The Clock is Ticking: The tax law is set to change

The Clock is Ticking: The tax law is set to change in a radical way and opportunities may cease to exist at midnight on December 31, 2012. History To understand the impending deadline, a little history is in order. Former President George W. Bush signed a number of tax cuts into law in 2001 and 2003. The “Bush Tax Cuts” would have expired on January 1, 2011, but Congress and President Barack Obama, after a contentious debate at the end of2010, extended the Bush Tax Cuts until January 1, 2013. The extensions included a new element, an unexpected increase in the estate tax, gift tax, and generation-skipping transfer tax exemptions to $5 million in 2011 and $5,120,000 in 2012. Effect of Increase Because of this increase, an estate having a net value of $5,120,000 or less is completely exempt from the estate tax (this tax-free result applies to the estate of a decedent who dies in 2012 and who did not make significant lifetime gifts). In addition, the increase in exemption allows individuals (regardless of the size of their estate) to make gifts during their lifetime of up to $5,120,000 before December 31, 2012, without incurring a gift tax. This tax exemption for lifetime gifts is in addition to, and does not include, smaller annual gifts of up to $13,000 or certain direct payments to schools or healthcare providers, excluded under a separate exclusion. Finally, the increased generation-skipping transfer tax exemption permits these gifts to benefit grandchildren and more remote descendants. The increased exemptions apply only until December 31, 2012. Unless Congress and the President take action, the extensions...

Same Sex Estate Planning

Same Sex Estate Planning A marriage bestows certain legal and tax benefits to both husband and wife. However, Federal laws generally do not recognize the same rights and privileges for same-sex couples. Since gay or lesbian couples lack the same certain tax, inheritance and employment benefits that marriage bestows, these benefits must be created through other means, like the use of estate planning documents and contracts. The question most people ask is “What if I do nothing?” What happens is if you do not make your choices, the State of California will do so in a process called intestate succession which leaves your estate to your biological family, so brothers, sisters, parents and so on. It does not leave anything to a Partner, a Registered Domestic Partner [RDP] or long-time lover. There are two problems with intestacy. The first and most important problem is that most state intestacy laws discriminate against same-sex couples in that gay and lesbian relationships are generally considered invalid for purposes of distributing the estate of a deceased partner who dies without a will. Generally, under intestacy laws, a surviving partner will be left with nothing upon the death of a partner. This is true regardless of the length and intensity of the relationship between the deceased partner and the surviving partner. California, however, has made substantial progress in reversing this discrimination (“AB 205“). As of January 1, 2005, the law is now: if a domestic partner dies without a will, trust or other estate plan, the surviving registered domestic partner will inherit a portion of the deceased partner’s estate provided that both parties are...

Why Do I Need To Plan My Estate When The Estate Tax Exclusion Is Up To $5,000,000!?

Why Do I Need To Plan My Estate When The Estate Tax Exclusion Is Up To $5,000,000!? I talk to a lot of people who stopped worrying about planning their estates when the 2011 threat of the $1,000,000 limit of assets that could transfer to their heirs without estate tax jumped to an unbelievable $5,000,000 per person! The legislature extended a tax bill already on the books for two more years and increased the exclusion amount from $3,500,000 to $5,000,000. At a $1,000,000 limit, in California, it is fairly easy to see exceeding that amount when one considers the value of your house and retirement assets and planning became critical. Now, it seems people have relaxed and figure, I suppose, that unless they are any where near five million dollars in their estates, they have nothing to worry about. Think again. First, that $5,000,000 amount is only through December 31, 2012, which is next year. Second, it has nothing to do what happens to your body, only your money. Third, the new exclusion amount does nothing for your children should a Guardian be needed. There is much more to planning your life and estate than just how much money you have. Let’s start with a very basic background on the Estate Tax in the United States. The estate tax is one part of the Unified Gift and Estate Tax system in the United States. It is a tax on the transfer of the “taxable estate” at death of any assets by any means, whether via a will, according to the state laws of intestacy, a transfer of property from...

