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Estate Planning Specialist in Scottsdale, Arizona

Estate Planning Specialist in Scottsdale, Arizona

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Published by tomfish444
Many people mistakenly think that they do not need a last will and testament. Most feel that they either do not have enough assets to warrant having a will, or they mistakenly believe that the state will dispose of what little assets they have in a prudent manner. While states try to act in a consistent manner when distributing assets from estates without a will, it does not mean that they will do it exactly as you would have wished. There are also expenses and time delays to consider as well. This is where estate planning in Scottsdale can make a difference. Tom Fischer is a specialist in Estate Planning, Scottsdale, Arizona.

Many people mistakenly think that they do not need a last will and testament. Most feel that they either do not have enough assets to warrant having a will, or they mistakenly believe that the state will dispose of what little assets they have in a prudent manner. While states try to act in a consistent manner when distributing assets from estates without a will, it does not mean that they will do it exactly as you would have wished. There are also expenses and time delays to consider as well. This is where estate planning in Scottsdale can make a difference. Tom Fischer is a specialist in Estate Planning, Scottsdale, Arizona.

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Published by: tomfish444 on Feb 06, 2012
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 ==== ====For an experienced Scottsdale Estate Planning Specialist contact Tom Fischerhttp://arizonafinancialplan.com/ways-to-avoid-probate-court-and-its-costs-and-delays-in-estate-planning/  ==== ====The Good News: Beneficial Changes to Federal Law for 2011 and 2012 After months of negotiations following the lapse of the Federal estate tax for 2010, Congressfinally got around to enacting new estate tax rules at the end of last year. On December 17, 2010,the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 wasenacted which dramatically increased the number of estates exempt from Federal estate and gifttaxes. Specifically, the following features were included in the new law regarding estate and gifttaxes: • The amount exempt from estate tax was increased to $5 million (from $3.5 million in 2009)for those who die in 2011 and 2012.• The lifetime gift tax exemption was increased from $1 million to $5 million and "unified" tothe full extent with the estate exemption - meaning a person can make a combined total of lifetimegifts and bequests at their death of $5 million or less and avoid paying any Federal taxes. Thefederal generation-skipping transfer tax exemption was similarly increased to $5 million (from $3.5million in 2009)• The maximum estate tax rate was reduced to 35% (from 45% in 2009).• The new law also introduced the concept of "portability" into a married couples' estate taxexemptions - "portability" allows the surviving spouse to utilize any unused portion of the $5 millionexemption from the estate of their spouse who dies in 2011 or 2012. The Bad News: No Guidance For 2013 and Beyond For whatever reason, Congress decided to sunset the new rules at the end of 2012 which willresult in estate, gift and generation-skipping transfer tax exemptions all reverting to $1 millionstarting in 2013. The future of spousal exemption "portability" also remains unknown. Additionally,the highest tax rate will increase from 35% to 55%. While we can hope that Congress will at leastextend these provisions, it is impossible to tell what the political landscape will look like in 2012and 2013 when Congress will once again decide what the Federal estate and gift tax scheme willbe. Therefore, it is imperative that current Estate Plans have built-in flexibility regarding disclaimerand trust provisions to allow beneficiaries to take full advantage of whatever the tax laws may bein the future. The Ugly: Washington State Estate Taxes Remain Unchanged While it may seem like the changes now exempt nearly all estates from estate and gift taxes (atleast until 2013), Washington State has its own estate tax on estates valued over $2 million which
 
