Houston Estate Planning Law Blog

ESTATE PLANNING: IMPORTANT TIPS

It takes careful estate planning to ensure that everything is laid out just right for one’s beneficiaries and heirs. A recent article highlighted a few things that women should keep in mind when estate planning; however, the information applies to all Texas estate planners–regardless of gender.

Taxes are an important part of the process. Transfers to one’s spouse may be free of estate tax, but those to other beneficiaries may not be, even to one’s own children. In addition, one would do well to create a will so that after you pass, your loved ones can benefit from knowing exactly how you wanted your assets distributed.

When a will has been made, an executor must be appointed to take care of one’s assets after passing. This person should be someone trustworthy because they will be handling all of the assets and money left behind. The goal is to provide for distribution of assets in the manner desired while seeking to avoid financial issues and other entanglements for your loved ones.

You may also create a trust to provide peace of mind that the individual you want will receive the desired benefit. It is a way to ensure that children receive money that you want left to them, often by including terms that withhold distribution until they reach a certain age. Moreover, it may make sense to take advantage of tax laws concerning annual gifts of money.

One should also make certain that a joint account remains open with their spouse, so that after their passing, access isn’t a legal battle. When that spouse passes away, you’ll have access to all joint accounts. It is also a good time, after a spouse passes away, to re-evaluate your estate plan. As life changes, your plan may evolve.

Many haven’t given estate planning much thought. However, it is a crucial part of life for women and men alike. With a well thought out estate plan, you can rest assured that your final wishes will be carried out the way that you always wanted and that each heir receives their rightful share of your estate.

Source: San Francisco Chronicle, “10 Estate Planning Tips For Women,” Angie Mohr, July 25, 2012

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TEXAS CONGRESSMAN’S LEGISLATION TARGETING ESTATE TAX GAINS STEAM

The federal estate tax, often referred to colloquially as the “death tax,” takes a cut out of the assets left behind by individuals at the time of their death. Currently, only estates valued over a certain amount are subject to the death tax.

However, while the estate tax is primarily aimed at wealthy individuals, many argue that it does not accomplish its goals and that it has a disparate effect on farmers and small business owners. Through careful estate planning, high net worth individuals can often circumvent the death tax entirely, while those with most of their worth tied up in land or business equipment may take huge hits. When a farmer or operator of a small business dies, their heirs may have to sell off land or other critical assets just to pay estate taxes, potentially resulting in the ruination of a profitable enterprise.

One Texas Congressman, Kevin Brady, is seeking to eliminate the federal estate tax entirely in 2012. Congressman Brady’s bill, the Death Tax Permanency Repeal Act, has garnered bipartisan support from over 190 members of Congress, as well as advocacy groups like the National Cattlemen’s Beef Association.

If full repeal of the estate tax proves impossible, supporters are still looking to make the 2010 estate tax relief package permanent. Under that legislation, still currently in effect, estates worth less than $5 million for individuals or $10 million for couples are exempt from taxation; an estate’s net worth over the exemption limits is taxed at 35 percent (under the former default law, there was only a $1 million exemption, with the excess taxed at a 55 percent rate).

Only time will tell if 2012 will mark the death of the death tax. In the meantime, prudent estate planning will remain the best tool to ensure generational continuity in important family assets.

Source: Iowa Farmer Today, “Time for permanent relief from the federal ‘death tax,’” Kent Bacus, Feb. 10, 2012

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PROPOSED CHANGES TO FEDERAL ESTATE TAX

There is a bill pending in Congress that, if passed, could significantly impact estate planning for Texas residents and others.

The bill is sponsored by Rep. Jim McDermott of Washington, and it seeks to roll estate tax rates back to their pre-2001 levels.

Introduced in November, the legislation would raise the estate tax from its current limit of 35 percent to 55 percent and reduce the estate tax threshold from $5 million to $1 million. The levels would be indexed for inflation beginning in 2000, and the proposed law seeks to address the fact that only a small fraction of all estates paid federal estate taxes in 2009.

