In case you’ve been in a sensory deprivation tank since the ’80s, you know that federal budget deficits have become staggering. In 2011, the United States is scheduled to spend $1.3 trillion more than it takes in. Furthermore, the current national debt as of the date of this letter is more than $15 trillion.

The debate is raging in Washington over how to solve the deficit problem. Lots of our representatives believe that a tax increase is inevitable. From a philosophical perspective, it’s hard to argue that there’s a tax more clearly associated with “the rich ” than estate taxes.

The federal estate tax exemption—the amount that can be passed to kids without having to worry about estate taxes—for calendar years 2011 and 2012 is scheduled to be $5 million for a single person. For a married couple the exemption can be $10 million. The tax rate on the estate in excess of those amounts is a flat 35 percent.

If Congress and the President do nothing prior to the end of 2012, at the beginning of 2013 the exemption amount is scheduled to drop to $1 million, and the top estate tax rate will be 55 percent.

The IRS published statistics a few months ago about federal estate tax returns filed for those who passed away in 2007. What do the statistics tell us about estate taxes then and now?

• Whether the exemption amount ends up being $1 million, $3.5 million, or $5 million, it shouldn’t make a difference of more than about 25 percent in the amount of estate taxes collected for a given year.

• Annual estate tax collections are not a big revenue number, relatively speaking, for the federal government. They represent about 2 percent of the budget deficit, and .2 percent of the national debt.

• A smaller estate tax exemption will probably disproportionately affect the survival of family farms unless special protections are built in.

• A smaller estate tax exemption will probably not disproportionately hurt closely held businesses.

Do these observations provide any assurance about what will happen with federal estate taxes? Unfortunately, no. Feel welcome to keep in touch with me so you can stay in touch with the latest federal estate tax developments.

If you feel your estate plan is not up-to-date or needs a review, please contact us.

AS ALWAYS, PLEASE FEEL FREE TO CALL TO DISCUSS THESE OR OTHER FINANCIAL SECURITY ISSUES OF CONCERN.

DEALING WITH TERMINAL ILLNESS IN THE FAMILY:

THINGS TO CONSIDER

Imagine that a family member has only months to live. 

When a loved one’s family is struggling with the emotional issues associated with end-of-life, it’s easy for them to overlook the important things that can be taken care of prior to death.  

What kinds of issues should be addressed in the final days?

• Get financial details in order.
  • Gather specific information about life insurance, annuities, government benefits, pensions, investments and real estate.
  • Make sure beneficiary designations and titling are correct.
  • Make plans for creating needed liquidity to pay for final expenses and to take care of those left behind.
• Get estate distribution details together.
  • Make sure all will and trust documents are up-to-date and legally adequate.
  • Consider gifts to family members during lifetime to remove uncertainty later.
  • Make sure proper plans are in place for the transfer of closely held business interests.
• Make final arrangements.
  • Pre-pay or pre-arrange funeral.
  • Make the arrangements about disposition of remains known.
  • Consider a memorial fund.
• Seek to resolve unresolved family issues.
  • Create a “forgive” and “seek forgiveness” checklist.
  • Write or record messages for family members.
• Handle the details for health and end-of-life care.
  • Monitor health insurance and government benefits.
  • Make wishes about end-of-life sedation, life support and feeding/hydration known.
  • Create needed power of attorney documents.
• Address spiritual issues.
  • Identify the clergy the person wishes to see during the end-of-life process.
  • Discuss potential spiritual activities the person wants to engage in.

The tasks and action steps are not a complete list of all the things that must be done when dealing with end-of-life.  The checklist is meant as a general guide to which each should make his or her own order of priorities, and add or omit tasks that are more or less relevant to the dying person’s particular circumstances. 

If you ever find yourself involved in helping a family member face the final days, please let me know how I can help.

AS ALWAYS, PLEASE FEEL FREE TO CALL TO DISCUSS THESE OR OTHER FINANCIAL SECURITY ISSUES OF CONCERN.

The idea of an IRS audit strikes fear in the hearts of many taxpayers, and most of us will do everything possible to avoid an IRS examination of our tax returns.  Others look at the IRS as simply another creditor, and they almost welcome the opportunity to negotiate over tax liability.

It is almost impossible to avoid a tax examination by the IRS.  However, there’s plenty of good news: Read More

With 2010 soon coming to a close, most of our friends are asking: “What can I do now so I will not have to pay so much tax in 2010?”

  Read More

People can make mistakes when planning their estates.  The consequences of failing to make good plans can have dire consequences for family members, and can cause valuable assets to be wasted.

Plenty of famous people have made estate planning mistakes.  Their stories are reminders of the importance of planning. Read More

A number of figures used in tax and retirement planning have been updated for 2010.  Most limits for pension and IRA contributions have been unchanged.  For example:

1. The maximum contribution that can be made to a defined contribution plan in 2010 under Section 415 is the lesser of $49,000 or 100 percent of compensation—the same limit as in 2009. Read More

Most closely-held business owners are on a constant search for tax leverage with regard to fringe benefits for the owners and their employees.

Pension plans create income tax deductions for the business, and allow employees to exclude contributions from their taxable income.  However, the employer must include all eligible employees in the plan, and retirement benefits are generally taxable to the participants. Read More

Individuals changing jobs may have substantial pension balances that need to be dealt with.  Often they want to defer taxes on the pension plan balances and transfer the money to another plan over which they have more control.

Others with IRA balances may be interested in making a tax-free transfer to a new IRA custodian, or in splitting the current IRA account for various reasons. Read More

Things to Consider

Those considering starting the estate planning process-perhaps by visiting an attorney about a will or trust-usually have one or more questions:

1. Why do I need to prepare a will or trust at all?
2. Do I need a living trust?
3. How can I protect my young children?
4. How can I protect my special needs relative?
5. How do we arrange our affairs to adequately protect all sides of our blended family?
6. How can I keep peace in the family after I’m gone? Read More

Things to Consider

Traditionally, the owner of a permanent life insurance policy had one choice when he or she wanted to cash in a policy—surrender the policy and receive the cash value.

Beginning about twenty years ago, some third party companies began to offer the owners of policies on terminally ill insureds the ability to viaticate the policy. In such cases, the viatical settlement company would make an offer to the owner to purchase the policy for a substantial percentage of the policy’s death benefit. Read More