2014 Most Read Wills & Estate Planning Articles May Surprise You

Welcome to my first post of 2015!  In case you’re curious, below are the top ten most read articles in 2014 over at my Wills & Estate Planning Guidesite on About.com:

  1. See How the Federal Estate Tax Exemption Has Changed Since 1997
  2. How to Find a Deceased Person’s Will
  3. See How the Gift Tax Annual Exclusion Has Changed Since 1997
  4. Will Your Inheritance Cost You in Taxes?
  5. State Estate Tax and Exemption Chart
  6. 2014 State Death Tax Exemption and Top Tax Rate Chart
  7. State Inheritance Tax Chart
  8. How to Locate Online Probate Court Dockets and Request Copies of Documents
  9. What is a Revocable Living Trust?
  10. What Are the Grounds for Contesting a Will?

If you’re interested in reading any of the articles, simply click on the article name.

Well, that is certainly a hodge podge of topics, isn’t it?  – estate, inheritance and gift taxes, wills, probate dockets, revocable living trusts, will contests – but then again, estate planning covers a hodge podge of topics, that’s why my Guidesite currently has 19 different categories!

The final count on page views for my Wills & Estate Planning Guidesite in 2014 topped 8.4 million, so thanks to all of my readers for reading and my newsletter subscribers for subscribing – if you’re not a newsletter subscriber yet, you can sign up here:  Weekly Wills & Estate Planning Newsletter.


Listen Up 2011, 2012 & 2013 U.S. Estates – Don’t Miss Out on the Portability Election

The clock is quickly ticking away for the estates of certain married U.S. taxpayers who died between January 1, 2011 and December 31, 2013.

What will happen to these estates when the clock strikes midnight on January 1, 2015?  They will no longer have the ability to make a “late” portability election with regard to the federal estate tax exemption.

What is the Portability Election and How is it Made?

Portability started with the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.  Under this law, a surviving spouse was allowed to add their deceased spouse’s unused federal estate tax exemption to their own exemption and apply the combined exemptions (up to a total of $10 million in 2011 and $10.24 million in 2012) to gifts made during life and/or transfers made after death. Portability was supposed to disappear in 2013, but the American Taxpayer Relief Act of 2012 made it permanent for deaths occurring in 2013 and beyond.

In order to make the portability election, the executor of the estate must timely file a federal estate tax return (IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) and include the portability calculation.  Form 706 is timely filed if it is filed either (i) within nine months after the date of death, or (ii) by the last day of the period covered by an extension, whichever is later.

What Are the Special Rules for Making the Late Portability Election?

The uncertainty surrounding the future of portability coupled with the June 2013 U.S. Supreme Court decision in the case of Windsor v. United States (which held that Section 3 of the Defense of Marriage Act is unconstitutional and prompted Treasury and the IRS to issue a ruling that same sex married couples will be treated as married for all federal tax purposes, including making the portability election) led to a lot of confusion and inevitably the failure of many executors to make the portability election.

In response to this confusion, Rev. Proc. 2014-18 was issued in early 2014 which allows an executor to make a “late” portability election on or before December 31, 2014 if the estate meets the following criteria:

  1.  The taxpayer must be the executor of the estate of a decedent who was survived by a spouse; died between January 1, 2011 and December 31, 2013; and was a citizen or resident of the U.S. on the date of death; and
  2. The estate was not required to file a federal estate tax return; and
  3. The estate did not file a federal estate tax return; and
  4. A person permitted to make the portability election on behalf of the decedent files a federal estate tax return on or before December 31, 2014; and
  5.  The person filing the federal estate tax return states at the top of the return that it is being “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
What Should You Do?

If you’re not sure if making the “late” portability election applies in your situation, hurry up and check with your estate planning attorney or accountant because the clock is ticking!

IRS Releases 2015 Estate Tax Exemption and Other Related Inflation Adjustments

Last week the IRS released Rev. Proc. 2014-61, which contains the 2015 inflation adjustments for the federal estate tax, gift tax, and generation-skipping transfer tax exemptions as well as the 2015 annual gift tax exclusions:

  • The estate tax exemption will increase from $5,340,000 in 2014 to $5,430,000 in 2015 (for those of you who are slightly dyslexic like me, these numbers will undoubtedly drive you crazy).  The top estate tax rate will remain at 40%.
  • The lifetime gift tax exemption will also increase from $5,340,000 in 2014 to $5,430,000 in 2015.  The top gift tax rate will remain at 40%.
  • The generation-skipping transfer tax exemption will also increase from $5,340,000 in 2014 to $5,430,000 in 2015.  The top generation-skipping transfer tax rate will remain at 40%.
  • The annual gift tax exclusion will be $14,000 in 2015, which is the same as the 2014 exclusion.  As mentioned above, the top gift tax rate will remain at 40%.
  • The annual gift tax exclusion for gifts to noncitizen spouses will increase from $145,000 in 2014 to $147,000 in 2015.  As mentioned above, the top gift tax rate will remain at 40%.

