Senior Financial Scams to Avoid

Seniors love this time of year. Oh sure, you are thinking graduations as both seniors from Triangle high schools and colleges here in North Carolina walk and get diplomas starting today through early June. But we are talking seniors; the most experienced generation loves this time of year for a short walk around the block or the mall; maybe they are visiting friends they have had for decades, enjoying some shade and some sweet tea.

Sadly, scams love seniors who love this time of year. In the mail, specifically to those who have recently retired, there are all sorts of letters offering free stuff. Free trips, free golf for two, free vacations, free overnight stays, free gifts; the list goes on and on. In actuality, nothing is free. There is always a ** or small print that offer free for a cost.  When you get a free offer in the mail, drop it in the waste basket and let it “free”fall!

On the phone the same thing happens; someone with a great radio voice or who is very sweet sounding will offer you stuff that is free or want a donation. It could be a three day, two night trip for two. Maybe it is for a charity or a great cause. All the callers need or want in return is a little personal information to send the receipt. Placing calls and asking for money are common criminal activities. In a true disclaimer, there are also honest, legitimate causes as well who will call and ask for a donation.

When in doubt, simply say, “NO THANK YOU. PLEASE PUT US ON YOUR DO NOT CALL LIST. HAVE A GREAT DAY!”

It is critical that anything financial be carefully paid attention to as our seniors usually live on a fixed income. At AABS Inc, we specialize in retirement and financial services. Please call and schedule a session with us so we can help you manage every dime. We know the importance of both managing and saving!

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This “information only” article is not considered to be legal tax advice but is meant to be helpful, and it is brought to you by the great team at AABS. INC. located in Apex, NC.

Call us at 919 303 3345 or e-mail info@aabsinc.com

 

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Senior Moments

According to the US Census, almost 13% of Americans are age 65 and over. With Baby Boomers retiring on a daily basis, thisstatistic will certainly increase. Boomers are simply enjoying getting older. In everyone’s book of life, you slowly move through each chapter. Early in yourlife book you have childhood and grow into your teenage years. A chapter or twolater later, you build a career and maybe raise a family. You settle into themiddle of this story working, saving, growing and graying. But that is okay!

Many of you are now in the “Senior Moment” of your lives. Your career and years of hard work are heading in a new direction, maybe even coming to a close. You are focusing on the possibility of retirement andyears of this new lifestyle, enjoying your families and friends in a new more enjoyable way. You have earned it.  You are in your senior moment! What a way to continue your life story.

At AABS Inc, we are ready to help and support this new and exciting chapter.  We have enrolled agents who represent you with your critical retirement factors. All of your needs: personal, business, accounting, and bookkeeping are managed so you can focus on what is important
to you. With face-to-face personal and private appointments, we can discuss an array of variables that make things just a little better. Care and home services, for both the elderly and the physically challenged, are all part of the discussion and assessment portfolio.

We also offer personal finance taxes, estate and trust planning, as well as provide to you personal executor services.

We want to provide as much information as we can to you as you assess your new direction.

At AABS, we are there for you. Call us for an appointment at 919 303 3345, or e-mail us at info@aabsinc.com

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Visit www.aabsinc.com

We are there for you when you need us!

 

 

A trust keeps you and your family out of court.

A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death. Professional guidance is needed to set up such trusts. A Living Trust will save nothing on income taxes. Income taxes will come out the same amount, trust or no trust. Thus, no tax savings here.

A living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die. But, unlike a will, a living trust avoids probate at death, can control all of your assets, and prevents the court from controlling your assets at incapacity.

When you set up a living trust, you transfer assets from your name to the name of your trust, which you control in the  trusts name and date.

Legally you  own nothing.   The concept is very simple, but this is what keeps you and your family out of the courts.

Contact for Assistances

If you need help preparing and organizing affairs, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA at info@aabsinc.com or visit www.aabsinc.com

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions.

When Is the Best Time to Establish a Simple Will or Trust?

Planning ahead through establishing simple wills and trusts is a great way to set your mind at ease. Life it to short and you never know what lies ahead.

Typically, the last thing people want to think about is establishing a simple will or trust. Parents with young children are often busy and avoid making an estate plan a top priority. The years can quickly pass by, leaving families with nothing in writing identifying how they would like their estate handled, their property distributed and even who they would like named guardian of their children based on an unexpected circumstance.

