Friday, December 18, 2009

Still No News on the Estate Tax Front

As this week comes to a close, the buzz among estate planners is what Congress has NOT done so far. Time is running out and the ability to fix the unthinkable is dissipating quickly. The unthinkable is that beginning January 1 we will see the elimination of the estate and GST taxes, coupled with the introduction of carryover basis for people who die in 2010. This means that because of the repeal of the estate and GST tax (which only the wealthiest of 2% of the population pays), Congress had to do something else to replace this loss of revenue. Their answer was to do away with the "stepped-up" basis rules and to institute a modified carry over basis for assets that one inherits. This means that starting in 2010 everyone will now pay increased income taxes to offset the tax revenue lost from the Estate and GST tax!

The House is scheduled to recess for the holidays on December 18 and the Senate is focused on health care reform. This is a true dilemma for the estate planning community is that we still don't know what to tell clients to do at this point in time? But on other fronts........

Trademark infringement is a serious matter. A recent case filed in St. Louis however is proving to be the butt of some jokes. For an interesting (and I thought humorous) read check out the following ABA article here.

Health care reform has targeted savings from electronic record keeping as a way to save costs. But the implications of that are staggering. Some are now pointing out the loss of privacy and the exposure of confidential health information. See E-health records.

Wednesday, December 9, 2009

The Higher Cost of Dying in other states

The Federal government is trying to decide what size of estate tax exemption citizens are going to have next year from the Federal Estate Tax. Under current law the exemption amount is currently $3,500,000.00 in 2009. If Congress does nothing the Federal Estate Tax exempt amount will be unlimited beginning January 1, 2010. I am betting we are going to see last minute legislation at the end of December to prevent the repeal of the repeal of the Estate tax for 2010.

However, state governments are also feeling the economic pinch and looking for ways to increase tax revenues. Dead people are an easy constituency to squeeze because they do not vote. For example, the State of Illinois "decoupled" its estate tax from the federal exemption amount beginning January 1, 2009. In Illinois anyone who dies this year pays an additional estate tax over anything one owns in excess of a $2,000,000 exemption from Illinois estate tax. What does the mean? If a Missouri resident dies with a $3,500,000 taxable gross estate in 2009, the taxpayer pays $0 Federal estate tax and $0 Missouri estate tax. The same taxpayer who dies in Illinois this year pays $0 Federal estate tax and $209,124 in Illinois estate tax. Picking the right state to die in for tax purposes can save some real dollars! Living on the correct side of the Mississippi can benefit one's loved ones significantly!

I think the Missouri tourism commission ought to adopt a new campaign to attract older citizens to move to Missouri before they die.

Friday, December 4, 2009

The House passes Tax Relief (Sort of)

On December 3, the U.S. House of Representatives passed the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (H.R. 4154) by a vote of 225 to 200. Not exactly a land side; but, a beginning.

H.R. 4154 would:

· make permanent the $3.5 million estate tax exemption

· make permanent the 45 percent top rate.

· Prevent the untenable and unworkable switch (scheduled to take effect in 2010) from step-up to carryover basis.

One of the shortest tax bills ever to be passed, it is notable for what it does not say. Many of the changes requested by the Treasury department are absent. It is now up to the Senate. A lot has to occur before this becomes law. Stay tuned for further updates.

Tuesday, December 1, 2009

Lawmakers Scramble to Extend the Estate Tax

The bonanza of passing one's estate free of federal estate tax might actually happen on January 1, 2010. Due to a quirk in the tax code, the estate tax and generation skipping tax ("GST") are repealed for one year starting next year. Currently, anyone with a taxable estate of less than $3,500,000 is exempt from Federal Estate tax (and in Missouri from state estate tax as well). The Senate is considering legislation that would extend the $3,500.000 exemption another year in essence repealing the repeal of the estate tax. But, with time running out and the agenda focused on health care reform, there may not be time to do anything this term.

Starting in 2011 the Federal Estate Tax and GST tax would return and tax everything that one owns in excess of $1,000,000 at a 55% rate. This means that those who are very rich could take advantage of the one year repeal by dying in 2010. While this is a tough advice for any client, think of the social mayhem that could result by leaving such tax policy in place? Congress needs to act responsibly and deal with this legislation before it adjourns. Stay tuned for further updates.

