WASHINGTON – The federal estate tax would be revived, but at a reduced rate, under a plan being pushed by two senators, a Democrat and a Republican.
Democrat Blanche Lincoln of Arkansas and Republican Jon Kyl of Arizona hope to attach the new estate tax to a small business lending bill pending in the Senate. Their bill would set the top estate tax rate at 35 percent, with a per-person exemption of $5 million, indexed to inflation.
In 2009, the top estate tax rate was 45 percent with a per-person exemption of $3.5 million. Congress allowed the estate tax to expire this year, but it is scheduled to come back next year with a top rate of 55 percent, unless Congress acts.
"It's time to take decisive action on the estate tax, and provide the permanent solution that Arkansas' hardworking farmers and small businesses are desperately seeking," Lincoln said.
The Senate, as part of a nonbinding budget resolution, voted last year in favor of a proposal similar to the one pushed by Lincoln and Kyl. The House, however, voted to extend the 2009 rates, and the two sides were unable to reach an agreement.
The Senate is expected to take up the small business lending bill next week, though leaders have not indicated whether they will allow a vote on the estate tax as part of the debate.
"If the Small Business Lending bill is intended to help small business create jobs, wouldn't it make sense to provide small business owners with the certainty that their tax rates aren't going to skyrocket at the beginning of next year?" Kyl said.
Thursday, July 22, 2010
Friday, June 25, 2010
"Legacy for One Billionaire: Death but no Taxes"
The following article is reprinted from www.msnbc.msn and originally appeared in the New York Times on Wednesday, June 9, 2010. It is entitled, “Billionaire’s legacy – death, but no taxes”.
Earlier this year, we released information regarding the unique situation that would occur in 2010 regarding the estate tax laws. In addition, we held several client seminars in an effort to explain the consequences of this repeal. This article illustrates how the estate tax changes for 2010 effect an estate and we’d like to share it with you.
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.
Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.
Had his life ended three months earlier, Mr. Duncan’s riches – Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world – would have been subject to a federal tax of at least 45 percent. If he had lived past January 1, 2011, the rate would be even higher – 55 percent.
Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.
The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.
The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth – until January 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.
Incendiary issue
Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of 2009, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to get the favorable treatment – or worse, resist life-prolonging measures to hasten a relatives demise before the end of 2010.
The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is not trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.
Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.
Representatives of Mr. Duncan’s family, his estate and his business interests did not return calls about the matter. Mr. Duncan’s will, which is on file at the Harris County Probate Court in Houston, was written in 2006 and amended in 2008, a time when most estate planners assumed that Congress would not allow the tax to lapse. Federal law has long allowed an unlimited amount of assets to pass untaxed to a surviving spouse, and Mr. Duncan left his home and ranch to his wife of more than 20 years, Jan, along with stock valued at hundreds of millions of dollars.
But the bulk of his estate is left to his children and grandchildren, and would have been taxable in 2009 or 2011.
5,000-acre hunting ranch
In addition to personal effects bequeathed to his descendants – boats, jewelry, automobiles, shotguns and a 5,500-acre Texas hunting ranch stocked with wild game – he passed on his holdings in EPCO and Dan Duncan L.L.P., two entities in the natural gas and pipeline empire he built. The stock involved includes more than 100 million shares in Enterprise GP Holdings, which closed at $43.23 the last trading day before Mr. Duncan died. That asset alone could have resulted in a $2 billion estate tax.
The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.
Elaborate estate plans with sophisticated trusts are often made many years before death to reduce estate taxes owed by the richest.
Advocates of the tax say it is unconscionable that Congressional leaders have allowed the richest Americans to reap a new tax break at a time when deficits are soaring and the income gap between wealthy and poor citizens remains near historic levels.
“The ultrawealthy in this country will still be able to pass on enormous wealth to the next generation,” said Chuck Collins, who studies income inequality and has worked with billionaires like Warren E. Buffet and Bill Gates to promote an estate tax. Mr. Collins argues that the tax is a “recycling program for economic opportunity.”
But opponents, who label it a death tax, say it is unfair because it taxes the same income twice – once when it is earned and again when it is passed on to heirs.
Mr. Duncan’s eldest daughter, Randa Duncan Williams, is serving as executor of the estate and is a voting member of the family trust that will now control her father’s interest in Enterprise GP Holdings.
Should the family trust sell these inherited shares, capital gains taxes would presumably be owed on the difference between Mr. Duncan’s original cost, which could be quite low, and their market value when sold. Capital gains taxes are capped at 15 percent.
Ms. Williams, who has served as a director and general partner at the family’s energy businesses for years, was deeply involved in her father’s philanthropic efforts and is expected to continue much of that charitable work.
