Social Media Becomes Evidence in Battle Over French Rocker's Estate

The family feud over the estate of rocker Johnny Hallyday - at least, the first battle in what figures to be a continuing war - has come to a close. And in a sign of the times, Hallyday's social media account has played a pivotal role. The situation makes clear an emerging reality: what we put online can catch up with us – even when we are gone!

Many Americans aren't familiar with Hallyday, although he's been a superstar in France for decades. Intrigued with American rock 'n roll from a young age, he rose to fame as the "French Elvis," selling over 100 million records during his career.

In December 2017 the 74-year-old Hallyday died of lung cancer. At his death he had lived in Los Angeles for approximately ten years with his fourth wife, Laeticia, and their two adopted daughters, Jade and Joy. As an expatriate, Hallyday had a long history of locking horns with French taxing authorities, stating in one interview that he might eventually consider returning to France – but only if it changed its tax laws.

The singer obtained his green card in 2014. That same year, he had a California lawyer draft his will. The will left everything to his widow Laeticia. It cut out his biological adult children from four prior marriages, none of whom reside in the U.S. You can do this in America, of course, where there is no legal obligation to leave anything to adult children. Not so in France. There, surviving children are automatically entitled to a piece of their parent's estate. 

Obviously, Hallyday's adult children were none too pleased that under American law, they were being disinherited. Their father's estate has been estimated at about $112 million, and consists of rights to his extensive music catalog, several homes, many luxury cars, and even the proceeds from a posthumously issued album that has already sold over a million copies.

Hallyday was mourned in France with all the pomp and circumstance befitting a national hero, including a funeral procession along the Champs-Elysees. Shortly thereafter, his adult children took their grievances to a French court. Laura Smet, 35, and David Hallyday, 52, argued that their father was not a bona fide resident of the U.S. They claimed his will was invalid and French law should prevail - which would make them automatic beneficiaries of his estate. Although wealthy in their own right, the adult children seem motivated beyond money. Smet had sorrowfully noted that under the U.S. will, she would not even inherit the signed sleeve of the album “Laura” that her father had recorded to celebrate her birth.

Hallyday’s and Laeticia's lawyers countered that because Hallyday had lived in the U.S. for over a decade and enrolled his children in school here, he was effectively a U.S. resident, and that U.S. law should prevail.

However, the lawyers for the French adult children had an ace up their sleeve – an online ace. With access to photos and dates from the Hallydays' public Instagram accounts, they were able to demonstrate to the court that from 2012 to 2017, Hallyday had spent more time on French soil than on American soil. This included time spent on St. Bart’s, a French island in the Caribbean, as well as the eight months he had been in France for medical treatment just prior to his death.

On May 28 a court in Nanterre handed the adult siblings a victory, ruling that their father's domicile was France, and French law prevailed. The court stated: "Up to the end he lived a bohemian and nomadic life, but above all a very French life that led him to live... usually in France." If the ruling stands, there are now five beneficiaries: the two adult children; Laeticia; and the couple’s two young children. Of course France will also benefit, as the ruling allows it to get its hands on the inheritance taxes the estate generates. Hallyday’s lawyers intend to appeal, citing evidence that he and his wife were already planning to apply for U.S. citizenship when he died. 

Seul le temps dira: only time will tell.

The Hallyday case has implications for how your social media may figure in your estate planning, will contests, and conceivably, a number of other legal issues. For example, if a disgruntled heir argues that you lacked capacity when you signed a will cutting him out, what will your Facebook posts say? Will you have posted any comments, even in jest, referring to your poor memory or "losing it"? Or suppose you relocate from New York and claim that Florida is your domicile, relieving you of paying New York State estate taxes. Will your Instagram account back you up, or betray you as they did Hallyday?

Be careful what you post. This is a whole new world and this is uncharted territory!

Burt Reynolds Kept His Estate Planning Private With a Trust

Actor Burt Reynolds was raised in Riviera Beach, Florida, the son of a police chief. After an injury sidelined him from playing football at Florida State, he pursued acting. His career took off in the 1970s and he went on to star in over 200 movies, winning an Oscar for "Boogie Nights."

