Genworth recently conducted a survey of the Cost of Care in North Carolina (Home Care, Adult Day Care, Assisted Living and Nursing Homes). There are comparisons of the U.S. and NC as a whole, along with the largest metro areas in the state.
Senate Finance Committee Chair Max Baucus (D-MT) and House Ways and Means Committee Chair Sander Levin (D-MI) announced that they have reached an agreement on continuing the IRA Charitable Rollover and many other tax saving extensions.
Both the House and Senate previously passed bills to extend these provisions, but since there were different tax offsets in the House and Senate bills, prolonged discussions were necessary to come up with mutually acceptable tax increases.
The House plans to vote on the bill the week of May 24. As for the Senate, Baucus has indicated that he believes that he will get the 60 votes necessary to pass the bill.
Source: GiftLaw eNewsletter (May 24, 2010)
Currently the maximum federal tax rate for qualified dividends and long-term capital gains is 15%. This is great for people like Warren Buffett, who live off of investment income. However, these low tax rates for wealthier investors will soon be a thing of the past.
Unless legislation is passed to continue the current rates for qualified dividends, next year all dividends will be taxed at ordinary income rates. The top rate for ordinary income, currently 35%, goes up to 39.6% in 2011. Then, in 2013, the 3.8% investment income surcharge kicks in, making the total maximum rate 43.4%.
The long-term capital gains rate will increase to 20% next year, and the surcharge beginning in 2013 will mean the top rate will be 23.8%.
These hefty tax increases will trigger a greater interest in tax deferral strategies such as cash value life insurance and tax-deferred annuities, and may motivate more intra-family income shifting strategies such as limited liability companies.
With no estate tax in 2010, the prospects of reinstatement diminishing daily, and the ever more probable $1 million exemption in 2011, my staff has been working hard to notify our existing clients that they should come to have their wills or trusts updated.
Many older wills and trusts contain formulas or distribution schemes based on the existence of the federal estate tax, and will not work as intended if the testator/grantor dies this year.
The Revenue Law Study Committee of the NC General Assembly has produced a draft bill that will alleviate this problem by providing that the the will or trust provisions would be interpreted as if the 2009 estate tax was still in effect.
However, even if the bill passes, it should not be viewed as a panacea - any person or couple with assets in excess of $1 million should have their estate plan reviewed as soon as possible. I have already had at least one client die with the outdated language still in place.
TheHill.com reported today that, according to Senate Minority Whip Jon Kyl (R-Ariz.), a deal in the works between Senate Democrats and Republicans on the estate tax has fallen apart.
Senator Kyl said: "We no longer have an agreement because the Democratic side has decided that unless a matter has a guaranteed majority of Democratic votes going in, they're not going to allow it on the floor, at least not voluntarily," he said. "So we have to find a way to get a reasonable permanent estate tax reform to the floor where members can vote on it."
Kyl did not share the details of the proposal, but the article states “sources have told The Hill that lawmakers were looking to give taxpayers the option of prepaying their estate tax. The levy would be set at 35 percent for those worth more than $3.5 million. However, the exemption would ultimately increase over time to $5 million and wouldn't be indexed for inflation. Prepayment trusts would pay a lower rate.”
So, one day closer to the return of the $1 million exemption and 55% rate on January 1, 2011.
The website of the North Carolina Medical Board contains many Position Statements, including one on Advance Directives, a portion of which is quoted below:
"It is the position of the North Carolina Medical Board that it is in the best interest of the patient and of the physician/patient relationship to encourage patients to complete or authorize documents that express their wishes for the kind of care they desire at the end of their lives. Physicians should encourage their patients to appoint a health care agent to act through the execution of a Health Care Power of Attorney and to provide documentation of the appointment to the responsible physician(s)."
and one on Pain Management and End-of-Life Care:
"The Medical Board will assume opioid use in such patients is appropriate if the responsible physician is familiar with and abides by acceptable medical guidelines regarding such use, is knowledgeable about effective and compassionate pain relief, and maintains an appropriate medical record that details a pain management plan." and
"The health care team should give primary importance to the expressed desires of the patient tempered by the judgment and legal responsibilities of each licensed health professional as to what is in the patient’s best interest. "
Those with an interest in these issues would be well-advised to read the Position Statements and discuss them with their physicians.
