Archive for the ‘News’ Category

Open Letter about the 2010 Tax Act

Friday, January 7th, 2011

January 7, 2011

Dear Friends:

The estates of wealthy individuals who died in 2010 didn’t pay any federal estate tax, but that situation has changed. Under the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” the federal estate tax, which disappeared for 2010, springs back to life this year and is imposed at the top rate of 35% of the estate’s value after the first $5 million. This open letter provides a brief overview of the new law.

Background

The modern estate tax dates back to 1916, when it was imposed at a rate of 10% on the portion of estates above $50,000. Over the following years, the rates and exemption amounts have varied, reaching a high of 77% from 1941 to 1976 with a $60,000 exemption amount. When Ronald Reagan was President, the exemption was raised, and an unlimited marital deduction was introduced.  Over the years, the estate tax exemption became the “applicable exclusion”, and the amount gradually increased over the years.  The applicable exclusion for the estate tax was $1.5 million from 2004 and 2005 and $2 million from 2006 through 2008.  In 2009, the estate tax exclusion was $3.5 million, and it was unlimited in 2010.

New law

During 2011 and 2012, the top gift and estate tax rate will be 35%. For 2011, the exemption amount will be $5 million per individual (indexed for inflation after 2011). At those levels, the vast majority of estates (all but an estimated 3,500 nationwide in 2011) will not be subject to any federal estate tax, and the tax will raise about $11.4 billion for the government. By way of comparison, the 55% tax with a $1 million exemption would have resulted in about 43,540 taxable estates in 2011, and raised about $34.4 billion.

The new law also gives heirs of decedents dying in 2010 a choice of which estate-tax rules to apply – 2010′s or 2011′s. That’s important because although there is no estate tax in 2010, some inherited assets are subject to higher capital gains tax under the 2010 rules, a situation that actually raises the tax burden for some heirs. Inherited assets under the 2010 rules have a tax basis equal to the price when they were purchased (referred to in tax parlance as “carryover basis”) rather than the price at death. That could lead to a significant tax burden for heirs who sell assets such as stocks that had been held for many years and have greatly appreciated in value. Under the 2011 rules, by contrast, heirs will be allowed to inherit assets with a “stepped-up basis.” While most heirs would choose the 2011 regime ($5 million exemption from both estate and generation-skipping tax and an unlimited step-up in the basis of assets to their current market value), the heirs of superrich decedents could find it more advantageous to elect the 2010 law (limited step-up in the basis of assets and no estate tax). If the executor makes the election to have the 2010 rules apply, the estate tax return’s due date will not be earlier than the date that’s nine months after the new law’s enactment date.

For gifts made after December 31, 2010, the gift tax will be reunified with the estate tax. Under the new law, the estate and gift tax exemptions will be reunified starting in 2011, which means that the $5 million estate tax exemption will also be available for gifts. The law in effect prior to 2010 provided a $3.5 million lifetime exemption for estates, but only $1 million for gifts. The gift tax rate, starting in 2011, will be 35%. The exemption from the generation-skipping transfer tax (GST tax) – the additional tax on gifts and bequests to grandchildren when their parents are still alive – will also rise to $5 million from the $1 million it would have been without the new law. The GST tax rate for transfers made in 2011 and 2012 will be 35%.

From a planning standpoint, a nice feature of the new law is that it makes it easier to transfer the $5 million exemption to a surviving spouse, so married couples can shield $10 million of their assets from taxes. In the language of tax professionals, the estate tax exemption will be “portable.”

We encourage everyone to review their estate plan with their estate planning attorney to make sure it is up-to-date, not only in light of the new tax law, but also in light of any changed circumstances relating to the intended beneficiaries.

Open Letter re 2010 Estate Tax Repeal

Friday, January 29th, 2010

January 29, 2010

To Our Clients, Former Clients, and Friends:

Overview

This letter is being sent to you because you are a colleague, a friend, a client, or a former client of The Rushforth Firm, Ltd. or a firm with which attorney Layne Rushforth was previously affiliated.  We are sending this letter to make you aware of the current status of the estate tax law and to suggest that you may wish to review your estate-planning documents, whether or not taxes are a concern.

One-Year Estate Tax Repeal?

