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

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Estate Planning, Sam’s Club Style

Along with buying all of your favorite items in bulk (like a 36-can case of Diet Dr. Pepper!), you can now get your estate plan done at a discount at Sam’s Club.

Yes, you read that right, Sam’s Club is now offering estate planning as well as other legal services.  Well, OK, that’s not exactly accurate.  While the retail warehouse club that is owned by Walmart hasn’t gone out and hired itself a bunch of attorneys and stationed them in its 640+ stores, it has teamed up with LegalZoom to give its business members up to a 25% discount on LegalZoom products.  This includes things like incorporating a business, idea protection, and wills and trusts.

And that’s not all – Sam’s Club business members can also shop for personalized health care plans (in collaboration with Aenta) and payroll services (in collaboration with Execupay).  Who knows what will be next?

Death Becomes Them: Forbes Releases List of 2013 – 2014 Top Earning Dead Celebrities

It’s my favorite time of the year again – no, not Halloween, but the time when Forbes releases its list of the top earning dead celebrities for the past year.

Based on revenues generated between October 2013 and October 2014, the estate of Michael Jackson, who died in June 2009, remained at the #1 spot as the top earning dead celebrity for the second year straight, bringing in $140 million (down from $160 million in 2012 – 2013, but still enough to keep the #1 spot by $85 million). What’s so impressive about Mr. Jackson’s estate is that it brought in the same amount as the estates of the next four dead celebrities combined. In addition, Mr. Jackson’s estate brought in $10 million more than the 2013 – 2014 top two earning living actors (Robert Downey Jr., $75 million, and Dwayne “The Rock” Johnson, $55 million).

And now, without further ado, here is the list of the top money-making dead celebrities ranked in order of earnings from October 2013 through October 2014:

  1. Michael Jackson – $140 million, down from $160 million last year (date of death June 25, 2009)
  2. Elvis Presley – $55 million, the same as last year (date of death August 16, 1977)
  3. Charles Schulz, creator of Peanuts comics – $40 million, up from $37 million last year (date of death February 12, 2000)
  4. Elizabeth Taylor – $25 million, the same as last year (date of death March 23, 2011)
  5. Bob Marley – $20 million, up from $18 million last year (date of death May 11, 1981)
  6. Marilyn Monroe – $17 million, up from $15 million last year (date of death August 5, 1962)
  7. John Lennon – $12 million, the same as last year (date of death December 8, 1980)
  8. Albert Einstein – $11 million, up from $10 million last year (date of death April 18, 1955)
  9. Theodor Geisel, better known as Dr. Seuss (tie) – $9 million, the same as last year (date of death September 24, 1991)
  10. Bruce Lee (tie) – $9 million, up from $7 million last year (date of death July 20, 1973)
  11. Steve McQueen (tie) – $9 million, the same as last year (date of death November 7, 1980)
  12. Bettie Page (tie) – $9 million, down from $10 million last year (date of death December 11, 2008)
  13. James Dean – $7 million, Mr. Dean’s estate did not make the list last year (date of death September 30, 1955)

Falling off the list this year was singer Jenni Rivera, who died on December 9, 2012, and whose estate earned $7 million last year.

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Are You Ready for 2014 National Estate Planning Awareness Week?

In 2008 the National Association of Estate Planners & Councils (or NAEPC for short), in conjunction with Rep. Mike Thompson (D-CA) and 49 of his colleagues, co-sponsored and helped pass H. Res. 1499, which declared the third week in October National Estate Planning Awareness Week (or NEPAW for short). This means that in 2014, National Estate Planning Awareness Week falls on October 20 through 26.

NAEPC works with over 230+ local estate planning councils to educate its 27,000+ members on all areas of estate planning and emphasizes a multi-disciplinary approach to estate planning involving all members of a client’s financial advisory team, including attorneys, accountants, financial advisors, and life insurance agents. In addition, through its foundation known as The NAEPC Education Foundation, NAEPC has an ongoing commitment to promote financial awareness and literacy in estate and financial planning throughout the year.

As leaders in the financial and estate planning community, members of NAEPC have first-hand experience with the challenges Americans face with regard to saving, investing, and planning for their financial futures. For example:

  • The majority of Americans over 65 are totally dependent on their Social Security checks. With proper knowledge and planning, future generations can have a more secure retirement.
  • It is estimated that over 120 million Americans do not have an up-to-date estate plan to protect themselves and their families, making estate planning one of the most overlooked areas of personal financial management. By planning now instead of after a crisis happens, issues such as guardianship of children, managing bill paying and assets in the event of sickness or disability, care of a special needs child, long-term care needs, and distribution of retirement assets can all be handled with sensitivity and care at a reasonable cost.
  • The majority of Americans lack the ability to adequately plan for their retirement. This can be changed immediately with knowledge and the right planning tools.
  • Many people mistakenly believe that since they aren’t “rich” they don’t need to do any financial and estate planning at all. Estate planning is not just for the wealthy and is important for everyone. This attitude can be financially harmful in the long-run and can be avoided with a proactive approach.

