Florida Estate Planning Lawyer Blog

With the current Gift tax exemption at 5 million dollars + 13,000 per person per year, many people are not concerned about making gifts or the taxes. It is important to remember that unless a gift tax return is filed with annual gifts to an individual exceed $13,000 there could be penalties and interest for the unreported gifts. Talk to your CPA about filing a gift tax return if you are giving an individual more than the exempt $13,000 per year.

In addition, gifts keep the current basis so to the extent that you give an appreciated asset, the recipient will have to pay the capital gains based on your cost. If they inherit the asset, there the beneficiary receives the asset as the cost basis as of your date of death. This can have significant advantages to highly appreciated assets.

Lets say you have Apple stock you purchased at $14 a share 12 years ago. It has split 3 times since then so your cost is less than $5 a share. With a value today of $350 / share and a value of $500 when you die.

Lets say you gift 1000 shares of stock today with the proper gift tax returns so that no tax is due. The cost basis would be around $4700 and it is sold after you die at a price of $500 per share. The recipient would have to pay tax on 495,300 of gains.

If you leave the asset to the beneficiary in a will or trust and it was sold at the same $500 per share, they would pay no tax (based on receiving a stepped up basis on the stock).

If the tax rate is 25% at that time, this would be a savings of $124,000.

Whether to gift assets or not is a complicated issue that should be discussed with your Jacksonville Estate Planning Lawyer and your CPA. Only by looking at your specific goals, objectives, and risks associated with each option can one make an educated decision as to what makes send for them. There are ways of providing those funds while protecting them at the same time that you may want to discuss.

According to a Market Watch article by Bill Bischoff, on the Worst Places to Die, New Jersey Tops the list with a combined effective estate and inheritance tax rate of 54.1 %.

Estate tax is bad enough but several states have an inheritance tax. Yes you could actually leave money to a family member and they could be charged a percentage of your assets by the state they live in. Florida residents are not subject to either a state inheritance tax or a state estate tax.

While 16 states have a state estate tax only 6 have inheritance taxes and two states have both (New Jersey and Maryland)

Forbes.com has reported that no price has been set for the Astros, but Drayton McClane Jr., has decided to sell the team for estate planning purposes. The team is worth a reported 455 Million and could create a tax bill of more than 200 Million dollars.

While the proposed changes to the estate taxes will help many people, it will still create major problems for larger estates. If you want to discuss your estate and what options you may have to reduce estate taxes or probate costs and delays, you should contact a Jacksonville Estate Planning Lawyer to discuss your circumstances and goals.

Ashlea Ebeling with Forbes is reporting that next years estate taxes could be as high as 60% for some. This title is misleading because the maximum estate tax will be 55%. She gets 60 percent by adding the max rate of 55% plus the 5% surcharge for assets between 10 million and 17.184 million dollars. This surcharge only makes the overall rate closer to 55% and the full 55% rate is not achieved until the estate is in excess of the $17.184.
So while there is a 60% estate tax, it is only a marginal tax rate and the rate is never higher than 55%.

Please do not think I am ok with a 55% tax rate, but I did want to clarify the issue. If your estate is greater than 1 Million dollars, you should consider meeting with a Jacksonville Estate Planning Lawyer to discuss ways you can increase your exemptions or hedge against the taxes that would be due upon your death.

Recently, I have written several blogs concerning the possible federal estate tax increase from zero to 55% in 2011. If Congress's left and right representatives cannot come to an agreement, the exemption will end at $1 million. This means that for every individual who passes away, up to $1 million in assets may pass to their heirs free from estate taxes. While having one million dollars is a significant amount of money, $1 million in assets is something considerably different. Numerous small and family owned businesses that fall into the class above the $1 million limit would be hit hard by the estate tax.

Over the past few years many businesses have been split up and sold to pay the estate taxes. Much of this could have been avoided with proper estate planning. If nothing changes many businesses that are family-owned will most likely have to sell off the business because of a 55% federal estate tax rate. Many states have additional estate taxes that will be due which could raise the total tax to around 70%. Luckily Florida residents will not be subject to additional state estate taxes. For instance, suppose a family owned business has a net worth of $10 million. When the current owner dies the $10 million net worth of the company will pass to the estate and be taxed at 55% + any state estate taxes that may be due. This means that the heirs will have to pay the millions of dollars out of their own pocket or sell off the company. The same rationale is true for farm and ranch owners as well. A one thousand acre farm that has been in a family for many years could be worth millions of dollars. When the current owner dies, the farm will be subject to the same 55% estate tax requiring the heirs to sell off the property to pay the taxes.

