South Florida Estate Planning Law : Florida Estate Planning Lawyer & Attorney : David Shulman Law Firm : South FL Wills & Trusts

H.R. 533, "the Opportunity for Family Farms and Small Businesses Act of 2009" was introduced by Rep. Randy Neugebauer, a Republican of Texas.  The Bill tries to repeal the estate tax with one sentence, stating, "Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act. "

In 2001 (before the 9/11 attacks), Congress passed a Bill, signed into law by President Bush, that would "repeal" the estate tax over a period of 10 years.  The "applicable exclusion amount" (often mistakenly called the "unified credit") increased from $600,000 in 2001 to $3,500,000 today.  This is the amount of assets that a person can own at their death before their estate is subject to the estate tax.

The law as written provides that in 2010, the estate tax is repealed, but for one year and for one year only.  Then, in 2011, the law goes back to what it was in 2001 (after the passage of the act, not before), with the applicable exclusion amount going down to $1,000,000.  Also, the rate, that is the percentage amount that an estate has to pay is scheduled to go up too, but that is a topic for another post.

In a simplified example, the law as it is currently written provides that if a person dies in 2009 owning $10,000,000 in assets, their estate will owe $2,925,000 in estate tax.  ($10,000,000 minus the $3,500,000 exclusion = $6,500,000, and $6,500,000 X 45% is $2,925,000).

If that same person died in 2010, then the amount of estate tax their estate will owe is zero.  That's why 2010 is being called the "Throw Momma from the Train Year."  In 2011, the exclusion goes back down to $1,000,000 and the rates go up, making the amount owed to Uncle Sam even higher.

Rep. Neugebauer's bill would take the law as it stands in 2010, and extend it forever.

Nice try, Rep. Neugebauer, but the Democrats control and House, the Senate, and the Presidency, and the economy is down, so it ain't happening.

I don't think the law as it stands will happen either.  My prediction is that the 2009 rules will be extended into the future, with a possible inflation adjustment.

But permanent repeal is dead.

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With the stock market significantly done from its all time high, many people are putting of doing their estate planning.  So the question is, is now a good time to engage in estate planning transactions?

Of course!

First, if you don't have a will or other testamentary documents, then when you die, all of your property that is not jointly owned passess by what's known as intestacy.  That means the State decides based on a pretermined formula where your property goes, and not you.

Wealthier individuals probably already have their estate planning documents in place (I hope).  But now, with a depressed economy and a down market, now is a great time to look into transerring assets to the next generation.

One thing you can do is make what's known as annual exclusion gifts.  The annual exclusion this year is $13,000.  That means you can give $13,000 to as many people as you want, tax free.  If you are married, you can give $26,000 to each of your children, their spouses, your grandchildren, etc.  Most importantly, it doesn't have to be cash.  You can give stock in companies that have declined in value but are still good solid companies.  That way, you not only remove the asset from your estate, but all of the future appreciation.

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According to the Taxgirl (who has a must read blog for people interested in current tax developments), WalMart will be teaming up with the IRS to offer free tax preparation to low income individuals.  She has more info at her site, but I wonder if they will also offer a refund anticipation loan (which H&R Block calls a 'Rapid Refund') to allow people to spend their tax refund right then and there at WalMart.

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There was a good article in yesterday's Wall Street Jounral on an esate planning device known as a chartiable lead trust or CLT.  Under a CLT, the donor sets up an trust, drafted by an estate planning attorney in which the donor funds the trust with an initial amount of money up front, let's say $1,000,000.  The Trust then pays to a charity for a term of years chosen by the donor (for example -- 5, 7, or 9 years) either an annuity or a unitrust amount each and every year.  At the end of the term of years, the property remaining in the Trust goes to the donor's heirs (which could be children, grandchildren, or whoever the donor chooses).

There are a number of complex rules and regulations set forth by the IRS for establishing a CLT, but the benefits of a properly structured CLT are as follows:

1. The Donor can receive a charitable deduction for income, gift, or estate tax purposes.
2. Interest rates are currently at a historical low, meaning that the amount that is required by the IRS to be paid to the charity each year is low, thereby increasing the amount that the Donor's heirs may receive.
3. Because the stock market has declined so greatly, a Donor can fund the Trust with depressed assets that they believe will increase in value over a number of years, thereby removing all of the future appreciation from the Donor's estate, and decreasing the amount of estate or gift tax that the Donor will eventually have to pay.

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