Welcome to 2010!

The start of a new year brings with it some very interesting tax developments. Congress adjourned and promised to come back and fix the estate and generation skipping tax this year. So right now if anyone wants to die and pass thier estate along without the impositon of any estate tax at the federal level, the opportunity is yours! Tough advice to give to a client!

However, the generation skipping tax ("GST") is also no more. Anyone contemplating gifts in excess of the current $1,000,000 lifetime gift tax exemption will not have to pay GST tax of 45% to gifts to grandchildren. The gift tax rate was reduced from 45% to 35%. While Congress has talked about making any new taxes retroactive to January 1, 2010, there is some thought that that may be unable to do so based on prior case law. So there exists a window of opportunity for those willing to play the game.

The bad news is that Congress had to come up with some way to make up the revenue loss. So they invented something for this year called "modified carryover basis". This means that the executor of a decedent's estate can elect to "step up" the first $1.3 million of assets to the fair market value of a deceased person's estate as of the date of death. But anything else will be subject to "carryover basis", i.e. the basis in the hands of the heirs will be the same as the lifetime basis of the person who died owning the asset....unless, the decedent was married! A spouse is entitled to an additional $3M dollars of step up in basis election. The result is to increase the income tax on the sale of inherited assets at the time of a subsequent sale. The accounting profession will love this new computation. Congress tried this back in 1976. After two years when they admitted that it was so complicated that nobody could compy with it, Congress repealed it. Now this new system is back again in 2010. I wonder how long it will take Congress to remember that this was a mistake the first time and it is not any better the 2nd time around.

Conclusion: This is the year that everyone should review their estate planning documents to see what the current repeal of the Estate tax does to one's estate planning. There are still so many unknowns that are difficult to predict; but, high net worth estates may be able to do some things right now that will not be available later.

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.

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.

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.

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.

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:

TO SEE IF YOU QUALIFY FOR BENEFITS:

What Benefits Can I Qualify for?
www.socialsecurity.gov/best
Can I get Help with Medicare Prescription Drug Costs?
www.socialsecurity.gov/i1020

TO ESTIMATE YOUR FUTURE BENEFITS:

To Obtain Retirement Benefit Estimate
www.socialsecurity.gov/estimator
To Calculate Retirement, Disability, Survivor's Benefits
www.socialsecurity.gov/planners
To Request Social Security Statement
www.socialsecurity.gov/statement

TO APPLY FOR BENEFITS:

To Apply for Social Security retirement/spouse's benefits
www.socialsecurity.gov/applyforbenefits
To Apply for disability benefits
www.socialsecurity.gov/applyfordisability
To Apply for help with Medicare Prescription Drug Costs
www.socialsecurity.gov/i1020
To Check Status of
Online Application
www.socialsecurity.gov/applyforbenefits

COMMON TRANSACTIONS ONCE YOU ARE RECEIVING BENEFITS:

To Change Address or Phone #
www.socialsecurity.gov/coa
To Obtain Replacement Medicare Card
www.socialsecurity.gov/medicarecard
To Request Proof of Income Letter
www.socialsecurity.gov/beve
To Obtain Form 1099/1042S (Social Security Benefit Statement)
www.socialsecurity.gov/1099
To Obtain Password
www.socialsecurity.gov/password


TRANSACTIONS ONCE YOU HAVE A PASSWORD

To Check Information or Benefits
www.socialsecurity.gov/pcyb
To Change Address or Telephone #
www.socialsecurity.gov/coa
To Start or Change Direct Deposit
www.socialsecurity.gov/pdd


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

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

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