Wealth Preservation, Trusts and Estates

In the past month the estate tax has been back in the limelight.  As most of you know, in December of 2010 President Obama signed the Tax Relief Act of 2010. Prior to the ratification of the present law, the federal estate tax was repealed for the 2010 tax year.

For 2011 and 2012 we have the largest federal estate tax exemption at $5 million and the lowest federal estate tax rate of 35% in the last 50 years.

There has been rampant speculation as to what will happen when the present law is set to expire at the end of 2012.  Some say the estate tax will revert back to the 2001 exemption rate of $1 million and a tax rate of 55% others say this Act was the beginning of the end for the federal estate tax and still others believe the law will stand at the present exemption and tax rate.

Recently, President Obama addressed this very issue. On the final stop of President Obama’s three state Midwest bus tour in Alpha, Illinois someone asked about the future of the estate tax.  The President addressed her and many others’ concern over what will happen for 2013 and beyond.

The president explained that at the end of 2012 the estate tax does not have to go back to the 2001 rates and that there is a compromise being discussed that would put the estate tax exemption at $3.5 million per person for a potential total of $7 million per family. This mid level proposal would exempt a large segment of the population, but would still serve to tax the “wealthy.”  This statement by the President is by no means a definitive word on what will transpire at the end of 2012.  It is nice to get insight into his thoughts and to know that the topic is being discussed.

The final disposition of the Federal Estate Tax law will be important to you and the planning you have done under your will and/or trusts. Maintain your vigilance on this topic so you can ensure that your estate plan reflects the most current law and you get the most out of any changes that are made at the end of 2012.

As the war on the federal estate tax rages on let me know what you think?

Do you think President Obama’s compromise of an estate tax exemption of $3.5 million per person for a potential total of $7 million per family is fair?

Do you think the federal estate tax should be repealed for good or that the tax should apply to more people at higher rates?

To read the full transcript of President Obama’s answer to a question about the estate tax on the last stop of his bus tour in Illinois click here.

Click here to read our brief article U.S. Rep Ross Wants To Kill The Estate Tax

Stay tuned for updates on the future of the federal estate tax and what that means for you, your will and/or trusts.

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The federal estate tax has been in the news a lot this past year. Whether you like it or not it is here for at least the next couple of years.

This may seem like a silly question but do you want your estate to pay more federal estate tax or less?

If you answered less than you need to read

A Guide to Trusts: How to Find the Right Trust for You on trusts to understand that there are dozens of different kinds of trusts that can do things from save your estate from paying more taxes than you need to, to taking care of your spouse, children, or a charity when you are gone.

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Ross along with a small pro- agriculture group of legislatures wants to eliminate the federal estate tax. In the past year there has been a surge of enthusiasm for the repeal of the federal estate tax as congress tried to figure out what do for 2011 and 2012.

This past  December  congress approved legislation that provided $5 million per person exemption from the estate tax and set the top tax rate at 35% for 2011 and 2012. Previously the highest exemption was $3.5 million.

Ross says “…it is unfair and punishes those Americans who work hard over  their lives.”

The federal estate tax may affect farm families and small business owners and a growing number of people feel like United States Representative Mike Ross that it is just plain unfair to be taxed twice.

Read the entire brief article Ross Wants To Bury ‘Death Tax’ For Good by clicking here

The federal estate tax may be in place for 2011 and 2012 but after that it is up to us to decide its future both the costs and benefits of having the tax or eliminating it.

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Congress Acts On Federal Estate Taxes
The New Estate Tax Law: Problems, Solutions and What You Need To Know

Last night, the House of Representatives passed a bill extending the Bush era tax cuts which were about to expire, and, re-enacting a federal estate tax. And, while the new law looks favorable on it’s face, and may make large end of year gifts less important, it also contains some major pitfalls that you need to know about.

This article and several to follow, will review the essential elements of the new law and and some of the effects that it will have on Pennsylvania residents with estate of $1 million dollars or more.

Below is a summery of the rates and changes, a review of some good things and some problems, and a few strategic suggestions.

Here is a summary of some of the changes and rates:

Estate and Gift Tax under the Tax Relief Act

	2010	2011 & 2012	2013
Estate Tax Exemption	All Exempt	$5,000,000	$1,000,000
Estate Tax Rate	N/A	35%	Top Rate 55%
Gift Tax Exemption	$1,000,000	$5,000,000	$1,000,000
Gift Tax Rate	35%	35%	55%
GST Exemption	$5,000,000	$5,000,000	$1,000,000
Generation Skipping Rate	0%	35%	55%

Some of The Good Things:

So as you can see from the chart above, the estate tax bill’s good points are that we can make gifts to both children and grandchildren over the next two years and up to $5 million dollars without paying tax.

