As this article from the Wall Street Journal details, the IRS recently lost another case, this time in the Ninth Circuit, dealing with gift tax issues. Where family members are trying to make signficant lifetime transfers to loved ones, there is frequently some uncertainty over how to value the assets, especially business or real estate interests. If the IRS successfully challenges the valuation, it might result in gift tax being due to the federal government. The taxpayer had specified that if additional tax was found to be due, increased transfers would be made to the taxpayer's own charitible foundation, thus... Continue reading

As this article from Forbes.com illustrates, if your spouse died in 2011, you will probably want to at least consider filing an estate tax return with the IRS to preserve your deceased spouse's portable estate tax exemption -- even if the estate was well below the exemption level. Due to the new portability rules, if one spouse dies leaving an unused exclusion amount, the other spouse may add it to his or her own personal exemption and effectively have up to a $10 million exemption. However, to do so, the surviving spouse must file an estate tax return for the... Continue reading

As detailed in this article from Forbes.com, the IRS has finally issued its rules and guidance regarding opting out of the estate tax system for deaths that occurred in 2010. If a $5 million personal exemption is sufficient to cover the estate of the 2010 decedent, most executors will not choose to opt out of the estate tax system. Why? Because if no tax is due, the executor will want to preserve the stepped up basis that the inherited assets will receive. If the executor does choose to opt out of the estate tax system, the step up in basis... Continue reading

This chilling story, told in the pages of HuffingtonPost.com, details a horrifying chain of events that illustrate vividly why everyone needs to do some estate planning before the unexpected happens. Mom had no will when she died and her two adult children, who were very close, cooperated to handle the administration of the estate. However, one of those adult children died shortly thereafter, again without a will, and her estranged husband re-enters the picture and upsets the apple cart, ensuring that most of the estate was eaten up by legal fees. Continue reading

As this BusinessWeek piece illustrates, many of the recently-married same-sex couples in New York and other states permitting same-sex unions are facing a rude awakening. While they might be married in the eyes of their home state, the IRS isn't having it. Those couples must continue to file individual "single" returns and cannot file as "married." How they go about doing so is a topic for another posting. Moreover, these couples cannot take advantage of the unlimited marital deduction for estate tax purposes, which leads to huge problems if planning is not done in advance of the death. Until Congress... Continue reading

This article by Bob Carlson at Investing Daily details some of the issues that are frequently overlooked during the estate planning process. Some of the questions: Is there enough cash? Who pays the taxes? Have beneficiary designations been addressed? Are there creditor problems? Who will serve as trustee/executor? Has the trust been funded? Continue reading

As ABC News is reporting, a New York woman left widowed after her lesbian partner of over 40 years died last year, has sued the federal government for a refund of the $363,000 in federal estate tax she was forced to pay after her partner's death. Her claim is based on the fact that a heterosexual married couple would not have had to pay anything in similar circumstances. But by reason of the fact that the federal government will not recognize her 40 year relationship as a legal marriage (even though they were lawfully married in Canada) due to the... Continue reading

This article in the Los Angeles Times discusses the recent findings of a recent study by US Trust on the attitudes and values of wealthy baby boomers relating to their wealth. US Trust surveyed almost 500 people with investible assets in excess of $3 million. Only 49% of those surveyed feel it is important to leave money to their children. Most felt they wanted to spend their wealth during their lifetimes on travel and personal relationships. Only one-third of respondents felt their children could even "handle" an inheritance. More than half haven't disclosed the extent of their wealth to their... Continue reading

As this Bloomberg article explains, the IRS recently announced that it was extending the time for heirs of 2010 decedents to file Form 8939. That form will NOT be due on April 18, 2011, but rather, will be due at some point in the future after the IRS finalizes the form and issues further guidance. The form is required for estates that are opting out of estate tax for 2010 (and thus, also opting out of a step-up in basis for the inherited assets for capital gains purposes). The form will be used to allocate the $1.3 million in increased... Continue reading

As explained in this posting at Seacoastonline.com, "second to die" or survivorship life insurance can solve many financial problems. What is it? It is a life insurance contract that covers two lives, with the death benefit being paid only after both insureds have died. By having two lives under one policy, the premiums are in many cases much lower than they would be if you had two separate policies with the same death benefit. Thus, many couples can get more insurance than they would otherwise be able to afford. Also, folks who might otherwise be uninsurable due to health issues... Continue reading

As this New York Times article discusses, this is a tricky tax season for same sex couples in community property states like California, Nevada and Washington. Why? Because for the first time, the IRS is requiring domestic partners or same sex married couples to split their community property income on both partners' respective federal income tax returns. So the federal government is recognizing the community property rights of the couple but not recognizing their legal relationship (which is why each partner must file a separate "single" tax return, even while they are reporting half of all the community income, deductions... Continue reading

Hahn's Estate Planning Blog has been nominated as a candidate for the Lexis Nexis Top 25 Estate, Probate and Elder Law Blogs of 2011. If you'd care to show your support, click on this link and you can vote by logging in and leaving a comment. Thank you for your support! Continue reading

As this article from Forbes lays out in detail, the complexity facing executors/trustees of estates where the decedent died in 2010 is daunting and likely to cause some head-scratching. Given the estate tax reform that took place at the very end of the year, these estates have to make an election of whether to proceed under the 2011 rules (35% estate tax on assets in excess of $5 million with full step up in basis on inherited assets) or the 2010 rules (no estate tax, but a complex "modified carryover basis" system that will likely result in significant capital gains... Continue reading

