Rev. Proc. 2011-52

Rev. Proc. 2011-52

What does this mean for you? Quite simply, you must consider acting now on any serious estate tax planning you have been putting off. Time is of the essence. We very well could see tax legislation that goes into effect the day it is signed, leaving us with no chance to implement these effective tax savings devices before the door slams shut. At best it seems we are looking at November 2011, not December 2012 as the next major turning point for estate tax planning.

Bottom line: Act Now. You should consult with your qualified legal and tax advisers as soon as possible to review your estate plan and examine the benefits and drawbacks of the tax savings techniques most likely to be eliminated.

As always, you are invited to contact me directly with any questions or concerns. I am always happy to help.

All the best,
Joe Donlon

The estate planning law firm of Donlon & Associates, PC provides high quality, focused legal counsel to clients of all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City, Long Island, Westchester, and Northern New Jersey. These areas include Nassau County, Suffolk County, Westchester County, Queens, Brooklyn, Manhattan, Staten Island, Hoboken, Jersey City, Hudson County, and Bergen County.

The podcast is about 15 minutes long and done in a conversational Q&A format. We invite you to head on over to Nina’s blog and give a listen:
Asset Protection for Business Owners Podcast

While you’re there, be sure to take a look at the other entries in Nina’s blog and peruse her website, Ask the Business Lawyer. Nina has a lot of great information available for business owners.

If you have any additional questions about asset protection, please don’t hesitate to contact Joe directly by calling 516-522-8900 or visiting the firm’s website: Donlon & Associates, PC

Donlon & Associates, PC provides high quality, focused legal counsel to clients of all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.

Congress finally acted to provide some certainty for taxpayers and their advisors on the gift tax, estate tax and generation skipping transfer tax. The new law, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, sets up the following scheme for tax years 2010 – 2012:

2010 Estate Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35%

Option to elect carryover basis instead of Estate Tax

2010 Gift Tax
Exclusion amount: $1,000,000
Maximum tax rate: 35%

2011 Estate Tax / 2012 Estate Tax
Exclusion amount: $5,000,000 (indexed by CPI 2012+)
Maximum tax rate: 35%

2011 Gift Tax / 2012 Gift Tax
Exclusion amount: $5,000,000
Maximum tax rate: 35%

2013 Estate Tax
??????
Unless Congress acts in 2012, this new law will sunset and 2013 will revert to the old rates ($1M exclusion and 55% top rate)

So, now we know what the big debate during the 2012 Presidential Election season will be — taxes.

The other important change is the portability of the exclusion amounts between spouses. Under prior law, smart tax planning often required the creation of a Credit Shelter or Bypass Trust to receive the exclusion amount of the first spouse to die. The new law doesn’t require such techniques. Even a couple with a so called “sweetheart will” that leaves their entire estate to each other with no other tax provisions will still benefit from a combined estate tax exclusion of $10,000,000.

Unfortunately, while this provision seems to simplify things for clients and their advisors, “exclusion portability” could actually be a trap for the unwary for numerous reasons, including:

1) The deceased spouse’s exclusion is not indexed to inflation so the deceased spouse’s assets are likely to continue to grow and thereby suffer unnecessary tax at the second spouse’s death. Placing those assets in a Credit Shelter Trust would have avoided this major issue.

2) Asset held directly in the surviving spouse’s name are subject to subsequent lawsuits, marriages/divorces, mismanagement, creditor attacks, etc. Assets in a Credit Shelter are insulated from all of this.

3) Credit Shelter Trusts ensure the funds eventually wind up benefiting the children, grandchildren, friends or charities the deceased spouse wanted to help. Funds left directly to the surviving spouse are subject to his/her whims and planning (or lack thereof). Those funds could wind up going to the survivor’s new spouse or children in the event of remarriage.

4) The current law will automatically disappear in two years without Congressional action. Relying on any unusual provision of this new law (like portable exclusions – something unheard of until now) might be asking for trouble given the uncertain future and unstable political and financial situation of the country.

The new law certainly creates a tremendous opportunity for smart planning. Unfortunately, there is a real danger that it will lead to complacency amongst clients and advisors who focus solely on the larger exclusion amounts and assume estate planning is unnecessary. This could be disastrous.

All clients should seek out qualified legal counsel to plan their estate, regardless of age or wealth. Estate taxes are but one reason for smart estate planning. Don’t forget about:
* guardianship for minor children
* asset protection planning
* family business succession
* liability protection
* legacy management
* special needs planning
* planning for second marriages or troubled family situations, etc.

In addition, the New York State Estate Tax has NOT changed, and it applies to estates of $1,000,000+.

As always, you are invited to contact me directly with any questions or concerns. I am always happy to help.

All the best,
Joe Donlon

The estate planning law firm of Donlon & Associates, PC provides high quality, focused legal counsel to clients of all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.

