Sunday, September 23, 2012

Who can you Trust?

Once you have decide to create a trust,a legal document that leaves property and other assets to your heirs, you then must decide who will be administrating this trust after you pass. This person will be acting in a fiduciary capacity and be responsible for running the trust and making the distributions. People choose between a family member, close friend, law firm or another such professional. Several factors should be weighed in determining who to choose. 1) What is the size and complexity of the Trust? Professional services can be expensive. Professionals typically get paid based on the percentage of assets they have to manage and sometimes charge a minimum fee, which can make their services costly for more modest estates. This cost might be worth it if your trust is meant to last generations. Because an entity like a bank is likely to outlive a friend or family member who would otherwise do the job. Also, if your trust is complex, unless your family member or friend has a high degree of knowledge, administration will take many more hours and considerable frustration. Even if the trustee is a beneficiary, this isn't the type of gift you would want to leave him or her. 2) What is the knowledge base of the family member you would choose? As stated earlier, trusts can be a complex matter. Make sure the person you tap for the job is up to the task. Trust administration can be a heavy workload, including routine administrative duties, investment-diversification decisions, tax filings and the distribution of assets to beneficiaries. If your trustee doesn't have thee time and skills for the job, he or she can hire professionals to assist with certain facets of this workload—say, property management or investment strategy—but it still takes a certain amount of knowledge to assemble and manage a good team. 3)What is the relationship between the beneficiaries? If your family does not get along or has a complicated relationship, then placing one person as a trustee will place additional strain on that person as well as increase their workload. Think of hiring a professional instead of a family member who might go against their final wishes. For instance, it may be a bad idea to put a spouse who has a hard time saying no to a child in charge of a trust you would like to see paid out over a long time period. *This article was inspired by The Wall Street Journal article of September 10, 2012 " A Matter of Trust" by JEANINE SKOWRONSKI

Sunday, September 9, 2012

How estate tax laws afftect non-citizens

I have spoken to several people lately about why an immigration status affects one's estate planning. To me, there are many benefits of being a US citizen, here is just another. Estate tax laws permit spouses to transfer unlimited amounts of property to each other without gift or estate taxes. The “unlimited marital deduction” does not apply, however, to non-citizen spouses. Congress is concerned that a non-citizen spouse might move to another country, thereby avoiding the U.S. gift and estate taxes. Therefore, providing for a non-citizen spouse requires special planning. In short : No estate tax marital deduction is available for transfers at death unless the property is held for the benefit of the non-citizen spouse in a “qualified domestic trust” (QDOT). However, a deceased spouse can leave assets to a surviving non-citizen spouse – estate tax free – up to the decedent’s estate tax exemption. But assets left to a surviving non-citizen spouse using the decedent’s estate tax exemption will be subject to estate taxes when the non-citizen spouse dies, thereby “wasting” the deceased spouse’s estate tax exemption. An experienced attorney can work with you to create a QDOT that would allow the deceased spouse to defer estate taxes until the surviving non-citizen spouse’s death, while “sheltering” his/her estate tax exemption. During the non-citizen spouse’s lifetime, the trustee of the credit-shelter trust can provide the surviving spouse with income and principal as needed for health, education, maintenance and support. The surviving spouse is also able to receive income from the QDOT. However, the surviving spouse will incur estate taxes at the tax rate in place at the time of the first spouse’s death upon two taxable events: 1)the trustee distributes principal from the QDOT to the surviving spouse or 2) the surviving spouse dies. Any distributions of principal to the non-citizen spouse are subject to estate taxes, and the trustee must withhold funds equal to the tax. However, exceptions are made in certain circumstances. As always this information is intended for general information purposes only and is not intended to be the rendering of legal advice for specific cases. Because your legal matter is unique, it is recommended that you obtain the advice of an attorney. My office would be pleased to meet with you and assist you with your legal needs