is unaffected by the changes at the federal level. Furthermore, the "portability" provision of theFederal estate tax does not apply for Washington State estate tax purposes. While direct transfersto a surviving spouse are completely exempt from both Federal and state estate taxes at the deathof the first spouse (the amount of gifts to a surviving spouse are deducted from the gross estate ofthe deceased), this deduction only defers Washington State tax on the estate until the death of thesurviving spouse. Simply put, this means that the combined estate of a Washington State couplewill be subject to Washington estate taxes to the extent it is worth more than $2 million upon thedeath of the second spouse, unless appropriate tax planning measures are including in the EstatePlan. Furthermore, because the taxable estate includes both probate and non-probate assets(including life insurance and retirement accounts) it is clear that many should be concerned aboutstate taxes when discussing their Estate Plan. It is possible that the Washington legislature may enact changes to our estate tax laws, but ifanything it is more likely they will raise, not lower, the tax given past history and the currenteconomic situation of our state budget. In fact, in early 2010 a bill was introduced to double thecurrent Washington State estate tax rates to 20% to 38%. I cannot stress how important it is to discuss state tax implications on your estatewith your attorney when reviewing your Estate Plan. Examples I have prepared the following hypotheticals to illustrate the importance of an Estate Planincorporating specific provisions regarding Washington State taxes. My hypotheticals assume thefollowing:• All state and federal exemptions and tax rates stay the same.• All of the couples have simple wills giving the entire estate outright to the surviving spouseand the surviving spouse bequests their estate to their children.• All property is owned as community property. 1. A moderately wealthy retired couple living in Washington State have the following assets: 1. Primary residence (worth $800,000; mortgage of $300,000) $500,0002. Vacation/rental property (worth $400,000, mortgage $200,000) $200,0003. Bank accounts/CD's/Money markets $200,0004. Stocks/Bonds/Investments $250,0005. IRA's/401k/Retirement Accounts $600,0006. Life insurance death benefits (for husband) $600,0007. Cars/Boats/RV $100,0008. Misc. Personal Property (art, jewelry, clothes, etc.) $50,000Total $2,500,000 If Husband dies in 2011, his taxable estate in Washington includes all separate property and of thecommunity property. Since the total Community Property is $2,500,000 the taxable estate is of that($1,250,000). Since all of his assets pass to his surviving spouse, there is no estate tax. Now suppose the surviving Wife lives off the income generated from the assets and the size of herestate at her death is $2.5 million. Since there is no "portability" of the husband's unused state
 
exemption of $2 million, there will be Washington estate tax due on $500,000 of the $2.5 millionestate (the amount in excess of Wife's $2 million exemption). At current rates this equals $50,000due to Washington State. While this amount is not a huge amount and only represents 2% of theestate, it could have been avoided entirely for a fraction of the cost through successful EstatePlanning. A simple way to avoid all taxes on both estates: While there are numerous Estate Planningtechniques that could have avoided all state taxes, the simplest would be that the Husband's willshould have passed on a portion of the estate to beneficiaries other than his wife in a trust whichcould still provide Wife with the income generated from those assets during her life. SupposeHusband's will had given at least $500,000 to his children in a credit shelter trust (or given his Wifethe ability to disclaim a portion of the estate into a disclaimer trust with the children as ultimatebeneficiaries) which provided that the income be used to support his wife during her life. His wifewould be no worse off since she could live off the income generated from both her assets and thetrust assets. Then when she dies, her estate consists of no more than $2,000,000, the creditshelter trust assets pass automatically to the children and are not part of Wife's estate, andeverything is completely exempt from Washington State estate tax. More assets = Happier Washington State Department of Revenue. 2. A working professional couple living in Washington State with the following: 1. Primary residence (worth $500,000; mortgage of $300,000) $200,0002. Bank accounts/CD's/Money markets $50,0003. Stocks/Bonds/Investments $100,0004. IRA's/401k/Retirement Accounts $250,0005. Term life insurance death benefits (for husband) $1,000,0006. Cars $40,0007. Misc. Personal Property (art, jewelry, clothes, etc.) $10,000Total $1,650,000 Husband and Wife have thought about Estate Planning only briefly and have established verysimple wills each giving everything to the surviving spouse. They have forgotten to account for thelarge term-life policy in the husband's name and think that their moderate assets of $650,000(without the life insurance benefits) shouldn't really cause any tax problems for their children. Thishypothetical is slightly different from the first in that we will assume that the assets will appreciatebetween the death of the Husband in 2011 and the death of the Wife. Upon the untimely death of the Husband, his estate is worth $825,000 ( of the total communityproperty). Assume that the Wife amasses more wealth and upon her death the $1,650,000 assetshave grown to $2,000,000 and she also has a term life policy of $500,000. The taxable portion ofher estate will be $500,000 (after the $2 million exemption) resulting in a tax bill of $50,000. If herestate were to be larger, even more tax would be due. This tax could have been avoided if theHusband's will had provided Wife with the ability to disclaim some of the property into a disclaimertrust naming the children as ultimate beneficiaries (or establishing a credit shelter trust) payingWife all income and even principal as necessary for her support. 

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