Since GRATS were not eliminated or restricted by this bill, we can continue to use these trusts when you have an asset or assets that are rapidly rising in value.

You can and probably should consider gifting, Medicaid planning and other techniques that would use the liberal provisions for the next two years. This is especially true if you wish to help grandchildren.

The bill also contains a portability provision, that appears to allow a surviving spouse to use the deceased spouses five million dollar exemption as well. However, there are a number of potential problems with this provision that may make it far less useful than it first appears. For example, you will lose this exemption if you ever remarry. So we are also mentioning this below if the problem area.

Potential Problems

The most obvious problem is the fact that these changes only last for two years and then the law goes back to a very high rate and a $1 million dollar exemption. For young couple or for wealthier families where large gifts are not part of the plan in the next two years, your estate planning should and needs to anticipate the possible return of a very nasty estate tax.

Also, while the portability of these $5 million dollar exemptions looks good, there are a number of problems that may still make the use of trusts advantageous for protecting the surviving spouse and children and grandchildren. These issues are important to all families, but are especially important in blended families where there are children from multiple marriages or relationships.

Strategies and Actions

If You Are An Executor:

The executors of estates of those dying in 2010 may now choose to be taxed under the currently existing 2010 law or the Tax Relief Act. Review the best result with your legal adviser.

If You Are Single, Divorced, or Widowed:

This act provides a number of opportunities for those who want to make gifts or to preserve assets for children, grandchildren or others. This includes the ability to simplify some documents, and to make gifts, outright, or in trust, and to use GRATS without incurring gift taxes. At Unruh, Turner, Burke and Frees we have a team of estate planning, elder law and tax attorneys to assist you in these matters.

If You Are Married:

Be sure to have your estate planning documents, your beneficiary designations, and your overall existing estate plan reviewed. While there are some unique opportunities for planning, there are a number of potential problems with old documents or dated estate planning strategies that can and should be fixed now.

You should also make sure that your new or updated plans recognize that these changes are for only 24 months and that they are adaptable enough to deal with the change in the law back to the higher rates and lower credits in January 2013.

For more information, call David M. Frees III Chairman: Trusts, Estates, and Wealth Preservation or Douglas Kaune Chairman Elder Law at 610-933-8069.

dfrees@utbf.com

Believe it or not, we have lawyers that advise us too. Here is their disclaimer – The information contained in this article is designed to alert you to changes occurring in the federal estate tax laws which may relate to your personal situation. It is not designed to replace individual consultation with your legal, tax, and investment advisers based on your individual facts and particular circumstances. Interestingly, Unruh, Turner, Burke and Frees ( the very folks who wrote this article) would be please to assist you and to work with your other advisers in developing or modifying your estate planning documents.

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Avoiding The Federal Estate Tax – In 2010 and Beyond
What You Need To Know and Do In Your Estate Plan To Be Ready For 2011

The federal estate tax is currently not in effect.  However, it will return at rates and in amounts
that have not been seen for some time.  As of January 1, 2011 the IRS will be taxing all estates
of over 1 million dollars at rates of 42% to 55% depending on the size of the estate.

However, five billionaires have died since the federal estate tax was eliminated at 12:01 on January 1st 2010.
and as a result, their families will likely owe no tax as opposed to more than half of the estate value.
Since the federal estate tax ranges (when it is in effect) from a rate of 42% to 55% the federal government
has failed to collect billions in tax that it might otherwise have charged the billionaires’ estates.

The the deceased billionaires include, among others,  Mr Bell, the founder of Taco Bell, George Steinbrener, who
needs no introduction, and philanthropist and media billionaire Mr John Kluge.

Kluge, who was well known in media circles, was the oldest member of the Forbes 400 Richest List
and had a net worth estimated to be in excess of $7 million dollars.

For more information on the federal estate tax click here.  For more information on Mr. Kluge, see the
The New York Times which carried an article on Mr. Kluge as well as USA Today, The New York Daily News, and
CBS news.

So short of dying in 2010 what do you need to know and to do before the tax is imposed on your family?

First, stay informed.  When you register for any one of our reports, you’ll be added to a list of smart consumers and you’ll
receive updates through our articles on what Congress is doing about the federal estate taxes. You can also peruse our articles, blogs, videos and checklists
that we provide at www.utbf.com/trust-estate and www.PaEstatePlanners.com.

