Kansas & Missouri Estate Planning

Time To "Spring Clean" Your Estate Plan In Overland Park, KS

We all are familiar with the annual family ritual known as “spring cleaning.” With the changes in the estate tax laws, this may be a good time for some “spring cleaning" when it comes to your estate plan, too.

Estate planning is an ongoing process, not a one-time event, whether you live in Overland Park or elsewhere. Not only are there changes in tax laws, but your life and the lives of your loved ones are in a constant state of flux as you move through life together. Accordingly, keeping your estate plan up with life changes requires action, not complacency.

This message was brought home in a recent article by The New York Times titled “Estate Planning Remains a Moving Target Under the New Tax Law.” The article notes that new tax law changes make the estate tax a far less likely threat to the life’s work of many Americans. In fact, the “permanent” nature of this most recent iteration of the tax law allows individuals to exempt $5.25 million from death taxes (doubled to $10.5 for married couples). Even better, the exemption is set to index for inflation.

All that noted, no changes to the estate tax or any other transfer tax will change the necessity for responsible adult Americans to make sure their own estate plans are current. For example, wills, trusts, beneficiary designations and even medical directives should be reviewed periodically.

As suggested in the original article, now is a great time to do some spring cleaning. It’s a chance to review what you have done, make any needed changes and perhaps tie up some loose ends.

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: The New York Times (April 26, 2013) “Estate Planning Remains a Moving Target Under the New Tax Law”

Watch Out For “State Estate” Taxes (Even If You Are In Overland Park, KS)

Budgets are set to battle once more on Capitol Hill in the near future. All considered, estate planners are fairly content with the last battle and the federal estate tax laws that went into effect with the American Taxpayer Relief Act (ACTA) at the beginning of the year.

Consequently, most taxpayers have been spared the federal estate tax. But don’t forget about what your state has in store for you, even if you live in Overland Park. [No, Kansas doesn't have its own estate or inheritance tax ... but stay with me on this.]

As a recent Kiplinger article warns, the state level transfer taxes have not fallen away like the federal transfer tax. The article, titled “Beware States With Their Own Estate Taxes,” notes that fully 21 states (plus the District of Columbia) currently impose some kind of transfer tax, whether a death tax, an inheritance tax, or both simultaneously. Furthermore, if you pay too much attention to the federal tax, then you might think you are home free in terms of exempt amounts. Unfortunately, state taxes are, generally, set with much lower exemption amounts.

The Federal tax has been permanently set at a rather generous range with a $5.25 million exemption amount. On the other hand, New York starts taking a piece of the estate pie at $1 million.

If you live in a death tax state, now is the time to be planning to avoid or minimize the impact. For that matter, too, where do you plan your retirement? Even if you live in Overland Park, crossing into a new state for retirement or late-in-life care is not just about passing the “Welcome” sign on the highway. Accordingly, remember to consider how your move from Kansas will affect your assets and overall estate plan.

Then again, how much do you trust Congress and their idea of a “permanent” estate tax law?

Already these new budget battles have given platform to new calls for a change in the “permanent” federal estate tax exemption. In fact, the Obama Budget Proposal would reduce the just-agreed-upon “permanent” exemption from $5.25 million to $3.5 million (The Washington Times here).

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Kiplinger (May 2013 issue) “Beware States With Their Own Estate Taxes”

The “Permanence” Of Portability In Overland Park, KS

There may be battles aplenty over the budget, and many more to come. At least we have a set of solid laws set in stone under the recently passed American Taxpayer Relief Act of 2012 (ATRA), right?

While it appears safe to breathe a bit easier, many people still don’t trust any tax law claimed to be “permanent” by Congress and the White House.

When it comes to making estate plans certainty is an essential. Any uncertainty can wreak havoc on even the most carefully crafted plans in Overland Park and elsewhere. One popular “permanent” part of estate planning under ATRA is “portability.” Is it here to stay and can we trust it?

“Portability”, as you may well know, is the new ability of a spouse to pass their unused unified gift tax lifetime exemption and/or estate tax exemption onto their surviving spouse. It grew out of budget deals and then was made “permanent” under ATRA (also known as the "bridge over the Fiscal Cliff").

