What Happens To My Will When I Get Married

Our latest video explains what happens to your will when you get married.

The Immediacy of Life

 

As a wills and trusts attorney, I feel a strong obligation to keep my conversations lite. The topics of my practice are such that the conversations are necessarily serious, so I often try to counteract that with humor and banality. However, sometimes we are faced with reality in such a way that it is evident that the inevitable must be addressed.

 

My daughter and I were making an early afternoon shopping trip to Wal-Mart this past Saturday. As we were waiting at a red light we witnessed a pick up truck make an illegal left turn directly into the path of an oncoming dune buggy. Right in front of us we witnessed a T-bone collision with virtually no warning and therefore virtually no braking. The dune buggy slammed into the side of the pick up truck knocking it onto its side with the top of the pick up truck sliding uncomfortably close to my daughters door. I jumped out of the passenger side door and had my daughter pull her car off to the side of the road. Miraculously the two men in the dune buggy appeared unhurt, but there was a strong smell of gasoline and the pick up driver was trapped in his vehicle. After checking on all drivers and passengers, it was apparent that by some miracle no one was seriously injured.

Despite the somewhat innocuous conclusion to this event, it does bring me to mind how unpredictable life is. Despite perpetually preaching to my clients to keep their estate plans up to date, I too sometimes become complacent about this necessity. It is not necessary to be ever mindful of the status of your estate plan, but it is important to review it periodically. Witnessing this event has spurred me to review my own estate plan, and if you have not reviewed yours in the memorable past, I urge you to do the same. As my father is fond of saying "tomorrow is promised to no one."

Gratitude of a Veteran

Another Veterans' Day is upon us. And as a veteran, I feel the outpouring of gratitude from my fellow Americans, and I too am grateful for my fellow veterans especially those that served during wartime.

 

But as a veteran, I also have a great deal for which to be thankful. As a 17 year old recruit, the Army paid me very well. It taught me discipline, organization, and leadership. I experienced, camaraderie that few who have never served in something like the military will ever experience. I got to see a great deal of the world, and in Europe, I even met my bride. In addition to all of these other benefits, the US Army paid for a great deal of my education. So on a day in which we honor our veterans, please accept the gratitude of this veteran for all this country has done for me.

Congress Makes 5 Million Dollar Estate Tax Exemption Permanent

Congress worked through the Holidays to avert the looming fiscal cliff.  The result was the American Taxpayer Relief Act ("ATRA" for short).

The impact on Estate & Gift Taxes was a permanent increase in the lifetime exemption to 5 million dollars.  Furthermore, the exemption is indexed for inflation, so the effective exemption for 2013 is 5.25 million.

In addition to the increase in the exemption, the top tax rate is set at 40% as opposed to 55% under the old laws.
 
Finally, portability was made a permanent part of the law as well.  Portability is the ability of a surviving spouse to have use of the unused portion of the first spouse's exemption.  This effectively gives married couples a 10 million dollar exemption.  Please keep in mind, to preserve this exemption, an estate tax return must be filed upon the death of the first spouse, and subsequent remarriage can have an effect on the use of this credit.

Estate Tax Exemption To Drop To 1 Mil At End Of Year

As Yogi Berra once said, "it's déjà vu all over again."  Just like the end of 2010, the tax relief act is due to sunset at the end of this year.  What is known as the "fiscal cliff."  This will mean a drop in the estate tax exemption for U.S. Citizens and Residents from 5 million dollars to 1 million dollars.  Keep in mind, that includes all assets in the estate including life insurance.  Suddenly many more Americans will have taxable estates at a 55% tax rate.

 

Furthermore, part of the tax relief act included portability.  Portability allows a surviving spouse to use the unused credit of a deceased spouse.  Portability solved a problem for married couples that attorneys solved previously with AB Trusts.  This too will disappear at the stroke of midnight December 31st unless the legislature addresses this in the next month and a half.

 

So where does that leave the average American?  Well, as attorneys often advise, it is ok to hope for the best, but it is prudent to plan for the worst.  If you have, or think you have, an estate in excess of 1 million dollars; meet with your estate planning attorney to determine the best course of action.