Thursday, November 19, 2009

Social Security

Anyone who has visited your local security office recently will have a story to tell. There may be a better way to find out information about one's benefits by using the internet. Below are some links that might be of help to anyone who is looking for answers to their social security questions:


What Benefits Can I Qualify for?
Can I get Help with Medicare Prescription Drug Costs?


To Obtain Retirement Benefit Estimate
To Calculate Retirement, Disability, Survivor's Benefits
To Request Social Security Statement


To Apply for Social Security retirement/spouse's benefits
To Apply for disability benefits
To Apply for help with Medicare Prescription Drug Costs
To Check Status of
Online Application


To Change Address or Phone #
To Obtain Replacement Medicare Card
To Request Proof of Income Letter
To Obtain Form 1099/1042S (Social Security Benefit Statement)
To Obtain Password


To Check Information or Benefits
To Change Address or Telephone #
To Start or Change Direct Deposit

I hope that these links might be of help to anyone in answering your social security questions.

Friday, October 23, 2009

Good artilce in U.S.A. Today about Wills

See: 5 Myths about Wills and what you should do.

Monday, October 19, 2009

To Tax Estates or Not? That is the Question!

Under the current tax code in effect right now, the Federal Estate Tax is scheduled to be repealed beginning on January 1, 2010. Under the current law in effect in 2009, a citizen can own up to $3,500,000 in total assets, and pay no Federal Estate tax. And, in Missouri we have no state estate tax either. Anything in excess of that amount is taxed at a current rate of 45%.

We have been thinking that Congress was going to "fix" this and pass a law extending the current Federal Estate Tax for next year. Senate Bill 722 would make the 2009 exempt amount and rate permanent. A House Bill 2032 would make the exemption amount only $2,000,000 and fix the rates for estates between $2M and $5M at 45%; 50% for estates between $5M to $10M and tax estates over $10M at 55%. Another House Bill, No. 436 would use the $3.5M exemption and a top rate of 45%. Meanwhile the Congressional Budget Office has thrown out 4 models for Congress to consider.

The truth is nobody knows what is going to happen? What is apparent is that we are fast approaching deadlock; and, if Congress fails to act before the end of the year, we may begin to see in January the tax equivalent of hell freezing over. Stay tuned. We will bring you the latest as soon as we know what is going to happen!

Monday, September 21, 2009

FDIC Protection for Bank Accounts

We get a lot of calls about the status of the Federal Deposit Insurance Corporation's guarantee of deposits in FDIC insured bank accounts. The current $250,000 limit has been extended by the FDIC until the year 2014. It was originally scheduled to have reverted to the old $100,000 limit at the end of 2009. The additional $250,000 amounts for IRA's and certain retirement accounts has been made permanent.

If you want to know how these limits apply check out the ESTIMATOR that is put out by the FDIC.

Monday, August 24, 2009

Planning for Disability

All of us are swamped with busy schedules. No one ever thinks that he or she will ever be the person who is incapacitated or disabled. Yet, statistically, a person is seven time more likely to experience incapacity rather than sudden death. It is reported that less than a third of Americans adults, and less than half of nursing-home patients, have ever created any advanced directives setting forth one's wishes and medical desires.

An advance medical directive typically has two parts: a health care power of attorney and a living will. The health care power of attorney for health care, designates a person, such as a spouse or trusted friend, who can legally act as your agent, making medical decisions for you if you are incapacitated. Meanwhile, the living-will portion describes the type of care you would want if you are critically ill. The Missouri Bar offers a free down loadable form here. However, I would strongly urge anyone to seek a competent estate planning attorney to fine tune and develop legal documents that reflect one's hopes, goals and objective in this area. These forms are state specific.

An advanced directive is for the benefit of the living as well as the person who creates them for himself or herself. Anyone who has ever had to make these kind of medical decisions for a loved one knows how emotionally difficult it can be for the decision maker. Leaving instructions that tell someone you trust what you want and how you wish to be treated is a loving act for the benefit of those who are left behind.