Next, understand that even if your wills are designed to save on Federal estate taxes, they may no longer work properly and you might need to do more planning
to be prepared for 2011.  Just get advice that applies to your situation.

Finally, be an informed consumer about the options and planning techniques often used by those with larger estates but which might also work for
families with more modest affluence who will be taxed after January 1, 2011. Click here for a selection of our reports for executors, trustees, and those doing estate planning.

David M. Frees III has been awarded the AVVO lawyer rating services highest rating of 10.0 – Superb.

dfrees@utbf.com

610-933-8069

Law Offices In Malvern, Phoenixville and West Chester

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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.

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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.

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If you are confused about why Congress allowed the federal estate tax to lapse and then failed to enact a new law – leaving Americans in an estate planning limbo, then you are not alone. Most political commentators, trust and estate lawyer, and even the past federal reserve chairman Paul Volcker have weighed in on this issue by condemning congressional inaction.

Bur Volcker recently said what many Americans have been thinking – that this situation is “crazy.” For more on Volcker’s remarks on Congress and the federal estate tax, click here.

So what is a confused citizen to do? Well first, read a few articles on the federal estate tax so that you are more familiar with this crazy situation. Then, you’ll probably want to review your existing plan with your lawyer to make sure that it works now -when there is no tax, as well as next year when the tax returns with a vengeance.

Being an informed consumer of legal, tax, and estate planning advice is more important than ever.

David M Frees III
Chairman: Trust, Estates, and Wealth Preservation Section
Unruh, Turner, Burke and Frees
Malvern, Phoenixville, and West Chester Pennsylvania

610-933-8069

If you are a Pennsylvania resident and want to update your estate planning, protect your heirs, or deal with the uncertainty of the federal estate tax please call 610-933-8069 and mention code FREES2010 for a complimentary phone or in person consultation.

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David M. Frees III
Trust, Estate and Wealth Preservation Section
Law Offices in Phoenixville, Malvern and West Chester

** Attorneys Practicing in Probate, Trusts, Estate Planning Asset Protection Planning and Elder Law

More Important News On The Federal Estate Tax

There has been a flurry of activity in the House on recent Federal Estate Tax bills as the end of the year draws near and as the lapse of the existing Federal Estate Tax looks more and more like a real possibility. However, Representative Pomeroy has introduced a Federal Estate Tax bill HB 4154 that may be the subject of a vote as early as Tuesday, December 2, 2009.

In summary, this bill will make the exemption of 3.5 million dollars permanent and would not allow for carry over of the spouses exemption. This means that careful planning will still be be necessary for married couples for the foreseeable future and it will mean tax for many families (at a forty-five percent rate (45%).

This bill appears to be less favorable than the bill we discussed last week HB 3905. As you may recall from our blog post, HB 3905 would raise the exemption amount, reduce the tax rate, and increase the exemption through time to five million and then index it for inflation.

In any case, we are actively watching both bills and will keep you posted as they may have an effect on your estate planning.

David M. Frees III, Esquire

Call Donna or Denise at 610-933-8069 for a telephone or in person
consultation for estate planning, asset protection planning, trusts,
wills, or estate matters. Elder law consults are also available if you
or a loved one is facing nursing home issues within the next five years.

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If you are a Pennsylvania resident, your estate is subject to many death taxes including the Pennsylvania Inheritance and Estate Tax as well as the Federal Estate Tax. If you have been watching the news, you know that one of those tax systems – the federal estate tax is due to expire quite soon.

Why?

Congress has yet to act on the pending repeal of the federal estate tax. But, the pressures on our tax system are so great that most commentators feel that they must keep the tax in place. If Congress allows the tax to temporarily lapse, it appears that they might then re-enact it retroactively to the start of 2010.

In addition to being confusing to taxpayers, and raising a difficult constitutional issue, this makes rational estate tax planning almost impossible.

In any case, the question of repeal or repair of the federal estate tax (also known to its detractors as the “death tax”), will almost certainly be the next political hot potato after health care reform is resolved.

Have you made up your mind yet? We try to present many different views on this issue and we welcome your comments. We also encourage you to contact your Congressional representative and Senator to demand action on this vital issue.

Here is an article from the Heritage Foundation on 7 reasons to repeal rather than reform the federal estate tax.

Please leave your comments below.

David M. Frees III
Chairman: Trust, Estate and wealth Preservation Section
Unruh, Turner, Burke and Frees

Offices in: Phoenixville, Malvern and West Chester

wills trusts estates powers of attorney and living wills
estate planning

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