Everyone who kept up with the recent changes in the estate tax laws—and the flurry of speculation, news stories and blog posts that came with it—knows just how important estate taxes are to estate planning. Although we make it clear on our blog that estate planning should be at least as much about family and personal legacy as it is about money and taxes, the truth is that much of the technical planning that goes into creating your estate plan is hugely affected by the estate tax laws and regulations.

This is why we thought our readers might like to have a little sneak peek at what you might owe in estate taxes were you to pass away under the current laws. SmartMoney.com recently published an interactive Estate Tax Calculator which can help estimate the amount you might owe based on your current financial information.

Although it is certainly interesting to see what you may end up owing in estate taxes, and it is absolutely helpful to see a list all of your assets and liabilities in one place, please remember that what this calculator provides is only an estimate. There is more to estate tax calculation and estate planning than can be provided in one form. What we hope is that this calculator may pique your interest, and inspire you to contact our office for the more thorough planning you and your family deserve; planning based on face to face discussions about your unique goals and situation.

If you are the executor of the estate of a decedent who died in 2010 you may think you’re in the clear. After all, there was no estate tax in 2010 right? Making distributions should be a piece of cake. Wrong. Because of the estate tax election available on the estates of 2010 decedents, administering those estates will actually be more work than you may think.

The repeal of the estate tax in 2010 also brought with it a repeal of the “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death. This generally resulted in a higher tax paid on assets than the normal estate tax rate—not good for taxpayers. But 2010 estates don’t have to go by these rules. The legislation passed in December of 2010 gave 2010 estates the opportunity to elect whether they wanted to use the 2010 estate tax laws, or the new laws for 2011. This article in Forbes explains what this means:

“The 2010 Tax Relief Act restored the estate tax for individuals dying in 2010 with a $5 million per person exemption and a maximum rate of 35%. It also repealed the modified carryover basis rules for property acquired from a decedent who died in 2010. However, estates of individuals dying in 2010 can elect zero estate tax and the modified carryover basis rules that would have applied before they were repealed. That means the basis of assets acquired from the decedent would be the lesser of the decedent’s adjusted basis (carryover basis) or the fair market value of the property on the date of the decedent’s death.”

In general this tax election is a good thing, it allows executors to choose which tax formula will cost the beneficiaries the least in taxes; but it does mean a lot more paperwork and a lot more attention to detail. If you are the executor of an estate of a decedent who died in 2010, don’t hesitate to call us. We can answer your questions and help you explore your options.

Do you live in a state that has a friendly attitude toward the estate tax or inheritance tax? You may think you do, but according to this article in Forbes some states made changes to their estate or inheritance tax policies in 2010 as a response to the lengthy uncertainty over the federal estate tax: “Congress took so long to agree on what to do about the federal estate tax, allowing it to lapse in 2010, and many states take their lead from the federal system.”

The federal estate tax is set (for now) but you may still expect some states to continue making changes to their own estate tax. The fact is that state governments are caught between a rock and a hard place; “The changing state landscape… reflects a lot of ambivalence by state officials themselves. They want the estate tax revenue, but worry about chasing wealthy seniors across state borders.”

If you’re looking for an estate-tax-friendly state to which to retire you can check out the link to the map in the Forbes article; but before you move be sure to do your research. Just because a state has no estate tax (or a high exemption amount) one year doesn’t mean it won’t change the next. The best strategy is to be familiar with the state’s history. How long has their estate tax been in place? Has there been any legislation proposed recently regarding the tax? How likely is it that their tax policies will remain the same as they are when you move?

Illinois recently made changes to the state laws regarding estate tax, and other states that are most likely to make changes in the future include Hawaii, Ohio, Connecticut and Vermont. “But don’t count on these efforts… even if you get relief one year, the levy can go up again the next.”

As always, the best strategy is to plan ahead, review your plan often, and have a knowledgeable estate planning attorney on your side.

It’s that time of year again; the time of year when everyone starts gathering receipts, assessing income and expenses, and making appointments with tax advisors. Tax time can be a very stressful time for many families, but—with the help of this article from MSN Money—perhaps tax season can be made a little bit easier. The article lists 13 tax breaks from 2010 that can help save you money, including:

• The tax credit for first time homebuyers (if you’re not a first time homebuyer don’t give up, there’s a credit for existing homeowners too.)
• The parking and transit credit
• The college tuition tax credit
• The credit for energy-saving home improvements

And then of course there are the two we’ve been mentioning here on our blog for the past few months:

• The estate tax exemption, and
• The annual gift tax exemption

Of course, not every item on the list is going to apply to every reader, but if even one or two credits apply to you or your family it can be a huge help.

