Easter time is here, a sure sign that spring is upon us. It's a time for rebirth, a time for new beginnings. I think that Easter resolutions would be as appropriate as New Year's resolutions. We open the windows in our homes, to let the fresh air in. We clean-0ut our garages and do a thorough cleaning of our houses. The Spring flowers are blooming and the first grass-cutting is just around the corner. The birds and squirrels outside my window are carrying leaves and sticks for this year's nest. Spring is a time of hope and brings with it positive feelings about the future.
Spring is also a time for organizing. We organize all our tax information for filing our income taxes. There's no better time to review your estate plan. You have much of the information right there in front of you. If you don't have an estate plan, or, if your estate plan is out-of-date (over 5 years old), you might consider establishing, or updating, your plan.
You want to make sure that all your assets are titled correctly and that all beneficiary designations are current and verified. Nothing derails an estate plan faster than a mis-titled asset, or an inappropriate beneficiary designation.
Spring is a time of change, change from one season to another. Between winter and spring there is a state of flux. One day its 60 and sunny, the next day its 30 and snowing, the next day the snow has melted but its 50 and windy and tomorrow..... who knows. This is somewhat like the laws surrounding estate planning and the tax laws. Things have been pretty volatile over the past several years with no idea what tomorrow will bring, except that there will be change. Your estate plan should reflect the current laws. There will be parts of the new laws to take advantage of and other parts that need to be planned around. What 'worked' last year may not have the same effect this year, or next.
Keeping your estate plan current is no harder than cleaning out your garage or home. It seems unpleasant at the time, but it also leaves you feeling like you accomplished something and once you start maintaining and updating your estate plan on a yearly basis, there won't be as much work over time. Additionally, the peace of mind that you gain knowing that your estate plan will work, the way you want, when you want, is immeasurable.
Thursday, April 5, 2012
Wednesday, November 23, 2011
Giving Thanks
This is the time of year when we reflect on turkey and mashed potatoes with gravy, pies and stuffing, football and basketball. It's begins a hectic march through to New Year's with everyone looking for more time and usually more money, there never seems to be enough of either. I talk to a lot of people throughout the year who say that they don't have enough time throughout the year let alone through the holiday season. There is always something left to do, place to go, meeting/game/event/dinner/practice/recital/ to attend. We don't have the time, we don't have the energy to think about estate planning.
Then we gather with family and friends at parties and events which brings us around to reflecting on family, those who are with us and those who aren't. We vow to do better next year, but we all know how that resolution goes. We go back to work, back to our lives, back to our everyday problems and, well you all know how it goes.
We partner with caring and committed families, individuals, their trusted advisors and their loved ones to discover, clarify, promote and protect their values and valuables through our unique Life Map Legacy Planning Process (TM). The Life Map Process consists of 5 components:
1. Listen to clients and their needs, goals and dreams;
2. Education of clients and their loved ones;
3. Customized counseling;
4. Work with client's other professional advisors; and,
5. Ongoing maintenance and updating system.
Working through the Life Map (TM) process ensures that an estate plan will work when needed and give peace of mind to clients and their loved ones. We are more than the dollars and cents that we collect over our lifetimes, we are also our values, our wisdom, our culture, our stories. An analogy I like to use is the family vacation. Each vacation has to be planned out in advance so that it is enjoyable and not a royal pain. Plans are made to select the destination, the transportation, things to do on the way, while there and on the way home. Countless hours are spent making sure that the vacation is planned along with contingencies for unknown problems that may crop up.
Analogize this with what most people allow to pass for estate planning. An appointment is made with an attorney, a personal information form is filled-out and a meeting is had with someone from the attorney's office. The attorney tells the client what they need and prepares a set of documents which are signed and on rare occasion the estate plan is funded (assets transferred to reflect correct title according to the estate planning documents). These documents are filed away somewhere to collect dust. How many of you would take a vacation with that kind of planning? If you wouldn't go on vacation like that, why would you plan for the rest of your lives and beyond like that.