During his life, Mr. Duncan contributed to a wide assortment of wildlife foundations and community institutions like the Houston Zoo and Houston Museum of Science, and an assortment of medical institutions. The various medical centers at Baylor College of Medicine received more than $250 million from Mr. Duncan and his wife, with more than $100 million used to found the Dan L. Duncan Cancer Center.
Mr. Duncan’s will designates a handful of nonprofit groups and charitable foundations that will receive donations, all of which would have been tax-exempt even in years when the estate tax was in effect.
An avid big game hunter – Mr. Duncan has more than 500 entries in the Safari Club International record book for killing animals including polar bears, rhinoceroses, bighorn sheep, lions and elephants – he made a $1 million donation in his will to the Shikar Safari Club International Foundation.
The will also directs that any money or assets not otherwise specified for a relative or charity be deposited into two family charitable trusts, which can be used to donate to causes deemed worthy by his heirs.
Earlier this year, we released information regarding the unique situation that would occur in 2010 regarding the estate tax laws. In addition, we held several client seminars in an effort to explain the consequences of this repeal. This article illustrates how the estate tax changes for 2010 effect an estate and we’d like to share it with you.
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.
Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.
Had his life ended three months earlier, Mr. Duncan’s riches – Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world – would have been subject to a federal tax of at least 45 percent. If he had lived past January 1, 2011, the rate would be even higher – 55 percent.
Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.
The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.
The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth – until January 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.
Incendiary issue
Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of 2009, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to get the favorable treatment – or worse, resist life-prolonging measures to hasten a relatives demise before the end of 2010.
The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is not trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.
Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.
Representatives of Mr. Duncan’s family, his estate and his business interests did not return calls about the matter. Mr. Duncan’s will, which is on file at the Harris County Probate Court in Houston, was written in 2006 and amended in 2008, a time when most estate planners assumed that Congress would not allow the tax to lapse. Federal law has long allowed an unlimited amount of assets to pass untaxed to a surviving spouse, and Mr. Duncan left his home and ranch to his wife of more than 20 years, Jan, along with stock valued at hundreds of millions of dollars.
But the bulk of his estate is left to his children and grandchildren, and would have been taxable in 2009 or 2011.
5,000-acre hunting ranch
In addition to personal effects bequeathed to his descendants – boats, jewelry, automobiles, shotguns and a 5,500-acre Texas hunting ranch stocked with wild game – he passed on his holdings in EPCO and Dan Duncan L.L.P., two entities in the natural gas and pipeline empire he built. The stock involved includes more than 100 million shares in Enterprise GP Holdings, which closed at $43.23 the last trading day before Mr. Duncan died. That asset alone could have resulted in a $2 billion estate tax.
The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.
Elaborate estate plans with sophisticated trusts are often made many years before death to reduce estate taxes owed by the richest.
Advocates of the tax say it is unconscionable that Congressional leaders have allowed the richest Americans to reap a new tax break at a time when deficits are soaring and the income gap between wealthy and poor citizens remains near historic levels.
“The ultrawealthy in this country will still be able to pass on enormous wealth to the next generation,” said Chuck Collins, who studies income inequality and has worked with billionaires like Warren E. Buffet and Bill Gates to promote an estate tax. Mr. Collins argues that the tax is a “recycling program for economic opportunity.”
But opponents, who label it a death tax, say it is unfair because it taxes the same income twice – once when it is earned and again when it is passed on to heirs.
Mr. Duncan’s eldest daughter, Randa Duncan Williams, is serving as executor of the estate and is a voting member of the family trust that will now control her father’s interest in Enterprise GP Holdings.
Should the family trust sell these inherited shares, capital gains taxes would presumably be owed on the difference between Mr. Duncan’s original cost, which could be quite low, and their market value when sold. Capital gains taxes are capped at 15 percent.
Ms. Williams, who has served as a director and general partner at the family’s energy businesses for years, was deeply involved in her father’s philanthropic efforts and is expected to continue much of that charitable work.
During his life, Mr. Duncan contributed to a wide assortment of wildlife foundations and community institutions like the Houston Zoo and Houston Museum of Science, and an assortment of medical institutions. The various medical centers at Baylor College of Medicine received more than $250 million from Mr. Duncan and his wife, with more than $100 million used to found the Dan L. Duncan Cancer Center.
Mr. Duncan’s will designates a handful of nonprofit groups and charitable foundations that will receive donations, all of which would have been tax-exempt even in years when the estate tax was in effect.
An avid big game hunter – Mr. Duncan has more than 500 entries in the Safari Club International record book for killing animals including polar bears, rhinoceroses, bighorn sheep, lions and elephants – he made a $1 million donation in his will to the Shikar Safari Club International Foundation.
The will also directs that any money or assets not otherwise specified for a relative or charity be deposited into two family charitable trusts, which can be used to donate to causes deemed worthy by his heirs.