Don’t rely only on this article to ease your 2010 tax burden, your own advisors and tax planners—who know more about your family’s personal and business finances—will be able to give you much more in-depth advice on how best to address your own tax situation. In addition, talking to a professional advisor right now provides the perfect opportunity to tackle any issues in 2011, hopefully making this time next year a much happier and less stressful time for everybody.

The dust surrounding all the estate tax law “remodeling” is finally settling, and it’s time now for families to give their old (or future) estate plans some serious scrutiny. For all of you who were waiting until Congress made some firm decisions on the estate tax laws—there are no more excuses. Forbes writers Janet Novack and Ashlea Ebeling explain in their recent article why—now that the estate tax is no longer in flux—it is so important to move quickly on your estate plan.

Many first time planners will be ready to take advantage of the new laws, now that the “hefty $5 million exemption, combined with a new portability provision, should allow many affluent couples to simplify their planning.” Couples with estate plans already in place will be able to take advantage of the new laws as well, but the motivation to update their existing plans may have more to do with the need to undo outdated formulas in wills and trusts that, with the new laws in place, may now do more harm than good.

“Many couples have old wills designed mainly to preserve the estate tax exemption of the first spouse to die, something the law now does. Under these old “formula” wills, when the first spouse dies assets equal to his or her federal estate exemption go into a “bypass trust” for their kids. The surviving spouse has access to the trust’s earnings and, if need be, principal, but what’s in the trust “bypasses” the survivor’s estate. Problem is, with the exemption jumping to $5 million (it was only $2 million in 2008) the survivor could be left with nothing outside the trust.”

The new estate tax laws are much friendlier to middle-income families, but don’t let that fool you into thinking you don’t need to plan at all. “Whatever your age, marital status or net worth, you need a will (saying who gets your stuff); a living will (stating your wishes about end-of-life care); a health care proxy (naming someone to make medical decisions for you if you can’t); and a durable power of attorney (designating someone to act on your behalf in financial and legal matters if you can’t).” Not to mention you still may have state taxes to contend with in your estate plan.

Now is the time to call your attorney and talk about estate planning in the New Year. There is no more reason to procrastinate, and it’s your family’s legacy that’s on the line.

It has been a long and uncertain year for anybody interested in the future of the estate tax, filled with a few ups, a few downs, and a lot of speculation.  But after the recent passage of the new bipartisan tax bill all of the confusion and speculation is finally at an end, and it’s very close to what we anticipated early last week.  The bill is good news for most taxpayers; the Wall Street Journal says there are “many winners, a few losers,” and according to the New York Times “Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.”

Here is a brief overview of what you can expect in 2011:

New Estate Tax Exemptions and Rates: The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate.  This is opposed to the $3.5 million exemption and 45% rate some lawmakers were hoping for.

Tax Election Option for 2010 Estates: As mentioned in a previous post, this is one of the biggest parts of the new bill. There may have been no estate tax in 2010, but there was also no “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death, as is usually the case.  This led to a higher tax paid on the assets if and when they were sold, in spite of the lack of estate tax. Tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules—a happy option for 2010 heirs.

Estate, Gift, and Generation-Skipping Taxes: In recent years these three levies have had varying exemption levels, making gift giving and succession planning and challenging exercise at best. The unification of all three makes tax planning and giving gifts to grandchildren much easier than it used to be.

Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.

How Long Will It Last? We’re all glad that the waiting is over and we finally know what to expect, but the new law is only effective through 2012, at which point the provisions will “sunset.” This new tax package sets our minds at ease now, but the estate tax issue is far from over.  It looks as if we may have to revisit the issue in 2012-2013.

With the threat of high estate taxes out of the way does any reason remain to create (or update) your estate plan? Absolutely!

Estate planning is about more than just planning for taxes, it’s about taking control of your assets and choosing how your estate will be distributed.  Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is essential regardless of the state of the estate tax.

At the very least, the recent fluctuation of the law means that you’ll want to call our office and make an appointment to have your existing plan reviewed and updated to ensure you don’t have any outdated clauses that could negatively affect your heirs.

