Bobby’s Blog

Estate Tax May Survive Federal Tax Reform

Congress is in the midst of debating tax reform which features an attempt to possibly repeal the federal estate tax (also referred to as the “death tax”). This tax typically effects high value estates that can result in a whopping 40 percent estate tax. In fact, the 40 percent estate tax affects approximately 0.2 percent of estates in America. That translates to 5,460 estates in 2017, according to the nonpartisan Tax Policy Institute. Though, there are sizable exemptions to the estate tax under current law. For example, in 2017, the estate tax exemption is $5.49 million per individual. This means an individual can leave $5.49 million to their heirs and pay no federal estate or gift tax, according to Forbes.

There has been long-held criticism behind the premise of the federal estate tax, especially in conservative circles. They point out that the estate tax is essentially a double-tax on hard-earned income and harms family-owned businesses and farms.

Stalled Negotiations Causing Lawmakers to Drop Estate Tax from Comprehensive Tax Reform

After months of debate, Republican members of Congress have found themselves between a rock and hard place. They are reportedly no longer even considering a full-fledged, comprehensive revamp of the tax code. Instead, they are focused on trying to put together a package of tax cuts for individuals and businesses that can pass both the House and Senate. In order to offset the lost revenue from these proposed tax cuts, members of Congress are considering keeping the estate tax since it is projected to raise revenue between $25 billion and $34 billion annually over the next decade.

If the estate tax repeal is dropped from the tax package, it could create a pathway to a bipartisan agreement where both Democrats and Republicans can get on board. However, dropping the estate tax repeal may actually make it harder to get through the House of Representatives since many conservative Republicans have campaigned on repealing the tax.

Other Legislative Options

If repeal is abandoned, there are other ways the estate tax could be modified. For example, lawmakers could create a higher exemption amount so even less estates are exposed to the 40 percent tax. Or, they could lower the tax rate so it is less onerous for the estates hit with the tax. Another option is a finite repeal where estates would essentially get an “estate tax holiday” for a few years. This would allow Congress to declare that they repealed the tax but keep some of the revenue projections in the legislation.

States Already Taking Action

I recently blogged about the steps many states have taken to modify or eliminate their estate taxes. It seems appropriate that the federal estate tax is now being reviewed by members of Congress. Whether or not the tax is actually repealed remains anyone’s guess.

Contact an Experienced Trust and Estate Planning Attorney Today

If you are concerned about how the estate tax might affect your estate plan, contact InSight Law today. Our team of experienced trust and estate planning attorneys possess a deep understanding of the estate tax and other relevant provisions within the tax code. Contact our office today to schedule a meeting.

Tips to Protect Yourself from The Equifax Credit Breach

Equifax, one of the “Big 3” credit reporting agencies (including Experian and TransUnion respectively) announced a massive data breach impacting an estimated 143 million consumers. Experts have declared this to be the worst consumer data breach in U.S. history. The breach means that nefarious characters now have access to Social Security numbers, dates of birth and address information of 143 million Americans.

Massachusetts Attorney General Maura Healey described the breach of Equifax to be “the most brazen failure to protect consumer data we have ever seen,” according to NPR.org. Several state AGs and the Federal Trade Commission have opened investigations into Equifax’s practices and policies. Members of Congress have demanded criminal investigations and a full accounting of what exactly happened to allow the personal information of 100+ million people to become accessible to criminals.

Take Action

Now is the time to take action and protect yourself and the health of your credit. One of the best tips being recommended my multiple financial advisors is to put a credit freeze on reports of Equifax, Experience, and TransUnion.

What Exactly is a Credit Freeze?

A credit freeze essentially prevents new credit accounts or loans from being opened in your name. After placing the freeze, you will set up or receive a unique personal identification number (PIN) to remove the freeze, according to Forbes.com.

A credit freeze will not help or harm your credit score. A credit freeze protects you more than enhanced monitoring or fraud alerts. With enhanced monitoring, agencies send an email or text if someone attempts to apply for a loan or account in your name.

