May, 2017 | Profit Law Firm

May 30, 2017February 23, 2022

Estate Tax Uncertainty

President Trump has made an official proposal to repeal the estate tax entirely, as expected. That raises more questions than it answers.

While campaigning for the Presidency, Donald Trump frequently said that, if elected, he would repeal the estate tax entirely. As with all political campaign promises, that did not necessarily mean he would follow through soon on the promise, if he did at all.

However, President Trump recently released a tax reform proposal that calls for a total repeal of the estate tax, among other things.

That does not mean that anyone should make plans for the end of the estate tax, as Investment News points out in “Trump tax proposal leaves advisers in the dark on estate tax repeal.” Moreover, the plans of President Trump only cover the federal estate tax, and not the estate taxes imposed by states. Maryland and DC impose a state estate tax and Virginia does not. Consult a Maryland estate planning attorney or DC estate planning attorney to consider how those taxes should affect your estate plan.

The biggest issue is how an estate tax repeal will get passed in Congress, if it can be at all.

Ordinary legislation requires 60 votes in the Senate to pass without a filibuster. It is unlikely that any large tax cut on the wealthy will be able to get those votes, since Democrats have vowed to block them.

The budget reconciliation process can be used so that only 50 votes are needed to pass an estate tax repeal, but there are many restrictions on that process. The most important one is that anything passed must be revenue neutral, which means that any cuts have to be offset with tax increases elsewhere.

If the cuts are not revenue neutral, then the law must sunset after 10 years.

The estate tax would come back.

President Trump has previously proposed changing capital gains taxation to offset the estate tax repeal, but it is not known how much support that idea has in Congress.

Both the President and Republicans in Congress, would like to see many more tax cuts that also have to be paid for, which might mean the estate tax repeal could be dropped for other priorities.

Reference: Investment News (April 27, 2017) “Trump tax proposal leaves advisers in the dark on estate tax repeal.”

May 29, 2017

Treating Your Children Fairly

One of the biggest problems in estate planning is figuring out how to treat children fairly in circumstances when fairly does not necessarily mean equally.

The default estate planning option for people with more than one child is to divide their estates equally between their children. That is the most common thing that is now done in estate planning.

It is easy and simple.

Most of the time it is a fair way to divide a parent's estate and one that the children accept. That does not always work, however, because as every parent eventually learns, treating children fairly does not always mean treating them equally. That holds true in estate planning.

Adult children can wind up in very different life circumstances for a variety of reasons. For example, if one child became wealthy after receiving a large gift from his parents to start a business, it might not be fair to treat that child the same in an estate plan as another child who went into public interest work.

Figuring out how to divide an estate unequally but fairly between children can be difficult, as the Wills, Trusts & Estates Prof Blog discussed in "Dividing Your Wealth Among Your Children."

The biggest problem is figuring out how to make the unequal division without causing any of the children to dispute the estate. Trusts are extraordinarily helpful in these situations, since they are much more difficult to challenge.

Parents can create a trust with an independent trustee and give the trustee the power to make distributions to the children based on their circumstances and needs. It is also important that parents who are leaving unequal inheritances for their children talk to the children and let them know the reasons for doing so.

If you want to leave your children unequal inheritances, you need to seek the advice of an experienced estate planning attorney to make sure you do so in a way that your children will think is fair and not seek to challenge.

Reference: Wills, Trusts & Estates Prof Blog (May 5, 2017) "Dividing Your Wealth Among Your Children."

May 26, 2017October 18, 2022

No Estate Tax Does not Mean no Estate Planning

With the release of President Trump’s tax plan and Republican majorities in Congress, it seems inevitable that the estate tax will go away. That does not eliminate the need to do estate planning.

A big part of modern estate planning is planning around the federal estate tax. Many estate planning instruments were designed to help lower the estate tax burden on wealthy estates. Profit Law Firm helps clients reduce federal estate taxes.

Without an estate tax, it might seem that there is not much of a reason to do complex estate planning at all. Some people anticipate that will be the case soon, since President Trump has released a tax proposal that would eliminate the estate tax and Republicans who hold majorities in both houses of Congress agree with the idea.