As a questioner in a recent Wall Street Journal Q&A (“Is Estate-Tax Portability Permanent?”) pointed out, estate tax “portability” is a great option... but an act of Congress could just as easily undo it. What then?

The general consensus is that portability is probably here to stay and for a multitude of reasons. Assuming that remains true, the key to portability is to separate myth from reality. The myth: portability is not automatic? The reality: it can be rather complex, especially in terms of unintended consequences. For example, what happens when the surviving spouse remarries?

For the time being, perhaps you can breathe easier as to portability. The larger question, however, is what do you and your spouse hope to achieve through your estate plan from both tax and non-tax perspectives? Never let the tax tail wag the estate planning dog!

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: The Wall Street Journal (March 31, 2013) “Is Estate-Tax Portability Permanent?”

Happy Tax Day In Overland Park, KS! (IRS Estate Audits Increase)

Whether Caller I.D. or the return address on an envelope in your mailbox, no one likes to hear from the IRS. Audits are never good news. And it's not just income taxes that are subject to them.

Estate tax return audits can be especially bad news in Overland Park. First, the estate tax return itself must be filed within nine months following in death of the loved one who owned the assets subject to the return. Unfortunately, there is no "pause button." Enough said. Second, to make matters worse, the IRS seems to be upping pressure on estate tax returns more than any other.

With tax season dying out for most of us today (if you haven't filed for an extension), the last thing you might want to hear about are audits of any kind. Nevertheless, the fiscally-minded writers at AccountingWeb want to warn taxpayers about this apparent IRS interest in estate tax return in an article titled “IRS 2011 Audit Rates Show Estate Tax Returns under the Microscope.”

Bottom line: take this as fresh evidence to dot your “i’s” and cross your “t’s” when it comes to your own estate planning.

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Accounting Web (March 27, 2013) “IRS 2011 Audit Rates Show Estate Tax Returns under the Microscope”

New Estate Tax Law - Estate Planning Review Recommended

Do we now find ourselves living in the calm after the storm? The estate tax laws seem to have finally found a safe harbor, after so many years of indecision, short-sighted planning, and even damage-control.

So are you confident with your estate planning, or are you still perhaps somewhat concerned.

As you may have heard, the midnight compromise signed into law just before the tax law shifted back ten years into the past, otherwise known as the American Taxpayer Relief Act of 2012 (or ATRA 2012) finally set estate laws and wealth transfer taxes into stone. While "permanent" and "tax law" may seem a bit oxymoronic, the deal struck in stone (even porous stone) is at least better than the silly-putty in play for a decade.

A recent Reuters article titled "New estate tax rules call for new planning tactics" is a clarion call to review your estate planning. Some of the tax changes may have created some unintended consequences you ought investigate, especially with the more generous federal estate tax exemption amount.

Regardless, it is prudent to review your estate plan from time to time. After all, estate planning is a process, not an event.

Reference: Reuters (February 26, 2013) "New estate tax rules call for new planning tactics"

Estate Tax Rules - The Good, Bad & Ugly

We certainly have been through some uncertain times regarding estate taxes over the past several years. From changing exemption amounts, to a one-year repeal, to "band-aid" fixes, the only thing certain about the federal estate tax was its uncertainty.

Until now.

Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time.

Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, "Want to Avoid the Estate Tax Cliff? Five Ways to Help," the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption.

Forbes goes on to list five powerful strategies for reducing federal estate taxes:

      Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free.

      Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount.

      Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, "currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate."

      Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death.

      Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, "there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals."

The beauty of the new estate tax rules is their permanence. The beast is their sting -- 40 percent on the first dollar over the exemption amount (currently $5.25 million). Failure to wisely plan for a potential estate tax liability can be disastrous for your family and/or your business.

Reference: Forbes (January 30, 2013) "Want to Avoid the Estate Tax Cliff? Five Ways to Help"

Fiscal Cliff Anomalies

They say a true compromise is when everyone walks away a little unhappy. If that’s true, then the American Taxpayer Relief Act passed by Congress and touted as narrowly avoiding a Fiscal Cliff, was the truest of compromises ... resulting in some interesting anomalies.