Understandably, clients often wonder when is the best time to begin planning for the future. As a rule of thumb, I recommend for parents to consider establishing a simple will or trust the first time they plan time away without their children. This is an ideal opportunity for parents to list in writing a guardian for their children, if anything were to happen to them.

Establishing a will or trust early on can provide families with the peace of mind knowing that important details are covered. Ultimately, a simple estate plan can help families avoid potential disputes with a clear understanding of how the transfer of property and other important details of an estate plan should be handled.

The only time that you can prepare and implement an estate plan is while you are alive and have legal capacity to enter into a contract. If you are unable to manage your own affairs or suffer from some other disability that affects your legal capacity, your estate plan may be effectively challenged. Others may assert that you lacked capacity at the time you created the plan, or that you were subjected to fraud, coercion, or undue influence during the creation and implementation of your plan.

To prevent these kinds of challenges, the best time to start an estate plan is now, while you have the capacity to do so.

Do I need a trust if I’m young and healthy?

YES!!!. At this stage in your life, your main estate planning goals are probably making sure that in the unlikely event of your early death, your property is distributed how you want it to be and, if you have young children, that they are cared for. You don’t need a trust to accomplish those ends; writing a will, and perhaps buying some life insurance, would be simpler.

You should have an estate plan if:

• You are the parent of minor children
• You have property that you care about
• You care about your health care treatment.

If you do not have minor children, do not care about your property, and have no concerns about your health care treatment, then you do not need an estate plan. But if you meet any of these categories above, you should have an estate plan.

Contact for Assistances

If you need help preparing and organizing affairs, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA at info@aabsinc.com or visit www.aabsinc.com

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions.

How expensive is a trust

Is it expensive to create a living trust?

The expense of a living trust comes up front. Many lawyers would charge relatively little for drafting your will, in hopes of getting your estate later as a client. They may charge more for a living trust.

Some people have chosen to use a self-help book or software program, to create a Declaration of Trust (the document that creates a trust) yourself. They may consult a lawyer if they have questions that the self-help publication doesn’t answer. But there’s always the danger of problems they don’t see, that a lawyer could help avoid if consulted.

No Court or Attorneys Required With A Trust

Remember that the average trust costs $2,000 to $2,500 to set up, but there’s no probate. A trust eliminates the total cost of probate and that potential $10,000 probate fee.

Your successor trustee has the immediate right to distribute your property according to the plan described in your trust. He doesn’t have to go to a court or even hire an attorney to settle the estate.

Your successor trustee might feel unsure about how to distribute your property according to your trust and want to have some counsel and advice. Often, the successor trustee will go to an attorney to review the trust document and learn how to proceed.

Let’s assume this happens. The attorney visits with the successor trustee and may prepare some transfer documents. The attorney charges a few hundred dollars for this service. (The average fee to review and help settle an estate with a trust is about $500.)

A common misconception about Revocable Living Trusts is that there’s little or no cost involved in settling the trust after the Trustmaker dies. This is absolutely not true. While the overall cost of settling a Revocable Living Trust should be less than settling an estate through the probate court, there’s plenty of fees involved in settling a trust. The various fees and costs associated with settling a Revocable Living Trust after the Trustmaker dies are as follows:

• Successor Trustee Fees

These fees are either dictated by the terms of the Revocable Living Trust agreement or state law. Usually state laws will provide guidelines as to what is referred to as a “reasonable fee,” by taking into consideration how complex the trust is to adminster and settle, whether the Trustmaker’s estate is taxable, and whether the validity of the trust or the choice of Successor Trustee is challenged by the trust beneficiaries.

• Attorney’s Fees

These fees are also either dictated by the terms of the Revocable Living Trust agreement or state law and are usually calculated in a similar manner as the Successor Trustee’s fee.

• Accounting Fees

These fees will vary depending on the overall value of the trust and the type of assets owned by the trust. For instance, a small trust that nonetheless owns 25 different stocks and bonds may generate more accounting fees than a larger trust that owns a primary residence, a bank account and a CD. Of course, if the Trustmaker’s estate is taxable at the state and/or federal level, then the accounting fees may include the preparation and filing of the state and/or federal estate tax returns if the attorney for the trust doesn’t prepare and file the returns.