The season of giving is upon us… and thanks to 2010’s unusual tax laws we may see some very large gifts before the year is out! If you are considering being particularly generous this year, this article from Reuters explains why the federal government is making 2010 an exceptionally good year for giving.

Most people know that for this year only there is no estate tax. But the year is almost over, and next year the estate tax is slated to go up to an astounding 55%. The more you can afford to give away now, the less that will eventually be subject to the estate tax. However, “the incentive to give stems not just from a looming increase in the estate tax, but also from the lowest tax rate on gifts in a generation — a maximum of 35 percent. That top rate was 45 percent in 2009 and jumps to 55 percent next year unless Congress acts.”

Those last three words, “unless Congress acts,” carry a lot of weight. Congress could choose instate lower and more reasonable tax rates in 2011; but right now we just don’t know, and the clock is ticking to the end of this “golden year.” There is nothing wrong with waiting to see what happens, but you may want to at least have the conversation with your estate or financial planner, so you know your options and can act swiftly when the time comes.

Very few people really want to give away their hard-earned money; but as the saying goes, you can’t take it with you, and most people would rather leave their legacy to their family rather than the government.

If you have a family trust—or are considering creating a family trust—to protect your assets you may want to ask your attorney about creating an out of state trust. It’s a grantor’s market (so to speak) and creating a trust these days doesn’t mean you have to simply accept the tax laws of your state of residence. Creating a trust in another state—with tax laws that are friendlier to trusts—is a perfectly legal option, “the only real requirement is that [you] choose an in-state trustee.”

As we mention frequently on our blog, there are many reasons for families to create a trust: credit protection, keeping assets in the family, estate planning, educational savings, and many more. Furthermore, trusts are no longer an exclusive tool for the rich and famous; trusts are useful for just about everybody, and the states recognize this.

“States such as Alaska, Delaware, Nevada, New Hampshire, South Dakota and Wyoming have modified their trust laws in recent years to make them more attractive to individuals and families, including nonresidents, looking to minimize taxes, shield assets from creditors and preserve family assets in the event of a divorce, among other things.”

If you would like to explore your options for out-of-state trusts we recommend working with your local attorney, someone you trust who can meet with you when needed, who can draft the trust documents for you. Your local attorney can then have a licensed attorney from the state of your choice review the documents for state-specific issues.

It may seem like you just can’t catch a break when it comes to paying taxes, but according to this article in the Wall Street Journal there are a few little known tax breaks that could end up saving your family money. Some are new—so new, in fact, that it is still before the Senate—such as the tax exemption for employer provided cell phones and smart phones; and some—like the tax free income homeowners can earn if they rent out their home for 14 days or fewer during a year—have been around for a few years.

Of particular interest to our clients is the gift tax exclusion (another lesser known tax break that has been around for a few years.) As stated in the article, “Anyone may give anyone else up to [$13,000] per year in cash or property, free of gift tax. One partner of a married couple can double the gift and the exemption. So a couple with three married children and six grandchildren could give away over $300,000 a year, tax-free.”

We say that this gift tax exclusion may be of particular interest to our clients because if you are looking for a way to lower your estate tax, or anticipate applying for government medical services in the next few years, giving gifts to loved ones right now may help you achieve your goal—if you go about it the right way.

Contact our office for more information on how any of these “Robin Hood” tax saving techniques may help your family this year.

Tax day is coming up quickly, are you ready to file? And just as important—are you taking advantage of all the savings and deductions available to you? Most people who do their own taxes are unaware of some of the lesser-known deductions which can help you save money come tax-time. We have a couple of articles we’d like to share with our readers that may make it easier for your family come April 15th.

A recent article on SmartMoney.com offers 3 often overlooked ways to save on your income taxes. Two of the three items have to do with parenthood and buying a home, but of particular interest to our readers is tip #2, Selling Grandma’s Stuff: “If you sold something last year that you inherited, understand that your tax basis for gain or loss purposes generally has nothing to do with what your benefactor paid for the asset. And that’s probably going to save you a bundle in taxes.” If you sold an asset from an inheritance last year (or if you received an inheritance last year at all, regardless of whether you’ve sold the asset or not) contact our office before filing your taxes.

Another potentially useful resource for tax savings is the ABC News article Top Ten Commonly Missed Tax Deductions to Put Cash in Your Wallet. This article reminds us to include the little things—such charity volunteer related expenses, the new car deduction, old school books used for work, and more. There are a number of tax deductions your family may be able to take advantage of… if you just know where to look.