Tuesday, June 8, 2010
MAKE SURE YOUR LIFE INSURANCE IS NOT TAXED AT YOUR DEATH
Although your life insurance policy may pass to your heirs income tax-free, it can affect your estate tax. If you are the owner of the insurance policy, it will become a part of your taxable estate when you die. While the federal estate tax is currently zero, the exemption will be $1 million and the rate will increase to 55 percent on January 1, 2011, if Congress fails to act in the interim. And state estate taxes are still in effect now. You should make sure your life insurance policy won't have an impact on your estate's tax liability.
1. If your spouse is the beneficiary of your policy, then there is nothing to worry about. Spouses can transfer assets to each other tax-free. But if the beneficiary is anyone else (including your children), the policy will be a part of your estate for tax purposes. For example, suppose you buy a $200,000 life insurance policy and name your son as the beneficiary. When you die, the life insurance policy will be included in your taxable estate. If the total amount of your taxable estate exceeds the estate tax exemption, then your policy will be taxed.
In order to avoid having your life insurance policy taxed, you can either transfer the policy to someone else or put the policy into a trust. Once you transfer a policy to a trust or to someone else, you will no longer own the policy, which means you won't be able to change the beneficiary or exert control over it. In addition, the transfer may be subject to gift tax if the cash value of your policy (the amount you would get for your policy if you cashed it in) is more than $13,000. If you decide to transfer a life insurance policy, do it right away. If you die within three years of transferring the policy, the policy will still be included in your estate.
If you transfer a life insurance policy to a person, you need to make sure it is someone you trust not to cash in the policy. For example, if your spouse owns the policy and you get divorced, there will be no way for you to get it back. A better option may be to transfer the life insurance policy to a life insurance trust. With a life insurance trust, the trust owns the policy and is the beneficiary. You can then dictate who the beneficiary of the trust will be. For a life insurance trust to exclude your policy from estate taxes, it must be irrevocable and you cannot act as trustee.
If you want to transfer a current life insurance policy to someone else or set up a trust to purchase a policy, consult with your elder law attorney.
Source: www.elderlawanswers.com; 5/10.
1. If your spouse is the beneficiary of your policy, then there is nothing to worry about. Spouses can transfer assets to each other tax-free. But if the beneficiary is anyone else (including your children), the policy will be a part of your estate for tax purposes. For example, suppose you buy a $200,000 life insurance policy and name your son as the beneficiary. When you die, the life insurance policy will be included in your taxable estate. If the total amount of your taxable estate exceeds the estate tax exemption, then your policy will be taxed.
In order to avoid having your life insurance policy taxed, you can either transfer the policy to someone else or put the policy into a trust. Once you transfer a policy to a trust or to someone else, you will no longer own the policy, which means you won't be able to change the beneficiary or exert control over it. In addition, the transfer may be subject to gift tax if the cash value of your policy (the amount you would get for your policy if you cashed it in) is more than $13,000. If you decide to transfer a life insurance policy, do it right away. If you die within three years of transferring the policy, the policy will still be included in your estate.
If you transfer a life insurance policy to a person, you need to make sure it is someone you trust not to cash in the policy. For example, if your spouse owns the policy and you get divorced, there will be no way for you to get it back. A better option may be to transfer the life insurance policy to a life insurance trust. With a life insurance trust, the trust owns the policy and is the beneficiary. You can then dictate who the beneficiary of the trust will be. For a life insurance trust to exclude your policy from estate taxes, it must be irrevocable and you cannot act as trustee.
If you want to transfer a current life insurance policy to someone else or set up a trust to purchase a policy, consult with your elder law attorney.
Source: www.elderlawanswers.com; 5/10.
Wednesday, May 26, 2010
ESTATE TAX REFORM - Spring 2010
The following is an estate tax reform update, various possible outcomes and several interpretations from estate planning and tax attorneys throughout the United States. We thought we’d keep you up to date and share some of the interesting comments:
1. Late last year (2009) the House passed HR 4154 which permanently extended the $3.5 million dollar exemption (this is per person) for estates from estate tax. For a couple this meant they could
shelter $7,000,000. [Note: In 2011 the exemption will return to $1,000,000 per person unless Congress changes the law. This change is what we are talking about.] Furthermore, the House
legislation does away with the carry over basis rules which are being applied for decedents dying in 2010 and which have created such a nightmare in the administration of estates.
2. The Senate is trying to pass legislation itself, but has not been able to do so. This is where the hangup is at this time. If it does pass any reform then any Senate bill will need to be reconciled with the 2009 House bill before a compromise bill can be sent to the President for his signature. Any Senate bill will require 60 votes in the Senate to make the reformation permanent.