Due to Congressional inaction, the estate tax and the generation-skipping tax were automatically repealed as of January 1, 2010 for individuals dying during 2010 and for generation-skipping transfers made in 2010.  Unless and until Congress modifies the Internal Revenue Code, on January 1, 2011, the estate tax and generation-skipping tax will again be effective with rates up to 55% (instead of the 45% rate that applied in 2009) and an exclusion of $1,000,000  (instead of the $3.5 million exclusion that applied in 2009).  We expect a change in the law, but we cannot predict what or when.

The federal gift tax remains in effect, with some changes. Gifts of more than $13,000 ($26,000 per couple) during 2010 are taxable, cumulative lifetime taxable gifts of more than $1 million ($2 million per couple) will trigger a gift tax, and gifts made in 2010 are taxed at 35%.

Like the tax- and estate-planning community at large, we expected that Congress would amend the tax laws before the end of 2009 to prevent this result.  In 2009, we thought it would be prudent to wait for Congressional action before considering tax-related changes to estate-planning documents.  Unfortunately, now that 2010 has come without Congressional action, some wills and trusts contain tax-related clauses that do not work as intended under the law as it presently exists.

Do My Documents Need to Be Changed?

Because there is a possibility that the estate tax may not apply in 2010 and a possibility that the estate tax exclusion in 2011 will revert to $1 million, we recommend that you review your will or trust immediately.  Even though we consider both possibilities unlikely, we suggest that you contact us to discuss your will or trust if any division or distribution of assets depends on the marital deduction, the federal estate tax, the unified credit, the “applicable exclusion amount” for the estate tax, and/or the generation-skipping transfer tax.

For example, if you have a trust that divides into subtrusts when one spouse or partner dies (e.g., a “Credit-Shelter Trust”, a “Decedent’s Trust”, a “Survivor’s Trust”, and/or a “Marital Trust”), and all of those trusts end up going to the same beneficiaries on the same terms and conditions, the lack of an estate tax in 2010 will probably make little or no difference with respect to how trust assets will ultimately be distributed, depending on how your trust is worded.  On the other hand, for couples who have different beneficiaries for the different subtrusts — especially if the surviving spouse or partner is excluded as a beneficiary from one or more of the subtrusts — a modification may be very important to make sure your intent is not frustrated.

Similarly, if your trust contains a formula creating a grandchildren’s trust at your death with the maximum amount that can pass free of the generation-skipping transfer tax (“GST tax”), your death in 2010 could result in 100% of your estate going into such a trust, perhaps leaving nothing for your children or other beneficiaries.
In short, if tax clauses or tax-related formulas make a difference as to who gets what, leaving your trust unmodified may have significant unintended consequences.  The greatest potential for unintended consequences exists when each spouse or partner has different beneficiaries and assets are allocated based on a tax-based formula.  The problems can be amplified when the one spouse or partner has significant separate property.

Before deciding if you want to make changes to your will or trust, you need to answer these questions:  (1) How would I plan my estate if there were no estate tax and no GST tax?  (2) How would my planning change if the law is re-enacted with a $1 million exclusion for both of those taxes?  (3) How would my planning change if the law is re-enacted with a $3.5 million (or larger) exclusion for both of those taxes?  (4) How does my current plan compare with what I really want?

Tax-Basis Adjustments

Effective for people who die in 2010, there is a limit to the assets that will have their income tax cost basis adjusted to date-of-death values.  For couples who have assets with significant appreciation, estate planning documents may need to be modified to maximize the assets that are entitled to the date-of-death basis adjustment when one spouse or partner dies.

What is Congress Going to Do?

It is impossible to predict how and when Congress will ultimately modify the tax laws. The House of Representatives tried to maintain the status quo by passing a bill that would have maintained the transfer tax rates and terms at their 2009 levels.  The Senate could pass a similar bill in 2010, making it retroactive to January 1, 2010.  Even if this happens, any retroactive enactment might be subject to a constitutional challenge, but the United States Supreme Court has upheld retroactive tax legislation in the past, and we would expect that result if Congress acts relatively soon.

2010 Planning Opportunities?

The current tax law — including the 35% gift tax rate and the lack of a GST tax — combined with recession-reduced asset values may provide a once-in-a lifetime gift-planning opportunity.  We will be happy to discuss potential tax-planning techniques under 2010 law, but if you choose to rely on current law, you will be assuming the risk that the law could be changed retroactively.

