds for them.  As many know, we are in uncharted territory with no federal estate tax in 2010, with an ominous return of the tax system slated for 2011. The return of the “Death Tax” as the law is written now woould see the tax applying for every dollar over $1 million in a decedent’s estate.  The top marginal rate of 55% in 2011 would make for a hefty tax bill in many estates. 

There is speculation that Congress will swoop in at the end of the year to modify the federal estate tax law to increase the credit amount and/or lower the top marginal rates.  Unfortunately, there is no way to tell what changes, if any, will be imposed by Congress.  After all, this is the same Congress that allowed the tax to lapse at the end of 2009 and has forced us to drive blind for the first 7 months of 2010.  Read this mid year CNN Money article for some additional insight by clicking this link.

Many clients are taking affirmative action in preparation for the likely return of the federal estate tax.  Others are readying for end of the year 2010 with planning and documents to be signed into effect once they have a better idea of how the federal estate tax issues will play out in Congress.  Some might even consider taking advantage of moderately lower gift tax rates of 35% for every dollar gifted in excess of $1 million In 2010. By paying the gift tax at 35% these clients might avoid a tax on these same dollars at the highest federal estate and gift tax rate of 55% in 2011. Regardless of your decision regarding planning now, you should be very careful to watch how the federal estate tax law progresses.

Douglas L. Kaune, Esq. is a partner with the law firm of Unruh, Turner, Burke & Frees, P.C. which is a full service law firm. You can call Doug at 610 933 8069 or email him at dkaune@utbf.com.
Offices located in Malvern, Phoenixville, West Chester and also serving surrounding locations such as King of Prussia, Media, Norristown, Paoli, and other towns in Chester County, Montgomery County, Delaware County, Bucks County, Berks County, Philadelphia County Pennsylvania (PA).

Some people are very skilled at making money and protecting what they make from taxes during their lifetimes. Now, some wealthy individuals can even manage to make/save money just based on their dates of death. George Steinbrenner, an amazing businessman and majority owner of the New York

Yankees, is the most iconic symbol of this death tax lottery system that Congress has allowed to come to fruition. Steinbrenner died on July 13th, 2010 and by doing so, managed to save his heirs an estimated $500 million in federal estate tax. Yes, that is One-Half of a BILLION dollars of savings because he did not die in 2009 (45% Highest Marginal Tax Rate) or 2011 (Expected 55% Highest Marginal Tax Rate). A HALF OF A BILLION DOLLARS is a mind numbing number and one that should resonate as we await a Congressional decision (or lack of decision) on what will happen to the federal estate tax in 2011 and beyond. Read this NY Post article outlining the federal estate tax savings for the Steinbrenner Family.

For those baseball fans reading this post, the Steinbrenner family will likely only retain its ownership interest in the Yankees because of the immaculate timing George Steinbrenner had even up to his date of death. Knowing Steinbrenner’s love for the Yankees, it should not be surprising that this would be his final act to preserve the family ownership.

By: DOUGLAS L. KAUNE, Esq. Please contact Doug at 610-933-8069 or dkaune@utbf.com. Doug is a Partner with the Law Firm of Unruh, Turner, Burke and Frees, P.C. Office locations in Phoenixville, Malvern and West Chester, PA and serving Chester, Montgomery, Delaware, Philadelphia, Bucks and Berks Counties in Pennsylvania.

We prepare special needs trusts for beneficiaries to help insure the recipient of inherited or gifted assets can continue to qualify for government or private benefits. Clients who are creating these

trusts often struggle to decide who they should appoint as trustee of the trust. We want to make sure that we select the correct person or entity because the trustee will make investment and distribution decisions that will impact the special needs beneficiary and remainder beneficiaries alike.

We can never be sure about how a trustee will do their job for years or decades to come. As a result, many clients choose to have a Trust Protector appointed. The Trust Protector oversees the actions of the trustee to make sure the trustee is doing a good job. Read the attached article to review some of the issues concerning the appointment of a special needs trust trustee and how the appointment of a Trust Protector can help insure a successful special needs trust.

By: Douglas L. Kaune, Esquire Partner with the law firm of Unruh, Turner, Burke & Frees, P.C.
Having offices in Phoenixville, West Chester & Malvern. Serving Chester, Delaware, Montgomery Bucks, Berks and Philadelphia Counties and the surrounding towns and municipalities. Please contact Doug with your estate planning and elder law questions and to schedule a consultation to review your particular case. PH (610) 933-8069 or dkaune@utbf.com.