• Appraisal and Business Valuation Fees

These fees will be necessary to determine the date of death values of real estate, personal property (including jewelry, antiques, art work, boats, cars and the like), and business interests. Appraisal fees for personal property can range anywhere from a few hundred to a few thousand dollars, while business valuation fees will run several thousand dollars.

• Miscellaneous Fees

These fees can range anywhere from the cost of postage to mail documents to the Successor Trustee and trust beneficiaries and to taxing authorities; to the cost of insuring and storing personal property; to the cost of shipping personal property; to the cost of moving personal property.After adding up all of these fees and costs, you can count on settling your Revocable Living Trust taking anywhere from less than 1% to 5% of your assets away from your beneficiaries, which doesn’t include estate and income taxes that may be due and payable during the course of the trust administration. Compare this with the cost of settling your estate through the probate court, which will range anywhere from 3% to 8% of your assets.

Contact for Assistances

If you need help preparing and organizing affairs, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA at info@aabsinc.com or visit www.aabsinc.com

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions. and

Article Source: http://EzineArticles.com/562357 and

Probate and trusts

What Is Probate?

 

After a person dies, ownership -the legal title- of his or her property, assets and personal effects must be passed on  to the beneficiaries listed in the Will. If there is no Will, the persons receiving assets are designated by State law.

Probate is the legal process of paying the deceased’s debts and distributing the estate to the rightful heirs. This process usually entails:

The spouse or personal representative named in the will must file a petition with the court after the death. There is a fee for the probate process.

Depending on the size and complexity of the probable assets, probating a will may require legal assistance.
First, the Will must be verified as the valid, final dispositive statement of the decedent (the official record of the deceased person’s final wishes). The Will generally names the person or institution appointed to administer (manage) the probate estate process.When there is no valid Will, State law governs who receives the assets of the deceased. The term “probate” is also used in the larger sense of “probating the estate”. Probate is the legal process by which:

1. An Executor or Administrator, who takes over the deceased affairs and property, is appointed by a Court;
2. The heirs are identified and located;  The appointment of an individual by the court to act as “personal representative” or “executor” of the estate. This person is often named in the will. If there is no will, the court appoints a personal representative, usually the spouse.
3. The deceased’s property and assets are gathered and accounted for;
4. Informing creditors, heirs, and beneficiaries that the will is probated. The deceased’s debts and creditors are paid;
5. Any income tax and estate tax returns are filed and the taxes paid;
6. The estate assets and property are sold to create cash to pay bills, taxes, expenses of the estate and
7. Payment and distribution is made of all remaining property, assets and cash to the approved heirs and beneficiaries.

Assets that are jointly owned by the deceased and someone else are not subject to probate. Proceeds from a life insurance policy or Individual Retirement Account (IRA) that are paid directly to a beneficiary are also not subject to probate.

How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee–the person you appointed to handle the trust after your death–simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee–the person you appointed to handle the trust after your death–simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

Contact for Assistances

If you need help preparing and organizing affairs, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA at info@aabsinc.com or visit www.aabsinc.com

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions.

Post-Mortem Letter Should Contain

What The Post-Mortem Letter Should Contain

The following items should be included in the post-mortem letter.

To-Do List

• Notify your employer (remember to include phone numbers).
• Notify certain friends and relatives (provide a list with phone numbers).
• If you have volunteered as an organ donor, provide the information necessary for your family to act on your wishes.
• Notify the Social Security Administration (include your social security number for convenience).
• Any instructions on the care of pets.

Wills

The location of your final executed will should be mentioned, along with any copies.

Caution: Do not leave a will in a safe deposit box. Safe deposit boxes are sealed on the death of the decedent in many states; this will cause headaches and delay.

Guardians of Children

The names and addresses of guardians for minor children in case they are orphaned should be mentioned in your will. These should also be included in the letter.

Funeral and Cemetery Plot

If you have made arrangements for funeral services or have established a pre-need funeral trust, provide details in the letter. The location of your cemetery plot and the location of the deed or certificate relating to the burial plot should be mentioned. Any specific instructions for the executor relating to burial should be mentioned in the letter.