Thanks to a client for bringing this article to my attention: How To Protect Your Family From Estate Tax Uncertainty. It contains good advice, which I have highlighted in bold in the following text from the article:
Make sure your estate plan accounts for a year with no estate tax, as well as a minimal $1 million exemption next year. Typically, a couple's wills are designed to use each spouse's estate tax exemption, without leaving a surviving spouse short of funds. When the first spouse dies, the exemption amount goes into a "bypass" trust for the children and the rest goes outright to the surviving spouse. The survivor has access to trust income and, if needed, principal, but the amount in the trust bypasses his or her estate.
With no estate tax such formula-driven plans don't work as intended, with too little, too much or even nothing left to certain heirs. So far ten states have passed laws saying that an estate's executor can fund the trust as if the 2009 estate law is in place; Florida has decided to require heirs to go to court to sort it out.
If you have a bypass trust, consult a lawyer now. You may be able to do a cheap fix with a codicil that clarifies how your assets should be allocated if there is no estate tax when you die. Or, if your plan is old and you live in a state with an estate tax, consider a will rewrite that might help your family minimize the combined federal and state tax bite. (Nineteen states and the District of Columbia have their own estate taxes, and these laws are also constantly in flux.)
Note: North Carolina does not have an estate tax this year, but it should return next year along with the federal tax.
More from theHill.com on the estate tax in Kyl: Deal on the estate tax in the offing:
"Sources close to the matter told The Hill last week that lawmakers are looking to give taxpayers the option of prepaying their estate tax. The levy would be set at 35 percent for those worth more than $3.5 million, however the exemption would ultimately increase over time to $5 million and would not be indexed for inflation. Prepayment trusts would pay a lower rate.
It is unclear how the gift tax would be addressed. Kyl recently told The Hill that he would like the rate to mirror the estate tax.
The senator said the proposal will be fully compliant with pay-as-you-go rules, which stipulates that anything more expensive than the House-passed estate tax bill must be offset.
The lower chamber recently passed legislation creating a 45 percent tax on estates worth more than $3.5 million. Kyl could need approximately $80 billion in offsets if he goes with the aforementioned plan. "
This is the first I have heard about prepaying the estate tax. Sounds like a desperate money-grab from Congress that will not be attractive to most wealthy folks. Just like with the Roth IRA conversions, prepaying tax is a hard pill to swallow as well as a gamble. I wonder if there will be any refund provisions in case the value of one's estate is significantly less at death.
Lest you start to feel complacent about estate tax reform, I should report that just this morning Professor Jeff Pennell of Emory Law School stated in a presentation in Atlanta that he did not believe that any estate tax fix would pass this year. He feels that nothing in Congress has changed since December 2009 and there are would just not be enough votes for it.
These are interesting times for estate tax nerds like me!
On May 4, Senate Finance Chairman Max Baucus (D-Mont.) stated that members of Congress will discuss the estate tax along with a small business tax bill this week. An aide reported that Committee and floor action on the small business bill might happen before the end of May.
Republicans in particular are trying to increase the estate tax exemption that will be in effect next year from $1 million to at least $3.5 million.
From Baucus sees action on small business bill, estate tax soon on theHill.com:
Baucus said talks on the estate tax and the small business bill are happening simultaneously.
"On substance we are getting very close," Baucus said about progress on the small business bill.
Senate staffers expect the legislation to cost between $10 billion and $15 billion over 10 years. The bill's marquee provision will likely zero out capital gains for one year for small businesses registered as C corporations. A similar measure was in the House-passed small business bill.