With these factors in mind, NAEPC is offering a free, one hour webinar on Monday, October 20, 2014, at 3 pm EDT, presented by Martin M. Shenkman, CPA, PFS, MBA, JD, AEP® (Distinguished), called “Basic Estate Planning in 12 Steps.”  Visit NAEPC’s website to sign up:  NAEPC – For the Public.

In addition, local estate planning councils will be offering programs to educate the public on the importance of initial estate planning as well as updating old estate plans as the years go by. A list of local estate planning councils can be found on the NAEPC website so that you can check for a program in your area, or if there is not a local estate planning council close to you, then make it a point this week to locate and meet with an experienced estate planning attorney in your area to discuss all of your estate planning needs.

You can also visit The NAEPC Education Foundation’s website called for informative articles about estate planning, disability planning, long term care planning, estate and trust administration, and financial planning.

Writer Tom Clancy’s Will Demonstrates Clear and Present Danger of Estate Planning for a Blended Family

OK, I admit it.  Back in the day I read all the Tom Clancy novels – The Hunt for Red October, Red Storm Rising, Patriot Games, Clear and Present Danger, The Sum of All Fears – and saw all the movies (and yes, I read the books before I watched the movies).  How else would I have learned about Russian MiG 29s,  U.S. F-14 Tomcats, CENTCOM, and PACOM?  But while Mr. Clancy’s stories were full of international espionage and meticulously detailed military information, unfortunately his last will and testament and particularly his second codicil, drafted by a Baltimore estate planning attorney, lacked the precision of his own writing.

Mr. Clancy died from heart failure on October 1, 2013, at the age of 66.  He left behind his wife, Alexandra Clancy, a young daughter, and four adult children from his first marriage.

Mr. Clancy’s will and two codicils were filed for probate in Baltimore City, Maryland, on October 10, 2013.  The probate docket indicates that the author signed his 21-page will on June 11, 2007, and two short codicils totaling a mere three pages on September 18, 2007 and July 25, 2013.

According to a partial estate inventory filed in January 2014 and a supplemental inventory filed in September 2014, Mr. Clancy’s estate is estimated to be worth $83 million.  His largest asset was a 12% ownership interest in MLB’s Baltimore Orioles, estimated to be worth $65 million; he also had multiple real estate holdings (including a $7 million estate overlooking the Chesapeake Bay which went to his wife through joint ownership), $10 million in business interests, and, while it may seem odd it’s certainly not unexpected, a rare, operating World War II tank.

While several of the real estate holdings passed to Mr. Clancy’s wife through joint ownership with rights of survivorship (along with other jointly held investments which are not part of the probate estate), Mr. Clancy’s intent for the remainder of his property was for it to be divided among three distinct trust “buckets”:

  1. One-third in a marital trust for the benefit of his wife;
  2. One-third in a  family trust for the benefit of his wife and all his children; and,
  3. The balance in trusts for the benefit of his four adult children as well as grandchildren.

This sounds like a reasonable plan for the author’s blended family, doesn’t it?

But lurking in this type of plan for a blended family and a substantial $83 million estate is the impact of estate taxes – both federal and Maryland (when Mr. Clancy died, the federal estate tax exemption was $5.25 million and the Maryland estate tax exemption was a measly $1 million).  The total estate tax bill is estimated to be $16 million, and the Personal Representative of the estate, Baltimore estate planning attorney J.W. Webb (who drafted the July 2013 codicil – more on that below), has taken the position that trust bucket #2 (the family trust) should pay $6 million of the tax bill and trust bucket #3 (the children’s trusts) should pay $10 million of the tax bill (note that trust bucket #1, the marital trust, is designed to defer payment of estate taxes on its value until after Alexandra Clancy’s death).  But according to the “Petition for Declaratory Judgment, Construction of Will, and Removal of Personal Representative” filed in early September by Alexandra Clancy’s attorneys, the widow believes that the intent of the July 2013 codicil was to confirm that trust bucket #3 – the trusts for the benefit of Mr. Clancy’s four children from his first marriage – should pay the entire $16 million estate tax bill, thereby leaving trust bucket #2 completely intact.  Mr. Webb has so far declined to comment on the petition and has until October 17 to file his response.

International intrigue?  Not even close, just a typical day in probate court, and yet another example of celebrity estate planning gone wrong.  In addition to the questionable language in the July 2013 codicil, had Mr. Clancy created and funded a revocable living trust instead of relying on a will and some codicils as the governing documents of his estate plan, then the intimate details of the writer’s final wishes would have remained a private family matter.  In fact, this surprised me since 10 years ago I practiced as an estate planning attorney in Bethesda, Maryland, and my firm was (and still is) a firm believer in revocable living trusts.  And since this was (and still is) the case for other Maryland estate planning firms, why an estate planning attorney with a big Baltimore firm would use a will instead of a trust is beyond me.

Aside from this, the Clancy estate battle also demonstrates how tricky it is to plan for a blended family.  What was the author’s true intent?  Unfortunately we will never know, and after significant time and money have been spent, a probate judge will end up making the final decision.