Category Archives: Estate Taxes

Estate taxes. Minimizing estate taxes. Federal estate tax exemption allowance. Form 706 estate tax forms. EIN numbers. Gift tax.

5 things you should know before you agree to be an executor

When my father died ten years ago and I found out he had named me as his executor, I thought “Okay.  It’s no big deal.”  Was I ever wrong!  I didn’t realize how much time, effort and frustration would be necessary to get everything settled. And I didn’t know that I would also have to be a detective.

 AARP recently published an article that listed five questions you should ask yourself before you agree to become an executor.   You might feel flattered if asked but think carefully about the questions and be sure it’s something you’re comfortable taking on.

1.  Do you have the time to take on this project?  When I started the process, I didn’t realize that it would be more than a year before my dad’s estate would be settled and that, during that year, getting all of the paperwork done and answering all of the government’s questions would often feel like a full time job.

2.  Do you have the skills to handle the process?  You have to be very organized and good with numbers.  Keeping massive spread sheets and tracking all of the paperwork nearly drove me crazy.

3.  Do you have the temperament to deal with all of the details?  I am a fairly calm, easy going person but I found myself getting very frustrated when confronted by people who made ridiculous demands.  One example I can remember is when the state of New Jersey (where my father died) asked me to sign a bunch of papers in black ink, get them notarized and send them in.  I did that and was shocked when I received a letter from a government office saying that I needed to resign them in blue ink, get them notarized again and send them back.  I did it and got one more letter.  It told me that I had not completed the forms correctly.  Believe it or not, it the letter said that the forms needed to be signed in black ink! 

4.  Do you know the rules of the state in which the estate is being settled?  Estate rules are very complex and I ended up hiring an attorney to help me get everything processed correctly.  Many people take this step after realizing what is involved.  For example, if you incorrectly declare the value of the estate, there can be legal repercussions, not just for the estate but for you as well.

5.  Can you afford to be the executor of the estate?  I lived in California and my dad died in New Jersey.  Some things just couldn’t be handled by phone; this necessitated a few expensive trips back and forth across the country.  And it’s not just the money.  What’s your time worth?  Can you afford to handle this job for nothing?  In some states, executors are permitted to charge a fee that is a percentage of the value of the estate.  However, since this money comes out of the estate, taking a fee may cause conflict with family members.

If you agree to be an executor, be prepared to devote a great deal of time to the project.  Be patient and don’t let little things get to you.  Stay organized and check every detail.  You will get through settling the estate…eventually.

For more information about estate planning and settling an estate, go to www.diesmart.com.

 

Defeat of DOMA has major estate tax implications

The Supreme Court today made a decision to strike down DOMA (Defense of Marriage Act); this will dramatically expand the access of married gay couples to many federal benefits related to tax, health and pension that have been denied to them until now.  This decision affects same sex couples in the 12 states and the District of Columbia which allow gay marriage; these couples represent about 18% of the U.S. population.  With the addition of California, the percentage will shoot up to 30%.be even higher.

DOMA was signed into law by President Bill Clinton in 1996, and prevented the government from granting marriage benefits in more than 1,000 federal statutes to same-sex married couples in the states that allowed gay marriage.

One very important benefit of today’s Supreme Court decision is related to estate taxes.  Until now, same sex married couples could not benefit from married couple estate tax laws.  Now they will have the same benefits as all other married couples.

According to Yahoo News,  ” Eighty-three-year-old New Yorker Edith Windsor brought the DOMA suit after she was made to pay more than $363,000 in estate taxes when her same-sex spouse died. If the federal government had recognized her marriage of more than four decades, Windsor would not have owed the sum. ”

With the Supreme Court’s decision to strike down DOMA with a 5-4 vote, Windsor will finally be eligible for a tax refund, plus interest.

For more information about estate taxes and settling an estate, go to www.diesmart.com.

President Obama makes “permanent” estate tax temporary again.

President Obama proposed 2014 budget:  Changing the Estate Tax and Gift Tax Rates AGAIN!!!

 

From January 1, 2001 through December 31, 2012,  Congress seemed intent on making planning for death more complicated than it already is by  creating a series of “temporary” estate tax laws.   These temporary tax rates and estate tax and gift tax exclusion amounts created turmoil for software companies, lawyers, accountants and ordinary people.

As part of the 2012 “Fiscal Cliff” compromise, President Obama signed legislation that appeared to make permanent the 2012 estate tax exclusion amount of $5 million for estate and gift taxes and a top estate tax rate of 40 percent.    The exclusion amounts would be indexed for inflation.  The statements from Congress and the President made it seem we FINALLY had permanent rules regarding federal estate and gift taxes.  Software companies could stop revising code.   Families could make permanent plans for death.  

So much for compromise.  The Obama “Green Book” Budget for 2014 puts us back in the guessing game about estate and gift tax rules.     Page 138 of the budget has these words:  ”Beginning 2018, the proposal would make permanent the estate, GST and gift tax parameters as they applied during 2009.  The top tax rate would be 45 percent and the exclusion amount would be $3.5 million for estate and GST taxes, and $1 million for gift taxes. There would be no indexing for inflation.”

You can find out more here:

http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf

2013 Federal Estate Tax

American Taxpayers Relief Act.

FINALLY!   The first temporary rules  were passed by Congress in 2001.    Twelve years later and two major tax changes in between, it appears we  FINALLY have permanent estate tax rules.   Software companies, estate lawyers and financial planners should all be breathing easier after Congress  passed the American Taxpayers Relief Act.  

Here’s a brief summary of the federal estate tax laws included in the Act.   The only change from the current  federal estate tax rules that went into effect in 2011 is an increase in the tax rate.

1.   The federal estate tax exemption allowance stays at $5 million.

2.   Portability stays.   Portability gives married couples the ability to exempt $10 million of assets from any federal estate taxes by filing a Deceased Spouse Unused Exemption Allowance form when the first spouse dies.

3.   The estate tax rate on estates exceeding the $5 million estate tax exemption allowance will be 40%, a change from the current 35% tax rate.

Don’t Pay an Inheritance Tax on Your Own Money!

If you live in Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania beware. These states tax your inheritance, no matter what the amount is.

Barry and Susan Brown of Philadelphia, PA learned this the hard way. Because they were getting older, they decided to add their son’s name to their bank accounts. They decided this would be the easiest way to enable him to access their funds in case of a health emergency.
Unfortunately, their son died before they did. Shortly thereafter, they received a tax bill for several thousand dollars. Why? Under Pennsylvania law, one third of the money in their accounts was considered to be their son’s. Since, according to the law, they had inherited it, they owed 4.5 percent as tax. Their son had none of his own money in the accounts, but that didn’t matter. They had to pay the tax.

This problem could have very easily been avoided. Instead of putting their son’s name on their bank accounts, they should have prepared a financial power of attorney document. In this document, they could have given their son the right to access their money and make financial decisions on their behalf when they were unable to do so. This method would have allowed them to keep all of their money instead of giving some of it away to the government needlessly.

For helpful information about how to plan for incapacity and death, go to www.diesmart.com.