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In the ever changing world of estate tax and estate planning, here are three proposed changes that could significantly affect your estate plan: (1) the determination of tax basis; (2) valuation discounts; and (3) grantor retained annuity trusts (GRATs). And even though these are merely proposed changes, they are a signal to all individuals that many of the “once-in-a-generation chances to save money” could be coming to an end. All of these changes are part of the Obama administration’s proposed budget that was recently released (see Yahoo Finance Article).
Determination of Tax Basis
Under current law, a recipient of a gift also receives the giver’s basis in the property (i.e., “carryover basis”). The recipient of property through a will or intestacy, on the other hand, gets a step-up in basis (not in 2010; see my early post on the subject) to the value as of the decedent’s date of death. Basis is used to determine the amount of gain or loss an individual recognizes, and is taxed on, when the property is sold. For instance, if your rich grandma gives you property during her life that is worth $12,000 but she paid $1,000 and you sell it, you would have a $11,000 taxable gain. [continue reading]
The short answer is “YES!” Even though the federal estate tax has been repealed, at least for a year, there are still countless other issues that need to be addressed by a proper estate plan. Naming a guardian for minor children or children with special needs, protecting assets from creditors, providing for the payment of certain expenses, providing for future generations, insuring children from a previous marriage are protected and provided for, are just a few of these reasons. Additionally, while the estate tax is down, it is not out. The estate tax is scheduled to return in 2011 with a lower exemption amount and a higher tax rate.
A recent article published by the New York Times highlights some of the concerns caused by the ever-moving target that is the estate tax regime. Here are some of the highlights as well as my commentary on the issue.
As many are aware, the federal estate tax is taking a one-year hiatus in 2010. While many predicted that the U.S. Congress would act to avoid this, it did not. Thus, for one-year, there is no federal estate tax, at least for now. In 2011, however, the federal estate tax comes back, and this time, the federal estate tax reverts back to the smaller $1 million estate tax exemption amount and the higher 55% marginal tax rate. While there are countless jokes about encouraging rich relatives to take advantage of this, this advice, while in jest, my be completely wrong. [continue reading]
If the recent Kansas Court of Appeals’ opinion teaches us anything, it is that having an experienced Kansas estate planning attorney is a must in drafting a last will and testament. In re Estate of Leavey details a will execution gone horribly wrong.
In the case, Harriet Eggeson petitioned the court to admit the last will and testament of John F. Leavey. Unfortunately, the will was not signed by two witnesses, only by one. The witness line left blank was for no one other than the attorney who drafted the will. Eggeson argued that the attorney’s initials, which were on every page of the document, should suffice, but the lower court held, and the Court of Appeals agreed, that “Kansas statutes relating to the execution of wills must be strictly construed even though, in some rare situations, the intent of a testator may be frustrated.” “A witness’s initials in the bottom corner of every page of a document does not meet the attestation and subscription requirement . . . to be a valid will [under Kansas law].”
With the advent of “do-it-yourself wills” in a box and companies such as LegalZoom, this opinion should resonate with even the most casual purchaser of legal services. This case makes clear that strict compliance is the only way a last will and testament will be admitted for probate in Kansas. As the Court of Appeals stated (quoting two previous cases): [continue reading]
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