However, it is not that simple as Financial Advisor recently discussed in “Estate Planning: It’s Not Over.” Some states such as Maryland and DC, have state estate taxes, at $3 million and $2 million, respectively see more information about these estate taxes. So residents in these states will have to do some extra planning regardless of the federal tax rates and a Maryland estate planning attorney can help.

It still is not clear when, if and how the federal estate tax might be repealed.

Congress could choose to phase it out over a few years or scrap the idea entirely, if they cannot agree on offsetting spending cuts or where to raise revenues from elsewhere. Senate Democrats could also mount a filibuster over any tax plan that Republicans propose, which they are expected to do.

No elimination of the estate tax is permanent, of course. Even if it passed now, it could always be reinstated when Democrats control government again.

While you might be excited about the elimination of the estate tax, do not make the mistake of thinking that means you can make your estate plans with the assumption in mind that it will go away for good, if it does at all.

Reference: Financial Advisor (April 3, 2017) “Estate Planning: It’s Not Over.”

May 25, 2017

Trump’s Tax Plan

After much anticipation, President Trump released his long awaited tax plan. While there is much for wealthy people to cheer in it, including eliminating the estate tax, no one will want to cheer too much or too soon.

Since taking office, President Trump had been promising that he would reveal a plan for tax reform. He gave very few details about it, except that it would contain some of the biggest tax cuts in history, if not the biggest.

Last week, the White House finally released the anticipated plan, although many details are still missing.

The plan, if passed, would be one of the biggest tax cuts in history. Most experts agree that it includes large tax breaks for wealthy people, including eliminating the estate tax and the alternative minimum tax. His plan would eliminate the federal estate tax. Maryland residents would still pay Maryland estate taxes and DC residents would still pay DC estate taxes. The Maryland tax exemption is currently at $3 million and the DC tax exemption is currently at $2 million, learn more about estate tax planning.

Income tax rates on the highest earners would be cut dramatically, as would corporate tax rates.

The proposal does not just cut the taxes of the richest. Some middle class and lower income earners would see tax decreases coming from a doubling of the standard deduction.

The New York Times reported on the plan in "White House Proposes Slashing Tax Rates, Significantly Aiding Wealthy."

The President's tax plan has a long way to go before it is passed.

What was released was a one-page list of bullet points without any accompanying details. It will be up to Congress to determine the details of how to implement the plan.

The list did not indicate how the tax cuts should be paid for, which is likely to displease Republican deficit hawks.

Democrats are also likely to oppose the cuts and might filibuster them in the Senate.

Reference: New York Times (April 26, 2017) "White House Proposes Slashing Tax Rates, Significantly Aiding Wealthy."

May 24, 2017February 23, 2022

John B’s Mistakes

A new podcast is a great opportunity to learn about some basic estate planning mistakes.

Serial might be the most successful podcast of all time. Millions of people tuned in to hear the story of a murder and its aftermath. It was one of the first podcasts to receive mainstream critical attention.

Thus, it is not a surprise that its creators are back with a successor show, S-Town.

This new podcast features the story of John B., the resident of a small town in Alabama. He lives on a 128-acre estate and is believed to be wealthy by the community. He was living with his octogenarian mother with dementia.

John B. apparently told his friend Tyler that he did not have any bank accounts and that Tyler could have $20,000 from his estate. The next day, John B. committed suicide. He did not have a will, but instead left a series of instructions about what to do with his estate.

The drama of the story is in people trying to find out what happened to his money, if he had any at all.

The Wills, Trusts & Estates Prof Blog discussed this podcast in “Estate Planning Lessons from John B.”

John B. made some basic estate planning mistakes that everyone can learn from.

First, he did not have a will. While leaving some written instructions is better than nothing, it is not worth very much legally. If any money can be found, then under Alabama law, it will all go to his mother.

His friend Tyler would get nothing.

A simple will could have solved that problem.

Care for his mother is set to go to another relative who has been appointed as guardian. Of course, no one should go completely without a bank account.

Do not make the same mistakes as John B.

Hire an attorney and get a will and use other fundamental estate planning techniques.

Reference: Wills, Trusts & Estates Prof Blog (April 21, 2017) “Estate Planning Lessons from John B.”

May 23, 2017

Mary Kills People

If you have ever wanted to watch a television drama about physician-assisted suicide, you now have your chance.

