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The American Institute of Certified Public Accountants (AICPA) recently published an informative article entitled Four Estate Planning Mistakes (and How to Avoid Them).  Although the article is geared toward CPAs for counseling their clients, I recommend it as reading for all, as I see these problems everyday.  The four mistakes featured are:

1. Outdated or Unsigned Estate Planning Documents (i.e., if they have a plan at all, most people's plans are either outdated or inadequate).
   
2.   Lack of Coordination between the Estate Planning Documents, Titling of Assets and Apportionment of Estate Taxes.
   
3.   Lack of Understanding That a Transfer of $1 Is a Gift (i.e., that transfers (typically of real property) for less than adequate consideration constitute a gift).
   
4.   Life Is a Movie, Not a Snapshot (i.e., that estate planning should be viewed as a process rather than a one-time transaction).

The conclusion provides a good summary of the article:  “For most of us, the crystal ball of planning does not go more than five years. Families change, health changes, tax law changes and the law changes. The goal is to get the client on the path and to keep him or her there through all of the phases of life. Helping the client through each phase and encouraging the planning as part of the ongoing relationship between the CPA and the client is a very valuable service to the client and their family.”

Thanks to Jonathan Mintz of WealthCounsel, LLC for sharing the article and his comments.

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On November 17, 2011, Congressman Jim McDermott (D-WA), a senior member of the House Ways and Means Committee, introduced HR 3467, the “Sensible Estate Tax Act of 2011”.   Along with changes to the estate tax, the bill includes many of Obama's 2012 Fiscal Year Proposals with regard to gift and GST taxes. The bill includes the following:

Estate Tax Exclusion Amount of $1,000,000 with Top Rate of 55%:

Reduction of the estate tax exclusion amount to $1 million for decedents dying after December 31, 2011, and indexing for inflation from the year 2000 for decedents dying after 2012. The top tax rate is 55%, and the graduated amounts subject to the rate schedule would also be indexed for inflation.

Provisions designed to coordinate with the gift tax to reflect the decrease in the applicable exclusion amount.

Permanent Spousal Portability of the Estate Tax Exclusion Amount:

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "2010 Act") created portability of the estate tax exemption between spouses, but the law expires on December 31, 2012.   The Bill makes portability permanent.

Also included is a technical correction in the definition of “deceased spousal unused exclusion amount (“DSUEA”)” of a surviving spouse.  The reference to the basic exclusion amount of the last deceased spouse of the surviving spouse would be replaced with a reference to the applicable exclusion amount of the last deceased spouse, so that the statute would reflect the calculation of the DSUEA as described by the Joint Committee on Taxation.

Credit for State Death Taxes Restored:

The credit was phased out from 2002 to 2005. Before, many states had estate tax laws that permitted them to "pick up" the amounts allowable as a federal estate tax credit. Thus states could share in the estate tax collections without increasing the overall estate tax burden.  The bill would restore the revenue sharing mechanism with the states.

Valuation Discounts and Minority Interest Discounts Limited:

Valuation discount limitations for certain transfers of nonbusiness assets (defined as an asset which is not used in the active conduct of one or more trades or businesses), including:

• For the transfer of an interest in an entity which is not actively traded, no valuation discount would be allowed with respect to “nonbusiness assets”;
• For the transfer of an interest in an entity which is not actively traded, no discount would be allowed by reason of the fact that the transferee does not have control of the entity if the transferee and the transferee’s family members have control of the entity.
• Effective with regard to transfers after the date of enactment.

Consistency in Value For Transfer and Income Tax Purposes Would be Required :

Imposition of a consistency and a reporting requirement, with penalties for inconsistent basis reporting. The basis of property acquired from a decedent pursuant to Internal Revenue Code ("IRC") Section 1014 must equal the value of that property for estate tax purposes, and the basis of property received by gift must equal the donor's basis determined under IRC Section 1015.  

Effective for transfers for which returns are filed after the date of enactment.

Restrictions on Grantor Retained Annuity Trusts :

•  Minimum 10 year term;
• Annuity payment cannot be reduced from one year to the next during the first 10 years of the GRAT term; and
• The remainder interest at the time of the transfer must have “a value greater than zero.’’
• The bill contains no guidance regarding the parameters of the  "greater than zero" requirement.
• Effective for transfers made after the date of enactment.

Duration of Generation-Skipping Transfer Tax Exemption Limited:

Expiration of the GST exemption 90 years after the establishment of a trust. This is done by increasing to one the inclusion ratio with respect to property transferred after that date.

Applies to trusts created after enactment, and to transfers made from pre-existing trusts if the transfer is made out of principal added to the trust after the date of enactment (subject to grandfathering exceptions).