So, once the turkey dinner has been digested, contact me to discuss an estate plan that will work for you and your family, today, tomorrow and after you are gone.
Then we gather with family and friends at parties and events which brings us around to reflecting on family, those who are with us and those who aren't. We vow to do better next year, but we all know how that resolution goes. We go back to work, back to our lives, back to our everyday problems and, well you all know how it goes.
We partner with caring and committed families, individuals, their trusted advisors and their loved ones to discover, clarify, promote and protect their values and valuables through our unique Life Map Legacy Planning Process (TM). The Life Map Process consists of 5 components:
1. Listen to clients and their needs, goals and dreams;
2. Education of clients and their loved ones;
3. Customized counseling;
4. Work with client's other professional advisors; and,
5. Ongoing maintenance and updating system.
Working through the Life Map (TM) process ensures that an estate plan will work when needed and give peace of mind to clients and their loved ones. We are more than the dollars and cents that we collect over our lifetimes, we are also our values, our wisdom, our culture, our stories. An analogy I like to use is the family vacation. Each vacation has to be planned out in advance so that it is enjoyable and not a royal pain. Plans are made to select the destination, the transportation, things to do on the way, while there and on the way home. Countless hours are spent making sure that the vacation is planned along with contingencies for unknown problems that may crop up.
Analogize this with what most people allow to pass for estate planning. An appointment is made with an attorney, a personal information form is filled-out and a meeting is had with someone from the attorney's office. The attorney tells the client what they need and prepares a set of documents which are signed and on rare occasion the estate plan is funded (assets transferred to reflect correct title according to the estate planning documents). These documents are filed away somewhere to collect dust. How many of you would take a vacation with that kind of planning? If you wouldn't go on vacation like that, why would you plan for the rest of your lives and beyond like that.
So, once the turkey dinner has been digested, contact me to discuss an estate plan that will work for you and your family, today, tomorrow and after you are gone.
Sunday, April 10, 2011
What is Going On?
There seems to be a pattern emerging from the new Congress, which seems to be much the same as the last Congress, don't get along or work together until you absolutely have to and only to the extent you absolutely have to. Take the Estate Tax Issue signed December 17, just weeks before the existing law sunset. Then there is the recent near disaster of coming within one hour of forcing the entire Federal government to come to a halt. I think that we can look forward to more of the same in the future.
In Illinois, we don't know what to expect. Governors Gone Wild, Mayors not living here until it is of advantage to them, no money in the state coffers. Medicaid laws enacted in 2006 that have not been adopted here in Illinois to date. It seems that we might finally get around to adopting the Deficit Reduction Act of 2006 (DRA) by the end of the year, no promises though. Some people act as if we already adopted DRA some time ago, but no, not yet. In the State's defense, there was a suit challenging it's constitutionality basically because there was a spelling error/missing words problem.
The new rules basically change the penalty period should one have excess assets from beginning the date the asset was gifted, to, the penalty period beginning the date the Medicaid application is filed. There is a big difference between a 10 month penalty period starting two years ago and one going forward 10 months from this month. This is particularly difficult where there is no money to pay a nursing home going forward as money was already spent down before the Medicaid application was filed.
There are legal strategies that can pre-qualify individuals for Medicaid, while protecting assets so that they can be passed on to your family. As this economic situation continues to languish and interest rates continue to bottom out and we continue to live longer and longer and health care costs continue to rise, more and more families will need to at least be aware of asset protection strategies that qualify one spouse for Medicaid, without putting the other spouse in the poor house and still having some assets to pass on to your heirs when you die.
If you are interested in this topic feel free to contact me to schedule a free consultation at 630-613-7700, or e-mail me at bill@wjdennislaw.com.
In Illinois, we don't know what to expect. Governors Gone Wild, Mayors not living here until it is of advantage to them, no money in the state coffers. Medicaid laws enacted in 2006 that have not been adopted here in Illinois to date. It seems that we might finally get around to adopting the Deficit Reduction Act of 2006 (DRA) by the end of the year, no promises though. Some people act as if we already adopted DRA some time ago, but no, not yet. In the State's defense, there was a suit challenging it's constitutionality basically because there was a spelling error/missing words problem.