Non-Tax Issues

Whether or not taxes are a concern for you, if your estate planning documents have not been revised since 2001, they are almost certainly out-of-date and should be reviewed.  We suggest that you consider the following:

1.    All of the assets you want governed by a trust or business entity (such as a corporation, limited partnership, or limited-liability company) must be owned by the appropriate trust or business entity.  If Nevada real property is involved, we can prepare the appropriate deed(s).  If you have non-Nevada real property that is not in the name of a trust, we encourage you to arrange to sign and record a deed conveying that property into the name(s) of the current trustee(s).  We recommend that this be done by an experienced estate-planning attorney, but you can elect to have this done through a title company or through a service such as Udeed (http://udeed.com).

2.    It is always good to periodically review your estate planning documents to make sure the designations of beneficiaries and fiduciaries (e.g., executor, trustee, guardian, agent under a power of attorney, etc.) are consistent with your current wishes.  Even with irrevocable trusts where beneficiaries cannot be changed, the trust may permit you or someone else to modify the trustee designation.

3.    Be sure to sign a health-care power of attorney using a form that contains provisions consistent with the new Nevada law that became effective October 1, 2009.  A suggested health-care power of attorney form and a related memo are found on our web site (http://rushforth.net).

4.    Make sure your trust is up-to-date and compliant with the laws of the state in which you wish the trust to be governed.  We can amend your out-of-state revocable trust to be governed under Nevada law, and even some irrevocable trusts can be modified to be Nevada trusts.  If you have a revocable trust or will that was signed when you were a Nevada resident, but you have moved out of state, you might also consider updating your trust or will with someone who is licensed in the state in which you now reside.  If you have moved to California (where Joey is licensed) or Utah (where Layne is licensed), we may be able to assist you to modify your trust to comply with the laws of those states.  To find a qualified trust and estate attorney in other states, go to the web site of the American College of Trust and Estate Counsel (http://www.actec.org), and click on “Find an ACTEC Fellow”.

Document Review

If you would like to go over your trust or other estate-planning documents with us, please contact the office to schedule an appointment with one of us.  Because many trusts will require no change, to our existing and former clients for whom we prepared one or more trusts, we offer a no-charge 15-minute telephone consultation to briefly go over your trust and to decide if a more detailed review and discussion are merited.  In many cases, a simple amendment is all that will be necessary; however, in some cases, more significant revisions may be appropriate.  One of us (Joey or Layne) will be able to give you an estimate of the changes after we review your documents.  Except for the first 15 minutes of the scheduled telephone consultation with existing and former trust clients, all time will be billed by the hour at our standard hourly rates.  We have enclosed a recently updated memo outlining our current fee and billing policies.

The Next Step Is Yours

Please contact one of us if you have any questions or if you wish to be removed from our mailing list.  For quick and simple questions, we encourage you to send them by e-mail or by fax.

Regardless of whether or not you need our services, we extend our best wishes for a happy, healthy, and prosperous 2010.

Sincerely,

LAYNE T. RUSHFORTH
layne@rushforth.net

JOSEPH J. POWELL
joey@rushforth.net

© Copyright 2010 The Rushforth Firm, PLLC.  All rights reserved.

No Estate Tax in 2010?

Thursday, December 31st, 2009

In 2001, Congress passed significant tax legislation that would gradually increase the estate tax exclusion, leading to the repeal of the estate tax in 2010.  To make the fiscal impact seem less, the Republicans crafted the legislation so that the repeal would only last one year, and the pre-2001 tax laws would become reinstated in 2011.  The Republicans intended to eventually make the estate tax repeal permanent, and the Democrats assumed they would stop the madness within the nine years before the estate tax actually got repealed.  Not too many people would have guessed that all attempts to change the estate tax permanently — either by repeal or by fixing a significant exclusion that would continue indefinitely — would have failed by December 31, 2009.  The unthinkable has happened.  We enter into 2010 with no estate tax in place.

With a twisted sense of humor, some commentators have decided that 2010 is the year to arrange a convenient death for aging loved ones with large estates.  I suspect that there are some wealthy folks that may need to re-think the designation of the persons who have the right to “pull the plug”, and others may even need to engage bodyguards and hire additional security.