Your first priority is the funeral – and with it comes an often large expense. In some cases, your relative may have left a prepaid funeral contract or instructions on how to handle the memorial service. In a situation where you end up paying for the funeral, keep a record of all expenses and burial costs. You can seek reimbursement from the estate afterward.

Another important issue that requires immediate attention is the securing of your loved one’s property. Make sure the home and any other real estate are locked and maintained (e.g., don’t let mail pile up, cut grass, etc.) to avoid vandalism and burglary. If he or she had a car, it should be parked somewhere safe and not driven by anyone during the estate administration process. Finally, any items of significant value (e.g., jewelry, collections, etc.) should be accounted for and secured from loss or theft.

Your next priority is to search for your loved one’s Last Will & Testament. This document will name an “executor” who will be tasked with carrying out your loved one’s wishes and settling the estate (including hiring an attorney and handling the probate process). When searching for the Will, look in personal papers, household records, safes and bank boxes. If you find a photocopy of the Will but no original, contact the drafting attorney (he often holds the original for safekeeping). If you can’t find the original Will but think one was drafted, contact your attorney for advice.

The executor named in the Will does not have any legal authority to act on behalf of the estate until a legal proceeding known as “probate” begins. Guidance from an attorney who is experienced in probate law is almost always necessary because the distribution of assets often requires a court process that can lead to legal and tax issues (especially on large estates). Selling, distributing or changing title to a decedent’s property before authorized by a court in a probate/administration proceeding is illegal. Even something as seemingly straightforward as filing for life insurance benefits or IRA payouts can cause legal and tax issues. Your attorney’s advice on these issues is invaluable.

The documents you’ll need when you meet with an attorney include:

• Original Will
• Original death certificate
• List of your relative’s assets and debts with approximate value and ownership
• Copy of the decedent’s most recent income tax return (if readily available)
• Family tree for decedent showing parents, siblings, spouse(s) and children/grandchildren

These items aren’t always necessary for an initial appointment. In fact, some information may not be available at all until the legal probate process is started. However, making an effort to gather these items up front will enable your attorney to provide you with the best possible advice. Gathering any missing paperwork or information will be your first bit of “homework” after the meeting.

The time and effort needed to gather this information, however, shouldn’t deter you from seeking an immediate legal advice. You’re better served by getting together with your attorney as soon as possible and having “homework,” as opposed to spending several weeks gathering the documentation and then having your initial meeting.

Keep in mind, because each situation is different, a single article can’t provide everything you need to know in the days following a death. Establishing an early relationship with your attorney will help ensure all matters are properly addressed and save you from making costly mistakes in the future.

Joseph P. Donlon is a New York estate planning & probate attorney and the founder of Donlon & Associates, PC. He is a frequent lecturer on estate planning topics and is routinely invited to speak before financial institutions, civic groups and business gatherings. Get more of his free tips and insider information about how to protect your family, reduce estate taxes and safeguard your assets at http://www.donlonlaw.com.

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.

Amongst the various “technical corrections” made by the new law are three important changes/clarifications:

1. Signing the default Power of Attorney form no longer automatically revokes all prior PoAs
2. The provisions of the new Power of Attorney law explicitly exempts business or commercial PoAs (including certain real estate deals, corporate matters and hedge fund transactions) from its terms
3. Without a separately signed Statutory Gifts Rider (formally called the Statutory Major Gifts Rider), the named agent is limited to giving away no more than $500 total in gifts per year (the prior law was unclear if the $500 limit was an aggregate or “per person.”)

The provisions of the new PoA law are retroactive to September 2009, and do not invalidate PoAs signed since then. However, the “old” PoA form (from 9/09) can no longer be signed after 9/12/10 and new forms have been issued.

As always, I invite you to contact me if you have any questions about the applicability of this new law to your personal situation

All the best,
Joe Donlon

The estate planning law firm of Donlon & Associates, PC provides high quality, focused legal counsel to clients all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Estate Tax Planning
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC serves clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.

These days, you must choose between several options for leaving what is likely your most valuable asset to your heirs. And although each one has its own advantages and disadvantages, they all share the same requirement – planning.

Here are six options to consider:

1. Joint Tenancy. This form of ownership involves two or more individuals. When one joint tenant dies, the other immediately becomes the property owner. This strategy is often used for family residences where a surviving spouse plans to continue using the property as his or her home.

If you create a joint tenancy with someone other than your spouse, you can create tax liabilities for yourself.  That’s because your home is then treated as a partial gift subject to Federal gift taxes. In addition, the entire value of the home will be counted in assessing Federal estate taxes upon your death! You have certain annual and lifetime tax exemptions that can shield you from estate and gift taxes, and it is important that a qualified attorney or CPA review your personal situation before entering into any joint tenancy.

2. Intestacy. This situation occurs when you die without having a legally valid Will. What results is your assets – including your home – are distributed according to your state’s laws.

