Multiple States Reducing Estate Tax Threat for Families and Businesses

Since 2014, approximately nine states have eliminated or lowered their estate taxes. This was accomplished primarily by modifying and increasing specific exemptions thereby reducing the number of households that could be hit with a large estate tax bill.

For example, Maryland is planning to raise its current $3 million estate tax exemption to $4 million in 2018. The District of Columbia is ahead of the game. In 2014, D.C. passed a major tax reform deal that included increasing its estate tax exemption amount from $1 million to $2 million at the start of 2017 and to ultimately match the generous federal exemption level ($5.49 million for 2017, indexed for inflation), starting in 2018, according to Forbes.

Other states are going even further. For example, New Jersey plans to eliminate its estate tax entirely, according to the Wall Street Journal. Currently, six states have repealed their estate taxes over the past 10 years, including Virginia.

Why are States Reducing Estate Taxes?

The modifications to estate tax laws is largely driven by competition between governors and legislatures hungry for affluent and wealthy taxpayers to relocate to their respective states. Such residents owe income taxes every year, but some are willing to move out of state to avoid death taxes.

Increased exemptions to estate taxes are not just a state policy. In fact, the federal estate-and-gift tax exemption increased to $5 million in 2011.

Check out Bobby’s video explaining the basics of estate taxes:

States Also Looking to Modify Inheritance Taxes

While most recent changes have been to state estate taxes, some states with inheritance taxes are looking to make reforms to ease the tax burden on families. Six states currently tax a beneficiary who inherits assets from a deceased loved one. Inheritance tax rates and exemptions often vary according to their relation to the decedent. For example, in Nebraska, there is no tax on assets left to a surviving spouse. However, if a sibling inherits an asset, they are subject to a 1 percent inheritance tax. Assets left to a non-relative (e.g., a close friend) in Nebraska are subjected to a potential 18 percent inheritance tax.

Maryland has both estate and inheritance taxes  and, as mentioned, the state legislature is planning to modify the estate tax exemption. There are no plans to modify the inheritance tax provisions under current law. Virginia, on the other hand, does not impose an inheritance tax. Also, as mentioned, Virginia no longer imposes an estate tax. The Legislature repealed the estate tax entirely in 2006. The more attractive and hospitable estate tax policies in Virginia make it much more attractive for high-income and wealthy individuals when compared to Maryland.

Speak to an Experienced Estate Planning Attorney Today

Although the gradual elimination of the state estate tax is a step in the right direction, the federal estate tax remains. In addition, taxes should not be the sole motivation for estate planning.  If peace of mind and protecting your family is an important goal for you then you should talk to an experienced estate planning attorney about the other risks your estate is faced besides the tax risk. Our team of experienced trust and estate planning attorneys possess a deep understanding of estate and inheritance tax laws as well as other common risks your family and estate will likely face. Contact our office to learn more.

10 Key Tips for a Smooth Settlement

When a loved one passes away, family members can often feel overwhelmed by the seemingly endless list of things to take care of.  An up-to-date estate plan and an educated family can help ease this feeling.  Unfortunately, if the family was not prepared, there can be significant confusion over who is in charge and what needs to be done.

If you find yourself in this position, here are some tips to help you get started:

  1. Take care of the final arrangements.  Even more important initially than the estate planning documents is to locate any funeral or burial instructions.  Your loved one may have written out his or her preferences, obtained a funeral insurance policy, or purchased a burial plot. The funeral director will ask how many copies of the death certificate you would like.  We recommend requesting at least 10 to 15 death certificates.
  2. Locate the decedent’s important paperwork.  This can require investigation by several members of the family.  Try to determine whether the decedent had a trust and/or will.  These documents will name the executor or trustee.  If there are no estate planning documents, the court will appoint an executor during the probate process.
  3. Obtain the appropriate professional help.  Depending on the estate, the settlement process could be complex.  Finding a knowledgeable attorney, CPA, and financial advisor can put your mind at ease.  They can advise you on the requirements to properly handle the settlement.
  4. Keep good records of time you spend and any expenses you pay personally.  Both time spent and expenses can be reimbursable by the estate, but only if you can provide the proper documentation.
  5. Locate and secure the assets of the decedent.  If a list of assets is not readily available, try to find bank statements or a checkbook to track down bills and deposits.  Life insurance contracts, deeds, and other financial statements are often kept together in a home office or filing cabinet.  You should notify the financial institutions of the death and secure the house if nobody is living in it.
  6. Don’t use any Powers of Attorney.  These are no longer valid after death.
  7. Don’t let family members or friends start taking items out of the house.  Valuable items can suddenly disappear or specific bequests can end up in the wrong hands.  Once you do start distributing personal effects, it is a good idea to have each individual sign a receipt of items received.
  8. Don’t drive the car.  Until the title and insurance are brought up to date, driving the car can unnecessarily expose the entire estate to creditors.
  9. Don’t use the decedent’s credit cards.  You could be liable for fraudulent charges if you use the card after the date of death.
  10. Don’t start closing or moving financial accounts until you have obtained the advice of an attorney or have a good understanding of the decedent’s estate.   Creditors will need to be paid before the funds are distributed to beneficiaries.

The most important thing to remember is that the settlement process takes time to complete and is an emotional time. We recommend obtaining the appropriate professional help to guide you through the process, put your mind at ease, and help you deal with the complexities of an estate settlement.

 

Wine Collector? Protect Your Investment

If you purchase fine wine as an investment, here is a red alert – your homeowners’ policy probably does not cover your wine collection. In fact, the vast majority of homeowners’ policies exclude coverage for perishable goods like wine.

Ensuring you have adequate insurance coverage on your wine collection is absolutely critical. Some individuals have spent thousands of dollars to accrue an impressive wine collection or wine cellar.

Getting the Right Insurance Policy for Your Collection

When shopping for an insurance policy to protect your investment, consider an agreed upon insurance value and to keep records of the collection purchases, sales, and consumption to avoid insurance disputes in the event of a loss.

Setting a reasonable deductible with your insurance agent is a good way to manage the cost of insurance keeping it reasonable and coordinated with your risk aversion.

Getting a quality insurance policy should not be terrible difficult since the value of wine is fairly transparent. Web sites like vinfolio.com and cellartracker.com enable wine collectors to check and verify the retail value of their wine collection. In addition, major wine auction houses such as Zachy’s, Acker Merrall & Condit and Hart Davis Hart release their results. Access to this information makes it much easier for wine collectors to know and track the value of their investments.

Should My Wine Collection Be Owned and Managed by an LLC?

Probably not, but it depends on your circumstances and what exactly you collection is used for. Typically, most investors are simply wine connoisseurs and develop their collection for personal enjoyment and use. In that case, there probably isn’t a need to set up a wine-specific LLC. However, if your ownership and sale is solely for investment purposes and the wine is not used for personal enjoyment, having the collection managed by an entity like an LLC may be worth considering, especially for tax purposes. It is best to sit down with an experienced attorney to discuss these important issues.

Wine Collection and Your Estate Plan

If your wine collection has become a substantial asset, treat it like one. Be sure your collection is properly mentioned in your estate plan. This is important because numerous questions and issues arise with an asset like a wine collection when someone passes on. For example, do you want your wine collection to be sold? If so, who should your representative consult to complete the sale and to whom would the proceeds go to? If your wine collection is being divided among multiple beneficiaries, are the recipients able to afford to properly store and deal with the collection? You do not want to leave these issues unaddressed and subject to the whims of your executor, or a beneficiary.

In addition to a wine collection, you need to be sure all of your valuable assets and investments are properly managed in your estate plan. To accomplish this, you should sit down and speak with an experienced estate planning attorney in your area.

Don’t Wreck Your Loved One’s Estate – Decedent Vehicle Titling and Insurance

When a loved one passes away, many family members do not think twice about driving the decedent’s vehicle.  With relatives and friends coming in from out of town, the vehicle is convenient to use and cheaper than a rental car.  However, if an accident occurs, the entire estate of the decedent could be exposed to creditors. Both the titling of the vehicle and the car insurance policy need to be reviewed before any person drives the car anywhere. 

