As many of you are aware, on March 23, 2010, the Patient Protection and Affordable Care Act, was signed by the President.  This is also known as Obamacare.  Although, constitutionally questioned, the Supreme Court upheld the Act in the most part and many of its provisions will go into effect in 2013.  The purpose of the Act was to expand insurance coverage to near universal and this is to be done by a Health Care Mandate.

The funding method for Obamacare is several miscellaneous taxes, such as an indoor tanning excise tax of 10% and prohibitions on using Flexible Spending Accounts for non-prescription drugs and non-medical HSA withdrawals penalty of 20%.  The other funding methods are a Medicare Earnings Tax and Investment Earnings Surtax.

In 2013, the Flexible Spending Account contribution maximum will be $2500.00.  Also in 2013, the medical deduction floor will go from 7.5% of the Adjusted Gross Income to 10% of the Adjusted Gross Income however, for seniors this restriction will not take effect until 2016.

In 2014, the individual mandate kicks in and there will be a non-compliance tax of $0.00 for low earners to $4500.00, which is the bronze plan cost for those earning over $200,000.  Finally in 2018, there will be a 40% tax to the insurer on “Cadillac” or high-premium health plans.

The Medicare Earnings Tax which is currently 1.45% on all “earnings” will stay at 1.45% in 2013, for those earning up to $200,000.  If your earnings are above $200,000 they will be taxed at 2.35% and the employer does not match the .9% increase.  Earnings are classified as wages, such as W-2 income or self-employment income.

The Investment Income surtax will be 3.8% in 2013 and this surtax will be on investment income above the threshold amount.  The tax will be 3.8% on the lesser of the investment income OR the excess of the adjusted gross income over the threshold.  The thresholds are $200,000 for a single person or head of household filer.  For married filing joint, the threshold is $250,000.  For married filing separate, the threshold will be $125,000.  For trusts and estates, the threshold is $12,000.

 Investment income includes interest, dividends, annuity distributions, rents, passive royalties, passive activity income and capital gain on disposition.  Investment income does not include W-2 income, self-employment income, social security income, distributions from IRAs and Qualified Plans, Gain on Active Interest in S Corp/Partnership, and non-taxable income, such as disability income, Section 121 income, municipal bonds, gifts, etc.

Some strategies to reduce the surtax, may be a Roth IRA conversion, installment sale, Charitable Remainder Trust or shift to tax-free investments.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

As 2012 was winding down, estate planners throughout the country waited to see how Congress and the President would handle capital gains, estate and gift tax issues.

Under what is called a sunset provision, the estate tax exemption was scheduled to return to $1,000,000 on January 1, 2013, the amount set prior to the Bush Era Tax Cuts.  This would have meant that all estates in excess of $1,000,000 would be subject to a Federal estate tax.

According to the bill recently passed by Congress, beginning on January 1, 2013 the estate tax exemption will exceed $5,000,000 with any estate in excess of $5,000,000 subject to a tax of 40% on assets exceeding that amount.  The estate tax exemption will be adjusted annually for inflation so each January a new exemption amount will apply.  If proper estate planning is done, married couples will be able to pass on to their heirs over $10,000,000 without paying a Federal estate tax.

One powerful tool in estate planning is gifting.  Effective January 1, 2013 the annual gift tax exclusion has increased from $13,000 to $14,000.  As of now, it appears that the lifetime gift tax limit will continue to follow the estate tax exemption and you will be able to gift in excess of $5,000,000 during your lifetime.

When considering gifts you must also consider how the capital gains tax will apply to gifts.  At death capital assets get a “stepped up basis”.  This means a new basis is determined for the asset as of the owner’s date of death or possibly six months following the date of death.  The new basis is applied to the inheritor of the capital asset.  However, assets that are gifted get a carry over basis which means the receiver of the gift uses the basis of the giver.  Dividend and capital gains tax rates will increase under the new law from 15% to 20%.  For high income families (families earning over $450,000 and single people who earn over $400,000) the rate will include a 3.8% surcharge from the Affordable Care Act.  When determining whether to gift assets during your lifetime or hold them until your death, you must do a thorough analysis to determine what the estate tax saving will be and what the capital gains tax will be.

In addition to the Federal law, residents in Maryland must consider the Maryland estate tax which has an exemption of $1,000,000.  The Maryland income tax varies from county to county, but is approximately 8% and applies to the sale of capital assets.  Maryland does not have a gift tax.