The new rules basically change the penalty period should one have excess assets from beginning the date the asset was gifted, to, the penalty period beginning the date the Medicaid application is filed. There is a big difference between a 10 month penalty period starting two years ago and one going forward 10 months from this month. This is particularly difficult where there is no money to pay a nursing home going forward as money was already spent down before the Medicaid application was filed.
There are legal strategies that can pre-qualify individuals for Medicaid, while protecting assets so that they can be passed on to your family. As this economic situation continues to languish and interest rates continue to bottom out and we continue to live longer and longer and health care costs continue to rise, more and more families will need to at least be aware of asset protection strategies that qualify one spouse for Medicaid, without putting the other spouse in the poor house and still having some assets to pass on to your heirs when you die.
If you are interested in this topic feel free to contact me to schedule a free consultation at 630-613-7700, or e-mail me at bill@wjdennislaw.com.
Saturday, March 5, 2011
Estate Tax Update - Part 4/ Other Exemptions
The headline catcher is that the Federal Estate Tax is $5 million, but there are other exemptions that are notable. The lifetime gift tax exemption is now $5 million. The annual gift tax exclusion amount remains at $13,000 for 2011 and is indexed to inflation.
Just to explain, there are two gift taxes. The annual gift tax exclusion is the $13,000, which is the amount you can give, per year, per person. So, if husband and wife both want to give the same person a $13,000 gift, they may and that would total $26,000 per year. If the gift exceeds the $13,000 limit, every dollar over $13,000 is taxed and must be reported on a gift tax return (form 709).
The other gift tax is a lifetime exemption and is currently $5 million. So, that means you are allowed to give away $5 million over your lifetime. This is total, not per beneficiary. If you give $1 million to one of your kids, when you die you only have $4 million of exemption remaining. If you gift more than $5 million during your lifetime, every additional dollar will be taxed at 35%.
Additionally, although the Federal Estate Tax exemption amount is $5 million, the Illinois legislature passed, and Governor Quinn enacted a state estate tax exemption amount of $2 million. So, although you can die with $5 million in assets and not owe any Federal Estate Tax, you will have to pay the Illinois Estate Tax on $3 million, which is taxed at
Just to explain, there are two gift taxes. The annual gift tax exclusion is the $13,000, which is the amount you can give, per year, per person. So, if husband and wife both want to give the same person a $13,000 gift, they may and that would total $26,000 per year. If the gift exceeds the $13,000 limit, every dollar over $13,000 is taxed and must be reported on a gift tax return (form 709).
The other gift tax is a lifetime exemption and is currently $5 million. So, that means you are allowed to give away $5 million over your lifetime. This is total, not per beneficiary. If you give $1 million to one of your kids, when you die you only have $4 million of exemption remaining. If you gift more than $5 million during your lifetime, every additional dollar will be taxed at 35%.
Additionally, although the Federal Estate Tax exemption amount is $5 million, the Illinois legislature passed, and Governor Quinn enacted a state estate tax exemption amount of $2 million. So, although you can die with $5 million in assets and not owe any Federal Estate Tax, you will have to pay the Illinois Estate Tax on $3 million, which is taxed at
Estate Tax Update - Part 3/ Asset Protection
Asset Protection is really risk management to discourage potential creditors from collecting from those protected assets. Asset Protection is not an exact science and the strategies used to protect assets are more like multiple layers of protection. There are several analogies that come to mind, the layers of an onion is one and a bit longer one is thinking of protected assets as placing a treasure in a metal box and placing a lock on the box. Now you put the box in a concrete room, with a steel door and a strong lock. This room could be located in a castle with a thick, high stone wall surrounding it. Around the wall is a moat and in the moat are crocodiles and, well I think you get the idea. Unless the creditor is very determined and able, they will rather go after easier treasure and leave the protected treasure alone.