Seriously speaking, many estate plans never contemplated that the estate tax would be repealed, and there there may be unintended consequences.  Everyone whose will or trust has any type of estate tax planning language in it needs to review it immediately to make sure that the documents include a provision that deals with the possible scenario where there is no estate tax.  The unintended consequences may be less radical for married couples in community property states whose estates consist primarily of community property, and there may not be much problem if both spouses have common beneficiaries.  On the other hand, a surviving spouse may get nothing if children from a prior marriage are entitled to the “maximum amount that can pass tax free”.  Because the children can get everything tax free, there is nothing left for the spouse to get.

Congress is expected to”fix” things after the first of the year, and many expect the changes to be retroactive.  A retroactive change to gift and estate tax laws has happened previously.  When I say that “Congress is expected” to do anything, I realize that I expected Congress to have adopted something to “fix” things long before now.  No one really knows what is going to happen.  Fixing the estate tax laws is obviously not a high priority for those presently in charge (especially in the Senate), and only time will tell what will really happen.

Will Congress Act on Estate Taxes before 2010?

Thursday, December 17th, 2009

The 2001 tax act provided for a total repeal of the estate tax in 2010 and a reinstatement of pre-2001 tax laws in 2011 and thereafter.  It was assumed by everyone that Congress would act to either permanently repeal the estate tax or to otherwise modify the law prior to 2010.  No one would have guessed that on December 17, 2009 we would still be waiting for Congress to act.  If Congress does nothing before the end of the year, there will be no estate tax next year (2010).   Wealthy people with greedy heirs and beneficiaries may have to hire bodyguards next year.

On December 3, the House of Representatives passed legislation that would continue the status quo indefinitely, but the Senate has not acted.  To avoid an estate tax repeal for 2010, the Senate must act, the differences in the House and Senate versions must be reconciled in conference, and the President must sign the resulting legislation.  Whether or not that happens within the next two weeks is anybody’s guess.

House Passes Estate Tax Extension

Thursday, December 3rd, 2009

On Thursday, December 3, 2009, the U.S. House of Representatives passed HR 4154, which essentially extends the 2009 gift and estate tax exclusions and rates indefinitely.  The “applicable exclusion” for the federal gift tax will remain at $1 million, and the “applicable exclusion” for the federal estate tax will remain at $3.5 million.  The act cancels the repeal of the estate tax scheduled for 2010 and the reversion to pre-2001 tax law scheduled for 2011, as well as the carryover basis rules for capital gain tax purposes.  For the full text of the act, click here.

The Senate is considering its own version of a tax-extension bill, and then the two bills will have to be reconciled in conference.  Thus, it remains to be seen what will actually get to the President’s desk.

2009 Nevada Legislative Changes

Thursday, November 19th, 2009

The Legislative Committee of the Probate and Trust Section of the State Bar of Nevada, along with others, proposed some legislation intended to improve Nevada’s laws (the “Nevada Revised Statutes” or “NRS”) as they relate to estates and trusts.  This memo will attempt to highlight some of the key changes made by the 2009 legislature and signed into law by the Governor.  Within each bill, the changes are listed essentially in the order of their appearance in the bills mentioned. In each bill, several minor changes have been excluded.  Other bills may be added later.  For an index of all 2009 statutory changes, click here.

Unless specifically noted otherwise, the changes officially took effect October 1, 2009.