In addition, Rev. Proc. 2014-61 provides that estates and trusts will be subject to the following income tax brackets in 2015:

If Taxable Income Is:                  The Tax Is:

Not over $2,500 15% of taxable income
Over $2,500 but not over $5,900 $375 plus 25% of the excess over $2,500
Over $5,900 but not over $9,050 $1,225 plus 28% of the excess over $,5900
Over $9,050 but not over $12,300 $2,107 plus 33% of the excess over $9,050
Over $12,300 $3,179.50 plus 39.6% of the excess over $12,300

Read more:

Death Tax Repeal Act – Like a Broken Record

Just like President Obama’s repeated budget proposals that would decrease the federal estate tax exemption and increase the estate tax rate, the House-sponsored Death Tax Repeal Act (H.R. 2429) is like a broken record.  Rumor has it that now that the House has garnered enough backers for H.R. 2429 to pass it (the bill currently has 221 co-sponsors, including three Democrats, which brings the total three above the number required for a House majority), supporters are pushing for a vote on the bill as early as September.

The name of the bill clearly states its purpose – to completely eliminate the federal estate tax (although getting rid of the “death tax” simply sounds more ominous, doesn’t it?).  The generation-skipping transfer tax would disappear too, but the gift tax would remain with a $5 million lifetime exemption indexed for inflation and a 35% tax rate.

So why is this bill like a broken record?  Because there have been dozens of bills introduced to repeal the federal estate tax since President George W. Bush was successful in doing it in 2001, although his repeal didn’t even go into effect until 2010 and the tax ended up being retroactively reinstated anyway.  There is even a companion bill in the Senate, S. 1183, also called the Death Tax Repeal Act, which has 38 co-sponsors (all Republicans).  The thought is if the House passes their death tax bill in September and the Republicans take the Senate in November, then the Senate will finally have enough votes to get a death tax repeal bill passed.  Of course, even this happens – it won’t, but for the sake of argument, let’s assume it does – President Obama will veto the bill.  End of story, back to square one, and the ballad of death tax repeal will continue to play on, just like a broken record.

Beware: Joint and POD Accounts Can Ruin Your Estate Plan

While accounts or real estate titled jointly with your children or other beneficiaries or made payable on death (POD) to your children or other beneficiaries will avoid probate after you die, they may end up creating problems that cannot be easily undone.

For example, if you have three children but only one of them is listed as a joint owner on your bank account or real estate, then the child listed on the account or deed will inherit the entire account or property after you die to the exclusion of your other two children.  This means that the child who inherits the account or real estate will have absolutely no obligation to share the property with his or her siblings and, worse yet, even if the child agrees to share, then the child will be making taxable gifts to your other children.  Keep in mind that this will happen even if your will or trust states that  all of your property is to go equally to all three of your children.

Here’s another problem with joint accounts – what will happen if the child listed on your bank account or deed is married and gets divorced or gets sued?  Then it’s possible that some or even all of the property could become subject to a divorce settlement or judgment lien, thereby wiping out the bank account or tying up the real estate when you decide to sell it.

And here’s a problem with POD accounts – what if you name a grandchild as the POD beneficiary of your bank account or real estate and the grandchild is still a minor when you die?  Then a costly, court-supervised guardianship or conservatorship will need to be set up for the grandchild which will remain in place until he or she reaches 18, at which time the grandchild will receive the property outright and without any strings attached.

And finally, one last POD problem – what if you name all three of your children as POD beneficiaries of your bank account or real estate and one of your children predeceases you and you never update the POD designation or deed?  Then your two surviving children will inherit the property to the exclusion of the children of your predeceased child (your grandchildren).

These are only a few examples of how joint accounts and POD designations can ruin your ultimate estate planning goals.  The only way to insure that all of your property will pass to all of your intended beneficiaries in the way you expect it to pass is make sure the ownership of your accounts is coordinated with your will or trust.