When Cosmopolitan editor Helen Gurley Brown asked the charismatic hunk to pose nude for the magazine's centerfold, he agreed immediately. For that iconic 1972 photo, he put it all out there - well, almost - lounging on a bearskin rug. 

But privacy was important to the actor, at least as far as his estate plan goes. His died on September 6 following cardiac arrest at his Jupiter home. His will, signed in 2011, was filed in Florida probate court. It indicates all the actor's assets are in a trust for the benefit of his son Quinton, age 30. Unlike a will, a trust is a private document, which is among the many reasons for its popularity as an estate planning tool. The will states: "I intentionally omit him from this, my Last Will and Testament, as I have provided for him during my lifetime in my Declaration of Trust." 

The 82-year-old actor's net worth is rumored to be around $5 million, which doesn't sound like a great deal for someone whose celebrity spanned so many decades. Reynolds had a very public history of money woes. His investment in a restaurant chain put him millions of dollars in debt. At one point he bought a private helicopter and jet and had two pilots on standby at all times. He declared bankruptcy at least once. In a 2015 Vanity Fair interview, he said:  I've done well in terms of owning property and things like that. But I haven't been somebody who's been smart about his money."

Since the current federal estate tax exemption is $11.2 million, it is unlikely his estate will be affected by estate taxes. Florida has no estate tax.

Reynolds' will names his niece, Nancy Lee Brown, as personal representative, and his great nephew Brian Ritchey Brown and great niece Tracy Erin Rogers as back-ups.

This Prince was no pauper

Update 5/2/2016: The Carver County, Minnesota District Court today appointed Bremer Trust as Special Administrator of Prince's estate. 

I never really listened to Prince's music - it's not really my era. But the superstar's untimely death sure has us estate planning lawyers paying attention. With all the usual combustible elements in place - celebrity, money, and a somewhat unconventional family situation - there's fierce speculation as to just what was in Prince's estate plan. Or even if he had one. 

At this writing, no one knows for sure if he did. Prince's one full sibling, Tyka Nelson, has requested that the court appoint an administrator to handle the estate, indicating she has no knowledge that a will exists. But others who knew Prince doubt he would have neglected making one, given how detail-oriented he was in other areas of his life. He was also reported to be a highly private person - as much as a superstar can be, anyway. If that's the case, then he probably would have created a trust rather than a will, in order to keep his dispositions private. A will or trust may yet turn up. 

Current estimates put Prince's estate at $300 million, but that does not count its post-mortem value. As-yet-unreleased music, future royalties and the like mean that his estate, like the estates of Elvis and Michael Jackson, may be worth more than the artist was when he was alive. 

If Prince did in fact die intestate, there obviously would have been no tax planning. That would allow Uncle Sam to take 40% of the value of his estate in excess of $5.45 million. The State of Minnesota would grab its own 16% tax. 

Prince was not married at the time of his death. Nor did he have children. In addition to his sister, he has several half-siblings. Some of his original siblings and half-siblings have died, who themselves had children.  (I do not know the law in Minnesota, but in many states, a step-sibling is entitled to half of what a full sibling would receive.) 

With all these circumstances in play, you can bet we'll be hearing more about Prince's estate over the next weeks, months, and yes, even years.

Florida residents: how the Defense of Marriage Act ruling may affect you and your loved ones

The Supreme Court last week struck down the 1996 federal Defense of Marriage Act, which defined marriage as a union solely between a man and a woman. The 5-4 ruling found DOMA unconstitutional because it denied same-sex couples equal protection under the Fifth Amendment of the U.S. Constitution. The ruling means that same-sex legally married couples should be entitled to all the same rights and benefits under federal law as opposite-sex married couples. That's 1000+ rights and benefits. 