Credit Freeze Not Free

There is a cost to freeze your credit and those costs vary from state-to-state. Residents of Virginia and D.C. typically pay $10 for a credit freeze and $0 to unfreeze the reports later on. Residents of Maryland pay $5 to freeze and $5 to unfreeze the reports. However, Equifax agreed to waive its freeze fees until November 21, 2017. Experian and TransUnion have not (as of yet) offered to waive their fees. If you were the victim of identity theft, you do not have to pay a fee in any state.
Unfreezing your credit will be necessary at some point in for you to apply for a new credit account or loan (e.g., mortgage, credit card, auto loan, etc.).

Other Steps You Should Take

In addition to freezing your credit, it is important to regularly check your credit reports. You are entitled to a complimentary, no-cost credit report every 12 months from each of the three major consumer reporting companies. You should also monitor every bank statement, put fraud alerts on your credit cards, and file tax returns as early as possible to try to prevent fraudulent filings, according to the aforementioned NPR.org article.

Do Not Delay

The moral of this blog is that you need to be proactive and take action. Just crossing your fingers and hoping you will not be effected is the wrong strategy. You need to protect your identity and your credit score

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.

Benefits of a Series LLC

The Uniform Law Commission (ULC) recently approved the Uniform Limited Liability Company Protected Series Act (ULLCPSA) to help provide consistency in the language used to structure Series LLCs. This was necessary since the series LLC is a fairly new concept for structuring ownership in a business, but it appears to be gaining popularity across the country. Eight states have already enacted their own Series LLC laws.

What Exactly is a Series LLC?

The Series LLC is a limited liability company comprised of a master LLC and other subservient LLCs that are separate from each other to reduce liability exposure. Some people have compared the Series LLC to a corporation that owns and manages multiple subsidiaries. Each LLC has its own set of assets that are distinct from the other LLCs, while the master LLC controls all LLCs in the series. Each LLC has its own owners and is only liable for its own debts and obligations.

A good way to think of a Series LLC is like a condominium complex. The condo association controls the entire complex, but separate owners are responsible for the management of each unit within the complex.

Series LLCs Gaining Popularity

This business structure has proven to be very popular in many states. For example, there are over 28,000 Series LLCs in Illinois alone, according to the Wall Street Journal. The District of Columbia enacted D.C. Code § 29-802.06 which allows an LLC operating agreement to establish a designated series of members, managers, or interests of a limited liability company, in which the members, managers, or interest holders have separate rights, powers, or duties with respect to specified property or obligations of the limited liability company. Virginia and Maryland have not enacted state-specific Series LLC legislation, as of the date of this posting.

The flexibility the Series LLC offers as a business-planning entity has resulted in immense popularity in the financial and insurance sectors. For example, if you own a venture capital fund with thousands of investors and hundreds of new start-up companies working towards an IPO, structuring your fund as a Series LLC makes sense. Why? Because venture capital funds may have some investors who only want to invest in new companies that use green technology. Other investors may only want to invest in new companies in the oil and gas industry. If the fund was structured as a traditional LLC, all of your investors and start-ups would be lumped together in the fund and you would have to try and appease everyone. Conversely, structuring the fund as a Series LLC would enable you to categorize companies into different Series (e.g., green energy, technology, oil & gas, etc.). Each investor would then be able to invest in the Series that it prefers to invest in.\

Speak to an Experienced Business Formation Attorney

If you are looking to start a business or need guidance on the best structure for your business, contact InSight Law today. We offer an array of business planning services. We tailor our services to the needs of our clients. We can work together to form a comprehensive strategy for your business, and build a relationship to ensure your business planning needs are taken care of.

Real Estate Developers May Be Able to Avoid Gift Taxes When Passing On Developer Units

In February 2016, two Central Park condos owned by then-candidate Donald Trump had an estimated market value of $790,000 and $800,000. In April 2016, Trump sold these condos to his son, Eric Trump, for pennies on the dollar ($350,000 each, to be exact).

For most people, this family-friendly sweetheart deal would typically incur hundreds of thousands of dollars in gift taxes. Not so for Donald Trump. Why? Because he was a real estate developer.

A real estate owner who sells a piece of property for less than it’s estimated worth typically has to pay gift tax on the difference between the sale price and the true market value, according to MSN.com. Any personal gifts worth more than $14,000 in a given year are subject to a federal tax that could be as high as 40 percent. However, in Trump’s case, since he the building’s developer selling the condos for the first time, he enjoyed a level of flexibility within the law to determine the estimated value of the condos.