These new changes in the tax laws bring a new set of challenges for our clients as we work together to determine how best to plan their estates to reduce taxes.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

Posted by Attorney Colleen Sinclair Prosser on behalf of the American Academy of Estate Planning Attorneys

In case you haven’t heard, the New Year brought a new law recently signed by the President. To avoid the country from falling off the “fiscal cliff,” the “American Taxpayer Relief Act” was approved on New Year’s Day. The approval and signing of this new law may affect the future of your estate plan and your estate taxes.

Regarding federal estate taxes, this new law makes almost all of the previous tax provisions, commonly known as ”TRA 2010,” permanent, with the exception of the tax rate. This means there is an estate tax exclusion of $5 million that will be adjusted for inflation. So for 2013, the exclusion is $5.25 million. The permanent provisions are combined with the gift tax and can be used either after death or while the person is still alive. The tax rate is now capped at 40% instead of the prior 35%.

The “portability” provision from TRA 2010 is also retained. This means that the estate tax exclusion amount of the first spouse to die may be used by their surviving spouse, assuming an estate tax return is filed for the pre-deceasing spouse.

Regarding state estate taxes, as with the prior law, they remain deductible rather than a credit (as was the case many years ago).

The Generation Skipping Tax (GST) exemption is set at $5 million and is also adjusted for inflation. As in the prior law, the GST exemption is not portable. There are, however, special trusts that can preserve the GST exemption of the first spouse to die.

The new law affects everyone’s income taxes. The existing rates on incomes below $400,000 (single) and $450,000 (married, filing joint) have been set permanently to the current level. For incomes over that amount, the rate will increase from 35% to 39.6%, where it was before 2001. In addition, this income bracket will see a raise in qualified dividend and capital gain income tax rates from 15% to 20%. Those tax rates will not change for lower income amounts.

When it comes to “charitable rollover” IRAs, those provisions will be extended for 2012 and 2013 only. This means that an individual over age 70 ½ can give up to $100,000 from their IRA without taking that amount into income. If you are planning to make or have made charitable contributions from your IRA, this is good to know because the deduction for a normal contribution, without the benefit of a “charitable rollover,” may be capped or not offset the income.

On the spending side, what are commonly known as “sequestration cuts,” which were to start on January 1, have now been delayed for two months. All of these issues will have to be addressed again. So what is slated as “permanent” under this Act may not end up being as permanent as we have been told.

Where does that leave us today? Before you change your existing estate plan, create a new plan or gift to someone, it is important to consult with an experienced estate planning attorney and tax professional who is familiar with these changes and who can show you what will be in your best interest, legally and financially. They will make recommendations about any changes you may need to make to your estate plan now and advise you on what may need to be changed or updated in the future.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

   Krispy Kreme and Wal-Mart have a lot in common.  Die-hard fans line up in front of their locked doors the night before grand openings, licking their lips for a puffed up glazed doughnut or a bargain that can set the neighbors talking over the fences.  But what do these two incredibly successful businesses and the families that started them have that sets them apart?

Sam Walton, founder of Wal-Mart, is an excellent example of a man who planned not only for the future of his business, but also for the future of his family.  Effective estate planning allowed Sam Walton to protect his wealth and pass it on to his heirs when he died.

But not all entrepreneurs take an active interest in planning for the future of their business, as well as for their family.  Vernon Rudolph, founder of Krispy Kreme, is a case in point.  While he was a successful doughnut maker and entrepreneur, his failure to create a succession plan for his family business left his family without a business.  Upon his death in 1973, Krispy Kreme had to be sold because Rudolph had no business succession plan.

The failure to plan is central to the downfall of many family businesses.  Only 30% are successfully passed to the next generation, 12% to the second generation, and 3% to the third generation.  Sam Walton’s sound succession planning benefited his family and allowed them to maintain an active role in Wal-Mart.  Vernon Rudolph’s tale exemplifies the risk in failing to plan.

Business succession planning provides business stability, tax savings, and most importantly peace of mind.  The central questions are who should take over the business when you phase out your involvement and how will that transition be funded.  Choosing a successor is not an easy task.  But, if you plan ahead, a successor can be groomed slowly and will be ready to step in should unforeseen circumstances arise. Once the identity of the successor is chosen, a strategy can be formulated to accomplish the goal.  The strategy can allow you to retain control for as long as you want while putting a mechanism in place that will allow you to have an exit strategy.  The strategy may include a buy-sell agreement.  Such an agreement allows your successor to purchase shares of stock from you at a time chosen by you, such as your death or disability.  Life insurance or other funding mechanisms can be put in place to make sure your successor has the capital necessary to buy out your interests without crippling the business with debt.

