2010 June » Kris M. Boyd, P.A.

Senator Sanders Proposes Estate Tax Bill

Jun 302010

In December of 2009, the House passed an estate tax bill that continued the estate exemption at $3.5 million per person ($7.0 million for a couple). However, the Senate could not agree and the estate tax was repealed on January 1, 2010.

Sen. John Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) claim they are close to an agreement for an estate tax compromise. Both advocate increasing the exemption to $5 million and reducing the rate to 35%. They believe that they are near the 60 votes needed for a 10-year phased-in plan.

While it has not been publicly released, one version of the proposed Kyl-Lincoln compromise starts with an exemption of $3.5 million and an estate tax rate of 44%. Over a term of 10 years, the amounts are adjusted to a $5 million estate exemption and an estate tax rate of 35%. However, Sen. Max Baucus (D-MT) is not willing to bring the proposed compromise before the Senate Finance Committee for a formal vote.

Sen. Bernard Sanders (I-VT) is an Independent but participates in the Democratic caucus. He has been joined by Sen. Tom Harkin (D-IA) and Sen. Sheldon Whitehouse (D-RI) in introducing a new estate tax bill.

The three senators sent a letter to their colleagues and outlined the reasons for enacting an estate tax increase for Americans with larger estates. Sen. Sanders notes that a wealthy Houston resident named Dan Duncan passed away early in 2010 with an estimated $9 billion estate. If the Senate does not take action, this estate could be transferred to family with a savings of several billion in estate tax.

Total estate tax savings in 2010 for heirs of Duncan and others with large estates are estimated to be $14.8 billion. This amount is lost revenue to the federal government in a time when all possible avenues for raising revenue are being explored.

Sen. Sanders proposes the “Responsible Estate Tax Act of 2010.” This act would tax the first $3.5 million of an estate at 45%. Estates over $10 million would be taxed at 50%, with estates over $50 million paying tax at a rate of 55%.

In addition, there would be a “billionaire” surtax of 10%. Sen. Sanders would “protect family farmers” by allowing a Sec. 2032A reduction in farm land for heirs who are actively farming of up to $3 million, an increase over the current $1 million limit. Finally, for estate conservation easements, the exclusion would be increased to $2 million and the base percentage to 60%.

This proposal would also incorporate the Obama Administration’s recommendation to set a minimum term for the GRAT of 10 years and also to modify the rules to reduce minority and lack of marketability discounts for family limited partnerships.

Sen. Charles Grassley (R-IA) did not support the Sanders bill but suggested that it may have been useful for Sen. Sanders and his supporters to place a plan on the table. He indicated that there are “quiet supporters of the junior senator from Vermont” and they will be influencing the overall result.

Thanks to Jon Rich of Ducks Unlimited for this information.

Do You Donate Clothing And Other Items To Charity?

tax No Responses »

Jun 252010

If so, be sure you clearly document exactly what you donated to substantiate the amount you are deducting on your taxes.

In Edmund Douglas Roberts v. Commissioner; T.C. Summ. Op. 2010-76; Memo. 2716-09S (17 June 2010), the Tax Court determined that clothing and other tangible personal property gifts by the taxpayer did not qualify for a deduction due to inadequate substantiation.

Mr. Roberts filed his 2005 tax return 13 months late in June of 2007. He reported a $200 cash charitable contribution and gifts of 450 items of property valued at $28,655. His tax return included Form 8283, Noncash Charitable Contributions and reported gifts of used clothing, towels, bed sheets, books, costume jewelry, children’s toys and glass lamps. The IRS audited the return and assessed a deficiency of $10,482.

The Tax Court noted that gifts of cash are deductible with a cancelled check, receipt or reliable evidence that shows the donee, the date and the amount of the gift. Reg. 1.170A-13(a)(1). The cash gifts by Mr. Roberts did not include any of that required information and he could not identify the date or the specific charity. Therefore, the cash deduction was not appropriately substantiated.

A noncash deduction is permitted provided there is a receipt with the name of the charity, the date and location of the gift, a reasonably detailed description of the property, the fair market value and an explanation of the valuation method. Reg. 1.170A-13(b)(1).

Mr. Roberts did have five receipts from Goodwill. However, only one of the receipts had a signature. None of the receipts included the “reasonably detailed” description of the items. Since there were no adequate descriptions of the items or the method used for valuation, the deductions were denied, with the exception of a small number of items that had been accepted by the Service.

A special thank you to John Rich at Ducks Unlimited for supplying this information.

All About Guardianships

children, Estate Planning, Power of Attorney No Responses »

Jun 162010

A common question that I receive from clients is “I was told I need to get a guardianship. What is that?”

A guardianship is a court ordered relationship in which a guardian acts on behalf of an individual who cannot, due to a medical condition or a disability, cannot take care of themselves or their property. This individual is referred to as a ward. The guardianship may be for the estate only in the circumstance where the guardian cares for the ward’s assets. The guardianship may be for the person only when the guardian has responsibility to assure the personal needs of the ward are met. A guardianship may be established for both the person and estate of the ward.

