the website of
Lisa Nachmias
Davis,
Attorney at Law - Elder Law, Estate Planning & Probate, Nonprofit Organizations
Suite 805
New Haven, CT
06510
203-776-4400
Fax: 203-774-1060
ESTATE AND TAX PLANNING
(last updated March 23, 2009)
So
is the Estate Tax Getting Repealed, or Not? Stay
tuned! As of January 1, 2009, the federal exemption has reached
$3.5 million -- the
maximum amount each person can leave at death (including gifts made
during life that is) to anyone without paying what is erroneously
referred to as the "death tax." (Everybody dies -- not everybody
has an "estate" that can be taxed!) That is -- a federal death tax. In
Connecticut, you pay tax on everything over $2 million (not to mention
the probate fee assessed even if you have no estate tax and even if you
don't need probate!). To read more about the problems created by
this disconnect, read my article/Tax Alert.
In the meantime, stay tuned for developments in Congress. I think
we can expect one of
three possible outcomes:
- So far, the Obama administration has talked about keeping the status quo on January 1, 2009 -- the $3.5 million exemption.
- There has also been talk in Congress about making this
"portable" -- you can leave your exemption to your spouse, so even with
no planning, the second to die can pass on $ 7 million without tax.
- BUT -- health care reform may be expensive. There is also talk about letting the 2001 tax cuts "expire" -- and those could include the increase in death tax exemption. Congress could let the George W. Bush Tax repeal plan play out as planned. That would mean:
- 1/1/2009: $3.5 million exemption.
- 1/1/2010: Full repeal (but the gift tax is retained -- to prevent "income-shifting")
- 1/1/2010: Repeal also of the "step-up" in basis at death: but with a large exclusion for inherited assets that will provide some relief. Keep all your records!
- 12/31/2010: The repeal "sunsets" and the exemption is back to $1 million!
Connecticut estate tax disconnect
issues. This
"disconnect" issue helps us remember all the other problems that exist
with our state's estate tax. (1)
Remember that anyone owning real estate in Connecticut may have to pay
Connecticut estate tax if total
assets (not just Connecticut assets) exceed Connecticut's "maximum" to
pass free of estate tax -- $2 million. (2)
Remember that even one dollar
over the $2 million limit will result in tax -- more than $100,000,
because the entire first $2 million gets taxed if the estate is $1
over. (3) Remember that
a formula clause in your will or trust referring to the maximum amount
you can pass free of FEDERAL estate tax will over-fund a trust and
potentially create Connecticut estate tax liability. Read more here. (4)
Currently, assets that are reportable as taxable gifts and yet are also
included in the estate at death (such as gifts to a personal residence
trust where the donor dies during the trust term, or gifts with a
retained life estate) are included twice on the Connecticut
estate tax return and Connecticut tax return for non-taxable
estates. (5)
Even estates that pay no '"tax" in Connecticut may wind up paying a
probate fee of $10,000, based on the amounts figured in the
"non-taxable" estate tax return!!! But if you are
thinking of becoming a Florida resident..... (a) your grandchildren
live HERE and (b) Florida has its problems too! Update
on Retirement Plans. Minimum
distributions are NOT required to be taken in 2009! This was part
of
the Worker, Retiree, and Employer Recovery Act of 2008, signed into law
in December. In addition, individuals turning 70 1/2 in 2009 do
not have to take their first distribution by April 1, 2010. Other
changes in recent years: any beneficiary, not only a
spouse, may have the right to "roll out" an inherited IRA or interest
in
a retirement plan, to his or her own IRA, choosing the account
custodian and the successor beneficiaries.
Recurring problems, however: CHECK YOUR BENEFICIARY DESIGNATIONS
frequently. Custodians have been known to change them without
notice,
to ignore additional beneficiaries, and to reinstate expired
beneficiary designations. And one more thing -- if you have
to draw down retirement accounts to pay medical bills, remember that
Connecticut does NOT have a medical expense deduction against the
Connecticut income tax. (It does, however, have a waiver
of tax (PDF) for persons who received Medicaid assistance to pay
for long-term care in a nursing home or at home, and who are unable to
pay taxes.) Med-Ed: Even with an economic downturn,
there are still plenty of folks worried about the gift tax (which kicks
in at $1 million for federal gift tax, only $2 million for
Connecticut). Read my article "summarizing" the long-standing tax
rule exempting from the whole gift and estate tax regime any direct payment of someone else's tuition
or medical care expenses -- the "med-ed" deduction.
In case
you have been sleeping for 3 years.....Connecticut Gift Tax
Repealed (on gifts up to $2 million)! Effective
1/1/2005, Connecticut's
legislature has repealed the gift tax for lifetime gifts totally up to
$2 million. Since there is no penalty for failure to file a gift tax
return when no tax is due, this will relieve many people from the need
to file. Connecticut was formerly the only state that had a gift
tax that operated separately from its estate tax. For gifts over
$2 million, the excess is taxed at anywhere from 5.085% to 16%.
How to
Administer a Life
Insurance Trust. At last -- help for those of you named
as Trustees of "life
insurance trusts" but unwilling to fork over the fee your attorney or
accountant charges to handle the procedures required to get the right
tax
result. Little do you know that the fee may still represent a
loss
to your attorney! Click HERE for
instructions
and a sample notice form.
* * *
The following is my statement of principles regarding the practice of estate planning. You may also want to look at the pages dealing with planning for the elderly and planning for the disabled, which focus more on entitlement benefits, another part of estate planning for those types of clients. Another page, living trusts, sets out the pros and cons of this popular, but sometimes abused device.
What Is Estate Planning?
Well, this is a particularly good question in light of the repeal - to some extent - of a good portion of our estate tax laws. However, the core human issues remain the same. "What if something happens to me?" The need to plan for the care of family members and the distribution of one's property when we have left this mortal coil is a basic human instinct. The desire to minimize taxes payable as a result of death has been and should be only a secondary concern, an aspect of our desire to control our own property (because we can never control our own death). Even with the as-yet unexplored tax bill, there will still be taxes to plan for, but with this much uncertainty estate planning must emphasize human, not accounting concerns.
For further information on the estate planning process, email your question to davis@sharinglaw.net, or write to me at the address shown. I cannot, however, give specific advice about specific situations without taking you on as a client; writing to me does not create an attorney-client relationship. DO NOT disclose confidential information to me.
List of Related Articles on my website:
- 2009 Tax Alert (Disconnect
between federal and state exemptions)
- The Med-Ed Gift Tax Exemption
- How to Administer a Life Insurance Trust
- Second-to-Die Life
Insurance: A Primer
- Keeping the Promise of Section 529 a Reality (on Section 529 college savings plans)
- Pros and Cons of Living Trusts
- Planning with Transfers for the Disabled
- "What if I Give it All AWay?" The Medicaid Transfer Rules
THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND CREATES NO ATTORNEY-CLIENT RELATIONSHIP. NO ENDORSEMENT IS INTENDED BY ANY REFERENCES HEREIN. PLEASE CONSULT YOUR OWN LEGAL AND FINANCIAL ADVISORS BEFORE TAKING ANY ACTION. In compliance with regulations issued by the Internal Revenue Service, please be advised that nothing on this webpage was written to be used or may be used by any person to avoid any penalties under the Internal Revenue Code.
Web-site design by: Tintern Productions
Lisa
Nachmias Davis
Attorney at Law
129
Church Street, Suite 805
New Haven, CT 06510
Phone:
203-776-4400
Fax:
203-774-1060
Email: davis@sharinglaw.net