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Will Congress Let the Federal Estate Tax Repeal Become Effective?
The federal estate tax, which currently allows each taxpayer to transfer up to $3.5 million worth of property tax-free upon his or her death, is scheduled to be repealed at the end of 2009. The repeal is only scheduled to apply to 2010. If Congress does nothing to address the issue, the repeal will automatically sunset at the end of 2010, and the current federal estate tax system will spring back to life in 2011. However, only $1 million worth of property will be allowed to be transferred tax-free at death beginning in 2011.
Contact for more information: Stephen A. Frost
Low Valuations and Low Interest Rates Create Significant Gifting and Other Family Business Transfer Opportunities
Planning for the tax-efficient transition of a business, especially a family-owned one, can be challenging. Ironically, the current economic downturn provides an excellent planning opportunity for business owners who will be subjected to estate taxes or who desire to tax-efficiently transition their business interests. This is because estate and gift taxes are based upon value, and values have been significantly suppressed by the current market conditions. As a result, now is a great time for business owners to consider making large, tax-efficient gifts of ownership interests in their family-owned companies. Because interest rates are at record low levels rarely seen, it is also an excellent time to consider intrafamily sales of business interests and real properties. To be successful, ownership and management transitions must be considered carefully by counsel with significant business and valuation experience.The advantage of this opportunity will be lost if one waits too long.
Contact for more information: James W. Keeling
Estate Balancing Avoids Imposition of Federal Estate Taxes
The current federal estate tax system (which is likely to be maintained – see first article) allows each taxpayer to transfer up to $3.5 million worth of property tax-free upon his or her death. With proper estate planning, a married couple may make combined transfers worth up to $7 million free of estate taxes. Married couples should therefore have a certain amount of property held by each spouse so that they might take full advantage of estate tax savings available to them. Unfortunately, many married taxpayers waste this opportunity by not having assets worth at least $3.5 million titled in the name of each spouse. Married taxpayers should therefore annually review the assets held by each spouse to help ensure against an otherwise avoidable assessment of federal estate taxes.
Contact for more information: Linda L Snelling
The Importance of Income Tax Planning Is Increasing
Estate planning includes income tax planning as well as estate and gift tax planning. As the number of estates subject to federal estate taxes continues to decline because the amount of assets which can be transferred tax-free remains high, income tax planning will take on greater significance. Assets held until death will receive a stepped up basis for income tax basis. Therefore, the capital gains on appreciated assets will never be recognized for income tax purposes. Assets gifted during lifetime receive a carried over basis for income tax purposes. As a result, the capital gains inherent in gifted property pass to the donees and will be recognized when the donees sell the respective properties. Therefore, many families may find that gifting to avoid future estate taxes is no longer necessary or desirable for income tax purposes.
Contact for more information: Stuart J. Friedman How Protected Are Your Assets?
As the economy has languished, everyone has felt the pinch. In this climate, many individuals have become more aware of the myriad of ways in which their assets can come under attack. For example, professionals may fear malpractice lawsuits, and real property owners may have guaranteed debt or fear a slip and fall claim. To illustrate this point in another way, a Florida court recently held that an inherited individual retirement account (IRA) was an account separate from the original IRA and was not exempt from garnishment under Fla. Stat. Section 222.21(2)(a).
Contact for more information: Steven W. Cutler
Limit for Annual Exclusion for Gifts Remains at $13,000
“Annual exclusion” gifts are relatively small gifts which may be made tax-free to a donee. The annual exclusion limit for 2009 is $13,000 per donee. The annual exclusion limit for 2010 will remain the same. Taxpayers with the resources to make annual exclusion gifts should seriously consider doing so as these gifts need not be reported for gift or estate tax purposes and will pass tax-free to the donee. Taxpayers should note that the $13,000 limit includes all gifts to the donee during the year, and that special rules apply for gifts to trusts. If the donees are grandchildren or trusts for grandchildren, generation-skipping implications will also need to be considered. Finally, because a donee will receive a carried over basis in any property received, income tax implications will also need to be evaluated.
Contact for more information: Timothy J. Leake or Anthony J. Zeoli
Consider Converting Your IRA Into a Roth IRA in 2010
Roth IRAs offer several tax advantages. For example, distributions from them are not subject to income tax, and no minimum distributions are required to be made from such accounts during the owner’s lifetime. Taxpayers should therefore seriously consider converting their IRAs or qualified retirement plans into a Roth IRA in 2010.
Contact for more information: Marcia L. Mueller
Status of Illinois Estate Tax and QTIP Deduction Remains Confused
Unless the Illinois legislature acts before the end of this year, the Illinois estate tax will cease to be effective after 2009. Although the Illinois legislature is expected to eventually restore the state’s estate tax, it is unclear when it might do so. Also unknown is whether the state will continue to allow a special qualified terminable interest property (QTIP) marital deduction election.
Contact for more information: James M. Lestikow
Indiana and Wisconsin Allow Transfer on Death Deeds
Indiana and Wisconsin have each adopted a new estate planning tool called a “transfer on death deed.” This device allows a landowner to execute during his or her lifetime a deed which transfers real property only upon the transferor’s death. The landowner may revoke the deed during his or her lifetime. Using a transfer on death deed avoids probate and avoids administration costs related to the real property. The use of such deeds is likely to prove quite useful when smaller states are involved, and having an experienced estate planning attorney guiding the process can help ensure that complications are avoided.
Contact for more information: David K. Ranich or Dennis L. Simon
Illinois Adopts Convenience Accounts
Individual owners of deposit accounts commonly name a joint tenant on the account as an accommodation. However, doing so can create confusion and conflict related to the account’s ownership upon the death of the account creator. Illinois’ recently enacted Banking Convenience Account for Depositors Act (Act) provides a solution, albeit a temporary one. The Act provides a new estate planning tool that persons who have named or are considering naming a joint tenant on a deposit account as a mere accommodation should consider. It becomes effective on January 1, 2010. However, the current version of the Act will sunset on December 31, 2015.
Contact for more information: Edmund Gronkiewicz
This newsletter has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.
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