Wednesday, December 16, 2009

How Congress Turned Estate Taxes Into An Asteroid That Hits Taxpayers on January 1, 2010

The estate tax asteroid. If you have read my articles you know I have written many times on this topic. Recently I was asked, "Why do you call it an asteroid and why is it bad?" Those are great questions and this article provides the answers.

Let's begin by seeing where we stand as of 2009. The current estate tax rate is 45% and the estate tax exemption for 2009 is $3.5 million. This all comes to an end unless Congress acts on December 31, 2009, hence the asteroid. More on the impact results from the asteroid below.

Let's continue with what happens in 2010 and 2011 under current (on the books) law. In 2010 the estate tax is repealed for one year only. It is replaced in 2010 only with capital gains taxes on inherited assets because the "step-up in basis" is also repealed for 2010. Perhaps not too bad because the capital gains rate is less than the 2009 estate tax rate of 45%. Since very people can prove basis, you can calculate the impact by assuming inherited assets will have a 0 basis. There will be some basis step-up that can sprinkled on inherited assets.

The first problem with 2010 is that all the estate plans out there that are based on a formula relying on an estate tax exemption are in trouble. Second, there will be some unbalanced people with assets who jump off of bridges since they can die without an estate tax. See, the comment below from anonymous if you questions that.

Now that is the just the first impact results from this asteroid. It gets much, much worse.

In 2011 the estate tax returns in all it's fury with a 55% marginal bracket and only a $1 million exemption (the same structure in 2003). Again, this is current law if Congress fails to act. The asteroid's impact results become catastrophic come 2011.

I have excoriated Congress over this since 2002. Each year, the House has passed a fix and each year that fix has failed in the Senate. The same has occurred this year notwithstanding that there are bills pending in both houses that will prevent the asteroid from landing.

Let me know if you think that explains why the estate tax asteroid is so bad. Thank you for your interest and ongoing support.

Saturday, December 5, 2009

So Whose Money is it Anyway? Does This Question Even Need to be Asked?

Whose Money is it Anyway?

Apparently we do need to ask this question. It seems like a simple question, but it is actually surprising that there is any difference of opinion on this one.

To start this discussion, let's begin with a mind experiment. Do you agree with this statement:

"From each according to his ability and to each according to his need".

A recent poll showed that almost 80% of people agreed with this statement. That was surprising and quite shocking actually since this statement has resulted in genocide around the world and enslavement of millions more.

How's your mental exercise going? Remember that statement yet? Here's another clue:

That statement resulted in a philosophy that has failed wherever it has been tried and failed by killing off millions of people by the people who have practiced what that statement stood for.

Have you got the answer to our mental exercise yet?

OK, here's the answer:

Karl Marx said that in his book Das Kapital, the beginnings of communism and the state version of communism, socialism.

Surprised? Each person who took that poll I mentioned a moment ago was shocked, they didn't believe it because that statement is seemingly innocent. However, the truth is the opposite. That statement is the reason for our initial question, whose money is it anyway.

First, let's bury marxian philosophy once and for all. Wherever it has been tried or attempted, it has failed. Because it is a denial of the most basic part of our humanness, our desire for liberty and freedom, the only places where it has survived for any time is because of state sponsored tyranny to enforce its existence.

So why is Marx part of this discussion? The question,whose money is it anyway, can only exist when people are confused and start to believe that our money belongs not to us, but to any government.

Right now, our Congress is involved in another debate about taxes. One party believes that the money you earn and save is yours, that the government only taxes a portion of that money to finance the government.

The other party believes that the money you earn and save belongs to the government, and the government's job is to decide how much of that money the government will allow you to keep.

In my tax practice, we work with our clients to assist them in protecting their assets and estates believing that their money is theirs.

Which side do you come down on? Whose money is it anyway?

Here's the answer if you haven't figured it out yet.

It's your money. You earned it, you saved it. It's your money, not the government's. How much of your money do you want to give to the government? That's up to you and why we have debates and elections.

But never forget that it is your money. Never. Otherwise, you may fall prey to believing that Marx was right and we already know he was wrong. Dead wrong.

Friday, December 4, 2009

Getting Yourself In Order Step 7: Choosing the Right Advisors

In our series on how to get yourself in order (painlessly) we are now at Step 7 Choosing the Right Advisors. With all the yellow pages and paid referral listings out there you might think this step would be easy. It is easy if you know the right steps to follow and if you don't get caught up in the hype of TV ads.

First, a quick review of the first six steps of getting yourself in order:

1. Protect your house.
2. Protect your car (and yourself).
3. Provide for decision makers in the event of your disability.
4. Create your dispositive document, like a Will.
5. Synchronize your beneficiary designations with your plan.
6. Beware of Uncle Sam in your estate planning.

Step 7: How to Choose the Right Advisors.

Choosing the right advisors is not like trying to find a needle in a haystack. Also, it is not a matter of watching TV ads and then hopping the web or your phone. It is a specific process with steps that you can follow to ensure that you end up a team of advisors designed to be on your side and who will help you accomplish your plan and goals.

Here are the steps:

1. Deal with real experts and real specialists. You don't have your plumber do your lasik surgery do you? Of course not, and you want to use that same philosophy in choosing legal and financial advisors. Avoid referral services that charge people to be listed on them. There are two quite famous services right here in Colorado that charge the people they list many thousands of dollars, but that offers you no comfort that you are dealing with an appropriate expert.

2. Insist on real experience, not a listing in a paid referral list. More details on that below.

3. Choose experts based on the need you have. For example, don't ask your dentist how to do your Will.

4. When picking an estate planning attorney, insist upon at least the following:

A. Full-time estate planning practitioner with at least 7 consecutive years of full time estate planning experience.

B. Membership in the Colorado Bar Association Trust and Estate Section.

C. An AV rating from Martindale-Hubbel, the attorney listing and rating service. You can't buy the rating because it is a peer review process.

5. When picking an an accountant insist on the following:

A. A CPA, that means a certified public accountant.
B. Specializes in tax planning.
C. Member of the AICPA.

6. When picking an insurance advisor insist upon:

A. Full-time insurance advisor with solid experience. I wrote a previous article on how to select a property and casualty insurance advisor, that is a good reference source.

B. For life insurance, the CLU or ChFC designation.

7. Insist that your arrangement with each advisor be reduced to writing with all details spelled out, including the work to be done and details about fees and charges.

If you can follow these simple steps you will be successful in assembling your team of advisors. Let me know how these steps work for you.

Thursday, December 3, 2009