Related Guide: Please see the Financial Guide: FUNERALS: What To Do At This Stressful Time

Tip: For the reasons mentioned above under “Wills,” do not leave the cemetery plot deed or certificate in a safe deposit box.

Safe Deposit Boxes

The location of safe deposit boxes, along with the location of keys, passwords, and combinations, should be mentioned. The letter should indicate whether anyone else has access to the boxes.

Tip: If other people have access, ask the executor to take inventory of the box before anyone else is allowed to take items out of the box.

If you have rented a post office box, include the number, location of the box and location of the key.

Bank and Credit Card Accounts

All checking and savings accounts and their account numbers should be mentioned. Instruct the executor whether a stop should be placed on withdrawals from these accounts, and whether anyone else has the right to withdraw from them, whether as a co-depositor or under a power of attorney.

Tip: Be sure to mention any accounts that are not in your name, such as deposits in a Swiss numbered account. Otherwise, these accounts may be lost because no one knows about them.

Tip: Keep savings accounts active by periodically sending a request for the balance in writing, or by making deposits. Inactive accounts that are left for a certain period may revert to the state.

A list of credit card accounts and numbers should be included. The executor should be instructed to cancel credit card accounts immediately, and to change joint accounts to single accounts.

Loans

Provide information on any outstanding debts. Some loans such as student loans and home mortgages may have an insurance feature which cancels the debt in the event of your death. In the case of student loans, this was often paid for in the form of a fee at the amount the loan was disbursed and many people are unaware of this feature. Examine your loan documents for any such features and detail them in your letter.

Tax-Related Matters

The location of copies of your income-tax returns going back as far as possible should be mentioned.

The location of copies of any gift-tax returns filed at any time should also be mentioned. If copies cannot be located, your memory of when and where the gift tax returns were filed, and the gift to which they related, should be mentioned. If there are any refund claims pending, or if you feel a refund should be filed for, mention these as well.

Attorneys and Other Professionals

Mention the names and addresses of any professionals associated with your affairs, or who could be of assistance to the executor. Include accountants, attorneys, insurance agents, financial advisors, bank officers, realtors, and brokers. If you relied heavily on these people, they could save your estate plenty of money and trouble just by answering a few of the executor’s questions.

Tip: Also mention your physician’s), since your executor may need help in proving you were mentally competent.

Insurance-Related Matters

Mention all life insurance policies owned, with the policy numbers. Give the location of the policies. Do not neglect to mention employer-provided group insurance.

All property, liability, malpractice, business continuation, and other types of insurance policies should be mentioned. These policies may save the estate from having to pay a claim, and may also contain the location and description of properties. Further, access to these policies may allow the estate to obtain reimbursement for expenses incurred immediately prior to death.

Tip: Mention policies that have lapsed, since they may still have some value.

Property Owned

List all assets you own, and give the location of deeds and titles. Include personal and real property.

Tip: If you know of a market for some of your assets that might otherwise be difficult to sell (e.g., a special collection or unique asset), tell the executor about it.

Don’t neglect to mention property that will not be easy to locate, e.g., property you have loaned out or sold on consignment.

Tip: If there is any reason why the executor should value a piece of property at less than its fair market value, explain why.

Investments

List all brokerage accounts and other investment vehicles, such as limited partnerships or interests in real estate.

Give the location of brokers’ confirmation slips for purchases of securities going back as far as possible, in order to establish the cost of securities. The cost is your tax basis, which will affect the amount of tax you pay on a sale for securities you may have sold prior to death. The basis of securities held at the time of death will be determined with reference to their current value. If you cannot locate confirmation slips, then at least make a note of transfer dates shown on stock certificates and registered bonds. These dates will allow you to look up the price of the stock.

Provide information on all retirement accounts, including IRAs. Indicate your designated beneficiary and describe where statements are located. In the case of IRAs, provide information on the tax status of the account. In particular if non-deductible contributions were made a portion of the account may not be taxed to the beneficiary.

Employment

Provide a list of all prior employers, no matter how long ago you worked for them. You may be entitled to pension benefits or death benefits.

Tell the executor where to find a description of any pension benefits you are entitled to.

Provide the executor with a record of any governmental employment, past or present. For the armed services, include the branch of service, serial number, and approximate dates. You may be entitled to veterans’ benefits or survivors’ benefits.