Other taxes paid on the transaction indicate gift taxes were not paid by Trump. He reportedly paid a total of $13,000 in city and state transfer taxes, according to New York City property records. Those transfer taxes, according to a spokeswoman for the city’s Department of Finance, are not usually paid when “bona fide gifts” are involved. Furthermore, when a home sale is reported as a gift, buyers and sellers typically disclose that the sale is taking place between two relatives in the transfer records. The Trumps did not have such an indication.

The condo sales were disclosed in President Trump’s 2017 federal financial disclosure, which was released by the U.S. Office of Government Ethics. The buyers of the two condos were listed as two limited liability companies that were managed by Eric Trump.

This transaction likely means that Eric Trump will probably be able to sell the condos later on at a much higher price.

Strategies for Avoiding Unnecessary Gift Taxes

Obviously, unless you are a real estate developer, the gift tax avoidance strategy described above probably will not apply to you. However, there are other strategies you could potentially utilized under the tax code. For example, under current IRS regulations, if you make a gift in excess of $14,000, you must file a Form 709 to report the gift and pay tax on the amount above $14,000.  The gift tax threshold for married couples is $28,000 per donee.

Here are some strategies that you could consider in making a gift in excess of the exemption amount without being subject to gift taxation:

  • Pay someone’s medical expenses. Just make sure the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying someone’s college tuition. Like with the medical expenses, make sure the payments are made directly to a third party educational institution. If the payments go directly to the student, you fall in the gift tax zone.
  • Make a gift to a qualified charitable organization formed under IRC 501(c)(3). This has a double benefit in that the contribution is tax deductible and is exempt from the gift tax limitation.

To learn more, sit down with an experienced trust and estate planning attorney in your area.

Real Estate Developers May Be Able to Avoid Gift Taxes When Passing On Developer Units

In February 2016, two Central Park condos owned by then-candidate Donald Trump had an estimated market value of $790,000 and $800,000. In April 2016, Trump sold these condos to his son, Eric Trump, for pennies on the dollar ($350,000 each, to be exact).

For most people, this family-friendly sweetheart deal would typically incur hundreds of thousands of dollars in gift taxes. Not so for Donald Trump. Why? Because he was a real estate developer.

A real estate owner who sells a piece of property for less than it’s estimated worth typically has to pay gift tax on the difference between the sale price and the true market value, according to MSN.com. Any personal gifts worth more than $14,000 in a given year are subject to a federal tax that could be as high as 40 percent. However, in Trump’s case, since he the building’s developer selling the condos for the first time, he enjoyed a level of flexibility within the law to determine the estimated value of the condos.

Other taxes paid on the transaction indicate gift taxes were not paid by Trump. He reportedly paid a total of $13,000 in city and state transfer taxes, according to New York City property records. Those transfer taxes, according to a spokeswoman for the city’s Department of Finance, are not usually paid when “bona fide gifts” are involved. Furthermore, when a home sale is reported as a gift, buyers and sellers typically disclose that the sale is taking place between two relatives in the transfer records. The Trumps did not have such an indication.

The condo sales were disclosed in President Trump’s 2017 federal financial disclosure, which was released by the U.S. Office of Government Ethics. The buyers of the two condos were listed as two limited liability companies that were managed by Eric Trump.

This transaction likely means that Eric Trump will probably be able to sell the condos later on at a much higher price.

Strategies for Avoiding Unnecessary Gift Taxes

Obviously, unless you are a real estate developer, the gift tax avoidance strategy described above probably will not apply to you. However, there are other strategies you could potentially utilized under the tax code. For example, under current IRS regulations, if you make a gift in excess of $14,000, you must file a Form 709 to report the gift and pay tax on the amount above $14,000.  The gift tax threshold for married couples is $28,000 per donee.

Here are some strategies that you could consider in making a gift in excess of the exemption amount without being subject to gift taxation:

  • Pay someone’s medical expenses. Just make sure the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying someone’s college tuition. Like with the medical expenses, make sure the payments are made directly to a third party educational institution. If the payments go directly to the student, you fall in the gift tax zone.
  • Make a gift to a qualified charitable organization formed under IRC 501(c)(3). This has a double benefit in that the contribution is tax deductible and is exempt from the gift tax limitation.

To learn more, sit down with an experienced trust and estate planning attorney in your area.