First installment of Do-it-Yourself estate planning disasters.  Client X has three children named High, Dry, and Helpful, and no surviving spouse. Helpful is so named because she is so very helpful in caring for mom. 

So helpful in fact, that Helpful moved in with mother a few years before mom’s death to take care of her, oh, and she (Click here for more…)

Here’s a new blog category.  I am going to attempt to collect examples of Do-It-Yourself estate plans that have led to disastrous results. I think that the internet age has led to a boom for do-it-yourselfers in many fields, and this of course includes estate planning. With Google and Legal Zoom at your finger tips, what could possibly go wrong? My guess would be inadvertantly disinheriting loved ones and astronomical litigation fees, but let’s see if we can find out for sure. Stay tuned.  

If you have read any of my previous posts, surely you know that there is no federal estate tax in the year 2010.  Unsurprisingly, this change in the law can have severe repercussions for your estate plan.

Some estate planners are sounding the alarm with regard to estate plans based on credit shelter family trusts and marital deduction trusts.  These trusts are set up in such a way that the credit shelter trust gets funded with assets up to the amount that will not be subject to estate tax due to the previously existing estate tax exemption, while the marital deduction trust gets everything else.  (This set up eliminates all federal estate tax when the first spouse passes away.)

The problem with this set up is that (Click here for more…)

The 2009 tax season is fast approaching! It’s the year 2010. No federal estate tax! No generation skipping transfer tax! We think. Maybe. Maybe not. We’ll see. One thing that is certain is that there is a federal income tax this year. In honor of tax season, I have created a new blog category, where I will provide some advice or hints on some common errors made in tax preparation. Quick post for now, til next time, ’tis the season!

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  In 2010, the estate tax is slated to be repealed.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…)

The U.S. Senate has failed to make any move on estate tax legislation reinstating the federal estate tax for the year 2010. It is not expected to do so before the end of this year.

The sticking point seems to be that Republicans want a 5M dollar exemption and a thirty five percent highest tax bracket, while Democrats want to keep the current 3.5M dollar exemption and forty five percent rate.

It is reported by the Wall Street Journal that the Senate will revisit this issue early next year and enact retroactive legislation reinstating the estate tax as of January 1, 2010. As to what the parameters of that estate tax will be, you will just have to stay tuned.