sharinglaw.net

the website of
Lisa Nachmias Davis,
Attorney at Law - Elder Law, Estate Planning & Probate,  Nonprofit Organizations

Connecticut Gift Tax Repealed (on gifts up to $2 million)!  Effective 1/1/2005, Connecticut's legislature has repealed the gift tax for lifetime gifts totally up to $2 million.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%. 

Connecticut "death taxes" -- time to review your estate plan? No more Succession Tax -- Estate Tax on estates of $2 million or more (including non-exempt lifetime gifts).  The old "succession tax" was being phased out and only bequests to unrelated people or distant relatives were still subject to tax.  However, as the federal threshold for estate taxes rose, so did the federal estate tax "credit" (or more recently, deduction) for state death taxes shrink.  That federal credit/deduction had been the cornerstone of the Connecticut estate tax.  That is, time was when the IRS would give a credit to the estates of Connecticut decedents, so Connecticut tied its estate tax to that credit.  As the credit disappeared at the federal level, so did the estate tax.  No more.  Effective January 1, 2005, the Connecticut estate tax kicks in when the estate exceeds $2 million, starting at 5.085% and going as high as 16%.  Review your own estate plan -- It may be very important to update the formula used in your own estate planning documents.

Connecticut recognizes domestic partnerships.  Effective October 1, 2005, Connecticut permits "civil unions" for persons of the same sex.  For all purposes, a Connecticut "party to a civil union" (a/k/a domestic partner) is treated the same as a spouse in Connecticut effective October 1, 2005.  It isn't clear whether Connecticut will "recognize" the domestic partnerships of other states.  Connecticut's Attorney General has rules that Connecticut courts and tax authorities are not obliged to recognize gay marriages performed in other states like Massachusetts.

Update on Retirement Plans (1/2004).  By now you know that the rules for taking out distributions from retirement plans have been significantly eased.  Individuals are only be required to take "minimum required distributions" from IRAs and retirement plans computed using a joint life expectancy of the participant/owner, and a theoretical designated beneficiary ten years younger (optional to use actual life expectancy of a spouse more than ten years younger).  In most cases, this means that required payouts are much smaller.  It does not mean you cannot take out more!  The trick is to make sure that if you do take out more, you don't outlive your own money.  Otherwise, if you just take out the minimum, you are definitely going to be leaving something behind you and your beneficiaires will be able to "stretch" payout of a plan over their own lifetimes.   No more tough choices about "recalculating" or not "recalculating" life expectancies, no more drop-dead date for selecting a beneficiary.  Used to be, if you included a charity in your plans (for example, the first $10,000 goes to Charity X and the balance to my wife) there was a disaster:  since a charity has NO life expectancy, that would mean NO deferral of payout on your death.  Now, provided your executor gets the $10,000 in time, your wife could still roll over the balance.  Problems remain, however:  if you use a trust, and a charity will get the money after the people you name have died, there will still be an immediate payout, so don't do this without talking to someone about using a proper charitable remainder trust.  Also, if you use a trust, the lifetime of the oldest beneficiary will measure the payout, unless you break out separate shares and name those shares on the beneficiary form.  We knew they'd think of some wayt to complicate your life!  

 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. 

  On again off again Tax Repeal.  By now this is old news but it is still confusing enough to repeat.  The federal estate tax is being repealed over a period of years.  UNLESS it automatically reverts back, in 2010...  and UNLESS Congress changes its mind and enacts a compromise between now and 2010. (The latest rumors as of 7/18/05 suggest that Congress will limit the exemption to $2 - $3 million.)  I do have a complete list, but first, here are a few reminders about the change:

• 1/1/2002:  The amount individuals may leave free of estate tax jumped to $1 million, four years ahead of schedule.
• 1/1/2004:  The amount goes to $1.5 million.
• 1/1/2006:  Now it is $2 million.

(I'm stopping here because I don't think Congress will let it go further!)
• 1/1/2010:  Full repeal (but the gift tax is retained -- to prevent "income-shifting")
• Also repealed:  the "state death tax credit," so that states accustomed to relying on a "pick-up" tax where you paid the states the amount the feds allowed as a credit, will have to enact their own estate or inheritance taxes like the good old days!  Full employment for lawyers and legislators across the country!
• 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" -- unless a future Congress restores it!

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 here and on my firm's website:

• 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

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Lisa Nachmias Davis
Attorney at Law
205 Church Street, Third Floor
New Haven, CT 06510
Phone: 203-776-4400
Fax: 203-774-1060 or 776-4411
Email: davis@sharinglaw.net