  • SENATE BILL 283 (Chapter 393 of the 2009 Statutes)
    • Nevada law now provides for domestic partnerships giving partners and former partners the same protections and benefits as spouses, former spouses. and widow(er)s.
  • SENATE BILL 314 (Chapter 64 of the 2009 Statutes)
    • Nevada has made significant changes with respect to powers of attorney. Refusal to honor power of attorney can result in liability for attorneys fees if a court order is obtained to enforce the power.
  • ASSEMBLY BILL 471 (Chapter 310 of the 2009 Statutes)
    • As to the mortgage or trust deed executed by the original purchaser of a primary residence as part of the original purchase transaction that takes place on or after October 1, 2009, if the lender is a financial institution, the lender cannot get a personal judgment against the borrower if the proceeds from a foreclosure (of a mortgage) or trustee’s sale (under a trust deed) do not fully pay off the loan.
  • SENATE BILL 277 (Chapter 358 of the 2009 Statutes)
    • NRS 133:  A spouse or a child who is omitted from a will made prior to the marriage or birth cannot claim against the will if he or she has been provided for in another manner (such as under a living trust).
    • NRS 136:  A lost will has been made easier to probate.
    • NRS 137:  The enforcement of a no-contest clause in a will has been strengthened, but there is an exception for a challenge brought in good faith and based on probable cause.
    • NRS 138 and 139:  A felony conviction generally disqualifies a person from service as a personal representative (executor or administrator), but the court may determine otherwise.  The court may also appoint as special administrator a non-Nevada person serving alone if that person is named as personal representative in the will.
    • NRS 146: The statutes relating to setting aside small estates for the benefit of a spouse and/or minor children have been clarified, and before setting aside probate assets for their benefit without the payment of creditors, the court can take into consideration other resources.
    • NRS 148:  If real estate is sold to a person who outbids the original offer, the real estate commission is to be divided equally between the real estate agent of the original proposed buyer and the real estate agent of the person making the highest bid.
    • NRS 150:  The compensation for probate attorneys may be determined in a number of ways, including computation based on a percentage of the probate estate.  If a percentage is used, the statute sets the “allowable” compensation as 4% of the first $100,000, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000, and half a percent for the next $15,000,000.  For estates over $25 million, the court determines a “reasonable amount”.  The attorney may also ask for extraordinary fees.  All attorneys’ fees are subject to court approval after a hearing.
    • NRS 150:  The tax apportionment statute was expanded to apply to the federal gift and generation-skipping transfer taxes, as well as the federal estate tax.
    • NRS 153:  A trustee can petition the court to permit the division or allocation of community property using different assets of equal value, rather than just a 50% undivided interest in each asset.
    • NRS 30:  A person who has made a will or trust may ask the court for a declaratory order determining its validity and its meaning prior to his or her death.  In part, this is intended to avoid post-death disputes over documents where there is a question of the mental capacity of the person making the will or trust.  This action must be brought in probate court.
    • NRS 163:  The enforcement of a no-contest clause in a trust has been strengthened, but there is an exception for a challenge brought in good faith and based on probable cause.
  • SENATE BILL 287 (Chapter 215 of the 2009 Statutes)
    • NRS 159:  A felony conviction generally disqualifies a person from service as a guardian, but the court may determine otherwise.  Certain guardianship petitions can now be brought by an “interested person” and not just the guardian.
    • NRS 163:  Discretionary trusts are protected against the claims of creditors. The law makes it more difficult for a person to be deemed to have improper dominion or control over a trust, making conflicts of interest irrelevant.  It is also more difficult for someone to argue that the trustee of an irrevocable trust is the alter ego of the trust’s settlor, expressly stating that requests honored by the trustee are not sufficient.  While “support interest” are enforceable, no one can compel a distribution that is discretionary.  Protections have been added to eliminate liability for persons appointed as an adviser or a “trust protector”.
    • NRS 163:  The trustee can “decant” or pour assets from one trust into a new trust under appropriate circumstances, but not to the detriment of existing beneficiaries.
    • NRS 163:  The fiduciary powers given in NRS 163.265 through 163.410 are incorporated into a will or trust automatically unless the testator or settlor provides otherwise.
    • NRS 164:  An income interest can be converted into a “unitrust” interest (which pays a fixed percentage out of income and, if needed, principal), but the rules are very strict and narrow.
    • NRS 164:  The “proposed actions” that can be approved under the procedure given in NRS 164.725 have been expanded, including a proposal to decant part of a trust’s assets into a second trust, a proposal to create a unitrust, and a proposal to allow the trustee to lend to itself.
    • NRS 164.  If the trustee of a trust gives a person notice of the existence of the trust and that person’s inclusion or exclusion as a beneficiary, any contest brought by that person must be brought within 120 days from the date the notice is given.
    • NRS 164.  The need for legal representation for minors, incapacitated persons, unknown, and unborn beneficiaries has been clarified. If persons who are not represented by counsel have essentially the same interests as persons who are represented by counsel, the unrepresented persons do not require separate legal counsel.
    • NRS 164.  When one settlor of a trust holding community property dies, the trustee may allocate the community property on a non-pro rata basis if each spouse’s interest has an equal fair market value.
    • NRS 164. The probate court has jurisdiction over a revocable trust while the settlor is living if the court determines that the settlor cannot adequately protect his or her own interests or if an interested person shows that the settlor is incompetent or susceptible to undue influence.
    • NRS 165.  NRS 165.135 applies to nontestamentary trusts unless the settlor declares otherwise.
    • NRS 166.  The spendthrift trust laws now make it clear that the settlor of a Nevada self-settled spendthrift trust (sometimes called a “Nevada asset-protection trust”) may act as a cotrustee, may hold the power to remove and replace the trustee, and may have the right to direct the investments of the trust. The spendthrift trust law was updated to allow accumulation trusts permitting no distributions without negative spendthrift trust protection.  Actions to enforce beneficiaries’ rights under a trust must be made in the probate court. To negate a transfer to a spendthrift trust, each creditor must prove that the transfer was fraudulent under NRS Chapter 112 or “otherwise wrongful” as to that creditor.  Transferring property out of a spendthrift trust for mortgage-financing purposes and a reconveyance back to the trust thereafter are disregarded for purposes of calculating the two-year look-back period.  For an adviser to the settlor or the trustee to be liable to a claimant, the claimant must show that the advisor acted “knowingly and in bad faith”, and the claimant must show that the advisor’s actions directly cause the damages suffered by the claimant.
    • NRS 21 and NRS 31:  Undistributed assets of spendthrift trusts and discretionary trusts are excluded from garnishment and other execution.
  • SENATE BILL 141 (Chapter 73 of the 2009 Statutes)
    • A new chapter is added to NRS Title 12 adopting the Uniform International Wills Act.
  • © Copyright 2009 The Rushforth Firm, PLLC. All rights reserved.