Top 5 Reasons To Not Plan Your Estate

An unofficial tripute to David Letterman's top 10 lists, and my feeble attempt at humor.

Top 5 Reasons To Not Plan Your Estate

1. 3% of everything I own sounds like a fair fee to pay a lawyer.
2. I really want my family to understand the intricacies of probate law.
3. Rather than have one lawyer plan my estate, I'd rather have two lawyers fight over it. 
4. Surely the state of Florida knows what's best for my family.
5. What do I care, I'll be dead.

Bart Scovill, PLC, wills, trust and probate attorney, because we know you really do care.

New Law for Florida Powers of Attorney

The Florida Statutes regarding Powers of Attorney were amended as of October of last year.  While Powers of Attorney executed prior to this change remain in effect, there is a concern about the manner in which financial institutions will continue to honor older Powers of Attorney.

By law third parties are required to accept these older Powers of Attorney, but they are also allowed to take up to four business days to make that decision.  There have already been instances of reluctance in accepting the older Powers of Attorney.

One of the most significant changes to the new laws is the requirement that powers be stated explicitly.  The prior laws allowed more general statements of the powers granted.  It is this requirement that is believed to be the reason financial institutions will take more time in deciding to honor older Powers of Attorney.

Additional changes to the Power of Attorney Laws:

• Unless provided otherwise, photocopies may be accepted in place of originals
• Powers may be granted to change estate planning documents (“Superpowers”)
• Unless provided otherwise, co-agents may act independently of each other
• Qualified agents are entitled to compensation
• Duties of an agent have been specifically enumerated

If you would like to discuss this, or any other legal issues, please contact this office for a free conference.

Gift Tax Alive In 2010

The estate tax may have been repealed in 2010, but the gift tax is still in full effect. The gift tax works in conjunction with the estate tax to limit wealth transfer between non-spouses. To understand how that affects you, let’s review how the gift tax works.

With certain exceptions, everyone has an annual exclusion in how much they can gift. In 2009 & 2010 the exclusion is $13,000 per person/per year. That means that any gift under this amount does not need to be reported. However, if the gift is property, instead of cash, and could possibly be valued close to the exclusion amount, filing a gift tax return is good practice to ensure the valuation of the property can not be challenged at a later date.

So what happens if you give a gift in excess of your annual exclusion? Exceeding your annual exclusion does not necessarily mean that you will have to pay gift taxes. [By the way, gift taxes are paid by the donor, not the recipient.] If you exceed your annual exclusion, you will need to file a gift tax return, but as long as you haven’t exceeded your lifetime gift allowance ($1 million) and you are willing to use part of your unified credit (death tax exclusion), there will be no taxes due.

So what constitutes a gift? Most gifts are fairly obvious, but there are some that are less obvious, and this is where most people get into trouble. Seemingly simple actions like adding a child to a house deed or investment account can result in a taxable gift. Also transferring an asset for less than fair market value or forgiving a loan can be a taxable gift. Basically, any time there is going to be a transfer in an ownership interest with someone other than a U.S. Citizen spouse, you should double check it with your attorney or accountant.

Is this all there is to the gift tax? Not by a long shot. But this should be enough information to know when you should consult with your legal and tax advisors.

How to Double Your Estate Tax Exemption in 2011

In 2011, the Estate Tax is due to return with a 1 million dollar exemption (unified credit) and top tax rate of 55%. Without planning, this exemption is the same for both individuals and married couples. The following illustration explains how.

Married couples have an unlimited marital deduction to pass assets between each other¹. Although useful during their lifetime, if their joint estate exceeds the unified credit, this could result in unnecessary estate taxes being paid upon the second spouse's death. The following illustration explains how:

• Couple A and B have a joint estate of 2 million dollars
• Spouse A dies and spouse B inherits Spouse A's half of the estate or 1 million dollars
• Spouse B dies and only the first 1 million dollars is protected² by spouse B's exclusion leaving 1 million dollars subject to the estate tax
• Assuming the maximum tax rate of 55%, the amount due in taxes is $550,000

Under this scenario, the first spouse's estate tax exemption of 1 million dollars was wasted. So how can this be avoided?

