Estate Planning Awareness Month

by  /  Estate Planning, News

Alright…November is National Election Month and that is pretty cool, but OCTOBER IS NATIONAL ESTATE PLANNING AWARENESS MONTH, and that is AWESOME! According to LexisNexis, 55% of American adults do not have effective estate plans [Wills] in place. This jumps to 68% of Afro-American adults and 74% of Hispanic adults. Clearly these numbers, together with a general lack of financial awareness among our adult populace, is a major socioeconomic issue worthy of our attention. October is, conveniently, six months distant from April, Financial Literacy Month, so we can apportion our attention to this vital issue equally throughout the year.

You may have seen George S. Kaufman’s play or Frank Kapra’s movie (starring Jimmy Stuart, Jean Arthur and Lionel Barrymore), You Can’t Take It with You, but do not confuse the title’s sentiment with a truism. When we pass away, our life’s accumulated assets go in one or more of three directions:

  1. Our Descendants, Relatives, Friends or other Designees
  2. Our Chosen Charities
  3. According to the Laws and Regulations of Our Federal and State Governments

We cannot take our assets with us. Either we pick from columns A or B, or we default to column C. If we are given the opportunity to control the disposition of our assets and our affairs after our lives, why would we ever fail to develop an estate plan, no matter how simple? We all have estate plans… either we develop them or the state has them written into their statutes, to apply if we fail to form our own.

Hopefully you have never experienced it personally and can rely on your humble scrivener’s assertion that you do an incredible disservice to your heirs when you “shuffle off this mortal coil” without an effective estate plan in place. You make the lives of those you leave behind miserable for a protracted period while they deal with your state and county’s intestate succession rules. If you feel no need to do it for yourself, do it instead for those you love, but do prepare at least a Will.

Lack of financial awareness is an even larger issue. We have previously discussed this in the area of retirement planning. That the last twenty years’ shift from defined contribution “pensions” to defined contribution “401(k) plans” has transferred the responsibility for our retirement security from our employers to us, is an unfortunate reality and a huge risk, given the relative lack of financial sophistication in our wage-earning and retirement-saving population. Previous submissions have discussed the woeful percentage of impending retirees who have adequate balances in their defined contribution plans as they approach the red zone before and after retirement.

Having taught Financial Planning to senior Finance majors at a nearby university, your scrivener has given this matter a good bit of thought. If graduating Finance major seniors, venturing out into the workplace, have not been taught the fundamentals of personal tax and finance prior to taking a class in their final semester, it is fair to assume that their peers in the humanities, or community colleges, or the malls or mills, have somewhat less financial expertise with which to manage their affairs. This could prove catastrophic when a generation of baby boomers retire with only $50,000 in retirement assets, forcing them to rely on social security for their main support throughout their ever-lengthening life expectancies.

The answer lies in educating our youth as to financial basics and then carrying this education through secondary and advanced education.

  • Every freshman in every college, university and community college should take a basic personal finance class [even if they are journalism majors].
  • The process should start in middle school and continue throughout our adult life.
  • The FDIC sponsors Money Smart, a comprehensive financial education curriculum designed to help low- and moderate-income individuals outside the financial mainstream enhance their financial skills. [].
  • Participants in defined contribution plans must receive meaningful education on what they will need in retirement and what they will need to do before retirement in order to save that amount of money.
  • We should quit debating whether we owe a fiduciary duty to plan participants not to steal their money, and, instead, debate the best way to avoid a generation of destitute retirees.

But I digress… celebrate Estate Planning Awareness Month by reviewing your Will. If you do not have one, write one today, before the unexpected happens…


Remember, it’s not what you make that matters…it’s what you keep!

The general information herein is not intended to be, nor should it be treated as tax, legal, or accounting advice, nor can it be used for the purposes of avoiding tax penalties.  Please seek advice from an independent tax advisor before acting on any information presented.