Every estate plan should address these issues and create instructions that reflect the client's hopes, dreams and goals.

Saturday, August 8, 2009

Estate and Gift Tax Update

What is Congress doing about the current situation whereby the Estate Tax will be repealed in 2010. President Obama has asked for legislation that would extend the current 2009 $3.5M exempt amount for another 3 years. But, so far nothing has happened. With the focus in Congress on health reform and cash for clunkers the "fixing" of the Estate Tax Code has seemed to have dropped off the radar screen.

Now this is my pure speculation. However, if the country becomes even more polarized over legislative agendas this Fall, I could see a scenario whereby the White House takes a pure party line approach. If no comprises are reached the Estate Tax will be repealed for one year in 2010. This means that if Warren Buffet died in 2010 his entire estate could pass estate tax free to his heirs. There would be no need for charitable planning from an estate tax avoidance point of view. I can actually picture people jumping off bridges on December 31, 2010 so that they can die to pass their estate to their heirs tax free. I can also picture junior who might wish to accelerate mom or dad's demise in 2010? One may wish to take a long cruise to stay away from anxious expectant heirs late in the year.

But, here is the kicker! Starting January 1, 2011 everyone who dies who has gross taxable estate in excess of $1,000,000 dollars would pay an estate tax of 55% on the excess over and above that amount. If you want to pick a on a constituency that does not vote, dead people fit the bill. And, if Congress is looking for an easy fix to ring in the tax dollars to pay for prior exorbitant spending, what better way than to say "we did not do anything. We just let the tax breaks expire." I hear a large sucking sound beginning to resonate in Washington, D.C. that will impact us all.

In light of all the uncertainty, the one thing that everyone who has an estate of over $1M should do is to update their estate plan to take all these scenarios into account. Many people will be lulled into a false sense of security thinking that this will not apply to them. What they do not realize is that the estate tax is like a giant sponge. It soaks up everything that one owns at death. This includes not only a person's so called "liquid assets" like cash, bank accounts, stocks, bonds, etc. but it also includes equity in real estate, all of an individual's retirement plans such as IRA's , 401(k) plans, annuities and the face amount of all life insurance owned by a decedent. When people add up all of this they are shocked to discover that on paper their estates are a lot larger than they think. The first dollar over $1M could be at risk of a possible 55% haircut.

Stay tuned as the script is not even been written on this yet!

Monday, August 3, 2009

Planning for College

As kids get ready to go off to college it is that time of year when parents swallow hard to pay for tuition, fees and expenses of a child's college education. For a child in Missouri the cost of a public education is approximately $17,000 per year. For a private school costs can exceed $50,000 per year. Few people can afford to pay for this out of their regular income. It takes a lifetime of savings and planning for this expenses.

What are the options for saving?

1. Parents can try to save money in their name. The plus of this is that the investment is in the parent's name and there is no loss of control. The downside is that the return on the investment is currently taxable at the parent's rate.

2. Specialized savings accounts in the child's name, i.e. Uniform Transfer to Minor's Account ("UTMA") and Uniform Gift to Minor's Account ("UGMA") are popular accounts at banks, savings institutions and investment firms. The advantage of these type of accounts are that they cheap and easy to set up. The investments in these accounts are taxed to the minor (subject to kiddie tax). The downside to these accounts is that when the child turns 21 in Missouri (in some states it is 18) the investment belongs to the child. For example, if your child wants to buy a motorcycle on his or her 21st birthday and take their significant other to Alaska you will not be able to do anything about it. For this reason, I do not recommend these accounts unless they are for very small amounts.

3. Section 529 College Savings Plans. Almost every state offers these accounts which are similar to an IRA. The main attraction is that the investment grows tax free inside the 529 Plan. If used for "Qualified Educational Expenses" the amounts expended for college are not taxable income. The parent (or better yet the parent's living trust) can be the owner of the 529 plan so that there is no loss of control. If the child does not go to college, the owner of the 529 plan can name a new beneficiary. Contributions are limited to $13,000 per year. A five year gift of $65,000 can be made up front; but, no other contributions can be made for a five year period.

