Dear Friends,
Now that the health care law has been declared constitutional, the remaining provisions will be going into effect. One little known provision is a new 3.8% investment income surtax, also called the health care surtax or the Medicare tax; it will go into effect on January 1, 2013.[1]
The estate planning community has circled the wagons in preparation for the new surtax.  The following is a letter of information and warning.  Your present or planned investments may be heading you into shark filled waters.  Thanks to CPA Bob Keebler for spearheading effort in spreading this information
This new surtax will be assessed on the lesser of a) net investment income or b) the excess of modified adjusted gross income (MAGI) over the “threshold amount.” For married taxpayers filing jointly, the threshold amount is $250,000; married filing separately, $125,000; all other individual taxpayers, $200,000. For trusts and estates, it is the beginning of the top income tax bracket ($11,650 in 2012).
Stated another way: 1) If your modified adjusted gross income (MAGI) is less than or equal to the threshold amount that applies to you, you will not pay this tax. 2) If your modified adjusted gross income (MAGI) is greater than the threshold amount that applies to you, you will pay the 3.8% tax on the lesser of a) your net investment income or b) the amount of your MAGI over the threshold amount.
Note that the surtax liability is determined on income before any tax deductions are considered. That means your deductions could put you in the lowest income tax bracket, yet you could still have investment income that is subject to the surtax. Also, the capital gain rate is scheduled to increase for high-income taxpayers to 20% in 2013, so the total tax on capital gains (with the surtax) could be 23.8% in 2013 and beyond.
The good news is that there are some steps you can take this year to help you avoid or reduce the amount of surtax beginning in 2013. Also, 2012 is an exceptional year for estate planning in general. The federal estate tax exemption is $5.12 million, which allows a married couple to transfer as much as $10.24 million from their estate with no estate tax. Under current law, this exemption is scheduled to shrink to $1 million in 2013. Other Bush tax cuts, including income and capital gain taxes, are set to expire at the end of 2012. With the new 3.8% surtax becoming effective in January, 2013 is on track to have the highest tax rates we have seen in years.
Now, more than ever, you need the assistance of experienced professionals to advise you and help you implement the best plan for you and your family. I stand ready to assist you.
Donald S Singer

[1] The content of this letter is adapted in part from information provided by the nationally recognized tax professionals at Keebler & Associates. For more information please visit their website at https://www.keeblerandassociates.com. The full text of the Health Care Act is available online at https://www.healthcare.gov/law/full/index.html, with the relevant provisions beginning at Section 1411 at page 946.

Take Advantage of the $5.12 Million Dollar Gift Tax Exemption . . . Before it’s too late.

