Wealth Preservation, Trusts and Estates

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.

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.

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.

As a result of the more lenient Roth conversion rules, we have been reviewing the federal estate tax,

income tax and distribution issues relating to Roth IRA conversions with clients. I thought this article provided a nice synopsis of the distribution rules facing beneficiaries of a Roth IRA. Here is another article with some additional considerations. Please note that these articles are not exhaustive of the issues, but serve to give you a good starting point for understanding decisions to be made as an IRA owner and as someone inheriting an IRA.

Please feel free to contact Douglas L. Kaune, Esq. any time at 610-933-8069 or dkaune@utbf.com to discuss your particular IRA and ROTH IRA estate planning issues or issues you are facing as a beneficiary of one of these accounts to determine how best to proceed.
Wills * Trusts * Elder Law * Probate * Asset Protection * Power of Attorney * Estate Planning
Unruh, Turner, Burke & Frees, P.C. is a full service law firm with offices in Malvern, Phoenixville, West Chester Offices serving Wayne, Paoli, Downingtown, Radnor and the following counties: Chester County, Montgomery County, Delaware County, Bucks County, Berks County, Philadelphia County Pennsylvania (PA).

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.

As we have discussed frequently, the Federal Estate Tax system is in a state of change in 2010. Frequently lost in the discussion of revocation of the Federal Estate Tax is the new Modified Step-Up In Tax Basis for Capital Gains. Prior to January 1, 2010 all capital appreciation assets owned by a decedent at the time of his or her death received a full step-up in basis. The new basis for those assets was the value on the date of death. Therefore, no capital gains had to be paid by the beneficiaries unless the inherited assets were sold for an amount in excess of the date of death value. The new law is much less forgiving and can open estate beneficiaries to a significant capital gains tax that was not previously a concern. Read about the 2010 federal estate tax and modified/partial step-up in tax basis rules by clicking the link here. Your estate planning should now include a comprehensive look at your capital appreciation assets to help insure the maximum capital gains tax protection for you and your beneficiaries.

Please fcontact Douglas L. Kaune, Esq. any time at 610-933-8069 or dkaune@utbf.com to discuss the appropriate planning to help protect your estate and the beneficiaries from a significant capital gains tax that might now apply.

Wills * Trusts * Elder Law * Probate * Asset Protection * Power of Attorney * Estate Planning
Unruh, Turner, Burke & Frees, P.C. is a full service law firm with offices in Malvern, Phoenixville and West Chester Pennsylvania (PA) also serving surrounding areas such as Newtown Square, Wayne, Media, Paoli, Valley Forge, Exton, Chadds Ford, Counties Served: Chester County, Montgomery County, Delaware County, Bucks County, Berks County, Philadelphia County Pennsylvania (PA).

By: David M Frees III One of the best planning techniques for those with estates of 1 million dollars or more, and especially those with appreciating assets, Short term GRATs, might be a thing of the past soon. House Bill 4849 just passed the US house of representatives on March 24th and would make the minimum term for Grantor Retained Annuity Trusts a minimum of ten years. However, short term GRATs are one of the most powerful and effective estate planning techniques currently available for American Families.

So, if this bill, or a similar bill passes the Senate, a very powerful technique for moving assets from one generation to another without estate or gift taxes will be lost to the American tax payer and to all Pennsylvania residents doing federal estate tax planning.

If you’re interested in GRATs, just search our site for the many articles and information that we have published on this topic. But, as a brief review, GRATs allow you to move a higly appreciating asset out of your estate without paying gift taxes. However, if you die during the GRAT term (which currently can be as little as two years) the assets come back into your estate and get taxed at their current value.

Congress believes that this technique is so effective for tax payers, that if they eliminate short term GRATs, that it could result in significant revenue generation through higher estate taxes.

According to a group called Citizens for Tax Justice, this provision of the bill would raise an estimated $4.5 billion in 10 years…” This group is a lobbying organization that describes its mission as “requiring the wealthy to pay their fair share.”

So, be aware that 2010 may be the last year for the short term GRAT.