As of today, it is being reported Senate Finance Committee member Jon Kyl, R-AZ has reached an agreement with Senate Finance Commitee chairman, Max Baucus, D-MT to have the
finance committee propose legislation (in the form of a Senate bill) to allow an exemption of $5 million and an estate tax rate on amounts in excess of this amount at 35%. Many details would
still need to be worked out including whether it would be retroactive to January 1, 2010, whether it will be indexed to inflation, what any phase in might look like, how it would be reconciled with the House bill, portability or a variety of other issues under consideration.
3. There are only 13 "legislative weeks" remaining this year. At the end of August Congress will head out for recess and campaigning. If something is not done by then it is likely there will be no estate reform until perhaps after the elections have been completed.
4. In 2010 Congress passed the "Pay-as-You-Go Law" which requires Congress to find other sources of revenue for losses in revenue from tax cuts. In other words if a permanent repeal of
estate taxes is passed and if the exemption level which is set results in a tax cut being given then revenue must be found elsewhere in the budget to make up for the lost revenue from the estate
tax cut. Under current Pay-as-You-Go parameters Congress could pass a law allowing for the 2009 exemption amounts through 2011. This is a short term solution and not really preferred by
anyone in Congress, although some would argue is a step in the right direction. [Note: Getting a two year reprieve is not of much help to those with potentially taxable estate. It only continues the uncertainty for any client expecting to live beyond 2011.]
5. Senators Kyl (R-Ariz) and Lincoln (D-Ark) are the Senators who are leading the charge in the Senate Finance Committee to get something done. I am not sure how Senator Lincoln fits into
the agreement reached between Senators Baucus and Kyl as indicated above. They are pushing for a $5 million exemption and a rate on estates above this amount of 35%. To get to these
exemption amounts they must find revenue offsets [more on this below], which they may or may not be able to do.
6. So how does Congress get out of this hole and find a solution? There appears to be several options and each will require serious consideration and negotiations, not only amongst the
Senators, but the House and perhaps the office of the President. From the chatter (and my own thoughts) here are the possible solutions:
a) Option #1 Do nothing and let the estate tax exemption fall back to $1,000,000 starting in 2011. This does not seem like a popular solution in an election year. It would continue to show
Congress cannot work in a bi-partisan fashion to craft a remedy to give certainty to the electorate in planning their estates in an environment where inflation could rise pushing more and more
individuals into the dreaded estate tax zone. Furthermore, it does appear there is a real push to try to get something done as is evidenced by the chatter.
b) Option #2 The Senate could declare the estate tax reform to be an "emergency" and as such it would be exempt from the Pay-as-You-Go rules. Congress has only known about this possibility
if they failed to act for 10 years and now arguing it is an emergency would seem a bit ingenuous and likely to raise further furor at the ballot box.
c) Option #3 Congress could find offsets for the lost revenue. Again, this could be politically unpalatable if the offsets come from programs which do not impact the wealthy. This would be
reverse Robin Hood where taking from the poor and giving to the wealthy may not set well at the ballot box. To find offsets which impact only the wealthy Congress could (1) look to the
elimination or reduction in the use of the Grantor Retained Annuity Trusts; (2) eliminate the use of "discounts"; (3) eliminate the state death tax credit; (4) eliminate the use of Qualified Personal Residence Trusts and (5) allow for the use of something called a Prepayment Trust, which would allow you to prepay your estate tax. On the Prepayment Trust you can draw a parallel to the Roth Conversion idea where you give the IRS your money now to avoid later taxation. Some argue the offsets need to be found only for the amount of any lost revenue above the
amount in the House bill which made the repeal permanent at the $3.5 million dollar level. If this is the case it is possible the offsets needed may not be as great. It also leaves open the option of simply staying with the $3.5 exemption amount.
d) Option #4 Congress could amend the Pay-as-You-Go rules to provide for an exception for estate tax reform. Try to sell that one back home! Furthermore, the Blue Dog Coalition in the
House would likely not support this approach.
e) Option #5 If Congress wanted to they could just pass the new legislation and worry about making up the deficit in revenue by cutting other programs later in the year.
There does not appear to be any discussion about the concept of "portability" in the discussions with the Senate staffers. Portability would have simplified the planning process by allowing a
surviving spouse to have an exemption of twice the exemption amount ($7 million if the exemption were $3.5 million per person). This would make planning for when the first spouse
much easier and would do away with the need to create the "Bypass Trust." So stay tuned. These are exciting times. If the current chatter amongst our colleagues and the
Congressional staffers and quotes by key members of the Senate are any indication, estate reform could be coming in the next months. We will try to keep you up to date. If you have questions in
the meantime then come in and set a time to visit.
Source: Baird D. Brown, Attorney at Law, Grand Junction, CO - 5/18/10.
