When the Estate Tax is repealed (albiet for one year) in 2010, some heirs will face capital gains tax instead, with complicated and burdensome record keeping necessary. Check out this article at Bankrate.com, from which the chart below was taken...
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From EstatePlanningLawFirms.com:
WASHINGTON - United States Senator Mary Landrieu, D-La., announced that she is introducing a bill to bring relief and reform to the federal estate tax system. Under Sen. Landrieu's proposal, 99.99 percent of Louisiana residents would no longer be subject to any federal estate tax whatsoever and there would be a rate cut for those who would still have a tax liability.
"This is a plan that has a chance to pass Congress," said Sen. Landrieu, who added that she hopes the plan will serve as the blueprint for future Congressional debate and compromise on the issue.
"Unlike the current law, my plan is clear, simple and fair," she said. "It gives most opponents of the estate tax what they want: a significant tax cut. It gives most reformers what they want: a stable and predictable system that enables long-term estate planning. It gives most small business people and farmers what they want: a chance to keep what they have built up in their families over a lifetime of hard work. And it does all of this in a way that is fiscally responsible."
"How can people do wise and informed estate planning under the current system, which is unstable, uncertain and unfair?" Sen. Landrieu asked. "We need certainty. We need reform. And we need relief. I think my proposal lays a clear, balanced path to each."
Under Sen. Landrieu's Estate Tax Relief and Reform Act of 2006, the federal estate tax exemption level would be set at $5 million per person and $10 million per couple. The current exemption is $2 million per person but falls to $1 million in 2011.
"By dramatically raising the exemption, we will effectively get most people of Louisiana out of the tax altogether and forever," Sen. Landrieu said. "This is especially beneficial for many small business owners and family farmers."
The current estate tax only applies to about two percent of estates nationwide, so the "relief" only helps a very small percentage of the population. With the Democrats likely to regain control of Congress, I don't think Senator Landrieu can count on her proposal passing. It's ironic that she feels the citizens of her state should be freed from the burden of the estate tax after she requested $250 billion in Hurricane Katrina relief last year.
Attorney Bill Graham of Salisbury is rallying folks against North Carolina's high gas tax rates. Check out the story on the News and Observer website. North Carolina has one of the highest gas taxes in the country, but there are valid arguments for keeping the tax as it is. It is a "fair" tax in that the persons who use the roads the most pay the most taxes.
Newsday reported today that actor Wesley Snipes has been indicted for federal income tax fraud for claiming $12 million in refunds for 1997 and 1997. Today is also the 75th anniversary of the date that mobster Al Capone was sentenced to 11 years in prison for income tax evasion. He served 8 years.
While I don't see a lot of outright fraud by clients coming into my office, I have had many clients who have neglected to file their tax returns, sometimes for many years. One even had the returns prepared by a CPA, with envelopes ready for mailing, and never bothered to sign the returns, write a check and stick them in the mail. Penalties for failure for file returns and failure to timely pay taxes are 5% and .5% respectively of the tax due per month for up to 5 months, so the penalties can easily 25% of the tax! The interest adds up quickly also.
So, not only is it important not to cheat on your taxes, but also to make sure you file and pay on time!
Good news in this recent article in the News and Observer:
Andrea Weigl, Staff Writer :
A Wake Superior Court judge has ordered two California companies to stop selling estate planning products to North Carolina consumers while a lawsuit that accuses the companies of bilking seniors out of hundreds of thousands of dollars proceeds.
Earlier this month, Judge Michael R. Morgan ordered American Family Prepaid Legal Corp. and Heritage Marketing and Insurance Services to stop selling or offering their products in North Carolina. In May, North Carolina Attorney General Roy Cooper sued the two companies, alleging that they worked together to defraud elderly consumers.
American Family Prepaid Legal would solicit customers to buy legal services plans to create living trusts to avoid paying probate costs, the lawsuit says. The company billed its living trust, which cost $1,995, as a bargain when compared with probate costs, the lawsuit says. But for someone to pay almost $2,000 in probate costs, his estate would have to be worth more than $500,000, the lawsuit says. Once the consumer signed up for the living trust, a Heritage sales agent visited the home, ostensibly to have the consumer sign paperwork but really to try to sell deferred annuities.
"These companies targeted seniors, using tricky sales practices to pressure them into spending their savings on living trusts and annuities they may not need," Cooper said Wednesday in a statement.
Consumers who think they or their loved ones have been involved in this or a similar scheme are encouraged to call the N.C. Attorney General's Consumer Protection Division at (877) 566-7226.
Some North Carolina attorneys are also guilty of overstating the value of living trusts, implying that probate is much more costly than it actually is, and that estate taxes savings can be achieved only by the use of living trusts (as opposed to wills). Of course, some attorneys go to the other extreme and don't believe it using living trusts in any situation.
I view myself as "neutral," only recommending living trusts when I think there will truly be a cost savings or other benefit. I have had many new clients come into the office requesting living trusts based on advice of friends or articles they had read, when a will is a simpler, cheaper method of transferring their property.
In my daily surfing for estate planning and related news and information, I came across Attorney and Certified Financial Planner Michael Palermo's site Crash Course in Wills and Trusts. It provides a good overview of estate planning, probate, gift and estate taxes, etc., and I recommend it for those who wish to educate themselves on these issues. Some time spent educating yourself before meeting with an attorney can make the estate planning process faster and more efficient.
You can also purchase Mr. Palermo's book for more in-depth treatment.