    Estate Taxes in 2009 and Beyond

    Thursday, August 28th, 2008

    What will happen to the federal estate tax after the presidential election?

    Best Guess:  The current consensus of estate planning advisors is that the applicable exclusion will be frozen at $3.5 million, and we will never see the one-year repeal of the estate tax in 2010 followed by a reinstatement of pre-2001 tax law in 2011.

    Status Quo:  Unless Congress acts this year to change current law, on January 1, 2009 the “applicable exclusion amount” for the federal estate tax will be $3.5 million.  Without further Congressional action, the estate tax will be repealed in 2010 for one year, and in 2011 the tax law reverts to pre-2001 law, which provides for a $1 million applicable exclusion.

    Presidential Candidates:  Barack Obama would leave the applicable exclusion at $3.5 million per person and the tax rate at 45%.  John McCain proposes a $10 millionapplicable exclusion and an estate tax rate of 15%.  For a summary of Barack Obama’s tax proposals, see http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf.  For a summary of John McCain’s proposals (of which taxes are only a part), see http://www.johnmccain.com/Images/Issues/JobsforAmerica/briefing.pdf.  For one point of view of both tax proposals,

    Future Outlook:  Will the status quo remain in effect?  No one really knows exactly what Congress and the President will  do next year.  The makeup of Congress, the identity of the President, and the status of the economy will be major factors.  For now, however, neither John McCain nor Barack Obama proposes a total elimination of the tax or a reversion to the 2001 tax exclusions and rates. For now, it seems safe to plan on the 2009 exclusion of $3.5 million as the permenant figure.  Regardless of the increase of the estate tax exclusion, the lifetime gift tax exclusion will remain at $1 million, and any amount of the gift tax exclusion that is used will reduce the $3.5 million estate tax exclusion available at death.

    Gift-Tax Exclusion:  Other than a possible cost-of-living adjustment already provided for by law, there is no proposal to reduce or increase the $12,000 annual gift tax exclusion, which allows a donor to give up to $12,000 per recipient during each calendar year.  (Gifts covered by the annual gift tax exclusion amount do not count against the $1 million exclusion for lifetime gifts or against the $3.5 million exclusion for transfers at death.)

    2007 Nevada Law Changes

    Saturday, June 23rd, 2007

    The 2007 Nevada legislature made a few changes that affect trusts and estates.  (References to “NRS” are references to the “Nevada Revised Statutes”.)

