Date: Tuesday October 4, 2011 1:00-4:00 p.m. (with CE credit)

Location: Sibcy Cline Office Training Center, 8044 Montgomery Road

RSVP: Peggy Gruenke peg@fssp-law.com 513-533-2732

Estate taxes can impact the distribution of real estate assets. Whether for your personal planning or for awareness for others, you will gain information on directing your clients to the proper professionals. The valuable information and knowledge gained through this course will make estate planning and the distribution of assets more understandable.

Please Join Us for a CLE Program on September 23rd from 12:00 – 1:30pm -Cost $25  includes CLE & Lunch  (OH, IN & KY)

Location: Hyde Park Country Club 3740 Erie Ave. Cincinnati OH 45208

Settlemet Tools and Tips

Presented by:  William T. “Tay” Robinson, IV

12:00 – 1:00pm CLE Presentation

1:00 – 1:30pm Lunch – Eat in or carry out

DESCRIPTION:  The following topics will be covered during Tay’s presentation:

Currently, Ohio has an exemption amount of $338,333, which is equal to a tax credit of $13,900, dollar for dollar.  Ohio’s Legislature has three different bills working their way through Congress that address updating that current law.  H.B. 61 would increase this “credit” to $15,575 indexed to Consumer Price Index (CPI) and permit townships and municipalities to exempt property within their political subdivision.  H.B.326 would exempt taxable estates under $366,250, indexed for inflation, beginning in 2011 and reduce top tax brackets.  H.B. 456 would repeal the estate tax effective January 1, 2011.  All three have been referred to the Ways and Means Committee of the respective House of Congress.  Because of the extreme budget deficit facing Ohio, the likelihood of a full repeal of the taxes has dwindled greatly.  Look for an increase in the exemption amount indexed to inflation, instead.

Ohio does however provide a few opportunities to defer and/or eliminate estate tax, if planned for appropriately.  First, life insurance is not included in the taxable estate unless the estate is specifically named as the beneficiary.  Second, a trust that qualifies for Ohio’s Qualified Terminable Interest Property (QTIP) marital deduction allows a surviving spouse to defer estate tax until the death of the surviving spouse. Also that same trust allows a surviving spouse to take advantage of a life estate marital deduction, thus altogether eliminating a portion of the Ohio estate tax that would have otherwise been due upon the first spouse’s death.  The bottom line is very simple estate planning can result in tremendous estate tax savings even at the state level. 

On the federal side, the estate tax laws that were enacted as part of the “Bush tax cuts” under EGTRAA in 2001 were set to expire at the end of 2010.   Without further legislation the 2001 act would have expired, leaving the estate tax exemption at a $1 million pre-2001 level with the highest tax rate at a whopping 55%!

However, with the passage of the 2010 Tax Relief Act, the good news is the exemption amount increased to $5 million per person. In addition, for gifts made after 2010, the gift tax is reunified with the estate tax with a top gift tax rate of 35 percent and a maximum applicable exclusion amount of $5 million. Prior law had decoupled the federal gift and estate tax maximum applicable exclusion amount. The 2010 Tax Relief Act reunifies the gift and estate tax maximum applicable exclusion amount for gifts made after December 31, 2010.

Finally, the 2010 Tax Relief Act enacted “portability” into the law for tax years 2011 and 2012 by amending Section 2010(c) of the Internal Revenue Code. It created an election for estates of decedents dying during those two years to make the deceased spouse’s unused exclusion amount available to the surviving spouse, both for gift and estate tax purposes. For example, if the first spouse only used $2 million of the available $5 million exemption, an election could be made on the federal estate tax return of the first spouse to die allowing the unused $3 million exemption to pass over to the surviving spouse in effect giving the surviving spouse an 8$ million dollar exemption. 

Unfortunately, the increased exemption amount, the reunification of the federal estate and gift tax and the “portability” attributes are only in effect until December 31, 2012. In the event Congress does nothing, the 2010 Tax Relief Act will “sunset,” meaning the estate tax exemption amount will once again drop to the $1 million pre-2001 level with the highest tax rate reaching 55%, the federal estate and gift tax will be decoupled and the “portability” feature will disappear.  Well…that should make for an interesting Presidential election year! 

 Please contact Jeff Stagnaro (513-533-2981 or jstagnaro@fssp-law.com) or any attorney in our Estate Planning practice area for assistance in both planning your own estate and assisting you in administering the estates of loved ones. 

The most common refrain I hear is, “I don’t have much; everything will just go to my family.”  Even though that might be the case, do you know how it will actually get to your family?  Without any planning, the most likely case will be that one of your family members will be required to apply to the Probate Court for the authority to work with the financial institutions where your assets are held.  Yes, Probate Court.

While “probate” has become the equivalent of a dirty word in many circles, I find that most people do not truly understand what it means to “probate” an asset.  Probate is the process of organizing a deceased person’s assets, appointing someone to handle the payment of the decedent’s debts, and then distributing the balance of the assets to the beneficiaries. It sounds fairly simple, and it is, if the right measures are taken prior to a person’s death; but, if a person does not plan properly prior to death, this process can be lengthy, cumbersome, and expensive, with court costs and attorney fees diminishing the final distributions to the beneficiaries.  In short, if a decedent’s affairs are not organized prior to their death, they will be by the time the probate process is completed.