Federal Estate Tax Reform and Certainty Is Needed
by: David M. Frees III, Esquire

Congress failed, at the end of the year to enact any estate tax reform. As a result, the tax was eliminated for a one year period. This might seem like a blessing, but currently, many people’s documents no longer function as they were intended to work. To add insult to injury, in just a few more months it is scheduled to return with a vengeance.

On January 1, 2011, absent congressional action, the tax will return and American tax payers will only be able to shelter one million dollars. A couple could, with careful planning, shelter up to two million dollars but that would require the use of trusts prepared during the lifetime of each spouse. And, as if that is not bad enough, the tax rate is going up to a maximum rate of 55%.

However, since this tax includes retirement accounts, the value of a house and business, and life insurance proceeds, the one million dollars may not go as far as it might otherwise.

We need and deserve clarity on this issue.

Yet, just a few weeks ago, negotiations between Republicans and Democrats broke down and Estate Tax reform disappeared from the legislative agenda.

This is not a political or partisan column. And, for my money, both parties have failed to deal effectively with this issue. I simply believe that Congress owes certainty and clarity to the American people. Right now, careful and rational estate and tax planning for families with substantial assets is almost impossible.

Clarity is essential and now requires congressional action.

Here is video of a recent statement on the Senate floor.

David M. Frees, III
is an attorney focusing his practice in the areas of trusts, estates, probate, and estate and asset protection planning. His firm, Unruh, Turner, Burke and Frees also offers elder law planning for families facing nursing home care and the related issues.

The firm maintains law offices that serve many local communities including Devon, Wayne, Malvern, Phoenixville and West Chester.

David M. Frees III, Esquire on The Ten Year GRAT

The Houses Passes A New 10 Year GRAT Requirement

On June 15th, the US House passed H.R. 5486 (a “jobs bill”) that contained a requirement that GRATS (Grantor Retained Annuity Trusts) be for a term of at least 10 years.

As readers know, we have been promoting and using GRATs for many clients as a way or moving large increases in wealth without triggering significant gift taxes.

GRATs are often used by clients with rapidly rising stock values, real estate, or other assets with a high probability of significant growth.

The government now views this technique as being just too good for the tax payer and is attempting to restrict it’s use to raise additional revenue.

The main purpose of H.R. 5486 is not, of course, to modify the GRAT rules. It is instead intended to create small business tax relief.

However, as mentioned, GRATs have proven to be a highly efficient technique for transferring wealth while minimizing gift taxes, provided that the grantor survives the GRAT term and the trust assets do not depreciate in value. And, taxpayers have become skilled at maximizing the benefit of this technique, by minimizing the term of the GRAT (thus reducing the risk of the grantor’s death during the GRAT term). Many clients use a term as short as two years.

Under the current bill, now also before the Senate, the minimum term would be ten years. This, of course increases the risk that the grantor might die during the term and the benefit to the family would be lost.

So, while the GRAT will remain a valuable planning tool. The days of the short term GRAT might be limited. If you find yourself moving toward a public offering, a land development plan or some other planning that might produce large value increases, be sure to consult your legal and tax advisers about all of your options in the face of this pending legislation and the appearance that it will pass both houses.

David Frees III, Esquire

David Frees writes on GRATs and other sophisticated estate planning techniques and actively helps affluent families and individuals in Pennsylvania to implement sophisticated estate and estate tax planning.

For more information on GRATs and related estate and asset protection planning call 610-933-8069. Law offices in Phoenixville, Malvern, and West Chester Pennsylvania.

Although there there will likely be no federal estate tax in 2010, the beneficial “step-up” in capital gains tax basis on property owned by a decedent at death, is now limited to $1.3 million. The limited “step-up” may be allocated among the decedent’s assets by the Executor or Administrator unless otherwise directed in a decedent’s last will. As a result of the limited basis step-up, the heirs of a decedent dying in 2010 might owe capital gain taxes that they would not have previously owed. This process will be very challenging when having to sift through historical splits, mergers and dividend reinvestment. Read this article to learn more about the accounting nightmare that will result from these tax law changes. In reality, this may leave many heirs of estates that fall between $1.3 million through $3.5 million in 2010 paying more in capital gain taxes than would have been owed in estate taxes.

Please contact Douglas L. Kaune, Esq, at dkaune@utbf.com or 610 933 8069 to discuss your particular case and to determine how the federal estate tax laws of 2010 impact your planning.

Unruh, Turner, Burke & Frees, P.C. is a full service Pennsylvania (PA) law firm with offices in Phoenixville, Malvern and West Chester and serving surrounding areas such as Collegeville, Exton, Media, Norristown, Devon, Wayne, Royersford and Paoli.