Finance could markup its small business bill as early as next week, but that timeline could slip if negotiations on the estate tax falter. Still, a floor vote on the bill before the Memorial Day recess is likely.
Staffers said there would likely have to be an agreement on both the estate and small business bill for both measures to advance. That agreement would likely have to include Senate Majority Leader Harry Reid (D-Nev.) abiding by whatever Finance committee members agreed to.
On the estate tax, Finance members Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) are leading the negotiations, staffers said.
The tax is currently repealed, but barring congressional action it returns next year to pre-2001 levels by socking estates worth more than $1 million with a tax that tops out at 55 percent.
The senators seek to create a less onerous tax. Kyl recently told The Hill the starting point for discussions on the tax was the 2009 law. He also said estates will likely have a choice in complying with the current repeal or the new bill once the legislation is enacted.
From TrustCounsel's today's eNewsletter:
There's no one legal structure that works best for all businesses. The most favorable choice depends on a number of factors, including the number of owners, your tax situation and whether or not you have employees. A limited liability company (LLC) may be a good choice because it provides flexibility, low maintenance, favorable tax treatment and most importantly, limited liability protection to keep your personal assets safe.
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Dodging a Double Tax Hit An LLC can help avoid double taxation if you sell the company or some of its assets. Let's say your company buys a warehouse and later makes a profit selling it.As a C corporation: You're liable for a combined federal and state tax bite of as much as 40 percent. Now you can take the gain left over after paying corporate level taxes as salary or a dividend distribution. If you take the money as a dividend, your company loses a deduction and you pay personal taxes on the cash. Add your personal tax bill to the corporation tax bill to find out how much was paid in combined taxes. If you take the money as salary, your company keeps its deduction, but now payroll taxes kick in. As an LLC: You are taxed only on your personal return and at low capital gains rates. |
Discuss the specific benefits of various business structures with your attorney, keeping in mind that the laws regulating LLCs vary from state to state. Here is a list of general LLC issues to consider:
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I recently gave a presentation on the Legal and Contractual Aspects of Continuing Care Retirement Community (CCRC) Agreements. The talk was very popular - I planned for 40 attendees and over 140 came! I thought others might be interested in the topic - click here for the presentation handouts, which include a comparison of several local CCRCs in which I have clients.
Note: As of June 17, 2010, the handout to which I have linked contains a few corrections to the Carolina Meadows information, courtesy of Liz Rossi of Carolina Meadows.
The new chair of the House Ways and Means Committee, Rep. Sander Levin (D-Mich.) was quoted in an April 19 article on DailyFinance.com:
Levin indicated he wants to change the current estate tax law. In 2010, the estate tax expired, but under current law in 2011 it will revert to 2000 levels, when estates worth more than $1 million were liable for the federal tax. In 2009, estates below $3.5 million were not liable for estate tax.
"I find this uncertainty unacceptable and unfair," Levin said. Many wills are written to leave as much to the children as possible below the threshold at which estate taxes must be paid, with the rest going to the surviving spouse. "Today that means that the children may well be left with nothing," he said.
The article doesn't contain any further information about what Levin has in mind, but I assume that he is thinking about bringing the estate tax back with a $3.5 million exemption, retroactive to January 1, 2010. However, as previous blog entries discuss, the IRS undoubtedly faces litigation if the estate tax is retroactively reinstated.
Also, Levin's comment about the way "[m]any wills are written" is not particularly accurate. Most wills (and living trusts) that contain estate tax savings provisions contain a family/credit shelter/bypass trust that receives the amount exempt from estate taxes. This allows the surviving spouse to utilize the funds for support for the remainder of his or her life. At the survivor's death the trust is paid to the children. Furthermore, in most marriages, the surviving spouse will leave the assets to the kids at his or her death, so they won't exactly be left with nothing. What he describes is primarily a problem in second marriages.
What I take from Levin's statements is that the estate tax issue will not be resolved in the near future, anyway.
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