Wisconsin Estate Planning and Tax Law Blog

Estate Planning for Digital Assets

2010-05-25T13:56:21-05:00

For the last few weeks I have been heavily involved in the area of Estate Planning for Digital Assets. We also refer to this area as Digital Estate Planning, Digital Death, and the Digital Afterlife. Given my increasing level of involvement in digital estate planning I decided to launch a new blog concentrating specifically on those issues. The new blog is DigitalEstatePlanning.com. I had mentioned in a prior post that I intended to start a series on digital assets here on the Wisconsin Estate Planning and Tax Law blog. Instead, I will proceed with both blogs and I will bring both resources together through links and cross-posts from time to time.

My reason for starting a standalone digital estate planning blog is because the issues related to digital assets are not limited to Wisconsin. In fact, the issue of what happens to our digital assets when we die is global and we are just at the beginning stages of developing that area of law. Last week I had the opportunity to attend and participate at the first Digital Death Day ("DDD2010") conference in Mountain View, California. My recap of the event can be found here. DDD2010 brought together a collection of individuals representing businesses involved in social networking, identity protection, death care, estate planning, etc. It was great group of people and it will serve as the foundation for change in the digital estate planning area.

Please feel free to visit, subscribe or follow DigitalEstatePlanning.com to stay up to date on the developments in the area of digital assets and estate planning.

How to Be a Good Executor

2010-04-27T21:44:29-05:00

I was fortunate enough to contribute a very small portion to a recent article by Sheryl Nance-Nash for The Faster Times titled "How to Be a Good Executor." In all Ms. Nance-Nash's article provides a very nice overview of the primary things an executor must be aware of and how to best accomplish the many tasks at hand.

Here in Wisconsin we use the term Personal Representative in plan of Executor or Executrix. However, the role and job description is identical. If I were to highlight three things that make a good personal representative I would boil the list down to the following:

Well organized and an attention to detail;
Has the time and inclination to deal with the probate process and the various parties involved; and
Financially competent, at least to the extent of being able to balance a checkbook and maintain financial records.

Another area of importance is a familiarity with or working knowledge of different categories of assets, especially if the decedent owned special assets such closely-held business interests, collectibles, unique or complex financial instruments, or a number of digital assets. The last category is of growing importance in our current technology age. I will be starting a series of posts focusing on digital assets later this week, but I wanted to mention a new service available to digital asset owners to assist with the estate planning for that class of property. Entrustet.com is an online service that aims to allow people to quickly, easily and securely protect their digital assets at the time of their passing. As part of my series on digital assets I will take a deeper look at not only the unique issues we face during the estate planning process but also the probate and administration implications that arise in regards to digital assets. As times change and technology continues to advance our Internet presence expands exponentially. Proactively addressing those issues goes a long way to ensure that the client's wishes are carried out and that the process is much more manageable for the client's family in an already trying time.

Wisconsin Legislature Acts to Limit Estate Tax Ambiguity

2010-04-27T11:45:58-05:00

In what can best be described as a perfect example of swiftness and procrastination, both house of the Wisconsin State Legislature passed SB 670 on the last day of their 2009-10 regular session. I mention the interesting dichotomy between swiftness and procrastination because the legislature really did work quickly at the end. The bill was introduced on April 7, 2010 and was passed just over two weeks later on April 22, 2010. However, that is still nearly four months after the ambiguity and uncertainty regarding the federal estate tax became a reality. In the end I am very happy that the Wisconsin legislatures turned their attention to this issue before their session ended.

Tom Solberg of the State Bar of Wisconsin has written an article on the topic titled, Legislature addresses ambiguity caused by one-year repeal of federal estate taxes. Some of the highlights of SB 670 from Mr. Solberg's article are as follows:

The bill clarifies formula clauses in the will or trust of an individual who dies in 2010 if that will or trust references the federal estate tax and or the generation-skipping transfer tax. If a 2010 decendent's will or trust includes such a formula clause it will be administered in accordance to the federal tax law in effect on December 31, 2009
An exception to the above-described rule treats the applicable exclusion amount as being unlimited if all of the following apply:
- Decedent leaves a surviving spouse;
- Decedent has then living issue who are also the issue of the surviving spouse; and
- Decedent's surviving spouse is either a current income beneficiary of each trust funded by the formula clause OR surviving spouse is the sole beneficiary of any property subject to disposition by the formula that does not pass in trust.
The bill also provides a number of interested persons, including the personal representative, trustee, beneficiary of the decedent's trust or will, or the surviving spouse, with the opportunity to petition the court seeking the apply the formula in a manner different from points 1 and 2 above.

As of the writing of this post I have not been able to determine if the Governor has signed the bill. I have not heard or read anything that would indicate the Governor has any intention of vetoing the bill, so I would anticipate that we will see confirmation of his signing in the near future. I will provide a short update via this blog when I can confirm.

