Ashleae Beling: Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out:

Ashleae Beling, Forbes.com: Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out:

Folks with trusts, and that includes widows and the disabled, not just the ultra-wealthy, have been hit with a double tax whammy this year. First the 3.8% Obamacare tax that applies to net investment income kicked in Jan. 1. Then, the American Taxpayer Relief Act was signed into law on Jan. 2, imposing income and capital gains tax hikes on trusts akin to those on the wealthiest taxpayers. The top income tax rate is now 39.6%, up from 35%, and the top capital gains rate is now 20%, up from 15%.
The kicker: these taxes hit a trust on any income it does not distribute over just $11,950, far less than the $400,000/$450,000 ATRA and $200,000/$250,000 Obamacare thresholds for individuals.

“It’s hitting where it really shouldn’t,” says Laurie Hall, an estates lawyer and head of the Wealth Management Group at Edwards Wildman in Boston. “These increases weren’t intended to hit people with income below $200,000, and they will.”

Here’s why. Most trusts (non-grantor trusts) pay tax on capital gains and accumulated income that stays in the trust, while the beneficiaries pay tax on income that is distributed to them. So trusts—even relatively small ones—will be hit with the 23.8% capital gains rate (the 20% rate plus the 3.8% Obamacare tax), even if the beneficiary himself would be squarely in 15% capital gains territory. “Going forward you have to think the trust is going to be hit with the extra 8.8%,” says Hall.

See Ashleae Beling's full article Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out,  Forbes.com, January 9, 2013.

Arkansas Intestate Estate Calculator

Kurt R. Nilson has taken the guesswork out of determining how property will be distributed for those Arkansas residents who do not have a will (also known as passing by intestacy).  His online calculator, which can be found on his website, MyStateWill.com, automatically determines to whom such property will be distributed and calculates the dollar amount given to each such heir.  This tool streamlines the complicated Arkansas intestacy laws, which are some of the most complex of any state.

You can find his Arkansas Intestacy Calculator here.

From his website:

Dying Intestate

Do you really know what happens to your property if you die without a will? (Click here and choose your state for the quick answer) Do you know what happens to a person's debt when they pass away? Learn more bankruptcy information at totalbankruptcy.com.  Some common misconceptions about what happens to your property when you die without a will, or "intestate", include having all of your property being given to charity or to the state.

Another common misconception, with more serious consequences, is the belief that a surviving spouse is always granted all or substantially all of the deceased spouse's intestate estate. (Much about the probate process is also misunderstood.)

Post Presidential Election, Tax Professionals Predict Expiration of Lifetime Gift & Estate Tax Exemption

Now that the dust has settled following the 2012 presidential election, some tax experts are predicting that President Barack Obama's administration and the new Congress may let the current lifetime gift and estate tax exemption expire.  In his article, Grab the $5M Gift and Estate Tax Perk: It's Gone in 2013, Robert W. Wood discusses this important issue:

It’s post-election, nearly year-end, and taxes are on everyone’s mind. You may not be able to do much about the fiscal cliff or other imponderables. But you can fix your will and trust or just make a gift by year-end.

Act now! Think infomercial. This is a special limited time offer! Procrastination is understandable, especially about taxes and mortality. Yet it’s still surprising most people haven’t taken advantage of the incredibly favorable estate and gift tax law expiring in 2012. See It Pays To Plan For Future Estate Tax Changes. 

Congress enacted a $5 million exemption for both gift and estate taxes, but only through 2012. See Making Tax Decisions In Limbo. But wait, there’s more! Indexed for inflation, the exemption is now $5,120,000. It drops to only $1 million January 1, 2013. That’s a free pass to give away up to $5,120,000 without tax. If you are married, that’s up to $10,240,000 for a married couple with no tax.

Permanent Change on the Way for the Estate Tax?

Jeffrey A. Cooper of Quinnipiac University School of Law makes the case in his recently published paper, Time for Permanent Estate Tax Reform:

 

In the next four years, preferably in the next four months, Congress and the President must work together to implement their own vision for the estate tax, rather than allowing mere inertia to effectuate choices made by their predecessors. Put simply, the Congress of 2013 must enact permanent estate tax reform.

Unfortunately, that task will not be so simple. In many ways, the challenge facing estate tax reform is but one narrow slice of a far larger problem confronting modern tax policy. In much of the recent past, Congressional action on tax legislation has been dictated by short-term considerations rather than long-term policy goals. Through skillful legislative drafting and genuine compromise, the President and the Congress of 2013 can reverse this trend. I offer this essay as a modest contribution to that effort.