For couples who were married in and reside in the District of Columbia or one of the twelve states that currently recognize gay marriage, the situation is a clear-cut and positive development. The situation is less clear for same-sex couples who reside in Florida and have been legally married in another state, because Florida does not recognize the legality of same-sex unions. The Florida Constitution, as amended, bans same-sex marriage and expressly does not recognize same-sex marriages from other jurisdictions.

In this post I clarify what we now know, and still have yet to learn, about the impact of DOMA's reversal on same-sex couples residing in Florida who have been married elsewhere, with emphasis on estate planning, life planning and long-term care planning issues. I also point out how the Supreme Court ruling may affect anyone planning his/her estate who wishes to include a beneficiary who is in a same-sex marriage ,regardless of where that beneficiary resides.

Federal Benefits for Same-Sex Married Couples

Some legal experts have questioned whether spouses in same-sex marriages living in states like Florida will be eligible for all the federal benefits and rights accorded to straight married couples, notwithstanding DOMA's reversal. One early signal that they probably will: Just 48 hours after the Supreme Court ruling was issued, the U.S. Immigration and Citizenship Services Agency awarded a green card to Bulgarian immigrant Train Popov, a man, who had been married in New York to another man, American Julian Marsh. The couple lives in Miami. Based on this development, one can reasonably presume that other federal agencies will fall into line, and that same-sex married couples living in Florida will have access to the full range of federal benefits that provide preferential treatment for spouses.

That said, it is important to point out that different federal agencies use different standards to identify who is or isn't married. Some agencies, including the Social Security Administration, Internal Revenue Service and Veterans Administration have historically used place of residence as the criterion, meaning that they consider a couple to be married only if their domicile considers them married.  From that point of view, a same-sex couple who has been married in, say, Vermont and who now resides in Florida, would not be considered married. Obviously this is a grey area of the law that has yet to be resolved.

Assuming for the moment that all federal benefits will apply to same-sex married couples regardless of where they live, the federal benefits they will receive include:

• Federal estate tax breaks:  Unlimited marital deduction when one spouse passes his/her estate to the survivor. (Prior to the DOMA ruling, any amount in excess of $5.25 million passed to your partner was subject to federal estate tax.) A surviving same-sex spouse may also use any unused portion of the deceased spouse's exemption (portability).

• Social Security advantages: Like their heterosexual counterparts, a surviving spouse in a legal same-sex union may opt to collect the decedent's Social Security benefits if those benefits are greater than what the survivor is currently receiving. Also, while both spouses are alive and collecting Social Security, the lesser-earning spouse can elect to receive 50% of the higher-earning spouse's benefit.

• V.A. Benefits: All the benefits that heterosexual married couples have enjoyed are now available to same-sex marrieds. For example, if the spouse is entitled to pension with aid and attendance, the survivor will also be entitled to those benefits, provided of course that he/she meets all other criteria. 

• 401-ks:  Under federal law, the spouse is the automatic beneficiary. Therefore, if you are legally married in a state that recognizes same-sex marriage, your spouse will automatically be your beneficiary (whether you like it or not). 

• Individual Retirement Accounts: A deceased spouse's Individual Retirement Account can now roll over into the survivor's account without being taxed, and the survivor may take minimum required distributions based on his/her own life expectancy, and then let the ultimate beneficiary stretch it out.

• Medicare: All the spousal privileges and benefits that apply to opposite-sex married couples are now available to same-sex marrieds. Spouses of Medicare recipients can enroll in the program even if they lack the requisite work history. 

• Income taxes: Same-sex married couples may now file joint returns, which is generally advantageous.

 

What has NOT changed at the Florida state level for same-sex married couples

 
As noted above, nothing has changed at the state level, at least for now. Florida laws affording preferential status to married couples do not apply to same-sex married couples, despite the marriage being recognized as legal in a different state. Among the Florida benefits still NOT available to same sex marrieds are:

• The right to an elective share of the spouse's estate.
• The right to a life estate in your spouse's homestead, or one-half ownership in that property.
• Consideration as the natural health care proxy for your spouse, second only to a court-ordered guardian.
• Same-sex spouses may not hold assets as tenants by the entireties, which heterosexual couples may do and which provides creditor protections.
• If a same-sex spouse dies intestate, the survivor is entitled to nothing. Married opposite-sex survivors are entitled to 50% of the estate if there are children from the decedent's prior marriage, or 100% if the decedent has no children from a prior relationship.