A normal television show about a brilliant emergency room doctor who kills people in her off hours, would probably be a very dark drama about a serial killer, if there was such a show at all.

Normally, doctors are treated on television as nothing but heroic and rarely involved in anything too controversial. However, a drama from Canada now airing in the U.S., seeks to tell a different story.

In this show, the brilliant doctor is killing people who wish to pass away. She moonlights by performing euthanasia, also known as physician-assisted suicide.

The New York Times recently reviewed the show in "Review: 'Mary Kills People,' but It's for a Good Reason."

While the Times review is somewhat mixed, that this show exists at all highlights the changing attitudes about euthanasia.

It was only a couple of decades ago when Dr. Kevorkian was seen as the evil "Doctor Death." Now, many people are taking the idea of physician-assisted suicide seriously.

A few states have recently legalized the practice and many more are considering it as part of the dying with dignity movement, which seeks to allow terminally ill people the choice of when they want to pass away and under what circumstances.

The concept, however, is still controversial since not everyone agrees it is a good idea.

This new television show is certain to draw more attention to the concept and get people talking about it even more.

Reference: New York Times (April 21, 2017) "Review: 'Mary Kills People,' but It's for a Good Reason."

May 22, 2017

Daughter Sues Mother for Wasting Her Inheritance

A case in New York is a good reminder that it is very important to make sure that trusts details are specific, in order to make the settlor's wishes crystal clear.

The story had a Hollywood beginning. A schoolteacher and a wealthy real estate investor met through a singles ad, fell in love, got married and had a child.

From that beginning, things quickly turned south.

According to court records filed by the child of that marriage, Elizabeth Marcus, her mother refused to sleep with her father after she was born. The two divorced after a few years and the father passed away, when Marcus was nine years old.

The father did not want his ex-wife to receive any of his assets and instead left half his estate in trust to Marcus. Another child from a previous marriage received the other half.

The trust was originally overseen by Citibank, but after fighting for several years, the mother took control of the trust in 2003, according to the Daily Mail in "Daughter sues her 'self-involved' mother for 'frittering away more than $13m of her inheritance – so she could buy cars and a $6m mansion next to Gwyneth Paltrow in the Hamptons'."

Marcus is suing her mother now, claiming that her mother has stolen her inheritance to buy expensive items for herself, including a mansion and fancy cars. Most of the original inheritance is now alleged to be gone.

The mother, of course, denies the accusations.

The missing piece of the puzzle from the reports is how the mother was able to gain control of the trust, if the father did not wish her to have it. He might have neglected to be clearer about his wishes in the trust documents. Profit Law Firm can help make your issues crystal clear in our documents.

Reference: Daily Mail (April 23, 2017) "Daughter sues her 'self-involved' mother for 'frittering away more than $13m of her inheritance – so she could buy cars and a $6m mansion next to Gwyneth Paltrow in the Hamptons'."

May 18, 2017

Making Sure Your Family Has the Cash They Need

Even a great estate plan cannot help your family, if they do not have the cash they need to meet expenses before the estate plan can be executed.

People often go to great lengths to get an estate plan carefully crafted that covers every possible need their family could have. That is a good thing, but it might not be enough.

If you are your family's sole breadwinner and most everything is in your name, then you also need to think about how your family is going to make ends meet while your estate is being administered. Bank accounts in your name are supposed to be closed as soon as you pass away, so your family cannot legally access them.

Unfortunately, that is not going to stop any bill collectors from making calls, and grocery stores are not going to sell their food on credit to your family.

As a result, you also need to plan for your family to have access to cash.

Some advice on how to do that comes from South Africa by way of Personal Finance in "Will your family avoid a cash-flow crisis on your death?" The advice is also applicable to the U.S.

Getting an estate through probate can take a lot of time, depending on the size of the estate and the probate laws in the state.

Your family will not receive the cash from your will for a while, in most circumstances.

If you do anticipate that your family will need cash after you pass away, the most effective way to provide it is normally to take out a life insurance policy. These policies pay out almost immediately upon learning of death.

Another idea is to open a joint bank account with a trusted family member and to put some money in the account that will only be used in the event of your passing.

Reference: Personal Finance (April 22, 2017) "Will your family avoid a cash-flow crisis on your death?"

Building Legacies that Last Estate Planning and Elder Law

Month: May 2017