Friday, February 03, 2012 Estate Tax Watch 2012At the present time the biggest risk is uncertainty and really only to a limited degree. While the Estate Tax Exemption has continually increased over the last 30 years, there seems to be no chance that it will be permanently decreased to something less than $3 million. Which would mean that a couple could shelter more than $6 million with very little work.
The risk and uncertainty are about how we get there. The current $5 million exemption DOES expire this year. With the current atmosphere in Washington we have to assume that the unthinkable will happen and we will revert to the $1 million exemption for at least a few weeks and very likely longer.
This puts wealthy, single, seniors at risk. Singles are more at risk because it is assumed that in the long term we will have a generous Estate Tax Exemption again and if your spouse passes away in early 2013 you would still have the Unlimited Marital Deduction to avoid Estate Taxes in the short term.
So if you have a wealthy grandmother – get her to the Estate Planning Attorney soon!
For everyone else, the issue is FLEXIBILITY. You need an Estate Plan that can handle an Exemption ranging from $1 million to $5 million.
Tuesday, October 11, 2011 Bankruptcy Myths And Misperceptions
There are many misperceptions about the new Bankruptcy Laws. The Credit Card Companies have succeeded in convincing the public that it is more difficult to file Bankruptcy. However, I have been doing Bankruptcy work for 14 years and my impression is that it is easier than ever. If you qualify for a Chapter 7 there is very little a creditor can do to prevent your discharge and the process will move very smoothly with electronic filing.
MYTH – The Credit Card Companies had the Bankruptcy Laws changed and it is much harder to file Bankruptcy.
NOT TRUE – While the Credit Card Companies have succeeded in their campaign to convince the public that Bankruptcy filing is more difficult I actually find it to be just the opposite. The changes made by the Credit Card Companies actually allow me to guide my clients through the Bankruptcy process even faster than before. We now have Electronic Filing and other streamlined systems that lessen the burden on Bankruptcy Filers.
MYTH – I will have to confront my creditors in Court and explain my situation to the Judge.
NOT TRUE – You will be required to appear at the Bankruptcy Court 1 time. That is for the 341(a) Meeting Of Creditors. There are usually 20-40 other people having their Meeting at the same time. The Meetings takes place in a Conference Room. There is no Judge. The Chapter 7 Trustee takes about 2-3 minutes for each Bankruptcy Filer. Most of the questions relate to confirming your identity and whether you actually read your Chapter 7 Petition.
MYTH – You cannot get a discharge for Credit Card Debt and you will have to make payments on your Credit Cards.
NEVER TRUE - If you qualify for a Chapter 7 Bankruptcy you will not need to pay back ANY Credit Cards.
MYTH – There are restrictive income limitations that prevent most people from filing Chapter 7.
NOT TRUE – Yes there is an income limitation. However it is based on the average of the last 6 months. If you have been unemployed or had a reduction in income, or know that you will be laid-off, it is easy to plan for a time period when you will qualify.
MYTH – There are burdensome credit counseling requirements prior to filing Bankruptcy.
NOT TRUE – The credit counseling course can be completed via the internet and a follow-up phone call to the counselor. The entire process takes about an hour and the cost is less than $50.
MYTH – You cannot keep your household items and big screen tvs.
NOT TRUE – If you just purchased something on a credit card you may have to give it back. Otherwise, all reasonable household items are generally exempt.
MYTH – Cannot keep your cars.
NOT TRUE – Your cars are generally exempt and if you are financing your cars there is probably very little equity. If you use your car for business the exemption amount is even higher.
MYTH – The longterm damage to your Credit Score outweighs the benefits of Bankruptcy.
NOT TRUE – If you qualify for a Chapter 7 Bankruptcy and your debts are large enough that you are not able to qualify for a credit counseling program at a reasonable cost, you are better off filing Bankruptcy. A typical repayment plan is 5 years. In that time you can significantly improve your Credit Score and you will have the benefit of the cash in hand that would have gone to a repayment plan. Tuesday, March 29, 2011 Why I Do Not Use An Estate Planning Binder / Kit
When I initially started doing Estate Plans I spent a lot of time preparing Estate Planning Binders / Kits. I felt this was an “industry norm” that was expected. However, as my Estate Planning practice expanded I also began to encounter many of these binders from clients seeking a review of their existing Estate Plans. What I found was that these Estate Planning Binders became (over time) a hodgepodge of financial and legal information about the clients that often made little sense. It was common to find incomplete sets of Estate Planning documents. Often a Tax Return or two would be stuffed into the Binder, or maybe the paperwork from a mortgage refinance.