At this juncture, it may be wise for committed same sex couples who reside in Florida to consider being married in a state that recognizes same-sex unions. Although it obviously will not change the nature of the relationship from the point of view of Florida law, the spouses will at least be considered married for federal benefits purposes.

If you are in a same-sex marriage recognized in another state, but you are domiciled in Florida, you must take particular care with your planning to ensure that you and your spouse are protected, since the state provides you none of the protections available to same-sex married couples. Contact our offices for the expert advice required for your situation.

A grey area: Long-term care Medicaid benefits for same-sex married couples

Florida Medicaid regulations are a compilation of both federal and state statutes. Therefore it is unclear as to how the DOMA ruling will play out for Florida same-sex couples who are legally married in other jurisdictions and who wish to do Medicaid planning to protect themselves and one another from the cost of long-term care. Two tools commonly used by elder law practitioners in Medicaid planning, spousal refusal and unlimited interspousal transfers, may not be available in Florida to such couples.Only in the fullness of time will we know how these issues will be resolved by the courts. Meanwhile, our experienced Florida elder law attorneys can give you the most accurate and up-to-date advice.

Estate planning if one or more of your beneficiaries are in same-sex marriages

The Supreme Court ruling opens up sticky problems for those planning their estates and whose intended beneficiary (or beneficiaries) is in a same-sex marriage. 

For example, suppose you are a Florida resident and your daughter Ann resides in Massachusetts, where she was married to her spouse, Susan. If Ann predeceases Susan, do you or do you not want Susan to get Ann's share? If your will identifies Ann's "spouse" as the contingent beneficiary, will the Florida Probate Court recognize the validity of that language and allow Susan to receive the bequest - and is that what you desire? If it is, in my view it would be better to omit the word "spouse" and instead identify Susan by name.

Powers of appointment create another area of uncertainty. Sometime a client who wants to leave money to someone in a trust does so with a general power of appointment; meaning the beneficiary is permitted to leave the funds to anyone the beneficiary chooses. In other instances, someone will leave funds under a limited power of appointment, restricting to whom the beneficiary may leave the funds, generally that beneficiary's "spouse and lineal descendants." As you can imagine, DOMA's reversal opens up a legal can of worms with respect to limited powers of appointment. Can you now put restrictions in your limited power of attorney restricting the gender of the beneficiary's spouse? If your limited power of appointment states that your son can only leave his share to his "wife," does that disqualify a same-sex spouse, and is that what you want?  Our highly experienced estate planning attorneys can anticipate these potential problems and draft your estate planning documents in a way that ensures your wishes are carried out in this new legal world.
 
In conclusion, we can look forward to many test cases, lawsuits and rulings on all of these matters over the coming months and yes, even years. Check our website and this blog to keep up with these developments and what they may mean for you and your loved ones.

To read the Supreme Court decision, click here. 

After the election, still looking for estate tax certainty

It's over. American voted. We have our winners and losers.

With the election behind us,  Washington has got to get down to business, and soon. The so-called fiscal cliff is looming. How this issue is handled will likely have a dramatic impact on the structure of federal estate taxes going forward, and therefore, on your estate planning.

The fiscal cliff refers to the expiration of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. This law was a temporary measure, intended to keep the Bush tax cuts in place through Dec. 31, 2012. The legislation unified the federal estate tax and gift tax and set the lifetime exemption at $5 million per person (currently $5.12 million due to inflation adjustment), with a 35% maximum tax on anything over that level. The law also introduced "portability," permitted surviving spouses to use whatever portion of the lifetime exemption his/her deceased spouse had not used.

If there is no congressional action, on January 1 we will face exactly the same estate tax climate we faced before the Bush tax cuts: A lifetime exemption of $1 million per person, a top tax rate of 55% on anything over that, and no portability between spouses. 