1. Late last year (2009) the House passed HR 4154 which permanently extended the $3.5 million dollar exemption (this is per person) for estates from estate tax. For a couple this meant they could
shelter $7,000,000. [Note: In 2011 the exemption will return to $1,000,000 per person unless Congress changes the law. This change is what we are talking about.] Furthermore, the House
legislation does away with the carry over basis rules which are being applied for decedents dying in 2010 and which have created such a nightmare in the administration of estates.
2. The Senate is trying to pass legislation itself, but has not been able to do so. This is where the hangup is at this time. If it does pass any reform then any Senate bill will need to be reconciled with the 2009 House bill before a compromise bill can be sent to the President for his signature. Any Senate bill will require 60 votes in the Senate to make the reformation permanent.
As of today, it is being reported Senate Finance Committee member Jon Kyl, R-AZ has reached an agreement with Senate Finance Commitee chairman, Max Baucus, D-MT to have the
finance committee propose legislation (in the form of a Senate bill) to allow an exemption of $5 million and an estate tax rate on amounts in excess of this amount at 35%. Many details would
still need to be worked out including whether it would be retroactive to January 1, 2010, whether it will be indexed to inflation, what any phase in might look like, how it would be reconciled with the House bill, portability or a variety of other issues under consideration.
3. There are only 13 "legislative weeks" remaining this year. At the end of August Congress will head out for recess and campaigning. If something is not done by then it is likely there will be no estate reform until perhaps after the elections have been completed.
4. In 2010 Congress passed the "Pay-as-You-Go Law" which requires Congress to find other sources of revenue for losses in revenue from tax cuts. In other words if a permanent repeal of
estate taxes is passed and if the exemption level which is set results in a tax cut being given then revenue must be found elsewhere in the budget to make up for the lost revenue from the estate
tax cut. Under current Pay-as-You-Go parameters Congress could pass a law allowing for the 2009 exemption amounts through 2011. This is a short term solution and not really preferred by
anyone in Congress, although some would argue is a step in the right direction. [Note: Getting a two year reprieve is not of much help to those with potentially taxable estate. It only continues the uncertainty for any client expecting to live beyond 2011.]
5. Senators Kyl (R-Ariz) and Lincoln (D-Ark) are the Senators who are leading the charge in the Senate Finance Committee to get something done. I am not sure how Senator Lincoln fits into
the agreement reached between Senators Baucus and Kyl as indicated above. They are pushing for a $5 million exemption and a rate on estates above this amount of 35%. To get to these
exemption amounts they must find revenue offsets [more on this below], which they may or may not be able to do.
6. So how does Congress get out of this hole and find a solution? There appears to be several options and each will require serious consideration and negotiations, not only amongst the
Senators, but the House and perhaps the office of the President. From the chatter (and my own thoughts) here are the possible solutions:
a) Option #1 Do nothing and let the estate tax exemption fall back to $1,000,000 starting in 2011. This does not seem like a popular solution in an election year. It would continue to show
Congress cannot work in a bi-partisan fashion to craft a remedy to give certainty to the electorate in planning their estates in an environment where inflation could rise pushing more and more
individuals into the dreaded estate tax zone. Furthermore, it does appear there is a real push to try to get something done as is evidenced by the chatter.
b) Option #2 The Senate could declare the estate tax reform to be an "emergency" and as such it would be exempt from the Pay-as-You-Go rules. Congress has only known about this possibility
if they failed to act for 10 years and now arguing it is an emergency would seem a bit ingenuous and likely to raise further furor at the ballot box.
c) Option #3 Congress could find offsets for the lost revenue. Again, this could be politically unpalatable if the offsets come from programs which do not impact the wealthy. This would be
reverse Robin Hood where taking from the poor and giving to the wealthy may not set well at the ballot box. To find offsets which impact only the wealthy Congress could (1) look to the
elimination or reduction in the use of the Grantor Retained Annuity Trusts; (2) eliminate the use of "discounts"; (3) eliminate the state death tax credit; (4) eliminate the use of Qualified Personal Residence Trusts and (5) allow for the use of something called a Prepayment Trust, which would allow you to prepay your estate tax. On the Prepayment Trust you can draw a parallel to the Roth Conversion idea where you give the IRS your money now to avoid later taxation. Some argue the offsets need to be found only for the amount of any lost revenue above the
amount in the House bill which made the repeal permanent at the $3.5 million dollar level. If this is the case it is possible the offsets needed may not be as great. It also leaves open the option of simply staying with the $3.5 exemption amount.
d) Option #4 Congress could amend the Pay-as-You-Go rules to provide for an exception for estate tax reform. Try to sell that one back home! Furthermore, the Blue Dog Coalition in the
House would likely not support this approach.
e) Option #5 If Congress wanted to they could just pass the new legislation and worry about making up the deficit in revenue by cutting other programs later in the year.
