San Diego Estate Planning Blog: Creating Legacies

The U.S. Senate finished its work for the year without acting on the Bill the House passed that would have extended the 2009 federal estate tax — any estate over $3.5 million is taxed at 45%.

However, with the Senate’s inaction, the Estate tax in 2010 will be zero.  Yet, as I have discussed previously, the Estate Tax disappearance is combined with a potential increase in Capital Gains taxes for inherited assets. 

The disappearing Estate Tax is likely to be short lived, however, as Democrats are promising to reinstate the Estate Tax in 2010 and make it retroactive to January 1, 2010.  So before you encourage any of your wealthy relatives to wait until 2010 to die, see what happens in the Senate.

Republicans are working to keep the exemption amount high – $3.5 million or higher and the tax rate at 35%.  Democrats want the exemption level lowered and a higher tax rate, e.g. 55%.

If Congress does not enact a new law, the Estate Tax will return on January 1, 2011 to its 2000 level taxing an estate valued at over $1 million at a tax rate of 55%.

Chances are that a compromise is going to be reached and we will continue to have an Estate Tax in 2010.  So, stay tuned!

Create Your Legacy,

Kristina Haymes

San Diego’s trust and estate attorney

Personal Family Lawyer

Lawyers are not permitted to guarantee outcomes.  Most law students learn about the “harry hand” case where a doctor guaranteed a surgery and the patient ended up with a harry hand (a skin graft gone awry).  We all learned quickly that we cannot guarantee results.

Yet, as your San Diego Personal Family Lawyer (R), it’s my desire that each and every one of my clients are thrilled with our trust and estate planning services.  Accordingly, we provide all our clients with a Satisfaction Guarantee:

“At Haymes Law Group, P.C. it is our mission to provide you and your family with top quality legal services.  In the rare instance we make an error, we personally guarantee to make it right for you.”

Likewise, if you have paid a deposit and we have not completed your plan and you are not satisfied with our service, we will refund your deposit.  We are so sure that we deliver fantastic service and counseling regarding your estate plan, that you will be pleased.  But if not, the risk is all ours.

How about that?

How many of your advisors will put their money where their mouth is?

We wouldn’t have it any other way. 

Create Your Legacy Today,

Kristina

On Thursday, December 3, 2009, the House of Representatives passed a bill that would extend the Estate Tax of 45% to all Estates that are over $3.5 million.  As previously reported, under current law, only estates valued at $3.5 million and up are taxed.  The estate tax is currently scheduled to disappear in 2010 and then, return to a lower level of $1 million in 2011 at an even higher tax rate  of 55%!  The problem as I previously noted, is that while the current law phases out the Estate Tax for one  year, those who inherit property would have to pay increased capital gains tax on any assets that have appreciated.

The current bill — which is now in the Senate — would extend the 2009 exemption amount of $3.5 million indefinitely and adds back in a carry-over basis for assets.  Thus, when someone dies with an estate valued at under $3.5 million, there is no Estate Tax.  Those who inherit assets would get a reduced valuation basis (thus, decreasing the proposed increase in capital gains tax).

If the current law is extended, then the Estate Tax would not be something that affects the average American but a small percentage of the population.  However, here in San Diego County we have a larger percentage of people with valuable estates that would still be affected by the Estate Tax and need to do estate planning to mitigate the tax.

Nevertheless, the debate is not over.  Congress is currently occupied with potential health care reform.  And some people think that the Senate will not pass the bill making the current exemption amount ($3.5 m) permanent. 

So, only time will tell what is going to happen to the Estate Tax.  I think given the time constraints and the other pressing business, that Congress is likely to extend the current amount for a year but not indefinitely.

Mitigating potential tax consequences is only one benefit of preparing an Estate Plan.  There are many other important reasons to plan your estate — besides avoiding giving half of it to Uncle Sam.  For example, many people want to control their assets during their life and decide what to give, to whom, when they want and in the way they want.  If you have spent a lifetime building up a business or a valuable estate then, it makes sense that you want to control the distribution. 

In addition, planning for incapacity is also an important reason to do estate planning.  Statistically speaking, we are six times more likely to become incapacitated then we are to die.  Making sure our resources are available to us and our loved ones in the event of incapacity is critical. 

Of course, if you have minor children, then having an effective guardianship plan that provides for both long and short term guardians is essential.

Stay tuned and we’ll let you know what happens with our federal estate tax and how it may or may not affect your Estate.

Create your legacy!

Kristina