These strategies can include income and estate tax savings in addition to providing you peace of mind and business stability.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

    “Business Succession Planning” by Attorney Colleen Sinclair Prosser

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

  If you own property in another country and you are a U.S. citizen or lawful permanent resident (Greencard holder), you have to be aware of tax and other adverse consequences of not only owning that property, but transferring it into a Living Trust.

If you have a Revocable Living Trust, also referred to as an intervivos trust because you set it up during your lifetime, and transferred the property into your trust, you must be careful about doing so without the advice of legal counsel.  Certain countries will charge a stamp duty or cause income taxation to be due in that country.  Canada will cause income tax to be due on any Canadian property transferred to a U.S. Revocable Living Trust.

The Bahamas charges a stamp duty, which is a tax that is levied on documents, which includes the majority of legal documents such as checks, receipts, military commissions, marriage licenses and land transactions.  The Bahamas will allow an asset to be transferred by testamentary trust, which is often seen in a Last Will and Testament.

France and Louisiana have “forced heirship” laws that state that a person cannot dispose of property at death and exclude certain family members or favor certain family members by providing larger shares.  The estate is divided into two separate estates, one that goes to next of kin and one that can be distributed according to the decedent’s wishes.

If you are not a U.S. Citizen or Lawful Permanent Resident, determining whether an asset you own is located within the U.S. can be harder than it seems.  Certain non-real property assets, such as life insurance and bank deposits, although made with a U.S. bank, are not considered U.S. situs property.  Also, if you are not a U.S. citizen or Lawful Permanent Resident, you may be subject to U.S. income taxation.

Making sure your attorney is familiar with or willing to seek out an attorney in that particular country or jurisdiction to assist with estate planning is crucial to the success of your plan and the avoidance of adverse consequences.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

  “International Estate Planning” by Attorney Paula M. Mattson-Sarli

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

Don’t forget to tune in today to WNAV Radio on 1430 AM or 99.9 FM @ 3:50 pm to listen to “Your Estate Matters” with Attorney Paula M. Mattson-Sarli.   The topic is “Probating My Father’s Estate”.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

The coordination of your estate plan is a concentrated undertaking that requires a network of professionals. All the necessary components must be in synch so that your plan will work for you at different stages of your life and beyond.

An estate planning attorney plays an important part in the creation of your estate plan.  Their main role is the preparation of the estate planning documents: a last will and testament, trusts, powers of attorney, and health care directives.  They will also advise you on estate tax implications, titling assets and designating beneficiaries on life insurance and retirement plans.  Preserving assets for long term care is another important aspect to consider.  Often times the attorney will consult with other professional advisors to develop a comprehensive estate plan for you.

An accountant or a CPA is one of the professionals whose input may be needed in developing your estate plan.  The accountant will have your income tax records, will know the basis of your assets, as well as your tax rates, and potentially the tax rates of your beneficiaries.  Additionally, they will have knowledge of the income tax laws in other states to determine if you will save taxes by relocating to another state.  All of this information is important in planning to reduce or eliminate taxes.

A financial advisor is another professional that is part of the estate planning team.  The financial advisor will have a good handle on your investments and your cash flow.  Most clients meet with their financial advisor one or two times a year to discuss their financial goals.  It is likely that people will meet with their financial advisor more frequently than they meet with their estate planning attorney, and the financial advisor will have a better handle on the financial affairs of the client.  Often, a financial advisor will refer one of their clients to our law firm for the preparation of estate planning documents. One of the responsibilities that a good financial advisor will take seriously is to make sure their clients have implemented a will, trust, power of attorney, and health care directives.  Once your estate planning is in place, you will work with your financial advisor to make sure the beneficiaries of your retirement plans are in good order.  The attorney will make recommendations as to how the beneficiaries should be set up, and then it is the financial advisor’s role to implement those recommendations by properly designating the beneficiaries on the accounts.

Because insurance also plays a key role in estate planning, it is important to have an insurance agent that you trust who will implement insurance as needed for the estate plan.  Life insurance will be needed throughout your life, but at different stages the needs for insurance will be different.  Therefore, you want to meet with your insurance agent to keep your life insurance up to date.  The insurance agent is also able to advise you on your need and amount for long term care insurance, which pays for expenses if you need care at home, in assisted living or in a nursing home.

Just having a will or trust in place is not enough to ensure a complete and comprehensive estate plan.   To guarantee your estate will be intact for your loved ones, you need a team of professionals to assist you now and throughout your entire life.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

“Your Estate Planning Team” by Attorney Colleen Sinclair Prosser

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.