    • NRS Chapter 115 was amended to increase the homestead exemption amount from $350,000 to $550,000. Existing homesteads are automatically covered by this amendment.
    • NRS Chapter 145 was modified to allow the deduction of encumbrances in determining whether or not an estate was $200,000 or less for purposes of qualifying for summary administration.
    • NRS Chapter 146 was modified to increase the size of an estate that may be set aside without probate administration from $75,000 to $100,000.
    • NRS Chapter 153 was clarified to allow petitions to enforce the terms of a trust and to compel a trustee to comply with the terms of the trust and/or applicable law. The provision allowing a beneficiary to petition for redress now permits a court to award attorneys’ fees, to reduce the trustee’s compensation, and, if there is proof of a trustee’s neglect or breach of duty, the court may compel the trustee to pay costs of a court action (including attorneys’ fees) out of the trustee’s own pocket.
    • NRS Chapter 164 was amended to simply the procedure for moving trusts from one court to another.
    • NRS Chapter 166 was amended to clarify the laws relating to self-settled spendthrift trusts (also called asset-protection trusts). These were technical changes, but the primary change is that creditors are deemed to be aware of transfers that are made public by recording or filing in public records. This makes the two-year period during which trust transfers can be challenged easier to to calculate, especially as to claimants existing at the time of the transfer.
    • NRS Chapter 21 was modified to clarify the exemption of self-settled spendthrift trusts.
    • Other technical changes were made in NRS Chapters 132, 134, and 143.

    This article will be updated as other pertinent changes to the law are discovered.

    Senate Defers Estate Tax Repeal

    Wednesday, April 18th, 2007

    Under current estate tax law, the “applicable exclusion” for estate taxes is $2 million in 2007 and 2008, increasing to $3.5 million in 2009.  In 2010, the estate tax would be repealed, but in 2011 it would reappear, reverting to a $1 million exclusion.  In its 2008 budget resolution, the U.S. Senate voted to extend the 2009 estate tax “applicable exclusion” of $3.5 million through 2012.  Action is required by the House of Representatives to effectuate this change.  Attempts were made to increase the exclusion to $5 million and to eliminate the tax altogether, but those efforts failed.

    Pension Protection Act of 2006 Contains Charitable Giving Provisions

    Tuesday, August 15th, 2006

    The Pension Protection Act of 2006 [H.R. 4, 109th Cong, 2nd Sess. (2006)] was passed by Congress, and the President has indicated he will sign the bill. This act includes several provisions altering the tax treatment of certain charitable gifts and corporate-owned life insurance (COLI) arrangements.

    • The bill allows an income tax exclusion for up to $100,000 per year of charitable distributions from regular and Roth IRAs. This does not apply to simplified employee pension plans or simplified retirement accounts. The distributions must be made directly to “50% charities”, which include most public charities but not private foundations, donor-advised funds , supporting organizations, or charitable remainder trusts. Qualifying charitable distributions will count towards the minimum distribution requirements. This provision applies only for distributions made in tax years beginning in 2006 or 2007.
    • The bill imposes a temporary reporting requirement for certain exempt organizations with respect to the acquisition of interests in certain life insurance policies. This is in response to some abusive insurance plans that have involved charities without significantly benefiting the charities.
    • The bill denies the deduction for contributions of clothing or household items that are not in good condition or that have minimal monetary value.
    • The legislation modifies the calculation of the tax on private foundation net investment income so that more income is taxable.
    • New rules apply to charitable contributions to donor-advised funds. Gifts to donor-advised fund have new substantiation requirements. The law now outlines how the excess business holdings rules of Code Sec. 4943 apply to donor advised funds, and it imposes the excess benefit excise tax under Code Sec. 4958 on certain distributions from donor advised funds to or for the benefit of disqualified persons.
    • The favorable income, estate, gift, and GST tax treatment of Code Sec. 529 plans has been made permanent.
    • Excise taxes apply to certain corporate-owned life insurance (COLI) arrangements.

    You can search for the text of the legislation at http://thomas.loc.gov/.

    Estate Tax Law Update

    Friday, August 11th, 2006

    On August 2, 2006 the Senate turned away Republican-sponsored tax reform legislation that would have adopted a $5 million “applicable exclusion” for estate tax purposes beginning in 2010. This proposal had been approved by the House of Representives on July 28. In addition to increasing the exclusion, the proposed legislation would have made the estate tax rate equal to the rate of the income tax on capital gains, reducing it from the current maximum estate tax rate of 46% (in 2006) to 15% (or 20% after the current capital gain tax law expires).

    It will take 60 votes in the Senate to get past a filibuster by those committed to obstructing this type of legislation.

    Stay tuned. . . .