There does not appear to be any discussion about the concept of "portability" in the discussions with the Senate staffers. Portability would have simplified the planning process by allowing a
surviving spouse to have an exemption of twice the exemption amount ($7 million if the exemption were $3.5 million per person). This would make planning for when the first spouse
much easier and would do away with the need to create the "Bypass Trust." So stay tuned. These are exciting times. If the current chatter amongst our colleagues and the
Congressional staffers and quotes by key members of the Senate are any indication, estate reform could be coming in the next months. We will try to keep you up to date. If you have questions in
the meantime then come in and set a time to visit.
Source: Baird D. Brown, Attorney at Law, Grand Junction, CO - 5/18/10.
Friday, May 14, 2010
FIVE YEARS AFTER SCHIAVO, FEW MAKE END-OF-LIFE PLANS
The following is a reprint of an article that we’d like to share with you from msnbc.com on March 30th of this year. Several years ago, when the Terri Schiavo case was forefront in the news, we here at Davidow, Davidow, Siegel & Stern, spent a good amount of time explaining the specifics surrounding the case and why it should prompt everyone to plan ahead. If you or a loved one has not considered making such crucial plans, do it for yourself now so that someone else doesn’t have to do it for you later.
Five years after the court fight over allowing Terri Schiavo to die, most Americans still don’t draft the legal documents that spell out how far caregivers should go to keep them alive artificially.
Schiavo’s life and death captivated the country and fueled conversations about the necessity of the documents, known as advance directives or living wills. Even though millions witnessed a worse-case scenario, there’s no indication it had a lasting impact on getting more people to make their wishes known.
“The gap is so big,” said Paul Malley, president of Aging with Dignity, which advocates advance directives and which saw an increase in interest during the Schiavo case. “Even a significant impact from the Schiavo case doesn’t put a dent in the need that’s out there.”
The protracted family fight over keeping Schiavo alive, and her ultimate death March 31, 2005, plastered her story in headlines and prompted an immediate spike in Americans filling out advance directives. But while Schiavo’s struggle remains in the minds of many, the momentum it created for writing the instructions appears to have ebbed.
End-of-life experts estimate 20 to 30 percent of U.S. adults have advance directives, the same as before the Schiavo case. Even in polls of older Americans, who fill out such forms at higher rates, there is little if any change from 2005.
“Awareness is up,” said Kathy Brandt, a vice president of the National Hospice and Palliative Care Organization. “But I don’t know that people understand any better and I don’t know that we’re ever going to get better than a third of Americans.”
Much of the problem with advance directives is people aren’t entirely sure what they do, or fear they mean they’d be forced to forgo lifesaving treatment. In fact, they can be changed by the patient and would only be used in limited grave circumstances, typically in which they can no longer communicate their wishes.
Living wills spell out desires regarding the use of respirators, feeding tubes and other life-support efforts, and to what lengths a person wants to be kept alive in the face of brain damage, comas and other conditions.
Schiavo, who collapsed at her St. Petersburg, Florida, home in 1990, had no such instructions in writing. Her heart stopped and she suffered what doctors said was irreversible brain damage that left her in a permanent vegetative state.
Her husband said his wife would not have wanted to live in a vegetative state; her parents wanted to keep her alive. The result was an epic legal battle that involved dozens of judges in numerous jurisdictions, including the U.S. Supreme Court.
In the end, her feeding tube was ordered removed two weeks before she finally succumbed.
Still, while the paperwork on end-of-life wishes is vital – particularly in cases such as Schiavo’s, when family members disagree – family discussions that precede such documentation can be even more important.
“It’s an ongoing conversation,” said Sally Hurme, who works on consumer health education for AARP, an advocacy group for older people. “Your views may change, your health circumstances may change and you need to keep your family up to date.”
Malley says advance directives should be part of a broader conversation about what an individual wants out of their final years, how they want to be cared for, where they want to live and so on. Even when someone does have a living will, they often haven’t had such a conversation with their loved ones.
“When people are asked what’s important for them at the end of life, they talk about being at home, with family, not in pain,” he said. “A lot of times we only ask the question about life support treatment and tubes and ventilators.”
Even for those who deal with death daily, though, thinking about one’s own can be difficult.
Dr. Gail Cooney, a 57-year-old neurologist who is medical director at the Hospice of Palm Beach County, had spent more than 20 years preaching to patients and family alike the necessity of having advance directives. She knew full well the importance and had seen what could happen without something in writing.
But, still, it took a diagnosis of ovarian cancer and subsequent major surgery before she took her own advice.
“I knew what I wanted but I had never written it down until I was sitting there waiting for surgery in that stupid little hospital gown,” she said.
Five years after the court fight over allowing Terri Schiavo to die, most Americans still don’t draft the legal documents that spell out how far caregivers should go to keep them alive artificially.
