Wealth Preservation, Trusts and Estates

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.

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.

By: David M. Frees III Pennsylvania Trust and Estate Lawyer

Is A Bank Ever The Best Trustee?

There are many reasons to set up a trust (either during life or under your will). Some people set up a trust to protect a young child from having access to money at a young age. Others use a trust to protect and to provide for a child with special needs.

Many trusts are established to provide income and assets to a surviving spouse and then to pass on the assets to family members such as children and grandchildren.

Some of our clients set up GRATs and or nursing home trusts to move assets to the next generation, or to protect them from being lost to a nursing home.

And, with each situation where a trust is the best solution another equally important question arises: Who should be the trustee of this trust?

There are many possible trustees to choose from. For example, you can select the following a trusts of your Pennsylvania trust:

you
a friend
a family member
a professional adviser
a bank or trust company

However, depending on the purpose of the trust, you may need to limit cases where you name yourself or family members as trustees since a trust is often taxable or reachable by creditors in a lawsuit, when a family member, spouse, or parent is the trustee. In fact, there is a specific section of the IRC (Internal Revenue Code) (Section 672) that will cause such trusts to be included in a beneficiary’s estate and then taxed.

So, it may be that you want to avoid family members or at least make them a co-trustee. Also, family members are often unaware of all of the new rules which apply to trusts under the UTA (Uniform Trust Act) and the Prudent Investor Rule. Family members also often fail to file income tax returns for the trust or to keep the trust records properly. Accordingly, family members might actually end up exposed to liabilities and law suits that they never anticipated.

But, if you want to avoid using a family member as trustee, what are the alternatives?

Friends, Advisers, and Banks.

And, while many families have family members and friends that will undertake the risks of being a trustee, and who will seek the right advice to make sure that they follow the new legal compliance requirements of trustees, it may be that a bank or trust company offers a viable alternative and may be the best choice.

Banks are well insured, are highly regulated, have procedures and specific policies, and they regularly file the returns and keep the records accurately.

I know that almost everyone has heard about a beneficiary that did not like their bank trustee, but banks can be the best choice and that can be especially true when a family member or friend is appointed as a co trustee or a trust protector and can fire and hire bank trustees to ensure that the bank is charging appropriate fees, getting good investment returns and is looking out after the beneficiary.

Of course, there are advantages and disadvantages to each approach. But make sure that you discuss trustee selection with your lawyer and accountant because the wrong choice of trustee can mean that the trust will not work to accomplish your tax and planning goals.

For more on trust protectors and trustee alternatives click here and watch for upcoming posts.

David M. Frees III, Esquire
610-933-8069
dfrees@utbf.com

P.S. If you would like to create a trust now or under your will, please call

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.

If you have ever been confused about when to use a will and when to use a revocable trust, you are not alone. I have just posted a video, and a great quick overview of that question of will or revocable trust on our estate planning site www.PaEstatePlanners.com.

Click here to watch the video and read the brief checklist on wills vs. trusts in Pennsylvania.

This brief video and article will walk you through the big issues related to the question of whether or not you need to spend the extra money for a revocable trust in Pennsylvania. There is also a video and a link to another great article on the trust question.

David M. Frees

For an appointment with David Frees for a revocable trust, a will, or a power of attorney in Pennsylvania please call Donna, Denise, or Beth. To make sure that you receive a discount and an initial consultation at no charge mention this blog and offer “DavidFrees 2010″ when you call.

You can also reach David at 610-933-8069

David Frees is a trust, estate, and asset protection lawyer with offices in Malvern, Phoenixville, and West Chester, Pennsylvania that serve many surrounding communities including Malvern, Devon, Berwyn, Wayne, Chester Springs, Phoenixville, and Exton as well as many others in the area.

IRA and 401(k) Distribution Rules For 2010 or How Do I Restart The Withdraws?

By:  Attorney David Frees with offices in Malvern, West Chester and Phoenixville, Pennsylvania

If you stopped taking mandatory IRA or 401(k) distributions last year you might be wondering if you can do the same this year.  The quick answer?  No.

Well then, the next question is: “If they only allowed me to skip distributions last year how do I start taking them again and are their any remaining effects from last years’s law change on how I calculate distributions?”

Again, for almost all tax payers, there is no change.  Your calculation method will be the same as before the 2009 one year change.  However, sinceyou skipped a year of withdraws, your calculation will be based on a larger number.  That’s it.  Fairly simple for a change.