Probably the most common thing I have noticed about Estate Planning Binders is that the most important document – an original copy of the Trust was missing. That makes sense. The Trust is the document that your bank, broker or escrow company would want to see. Unfortunately, it was the document that often did not make it back into the Binder.
Those issues aside there are two more important reasons I do not use Estate Planning Binders.
1. The typical Estate Planning Binder really stands out. It is unlike any other books or documents you are likely to have around your house. My fear is that if you have a nosy child, relative, babysitter, housekeeper, etc. their curiosity may very well get the best of them and they will ultimately be tempted to peak.
2. More importantly, I fear that an Estate Planning Binder is a dangerous tool for identity theft. It will likely serve as a perfect roadmap to your financial world if it is ever lost or falls into the wrong hands.
I deliver my Estate Planning documents in simple paper format and suggest that you tuck them into a safe place where they are not likely to be noticed. It is important to remember that the originals are not going to be necessary and that copies or electronically stored images of your Estate Planning documents will always work.
Tuesday, February 15, 2011 Secretary of State - Statements Of Information
Anyone who has a corporation or LLC knows about the annual Statements of Information that must be filed with the Secretary of State. In the past these have had very little meaning. I have had several Trials where I was trying to pierce the corporate veil and introduced evidence to the Judge that the Statements of Information were incorrectly filled out ... the Judges would just shrug and indicate it was kind of a meaningless form.
Today financial institutions and insurance companies seem to be giving these Statements of Information more credence. They are particularly interested in whether the Officers and Directors listed on the Statement of Information are consistent with the corporation / LLC minutes or a pending application for credit or insurance. I am not sure where this requirement came from but it is probably an outgrowth of the Financial Markets Reform legislation in the wake of the sub-prime mortgage mess.
When these are filed with the Secretary of State you can send a copy with a self-addressed stamped return envelope and the Secretary of State will return a conformed copy to you. I strongly suggest that everyone do this as obtaining a certified copy for the Secretary of State can take 4-6 weeks. Friday, December 17, 2010 Estate Tax Watch - A Christmas Present From Obama
Thanks Obama - disregard what lies below. We now have a $5 million exemption and an Estate Tax rate of only 35%.
However, with a 2 year time span on this deal it shows that we will need to keep watching and adjusting our Estate Plans.
Old post follows:
Everything continues to indicate broad bipartisan support for a permanent Estate Tax Exemption in the $2 to $5 million range. However, that consensus opinion has been the same for at least 2 years. With only one month left in 2010, and increasingly partisan comments from Washington, we need to prepare contingency plans for a $1 million Estate Tax Exemption beginning January 1, 2011.
Most married couples with an AB or ABC Trust should be ok, at least temporarily, if the Trust was drafted or amended following the 2001 Bush Tax Cuts. Post 2001 Trusts should have been designed to flexibly accommodate an Estate Tax Exemption that started at $1 million and increased to $3.5 million before our Estate Tax Holiday in 2010.
Singles (including those whose spouses have predeceased them) need to have a contingency plan if their assets are at or above $1 million as they now face a 55% Estate Tax.
There are some easy fixes that can be implemented into an Estate Plan to reduce taxes. An amendment to your Trust implementing a Charitable Lead Trust (CLT) can shelter almost unlimited amounts from Estate Tax. You just need to be willing to allow a charity to receive the income from said assets for a certain period of time prior to the assets being distributed to your beneficiaries.
LLC’s can still be used and Valuation Discounts (from 5% to 40%) for the assets transferred to LLC’s have been repeatedly upheld by the Courts if implemented properly. While there has been talk of restricting the use of Valuation Discounts, no such legislation is currently pending, and current transfers to LLC’s should receive the discounts provided by current law.
While married couples are likely ok for the first few months of 2011, if the Estate Tax Exemption stays in the $1 million range, married couples may benefit from the strategies above, as well as increased use of the Marital Deduction and Lifetime Gifts. Monday, November 01, 2010 The Return Of The S Corp
In the late 70’s the use of corporate entities to shield business owners from taxes (and other tax shelters) increased dramatically as marginal tax rates hit all-time highs. Could this type of planning face a resurgence with out of control deficits and the prospects for higher taxes?