Guardianships are necessary when individuals have a medical condition which leaves them in a state where they lack the mental capacity to make decisions for themselves and/or when they cannot care for themselves. Children often have to obtain guardianships over elderly parents. It is also necessary for parents to obtain guardian status over disabled children once that child has reached the age of 18.

A guardianship proceeding begins with the filing of a Petition. A Petition must be accompanied by an affidavit from the ward’s treating physician which describes the condition the ward has and, in the doctor’s opinion, the ward cannot care for themselves or make decisions for themselves. A guardianship proceeding can generally take 4-8 weeks to complete. However, in emergency situations, there is an exception which can be decided in three days.

Obtaining a guardianship over an individual can be a lengthy and expensive process. An easy way to avoid having to get a guardian appointed is to make sure the individual has a power of attorney in place. The individual must, of course, have the mental capacity to understand and sign the power of attorney. A power of attorney lets the individual appoint someone to care for them and make decisions for them in advance.

Please don’t hesitate to contact us with any questions about guardianships, power of attorneys or any other estate matter. A special thank you to Lori Sparkman photography for providing the wonderful pictures.

Senator Grassley Predicts “Tremendous Upheaval” Over Estate Tax

Estate Planning, tax No Responses »

Jun 092010

Senate Charles Grassley (R-IA) is the ranking Republican on the Senate Finance Committee. In a conference call with several reporters on June 2, 2010, he discussed the uncertain future of the estate tax.

Sen. Grassley noted that Sen. Jon Kyle (R-AZ) and Sen. Blanche Lincoln (D-AR) have proposed that the Senate Finance Committee pass an estate tax bill with a $5 million per person exemption and a 35% top estate tax rate. However, Grassley expressed the opinion that “the Finance Committee would like to take up consideration of legislation, but we aren’t assured by the majority leader that the bill passed out of committee will be taken up on the floor.”

Under the Senate rules, even if the Finance Committee were to pass the Kyle-Lincoln estate tax compromise, Majority Leader Harry Reid (D-NV) is not obligated to schedule a floor vote and could simply stall the legislation.

In December of 2009, the House passed the Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009. This makes permanent the 2009 estate exemption of $3.5 million and top estate tax rate of 45%. If the House and Senate are not able to take action on estate taxes by the end of 2010 then on January 1, 2011 the estate tax returns with a 55% top rate and an exemption of $1 million (plus indexed increases). If this were to happen, Sen. Grassley stated that there will be a “tremendous upheaval at the grassroots of America.”

Thanks to Jon Rich of Ducks Unlimited for this article.

Are You A Parent With Children Wondering Why You Should Care About Estate Planning?

children, Estate Planning No Responses »

Jun 052010

Parents with minor children MUST have the proper planning in place. I have heard and had to deal with a number of nightmare situations where the proper planning was not in place. Here are a few important items to take care of and why. Thanks to estate planning specialist Michael Lichterman for the idea and information.

Establish guardianship for your children under 18 – not doing so will leave their care up to a court to decide. Someone who doesn’t know you and what’s important to you, your family dynamics, and your desires for your children’s future, will be the one making the decision who will raise them.

Establish temporary guardianship for your children – not doing so could leave them in the hands of child protective services or temporary/permanent foster care.

Make sure you have a comprehensive emergency plan for your children so your babysitter, family, friends and guardians/temporary guardians know what to do if something happens to you and have the legal documentation to prove it. We include instructions for these important people and even include a family emergency ID card for your wallet/purse.

Have your estate structured so your kids don’t succumb to “lottery winner syndrome” when they receive all of their inheritance outright at 18 years old. Think about that for a second. Let’s take an example: 2 children and an estate valued at $500,000 (and remember life insurance is included in the amount they receive). Each child will receive whatever amount of their $250,000 share is not used up by the time they are 18. Can you imagine? Let’s say that ends up being $100,000. How would you have handled $100,000 when you were 18? I know how I would have handled it and it’s not pretty. I read one study that said over half of outright inheritances are spent within 3 years of receiving them – no matter how much was received.

If you are a professional and subject to potential liability, make sure you structure your plan in a way that ensures your assets are there to benefit your kids and not lost to lawsuits, creditors and other liabilities.

Make sure you pass on your “whole family wealth,” not just your money. This includes your values, insights, storis and experiences – who you are and what is important to you. In my experience this is THE most overlooked part of estate planning. It happens to be one of the most fulfilling privileges I have when working with families.

Have a health care directive (patient advocate designation) in place for yourself and your children to minimize conflict about your medical care.

Having A Contingency Plan As Important As Raising A Child

children, Estate Planning, Trusts, Wills No Responses »

Jun 012010

Here is a great article from Larry Deason about ensuring that your baby is taken care if something were to happen to you.

A qualified estate planning attorney, who focuses his or her practice in estate planning, can help you put together a comprehensive plan that will care for you and your child in the event of your incapacity or even your death. Protect yourself and your baby from the unexpected. Call and schedule an appointment with an estate planning attorney today. You’ll sleep better once you do … at least when the baby lets you!

http://www.yumasun.com/articles/child-61399-health-guardian.html