Personal Papers

Mention the location of your passport and your birth certificate, which may be needed for Social Security benefits and employee retirement plans. Naming the location of your marriage certificate, which may be needed in connection with the marital deduction, joint gifts, and statutory spousal rights. A divorce decree will also be necessary, and should be mentioned.

Checkbooks

Describe where your current and past checkbooks and canceled checks can be found. These may save the estate from having to pay a claim or expense that has already been paid, and can establish the cost of an asset.

Inheritances

If you received an inheritance from someone, include the name of that person and the date of death. The executor may be able to claim a state or federal estate tax credit for transfers within ten years of your death. Note the location of any letters from the person’s executor, if any.

If you have any future rights in someone else’s property, whether by will or by trust, include those details.

Trusts

If you have ever set up a trust or been named as a trust beneficiary, where the trust instrument is located and when the trust was set up.

Money Owed to You

Mention debts owed to you by others and any proof that the debt exists.

Contact for Assistances

If you need help preparing and organizing your post-Mortem letters, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA

AABS, INC

I will continue this series this week with do’s and don’ts in preparing for your safty

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions.

Post-Mortem Letters

Do you have an emergency plan? Is there someone who knows where your passwords, bank accounts, important documents, wills and child care paper are?  Everyone needs to have a backup plan. An important part of any estate planning is the POST-Mortem Letters.

Does anyone but you know where your tax records and supporting tax documents are located? How about deeds, titles, wills, insurance papers? Does anyone know who your accountant is? Your lawyer? Your broker? If you pass away without leaving your heirs this information, it will cause a lot of headaches. Worse than that, part of your estate may have to spent in needless taxes, claims, or expenses because the information is missing.

The post-mortem letter is an often overlooked estate planning tool. It tells your executors and survivors what they need to know to maximize your estate-the location of assets, records, and contacts. Without the post-mortem letter, you risk losing part of your estate’s assets because necessary documentation cannot be located.

The post-mortem letter, a simple and practical estate planning tool you can put together yourself, can protect your estate, maximize the amount available to heirs and save your spouse and executors a lot of trouble. This important letter tells your executor and survivors where to locate everything they need to carry out your instructions.

What The Post-Mortem Letter Does

The post-mortem letter is an extra step you should take to make sure executors are able to carry out your estate plan. It provides executors and survivors with the location of assets, the identity of professionals consulted by you during life, and the location of important records.

To represent you after your death, your executor must know almost everything you know. He or she must have all of the facts, figures, and proof that you have at your fingertips. Only with the aid of this information can the executor carry out your desires.

The letter also serves to inform your loved ones of things you would like done in the event of your death and guidance as to how you would like certain items handled. This includes many things which may not be appropriate to include in your will or which need to be handled immediately after death and prior to a reading of your will.

What The Post-Mortem Letter Does Not Do

The post-mortem letter can not be used in place of a properly executed will and does not have the legal force of a will. Similarly, it does not take the place of a living will. The post-mortem letter is designed to convey instructions after your death, as opposed to after a life-threatening injury. It is vital to have both a will and a living will in addition to a post-mortem letter.

How To Get The Post-Mortem Letter To Your Executors

Write the post-mortem letter now. Leave several copies of the letter in places where it is certain to be found after your death-e.g., attached to your will, in your desk, with your spouse, with your attorney, with your executor, and/or in a safe deposit box.

If you do not want the information in the letter revealed before your death, leave the letter sealed.

Do not leave the only copy of your post-mortem letter in your safe deposit box. It may never be found or may be inaccessible after death.

Caution: It is extremely important that instructions be left with the survivors that none of your papers are to be thrown away until the matter is discussed with your attorney, accountant, or executor. Otherwise your efforts to provide information helpful to your estate may be thwarted.

Tip: It is critical to update the letter periodically to account for changes that occur after you write it.

If you need help preparing and organizing your post-Mortem letters, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA

AABS, INC

I will continue this series this week with do’s and don’ts in preparing for your safty

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions.

Trusts

Trusts, Estates, wills how do you make sense of all of this.

Today, trusts are not used only by the very wealthy. People of a wide variety of income levels use them as estate planning tools. Trusts are complex and costly to set up and run, requiring a higher level of services from an attorney than wills. They are useful in accomplishing various estate planning and financial planning goals.