4. An Irrevocable Trust. Another way to create a fund for future use is to set up an Irrevocable Trust. Let's say a Grandparent sets up an Irrevocable Trust naming the Parent as the Trustee for the benefit of a Grandchild (the "beneficiary") The Trustee can invest in anything that is fiduciallary appropriate. Grandparent can contribute up to $13,000 per year (the "annual exclusion gift"). If Grandparents want to make a joint contribution to such an Irrevocable Trust the maxiumum amount of the gift could be as much as $26,000 per year ($13,000 x 2 = $26,000) . In addition, a Grandparent could choose to make a lifetime gift up to $1M as part of their lifetime gift tax exemption amount to "supercharge" such a trust in addition to annual exclusion gifting. If Grandparent wishes to do so the trust can be made "defective". This means that for estate and gift tax purposes the Irrevocable Trust is outside of the estate of the Grandparent. But, for income tax purposes the earnings of the Irrevocable Trust can be picked up by the Grandparent and put on the Grandparent's income tax return. Why would a Grandparent might want to do this? Because, so far paying the income tax for someone else is not deemed to be a gift. In essence, the Grandparent's payment of the Irrevocable Trust's income tax is another way to transfer more wealth to the next generation. Meanwhile the Irrevocable Trust grows "tax free" so to speak. The earnings are compounded and re-invested in the trust each year. If the Irrevocable Trust could earn 7% a year for 10 years it would double in value. This is a wonderful way to create a supercharged savings plan for a grandchild. The trust can offer asset protection planning from the grandchild's creditors, predators and spouses for their lifetime if so desired.

Fictitious Business Names in Missouri

Many of our business clients utilize a Fictitious business name for their corporations, partnerships, proprietorships and limited liability companies. The Missouri legislature has passed a new law effective August 28, 2009 that requires all former Fictitious Name Registrations filed before August 28, 2004 to be renewed. See here for a copy of the new law. Filings are now good for five years and may be renewed.

If you have need to renew an existing registration or have questions regarding how to file, please feel fee to give us a call.

Wednesday, July 22, 2009

Wills are Public Records

One of the main advantages of a Living Trust over a Will is that a Will becomes a public record when it is filed with the Probate Court. Not only is the Will a public record, but the subsequent inventory and accounting records of what a deceased person owns becomes public as well. Very astute people glean all kinds of things from these records. For example, if one wants to know about Michael Jackson's will see here. Some have likened probate proceedings as akin to leaving your checkbook in a public forum for everybody to see what you own and how you spend your money. Most clients would choose privacy over this kind of public review of their financial matters.

If one wants to maintain some degree of privacy about one's personal estate planning a Living Trust is a better way to plan. A Living Trust is a private contractual document that is only shared with the beneficiaries of the trust and the Internal Revenue Service. No one can walk into a probate court and view a Living Trust as Living Trusts avoid probate at death. Wills, on the other hand, guarantee probate.

Friday, June 26, 2009

Estate Planning for Unmarried Couples

Chances are quite good that you might know of a couple who are living together without the benefit of marriage. The U.S. Census Bureau confirms what you already may suspect. More people are cohabitating in lieu of marriage these days than ever before in our nation’s history. In 1930, married couples accounted for 84 percent of American households. In the year 2000, just 70 years later, married couples were barely in the majority at 52 percent. The trend does not seem to have bottomed-out, either. In 2005, married couples were the minority at 49.7 percent. And, it is not just young couples. In fact, between 2001 and 2006, the number of unmarried cohabitants older than age 55 rose 61 percent, from 340,000 to 549,000. Even though cohabitation is legal in the majority of states, unmarried cohabitants face unique estate planning challenges regarding incapacity, inheritance, and estate taxation.

So who in charge when someone becomes “incapacitated”?

Unlike their married counterparts, unmarried cohabitants may not be able to make fundamental health and financial decisions for one another in the event of incapacity. Absent prior legal planning or specific statutory authority, unmarried couples have no legal relationship to give standing in court over one’s blood relatives. For example Jim and Mary are unmarried cohabitants when a severe automobile accident leaves Mary in a coma. If both Jim and Mary’s parents seek to be appointed as Mary’s legal guardian, then the preference will be for Mary’s parents. In addition, if Mary’s parents do not like Jim, they may legally bar Jim from visiting her. Mary’s parents would even have the authority to make end-of-life decisions without Jim’s input. Similarly, Jim would not be able to manage Mary’s finances. Her parents likely would be appointed as conservator over her financial affairs, paying her bills and filing her taxes, too.