Change the Title to the Vehicle

First, the title of the car should be located to determine the ownership of the car.  If the decedent owned the car jointly with another person, the car ownership automatically passes to the joint owner on the title at the time of death.  The joint owner will still need to notify the Department of Motor Vehicles of the death, but the joint owner can treat the car as his or her own.

Review the Vehicle’s Insurance Policy

When the car was jointly owned by spouses, many insurance companies extend the existing insurance coverage to the surviving spouse.  It is still a good idea to check with your insurance agent prior to driving to make sure you are covered.  If the joint owner was a non-spouse, it is imperative to update your insurance agent prior to driving, as a new policy may need to be issued in the surviving owner’s name.

Why It’s Risky to Use the Vehicle Until These Issues are Resolved

If the decedent owned the car individually, no other individuals should drive the vehicle until the title is transferred out of the decedent’s name to the new owner.  Why? Because the insurance company will most likely deny all claims in the event of an accident, especially if they were not notified of the death of the policyholder.

In most situations, even the named executor is only able to drive the car to obtain maintenance such as inspections or oil changes.  The executor should not drive the car for personal use.  Even if an accident does not occur, if another individual drives the car for an extended period of time, they may be liable to future owner for diminishing the value of the property.

Depending on the estate planning the decedent completed, it could take several months before title is transferred to the new owner.  Once the vehicle has been transferred to the new owner, the new owner can either add the vehicle to their existing insurance policy or obtain a new insurance policy.

The convenience of driving the car is seldom worth the trade-off of exposing the entire estate to creditors.  Make sure you contact the decedent’s insurance agent and estate planning attorney for assistance in reviewing the title and insurance policy before anyone drives the vehicle.

Don’t Wreck Your Loved One’s Estate – Decedent Vehicle Titling and Insurance

When a loved one passes away, many family members do not think twice about driving the decedent’s vehicle.  With relatives and friends coming in from out of town, the vehicle is convenient to use and cheaper than a rental car.  However, if an accident occurs, the entire estate of the decedent could be exposed to creditors. Both the titling of the vehicle and the car insurance policy need to be reviewed before any person drives the car anywhere. 

Change the Title to the Vehicle

First, the title of the car should be located to determine the ownership of the car.  If the decedent owned the car jointly with another person, the car ownership automatically passes to the joint owner on the title at the time of death.  The joint owner will still need to notify the Department of Motor Vehicles of the death, but the joint owner can treat the car as his or her own.

Review the Vehicle’s Insurance Policy

When the car was jointly owned by spouses, many insurance companies extend the existing insurance coverage to the surviving spouse.  It is still a good idea to check with your insurance agent prior to driving to make sure you are covered.  If the joint owner was a non-spouse, it is imperative to update your insurance agent prior to driving, as a new policy may need to be issued in the surviving owner’s name.

Why It’s Risky to Use the Vehicle Until These Issues are Resolved

If the decedent owned the car individually, no other individuals should drive the vehicle until the title is transferred out of the decedent’s name to the new owner.  Why? Because the insurance company will most likely deny all claims in the event of an accident, especially if they were not notified of the death of the policyholder.

In most situations, even the named executor is only able to drive the car to obtain maintenance such as inspections or oil changes.  The executor should not drive the car for personal use.  Even if an accident does not occur, if another individual drives the car for an extended period of time, they may be liable to future owner for diminishing the value of the property.

Depending on the estate planning the decedent completed, it could take several months before title is transferred to the new owner.  Once the vehicle has been transferred to the new owner, the new owner can either add the vehicle to their existing insurance policy or obtain a new insurance policy.

The convenience of driving the car is seldom worth the trade-off of exposing the entire estate to creditors.  Make sure you contact the decedent’s insurance agent and estate planning attorney for assistance in reviewing the title and insurance policy before anyone drives the vehicle.