Schiavo’s life and death captivated the country and fueled conversations about the necessity of the documents, known as advance directives or living wills. Even though millions witnessed a worse-case scenario, there’s no indication it had a lasting impact on getting more people to make their wishes known.
“The gap is so big,” said Paul Malley, president of Aging with Dignity, which advocates advance directives and which saw an increase in interest during the Schiavo case. “Even a significant impact from the Schiavo case doesn’t put a dent in the need that’s out there.”
The protracted family fight over keeping Schiavo alive, and her ultimate death March 31, 2005, plastered her story in headlines and prompted an immediate spike in Americans filling out advance directives. But while Schiavo’s struggle remains in the minds of many, the momentum it created for writing the instructions appears to have ebbed.
End-of-life experts estimate 20 to 30 percent of U.S. adults have advance directives, the same as before the Schiavo case. Even in polls of older Americans, who fill out such forms at higher rates, there is little if any change from 2005.
“Awareness is up,” said Kathy Brandt, a vice president of the National Hospice and Palliative Care Organization. “But I don’t know that people understand any better and I don’t know that we’re ever going to get better than a third of Americans.”
Much of the problem with advance directives is people aren’t entirely sure what they do, or fear they mean they’d be forced to forgo lifesaving treatment. In fact, they can be changed by the patient and would only be used in limited grave circumstances, typically in which they can no longer communicate their wishes.
Living wills spell out desires regarding the use of respirators, feeding tubes and other life-support efforts, and to what lengths a person wants to be kept alive in the face of brain damage, comas and other conditions.
Schiavo, who collapsed at her St. Petersburg, Florida, home in 1990, had no such instructions in writing. Her heart stopped and she suffered what doctors said was irreversible brain damage that left her in a permanent vegetative state.
Her husband said his wife would not have wanted to live in a vegetative state; her parents wanted to keep her alive. The result was an epic legal battle that involved dozens of judges in numerous jurisdictions, including the U.S. Supreme Court.
In the end, her feeding tube was ordered removed two weeks before she finally succumbed.
Still, while the paperwork on end-of-life wishes is vital – particularly in cases such as Schiavo’s, when family members disagree – family discussions that precede such documentation can be even more important.
“It’s an ongoing conversation,” said Sally Hurme, who works on consumer health education for AARP, an advocacy group for older people. “Your views may change, your health circumstances may change and you need to keep your family up to date.”
Malley says advance directives should be part of a broader conversation about what an individual wants out of their final years, how they want to be cared for, where they want to live and so on. Even when someone does have a living will, they often haven’t had such a conversation with their loved ones.
“When people are asked what’s important for them at the end of life, they talk about being at home, with family, not in pain,” he said. “A lot of times we only ask the question about life support treatment and tubes and ventilators.”
Even for those who deal with death daily, though, thinking about one’s own can be difficult.
Dr. Gail Cooney, a 57-year-old neurologist who is medical director at the Hospice of Palm Beach County, had spent more than 20 years preaching to patients and family alike the necessity of having advance directives. She knew full well the importance and had seen what could happen without something in writing.
But, still, it took a diagnosis of ovarian cancer and subsequent major surgery before she took her own advice.
“I knew what I wanted but I had never written it down until I was sitting there waiting for surgery in that stupid little hospital gown,” she said.
Thursday, April 22, 2010
HEALTH CARE REFORM AND THE CAREGIVER
As health care reform becomes the law of the land, a huge segment of Americans with a unique interest in the way it unravels, are watching on the sidelines. We’re talking about the 49 million people who care for older family members. They are hidden in plain sight, as usual, quietly shouldering a burden that so often takes a heavy toll on their finances and their physical and emotional well-being. Hardly any of them are aware that this new reform includes one of the most important steps ever taken to improve the caregivers’ lot, especially those of the middle-class persuasion.
The Community Living Assistance Services and Supports Act, otherwise known as CLASS, provides for a national insurance program to help cover the cost of long-term care – something 70 percent of people over 65 will need at some point along the way. The premiums will be much lower than those for private plans, and you won’t get screened out because you’ve already had some health problems. Once vested after five years, enrollees unable to care for themselves will be able to claim cash benefits for as long as needed.
The new health care reform law could “transform long-term care” and make it possible for more patients to stay at home, said the chief of the National Council on Aging. If you’re rich, you don’t require much financial help with long-term care. If you’re poor and can no longer fend for yourself, Medicaid pays the bills, often at a nursing home. For the rest of us, long-term care – at home or in an institution – now requires that we, or our caregivers, choose from among some unpleasant options.
We can spend down our retirement savings until we’re eligible for Medicaid funds. We can protect our savings by taking out expensive long-term care insurance – it can cost a couple more than $5,000 a year. Or, depending on how dependent we are, we can throw ourselves, or be thrown, on the mercy of our families.