Where does the Obama Administration stand on the issue? In the past at least, it has favored the middle ground between the pre-2001 tax rates and the Republican position favoring total elimination of the estate tax. The suggested numbers: $3.5 million lifetime exemption, 45% top tax on anything over that, and retention of the portability provision.

With the White House and the Senate in Democratic hands and the GOP in control of the House, the need for compromise is obvious. So is the need for certainty. Americans need to know what to expect so they can create or modify their estate plans to take full advantage of whatever tax breaks exist. C'mon Congress...get moving.

Estate tax: eleventh hour drawing near

Here we are in the fourth quarter of 2012, and Congress has yet to decide the fate of the federal estate tax in 2013. Perhaps the results of the November election will permit us to peek into the legislative crystal ball. However, until Congress takes definitive action, that crystal ball will remain cloudy.

Under the current law, an individual is allowed to pass up to $5.12 million tax-free. With the right estate planning and tax planning, married couples can double that amount. For estates that do owe taxes, there is a 35% maximum tax rate.

On January 1, if Congress fails to take action, the current law will lapse. The exemption will then fall to $1 million per person, with a 55% maximum tax rate. If this scenario comes to pass and $1 million becomes the exemption in 2013, it's going to impact more than just the super-rich. According to a recent report from LIMRA, a marketing firm for the insurance industry, about 15 million households will owe estate tax under this scenario, with an average estate tax bill of $1.4 million.

The compromise legislation that we've heard about this year would establish a $3.5 million exemption for 2013 with a 45% top tax rate. According to LIMRA, that means about 3.6 million households would be on the hook for estate taxes next year, with an average tax bill of $2.6 mllion.

Many financial professionals and estate planning attorneys have been encouraging clients to take advantage of this year's very advantageous tax structure in order to pass as much tax-free money as possible to heirs. Saving on taxes is obviously an important goal, but clients must always weigh that goal against their own future financial needs and of course the ultimate goal: their peace of mind.

I will continue to keep you posted on estate tax developments.

More on estate taxes.

Read the US News report on the LIMRA findings. 

Estate Taxes: Eleventh Hour Redux?

Will 2012 be a repeat of 2010, when Congress failed to address the expiring federal estate tax and gift tax laws? That threw estate planners, tax professionals and citizens into a tizzy. The current estate tax code is set to expire Dec. 31, 2012. If Congress does not act, taxes will revert to their pre-2001 levels. The American Institute of CPA's is urging Congress to take action before the eleventh hour so professionals and taxpayers alike can better plan. Click here to read the full statement the organization  submitted to the Subcommittee on Economic Growth, Tax & Capital Access of the House Small Business Committee.

How to coordinate your life insurance with your estate plan

Life insurance can be a powerful tool in your estate plan. It can be relied on to help your surviving spouse or heirs when you're gone. If your estate is taxable, life insurance may be used to pay estate taxes and other expenses. 

As with any aspect of estate planning, the devil is in the details. Life insurance is not a tool to be used casually. It must be managed with precision to ensure it fulfills your estate planning goals.

Here area few tips to keep in mind:

1. If you don't want the proceeds to be taxed for estate tax purposes, you should not be the owner.
2. Don't make your estate the beneficiary. If you do, you'll trigger probate and you may make your estate taxable.
3. Review your policies periodically, particularly when major life events occur, like divorce or the death of a beneficiary. You also need to keep an eye on your financial and tax situation to ensure that your policy continues to meet your goals.
4. Minor children should not be named as beneficiaries. That would likely require court involvement to approve the distribution.
5. Do not name people of any age as beneficiaries of the policy if they are financially irresponsible. It's wiser to establish a trust for them, which provides more control over how and when monies are distributed.
6.  If your spouse is not a U.S. citizen, consider establishing a Qualified Domestic Trust and naming him/her as the beneficiary. Don’t automatically make your non-citizen spouse the beneficiary of your life insurance, since doing so may trigger estate taxes.
7. Be sure to name contingent beneficiaries in the event your first-named beneficiary predeceases you.
8. If you purchased your life insurance to fund a buy-sell agreement, keep an eye on the policy to make sure it keeps up with any increase in the value of your business.
9. If you are married and you do not have sufficient assets in your living trust to pass on the maximum amount of tax-free money to your heirs, you may want to consider making your living trust the beneficiary of your policy.
10.  If you are considering cancelling your policy, consider a life settlement rather than taking the surrender value.