With serious tax consequences on the horizon, estate planning has never been more important. The showdown between Republicans and Democrats on Capitol Hill on estate taxation does not show strong signs of reconciliation. If you are a small business owner or farm owner who would like more information on protecting your company contact a Florida Estate Planning Lawyer today. An attorney can help you reach your goal of keeping the business in the family and reducing the taxes through estate planning techniques.

Today George Steinbrenner, New York Yankees owner, died of a heart attack in Tampa Florida. The Yankees are valued at more than 1.6 billion dollars and have been run by his sons Hal and Hank for almost 2 years. Steinbrenner's estate at the time of his death is estimated to be worth 1.15 billion.

We will learn more about his fortune and how he planned his estate in the next few weeks but The timing of Steinbrenner's death could exempt heirs from estate tax like the other three billionaires who have died in 2010.

Steinbrenner moved to Floirda where there is no state estate tax as compared to NY which could have taxed his estate more than 16% or more than 160 million dollars.

According to Forbes Magazine the United States has over four hundred billionaires. Currently, three Liberal members of the Senate are working on a plan that calls for a 10% estate "billionaire surtax" that would go into effect retroactively. This would raise the tax rate to 65% on all estates that have accumulated more than $1 billion in assets. These lawmakers believe that billionaires should be required to pay more in estate taxes due to the increasing federal budget deficit and national debt.

This harsh tax proposal may have been spurred by the death of Texas billionaire Dan L. Duncan who passed away in March with a net worth of $9.8 billion. Since Duncan died this year, his entire estate passes to his heirs tax-free. If these Senators' proposal is enacted, it will hit Duncan's estate retroactively, immediately prompting a court challenge to its constitutionality.

Republican Senators and some less liberal Democrats are opposed to any retroactive plan. Seeing that the only way to come up with a legitimate plan is through bipartisan cooperation, two other Senators have been working on a compromise. This would impose estate taxes on estates above $5 million at a maximum tax rate of 35%. If Liberals have their way they would also seek to eliminate or restrict the use of GRATs because those trusts are popular tax breaks for the wealthy. If you have any questions or concerns about how these new laws may effect you contact a Florida Estate Planning Lawyer or Jacksonville Estate Planning Lawyer for assistance.

Florida has no Estate Taxes, but there may still be Federal Estate taxes due. Before the distribution of assets of the deceased’s estate can occur, the federal government has the ability to take their share of the estate. The Federal Estate tax has been repealed for the year 2010 but in past years the tax has been applied to every U.S. citizen who died leaving assets to be distributed to their heirs. - This does not mean no taxes will be due for individuals who die in 2010. Remember the law does not allow an unlimited amount of capital gains like in previous years. There is not an unlimited amount of capital gains like in 2009. This means even with an unlimited estate tax exemption, some people will pay more in estate taxes under 2010 than under previous years.

In past years the estate tax was applied only on funds that exceeded the net estate amount set by Congress. For example, if an individual died in 2009 leaving a net estate of $3.5 million then the federal government would not have taxed the estate because the net estate did not exceed the amount exempted by Congress. However, if the net estate would have been $4 million instead, the estate would be taxed at a rate of 45% on the amount over $3.5 million. So in this case the Federal Estate tax liability would be ($500,000 x 45%) which comes out to $225,000.

Currently, there is no plan to repeal the Estate Tax exemption for 2011. Before the 2010 repeal, Congress had increased the tax exemption given to individuals who died and whose net estate was distributed to $3.5 million. However, the current plan for 2011 is to have a tax exemption of $1 million and a tax rate of 55%. If the current plan remains in effect it will place a much greater tax liability on assets and funds that are distributed out of the net estate of those who die next year.

Thus, it is important to discuss the estate tax process and what tax liability your estate may be subject to in future years with an Florida Estate Planning Lawyer. Some assets are exempt from tax liability and with proper planning your federal estate tax liability in future years could be significantly reduced.

Life insurance is counted as part of your taxable estate. Many people understand that life insurance is income tax free to the beneficiaries, but the do not know that the proceeds of a life insurance policy are usually counted as part of the decedent's estate for Federal Estate Tax purposes.

