First off, this Yankees fan would like to say thank you to George Steinbrenner for his successful stewardship of the New York Yankees over the past several decades.  RIP The Boss.  As a friend of mine said, somewhere in heaven Thurman Munson, Billy Martin, and George Steinbrenner must be having their long-awaited sitdown.

Now to blog business.  From a purely estate tax point of view, George Steinbrenner picked a pretty good year to pass on. There is no federal estate tax this year. The estate tax savings can be measured in the hundred’s of millions of dollars, considering a net worth north of one billion dollars.  I believe The Boss was domiciled in Florida, a state with no state estate tax, which results in additional estate tax savings.   On the other hand, The Boss may have owned some real property in New York, a state that can take a fairly good bite out of an estate with its estate tax.  But with no really good information as to his holdings and estate plan, it would be mere speculation to estimate what the New York estate tax might be.

It is more interesting to think about the possibility that  (Click here for more…)

Well, we are almost through one half of the year 2010, and there is not much news to report on what will happen to the federal estate tax. As you may know, pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), there is no federal estate tax in 2010. There is also no estate tax in South Carolina this year, as has been the case since January 1, 2005.

In December 2009, the U.S. House of Representatives passed a tax bill that would make the 2009 federal estate tax law permanent, thus locking in the 3.5 million dollar per person estate tax exemption and 45 % top tax rate. The Senate never took up this bill. There has been some political rangling in the Senate lately, but Democrats are unwilling to take up a bill unless they are fully confident they can get a floor vote.  The reasons for this are beyond the scope of this post, but suffice to say that political rangling is preventing new federal estate tax legislation.

With the possibility of a double dip recession looming, the oil spill that will not end, and mid-term elections coming up that may dramatically alter the make up of Congress, one wonders whether anything will happen on this issue. 

What is interesting is what will happen to South Carolinians (Click here for more…)

In Verenes v. Alvanos, (Op. No. 26780, S.C. Supreme Court, filed March 1, 2010), the South Carolina Supreme Court took up the right to jury trial in Probate Court. The case involved claims made against a trustee for breach of fiduciary duty of care, breach of fiduciary duty of loyalty, and for an accounting.The various reliefs requested were for surcharge of the trustee, disgorgement of commissions and profits, and for an account. The trustee sought a trial by jury, the probate court denied his request. Here’s why.

The U.S. and S.C. Constitutions hold the right to jury trial in high esteem, the right is a fundamental one. However, you are not entitled to a jury trial in all cases. The right to trial by jury attaches to actions at law. However, the right to trial by jury does not attach in cases in equity. An action at law is typically a case for money damages. An action for a breach of fiduciary duty is typically an action in equity, however, the court notes that it has been held that an action for breach of fiduciary duty could also be an action at law.

How do you draw the distinction? The Court looks to the remedies requested. In this case, the remedies sought included surcharge, disgorgement, and an accounting. These remedies fall squarely within the equity jurisdiction. Equity jurisdiction does not support a request for a jury trial. Thus, no right to a jury trial for the appellant here.  

Lately I have found myself fascinated by the recent repeal of the federal estate tax and all of its consequences, intended or otherwise. Equally fascinating are the proposals that have been made by members of Congress to reinstate the estate tax.

One such proposal is to ressurect the estate tax for 2010 at 2009 levels, and to make the federal estate tax exemption portable between spouses. This is an interesting proposal in that theoretically this would eliminate the need for a credit shelter trust to accomplish estate tax planning for a married couple. In a typical planning scenario, the credit shelter trust is funded by assets owned by the first-to-die spouse and is funded up to the exemption amount, and all other assets are placed into a qualified terminable interest property (QTIP) trust for the sole benefit of the surviving spouse. This is done because if all the assets of the first-to-die spouse are transferred to the surviving spouse, the first-to-die spouse’s exemption amount is totally wasted, and a much larger estate tax becomes due at the end of the surviving spouse’s lifetime.     

The portability of the exemption would allow whatever exemption amount that is unused in the first-to-die spouse’s estate to be transferred to the surviving spouse’s estate.  Wouldn’t that be great? The proponents of portability say that this would eliminate the need for the credit shelter trust, thus reducing complexity and the financial burden of estate planning. Good intentions of course, but where again does that road paved with good intentions lead?

Experienced estate planners can instantly recognize the complexities that exemption portability would create.  Number one, what about multiple marriages? (Click here for more…)

Congratulations to Scott Brown, Esq., the new Senator-Elect for the State of Massachusetts.  By all accounts, Mr. Brown is a nice hard-working family lawyer turned politician who has an ability to connect with voters, and was willing to do the work in the trenches during the campaign to win the election. 

Knowing full well that I am being naive, somehow I hope that this election will bring some bipartisanship back to politics in D.C. The people’s business is important, from the health care reform bill to the inexplicably muddled state of the estate tax, to figuring out how to create an economic environment that gets people back to work. I hope the two parties can begin to work together again on these issues. But then again, I may have to rename this blog the South Carolina Naive Lawyer Blog.

In a prior post, I discussed the idea of stepped up tax basis, wherein upon death the tax basis of a person’s assets is set equal to the fair market value of the assets as of the date of death. Thus, if the asset is then sold after death for that same fair market value, there is no taxable gain. 

Alas, with the laws expected to go into effect in 2010, this will no longer be true.  In 2010, the estate tax is slated to be repealed.  Along with the estate tax, the law allowing for stepped up tax basis upon death is being partially repealed.  In 2009, all estate assets receive a stepped up basis.  However, in 2010 there will be a limited step up in basis only to the extent of $1.3 million in estate assets.  For transfers to spouses, there is an additional $3 million that will receive stepped up basis.  But what does this mean in reality? (Click here for more…)

The next anti-estate tax argument that you may hear is that the estate tax taxes assets that have been taxed already. While this may be true in some instances, it is false when appreciated assets are considered.

To understand this requires attention to the interplay between income taxes and estate taxes.  For the rest of this discussion an equation must be remembered.  The equation is unrealized gain = current fair market value - tax basis.  Onward and upward to an example.

Assume “A” purchased a home in 1965 for a total purchase price of 100k. “A” passes away in 2009 and that house is now worth 4 million.  In this example “A’s” tax basis is the cost of acquiring the assets, or 100k, and “A” had an unrealized taxable gain of 3.9 million dollars that has never been subject to income tax. Under 2009 estate tax law, there will (Click here for more…)