What They Are

A trust owns its own property (holds the title). When it is set up, the trust appears on official papers and records as the legal owner of any property that is placed into it. The trust’s principal is the property that the trust owns, as distinguished from the interest or dividends earned by that property. The terms of the trust dictate who will get the benefit of the income from the trust property, how long the trust will last, and so on.

The trustee is the person or entity whose job it is to administer and manage the trust: make investment decisions, pay taxes, make sure the terms of the trust are carried out, and take care of the trust’s property. Generally speaking, the trust must pay income tax on any of its undistributed interest or other income.

There are basically two types of trust:

• An irrevocable trust is a separate entity, for both legal and tax purposes, and pays its own taxes. The irrevocable trust cannot be revoked or changed.
• A revocable trust is not considered a separate entity for tax purposes, although it may be considered a separate legal entity. The revocable trust can be changed or revoked-taken back-by the creator of the trust.

Another way to categorize trusts: A living (or inter vivos) trust is set up by a living person while a testamentary trust is created by a will.

What They Can Accomplish

Trusts can be used for many worthwhile purposes:

1. Give property to children.
2. Reduce estate taxes.
3. Leave assets to a spouse.
4. Provide for life insurance used to pay estate tax.

Giving property to children. People generally do not want to just give property to a minor child outright because of the financial risks involved (e.g., the child could squander it). Many people give property to a minor through a trust. The trust’s terms can be written so that the child does not get outright ownership until he or she has achieved a certain age, so that the child receives only the income from the trust property until that time. Another way to give property to a minor is via the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. These provisions, which apply in most states, provide for a custodianship over property given to a minor.

Reducing estate taxes. As noted earlier, if you leave everything to your spouse, it passes free of federal estate tax. However, when your surviving spouse dies, anything in his or her estate over the exclusion amount (also called “exemption amount”) would be subject to estate tax. The exclusion amount for 2009 is $3,500,000. No limit in 2010 and reverts back to $1,000,000 in 2011. The credit shelter trust, or bypass trust, is used to shelter up to the exclusion amount from the estate tax. Here’s a simplified example of how it might work:

Example: Simon and Sylvia have an estate worth $4 million. Simon’s will puts $2,000,000 worth of assets in a bypass trust. The ultimate beneficiary of this trust is Simon and Sylvia’s daughter. (The beneficiary can be anyone other than Sylvia.) Sylvia is to receive the income from that trust for her life, but her rights in the trust are limited, so that she is not considered the owner. The rest of Simon’s estate ($2,000,000) is left to Sylvia in his will.

Assuming Simon dies in 2009, the $2,000,000 in the bypass trust is sheltered by his estate tax exemption. The $2,000,000 that goes to Sylvia is deducted from the estate because of the marital deduction. Thus, on Simon’s death, the federal estate tax due is zero. When Sylvia dies, her estate will include only the $2,000,000 (if she still has it), plus any other assets she has accumulated. It will not include the $2,000,000 put into the bypass trust, which will be exempt from tax because of the $2,000,000 estate tax exemption.

Thus, the federal estate tax on Sylvia will apply only to her assets in excess of $3,500,000. Result: The family has sheltered assets worth $4 million from estate tax in the Simon/Sylvia generation. Without the bypass trust, the estate tax would have applied to an additional $2,000,000 of the estate.

Caution: Wills may be drafted to leave a bypass trust an amount equal to the exclusion amount in the year of death, rather than a specific dollar amount. However, because amounts change, review of the estate plan may be needed to keep the desired balance between what the spouse is to get and what trust beneficiaries are to get.

Leaving an asset to a spouse. The marital deduction trust allows the first spouse to die to place estate assets in a trust for the surviving spouse, instead of leaving them to him or her outright. If the legal requirements are met, the estate gets the marital deduction, but can still preserve assets for heirs other than the surviving spouse. Typically, the income of such trusts will go to the surviving spouse for life and the principal will go to children. All of the income must go to the surviving spouse for the trust to qualify for the marital deduction. It must be paid out at least once a year. The spouse may have some access to the principal. When the second spouse dies, the property is included in his or her estate for estate tax purposes.

