Orlando Estate & Elder Law

Family Wealth Transfer in Asia Fails

Successfully transferring wealth between generations of a family can be difficult, especially in Asia.

When wealth is passed down to younger generations of a family, it tends to dissipate over time, if it is not carefully managed. The wealth is naturally divided as a wealthy parent might divide everything equally between his three children. They will eventually further divide it between their own multiple children.

Unless the younger generations successfully protect the wealth that they inherit and grow their slice of it, there may be little of the wealth left.

In some places in the world, it is more difficult than in others to manage intergenerational wealth. Studies have shown that it is particularly difficult in Asia, with intergenerational transfers of high wealth having a failure rate of 70%.

Large family operated businesses in Asia also lose an average of 60% of their value when the founder passes away, as the Wills, Trusts & Estates Prof Blog discusses in "Death And Taxes: How To Effectively Transfer Wealth Amidst Asia's Aging Population."

One of the reasons for this problem in Asia, is that most countries on the continent have high estate or inheritance taxes. The other reasons include a lack of planning for succession. It also seems that younger family generations do not exercise the same stewardship of wealth as their elders who created the wealth.

Asians are planning around their high failure rate of wealth transfer, by purchasing life insurance to avoids high estate taxes.

Transferring wealth to younger generations works better in the U.S.  However, it still requires proper estate planning to make sure the right tools are used for successful transfers.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wills, Trusts & Estates Prof Blog (Jan. 15, 2018) "Death And Taxes: How To Effectively Transfer Wealth Amidst Asia's Aging Population."

Insurance Keeps Inheritance Tax Blues Away

In the U.K. more and more people are having to pay the inheritance tax leading to an increase in people insuring against that possibility. Americans concerned about estate or inheritance taxes can do the same.

People seem to complain about estate and inheritance taxes more than any other form of taxation, especially if they are affected by the tax. There is something about taxing a person's assets after they pass away that rubs many people the wrong way.

This is true in the U.K. as well as the U.S.

In the U.K., the exemption limit for the inheritance tax is so low that many more people are having to pay the tax than ever before.

That has led families to figure out more ways to avoid the tax as The Telegraph reports in "Should you insure against an inheritance tax bill? This is what it costs."

There are many ways to avoid estate and inheritance taxes.  However, they cannot always be avoided completely and, in some situations, the avoidance measures might be undesirable for other reasons.

When that happens, the way to minimize the impact of the taxes is to purchase life insurance.

Structured properly policy benefits are not subject to the taxes and they provide the money necessary to pay the tax bills, without eating into the estate or inheritances.

Visit an estate planning attorney to learn if you and your family will be subject to estate or inheritance taxes and to figure out the best way for your family to plan for them.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: The Telegraph (Sep. 2, 2017) "Should you insure against an inheritance tax bill? This is what it costs."

A Corny Take on Inheritance Tax

Few states have inheritance taxes any more, but Iowa still does. A recent court case there illustrates that the Iowa law has a strange provision.

A handful of states have an inheritance tax either in addition to or instead of a state estate tax.

Inheritance taxes are similar to estate taxes. With an estate tax, the estate itself is taxed before distribution to people. With an inheritance tax it is the tax is assessed on the people inheriting the estate.

Iowa is one of the states with an inheritance tax.  However, it has an exemption for the tax when it comes to children who inherit from their parents. However, Iowa changed that exemption in 2003 to exclude children who inherit from stepparents who have divorced their natural parents.

That change was the subject of a recent court case as McClatchy reported in "Court: Kids of Divorced Stepparent Must Pay Inheritance Tax."

Tyler and Mark Acorn remained close to their stepfather, after he divorced their mother. He left them most of his estate.

The state of Iowa sent the Acorn brothers an inheritance tax bill of $200,000. They sued, claiming they were being punished because their parents divorced.

The Iowa Supreme Court ruled that the state had a legitimate interest in keeping families together and that the Acorns' rights were not violated.

Iowa's provision is unique.

If you live in one of the states with an inheritance tax, then it is important to keep that in mind when you plan your estate.

You will need to make sure that your heirs have the assets to pay the tax without having to sell something you want them to inherit.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: McClatchy (Nov. 17, 2017) "Court: Kids of Divorced Stepparent Must Pay Inheritance Tax."

Adoptions and Tax Avoidance Meet in Japan

In the U.S., almost all adoptions are for the purpose of raising a child. That is not the case in Japan.

From a tax collector's perspective, the estate tax can be a very inefficient way to raise money and limit dynastic wealth. People have successfully found all sorts of ways to limit the size of their estates, while still keeping their wealth in their families.