However, there are two technical matters where you might need to pay special attention.

For more on how to calculate mandatory IRA distributions for 2010 see this brief article.

To update your estate planning for greater flexibility during these uncertain times, or for more information about the many options you have in using your IRA or 401(k) assets in your estate planning, call 610-933-8069 for an estate planning guide, or for an appointment.  Mention this code: 2010DavidFrees for a special discount and a frees cd of estate planning ideas to protect your heirs by David Frees.

By: David Frees
Wills, Trusts, Estate and Asset Protection Planning

Generally, the rule is that when you create a trust, and keep the right to receive assets from that trust, the trust can be reached in a lawsuit against you and will be taxed in your estate.

In recent years, several states, including Delaware, Nevada and Alaska have passed statutes purporting to allow you do get both tax and creditor protection without having to move assets off shore.

And, while these trusts have a number of restrictions, and downsides, the IRS has now issues a PLR – private letter ruling on these important issues related to an Alaska trust.

For more information on the IRS and asset protection trusts, prepared by David Frees click here.

For an appointment ranging from a simple will review and update to the more complex issues of trusts and estate planning, call David Frees’ office at 610-933-8069.

Mention this code (DavidFrees2010) if you are a Pennsylvania resident and receive a free initial consultation by phone or in person. Call 610-933-8069.

David Frees and Unruh, Turner, Burke and Frees maintain law offices in Phoenixville, Malvern and West Chester.

These offices service West Chester, Chester Springs, Exton, Phoenixville, Spring City, Collegeville, Downingtown, Malvern, Devon, Berwyn, and many surrounding communities.

By: Trust, Estate, and Probate Lawyer: David Frees *

Now that we are a few days into 2010 it has become clear that the rules about the federal estate tax and the gift tax are anything but clear.

And with so much confusion, especially about the gift tax, I thought that a few basics might help to avoid costly mistakes.

Myth #1. The gift tax was eliminated on January 1, 2010 just like the estate tax.
Fact: Only the federal estate tax was eliminated. The gift tax remains intact and any gifts made this year are subject to the gift tax rules.

Myth #2. The amount that you can gift each year without tax (the annual gift tax exclusion) goes up every year.
Fact: Last year the exclusion amount was $13,000.00. This year, because inflation was so low, the amount will remain the same.

Myth #3. If you exceed that annual amount, then you owe gift tax to the government.
Fact: True and false. In addition to the annual gift tax exclusion, each person has an additional $1 million dollar lifetime exemption. This doesn’t get renewed each year but can be taken in years when you exceed the $13,000.00 dollars per person. There are also exceptions for college education and some health care expenses. So, provided that you file a gift tax return, you will not actually have to pay gift taxes until you both use up your $1 million dollar lifetime exemption and you exceed the $13,000.00 per persona annual limit (which may, from time to time, adjust for inflation).

Myth #4 Gifts are taxable to the recipient.
Fact: The giver cannot deduct the gift for income tax purposes and the gift is not income taxable to the recipient. Any gift tax due is the obligation of the person making the gift.

In short, the gift tax remains alive and well in 2010 and beyond. Make sure that you get good advice about gifting this year as part of your overall estate planning strategies.

David Frees
Wills * Trusts * Estate Planning * Asset Protection Planning
Law Offices in Phoenixville, West Chester, and Malvern Pennsylvania

For an appointment with David Frees to update your estate plan drafted more than 2 years ago, or to correct a plan drafted even more recently and containing federal estate tax planning call 610-933-8069

Note: In Pennsylvania, there are no recognized specialties, or practice areas.
When an attorney is referred to as a trust and estate or will and probate lawyer, this merely indicates that he or she confines or limits his or her practice areas.

By David Frees Law Office: Phoenixville, Malvern and West Chester

You think retroactive taxation for estate tax purposes is a problem?

Well, according to Russia, we have bigger problems…. click here to read more about estate planning and the pending fall of the United States governmentt.

If you need more information about planning your estate or acting as a trustee or executor, we have many free resources. Appointments are also available with David Frees by contacting Beth MacNulty, Donna Brownback, or Denise Fox at 610-933-8069.

Attorney David Frees can also be reached by email at dfrees@utbf.com

Mention this blog to get a free report at the time of your appointment or to request that a free report on executors or estate planning be sent to you. You can also request these reports on line at www.PaEstatePlanners.com

David Frees has attained AVVO’s highest possible lawyer rating.