Take the example of a woman I recently met. Her uncle had died a few days earlier. Her uncle had never had children, and his wife had preceded him in death. The niece wanted to put her uncle’s affairs in order, but not having the original, signed Last Will and Testament of her uncle, she could not access his safe deposit box.  But, she thought the Will was in the safe deposit box, so it became a catch-22.  She would have to apply to the Probate Court for the authority to open the safe deposit box, but then once the Will was found, a second hearing for authority might have to take place if the Will named a specific Executor. 

Assuming the niece continued to have the authority to act for her uncle, how would she find and collect the assets her uncle owned?  How would she know which debts he had, whether he owned a brokerage account, or had a Roth IRA somewhere?  She could wait for statements to come to his house, but in the interim, she still didn’t know what funds he has to pay for a funeral.  And if he has a mortgage, how will she continue to pay that—even if she plans to sell the property—without having access to the funds in his accounts?  Most importantly, if she is acting on behalf of her uncle, will she even be a beneficiary of his assets?  Every state has a statute of descent and distribution that a probate court must abide by if there is no Will; that statute determines the order in which family members inherit.  If the uncle’s mother is still living, the niece might not inherit anything at all!

Many strategies can be used to avoid the probate process.  The most flexible strategy is to create an inter vivos (“living”) trust and make the trust the owner and/or beneficiary of all of your assets; this would allow you to leave specific percentages of your entire estate to anyone you chose to name as a beneficiary (including charities and friends as well as children or other family members). Another strategy is to name a beneficiary for each of your assets; this does not allow you to leave percentages of your estate, so it works better if you only want to name one or two beneficiaries (for example, if you have two children who should inherit equally).

Most importantly, though, is not necessarily avoiding probate, but rather making sure your affairs are organized prior to your death to help your family members focus solely on the grieving period.  Make sure your estate planning documents are easy to read and the meet state law on validity as well as being accessible to the person(s) you want to handle your affairs.  I recommend that my clients keep their original documents in the fireproof safes at FSSP but also keep a copy of the documents in a home desk or filing cabinet that can be accessed by family members.  In the same file, you can keep a current list of your financial accounts and current debts to make collection as stress-free as possible.  This organization during your lifetime will prove to be an asset to your loved ones after your death. 

In an upcoming issue of the FSSP newsletter, I will discuss the status of the Federal estate and gift tax and what it means for your planning.

Author – Jessica A. Nielsen, Esq.

Credit: Fulfills 3 Hours Ohio Elective Credit
Location: CIncinnati Area Board of Realtors 14 Knollcrest Drive Cincinnati, OH 45237

Instructors: Jessica Nielsen, Estate Planning Attorney with Finney Stagnaro Saba & Patterson Co. LPA and Ryan Robertshaw, Associate Financial Advisor and

The valuable information and knowledge gained through this course will make estate planning and the distribution of assets more understandable.

Questions – contact Annette Chmiel at 513-842-3011 or achmiel@cabr.org

This is only one small part of the overall estate tax question, though. One of the greatest benefits allowed by the IRS in previous years has been a step up in the basis of inherited assets. (The basis of the asset is equal to the asset’s cost, plus improvements, less depreciation.) Even though assets might be included in a decedent’s estate for estate tax purposes, those same assets could avoid substantial capital gains taxes to the beneficiaries on highly appreciated assets. However, in exchange for an unlimited estate tax exemption this year, this unlimited basis step up is removed and in its place a more labyrinthine system for determining the basis of assets is to be applied.

The rules for 2010 provide for a modified carry-over basis that is determined by both the initial basis of the assets and the status of the beneficiaries who are to inherit those assets. Upon a person’s death, the starting point for determining the new basis of an asset is the lesser of the decedent’s basis or the fair market value of the asset as of the decedent’s date of death. From that starting point, the decedent’s estate is allowed an additional allocation of $1,300,000 for any property in their estate and an additional $3,000,000 for property passing to a surviving spouse either directly or through a properly formed trust. * Additional factors that can contribute to a modified basis are unused capital losses, net operating losses, or other losses built-in to the asset value. Taking these modifications into consideration, the basis of the asset may not increase above its fair market value as of the date of death, even if it means a portion of allowable allocation is not used.

Once the amount of additional basis allocation allowed is determined, the estate Executor is still left with the daunting task of deciding how much of that allocation will be allotted to each individual asset. Imaginably, this is a tricky task in an estate with multiple assets and multiple beneficiaries inheriting assets with different basis starting points. Is an Executor to divide the allotted amount equally among the assets without looking to the final basis or would it be more fair to equalize the final basis amounts even if it means one asset receives a great allocation of the allowable step up amount? This area seems rife with accusations of bias especially in estates with a large amount of specific bequests of low starting basis stocks or real estate.

Next year this law changes again when the EGTRRA provisions sunset. The estate tax exemption will return to $1,000,000- including life insurance- with the step up in basis rules revering to a full step up at death. However, since the return of such a low exemption amount would capture more middle American families, especially small business owners, it seems likely that another change is in store for the federal estate tax. Exactly what that change will be is anyone’s guess right now…
*These rules apply only to U.S. citizens and residents.