The President's proposed budget

President Obama's recently proposed budget for fiscal year 2013 has a number of items that will interest seniors and their families. 

First, the budget assumes a cost of living increase for Social Security. This is good news, given the several COLA-less years before the most recent adjustment. And with everything pointing to oil prices heading north, the cost of just about everything else will follow suit.

The budget also contains a serious increase in funding for research into Alzheimer's Disease, and for services to assist patients and families. Finding a cure for this disease will be a blessing for families, and help reduce the pressure on national and local health resources struggling to keep up with our aging Baby Boomer population.

As to the always contentious issue of estate taxes: The proposed budget would set the 2013 tax structure back to where it was in 2009. This would mean a lifetime exemption per individual of $3.5M (it's currently $5.12M), with a top tax rate of 45%. level. The gift tax exclusion would be $1M, and would no longer be unfied with the estate tax. And the existing portability provision, allowing a person to tap into any unused portion of a spouse's estate tax or gift tax exclusion, would remain in place. Of course, this is just a proposed budget. The past few years have not exactly been a paragon of bipartisan unity, so we'll see what the Administration and Congress finally agree on - if they can agree at all. If they can't agree on an estate tax law, on Jan. 1, 2013 the law will automatically revert to what it was in 2001, before the Bush tax cuts: $1M per person, no portability. That would mean a whole different estate planning ballgame for many Americans.

As always, I'll continue to keep my ear to the ground for my readers.

The Estate Tax Game: It's Only the First Inning

With regard to negotiations on the estate and gift tax, it is much too early to tell who the winners and losers will be in 2013. There is plenty of wrangling to come as the White House and Congress muddle through the issue. As they say in baseball, the score in the first inning isn't important. But if you're someone who likes to keep track, here's an update from the press box:

Currently, the federal estate and gift tax is unified. Every individual has a lifetime exemption of $5 million. Thus, an individual can pass $5 million tax free; married couples, twice that much.  The current law also has a "portability" feature, meaning that a surviving spouse has the right to use any unused portion of the deceased spouse's exemption. Lastly, the top tax rate is 35%. 

This law is set to expire on Dec. 31, 2012. As part of the Administration's deficit reduction package, the following has been put on the table for 2013: 

• Reducing the exemption from $5 million to $3 million
• Increasing the top tax rate from 35% to 45%.

No mention has been made as to whether the portability clause would remain, or if the gift and estate tax would remain unified.

Second inning, coming up.You never know what can happen.

Estate Bloopers become TV Show

I often find myself telling people stories about estate planning gone wrong. Particularly when the parties are high-profile, these true-life stories can be a great way to show people how to do things the right way. Now, a new TV show will be devoted exclusively to these estate planning "bloopers." Trials & Heirs: Protect Your Family Fortune will air on public television in December of this year. The first show will feature an interview with the son of the late singer Ray Charles. He will talk about the missteps in his family's estate planning and the impact it has had. The TV special will also help raise money for public television. I'll be posting the schedule as more information becomes available.

Estate Tax Changes: Free Seminar Tomorrow

Estate Tax Changes: What It Means For You and Your Family will be the topic at my seminar tomorrow. The event is free so plan to attend and hear about the following:

• Understand the key provisions of the new law.
• Why if you’re married, your Credit Shelter Trust may no longer be your best estate planning choice.
• Enhanced gifting opportunities under the new law, and why you should take advantage of them sooner rather than later.
• The other factors that are just as—and maybe more important –than estate tax when you are planning your estate.

The event will be held at the North Palm Beach Library, Tuesday, March 8 at 2p.m. The library is located at 303 Anchorage Drive, North Palm Beach, FL  33408.