This increase in the taxable estate can often lead to estate tax or a death tax being due. 1,000,000 in life insurance can create as much as a $450,000 tax bill for the estate. To avoid this many individual create an Irrevocable Life Insurance Trust or ILIT. An Irrevocable Life Insurance Trust is a type of Florida Revocable Trust that is designed to hold and own life insurance policies. Once the ILIT is created you transfer ownership of your life insurance policies or purchase new policies in the Irrevocable Life Insurance Trust. By giving up all "incidents of ownership" over the policies the benefits of the policies are not part of your taxable estate when you die.

To find out how an Irrevocable Life Insurance Trust can benefit you Contact a Florida Estate Planning Lawyer to discuss your situation.

Only five weeks before his death Leonard R. Brener made a change to his will. He decided to change his beneficiaries form four local charities to his niece and her husband who took care of him while he was dying.

The non-profits were stunned and file a suit to battle over the money. The case took more than five years that the state appeals court recently ruled that Brener was mentally competent and his decision to leave the money to his family should stand.

The charities tried to argue that his change was unnatural because it would trigger significant estate taxes which he had previously stated he wanted to avoid.
(Estate taxes on 8M today are 2.7 Million Dollars) with proper estate planning its possible to have reduced the tax to 1.8 Million or less) Although the estate taxes from 2001 were significantly more than they are today.

This lengthy estate battle could have been avoided with the privacy afforded by a Florida Revocable Trust and some explanation within the will as to why the changes were being sought. In addition a Florida Revocable Trust would help to avoid the costs associated with a Florida Probate. If you would like more information on how a Florida Revocable Trust could benefit your or your family, Contact a Florida Estate Planning Lawyer for more information.

When one dies the value of their estate is subject to an Federal Estate Tax. This rate is currently 45%. In 2008 the Federal government has an exemption of the estate tax on the first 2 million dollars in value. In addition, many states have additional state taxes that are due when a resident of their state dies. Florida use to have an estate tax, but repealed it when the federal government stopped allowing you to deduct the amount of state estate tax paid from the federal estate tax due.

You should check on the estate tax in your state and consider costs and benefits of your state versus those with no estate tax. One of the reasons so many wealthy people move to Florida is the lack of income tax and estate tax.

How much are estate taxes?

Your estate will have to pay estate taxes if its net value when you die is more than the "exempt" amount set by Congress at that time. Here is the current schedule for the federal estate taxes:

Year of Death.........Estate Tax "Exemption"
2008................................$2 million
2009................................$3.5 million
2010................................N/A (repealed)
2011 and thereafter..........$1 million

In addition you may have to add your states taxes on top of the numbers above.
Although 2010 looks like 0, it really is higher, in 2010 the plan is tax on the increase in value of one's estate. Under the current plan, most assets are able to take advantage of a free stepped up value based upon the fair market value at the time of the decedents death.

A Florida Life Insurance Trust is an irrevocable trust that allows an individual to make the proceeds of a life insurance poliicy free from income taxes and estate taxes. Typical life insurance policies are income tax free, but many increase the value of one's estate to the point that the federal and or state income taxes are due. By using an ilit one can avoid these taxation issues.

In 2008 the Federal tax exemption is $2,000,000. Lets take a client with 1.5M in assets and a 1M life insurance policy.

If they were to die in 2008 their estate would be valued at 2.5M and 500,000 would be subject to estate taxes. The current estate tax rate is 45% so this estate would have to pay a tax of $225,000.

In 2011 the estate tax exemption is only $1M. With an estate valuation of $2.5M, 1.5M would be subject to estate taxes. Using the same tax rate, this estate would have to pay $675,000.

To find out if or how a Florida Life insurance trust can help you please Contact a Florida Estate Planning Lawyer.

A common technique with large Florida Estate Planning is the use of FLP's or Family Limited Partnerships. Neil Hendershot of the PA Elder, Estate & Fiduciary Law Blog summarized the recent highlights of the Heckerling Institute where they discussed those issues in detail.

The most important issues dealt with making sure there was

(1) not a gift on formation of a family limited partnership. This can be done by making sure the partnership is property funded and the capital accounts are credited. The recommendation was that during the next tax year he or she transfer partnership interest. This helps to avoid the argument that the transfer was contemplated at the time of the capital contribution. See Senda, T.C. Memo 2004-160 (July 12, 2004). One must also take this into consideration with additional contributions because they are valued with the amount given instead of a discounted valuation.

(2) Avoiding Bad Facts based on formation and operation. You do not want to have these issues used to devalue the discount on the entity.

• Disproportionate Distributions to senior family members.
• Distributions that cover senior family member's expenses.
• Do not create the partnership by an agent acting under power of attorney.
• Do not use partnership funds to pay estate taxes after death. If this looks like it will be necessary consider using a life insurance policy or a hands length loan from the partnership to fund those expenses if it is necessary.