An example of this is the S Corporation. Owners of S corporations can reduce their overall tax bill by paying themselves a salary, subject to payroll taxes (Social Security and Medicare taxes), and then taking a dividend, which is distributed free of employment taxes (and, again, isn't subject to the corporate tax rate). There's a catch, though: that salary must be reasonable, which can be determined by researching salaries in similar industries in the same geographic region. The IRS is well aware that many owners of S corporations are tempted to underreport salary to avoid paying payroll taxes, while taking a hefty payroll-tax-free dividend. To avoid trouble with the IRS, set your salary at a reasonable level based on salaries for comparable positions— and keep careful records in the event of an IRS audit.
To set up an S corporation, you follow the same steps for setting up a regular corporation but take the extra step of electing S status via a special IRS form. To qualify for S corporation status, you must meet certain rules, such as having fewer than one hundred shareholders and issuing only one class of stock (preferred shares aren't allowed). Tuesday, May 18, 2010 2010 Estate Tax Repeal Is Not A Big Deal
Every year that I have been in practice there have been changes to the Estate Tax. This year would seem to be the biggest change with the temporary repeal of the Estate Tax. However, all the comments from Washington confirm that a new Estate Tax will be in place soon and it will likely include an individual exemption in the $3 million range, which is basically what we had last year.
Some advisors are raising concerns about the capital gains rules that are in effect until a new Estate Tax is passed and suggest that some additional planning may be in order. This is not necessary for most people as the existing rules allow a $4.3 million exemption for capital gains assets passing to a surviving spouse. And these rules are only in effect until Congress passes a new Estate Tax which may be only a few more months.
If you, or a relative, are seriously ill and have a large estate, it certainly would not hurt to review your Estate Plan to see if the repealed Estate Tax provides any opportunities. The vast majority of people should wait until the new Estate Tax is passed and then consult with their advisors. Saturday, April 17, 2010 The 2 Most Common Estate Planning Mistakes
Following are the 2 most common Estate Planning mistakes that I see:
Failing to transfer assets into the Trust before death or incapacity occurs.
Failing to have a comprehensive Durable Power of Attorney for Financial Management (DPAF).
Making sure all of one’s assets are in a Trust and obtaining a DPAF are very easy things to do and the costs are minimal. In just a couple of hours you can do most of the Trust Funding yourself and you probably will not need an attorney’s assistance. A good DPAF should cost no more than $200 to $300. Unfortunately, the costs of not taking these steps can be significant and time consuming.
Trust Funding. The purpose of a Revocable Trust is to avoid Probate. A Trust is a separate legal entity and when you die it continues in existence. This avoids the need for a Probate Court to determine the proper title to your assets. However, if all of your assets are not in your Trust, some form of Probate will be necessary. If you are lucky these assets may be collected via an Affidavit, or Small Estate Probate Procedure. But even these basic procedures can require some substantial attorney’s fees.
How do you complete your Trust Funding? Review all bank and brokerage account statements. The name on the account should be the name of the Trustee of the Trust and it should usually be followed by the date of the Trust. If you find any accounts that are not in the name of the Trustee you need to contact the bank / broker and let them know. They will want to see a copy of the Trust. They may have additional forms that need to be filled out. It is a very simple process and all banks / brokers are very familiar with the process. Your social security number remains on the account.
DPAF. A Durable Power of Attorney for Financial Management (DPAF) provides your agent the ability to make financial decisions in the event you become incapacitated. Most people will become incapacitated at some point in their lives as medical science is much better at preserving our bodies than our brains. Ideally a DPAF will allow your agent to Medi-Cal planning and make amendments to your Trust. However, even a basic DPAF can allow your agent to take the necessary steps to preserve your finances without Court intervention. If you do not have a DPAF the only real alternative is a Court-Appointed Conservatorship. This is a very expensive, time consuming and public process. All of your assets will be inventoried and filed with the Court in Public Records. There will be an independent Court investigator appointed and your estate will be responsible for their fees. Your Conservator will need to retain an Attorney and will be required to file detailed annual accountings and reports to the Court. The costs of a Conservatorship can be astronomical. |