This article from Deborah Jacobs in Forbes outlines some of the dilemmas facing wealthy families who are considering whether and how to take advantage of the opportunities created by the recent estate/gift tax reforms during the next two years. The opportunities are real and substantial, including zeroed-out or "Walton" GRATS, Familly Limited Partnerships, and installment sales of FLP interests to grantor trusts to leverage the valuation discounts available for FLP interests. These strategies will effectively permit wealthy individuals to pass far more than the $5 million estate tax exemption on to their heirs. On the flip side, there are transaction... Continue reading

Has the recent estate tax reform changed the role of "bypass trusts," long a fixture of married couples' estate planning strategies? This article from MSN Money argues yes. With the exemption increased to $5 million per person and that exemption made "portable" to the surviving spouse, the primary reason for the bypass trust has now been eliminated. Or has it? Portability is only the law for the next two years and to qualify, both spouses must die in 2011 or 2012. Also, you must file an estate tax return for the deceased spouse to claim the unused exemption, even if... Continue reading

The ABA has issued official comments to the IRS on its draft Form 8939 which deals with allocation of basis for property acquired from decedents who died in 2010. This form only applies to those estates who will choose the "no estate tax/carryover basis" system rather than those that will choose the "$5 million exemption/35% estate tax/step up in basis" system, i.e., the largest estates. Some of the comments: include an explicit due date; only require disclosure on the form of assets that exceed some threshhold value (like $10,000); explain how community property should be handled; permit requests for extensions... Continue reading

In this Wall Street Journal article, the authors explain how the recent changes to the gift tax regime have created real opportunities for wealthy families and are causing these families to seriously reevaluate their estate plans. The lifetime gift tax exemption has increased dramatically from $1 million to $5 million per person ($10 million per couple) and the tax rate on gifts above the $5 million exemption has been set at 35% (it had previously been set to increase to 55% on January 1, 2011). Planners are talking about the "golden window," during the next two years, during which families... Continue reading

Now that the estate tax laws have been reformed for 2011 and 2012, here's an article in US News that talks about what you need to know. Some highlights: (a) you still need to do estate planning; (b) you need to have your existing documents reviewed by an attorney to make sure they are consistent with the new laws; (c) if your loved one died in 2010, you have important options with significant tax consequences. Continue reading

Ashlea Ebeling writes an excellent article in Forbes detailing the issues that you should be considering when putting together your first estate plan. Just gotten married or had children? Inherited some property? Been a while since you've updated your old will? You need to be meeting with an attorney to put in place your will, trust, powers of attorney and updating beneficiary designations. For many of these people, estate tax is not an issue and never will be. The issue is designating guardians for minor children, avoiding probate and planning for lifetime incapacity. Continue reading

Hani Sarji, at Forbes.com, has an excellent piece summarizing the changes in the estate, gift and GST tax schemes for 2011-2012, compared to the 2010 rules, including a very handy chart. For those who have had a hard time keeping track of what was happening, this is a good place to start. Continue reading

In this article from AdvisorOne, Michael Fischer explores some issues relating to A/B trusts in the wake of the recent estate tax reforms. Standard estate planning for married couples has typically included a living trust that splits into an A trust (frequently called the "survivor's trust") and a B trust (the "bypass trust" or "credit shelter trust"). This split was necessary to preserve the decedent's estate tax exemption which would otherwise be "wasted" if everything was left outright to the surviving spouse using the unlimited marital deduction. The recent estate tax reforms increased the estate tax exemption to $5 million... Continue reading

In this article from the Wall Street Journal, Anne Tergesen explores some of the issues and opportunities with year end gifting in 2010 given the recent estate, GST and gift tax reforms. The opportunity mostly lies in the fact that there is no generation skipping tax for 2010, so gifts from grandparents to grandchildren or younger generations will not incur GST. The gifts would need to happen before January 1st, and gifts in excess of $1 million (or for those who have already used up their $1 million lifetime gift exemption) would be subject to a 35% gift tax. After... Continue reading

In the recently-enacted estate tax reforms, the gift tax was also reformed. Prior to the 2001 estate tax changes, the gift tax and estate tax systems were "unified," meaning that the personal exemption and tax rates tracked one another. That changed between 2001 and 2010, when the personal exemption for gift tax remained at $1,000,000 even as the personal exemption for estate taxes rose to $3.5 million. For 2011 and 2012, the gift tax and estate tax are "reunified." Thus, each person now has a $5 million lifetime gift exemption and gifts in excess of that level are taxed at... Continue reading

As part of the recent estate tax reforms, for 2011 and 2012, the unused portion of each person's estate tax "applicable exclusion amount" ($5 million) is "portable" to a surviving spouse. What does that mean? If your predeceased spouse did not use up his or her entire exemption, the unused portion may be added to the surviving spouse's exemption amount in order to shield a greater amount of wealth from estate taxes. The election to use the "deceased spousal unused exclusion amount" must be made on a timely-filed estate tax return. This portability election is also scheduled to "sunset" on... Continue reading

This article from Harvy Lipman at NorthJersey.com explores the question of whether the recently-enacted estate tax reforms will have an impact on charitable giving. With the personal exemption now increased to $5 million, portable to a surviving spouse, and the top rate reduced to 35%, the prior incentives towards charitable giving as a way to reduce estate tax liability are clearly reduced, at least for the next two years. The question is whether that will actually lead to reduced giving by donors. Clearly, non-profits are worried, as evidenced by the comments of the non-profit lobbyists quoted in the article. Academics... Continue reading