Protecting Your Partner's Inheritance

Absent proper legal planning, state intestate succession laws (i.e., state laws that determine the distribution of assets of a person who dies without a will) may leave the surviving cohabitant on the street. For example, Jane and John reside in a home titled in Jane’s name alone. If Jane dies, then her parents inherit the home and may force John to leave as a trespasser. If Jane and John had children together, then the children would inherit the home, not Jane’s parents. But what if the children were minors? As the surviving parent, John would be responsible for maintaining the home for the children, or selling it on behalf of the children. When the children reach the age of majority (i.e., age 18 in most states), John will be required to turn the home or the proceeds from its sale over to the children without any further guidance or control.

Unmarried Couples Lose the Unlimited Marital Deduction for Estate Taxes

The unlimited marital deduction is an unlimited deduction for estate (and gift) tax purposes, but only for transfers between married spouses of the opposite sex. For example, Jane’s estate is worth $7 million, chiefly consisting of an IRA and a life insurance policy designating John as the beneficiary. Upon her death, only $3.5 million of the IRA and life insurance proceeds will be sheltered from federal estate taxes. What about the remaining $3.5 million? Jane’s estate will have to shell out more than $1.5 million in federal estate taxes (plus income taxes on any IRA funds withdrawn to pay these federal estate taxes) to the Internal Revenue Service within nine months of Jane’s death.
Contrast this result with Pete and Barbara who are married and who live next door in the cul-de-sac. Assume they present the same facts. Pete will inherit Barbara’s full $7 million of assets without any reduction due to federal estate taxes. The Federal Tax Code laws grant to Pete an unlimited marital deduction. This allows married spouses of the opposite sex to gift during life or leave to one another upon death an unlimited amount of assets free of gift or estate taxation.
Couples who elect to cohabitate should consider seeking qualified legal counsel to minimize or eliminate these adverse results.

Wednesday, June 24, 2009

What are "Charitable Gift Annuities"?

As its name suggests, a charitable gift annuity consists of two elements:
  1. an outright charitable gift; and,
  2. the purchase of a fixed income annuity contract. Payments can begin immediately or can be deferred for a period determined by the donor and set forth in annuity contract.

The payment period can be measured by one annuitant's life (who is in most cases is the donor) or by the lives of two joint and survivor annuitants (often a husband and wife). Charitable gift annuities are not issued for a fixed term of years. As will be discussed, however, it is possible to terminate the annuity payments in advance of the life measuring term.

Unlike charitable remainder trusts or pooled income funds, whereby the obligation to make payments is limited solely to the contributed assets or segregated fund, a charitable gift annuity is considered a general obligation of the issuing charitable organization. Charitable gift annuities, therefore, take on much of same characteristics as commercial annuities with the issuing charity acting as the insurer. Many states require issuing organizations to be licensed and to maintain investment reserves.

In order to provide for a gift component, the rates offered by organizations in connection with charitable gift annuities are lower than those available from commercial insurance carriers.
Most organizations offer annuity rates as suggested by The American Council on Gift Annuities -- a qualified 501(c)(3) organization formed in 1927 as the Committee on Gift Annuities for the purpose of providing educational and other services to American charities regarding gift annuities and other forms of planned gifts. The Council deals with all matters pertaining to charitable gift annuities and meets periodically to establish suggested annuity rates that will result in issuing charities realizing a 50% actuarial residuum from the annuity agreements they issue. The rates are based on current mortality studies, prevailing and projected investment returns on invested reserves, and projected administrative costs.

The annuity rate is based on the age and number of annuitants. The most recently published rates apply to gift annuities issued on or after July 1, 2008. Rates begin at 3.3% for single-life annuitants age 0 - 5 and increase to 10.5% for single-life annuitants age 90 and older. Rates for joint-and-survivor life annuities are less to reflect longer combined actuarial life expectancies. Charitable gift annuities are limited to one or two annuitants.

