This is the advice from one of my favorite bloggers out there, Joel A. Schoenmeyer of the Death & Taxes Blog.  And it’s familiar advice too.  My dad is forver extolling the virtue of, what he calls, “being a star.”  But he and Joel are basically saying the same thing:  Find your niche and become an expert at it, become invaluable.  Joel is advising this for 3d year law students – who need all the help they can get right now – but my dad gives the same advice to old and young associates alike.  Whenever you choose to apply it, it is great advice.  Thanks Joel!

As of January 1, 2010, there is no more federal estate tax. The estate tax has been replaced with a complex modified carryover basis regime. In 2011, the estate tax is scheduled to return, with a $1,000,000 exemption and 55% rate. Due to these changing laws, it is imperative that everyone with an estate of $1 million or more do proper planning to ensure that income and estate taxes will be minimized. Be aware that the face value of life insurance is included in calculating one’s estate, so even many young couples have estates in excess of $1 million. Do not let your family pay tax unnecessarily. Consult an estate planning specialist today.

Its worth noting that most people who watch this sort of thing think congress will retroactively reinstate the estate tax sometime in 2010 at 2009 rates and exemptions which would affect the estate of anyone who dies on or after January 1, 2010.  US v Cartson says its constitutional for them to do so, in my opinion, but we’ll see…  Its been over a decade since that opinion and we’ve got a different court and a different society.

Everyone said it wouldn’t happen; it couldn’t happen!  But yeah…  Its gonna happen.  With plenty of notice, our elected leaders just couldn’t get it done.  I’m not saying it was an easy task.  The estate tax has always made strange bedfellows out of conservatives and liberals but I’m pretty disappointed for my clients.  Making things worse are the statements by Chairmen Baucus and Rangel regarding their intent to reinstate the tax retroactively.

The one certainty out of all this is, of course, litigation.

Between the end of 2009 and whenever Congress gets around to reinstating the estate tax, some deaths, trust terminations or trust distributions involving substantial amounts inevitably will occur.  And because opinion seems split among some scholars as to the constitutionality of retroactively applying new law we will get litigation.  (See US v. Calrton, 512 U.S. 26 (1994) and United States v. Hemme, 476 U. S. 558, 568 476 U. S. 558, 568-569 (1986), quoting Welch v. Henry, 305 U. S. 134, 147 (1938))  It will be messy.  It will be noisy.  And the only group of people guaranteed to win are lawyers.

The lapse of the estate tax also brings with it a repeal of the step-up in basis at death.  In theory, this would expose taxpayers who are currently shielded from any tax by the combination of both the estate tax exemption and the step-up, to the capital gains tax on inherited property.  This tax will hit estates above $1.3 million which North Dakota Rep Earl Pomeroy has said will effect over 61,000 estates.  (I’m expecting Congress to retroactively re-instate the step-up in basis along with the reinstated estate tax and generation skipping tax.)

I said I wasn’t going to post any more on the topic of the estate tax until something happened…  I really never though that something would be legislative silence.

Andrew writes:

From an estate planning perspective, Bo did everything right to avoid a family fight after he passed.  He created a living trust, which was quite detailed and left the income from his assets to his wife, Kathryn, passing from there to his son Glenn III (known as “Shemy”), and then onto his grandchildren and Kathryn’s grandchildren. 

He chose Kathryn as his successor trustee to manage his trust after he passed. From an estate planning perspective, Bo did everything right to avoid a family fight after he passed.  He created a living trust, which was quite detailed and left the income from his assets to his wife, Kathryn, passing from there to his son Glenn III (known as “Shemy”), and then onto his grandchildren and Kathryn’s grandchildren. 

He chose Kathryn as his successor trustee to manage his trust after he passed.

Game over right? Maybe not.

Two Motions for Reconsideration were filed this last Monday (10/26) by Defendants alleging that they were denied due process as the result of alleged collusion. You can read the press release here. Please also make your own decisions about the motions’ merits…

So, whats the big deal with these cases? Why have I dedicated so much screen space to cases like this? Because companies whose sales pitches involve misstating the tax code in order to make a buck, make it more difficult for an already leery society to trust actual estate planning lawyers who are sincerely interested in helping people work with the code to preserve and pass on their estate. Because providing poorly thought-out estate plans can often cause more harm than doing nothing. Because the most susceptible among us deserve nothing short of our most earnest efforts to protect their legacies. Because these legacies belong to the greatest generation whose passage we are now bearing witness to; a generation that lived through the great depression, that beat down Hitler through the Rising Sun only to return home to work their butts off to make this country the greatest power for good the world has ever known. Because fidelity to our humanity demands that we care as much now for those helpless multitudes who raised us as they cared for us when we were helpless ourselves. And because there is a special place in hell for those who prey on the fears of the elderly for their own gain. [Caveat: I've never read any of the materials offered by Defendants so I do not have any first-hand knowledge of their merit... But I'm sure they're terrible.]

It should also be pointed out that this isn’t the first time Mr. Norman has gotten a legal spanking for lying to the elderly – apparently they’re his favorite targets… According to this story in the LA Times, in 1993 “Orange County Deputy Dist. Atty. Robert C. Gannon Jr. charged that officials with Vanguard Assisted Care Inc. pose ‘a continuing threat to the consumers of the state [of California] in that more elderly individuals and senior citizens may be misled and enticed into purchasing’ the company’s companion-care plan.” “Named in the lawsuit were Vanguard’s President Stanley Norman; his son and company Vice President Jeffrey L. Norman; and company consultant Barbara Bufty.”