My view is the that Bill has no chance of passage in its current form, the main sticking point being the drastic reduction of the current estate tax exemption and increase of the rate.

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Here are the states with an estate and or inheritance tax, ranked from approximate highest to lowest tax burden (North Carolina has the distinction of being the best of the worst):

1. New Jersey - $675,000 exemption, 16% top rate (estate tax); $500 exemption/16% top rate (inheritance tax)
2. Maryland -$1M/16% (estate tax); $50,000/10% (inheritance tax)
3. Pennsylvania - 0/15% (inheritance tax)
4. Iowa - $0/15% (inheritance tax)
5. Indiana - $100/20% (inheritance tax)
6. Kentucky - $500/16% (inheritance tax)
7. Nebraska - $10,000/18% (inheritance tax)
8. Ohio - $338,338/7% (repealed effective 1/1/2013)
9. Rhode Island - $850,000/16%
10. Minnesota - $1M/16.7%
11. Maine - $1M/16%
12. Oregon - $1M/16%
13. District of Columbia - $1M/16%
14. Massachusetts - $1M/16%
15. Washington - $2M/19%
16. Illinois - $2M/16.7%
17. Connecticut -$2M/12%
18. Vermont - $2.75M/16%
19. North Carolina - $5M - 16%

State death taxes are deductible against the federal estate tax, which currently has a $5 million exemption and 35% rate.

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This news courtesy of Financial Advisor Nat Harris (emphasis added):

House Democrats plan to introduce a bill today to extend and overhaul the estate tax beyond 2012 in the opening salvo of what is likely to be a long and politically-charged debate next year.

 A favored target of Republicans, the tax on inherited wealth already promises to be one of the most controversial elements of the tax code up for renewal at the end of next year. Six Republican presidential candidates, including all of the front-runners, have said they would repeal the tax.

But the legislation by Rep. Jim McDermott (D., Wash.), a veteran member of the House Ways and Means Committee, proposes to extend the current reach of the estate tax by reducing the amount of the estate exempted from the tax to $1 million from $5 million and raising the tax rate to 55% from 35%, bringing it back to pre-Bush era levels.

"I'm not against people making money in this country, but I do think they have a responsibility to give some of it back," especially at a time of a deep federal budget deficit, McDermott said in an interview this week.

While Democrats acknowledge they will face stiff resistance from Republicans, McDermott said taxpayers need to know Congress is not ignoring the issue until the last minute. In a deal brokered with President Barack Obama last December, Congress reinstated the estate tax for this year and next, after letting it lapse for one year in 2010. While the estate tax is slated to revert back to 2001 levels after next year, Republicans in Congress have already introduced legislation to repeal it again.

"It really is a question of clarity," for both families and planners, McDermott said. "The question is how to bring fairness into it."

Under McDermott's proposal, co-sponsored by Rep. Charles Rangel (D., N.Y.), the exemption for married couples would drop to $2 million from $10 million.

Spouses could still claim the remainder of their partner's exemption if some remains unused after death, as they can now. The rate and $1 million exemption would be adjusted for inflation, beginning at the 2000 level.

The bill, slated to be introduced today, would also unify the estate and gift taxes. That means a taxpayer would only have a single exemption of $1 million for their estate and most gifts. The legislation also includes several provisions from Obama's last budget proposal to end targeted estate tax breaks.

Republicans, often led by Sen. Jon Kyl (R., Ariz.) have pushed hard in previous years to repeal the tax, whose rates and exemption levels have varied wildly over the last decade.

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The 2011 Consumer Scams and Fraud booklet issued by the North Carolina Attorney General is now available.  It is geared to increase awareness of and prevent fraud against seniors.

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In the past, each year the Social Security Administration (SSA) mailed a statement to all workers age 25 and older who were not receiving Social Security or Medicare benefits. The statement listed a worker's earnings record along with estimated benefit amounts at various retirement ages.

For budgetary reasons, the SSA will no longer send out these annual statements. It is not known when, or if, the automatic mailings will resume.

The SSA also will no longer accept Form SSA-7004, "Request for Social Security Statement."

Since Social Security benefits are based on one's lifetime earnings history, it is important to determine that all earnings are correctly listed on (SSA) records.

Those who need to verify earnings information can call the SSA directly at (800) 772-1213; TTY – (800) 325-0778, Monday through Friday, 7:00AM to 7:00PM.

Social Security benefits can also be estimated using the calculators on the SSA website.

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The IRS recently issued guidance that U.S. taxpayers living in the United Kingdom can get a credit against their U.S. income tax taxes for the GBP30,000 non-domicile charge. Rev. Rul. 2011-19.  See also this article in the STEP Journal.

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