Unless something changes, the demise of the Bush tax cuts in conjunction with the 3.8 percent Medicare surtax will result in the following maximum federal rates on investment gains and income recognized by individuals and trusts in 2013 and beyond.  These DO NOT include State Income Taxes: 23.8 percent (20 percent plus 3.8 percent) on long-term capital gains (versus 15 percent for 2012). 43.4 percent (39.6 percent plus 3.8 percent) on short-term capital gains (versus 35 percent for 2012). 43.4 percent (39.6 percent plus 3.8 percent) on income from dividends, interest, rental activities, royalties, and annuities (versus 15 percent on qualified dividends for 2012 and 35 percent on these other types of income for 2012). 43.4 percent (39.6 percent plus 3.8 percent) on ordinary income from passive business activities […]

The IRS just issued  proposed Regulations to provide guidance for our use of this wonderful new tax benefit. Portability, a concept available since 2010,  in which a surviving spouse is allowed to use a predeceased spouse’s unused applicable exclusion amount, effectively doubles the amount that a married couple may pass on to their beneficiaries free of estate taxation.  It is particularly important for those wealthy clients who never get around to creating trusts which normally protect these benefits. This law provides for portability between spouses of the $5 million estate tax exemption amount, ($5,120,000, as indexed for inflation, in 2012) for estates of decedents dying in 2011 or 2012.  This option is available only in the event that both spouses die after 2010, but before […]

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “2010 Act”) made significant changes to the federal gift tax laws. Among other things, the 2010 Act provided that in 2011, the total lifetime gift tax exemption increased from $1,000,000 to $5,000,000. With indexing for inflation, the current lifetime exemption from gift tax is $5,120,000 ($10,240,000 for married couples who agree to “gift split”). Unless Congress acts to extend the provision, the gift tax exemption will revert to $1,000,000 (indexed for inflation), with a 55% tax rate on gifts exceeding the exemption, on January 1, 2013. Given the current budget crisis, Congress may also act to reduce the exemption amount prior to 2013. Accordingly, if you are in a position to do […]

It’s official: A type of trust used by the wealthy to shelter assets from estate taxes for hundreds of years, or even forever, is under fire. The proposal, which first appeared a few weeks ago on a hit list of estate provisions in President Obama’s 2012 budget, would limit tax-free “dynasty trusts” to 90 years. The chances of passage are practically zero this year, say experts. But taxpayers should know that the idea is in play—and act accordingly. As proposed, the change would apply to new trusts or additions of money to existing ones, but not to those already funded. Bottom line: If you are considering setting up a dynasty trust, move swiftly. “This proposal reinforces the other reasons for doing so,” says Julie Kwon, […]

Tax Rates: For decoupled states like NY and NJ, (not Fla), the estate tax rates are higher.  In NY, after a deduction for state estate taxes paid (highest NY bracket is 16%), the net NY tax rate is 10.4%, so: For New Yorkers, estate taxes are now 35% plus 10.4%=45.4%. Of course, in NY, estate taxes are paid on the inheritance over $1 million in value.  The tax on the $4 million difference between what the IRS allows each spouse, and NY allows, is $391,600.  This state estate tax must be considered in decisions about how to use our newly enhanced tax benefits to avoid the unnecessary payment of this tax. NY has no gift tax, so gift taxes in excess of 1) the annual […]

More than you want to know, but thanks alot to the people at Wealth Strategies Journal for this piece: On December 17, 2010 President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Act”).  The Act significantly changes the federal estate tax, which impacts estate planning for many of our clients, and presents significant estate planning opportunities.  This memorandum summarizes the Act’s key changes and provides you with our observations about the Act’s impact from an estate planning perspective.  Please note that there are several important changes made by the Act that this memorandum does not summarize. SUMMARY OF KEY ESTATE AND GIFT TAX PROVISIONS OF THE ACT Estate Tax Before the Act, the federal estate tax was gradually […]