Federal Estate Tax in 2010

2010-02-02T15:41:29-06:00

I intentionally waited until after President Obama's State of the Union Address to post my commentary of current state of the federal estate tax because a part of me was hoping that either Congress or the President would have clarified the situation by now. Unfortunately for me, my fellow estate planning attorneys, and everyone affected or potentially affected by the estate tax, things are no clearer today than they were on January 1, 2010.

The reality is this: At the present time there is no federal estate tax for deaths occurring between January 1, 2010 and December 31, 2010. This estate tax "repeal" is part of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") (also affectionately/unofficially known as the "Bush Tax Cuts." As I have discussed previously on this blog the EGTRAA is set to sunset (i.e. expire) on January 1, 2011, roughly 10 years after the it was signed into law. I will not go into exhaustive detail as to why the sunset provision was included in the bill, but I will say that it was added to the bill as an end run around the Byrd Rule (a Senate rule), which allows Senators to block a piece of legislation if it purports to significantly increase the federal deficit beyond a ten-year term.

On the surface the fact that we have reached 2010 with EGTRRA still in full-force seems like a good thing for individuals with large estates. In fact it may well play out to be a good thing depending on Congress's actions this year. However, therein lies the problem for a couple of reasons. One, since Congress has not acted we are in an unenviable position of not having anything resembling clarity in regards to the current, let alone, the future federal estate tax system. Given this uncertainty, it is extremely difficult to advise clients on matters related to the estate tax so it is difficult to be proactive in the estate planning realm at the moment. Second, there is a thought shared by many commentators that Congress may look to make any changes to the federal estate tax system retroactive to January 1, 2010. This makes it difficult to properly administer estates for individuals that die after January 1, 2010 and the date the any new estate tax law is passed. Therefore, even reactionary planning and tax compliance are complicated by the uncertainty in the estate tax arena.

It does not give me great joy to deliver this state of the federal estate tax system to this blog's readers or to my clients. Unfortunately, it is the reality we find ourselves in for the foreseeable future. We simply do not know when or if Congress will revisit the federal estate tax issue this year. In the event that they do not act the entirety of EGTRRA will expire, which will mean the pre-2001 federal estate tax system will return in full force. That means the estate tax exemption returns to $1 million per person, the estate tax rate will be 55%, step-up basis returns after a one year hiatus, and the federal estate tax credit for state death taxes paid returns. The return of that last item will in turn reignite numerous state estate tax systems that have been dormant since the federal estate tax credit of state death taxes was transitioned to a deduction. Wisconsin is on such "pick-up" estate tax states that will go from having no estate tax on December 31, 2010 to having an estate tax on January 1, 2011.

I will do my best to monitor the situation and I will pass on any commentary or thoughts that I come across on the federal estate tax matter as we move forward. We have less than 11 months remaining in 2010 so presumably the window of opportunity is closing quickly. However, Washington had almost 9 years to plan for this and yet here we are, so I would not recommend holding one's breath.

About Me

2010-01-01T12:05:00-06:00

Contact

Email Address: Email Me

Biography

Nathan Dosch is a tax, estate planning and business attorney at Neider & Boucher, S.C. in Madison, Wisconsin. His writings here reflect his own opinions and not that the firm.

Nathan focuses on assisting individuals and businesses with tax planning and business law issues. He also works to design and implement estate and succession plans for individuals and business owners. His main objective is to ensure that the client's wishes are carried out, while minimizing administration costs and taxes.

Nathan was born and raised in Devils Lake, North Dakota. He attended North Dakota State University (NDSU) and earned a Bachelor's of Science in Business Administration. While at NDSU he played on the varsity golf team. He then attended Marquette University Law School where he earned his Juris Doctor degree. Between his first and second year of law school he studied international and comparative law abroad at the University College in Dublin, Ireland. While working as a practicing attorney he earned a Master's of Science in Taxation degree from the University of Wisconsin-Milwaukee.

Nathan regularly presents to different groups including financial professionals, attorneys, accountants and the general public on the topics of taxes, estate planning, probate and trust administration. He also is a frequent author on taxes and estate planning on his blog, Wisconsin Estate Planning and Tax Law Blog, and in various print and on-line publications.

He is a member of the American Bar Association, the State Bar of Wisconsin, the Dane County Bar Association, the Outagamie County Bar Association, the Fox Valley Young Lawyers Association, the Fox Valley Estate Planning Council, Madison Estate Council and the Madison Area Growth Network (MAGNET).

Two New Estate Tax Bills Introduced

2009-11-23T16:21:46-06:00

The week before Thanksgiving 2009 was a busy one for some legislators with an eye on our country's estate tax system. Through November 20, 2009 the tally of estate tax related bills has reached 20, including the two newest bills discussed below. The eleventh month does not translate into the eleventh hour, but we are quickly approaching what we would naturally think is the last possible time to act since the estate tax as we know it is set to change dramatically on January 1, 2010. I do not believe that the December 31, 2009 "deadline" is as much of a call to action as I once did. In fact, it would not surprise me to see little or no action by Congress prior to the end of 2009. If that is the case, I would not be surprised to see Congress address the estate tax issue with retroactive legislation. I have hoped for years that our lawmakers would take a more proactive approach, but I have grown less and less confident as each month and year has passed.