The reason I bring the subject of asset protection up in this discussion of the new estate tax law is that some people will tell you that now that there is a $5 million estate tax exemption and portability of that exemption, that 99% of the public will no longer need to utilize trusts. I find two problems with this thinking.
First, is the fact that this legislation is temporary. The new tax laws have been passed for the next two years only and something will need to be done before December 31, 2012 or the law will sunset back to 2001 levels ($1 million estate tax) . There is a chance that the law will be ratified and continue on for the foreseeable future, however, there is just as great a chance that, the limits will be lowered even to the $1 million level.
Second, is the fact that there are other reasons aside from estate tax avoidance to utilize a credit shelter/family trust. Some of these reasons are:
1. Protect assets from lawsuit against the surviving spouse.
2. Protect the surviving spouse should he/she remarry and the new spouse needs to enter a nursing home.
3. Prevent the surviving spouse from unintentionally disinheriting children of the decedent.
4. Protect the growth in value of the deceased spouse's property during the life of the surviving spouse from future estate tax.
5. Allow flexibility for the surviving spouse to manipulate his/her income taxes after the first spouse's death.
6. If the law sunsets in 2012, we go back to 2001 rules.
The reason I bring the subject of asset protection up in this discussion of the new estate tax law is that some people will tell you that now that there is a $5 million estate tax exemption and portability of that exemption, that 99% of the public will no longer need to utilize trusts. I find two problems with this thinking.
First, is the fact that this legislation is temporary. The new tax laws have been passed for the next two years only and something will need to be done before December 31, 2012 or the law will sunset back to 2001 levels ($1 million estate tax) . There is a chance that the law will be ratified and continue on for the foreseeable future, however, there is just as great a chance that, the limits will be lowered even to the $1 million level.
Second, is the fact that there are other reasons aside from estate tax avoidance to utilize a credit shelter/family trust. Some of these reasons are:
1. Protect assets from lawsuit against the surviving spouse.
2. Protect the surviving spouse should he/she remarry and the new spouse needs to enter a nursing home.
3. Prevent the surviving spouse from unintentionally disinheriting children of the decedent.
4. Protect the growth in value of the deceased spouse's property during the life of the surviving spouse from future estate tax.
5. Allow flexibility for the surviving spouse to manipulate his/her income taxes after the first spouse's death.
6. If the law sunsets in 2012, we go back to 2001 rules.
Estate Tax Planning Update - Part 2/ Exemption and Portability
The new tax law signed by President Obama allows a person to pass $5 million at his/her death without any estate tax. This means a married couple can pass $10 million. Additionally, one can pass the first $5 million directly to the surviving spouse. This is referred to as portability. Previously, a married couple had to utilize a credit shelter trust or family trust to shelter the exemption amount from estate tax. This trust also protects assets from creditors, predators and remarriage issues.
Under the new law, even when the exemption amount ($5 million) is passed directly to the spouse, they still get to use the $5 million exemption from the first death. As with most good things in life there is a "but" involved. So, $5 million can be passed from one spouse to another directly and still qualify for the $5 million exemption, BUT, the surviving spouse must file an estate tax return (form 706) at the first death. This tax form can be daunting as it can be complicated and require appraisals and proof of values. Because virtually all 706 forms are personally reviewed by and IRS agent, the audit risk is very high.
There are other rules dealing with remarriage that will be the subject of another post, but for now just know that a surviving spouse is not allowed to stack exemption amounts should they remarry.
Under the new law, even when the exemption amount ($5 million) is passed directly to the spouse, they still get to use the $5 million exemption from the first death. As with most good things in life there is a "but" involved. So, $5 million can be passed from one spouse to another directly and still qualify for the $5 million exemption, BUT, the surviving spouse must file an estate tax return (form 706) at the first death. This tax form can be daunting as it can be complicated and require appraisals and proof of values. Because virtually all 706 forms are personally reviewed by and IRS agent, the audit risk is very high.