Late Breaking News on Estate Tax

President Barack Obama tonight announced “a framework for a bipartisan agreement” on temporarily extending the tax cuts that are scheduled to expire January 1.The estate tax would be reinstated for two years with a rate of 35 percent and a $5 million exemption. Most Democrats wanted a 45 percent rate and a $3.5 million exemption for the estate tax, which is imposed on inherited assets. Under current law, the estate tax went away this year but will come back next year at a top rate of 55 percent and only a $1 million exemption. This is a tentative deal between the President and the Republican leadership. Obviously, the Congress has to approve it. Members of Congress will review the deal at their party caucuses tomorrow. Many Democrats may not like the plan, since the president gave into Republicans on both tax cuts for the wealthy and the estate tax.

Dealing with estate tax uncertainty

The stock market is up...then down. Housing values are depressed. Medicare laws are changing. And of course, no one knows precisely what next year's federal estate tax will look like. The exemption may be $1 million. It may be $3.5 million. Or something else entirely. Retirees who want to plan for their financial security, and for their loved ones after they're gone, face quite a challenge this year. It's a road fraught with unknowns.

To deal with the next year's estate tax situation, many people are simply watching and waiting. But there are several proactive steps that you may want to consider taking right now. Among them:  Maximizing 529 plans, perhaps even buying a term life insurance policy (which your beneficiaries will own) to cover a portion of  next year's estate taxes. For a closer look at some of these potential, stopgap measures, click here.  And of course, feel free to contact us if you would like to discuss any of these strategies in greater detail.

Estate Tax Update

Here's the latest on the federal estate tax.

On July 14 the Senate voted down a proposal that would have permanently repealed the  federal estate tax. Two proposals still remain to be considered:

First, the Responsible Estate Tax Act. This would reinstate the estate tax and make it retroactive to January 1, 2010. The tax would start at a 45% with a $3.5M exemption.  However, the tax rate would increase with the size of the estate. Estates valued above $10 million and below $50 million would incur a 50% rate. For estates over $50 million, a 55% rate would apply. For estates valued above $500 million, there would be a 10% surtax.

Second, a proposal, introduced by Senators Lincoln and Kyl that would establish an estate tax rate of 35% with a $5 million exemption phased in over 10 years and indexed for inflation.  This proposal would also provide for a step-up in basis of inherited assets, meaning heirs would be able to value the assets they inherit as their fair market value on the date of the decedent's death.

Of course, there is a third, default option: If Congress does nothing, the estate tax will return on Jan. 1, 2011, reverting to its pre-2001 levels, namely,  a $1 million exemption and a 45% top tax rate. Despite all the activity on The Hill, I suspect this approach has a lot of appeal for our elected officials. By sitting back and simply allowing the estate tax to return, they can raise desperately needed revenues and yet insulate themselves from accusations that they affirmatively raised taxes. If Congress goes this route, it will have significant impact on many middle class families, who will need to revisit their estate and tax planning to ensure they can take full advantages of all allowable exemptions.

To be continued...

Steinbrenner's estate tax home run

George Steinbrenner has hit a home run. Well, sort of... The legendary cantankerous Yankees owner died today at age 80. Because he died in 2010, when there is no estate tax, his family is set to inherit his one billion dollar plus fortune without paying a cent to the IRS in estate taxes.  And how about this: Florida was Steinbrenner's legal residence, and unlike New York, Florida does not have a state estate tax. Double header?

It may be indelicate to say it, but the truth is, as far as the family's finances go, the timing couldn't have been better. That's because the estate tax is scheduled to return in 2011, most likely on estates over $1 million and at a top rate of 55%. What a difference a year makes! There's also speculation that the estate tax in some form will be made retroactive back to Jan. 1, 2010. This of course would impact the Steinbrenners. The likelihood the family will meekly hand over what the IRS wants if this comes to pass:  In my opinion, slim to none. Read more anout the Steinbrenner family and the current estate tax situation here.