CLASS, one of the legacies of the late Ted Kennedy, offers caregivers and care recipients another option. “If it’s successful, if a large enough number of people sign up, it will transform long-term care, “ says James Firman, president and CEO of the National Council on Aging. “It will create a market-based economy for keeping aging people at home.”
That’s an important “if,” since the program, by law, must be self-sustaining. Premiums will generally be collected as part of the workers’ payroll deductions unless they opt out. The younger the worker, the smaller the premium.
There is a vicious circle built into the current arrangements. Many caregivers must hold down a job and maintain their own separate family household while also watching over an aging parent. That kind of pressure can have consequences.
In recent studies, workers 18 to 39 years of age who were caring for an older relative had significantly higher rates of hypertension, depression and heart disease than non-caregivers of the same age. Overall, caregivers cost their companies an extra 8 percent a year in health care charges and many more unplanned days off. In other words, the strains of family caregiving can hasten the caregiver’s need to be the recipient of care.
CLASS bids to crack if not break that vicious circle. Its benefits would make it much simpler and less expensive for families to make sure Mom gets the support she needs to be able to spend life’s endgame where she wants – in her own home. Good news for Mom, and good news for the future health of her caregivers.
Source: www.aol.com, 3/26/10
The Community Living Assistance Services and Supports Act, otherwise known as CLASS, provides for a national insurance program to help cover the cost of long-term care – something 70 percent of people over 65 will need at some point along the way. The premiums will be much lower than those for private plans, and you won’t get screened out because you’ve already had some health problems. Once vested after five years, enrollees unable to care for themselves will be able to claim cash benefits for as long as needed.
The new health care reform law could “transform long-term care” and make it possible for more patients to stay at home, said the chief of the National Council on Aging. If you’re rich, you don’t require much financial help with long-term care. If you’re poor and can no longer fend for yourself, Medicaid pays the bills, often at a nursing home. For the rest of us, long-term care – at home or in an institution – now requires that we, or our caregivers, choose from among some unpleasant options.
We can spend down our retirement savings until we’re eligible for Medicaid funds. We can protect our savings by taking out expensive long-term care insurance – it can cost a couple more than $5,000 a year. Or, depending on how dependent we are, we can throw ourselves, or be thrown, on the mercy of our families.
CLASS, one of the legacies of the late Ted Kennedy, offers caregivers and care recipients another option. “If it’s successful, if a large enough number of people sign up, it will transform long-term care, “ says James Firman, president and CEO of the National Council on Aging. “It will create a market-based economy for keeping aging people at home.”
That’s an important “if,” since the program, by law, must be self-sustaining. Premiums will generally be collected as part of the workers’ payroll deductions unless they opt out. The younger the worker, the smaller the premium.
There is a vicious circle built into the current arrangements. Many caregivers must hold down a job and maintain their own separate family household while also watching over an aging parent. That kind of pressure can have consequences.
In recent studies, workers 18 to 39 years of age who were caring for an older relative had significantly higher rates of hypertension, depression and heart disease than non-caregivers of the same age. Overall, caregivers cost their companies an extra 8 percent a year in health care charges and many more unplanned days off. In other words, the strains of family caregiving can hasten the caregiver’s need to be the recipient of care.
CLASS bids to crack if not break that vicious circle. Its benefits would make it much simpler and less expensive for families to make sure Mom gets the support she needs to be able to spend life’s endgame where she wants – in her own home. Good news for Mom, and good news for the future health of her caregivers.
Source: www.aol.com, 3/26/10
Thursday, April 1, 2010
IMPORTANT UPDATE ON ESTATE TAX LEGISLATION
Very recently, Sandy Levin (D-Mich.) the Acting Ways and Means Chairman, has announced the Committee is considering a bill which would allow the estates of individuals who pass away in 2010 to have the option of abiding by the law as it is in effect today or to resort to the 2009 estate tax rules.
The repeal of the estate tax on January 1, 2010 replaced a capital gains tax that requires heirs to pay rates of between 15 percent and 28 percent on any inherited assets they sell (subject to several exemptions).
Several groups previously opposed to the estate tax have reversed their position and appear to now back this option. If there is no action taken by Congress, the estate tax law will revert to the 2001 levels, which is considered the worst of all possible options.
We will continue to keep you informed on the progress of this bill.
The repeal of the estate tax on January 1, 2010 replaced a capital gains tax that requires heirs to pay rates of between 15 percent and 28 percent on any inherited assets they sell (subject to several exemptions).
Several groups previously opposed to the estate tax have reversed their position and appear to now back this option. If there is no action taken by Congress, the estate tax law will revert to the 2001 levels, which is considered the worst of all possible options.
We will continue to keep you informed on the progress of this bill.
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