While no one got everything they wanted, there are some surprising winners in the deal. Business writer Kent Hoover of the Business Journal (Minneapolis-St. Paul) outlined his take on The 5 Winners of the Fiscal Business Awards:

• Small Business. Most small businesses avoided higher taxes when the threshold for increases was set at $450,000 instead of $250,000. Small business owners also should benefit from the $5.12 million estate tax exemption ($10.24 for a married couple), especially with the annual inflation adjustment. Finally, small business owners can immediately expense up to $500,000 in capital expenditures (such as new equipment), instead of having to claim depreciation over time. (Without the deal, the Section 179 annual expensing limit would have fallen to $25,000.)
• Physicians. Popularly known as the "doc fix," Congress blocked a scheduled 26.5 percent decrease in Medicare reimbursements to doctors. (Beware, though, this block is only temporary, and doctors could face a decrease in 2014.)
• Manufacturers and Technology Companies. Many of these companies will take advantage of the research and development tax credit, which provides incentives for companies to do R&D in the U.S.
• Utilities. Congress kept the capital gains and dividends rate at 15 percent for households earning below $450,000 (20 percent for households above that threshold). This is in contrast to taxation at ordinary income tax rates as high as 39.6 percent for wealthy Americans. According to Hoover, "That would have been bad news for companies, notably utilities, that offer dividends in order to attract investors and raise capital. The steady income that dividends provide loses its attractiveness when it's taxed at such a high rate."
• Wind energy, Hollywood and NASCAR. What would any tax code be without special-interests? This deal is no different. The wind energy industry gets a production tax credit for projects that begin construction this year. Hollywood studios get tax breaks for doing their television and film production in the U.S.  And NASCAR fans – for some reason Congress saw fit to extend a tax break for "motorsports racing track facilities."

For a look at some of the other industry-specific tax breaks, hop on over to The Wall Street Journal blog, "From NASCAR to rum, the 10 weirdest parts of the ‘fiscal cliff’ bill."

As the old saw goes (and is validated once again), "there are two things you should never watch while they are being made - sausage and tax law."

Reference: Minneapolis-St. Paul Business Journal (January 3, 2013,) "The 5 winners of the Fiscal Cliff Business Awards are ..."

Estate And Gifts Taxes - After The "Fiscal Cliff"

I liken any "permanent" tax laws issued forth from Washington to Lucy holding the football for Charlie Brown. It can be taken away. So it is with estate and gift tax laws.

Oh, by the way, did you hear Congress just made "permanent" changes to the estate and gift tax laws in the shadow of the expiring temporary "tax patch" in place since December of 2010? Okay, color me cynical. Nevertheless, I have helped clients navigate the trecherous tax shoals of (now) five different estate and gift tax changes since I prepared my first estate plan in January of 1985.

Unless you've been living under a rock, you're probably aware that Congress last week passed a tax deal avoiding what the media had termed "the fiscal cliff." You may not be aware, however, of how The American Taxpayer Relief Act impacts your estate, business and retirement planning. Against that backdrop, let's take a look at some key aspects of the Act, starting with a summary of key provisions affecting federal estate and gift taxes.

Perhaps one of the most important aspects of these new provisions is that they are permanent (as "permanent" as anything in Congress can be, anyway). By "permanent," I mean there is no scheduled "sunset" or repeal. For the first time in more than a decade, we now have a set of laws around which we can make reasonable estate and gift tax plans.

Deborah Jacobs of Forbes wrote a succinct summary in the article, “After The Fiscal Cliff Deal: Estate And Gift Tax Explained.” You may want to click over to read it, but here are the highlights:

• The Basic Exclusion Amount is set at $5.12 million per person in 2012, to be adjusted annually for inflation. In plain English, this means that a single person may transfer up to $5.12 million in estate value to their heirs federal estate tax-free.
• There is an unlimited marital deduction, which means spouses can pass unlimited estate value from one to another without federal estate taxation.
• Your basic exclusion amount also is "portable" to your spouse, which means that a surviving spouse can apply the basic exclusion amounts for both spouses to protect up to $10.24 million in estate value from federal estate taxation. As Jacobs notes in her article, however:  "Still, portability is not automatic. The executor handling the estate of the spouse who died will need to transfer the unused exclusion to the survivor, who can then use it to make lifetime gifts or pass assets through his or her estate. The prerequisite is filing an estate tax return when the first spouse dies, even if no tax is owed."
• Lifetime gifts are subject to the same $5.12 million basic exclusion amount, as part of your unified credit (one credit of $5.12 million for estate transfer and gifts made during your lifetime). Again, spouses may utilize both their mutual basic exclusion amounts to make lifetime gifts (called gift-splitting). Remember that lifetime gifts will reduce the exclusion amount available to the final estate.
• The annual exclusion ($14,000 per person) allows you to make lifetime gifts that don't count against your estate and gift tax basic exclusion. Married couples can combine their annual exclusion amounts to make gifts of up to $28,000 per person per year. For example, a married couple with two adult children could gift each child $28,000 per year, for a total of $56,000 – without utilizing their lifetime estate and gift tax basic exclusion.

Should you review your estate plan in light of these changes? Perhaps, especially if:

• it has been more than two years since you last reviewed your plan with your estate attorney; or
• if you have experienced significant life changes such as:
  • marriage or remarriage,
  • the serious illness of a spouse or other family member,
  • the birth or adoption of a child or grandchild,
  • acquisition of property in another state, or
  • a significant change in your finances such as receiving an inheritance or selling a business.

 If any of these situations apply to you, or if you have questions about how the new laws might change your estate planning, call your estate planning attorney and ask to schedule an estate plan review consultation.

Reference: Forbes (January 2, 2013) "After The Fiscal Cliff Deal: Estate And Gift Tax Explained."

To Gift or Not to Gift

While the estate and gift tax has been in flux for the past decade, only its most recent uncertainty has forced the wealthiest to address their financial fate.

A recent Forbes article, Give Now or Pay Later: Rich Face Dilemma With Fate Of Estate And Gift Taxes Up In Air, discusses, in plain language, the consequences of giving now or waiting.

Basically, the current estate and gift tax exempts $5 million of gifts or bequests and taxes any excess at 35 percent. And unless Congress takes action, on January 1, the tax will return to a $1 million exemption with the excess taxed at 55 percent. Accordingly, the wealthy may want to consider giving large gifts before the end of the year.

However, proceed with caution. If you are gifting assets to your nephew that have appreciated in value, your gift comes with your basis – the amount you paid for the asset. If your nephew sells the asset, he will owe tax on both your capital gain and any appreciation after the gift. If your nephew inherits the asset, however, he will only owe capital gains tax on the gains that occur after inheriting the assets.  

The undetermined fate of the federal estate and gift taxes has the potential to cause the wealthy to make ill-advised gifts. To avoid making one of these ill-advised gifts, and potentially costing you or your loved one millions of dollars, consult with your estate planning attorney in advance.

This is not a time to "go cheap" on solid advice.

Reference:  Forbes December 17, 2012 "Give Now of Pay Later:  Rich Face Dilemma With Fate of Estate and Gift Taxes Up In Air"

Fiscal Cliff Killing Family Farms?

With the Fiscal Cliff looming with each passing day to 2013, family farms may be the latest casualty.

Have you heard that farmland sales are surging? So, what's the big deal. Why the flurry of family farm sales in 2012?

Some background is required to appreciate the problem. The perennial tax problem stalking family farms is that they are "illiquid assets." The land is itself the primary asset enabling family farmers to make a living. Accordingly, when the land is sold there can be hefty taxes to pay. To make matters worse, if the death tax exemption drops to $1 million in 2013, then the heirs may be forced to sell the land just to pay the taxes.

More than a few news sources have shed light on this dilemma recently, to include the San Francisco Chronicle in an article titled "Farmland sales [are] brisk because of tax law change."

While the reality of the Fiscal Cliff is not good for farming families, it's also not good for anyone owning real estate or other illiquid assets.

Going forward, do you have any illiquid assets or legacies worth leaving that require protection? Take a lesson from those that have already gotten to work: this takes action and forethought.

Reference: SFGate (San Francisco Chronicle) (November 27, 2012) "Farmland sales brisk because of tax law changes"