Sunday, September 2, 2012

Changes to Pennsylvania Inheritance Tax and Realty Transfer Tax Signed into Law

Below is the article from Penn State College of Agricultural Sciences. This article is written by Gary Hennip, Penn State Extension Educator and has been written for educational purposes only. These issues should be discussed with professional financial advisors and attorneys who have a good understanding of state and federal estate laws. A new tax code change in Pennsylvania recently signed into law could provide some real benefits to our local farming community. These changes relate to both Pennsylvania inheritance taxes, and to Pennsylvania realty transfer taxes that have been paid by local landowners or might have been paid in the future. Let’s first be reminded of the Pennsylvania inheritance tax laws that were in effect prior to the tax code changes recently implemented. In Pennsylvania, inheritance taxes are imposed as a percentage of the value of a decedent’s estate transferred to beneficiaries by a will. The tax rates imposed vary depending on the relationship of the beneficiary to the decedent. 1. 0 % on transfers to a surviving spouse or to a parent from a child aged 21 or younger 2. 4.5 % on transfers to direct descendants and lineal heirs 3. 12 % on transfers to siblings 4. 15 % on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax Here is a quick true life example of the impact the Pennsylvania inheritance tax laws had on the next generation. A local farmer that I know very well worked almost all of his life for his uncle on his uncle’s family dairy farm. When the Uncle passed away, the farm was passed down to the nephew through a will. When it came time to pay the Pennsylvania inheritance tax, the nephew, according to the table above, fell into Number 4, a 15 % inheritance tax on the value of the farm’s assets owned by the Uncle. Just like many dairy farm families, the estate had very little in cash assets, but did own around 400 acres. In order to pay the Pennsylvania inheritance taxes that were due, the nephew had to sell off a good portion of the farm’s land to generate the cash that was needed to meet this tax obligation. He soon after sold the rest of the farm and the dairy operation ceased to exist. With this as background information, here are the changes to the Pennsylvania tax code that will benefit folks that find themselves in a similar situation to the example I have shared. House Bill 761 and Act 85 exempts from Pennsylvania inheritance tax, real estate that meets any of the following criteria: 1. If the farm was “devoted to the business of agriculture” and transferred to other family members through a will at the time of death. 2. If the decedent’s farm was being leased to members of the family or to a partnership or corporation owned by members of the same family, (this would include parents, grandparents, brothers and sisters, aunts and great aunts, uncles and great uncles of the deceased owner, as well as all of the ancestors of the persons listed above along with their spouses), and was devoted to the business of agriculture. 3. The farm must continue to be devoted to the business of agriculture for seven years after the owner’s death and must generate a yearly gross income from agriculture of at least $2000. The new legislation does spell out what is not considered an agriculture business for the purpose of exemption from Pennsylvania inheritance taxes. These include: • The use of land for recreational activities. • The raising of game animals or animals for sporting or recreational purposes or use as pets. • The business of fur farming. • The business of a stockyard, slaughterhouse, or manufacturing or processing operations. The second portion of the changes to the Pennsylvania Tax Code may offer a more current $$ savings to Pennsylvania farm owners. These changes provide an exemption to family farm owners from paying real estate transfer taxes when reorganizing the family business into entities such as a Limited Liability Company (LLC) or a Limited Family Partnership (FLP). This practice of developing an ( LLC) or an(FLP) became rather commonplace here in the northeast over the past few years helping landowners with the potential windfalls of natural gas leases and potential federal estate tax consequences. In many cases prior to this new tax law change in Pennsylvania, the transfer of farm assets to an (LLC) or an (FLP), caused the farm owner to be responsible for paying the Pennsylvania Realty Transfer Tax. This tax is calculated at 1% of the asset value of the asset being transferred. House Bill 761 and Act 85 now exclude from the Pennsylvania Realty Transfer Tax law any conveyance of assets from one family farming business to another type of family farming business such as a (LLC) or (FLP). In addition, House Bill 761 and Act 85 exempt the Pennsylvania Realty Transfer tax from being applied in these types of business transactions retroactively to on or after July 1, 2010. This could mean that several thousand dollars that had been paid out in realty transfer taxes on or after July 1, 2010 when family farming businesses formed (LLC’s) or (FLP’s) may be returned to the farm owner. More information on the changes to the Pennsylvania inheritance tax laws and/or Pennsylvania realty transfer taxes can be obtained by going to the websites of the Pennsylvania Farm Bureau ( , the Pennsylvania Department of Revenue ( ), or by contacting the Bradford County Extension Office, Gary Hennip, Penn State Extension Dairy Team member at or by calling 570-265-2896.

Does a Power of Attorney have an expiration date?

In New Jersey,a power of attorney given to someone other than a spouse or civil union partner, banks and other financial institutions may reject the power if it is over 10 years old. All powers should be "refreshed" periodically to avoid any problems and also to make sure that the principal - the maker of the power - is still in agreement with the agent he/she selected. The good news is that these Powers of Attorney's or POAs are easy and affordable to refresh.