(3) Senior family member should have no control at death or within 3 years of death to avoid an inclusion look-back period under IRC § 2035. If the senior family member must serve as a general partners remove "sole and absolute" authority language and any overly protective clauses.

(4) FPL's should be created for legitimate non-tax business purposes to avoid inclusion arguments. It is likely that the drafting attorney will provide testimony of the non-tax reasons. It might be advisable to use a separate attorney to draft the agreement who has no knowledge of the discounting opportunities when creating a Family Limited Partnership for Florida Estate Planning

(5) Potential problems arise with using a martial trust for the benefit of a surviving spouse. These interests may not get the same discounted treatment which can cause problems.

(6) Be careful with the 100 Shareholder rule when using S corporations as it is possible to have more than 100 shareholders when you look at all family members who are lineal descendants up to six generations including current and former spouses.

(7) Nonresident aliens or other non-approved shareholders can create problems with S corporations.

(8) S corporations can only have a single class of stock and all must have equal rights. Look out for disproportionate distributions, buy-sell installments, and split-dollar arrangements

The article goes on to discuss other concerns and should be reviewed by anyone looking to create a Family Limited Partnership for Florida Estate Planning

For more information on how a FLP can be an effective tool in Florida Estate Planning Contact a Florida Estate Planning Lawyer

As the Estate tax exemption continues to increase, fewer and fewer American families are subjected to the death Taxes. On the other hand this is creating a real problem with probate fees. Since fewer families are concerned with estate taxes, the overlook the fees associated with probate.

There are many techniques used to avoid the need for assets to be subjected to probate. These include: Joint accounts, payable on death designations, beneficiary designations, and Florida Revocable Trust . There are many issues that determine which of the methods is best for your particular situation.

With the increase in divorces and numbers of families with children from outside the current marriage, the Florida Revocable Trust often offers the best flexibility. It is important to evaluate a clients objectives, the risks associated with each method, and the costs.

To find out of a Florida Revocable Trust is the right solution for you, please Contact a Florida Estate Planning Lawyer to discuss your specific circumstances.

A number of Texarkana residents have filed suit against sellers of living trust documents in a class action accusing the salesmen of exploiting senior citizens. This is similar to what I reported happening in California in December.

A Plaintiff says he purchased a living trust after attending a lunch presentation at a restaurant. He states the document was misrepresented and that if he dies with only these estate-planning documents, his estate will still need to be probated because the living trust failed to factor in his real property in Arkansas.

The living trust sellers are facing allegations of "masquerading as qualified financial advisers, estate planners, lawyers, and paralegals" to "exploit and prey" upon senior citizens with the creation and selling of "unnecessary and often useless" living trusts.

Defendants are accused of fraud, unauthorized practice of law, negligence, breach of fiduciary duty and conspiracy. The suit alleges that the defendants created and sold the living trusts as part of a scheme to gain access to senior citizens' financial information in order to sell annuities and other financial products.

According to the original complaint, the scheme begins with advertisements that persuade senior citizens to attend a free lunch or dinner. At these meetings, the "unlicensed" living trust defendants conduct presentations and distribute materials that misrepresent the impact of probate fees and estate taxes in order to create fear that the senior citizens need to buy a trust to prevent heirs from losing their estate.

These presentations include references to celebrities such as Elvis and describe the large amounts these celebrities have paid in estate taxes. The plaintiffs state these presentations do not include information about the federal estate tax exemption, the sliding scale of the exemption amount, or the possibility of the elimination of future estate taxes.

Further, the presentation does not tell senior citizens with estates larger than the exemption amount that the purchase of these living trusts will not automatically eliminate all estate taxes. The forms and decisions made by the defendants fail to take into account the entire senior's assets and ultimately and fail to serve the legal purpose as presented, argue the plaintiffs.

The plaintiffs claims the presentations convince the senior citizens to use their IRA accounts or other tax-exempt growth products to purchase variable annuities. However, according to the plaintiffs' accusations, the presentations and documents do not demonstrate the redundancy with regard to a variable annuity's tax deferral benefit when purchased in a qualified plan and also do not inform the consumer of the associated fees, surrender charges and commissions associated with these variable annuity products.

These types of programs are everywhere. It is important to use a lawyer who will look at your individual assets and who is not trying to sell you other financial products. To review your estate planning needs contact a Florida Estate Planning Lawyer.