The purpose of using standardized rates is to discourage competitive rate setting among charities and thereby ensure that a significant portion of the transfer will be available for charitable purposes. In 1995, however, a lawsuit was filed by a donor who charged that charities that issued gift annuities had conspired to fix the rates they offered donors and that such practices violated both antitrust and securities laws. Congress, recognizing the primacy of charitable gift annuities as fundraising tools, enacted two laws designed to specifically exempt charitable gift annuities from antitrust laws. As an alternative to using the suggested ACGA rates, some organizations choose to develop their own rates based on their own investment experience, charitable residuum goals, and the investment/reserve requirements under state law.

Determining the Annuity Amount
The annuity rate is stated as a percentage that, when multiplied by the net fair market value of the amount transferred, determines the annual amount payable to the annuitant. The annual amount can then be paid annually, semi-annually, quarterly, monthly or as otherwise set forth in the annuity agreement.
EXAMPLE 1 : Mr. Pleasant, age 70, transfers $100,000 on January 1, 2008 to a charitable organization in exchange for a single life immediate charitable gift annuity. The suggested ACGA annuity rate corresponding to his age is 6.5%. Mr. Pleasant will receive $6,500.00 per year.
EXAMPLE 2: Mr. and Mrs. Jones, both age 70, transfer $100,000 on January 1, 2008 to a charitable organization in exchange of a joint and survivor life immediate payment charitable gift annuity. The annuity rate corresponding their ages is 5.9%. Mr. and Mrs. Jones will receive $5,900.00 per year as long as at least one of them survives.

With a Deferred Payment Gift Annuity (DPGA), the annuitant(s) start receiving payments at a future time, the date chosen by the donor, which must be MORE than one year after the date of the contribution. As with Immediate Gift Annuities, payments can be made monthly, quarterly, semi-annually or annually.

Monday, June 8, 2009

What is Estate Planning?

Estate planning is simply giving what you have, when you want, the way you want, how you want, to whom you want, at the lowest possible cost. It is not a bunch of legal mumbo jumbo. The truth is that we come into this world with nothing, and we leave this life with nothing. All of our physical assets remain behind. I am always amazed how we know that death and taxes are a certainty....but, 7 out 10 people die with no estate planning in place. How is that possible? Well, think about it. People are always so busy taking care of the affairs of life on the "urgent" basis that they never take time to think about what would happen if they check out permanently? We spend a lifetime accumulating assets; but, most people spend very little time planning for one's exit strategy.

Estate planning can be a loving act for the benefit of one's beneficiaries. If one fails to make any provision for his or her estate, the state in which you live at the time of your death has a plan of disposition ready for you. However, it may not be the plan that you would necessarily want? When someone dies without a will or a living trust in place, the laws of intestate succession take over. What is that you ask? The state has a set of rules in place to govern where someones property will go if that person dies without an estate plan in place.

Any person over the age of 18 who is of sound and disposing mind has the ability to condition how one's property will be disposed of at the time of one's death; but, it is utterly amazing how often people die without any plan in place. The probate court is the only institution on earth that can change the name of a deceased person's property after one dies. Probate is great for lawyers; but, it is not so good for people. Anytime one can avoid probate, the heirs will come out way ahead. Most probate administration will eat up on average about 7% of the assets passing through probate. A good estate plan will allow one to avoid probate.

Thursday, June 4, 2009

Trustworthiness of a Child

Here is a recent Wall Street article that is good food for thought on how to choose a successor Trustee.


Sunday, May 31, 2009

Welcome to my New Estate Planning Blog

Tomorrow I start as a partner at Kohn Shands Elbert Gianoulakis & Giljum LLP. The movers are coming at 8:00 a.m. to relocate us to 231 S. Bemiston, Suite 800, Clayton, MO 63105. My new phone number will be 314-241-3963.

I am looking forward to creating a blog that helps people understand the basics of estate planning and how taxes impact the design of ones' estate plan. Please bear with me as the relocation will take a little time. However, if we can provide you with information or advice in the interim, please feel free to contact us.