Future of the Federal Estate Tax

Julie Garber (Julie's Wills & Estate Planning Blog): "Estate Tax Update - What You Need to Know About the Modified Carryover Basis Rules"

On September 13, 2010, Julie Garber posted Estate Tax Update - What You Need to Know About the Modified Carryover Basis Rules on Julie's Wills & Estate Planning Blog.  She writes,

As the summer of 2010 fades into the sunset, the likelihood of the federal estate tax coming back and being applied retroactively to January 1 is becoming more and more unlikely. With this realization comes a new problem - how to deal with what has taken place of the federal estate tax for the 2010 tax year - the modified carryover basis rules.

Garber then summarizes a recent Forbes.com article by Deborah L. Jacobs, Seven Steps for 2010 Heirs. 

Julie Garber polled over 50 practitioners on the fate of the federal estate tax; you can participate by casting your vote

On July 30, 2010, Julie Garber posted Estate Tax Straw Poll - The Results Are In on Julie's Wills & Estate Planning Blog. (Emphasis added.)

I enjoyed reading Hani Sarji's collection of predictions about the federal estate tax so much that I decided to conduct my own "straw poll" on what my fellow estate planning colleagues think Congress will do with the federal estate tax in 2010. To conduct the poll I sent the following email to over 50 attorneys, trust officers and accountants located throughout the U.S.

[Below, are Julie Garber’s poll question and results, which I am presenting in a table format.]

What do you think Congress is going to do with the estate tax in 2010?	Results
A. Nothing, tax will come back on Jan. 1, 2011 with $1 million exemption, 55% tax rate	68% chose A
B. Reinstate tax at 2009 levels ($3.5 million exemption, 45% rate) and make it retroactive to Jan. 1, 2010	11% chose B
C. Reinstate tax at 2009 levels ($3.5 million exemption, 45% rate) and not make it retroactive to Jan. 1, 2010	7% chose C
D. Reinstate tax at 2009 levels ($3.5 million exemption, 45% rate) and give heirs of decedents who die in 2010 but prior to enactment of the new law the choice between using the modified carryover basis and the new law	7% chose D
E. Something else - please describe"	7% chose E

Garber has recreated the straw poll so everyone can participate.  Clicking on the image below will take you to Garber’s page, where you can cast your vote.

(Garber’s post led to two more entries to the growing list of predictions on Forecasting the Future of the Federal Estate Tax.) 

On the one year anniversary of Michael Jackson's death, you can read the trust that he left

June 25, 2010 is the one year anniversary of Michael Jackson’s death.  A post on SheKnows, by Deanna Barnet, is titled, Michael Jackson death anniversary activities.  None of the activities mentioned include reading the trust that Michael Jackson left behind. 

David Shulman (lawyer, blogger) has provided in-depth reviews of Jackson’s trust on South Florida Estate Planning Law:

• Michael Jackson's Revocable Living Trust Posted (6/2/10)
• An In Depth Review of Michael Jackson's Trust - Part 1 (6/3/10)
• An in Depth Review of Michael Jackson's Trust -- Part 2 (6/4/10)

See also, Julie Garber, Breaking Michael Jackson News - Copy of Michael Jackson Family Trust Publicly Revealed for First Time, About.com:Wills & Estate Planning, June 1, 2010.

Update: See Jule Garber, Michael Jackson's Estate - "This is It" is All That, Julie's Will & Estate Planning Blog, June 25, 2010. 

Handling the estate tax mess: gifting, funding a child's 529 plan, waiting

On January 4, 2010, Main Street published Handling the Estate Tax Mess.  In this article, Jeff Brown reviews the demise of the federal estate tax and its scheduled return on January 1, 2011.  He also provides the following strategies for handling a potential federal estate tax:

So, what can you do to prepare? The most obvious step is to reduce the size of your estate, though that may not be especially appealing. That can be done by giving assets to your heirs before you die. In 2010, any individual can give any other individual up to $13,000 without triggering gift tax. That means a couple could give four grandchildren $104,000 in 2010. Presumably, similar gifts could be made in subsequent years.

Also consider funding a child’s 529 college-savings plan.  Special rules allow one person to put up to $65,000 into a 529 in one year, accounting for five years’ worth of $13,000 donations. Money put into a 529 is removed from the giver’s estate but remains under the giver’s control. . . .

Unfortunately, since it’s impossible to know what the rules will be, it may not be wise to make irreversible moves like setting up [an irrevocable life insurance] trust.

So for now the best policy is probably to watch and wait — to be ready to move quickly when the rules of the game are clearer.

Gifting up to the annual exclusion amount and funding a child's 529 plan are traditional estate planning strategies.  Simply waiting is one approach to an uncertain mess.  Brown suggests another: getting "ready to move quickly when the rules of the game are clear."  So, you should get ready as you watch and wait for clarity.

Remember: although some will not be subject to a federal estate tax (if and when there is one), everyone needs an estate plan. 

In this time of uncertainty, you should consider having a professional review your estate plan, if you have one, and you should speak with a professional, if you don't have one.  This might also be a great time to learn about estate planning.  Julie Garber provides a wealth of information for free at About.com:Wills & Estate Planning, and Estate Planning Smarts, by Deborah L. Jacobs, contains an excellent explanation of estate planning, with action lists, for less than $20.  (See my earlier post for my thoughts regarding Estate Planning Smarts.)