The Marital Trust, sometimes called an A/B Trust, is used for a married couple that has a potentially taxable estate. The trust is designed to ensure the unified credit of the first spouse to die is not wasted. It effectively doubles the unified credit of married couples. Using the previous situation, the following illustration explains how the Marital Trust works:

• Couple A and B enter into a Marital Trust
• Spouse A dies and Spouse B's half of the joint assets are retained by Spouse B and Spouse A's half is placed into a Marital Trust or Credit Shelter Trust
• Spouse B retains access to the Marital Trust subject to certain broad limitations imposed by I.R.S. Rules
• Because of these limitations, Spouse B is not deemed to own Spouse A's share thus using Spouse A's credit and ensuring it is not included in Spouse B's estate
• When Spouse B dies their 1 million dollars pass under their exemption while Spouse A's share has passed outside of Spouse B's estate
• All 2 million dollars pass to the beneficiaries of A & B free from tax thus saving up to $550,000²

This strategy only works up to double the amount of the unified credit. For additional amounts, or if you do not wish to use this strategy, you will need additional tax saving strategies.

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1Receiving spouse must be a U.S. Citizen
2Assuming a Unified Credit of 1 million dollars

Does Life Insurance Really Pass Tax Free?

As with most legal questions, the answer is maybe. Life insurance does pass income tax free, but it is still subject to estate tax. “But the estate tax has been repealed,” you say. That’s true, but only for 2010. The tax relief act that repealed the estate tax sunsets at the end of 2010, and the estate tax comes back at its pre-relief act rates. This means that without legislative action, beginning in 2011, only one million will pass tax free. Every dollar after that will be subject to the estate tax up to 55%. Keep in mind, the one million dollar exemption applies to all assets, not just insurance. Throw in your house, retirement funds, businesses, vehicles, investment accounts and life insurance; and it adds up quickly.

“Is there anything that can be done about it”? Of course, otherwise why bother talking about it. With proper planning, you can be sure that every dollar of your life insurance passes tax free to your loved ones. This can free up your exemption to ensure other assets pass tax free as well. The estate tax has been described as the only voluntary tax in America. You choose to pay it by not planning ahead.

Estate Planning For Your Pet

In 2002 Florida enacted a provision that trusts could be created for the care of a pet. It has since been amended with the adoption of the Unified Trust Code, but remains in force. Prior to the enactment of this statute, pets could only be left to someone like any other property, but no assets could be set aside for their care. The best you could do is leave the pet to someone together with some money to take care of it, but there was no way to ensure this is what actually happened.

Even with this statute, a trust is needed. A trust allows for a continuing gift for the life of the pet to ensure there are funds available to take care of the pet.

Company Renewal Deadline

May 1st is the deadline to file annual reports with the Florida Department of State for Florida Companies. Late filings incur a late fee of $400, and continued failure to file can result in administrative dissolution of your company. If you have any questions regarding renewing your company, please contact us.
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Traditional vs. Roth IRA: Should I Convert?

To be honest, we don't know. We're not financial planners. What we do know is that this is a very good year to take a look at conversion.

Beginning in 2010, income restrictions for those considering converting to a Roth IRA have been removed. This means that many people that were not eligible to convert, now have this option. If you were not eligible in the past due to your income, your advisor may not have proposed conversion for this reason.

Also for 2010, the deferred tax of the Traditional IRA that must be paid upon conversion to a Roth IRA can be spread over a two year period. Once again, this reduces the expense of conversion based on the time value of money and must also be factored in to your decision.

If you have an IRA and a financial advisor, we recommend you speak with them about the relative benefit of converting some or all of your IRA to a Roth IRA. If you have an IRA and don't have a financial advisor, contact us and we can help you find the right advisor to assist with this decision. Most will perform this analysis for free.

What Happens to Out of State Property When Someone Dies?

For most property, the state in which you reside has jurisdiction over that property, and it will be administered according to the laws of that state. However, real property falls under the laws of the state in which it is located. This means that real property must be administered in the state in which it resides in an ancillary administration. So, if an individual owns any real property outside of their state of residence, there will need to be a probate administration in the state of residence and all states where real property was owned. Probate administration can be expensive and time consuming. Multiple probates are worse. This situation can be avoided by changing how the property is owned.