The bill is heralded as a vehicle for ensuring tax equality for all Americans, but the bill’s passage could significantly impact families engaged in estate planning.

Some welcome the proposed changes and say that in these difficult times, it is reasonable to ask the wealthiest Americans to sacrifice for the greater good.

There are current estate planning opportunities for Texas residents to consider to allow individuals and families to take full advantage of existing laws as they seek asset protection and estate tax minimization so that their heirs and beneficiaries can be provided for in the future.

Individuals and families that are thinking about beginning estate planning or wishing to make changes to their current estate may consider working with an experienced estate attorney who fully understands the laws and procedures. Estate planning can be complicated at times and an attorney can help families plan a solid future for their families.

Source: Accounting Today, “Congressman Proposes Raising the Estate Tax,” Michael Cohn, Nov. 21, 2011

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CHANGES TO ESTATE TAX MAY AFFECT ESTATE PLANNING

A recent news report highlighted some upcoming changes to the estate tax that may affect those who make a living in agriculture. However, the changes may be of interest to any resident of Texas and elsewhere. Indeed, those changes could be of keen interest to people who are currently contemplating the estate planning process.

Even those people who are young and healthy should consider estate planning. For farming families, the failure to plan adequately for one’s death could result in the necessity of selling the farm just to pay the estate taxes, as well as risking conversion of the property to non-farm uses. For everyone, a lack of estate planning could result in higher taxes and fewer assets for their heirs.

Currently, the top estate tax rate is 35 percent. However, there is also a $5 million exemption, meaning that estates valued below that figure do not have to pay a federal estate tax. That could change after 2012. At that time, the top estate tax rate is currently set to rise to 55 percent and the exemption is scheduled to drop to $1 million. This would mean that a $25 million estate would have a liability of nearly $13 million after 2012. Under current law, that estate has a liability of somewhat over $5 million.

In Texas and across the United States, people are often surprised by the size of their estate. It includes not just bank accounts, but also the house value and any other investments one may have. Taking the time to meet with an experienced estate planning attorney may help to ensure that the heirs of the estate do not have to sell assets just to meet the tax and debt obligations. Furthermore, the attorney may be able to assist with making sure that the estate is not mired in litigation and that one’s intentions are fully and correctly honored.

Source: Western Farm Press, “What’s the future of estate tax obligations?” Ron Smith, Oct. 19, 2011

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ESTATE PLANNING MAY HELP MAXIMIZE THE SIZE OF THE ESTATE

Many Texas residents who are in or nearing retirement are probably considering estate planning, maybe even for the first time. As part of the estate planning process, they may be looking at investment decisions that maximize the amount of the estate without putting it at jeopardy. However, investments in financial assets that are traditionally viewed as safe also usually have a low return on investment.

A recent news report has highlighted one financial decision many parents are making that potentially offers a better return on investment. With so many unwilling to risk the stock market as of late and with the average return on a one-year certificate of deposit being only 0.4 percent, some parents are deciding to finance their adult child’s mortgage. Such a situation may offer a win-win as the parents get a return on investment they couldn’t otherwise and the child gets a mortgage at a lower rate than one offered by banks, without the red tape and attendant closing costs.

Although such parent-financed mortgages have always existed, their use has increased since banks tightened loan conditions following the housing crisis in 2008. Indeed, many in the housing market are unable to get a mortgage without having a nine-to-five job, even if they can make a 20 percent down payment. Likewise, having a full-time job may not be enough without the 20 percent down payment. This offers investment opportunities for parents who have grown children and may have a large financial portfolio.

Even parents of lesser means may consider financing the down payment for a child who is purchasing a home. By making these kinds of investments that potentially offer a better rate of return than other more traditional investments, parents may be able to maximize the size of the estate they leave behind.

Source: LoanSafe, “Some Home Buyers Bank on Their Parents,” Alex Ferreras, Oct. 8, 2011

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