From its offices in Lake Forest, Vanguard salespeople have been selling the companion-care plan, particularly to residents of the nearby Leisure World retirement community in Laguna Hills. Under an agreement, senior citizens must make an initial $6,600 payment to qualify for the plan’s benefits. They also must make co-payments when they call for an in-home worker to help them with housecleaning, preparing meals or getting to doctor’s appointments.

Pretty nasty stuff.

Once again, I applaud the Columbus Bar Association for their hard-fought victory in this case.

The Columbus Bar Association announced today that the Supreme Court of Ohio, in a unanimous decision in Columbus Bar Assn. v. Am. Family Prepaid Legal Corp., Slip Opinion No. 2009-Ohio-5336, (available here as a PDF) took a momentous step to protect Ohio’s citizens from illegal trust mills that prey upon seniors and other vulnerable individuals. American Family Prepaid Legal Corporation (“American Family”) and its various allied entities and associates – after being pursued by the Columbus Bar since 2002 – were found to have practiced law without a license and to have used scare tactics, misinformation and false promises to induce thousands of individuals in Ohio and other states to purchase living trust packages and other estate planning documents at inflated prices. Often these legal documents were not needed or legally appropriate, and did not fulfill the purposes of the people who purchased them. As a result, the Ohio Supreme Court issued a permanent injunction to shut down their operations and penalized them with heavy fines, including a $6,387,990 sanction against American Family and others. 

After 2005’s Cleveland Bar Association v. Sharp Estate Services, Inc. et. al., you’d have thought people would know better than to try to prey on the elderly in Ohio…  Guess not.

Well done CBA and those involved in pursuing and winning this righteous case!

Russo said the museum may draw an annual minimum of $5,498,000 from the four art-purchase funds — a figure based on this year’s total draw. By providing income — not from the principal — for the construction project at an annual draw of 49.99 percent, the original purpose of the funds will be maintained through an allocation of 50.01 percent for the purchase of art.

[...]

The art-purchase money for the museum construction project will come from the J.H. Wade Trust (established in 1920), John L. Severance Trust (1935), Mr. and Mrs. William H. Marlatt Fund (1939) and Leonard C. Hanna, Jr. Purchase Fund (1952).

This article muses about Mrs. Smith’s possible involvement in a plot to kill her late husband’s son while they were battling over her husband’s estate.  And, while hundreds of millions of dollars is a pretty solid motive, the investigation doesn’t appear to have gotten anywhere beyond motive.

Smith’s FBI records, obtained exclusively by The Associated Press, say the agency investigated Smith in 2000 and 2001 in a murder-for-hire plot targeting E. Pierce Marshall

[...]

The documents released under the Freedom of Information Act depict an investigation going on as the fight raged over J. Howard Marshall II’s estate. Vast sections of the 100 pages of released materials – a fraction of Smith’s full FBI file – are whited out, and no evidence of her involvement in such a plot is detailed.

It is also unclear that killing Jr. would have yielded any benefits to Mrs. Smith anyways given the trusts involved, but the FBI, for reasons the AP is not aware of, nonetheless thought an investigation was warranted.

Stay tuned folks, the “original” case is still on remand from the Court of the Supremes which will decide just how much money, if any, will be inherited by Mrs. Smith’s sole surviving heir, her 3 year old daughter.  Poor girl.

There are a couple different camps out there and I’ll try to organize them thusly below:

1. The 1-Year Extension

In summary this school of thought is of the opinion that congress won’t get into any real debate over the FET this year.  Instead, they’ll merely pass a 1 year extension of 2009’s rates and exemptions through 2010 thus allowing the FET to drop down to $1 million per person in 2011 with an additional 10% added on to the applicable rate per the existing law.

• This article at TheHill.com on 9/15 as linked-to by Professor Berry in this post.
• Greg weighs in on this possibility in this post, also from September of this year.
• Via this post, Jim Gust links to an article similar to the above putting him in some pretty good company in this category.

2. The Retroactive Option

This one is even scarrier.  Gideon Alper of the Gay Couples Law Blog writes in this post: Don’t be surprised if Congress does nothing about the estate tax this year, not even a one year extension. Instead, it can wait and pass an amendment that retroactively taxes the estates of people who die in 2010.  Ugh right!  He continues, citing multiple other sources:  Lots of people have written about the consequences of Congress doing nothing by the end of the year and letting the estate tax expire in 2010 . Expect to hear even more from people the longer Congress waits to do something.

However, it looks like Mr. Alper falls into the 1-Year Extension group above as he follows the above quoted nightmare with his opinion that congress isn’t likely to do anything based on this article in the WSJ.

3. Not Sure What’s Going to Happen But The FET WILL Go Up

Finally, in this post Greg links to this article by Evan Cooper at Investment News.  No real conclusions came from the panel but they all agreed that FET is much more likley to go up than down – meaning either that rates will go up, exemptions will come down or both.  Again, ugh.

Conclusion?

It appears that the one year patch is the favored school of thought among those who care about this particular tax but all bets are off when dealing with congress so no real advice is available right now.  I think Greg said it best when he said that it is no longer safe to rely on $3.5 million being the exemption.  Given all that congress is trying to do right now and all that they have to pay for, it seems highly unlikey that this tax will go down.

My opinion:  the 1 year patch seems the most reasonable scenario because it allows congress to do nothing.  That way the D’s can blame the R’s for passing the law in the first place.  And really people, why do something when its so much easier to do nothing and blame someone else for having screwed it up before you even got there?

Ugh