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Presidential Candidate Estate Tax Proposals

by  /  Estate Tax, News, Tax Planning

It is timely to consider Mr. Trump and Secretary Clinton’s proposals regarding estate tax reforms to the “permanent” exemptions [$5 million + inflation] and rates [max of 40%] adopted in 2012. The televised presidential debates have centered on more lurid topics, but proposed tax changes may involve significant sums of money and are worthy of note.

Hillary Clinton

  • Restore 2009 estate tax exemption of $3.5 million.
  • Progressive estate tax rates on taxable estates:
    • 45% up to $10 million
    • 50% over $10 million
    • 55% over $50 million
    • 65% 0ver $500 million
  • Close the “step-up in basis loophole” that increases basis of appreciated assets to date of death value, avoiding accumulated capital gains taxes for the beneficiaries of the bequeath.
    • Treat bequests as “realization events,” forcing immediate income taxation of any built-in gains.
    • Exemptions are proposed to limit application of the new rule to only high-income families and to protect small and closely-held businesses, farms, homes, personal property and family heirlooms.
  • This could result in a top marginal transfer tax rate of 80%, the world’s highest:
    • 65% estate tax rate, plus
    • 4% income tax [39.6% marginal tax rate + 3.8% net investment income tax + 4% surtax on incomes over $5 million].

Donald Trump

  • Repeal the reviled “Death Tax.”
  • Stepped-up basis would be ended and built-in capital gains at death over $10 million would be subject to tax:
    • Small businesses and family farms exempted.
    • Contributions of appreciated assets into a private foundation established by the decedent or relatives would be disallowed (to prevent abuse).
  • Few details are enumerated, but presumably if the death tax were repealed:
    • Gift and generation skipping taxes would also be repealed, and
    • There would need to be an inferred carryover basis on inherited appreciated assets that would result in capital gains only upon a future sale or realization event. If not, there would be a deemed disposition tax similar to Secretary Clinton’s proposal, although at a lower 20% rate on assets held more than one year.

Ending “stepped-up” basis may be one of the few matters the two candidates agree upon. This is worthy of note because the loss of basis step-up of highly appreciated assets could result in capital gains tax higher than the estate tax. Depending on the final terms, it could apply to transfer assets in estates of all sizes, even if not subject to estate tax.

Internal Revenue Code Sec. 1014 currently provides for step-up in basis of assets to date-of-death fair market value. Carryover basis of assets (passing the capital gains tax along with the asset) was tried in 1976, but then repealed in 1980 due to the administrative mess of tracking and actually determining carryover basis. Your humble scrivener learned about these nightmares while studying estate tax in law school, only to have carryover basis repealed upon graduation. Perhaps our modern computer capacity will make such calculations more manageable for publicly traded securities where we know acquisition date and cost, but tracking basis of individual head of cattle on the family farm or individual nuts and bolts for the family hardware store might prove more bothersome.

More importantly, beneficiaries have historically received a stepped-up basis, avoiding pre-death capital gains taxes, and have been responsible for only after-death capital gains. Not only will substantial capital gains tax be owed, but this will apply to all estates, whether taxable [large] or not.

Our Democracy survived 2010, when there were temporarily no estate taxes in effect and executors could elect to use a modified carryover of basis rules. Perhaps we will be similarly fortunate with our next venture into carryover basis. What we need to be aware of, however, is that all beneficiaries may be paying capital gains taxes, no matter the size of the estate. We will go from a regime where incredibly few estates are taxable to a new regime where all estates may involve capital gains taxes. This would include portfolios of stocks and bonds, as well as the family homestead. This will turn out to be a much bigger deal than we will be informed of in advance…


Remember, it’s not what you make that matters…it’s what you keep!

The general information herein is not intended to be, nor should it be treated as tax, legal, or accounting advice, nor can it be used for the purposes of avoiding tax penalties.  Please seek advice from an independent tax advisor before acting on any information presented.

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