But I am so busy preparing my taxes I don’t have time to do my living trust!

The most popular excuse for putting of the creation of your living trust: “It’s tax season and I am SO busy getting everything ready to file my taxes!” BUT it’s the BEST time to do your living trust! One of the most important parts of creating a living trust is “funding” the trust. In other words you want to title your assets in the name of your trust, and often times in the process of preparing your tax return you have gathered statements for the various brokerage account, bank accounts, any account you will be reporting income or interest on for tax purposes. Another reason why tax time is a great time to create a living trust is the opportunity to have your professional advisors work together to create the best estate plan for you and your financial situation. If you have a professional tax preparer, such as a CPA, prepare your taxes you probably only see them once or twice a year– this is a good time to let them know you will be creating a living trust and to get valuable feedback. It is also a good idea to talk to your financial advisor. With express written consent from our clients we often work with other professionals to create a cohesive estate plan. So what are you waiting for? It’s the new year, you are in the process of gathering a lot of information, take one more step and finish your new year resolution to do your estate planning!

Falk, Cornell, & Associates, LLP is a member of the American Academy of Estate Planning Attorneys.

It is finally here. On December 17, 2010 the President signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (2010 Act) which makes changes to the estate, gift and generation skipping-transfer tax laws for the next two years. The good news is the estate tax exemption has been raised from the $1,000,000 it was to become on January 1^st. The bad news is the law is for only two years which makes planning difficult if you do not intend to die during the next two years.

The new law provides that from January 1, 2011 until December 31, 2012 the estate tax exemption will be $5,000,000 per person, or $10 million per couple. The estate tax rate has been reduced from 45% to 35% on amounts in excess of the exemption. The amount an individual can make as lifetime gifts is also increased to the $5,000,000 from the $1,000,000 which it has been for the past several years. The generation skipping transfer tax exemption has also increased to the $5,000,000 per person. This will allow for substantial gifting to grandchildren. The new law will allow nearly everyone in the U.S. to pass their entire estate without any federal estate taxes. States have the right to establish their own inheritance taxes. The State of California does not have an inheritance tax so each California resident can leave an estate of $5,000,000. without any estate taxes.

Part of the 2010 Act addressed the estates of those individuals who died during 2010. The prior law permitted an individual to pass unlimited amounts of assets without any estate tax. However, there would be a very limited “step-up” basis to the fair market value on the assets which would result in capital gains in a modest estate. For instance, prior to 2010 if an individual died with their primary asset as their residence having a $1,000,000 fair market value and a purchase price plus improvement (tax or cost basis) of $325,000 then the amount included as the value of the residence for their estate was $1,000,000 and the new tax basis became the $1,000,000 fair market value. If the spouse sold the residence a few years later for $1,200,000 the tax basis was $1,000,000 and the spouse had their $250,000 exclusion for the sale of the residence and no capital gains taxes were due. Without the step-up in basis the capital gains tax would have been the $1,200,000 sale price minus the original basis of $325,000, minus the $250,000 exclusion so there would be capital gains of $156,250 ($625,000 taxable amount @ 25% for federal and state combined). The 2010 Act reinstates the federal estate tax for 2010 with an exemption of $5,000,000 and the step-up in basis on assets or to elect out of the estate tax and into a modified carryover.

If you have a larger estate……..more than $5,000,000 or if you wish to plan for your grandchildren the next two years are the time to take action. There continues to be numerous reasons to implement and review your estate plan for your family, and often times our clients are NOT doing their estate plan because of estate taxes. There are other factors to keep in mind, such as the California probate process, which remains time-consuming and expensive, or naming guardians for minor children. While we wait and see how the new law is going to play out keep in mind estate taxes are just a small piece of an estate plan.

Falk, Cornell, & Associates, LLP is a member of the American Academy of Estate Planning Attorneys.

It is nearly the end of 2010 and there is still no new law in place regarding estate taxes. It is likely the estate of those individuals who died during 2010 will escape federal estate taxes regardless of the size of the estate. However, on January 1, 2011 the federal estate taxes will resurface and provide only a $1,000,000 exemption from the estate taxes and any amount over the $1,000,000 will be subject to a maximum tax rate of 55%. This means nearly every individual and married couple should implement an estate plan or review their existing estate plan to account for the change in federal estate taxes for 2011

Over the years famous people have taken time to plan and minimize estate taxes while others did not plan well. For instance:

Marilyn Monroe
1926-1962
Gross Estate $819,176, 21% shrinkage:
Settlement Costs: $ 20,000
Death Taxes: $154,384
Total Costs: $174,384

Conrad Hilton
1887-1979
Gross Estate $199,070,700, 51% shrinkage:
Settlement Costs: $ 798,836
Death Taxes: $100,565,479
Total Costs: $101,364,315

Walt Disney
1901-1966
Gross Estate $23,004,851, 21% shrinkage
Settlement Costs: $ 275,000
Death Taxes: $4,514,888
Total Costs: $4,789,888

J.P. Morgan
1837-1913
Gross Estate $17,212,482, 66% shrinkage:
Settlement Costs: $ 1,863,295
Death Taxes: $ 9,448,723
Total Costs: $11,312,018

More recently several celebrities have died with no estate plan, or an incomplete estate plan in place, such as:

Princess Diana, 1961-1997:
Dispute over vague terms of her Will
Trustees battling non-children beneficiaries for 25% of the $30,000,000 estate

Anna Nicole Smith, 1967-2007:
Bitter battle with her wealthy husband’s children
Legal fees in the millions
Raft of legal issues after her sudden death
Unclear whether she has an enforceable estate plan
After 15-year battle, a court found that her late husband was mentally fit when he signed off on the Will leaving $1.6 billion to his son

Michael Jackson, 1958-2009:
Set up the Michael Jackson Family Trust to keep the administration of his estate private
Forgot to fund the Trust
Multiple claims, counterclaims, lawsuits and royalty demands have been filed
Father wants $20,000 a month from the estate, even though he’s not a beneficiary in his late son’s Will

It remains a looming question as to whether or not there will be a new law passed to increase the federal estate tax exemption. Nearly every estate planner I know did not believe we would ever have a year without any estate taxes. Think of George Steinbrenner, New York Yankees owner, and his incredible estate tax savings for his family since he died during 2010. Forbes Magazine estimated his wealth in 2009 at $1.15 billion (http://www.forbes.com/lists/2009/54/rich-list-09_George-Steinbrenner_OJ49.html) . If he had died a year ago, 2009, his estate would have been subject to 45% federal estate tax, but since the estate tax has been repealed for one year-2010-Mr. Steinbrenner’s estate is not subject to federal estate tax.

We will post updates to our website www.falkandcornell.com, as well as our blog, as we receive information regarding any changes in the law, but Congress moves so slowly We will post updates to our website www.falkandcornell.com, as well as our blog, as we receive information regarding. Keep checking for updates.

Falk, Cornell, & Associates, LLP is a member of the American Academy of Estate Planning Attorneys.