A very significant percentage of Americans are going through life without having executed any estate planning documents at all and this is something that needs to change. While younger people are less likely to have an estate plan than their older counterparts, many older individuals have made no preparations for the future either.  This is a source of concern throughout the estate planning community, a tragedy for many families.
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Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

We have been urging our clients to have eyes wide open about this for months.  People sometimes make sweeping assumptions based on things that they hear.  This something to beware when it comes to legal matters in general and estate planning in particular.
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Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

You may have come across websites that offer to provide visitors with generic legal documents.  Sometimes for free.  They want you to believe that the law is something that you can take into your own hands when it comes to planning your estate; that all you have to do is fill in the empty fields and everything is settled.
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Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

Many individuals look at the estate tax and have a hard time understanding why it is imposed. They have a number of reasons for feeling this way.
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Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

Your estate plan is not something that you devise in one sitting and then tuck away in a lock box forever.  As things change in your life estate plan updates are called for. On a personal level these changes include things like marriage, divorce, and remarriage; additions and subtractions to the family; and significant changes to your financial situation.

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Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

As the 2010 calendar year was winding down there was a lot of apprehension within the estate planning community about the estate tax parameters for 2011. The estate tax was repealed for 2010, but when it was last in effect in 2009 the exclusion amount was $3.5 million and the rate of the tax was 45%. Under the tax code as it existed throughout most of the year the tax was scheduled to return in 2011 with a reduced exclusion and an increase in the rate of taxation. The exclusion amount was to be just $1 million, and the maximum tax rate was set to be raised to a rather astonishing 55%.

Fortunately, the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 changed all of that for the better. Going forward in 2011 and 2012 the estate tax exclusion is now going to be $5 million, and this is a per person exclusion. So, a married couple could combine their respective individual exclusions to equal a total of $10 million.

In addition, the rate of the tax was changed as a result of this eleventh hour tax relief. It is hard to understand how you can possibly ask the American citizenry to pay a tax at a rate that takes more than it leaves, which is what would have happened if the existing parameters had remained in place. But this new legislation reduces the maximum rate of the estate tax from the 55% that had been on tap all the way down to 35%.

Though the changes are welcome, it is important to keep things in their proper perspective. A 35% tax on money that you have left over after you have carried a significant tax burden all of your life is no picnic. And if the overall value of your estate exceeds the exclusion you may wonder why you have to pay this 35% tax when others do not.

And most importantly, this law expires in less than two years.  You should consult your estate planning attorney to find out how to best apply the new law to your situation.

Larry Parman
Founding Attorney

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

Retirement is just around the corner for a vast number of Baby Boomers. Perhaps you are among those who are counting the days until you retire and settle in nicely to live off of that well-planned portfolio in your IRAs, a pension and, of course, Social Security. Unfortunately, the time of reckoning arrives and the income taxes on the IRA funds must be paid as money is withdrawn from the account.

Taxes on IRA Funds

The federal government provided inducements for individuals to save for their own retirement in lieu of relying solely on Social Security payments. A certain amount of untaxed funds could be invested in an IRA with taxes due at the time of withdrawal. One premise behind the various forms of IRAs is that the money invested in an IRA would accumulate and compound at a faster rate than an equivalent non-IRA account because the dividends and interest would be sheltered from income taxes until the time of withdrawal.

A second premise of the IRA concept was that individuals would no longer be working at a regular salary and thus be in a lower tax bracket when funds would be withdrawn from the account. Except for the Roth IRA, IRA withdrawals are fully taxable as ordinary income in the year they are withdrawn.

Taxable Social Security Benefits

When Congress passed the Employee Retirement Income Security Act (ERISA) that established IRAs in 1974, Social Security benefits were not taxable income. It wasn’t until 1981 that Social Security benefits became taxable; today, up to 85% of Social Security benefits become taxable depending upon the amount of adjusted gross income reported on your federal tax return.

Impact on IRA Withdrawals

In order to meet a standard of living approximating that of pre-retirement days, individuals expect to withdraw tens of thousands of taxable dollars annually from IRAs. By doing so, they automatically exceed the limits for tax-free Social Security benefits. This means that taxable income is immediately increased by 85% of the Social Security benefits. This may bump you into a higher tax bracket and increase the percent of income tax paid on all income from 24% to 36%.

During retirement, many individuals will find that they are paying more in income taxes than they planned.

Larry Parman
Attorney at Law

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

That, of course, all depends upon when you die, the value of your estate and who you leave your assets to.

There is no estate tax for those who pass away in 2010 but it is expected to return in 2011 and, unless Congress steps in and makes changes, it will come back with a $1 million dollar exemption, considerably lower than the $3.5 million in 2009.

But even if the estate tax does come back, only assets that exceed the exemption amount will be subject to the tax. If you have a modest estate, you may not need to worry about this tax at all. Of course, your state may impose a separate estate tax on assets at a lower value.

In addition, assets left to your spouse are not subject to estate tax, regardless of the value, so you can bequeath as much as you like to your better half without worrying about the IRS.

It’s not unusual to discover that your estate is worth much more than you realized, especially when you factor in retirement plans and the death benefit of your life insurance policies. There are certainly ways to minimize the amount of taxes your beneficiaries could potentially pay, but to do this, you’ll need the assistance of a qualified estate planning attorney.

Larry Parman
Attorney at Law

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

Many retirees live on a fixed income and paying extra taxes can easily strain their financial well-being. Fortunately, there are deductions that seniors can take advantage of that will help to save money on taxes.

Contributions to Your Retirement Plan – Even after you retire you can still make contributions to your IRA account, or if you are self-employed you can make contributions to your SEP-IRAs or Keogh plans. This serves a double purpose, you get a tax deduction for the contribution, plus you are adding to your retirement funds. Those over 50 can make larger contributions each year, which helps provide tax deductions.

Standard Deductions – If your home mortgage is paid off, you might benefit from using the standard deduction as opposed to the itemized deduction. Those over the age of 65 are entitled to a higher deduction. Figure your taxes both ways, how much you will save with the standard deduction compared to what you would save using an itemized deduction.

Donate to Charity – If it makes more sense for you to use itemized deductions you can deduct donations that you made to charity organizations. Keep in mind that there are some limitations to these deductions; generally you cannot deduct more than 50% of your gross income with charity contributions. If you donate property to a qualified organization, you can deduct the fair market value of that property.

Investment Expenses – If your investment expenses exceed 2% of your adjusted gross income, you can deduct some of these expenses. Examples of qualified deductions include attorney fees, your home computer if it is used for investing purpose, etc. You cannot deduct the fees to brokers for investing in stocks and bonds.

Medical Expenses – This is probably the most beneficial deduction for most retirees due to the fact that many seniors tend to have additional medical costs. Some of the medical expenses that you can deduct include health insurance premiums, prescription medications, long term care facilities, as well as money that you pay out of your own pocket for healthcare.

Home Sales – Many people choose to sell their homes after they retire. The most frequent reason for this is that they simply don’t need a large house any longer and want a smaller place, or to move into a retirement community. Some buy an RV to live in so they can travel in their later years. If you lived in your home for at least two out of the last five years before you sell it, you will not have to pay taxes on the profits as long as they don’t exceed $250,000 for those that are single, or $500,000 for married couples.

If you are retired it is important to take advantage of all of the tax deductions that you are entitled to. The more money you save in taxes the more money you have to enjoy your retirement.

Larry Parman
Attorney at Law

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.