There has been a lot of media coverage about the Bush tax cuts that are set to expire on December 31, 2012 and whether they will be extended for all taxpayers or if they will be discontinued for top earners. But not nearly as much has been said about the current estate and gift tax rates that are also due to expire on December 31.
What we have for the next few months is, indeed, an historic opportunity in estate planning, one we have never had before and likely will never see again.
You may remember that, at the end of 2010, Congress put in place a two-year estate tax provision, probably with the assumption that two years would give it time to do something more permanent. In this provision was a huge gift that no one had been expecting: a $5 million gift and estate tax exemption, the highest it has ever been. It was indexed for inflation for 2012, making it even higher—$5.12 million—but for this year only.
Not nearly enough people have taken advantage of this. Some think it doesn’t apply to them because their net estate is less than $5.12 million, and others think they can’t use it because they don’t plan to die in 2012. But they are mistaken, and are likely missing the chance of a lifetime when it comes to estate planning.
Here’s why 2012 is such an incredible year for estate planning:
  • This is a combined gift and estate tax exemption, so you don’t have to die in 2012 to use it. You can use it to make gifts in 2012 and still exclude up to $5.12 million from estate taxes when you die, regardless of the amount of the estate tax exemption at that time.
  • This exemption is per person, so a married couple can give twice this amount, or up to $10.24 million.
  • Under current tax law, the $5.12 million exemption we have in 2012 will decrease to just $1 million on January 1, 2013. In addition, the top tax rate will increase from 35% in 2012 to 55% in 2013. This means that if your estate is over $1 million and you don’t plan now, more of your estate will go to pay estate taxes if you die in 2013 or later, leaving less for your loved ones.
  • The generation-skipping transfer (GST) tax exemption is another reason to plan this year. This tax applies when you transfer assets (by gift or inheritance) to a grandchild, great-grandchild or other person more than 37.5 years younger than you. It is equal to the highest federal estate tax rate in effect at the time and is in addition to the federal estate tax. In 2012 the exemption for the GST tax is also $5.12 million ($10.24 million for married couples) and the tax rate is 35%. Next year, the exemption will be about $1.4 million and the top tax rate will be 55%. Planning now lets you leave considerably more to grandchildren and future generations without paying this tax—or gift or estate taxes.
  • Current law also has income tax rates increasing in 2013.
  • In 2012, we have options that estate planners have come to rely upon as “standards.” For example, currently you can make gifts using life insurance, various trusts, family limited partnerships and others—often using discounted values that make your exemption go even further—and still keep control. But these may soon be history as lawmakers search for more ways to generate revenue and close perceived loopholes.
  • Lastly, interest rates are at historic lows and thus there has never been a better time to do intra-family loans and other interest-rate-sensitive planning.
In short, 2012 is a very favorable time for estate planning. In 2013, the laws are not nearly as favorable.
Of course, Congress could change the laws before January 1, but we only have to look at recent history to see how likely that may be. Starting in 2001, Congress increased the amount exempt from estate and gift taxes, from $675,000 in 2001 to $3.5 million in 2009. The intent was to give Congress time to reform these tax laws. A “stick” to motivate them was included: if Congress did not act, there would be no estate tax in 2010. Congress did not act in time, so in 2010, for one year, there was no estate tax. As a result, there were some very wealthy people who died that year (including George Steinbrenner, owner of the New York Yankees) whose estates paid no estate tax.
Keep in mind that even if Congress does change the law, we have no idea what the new law will look like. And it’s best to plan based on what we know—not on what we think might happen.
Those who have sizeable resources, and their families, stand to benefit the most from the $5.12 million exemptions. But, remember, those with net estates of more than $1 million can also benefit.
This once in a lifetime opportunity is about to expire. You don’t want to miss it.

Message In A Bottle: Just How Important is Your

Recently I reorganized my kitchen, emptying a series of about 20 bottles filled with corks to make better use of the counter space they occupied. These bottles filled with corks marked every bottle of wine opened in my home since I became a single woman in 2006. Okay, lest you think me a lush, the bottles were, every one of them, opened in the company of friends and family. I collected each one as a remembrance that my life is still abundant, still full of love and laughter and company and joy, despite the fact that I left a very financially secure marriage. Every time I saw the corks, their numbers growing each week because I have a very open door home, I smiled in the remembrance of my chosen, and ever-growing family. They made me feel like a very wealthy woman indeed.

Toward the bottom of the last bottle I was emptying, I spotted a cork that was different than all the rest. It had a black plastic top. I read the lettering, “McCallum” and instantly remembered why I’d saved that one particular cork. It was the cork from the bottle of McCallum my father had a drink from on his final visit to my home, just weeks before he died. I’d kept first the actual McCallum bottle, then parted with the bottle and kept the cork.

A cork. To remember my father by.

Every day I work with moms and dads to help them make sure their affairs are very well in order if something happens to them. This work, the end product, releases parents from a least a couple of the worries that arrive the moment a child arrives on the planet. When parents complete their planning (it’s never actually finally complete but that’s another post), they always remark that they feel so much better knowing it’s done. They sleep better, feel stronger and more grown up. Because they’ve passed through a door that few parents do—and that’s taking control of everything in their power to control—even unto death.

The very best part of this work, though, is inviting parents to create an inheritance that lasts far longer and is more powerful than money. When I describe what we’ll do to create that inheritance—record their life and love story on digital media and include that as part of their plan—someone always cries, recognizing the deeper truth that no amount of money can replace a lost parent. Nothing. The best we can do, and least we should try to do, is capture the memory of that parent so that the child can heal, can remember, can proceed through life knowing the most important thing a child can know—that they are and have always been loved.

If you’re tempted to think, “Oh my kids don’t care about that. They wouldn’t need to see me to get over it. They’d heal,” just remember one particular attorney who kept a cork to remember her father.

Give them more than a cork. Give them you. Your estate planning attorney can help.