There are other rules dealing with remarriage that will be the subject of another post, but for now just know that a surviving spouse is not allowed to stack exemption amounts should they remarry.
Friday, March 4, 2011
Estate Planning Tax Update - Part 1/Change
I want to address some of the Tax Law changes and how they will affect Estate Planning. I was hoping this could be something we all could count on into the future, but, that is not to be. It looks like we will have to get used to the word change, at least for the foreseeable future. This is intended to be a series of short to semi-short writings on different aspects of the new tax law.
Part One - Change
On December 17, 2010, President Obama signed a new tax law that affects every estate plan in some way or another. However, there is no clarity as to how long this new tax law will continue to be in effect. It just happens to sunset, December 31, 2012, which just happens to be a presidential election year. I am too cynical to think that was done by accident.
If President Obama is re-elected, he will likely carry several more Democratic Congressmen and Senators into office with him. In that event, the Federal Estate Tax exemption will likely go down. $2 - 3.5 million seem to be the numbers bandied around. If there is a Republican in the White House in 2012, the federal estate tax exemption will likely remain the same or increase. If nothing is done, the new law sunsets and the exemption reverts to the 2001 level - $1 million.
On top of that, the Illinois Estate Tax Exemption is currently $2 million. Should the Federal Estate Tax find itself somewhere between $3.5 and above in 2012, the Illinois tax will likely remain at $2 m. If the Federal Estate Tax is allowed to sunset, returning to $1 million, the Illinois Estate Tax will likely re-couple with the Federal Estate Tax. That means that Illinois will take a share of the Federal tax amount, instead of maintaining a separate exemption amount.
Either way, it seems that both sides are content to allow this issue to be tossed around like a political football. Will 2012 bring us certainty? Clarity? Or, just more of the same wait and see attitude that has given us the band aid we are living with today?
With all this uncertainty, many people ask, "Why plan?" "Why not wait for some certainty and clarity and then plan?" The problem with that thinking is that even if the Estate Tax issue is settled, other issues will continue to change. The Stock Market, the Economic Recovery, unemployment, marriage, divorce, death, all these things and many more will bring change to everyone's lives.
That is why my practice model advocates updating and maintenance as part every estate plan. Plan for certainty, not destiny.
Part One - Change
On December 17, 2010, President Obama signed a new tax law that affects every estate plan in some way or another. However, there is no clarity as to how long this new tax law will continue to be in effect. It just happens to sunset, December 31, 2012, which just happens to be a presidential election year. I am too cynical to think that was done by accident.
If President Obama is re-elected, he will likely carry several more Democratic Congressmen and Senators into office with him. In that event, the Federal Estate Tax exemption will likely go down. $2 - 3.5 million seem to be the numbers bandied around. If there is a Republican in the White House in 2012, the federal estate tax exemption will likely remain the same or increase. If nothing is done, the new law sunsets and the exemption reverts to the 2001 level - $1 million.
On top of that, the Illinois Estate Tax Exemption is currently $2 million. Should the Federal Estate Tax find itself somewhere between $3.5 and above in 2012, the Illinois tax will likely remain at $2 m. If the Federal Estate Tax is allowed to sunset, returning to $1 million, the Illinois Estate Tax will likely re-couple with the Federal Estate Tax. That means that Illinois will take a share of the Federal tax amount, instead of maintaining a separate exemption amount.
Either way, it seems that both sides are content to allow this issue to be tossed around like a political football. Will 2012 bring us certainty? Clarity? Or, just more of the same wait and see attitude that has given us the band aid we are living with today?
With all this uncertainty, many people ask, "Why plan?" "Why not wait for some certainty and clarity and then plan?" The problem with that thinking is that even if the Estate Tax issue is settled, other issues will continue to change. The Stock Market, the Economic Recovery, unemployment, marriage, divorce, death, all these things and many more will bring change to everyone's lives.
That is why my practice model advocates updating and maintenance as part every estate plan. Plan for certainty, not destiny.
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