Estate Planning

Here is a brief answer to a question someone had about the current status of the Estate Tax:

On 1/1/2010 a funny thing happened that we all knew about but thought it would get changed before actually coming to fruition.  As of 1/1/10, the estate tax is repealed (that means 0% estate tax for anyone who dies now), the gift tax went down to 35% and the generation skipping tax was also repealed.  One caveat, upon a person's death, the inheritor receives the assets at the original cost so when the inheritor sells, she will have to pay capital gains on the sale.  There is an exemption amount but I'm not going to get into that here as it isn't really that important.

All of the above is only in effect for 2010.  On 1/1/2011, we revert back to a 55% estate tax/gift tax, a 1 million dollar exemption and the  generation skipping tax returns at 55%.

Congress has been working on a bill to make permanent the estate law changes enacted in the 2001 Tax Act, however they have been unable to do so as of this writing.  The worry is, if they do come up with permanent estate tax relief, will they make the changes retroactive, thereby nullifying any action people took during this time?  No one knows--it is a huge mess.

What many people with wealth are considering is GIFTING of assets and paying the tax at the 35% rate.  If permanent changes occur and made retroactive, I am sure there will be masses of people who will challenge the constitutionality of such a decision.  But in the worst case scenario, the person who gifted would end up paying the new gift tax rate (what ever that may be).

Finally--Year End Return Numbers

Well, 2009 ended on a good note for most areas of the market.  I'm still in disbelief that in one year we went from Armageddon to "everything is back to normal"--as least as far as the market is concerned.  From an economic perspective, we still have a long way to go.  But the market always leads.  Here are the year's numbers:


The Monthly Index Report for December 2009

Index	Dec-09	QTD	YTD	Description
S&P 500 Index*	1.8%	5.5%	23.5%	Large-cap stocks
DJIA*	0.8%	7.4%	18.8%	Large-cap stocks
Nasdaq Comp.*	5.8%	6.9%	43.9%	Large-cap tech stocks
Russell 1000 Growth	3.1%	7.9%	37.2%	Large-cap growth stocks
Russell 1000 Value	1.8%	4.2%	19.7%	Large-cap value stocks
Russell 2000 Growth	8.6%	4.1%	34.5%	Small-cap growth stocks
Russell 2000 Value	7.6%	3.6%	20.6%	Small-cap value stocks
EAFE	1.5%	2.2%	32.5%	Europe, Australasia & Far East Index
Lehman Aggregate	-1.6%	0.2%	5.9%	U.S. Government Bonds
Lehman High Yield	3.3%	6.2%	58.2%	High Yield Corporate Bonds
Calyon Financial Barclay Index**	-3.0%	-1.8%	-4.4%	Managed Futures
3-mo. Treasury Bill***	0.0%	0.0%	0.3%
All returns are estimates as of December 31, 2009. *Return numbers do not include dividends. ** Returns are estimates as of December 30, 2009.

Helpful Tip from the IRA on filing status

Eight Facts About Filing Status 

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

There’s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

• Publication 501, Exemptions, Standard Deduction, and Filing Information (PDF 196K)