If you own out of state real property, you should contact your attorney to discuss ways of avoiding multiple administrations.

Don’t Let Your Life Insurance Be Taxed

2011 Is Just Around the Corner

2011 seems like a long way away. Heck, 2008 isn't even two months old. But if you're looking at it from an estate tax point of view, 2011 is just around the corner. Failure to plan ahead could result in more of your money going to the government instead of your family.

First, let's look at the current state of the estate tax. This year, everyone has a two million dollar estate tax exemption. This means every individual can pass up to two million dollars to their heirs free from tax. Next year that exemption goes up to three and a half million, and in 2010, there is no estate tax. Sounds great, but in 2011, under current law, the exemption drops down to one million dollars. In 2011, a lot of people that have nothing to worry about over the next three years will suddenly have a taxable estate. So why worry about that now? Because of the three year look-back period used by the IRS.

Of all the assets in an individual’s estate, life insurance is probably the easiest to remove. Life insurance proceeds are not subject to income tax, but they are subject to estate tax if they were owned by the deceased at the time of death. So, by transferring the ownership of the life insurance it is possible to eliminate the proceeds from the estate and reduce the estate tax. However, if this is done within three years of death, the IRS can pull it back into the estate and the death benefits will be taxed as part of the estate. Few people buy life insurance with the intent of giving almost half to the government.

Therefore, if you have an estate that does or likely will exceed one million dollars in 2011, it’s not too early to begin thinking about adjusting your assets to ensure more goes to your heirs, and less goes to the government. Please be aware, transferring ownership of life insurance can create a lot of unintended consequences. Be sure to consult with your financial advisors before making any transfers.

If you have any questions or would like additional information regarding this article please write us at Firm@Scovills.com or call us at 941-365-2252.

Differences Between Business Entities

Special guest Tom Pellegrino, of Eaton, Honick, Pellegrino & McFarland, P.A., discusses the differences between commonly used business entities.

Mr. Pellegrino is a Certified Public Accountant and can be reached at 941-365-1172 or Tom@ehpepa.com.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

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Issues to Consider When Considering Divorce

In this video special guest Terry McCormick discusses issues you should consider when considering a divorce.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

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Issues to Consider When Considering Divorce (Audio)

In this Audio Program special guest, Terry McCormick, discusses issues you should consider when considering a divorce.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Limited Liability Companies

This video discusses Limited Liability Companies, their characteristics and uses.

To learn more about this and other issues, visit us at www.Scovills.com. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Limited Liability Companies (Audio)

This Audio Program discusses Limited Liability Companies, their characteristics and uses.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Guardianship Avoidance (Audio).

This Audio Program discusses the proper methods to avoid guardianship in the event of temporary or permanent incapacity.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Guardianship Avoidance.

This video discusses the proper methods to avoid guardianship in the event of temporary or permanent incapacity.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Estate Planning for Parents of Minor Children (Audio).

This Audio Program explains the issues that should be considered by parents of minor children. If you don't have a will or a trust, and a designation of guardian, then you are leaving your children's future to chance.

To learn more about this and other issues, visit us at www.Scovills.com. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Naming a Guardian for Your Children (Audio).

This Audio Program discusses the reasons to designate a guardian for your children and the proper methods to ensure your designation is effective. If you don't have a will or a trust, and a designation of guardian, then you are leaving your children's future to chance.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Naming a Guardian For Your Children

This video discusses the reasons to designate a guardian for your children and the proper methods to ensure your designation is effective. If you don't have a will or a trust, and a designation of guardian, then you are leaving your children's future to chance.

To learn more about this and other issues, visit us at http://www.scovills.com/. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.

Estate Planning for Parents of Minor Children.

This video explains the issues that should be considered by parents of minor children. If you don't have a will or a trust, and a designation of guardian, then you are leaving your children's future to chance.

To learn more about this and other issues, visit us at www.Scovills.com. We are a Florida Law Firm practicing in the areas of Estate Planning, Guardianship, Probate and Business Law.