In New York, distribution occurs in the following order: your spouse and your children split everything 50/50 (after the first $50,000 of assets). If you die without a spouse or children, your assets would go to your parents, siblings, aunts, uncles and cousins in a specified order. So if you want to leave your property to people other than family members specified in your state’s laws of intestate succession (or in different proportions), you need a Will, trust or other legal arrangement.

3. Will. When you include a provision in your Will stating that you’re leaving your home to your child (or other person), you keep control over your property while you’re alive. After you die, your child will get your home after the property goes through probate. (Warning: Probate can be a lengthy and expensive process.)

A Will also allows you to determine your executor and how your assets are divided up. If you intend to leave your home to your spouse, then taxes aren’t an issue. However, a Will won’t eliminate taxes when you leave your home to another heir without additional planning.

4. Living Trust. The benefit of this strategy is flexibility. You transfer ownership of assets such as your home to the trust, but you remain the trustee. As a result, you can change the terms, while giving away or selling assets as you please.

A living trust doesn’t require any court proceeding to distribute your assets, so the process is quicker and cheaper when compared to probating a Will. In fact, distribution happens almost immediately. As with a Will, a living trust by itself does not reduce estate taxes without specific additional planning. Furthermore, a living trust does not protect your home from creditors or Medicaid.

5. Irrevocable Trust. Irrevocable trusts are often used to eliminate estate taxes (e.g., a QPRT or “qualified personal residence trust”) or protect assets from Medicaid claims (e.g. an IIOT or “irrevocable income only trust”).  Similar to a living trust, property transferred to your heirs through an irrevocable trust doesn’t require probate. Unlike a living trust, you can’t change or take back assets transferred to an irrevocable trust.

You are also unable to modify beneficiaries or rewrite any of the trust’s terms. However, if drafted properly, certain types of irrevocable trusts can ensure your property and all future appreciation comes out of your taxable estate, which can lessen tax liability for your heirs. They can also protect your home from liability claims.

6. Life Estate. Life estate transfers are commonly used to protect assets from Medicaid and to avoid probate. In simplified terms, you give your home to your child or other person, but retain a legal right to live in the home, rent free, for the rest of your life. You cannot be forced out of the home and neither you nor your child can sell it without the other’s permission.

At your death, your child automatically owns the home without going through probate (similar to a joint tenancy). Life estate transfers can have significant tax implications, so it is important to seek professional advice before deciding to use the technique.

Regardless of what option you choose, the bottom line is a proper estate plan ensures you (not the state or IRS) control who receives your home. Without a legal plan in place, you risk leaving sizable tax bill behind and causing arguments and fights within your family. But, as you now know, there are ways to avoid tax penalties and prevent family strife. So start setting up your strategy today.

Joseph P. Donlon, Esq., CFP^® is a New York estate planning attorney and the founder of Donlon & Associates, PC. He is a frequent lecturer on estate planning topics and is routinely invited to speak before financial institutions, civic groups and business gatherings. Get more of his free tips and insider information about how to protect your family, reduce estate taxes and safeguard your assets at http://www.donlonlaw.com.

The New York Times ran a story yesterday that clearly demonstrates this morbid fact.  It is the story of Texas tycoon Dan Duncan who passed away a couple months back at the age of 77.  Mr. Duncan was worth an estimated $9 billion, making him one of the richest men in the world.  He left much of this fortune to his children and grandchildren.  Had Mr. Duncan died in 2009, or in 2011, his family would have faced an estate tax bill in the billions of dollars. Instead, through the sheer happenstance of his dying in 2010, Mr. Duncan’s heirs did not have to pay not a single penny of federal estate taxes!

Somewhere in Washington DC an IRS big wig is shedding a tear at this lost “opportunity.”

The future of the federal estate tax is uncertain, but as 2010 drags on and we draw closer to election season, my expectation of Congressional action dwindles.  I am starting to believe we may not see any of the “corrective” legislation that has been promised since mid 2009, and that we should expect the old estate tax laws to resurrect on January 1, 2011. At that point it won’t be just the billionaires who will be affected.  The personal exemption amount will drop to $1 million per person and the tax rates will climb to a top rate of 55%.

Have you reviewed your Wills, trusts and estate plan to ensure you and your family will be ready for the coming change?  Please don’t hesitate to contact me if you have any questions or concerns.

Finally, let me say that my thoughts and prayers go out to the family of Mr. Duncan. Their loss, and his worth as a man, a father, and a husband, no doubt far exceed any amount of money.

All the best,
Joe Donlon

The estate planning law firm of Donlon & Associates, PC provides high quality, focused legal counsel to clients all ages and wealth levels in the following areas:

Wills & Trusts
Asset Protection Planning
Advanced Planning for Business Owners & Professionals
Elder Law
Special Needs Trusts
Probate & Estate Administration

Donlon & Associates, PC provides trusts & estates and asset protection services to clients throughout New York City and Long Island, including Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and Staten Island.