With that, let's turn our attention to the latest round of entrants (bills) in the estate tax lottery. The first bill, S. 2784, A bill to amend the Internal Revenue Code of 1986 to permanently extend the estate tax as in effect in 2009, and for other purposes, was introduced on November 17, 2009 by Sen. Thomas R. Carper (D-DE) and Sen. George V. Voinovich (R-OH). The highlights are as follows:

Making the $3.5 million estate tax exemption permanent and indexing it for inflation starting in 2011;
Tax rate of 45%;
Unification of the gift and estate tax exemptions; and
Portability of the exemption between spouses.

Late last week Rep. Earl Pomeroy (D-ND) introduced his second estate tax related bill this year. The most recent, H.R. 4154, Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, was introduced on November 19, 2009. Rep. Pomeroy's earlier bill, H.R. 436, Certain Estate Tax Relief Act of 2009, was introduced in January and has received a fair amount of attention, mostly attributable to the restrictions it places on valuation discounts. The highlights of H.R. 4154 are as follows:

Repeal of EGTRRA (a/k/a the 2001 Bush tax cuts)
Making the $3.5 million estate tax exemption permanent;
Freezing gift tax and estate tax rates at 45%
Repeal of carryover basis rules

This is admittedly a very brief summary of the two estate tax related bills. As always there is much more than meets the eye with new legislation. What I take from last week's activity is that at least a few lawmakers have this issue on their radar as we near the end of November. With the amount of time and attention that the health care bill is garnering it would be a major surprise to see any substantive movement on any estate tax bill for the foreseeable future.

Widespread Fraud and Abuse of First Time Home Buyer Tax Credit

2009-10-22T14:48:55-05:00

This item can probably best be filed under the category, "News We Expected." As reported by the Wall Street Journal online in "Tax Credit Abuse and the Four-Year-Old Home Buyer" the Inspector General for Tax Administration, Russell George, testified before Congress today in regards to fraud and potential abuse of the home buyer tax credit. Mr. George testimony comes at a time when the current home buyer tax credit is set to expire in less than 6 six at the end of November and with the real estate lobby pushing for an extension.
It would be fairly naive in my opinion to not anticipate that some individuals would commit tax fraud or intentional abuse the system. I am certainly not condoning the illegal activity better known as tax fraud or tax evasion. Reading articles highlighting fraud and abuse such as this reinforces in my mind the truism, "One bad apple spoils the barrel," except that a number of the apples in this barrel are bad, which will only hasten the spoilage of the first time home buyer tax credit.
U.S. News and World Report also published an online article titled "First-Time Home Buyer Tax Credit: All Sorts of Sketchy Claims" that discusses the fraud and abuse news as well as five things to know about the development.

The Other Shoe Has Dropped on Executive Pay

2009-10-22T12:39:03-05:00

The Obama Administration pay czar, Kenneth Feinberg, has made it known that he will require each of the seven largest bailout recipients to reduce the total compensation for their top 25 highest paid employees by 50%, on average. These rules affect the likes of AIG, Citigroup, and Bank of America. The New York Times article, "Curbing Wall Street Pay, and the Corporate Boards that Set it," provides additonal overview and commentary on the topic.
It will be interesting to see how this news is received in the various circles. Wall Street will certainly exhibit a reaction. Politicians will spin it in a way most favorable to them and their platform. Individuals? Well, I am not sure how we the people will respond. I see two main reactions. The first is that this is exactly what the government needed to do to keep the greedy business executives in line. The second is that this is a classic case of government overstepping its boundaries in a free, capitalist economy. Which one is right? Probably neither, but we live in a polarized world where the "happy medium" is not an option.

Cost of Government Day - 2009

2009-08-12T19:28:00-05:00

For that last couple of years I have kept an eye out for the Cost of Government Day as calculated by the Americans for Tax Reform Foundation and the Center for Fiscal Accountability. The Cost of Government Day 2009 Report is now available. Today, August 12, 2009, is this years Cost of Government Day. This is 26 days later than 2008.
I am sharing this report and link because it is an interesting look at the current tax and government landscape in the U.S. The overall views expressed in the report of on the websites above are those of the Americans for Tax Reform Foundation and the Center for Fiscal Accountability and are not necessarily my views or the firm's view.

Happy 4th of July

2009-07-04T07:28:12-05:00

As we celebrate the 233rd birthday of our great country I thought it would be an appropriate time to take a quick look at the history of income taxes in the U.S. The U.S. Treasury website has a page titled: Fact Sheet: Taxes - History of the U.S. Tax System - that you might find interesting.
It is hard for me to imagine things without taxes being part of the equation, but as you can see the U.S. income tax system didn't exist with any permanency until the 16th amendment was ratified by the requisite number of states in 1913. With this version of income taxes being 96 years old there are still people living that might be able to imagine a world without them. We've come a long way since the days when rates ranged from 1 to 7 percent.
With that it is now time to celebrate the 233rd anniversary of America's independence. Have a fun and safe holiday weekend.