If you need assistance in setting up a GRAT, or want to know more about the many advantages of a short term GRAT before they are eliminated by Congress, please feel free to visit this site or to call David M. Frees III at 610-933-8069 or by email at dfrees@utbf.com.

For a free book on GRAT techniques, from Bernstein’s research group, click here.
For a free telephone consultation or appointment for estate planning including GRATs call Donna, Denise or Beth to set up the appointment and mention offer code: GRAT

David Frees and Unruh, Turner, Burke and Frees maintain law offices in Malvern, Phoenixville, and West Chester Pennsylvania and serve many surrounding communities including Wayne, Devon, Berwyn, Radnor, Exton, Chester Springs, and others.

By: David M. Frees III, Esquire
Federal Estate Tax Uncertainty

The life insurance industry has a vested interest in how the federal government resolves the current estate tax issues. And as tax payers and consumers so do we. If you’re a Pennsylvania resident with assets including life insurance of over 1 million dollars, how this estate tax issue gets resolved may matter to you and your family. So, I thought that you might find this article published by the life insurance sales industry on estate taxes and the current uncertainty to be interesting. Click here to read more about these uncertain times in estate tax planning and what the insurance industry is saying.

David M. Frees III

Frees maintains law offices in Phoenixville, Malvern, and West Chester. These offices serve clients in many surrounding communities including Exton, Berwyn, Devon, and Collegeville

To update your will, trust, or estate plan to adapt to the uncertain situation with federal estate taxes, call Donna, Denise, or Beth at 610-933-8069 for an appointment. Mention this article and code Spring2010 for a complimentary initial consultation, and free books and reports.

Owning S Corporation Shares in a Trust can be tricky business. There are three types of trusts that can qualifiy with the IRS to own shares of an S Corporation: 1. The Qualified Subchapter S Trust (QSST) 2. Electing Small Business Trust (ESBT) 3. Grantor Trust. There are different benefits and pitfalls for using each of these S Corporation Trust options. Read here for an overview of the compared characteristics of the QSST, ESBT and Grantor Trust. After selecting the correct Trust to own your S Corporation shares you must also make a timely IRS election to further qualify the trust.

Without proper trust planning and proper IRS election, your S Corporation could be recharacterized as a C Corporation. This is likely to have significant negative income tax consequences that can and should be avoided with advanced planning.

Please feel free to contact Douglas L. Kaune, Esq. any time at 610-933-8069 or dkaune@utbf.com to discuss your particular Estate and Trust case to determine the appropriate planning for you and your family.
Wills * Trusts * Elder Law * Probate * Asset Protection * Power of Attorney * Estate Planning
Malvern, Phoenixville, West Chester Offices serving Media, Exton, Downingtown, Norristown, Chester County, Montgomery County, Delaware County, Bucks County, Berks County, Philadelphia County Pennsylvania (PA).

PA Case Tells Us To Review Tax Clause To Insure that the Correct Party Pays the Inheritance Tax on the assets In Your Estate.  In Re Estate Of Thomas P. Allen, 2008 PA Super 260 Atlantic: 960 A.2d 470 the decedent had a will and the will contained a Tax

Clause intended to determine whether the estate or each individual beneficiary would pay related estate or inheritance taxes.   However, the Tax Clause was poorly drafted and deemed “ambiguous.”  Therefore, the Court chose to rely on PA statutory law 72 P.S. § 9144(f) which requires each beneficiary of both probate and non probate assets to individually pay the tax on what they inherit.  This statutory provision is frequently contrary to the testator’s intent and should not be relied on.  This case further demonstrates the importance of every clause in your will and, in particular, the need to review and revise documents with experienced legal counsel.  Experienced counsel will help insure that your wishes are carried out.

Please feel free to contact Douglas L. Kaune, Esq. any time at 610-933-8069 or dkaune@utbf.com to discuss your particular Estate Planning or Probate matter to determine the appropriate planning for you and your family.
Unruh, Turner, Burke & Frees is a full service law firm with offices located in Malvern, Phoenixville, West Chester, PA.
Wills * Trusts * Elder Law * Probate * Asset Protection * Power of Attorney * Estate Planning