Based on a number of factors, such as health care and estate taxes, an article in Forbes ranks North Carolina squarely in the middle of the pack in a listing of the best states in which to die. Utah came in first, while Washington D.C. was at the bottom. I guess that says something about how politicians affect the quality of life.
Below is a recent article by Will Swarts on SmartMoney.com:
IF YOU THINK OF yourself as financially generous, you probably are, particularly if you're part of the growing number of Americans whose investable net worth is anywhere from $100,000 to $3 million — the so-called mass affluent. This group's ranks are growing, and so are their charitable donations.
Even if you aren't buying a new wing for the hospital or endowing your alma mater with a new gym, you don't need to be Warren Buffett or Bill Gates to make the most of the money you want to give away.
Two NC attorneys face jail for helping clients dodge taxes. While they can be useful in asset protection under the right circumstances, Offshore Trusts cannot legally avoid taxes for U.S. citizens!
Posted by Juan Antunez in his Florida Probate Litigation Blog:
Offshore trust scheme leads to former U.S. Attorney pleading guilty to tax fraud
In Florida it is almost inevitable that attorneys -- and especially trusts and estates attorneys -- will end up counseling clients who have existing relationships with off-shore trust companies or are considering some sort of arrangement involving an off-shore trust. Like any industry, there are good and bad actors doing business out there. Perhaps unfairly, my inclination is to approach the entire industry with more than my usual degree of skepticism (which says a lot!).
Recent events underscore why Florida attorneys would be wise to counsel caution when evaluating tax savings ideas proposed to clients by off-shore trust operators. In April of 2006 the heads of a Bahamian corporation operating under the name "Sterling Trust" were jailed in North Carolina after a sting operation mounted by undercover agents of the IRS in connection with an alleged tax fraud conspiracy. The trust angle was described in Executives With Bahamas Ties Jailed as follows:
The indictment, signed by Assistant U.S. Attorney Matthew Martens, says Graves, the Woltzes and Currin "would and did concoct foreign ‘dual trust’ arrangements so that wealthy United States citizens could evade federal income tax."
According to the indictment, the IRS undercover agents solicited advice from Graves on evading U.S. taxes on the fictitious sale of "gaming rights" for $10 million. Graves allegedly recommended a scheme known as a "dual trust structure" by which Sterling Trust would set up two trusts that would facilitate the evasion of the taxes.
Attorneys can get personally stung by this type of fraud when they step over the line from simply acting as counselors to affirmatively facilitating their cleints' involvement in this type of scheme. As reported in Former U.S. Attorney to Plead Guilty in Tax Fraud Scheme, a distinguished former U.S. Attorney is facing up to 43 years! in prison because of his involvement . . . in addition to the personal catastrophe this must be for his family. Here are a few excerpts from the linked-to article:
A former U.S. Attorney, state judge and state Republican chairman has agreed to plead guilty to charges related to a tax fraud conspiracy, federal prosecutors in Raleigh, N.C., said Wednesday.
Samuel T. Currin will plead guilty to conspiring to launder $1.45 million through his law firm's client trust account and to lying on his taxes by failing to report an offshore debit card account, prosecutors said. Three others also have been charged.
He could be sentenced to as many as 43 years in prison.
Tax attorney Ricky Graves; Howell Way Woltz, president of Sterling Trust in the Bahamas; and his wife, Vernice Woltz, a director of Sterling Trust, are also charged.
Lesson learned: Caveat Emptor!
I recently had a client come in who had made a gift of over $120,000 to her brother several years ago, using funds that had originally come from their mother. She used the mother's accountant in Florida to prepare her gift tax return. The accountant, apparently unaware that North Carolina had a gift tax, failed to prepare an NC gift tax return or advise her about the tax.
The North Carolina Department of Revenue, by checking the federal gift tax returns filed by NC residents, became aware of the federal return and contacted my client. She now faces penalties and interest in addition to the tax due.
North Carolina allows the same $12,000 annual exclusions as the federal system, but rather than a $1 million lifetime exemption, there is only a $100,000 lifetime exemption, which applies only to ancestors and descendants.
I have seen other clients incur unexpected tax liability when their advisers were ignorant of NC gift tax laws. If you are considering make any large gifts, make sure you seek qualified tax counsel so that you don't have any unpleasant surprises down the road. The taxman will cometh!
The following was posted by Ed Poll on his LawBiz Blog
Taking Electronic Passwords to the Grave
Attorneys advising clients on estate planning should ask them to determine who they want to have access to their computers when they die. So starts an article with a whole new concept for me. And a great new tool for marketing in your Estate Planning or even General Practice law firm.
As noted by Ernie, the Attorney, "... that's exactly what San Francisco-based estate planning attorney Michael Blacksburg does. "I advise clients to put all their passwords to things online in an estate planning document," he said.
Blacksburg also asks his clients what they want to have happen with their electronic media, like music in iTunes and photos in Shutterfly.
"The older generation is just getting in the habit of using computers," Blacksburg said. This problem will become more acute in coming years as more and more people become computer savvy, he added.
The situation poses a dilemma for e-mail providers that are pilloried by privacy rights advocates at the mere suggestion of sensitive data being exposed, at the same time they are expected to hand over the digital keys to family members when a customer dies.
Last year, Yahoo was forced to provide access to the e-mail of a U.S. Marine killed in Iraq to his father, who got a court order in the matter.
I think this is a great idea and is something I will start implementing in my practice.
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