Tax Considerations of Joint Ownership

Tax Considerations of Joint Ownership Every transfer of an asset has a potential tax consideration that must be considered. Many people approach estate planning with a simple solution. They place the name of a trusted adult child on their bank accounts or on the title to their homes. They do this to avoid probate or so if they become disabled, this child will be able to pay their bills and otherwise conduct their personal business. In the event of their death, it is supposed that this child can be relied on to distribute cash and other assets to the other siblings fairly. Well, maybe! I can tell you it is not without it landmines. California recognizes a number of different forms of property co-ownership, but the most common ways titled property is held are as tenants in common or as joint tenants. Both types of co-ownership have significant differences, both in the way they are created and the effect the death of one tenant has on the property as well as to the remaining tenants. Considerations of co-ownership typically revolve around planning for property distribution on death. For this reason, always seek the advice of an attorney before making a final decision. This does not address community property because that is held by a married couple and transfers between spouses are not subject to tax. Tenants in Common: A tenancy in common is a form of property ownership that does not provide any survivorship rights among the co-owners, unlike with a joint tenancy. When one tenant in common dies, that tenant’s interest in the property does not automatically pass...

FAQs about the New Tax Rules for Executors for 2010

FAQs about the New Tax Rules for Executors for 2010: Estate, Gift and Generation-Skipping Transfer Tax Questions Is the estate tax repealed for decedents dying in 2010? Yes. We never thought we would be here but the indecision and inability of the legislature to reach anagreement is a win for decedents dying in 2010. Title V of the Economic Growth and Tax ReliefReconciliation Act of 2001 (“EGTRRA”) repeals the estate tax for decedents dying after December 31,2009 and before January 1, 2011. The estate tax is not repealed for the estates of decedents who diedbefore January 1, 2010; therefore, an estate tax return will still need to be filed for those estates. Is the gift tax repealed for gifts made during 2010? No. Title V of EGTRRA does not repeal the gift tax for 2010. However, the maximum gift tax rate fortaxable gifts is reduced from 45% to 35% for gifts made in 2010. Furthermore, EGTRRA broadened theapplication of the gift tax by treating certain transfers in trust as transfers of property by gift. For moreinformation, you should consult your tax adviser or go to the IRS Web site. Key words: Notice 2010-19. Is the generation-skipping transfer (GST) tax repealed in 2010? Yes. Another win. Title V of EGTRRA repeals the generation-skipping transfer (“GST”) tax on directskips, taxable terminations, or taxable distributions occurring after December 31, 2009 and beforeJanuary 1, 2011. Should I file a Form 706 for a decedent who died in 2010? No. Because the estate tax is repealed for decedents dying in 2010, no estate tax is due and there is noneed to file a Form...

Estate Tax Update: It is 2010: NOW WHAT??

Estate Tax Update: It is 2010: NOW WHAT?? I. BRIEF HISTORICAL REVIEW OF HOW WE GOT INTO THIS MESS The 2001 Economic Growth and Taxpayer Relief Reconciliation Act(EGTRRA), was adopted as a ten-year tax relief bill. The duration of the effectiveness of the bill was limited because proponents of the changes did not have enough Congressional votes to make those changes as permanent additions to the tax code. Instead of reducing the scope of those changes to try to get more Congressional votes for a permanent amendment to the law, proponents of the changes chose to make the more sweeping changes they preferred but only for a limited time. As EGTRRA applied to estate taxes, the estate tax exemption amount increased dramatically over those years from $1,000,000 in 2002 up to $3,500,000 in 2009 (or a combined $7,000,000 amount for a married couple), and the estate tax rate was conversely reduced over that same time period. Then, in 2010, the estate tax was “repealed” (or more accurately, according to the statute, it “does not apply” to decedents dying after December 31, 2009). We practitioners thought it was unimaginable that Congress would not deal with the pending repeal in 2009. There were several attempts to do over the 10 year period. Most recently, in Fall of 2009, the House of Representatives passed a bill that would have continued the estate tax with a $3.5 million applicable exclusion amount. But the Senate, paralyzed by partisan bickering, could not act. The unpredictable environment and the uncertainty of whether Congress will enact new law, causes profound uncertainties for estate planning in 2010 and...
Johnson Law Firm

Request your

Free Consultation!

Get a Free Consultation regarding your Estate Planning needs.

Your email submission was successful!

Pin It on Pinterest