One potential way around this for tax collectors is to institute an inheritance tax instead of an estate tax.

Theoretically, by taxing what heirs receive instead of the deceased's estate, it is more difficult to find ways around the system. In the U.S., only a handful of states have adopted an inheritance tax and there is no such thing at the federal level.

Japan, on the other hand, does use an inheritance tax. Nevertheless, many Japanese have found a way to limit it through adoption, as the Library of Congress recently explained in "Many Adoptions in Japan are Not About Raising Children."

Wealthy Japanese people will adopt an adult, often a grandchild or other relative, so that they have more heirs. Accordingly, every individual heir's share of the estate is consequently smaller, which can lead to lowering the inheritance tax rate for the heirs or bring them under the threshold for the tax to apply at all.

To make this method of getting around the tax more difficult to use, the Japanese government has limited the number of adult adopted children who are counted for the purposes of inheritance taxation.

One thing this shows, is that it does not matter how governments decide to tax people and their estates. People will look for and find ways to limit their tax liabilities and to keep their wealth in their families.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Library of Congress (April 5, 2017) "Many Adoptions in Japan are Not About Raising Children."

Location Location Location - Where You Die

Every state in America has its own estate laws. That means that your state of residence when you pass away, can make a big difference to your estate.

When it comes to estate planning for wealthy people in the U.S.,  considerable attention is given to the federal estate tax. So much scrutiny is given to the tax that many believe the tax is an extraordinary burden on far more people than it actually is.

Only a very small percentage of estates actually end up paying even a single penny in estate taxes.

Nevertheless, the federal estate tax is debated almost every year.

That is the case this year,  since many believe the Trump administration and Republicans in Congress will seek to eliminate the tax entirely. If they do, it will not end all estate taxes in the country.

If avoiding the estate tax matters to you, then it makes a big difference where you live when you pass away, as the Wills, Trusts & Estates Prof Blog discusses in "Why You Should Be Careful Where You Die."

Fourteen states have their own version of the estate tax and they vary both in rates and in how much an estate can be worth before the tax kicks in.

Six states have an inheritance tax, which is similar.  However, instead of taxing the estate, inheritance taxes are based on the amount the heirs receive and usually their degree of relationship to the decedent.

The heirs pay the inheritance tax, not the estate.

New Jersey and Maryland have both an estate tax and an inheritance tax.

It is important to understand state estate taxes, so you can ask your estate planning attorney what the rules are in your state and in any state you might consider moving to in your retirement years.

It will make a difference for your estate, much more so than the federal estate tax in many cases.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wills, Trusts & Estates Prof Blog (April 22, 2017) "Why You Should Be Careful Where You Die."

Same-Sex Partner Tax Issues Persist

A recent ruling by a New Jersey tax court illustrates that the legality of same-sex marriage does not solve all estate difficulties for same-sex couples who were not able to get married previously.

In 2004 New Jersey passed a domestic partnership law giving same-sex couples who registered as domestic partners some of the legal protections married couples enjoy. For example, the law exempted a surviving partner from paying the state's inheritance tax, but not the estate tax.

New Jersey is one of the few states with both taxes and requires that the higher of the two be paid. Long time partners Rucksapol Jiwungkul and Maurice R. Connolly Jr. registered as domestic partners in that same year.

In 2007 New Jersey passed a civil union law exempting same-sex couples from both the estate tax and the inheritance tax. Jiwungkul and Connolly did not enter into a civil union as a matter of principle.

Same-sex marriage became legal in the state in 2013 and the two made plans to wed according to Bloomberg BNA in "Same-Sex Partner Not Spouse for New Jersey Estate Tax Break."

Six days before the planned wedding Connolly passed away unexpectedly. Jiwungkul was the executor of the estate. In that capacity he paid approximately $100,000 to the state for the estate tax.

Later he filed an amended tax return and asked to have the amount refunded, claiming that he should be exempt from it. The state refused and the case went to tax court.

The law in the case was clear. As Jiwungkul was a domestic partner he was not entitled to the estate tax exemption. The court could have granted him an exemption by citing extraordinary circumstances, but the judge declined to do so.

The case illustrates that same-sex couples still need to be mindful about what different legal statuses mean for their estates.

For more information on estate planning for all couples or singles, please visit my website..

Reference: Bloomberg BNA (May 17, 2016) "Same-Sex Partner Not Spouse for New Jersey Estate Tax Break."

New Jersey Wealth Fleeing High Tax Rates

New Jersey has some of the highest tax rates in the nation. News that the state's wealthiest resident has moved to a state with much lower tax rates has caused some lawmakers to call for changes to New Jersey's tax structure.

