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 […]

We will have alot to discuss in coming months as we digest the new law, and its temporary nature. For now, its enough to point out that our descendants will be able to (we hope) enjoy more of our hard earned wealth.

Latest this afternoon is that House Democrats voted down the proposed tax deal. This was to be expected, as maneuvering towards serious negotiations to water down the Obama/Republican estate tax proposal.

Wall Street Journal today reports that the proposed tax legislation is being prepared to include a provision for deaths occurring in 2010, giving the option to choose the law existing in 2010 (repeal, with its loss of step up in basis), or the new law in 2011 (and we fully expect a return of basis step up with the tax exemptions and rates previously discussed). This is good news for those smaller estates for decedents who passed away in 2010 which would not have paid estate taxes under 2009 or 20011 laws, but who lost the step up in basis. This effectively represented an unintended income tax penalty for smaller estates, which may now be rectified.

The deal between the President and the Republican leadership appears to avoid a retroactive application of taxes to this year, a relief to many families who lost a parent in 2010. The potential for ramming through the deal on estate taxes in its present form allowing for a $5 million exemption and 35% rate seems uncertain. Democrats will try to compromise and implement the $3.5 million/45% plan, despite assurances that this deal is not negotiable. It is simply too difficult at this point to determine whether negotiating room will become available. We must remember that the Republican proposal represents a very large step back from the days where they hoped for full repeal, or a $10 million exemption. With luck, our clients will be able […]

Most of you are aware that a deal seems to be in the works to extend the bush era INCOME tax cuts for a few years. There is no indication, however, that the ESTATE and GIFT taxes will be dragged along. This seems improbable, as the two sides are not that far off on this. Republicans favor 35% rate after $5 million, and the Dems favor a 45% rate after $3.5 million. Not a whisper about the big issue for 2010: will they change it-we dont know.

Thanks to Laura Saunders for her work on this wonderful picture of our tax dollars applied to the workings of our democracy. http://sg.wsj.net/public/resources/images/BF-AA154_TAXREP_NS_20101105122802.gif