Pay estate tax. Complex and expensive arrangements, life insurance trusts are usually used to finance future estate taxes on an estate that contains a business interest or real estate.

If you need help or have questions please seek a trusted professional.  Feel free to visit us as well.

FOOTNOTE: re posted from the www.aabsinc.com website written by CPA site solutions.

Estate Tax “Repeal”

The 2001 Tax Relief Act repeals the federal estate tax in one of the most confusing tax measures ever enacted. The law reduces the overall estate tax burden over the years 2002-2009, until it is repealed in 2010-subject to revival, as if these changes had never happened, on January 1, 2011. This revival arises under a sunset provision which voids all provisions of the 2001 Act, effective 1/1/11. Sunset was considered a practical necessity under the parliamentary moves-limited Senate debate and amendments-adopted to put the 2001 Act on a fast track to enactment. There have been other tax sunsets, with less sweeping consequences.

Under the current statutory scheme, absent further change, the federal estate tax is repealed only for those dying during the calendar year 2010. While the 2011 sunset would affect other provisions of the 2001 Act (such as tax rates), its biggest impact is in those situations for which taxpayers and tax professionals do long-term planning: especially estate planning.

Tax professionals consider that this situation presents at least two major reasons for planning as if your estate (if large enough) will be subject to estate tax: First, the uncertainty as to the time of death-that the repeal will have become effective in the year the individual happens to die. Second, the uncertainty about the law, that any repeal will stick-because of changes in economic forecasts and national priorities since repeal was voted.

States had death taxes long before there was a federal estate tax. Today, many state death taxes are modeled in some way on the federal estate tax; some have other taxes taking effect at death. In some cases, the amount subject to state death tax falls as the amount subject to federal estate tax falls (absent further state action) and the tax will be repealed automatically (again absent further state action) upon the repeal of its federal counterpart. In other states, death taxes are independent of the federal tax and apply whether or not a federal tax applies. A number of states will revise their own death tax policies depending on what Congress decides to do to resolve the scheduled repeal and year-later reinstatement of the pre-2002 estate tax system.

Gift tax. The lifetime gift tax exemption is $1,000,000. Gift tax rates fall at the same rates as estate tax rates but continue (at 35% or the top income tax rate) after estate tax repeal.

Gifts (apart from the annual exclusion of $13,000 per donee in 2009 ($12,000 exclusion in 2008) are applied against the $1,000,000 exemption so that gift tax is due when their total exceeds $1,000,000. If estate tax is still in existence when the donor dies, the estate will include prior taxed gifts and prior untaxed gifts counted against the $1,000,000 exemption. If an estate tax results (because the estate at death plus these prior gifts exceeds the estate tax exclusion amount applicable in the year of death), that tax is reduced by prior gift tax payments.

Some states impose gift taxes.

Caution: Under the estate/gift tax scheme now applicable, gift tax can result in situations where there would be no estate tax if assets of the same value had been held at death. So gifts that bring the gift total above the lifetime exemption should be made only on the specific advice of a tax professional.

Gift tax is continued after estate tax repeal as a device to limit asset transfers designed to avoid income tax.

Income tax after estate tax repeal. Assets acquired upon another’s death usually take a tax basis to the heir equal to the asset’s fair market value at date of death. Thus, for example, if a person bought 1,000 shares of stock at $10 a share and died when the shares were worth $50 a share (a $40,000 unrealized gain), his or her heir takes the shares at a total basis of $50,000. The heir can sell the shares for $50,000, free of income (capital gains) tax.

Fair market value basis at death is usually a step up in basis, though the basis is stepped down at death where value has fallen below cost. Basis step up-by which most inherited assets escape most capital gains tax-has been justified as a kind of compensation for the possible exposure of the entire asset (not just the unrealized gain) to estate tax, whether or not estate tax was actually imposed. The theoretical reason for basis step up is reduced if there is no estate tax. Accordingly, basis step up is repealed effective 2010, but with a major provision that allows step up to continue for up to $4,300,000 of appreciation in a decedent’s assets.

Complex estate planning for making use of this surviving basis step up is possible, but your professional adviser’s view of the prospects for estate tax repeal should govern whether such planning should be done now.

FOOTNOTE: From website aabsinc.com and CPA site solutions.