It is not known for certain why hedge fund manager David Tepper decided to move his residence and business operations from New Jersey to Florida recently. Tepper was believed to be New Jersey's richest resident with an estimated net worth of $10.4 billion.

Many New Jersey lawmakers, however, have placed the blame of their state's tax structure.

New Jersey has the lowest state estate tax exemption in the nation at only $675,000. It has the highest property tax rates in the U.S. It has a top income tax rate of 8.97%. Additionally, New Jersey is one of only two states in the country to have not only an estate tax but also an inheritance tax.

Florida, on the other hand, has neither an estate tax nor an income tax.

The Inquirer reported this story in "Billionaire's move puts New Jersey tax rates in spotlight."

While Tepper's move has many state lawmakers concerned about the state's high taxes and the loss of revenue from wealthy citizens moving to states with lower tax burdens, it is not certain that any changes to the state's taxes will be forthcoming. To date, the Republican governor and Democratic controlled legislature have been unable to reach agreements about changing the state's tax code.

Also, it is also not clear how much revenue the state is losing overall.

In the past few years the percentage of New Jersey residents with incomes exceeding $1 million has increased. However, the ability of wealthy residents to move to avoid state estate taxes has many state legislatures concerned about their own respective state tax rates.

Even though we do not have income or estate taxes, there are still pitfalls and concerns involved with your estate plan.  Please contact my office to discuss concerns that you or your family may have.

Reference: The Inquirer (April 10, 2016) "Billionaire's move puts New Jersey tax rates in spotlight."

Hear Ye, Hear Me - On Wednesday, January 28, 2015

Please join me this Wednesday for an update on Estate Planning 2015.

The presentation will be held at Horizon Bay at 360 Montgomery Road, Altamonte Springs 32714 from 4:00 to 6:00 p.m.

There is no charge to attend but reservations are requested so we can have plenty of room and materials for all.

Call my friends at Horizon Bay at 407-786-5637 or register on my website.

Bring your questions and come see me this week.

 

Estate Tax May Be Coming to China

Over 100 nations currently have an estate or inheritance tax of some form. China is not one of them, but that might change soon as the government is considering a decade old proposal that would institute an inheritance tax.

 

In recent decades the Chinese economy has expanded greatly. As is often the case in countries that experience rapid economic expansion, most of the new wealth is concentrated in a small percentage of the population.

 Whether that is a good thing or not is debatable. Governments often react to it by imposing an estate tax, which also serves as an important source of revenue.

 Now that China is an economic power it too is considering an estate tax, as reported by Want China Times in an article titled "Beijing said to be close to imposing inheritance tax in 2016."

 In the United States the fairness of the estate tax is a hotly contested issue. What cannot be contested, however, is that the US estate tax is much fairer than the Chinese proposal.

 The estate tax in China would kick in when an estate is worth a mere $129,000. The heirs would also need to pay the entire tax amount in cash within 3 months or any property to be inherited would be auctioned off.

 If instituted, this proposal has the potential to cause wealthy people to flee China. Consequently, this development is something to monitor for its potential impact on the world economy, as well as China's reaction to any fleeing citizens.

 Please visit my website and sign up for a weekly digest of my estate planning and elder law blogs.

Reference: Want China Times (December 29, 2014) "Beijing said to be close to imposing inheritance tax in 2016"

UK Historic Wills Are Available Online - Will Yours?

 

Wills can tell a lot about what people value. Looking through old wills can show how values might have changed over the years. The UK has recently aided that effort by making its archived wills available electronically dating back to 1858.

 

We often hear about the estates of recently deceased celebrities. Anyone can read the newspaper or search Google to find out the details of Michael Jackson's estate. However, the estates of historic famous people are more difficult to find. It often requires going to the library and pouring over history books.

 

 In the United Kingdom, however, some historic wills have recently been made available online for people to search through. The Independenthas the story in an article titled "New digital archive will allow public to view wills of historic names."

 

The database includes many famous names, such as Winston Churchill and Charles Dickens. This is an interesting project and well worth a look for anyone who is interested in the lives and deaths of historic figures.

 

 Closer to home, in the United States, something like this would need to be done on the state level.

 

One important message for modern estate planning is that wills are public.

 

 When filed with a probate court, wills become available for the public to access. While it is not as easy to access wills in the United States as it is in the United Kingdom, it can still be done.

 

 Thus, if you want your estate to remain private, you should not rely on a will. Please consider a consultation to explore your options.  Visit my website for more information and to schedule an appointment.

 

 

 

Reference: The Independent (December 27, 2014) "New digital archive will allow public to view wills of historic names"