February, 2010
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

Part of our duty here at Castle Wealth Advisors® is to monitor all of our clients’ estate planning documents, the ownership of all assets and the beneficiaries of retirement accounts and life insurance policies. Some of you have documents that were drafted eight to 10 years ago when the estate and gift tax laws were very different than they are today.

Currently, federal estate tax law is drastically changing. We were hoping that Congress would act last November or December to freeze the estate tax laws at last year’s level. Unfortunately it did not, and now closely-held business owners need to review their current situation and discuss possible changes with their legal and tax advisors. Even if Congress passes a new estate tax law this year, only part (not all) of our problems will go away. Ownership or titling of assets will still need to be reviewed, changing beneficiaries may be necessary and capital gains or appreciation on assets might also have to change.

The following are our four areas of greatest concern regarding estate taxes:

  • 2010 and 2011 estate tax laws: If nothing changes in Congress this year, then there will be no federal estate tax in 2010, and in 2011 the estate tax exemption will only be $1 million. In 2009, the exemption was $3.5 million. As a result, many of you will be subject to much higher estate taxes in future years.
  • The wording of trust documents: Some revocable living trusts have wording that fit the current law and some do not. Division of assets between the credit shelter trust and the marital trust is very important when someone dies. Due to the changing laws, it is very important that you review the wording in your trust document.
  • Step-up in basis has gone away: In prior years when someone died, their assets that had large capital gains stepped up in basis and the capital gains went away. This year, and in future years, this step up in basis will be limited. For beneficiaries $1.3 million of capital gain can be eliminated and up to $3 million of capital gains can be eliminated if there is a surviving spouse. For those of you who have a net worth of $3 to $4 million or more, your options need to be discussed. For those of you with more than $10 to $15 million in assets, expect for these discussions to be even more complicated.
  • State inheritance tax laws: Over the last six years, the tax revenue that each state received from the federal government has dried up. Because of that loss of revenue, many states have enacted new state inheritance laws or new estate tax laws. Some of these states have an exemption of $675,000, and some have exemptions of $2 million. The taxes that states are going to impose on someone’s taxable estate when they die are now becoming a much larger and more significant number. In the old days, the states received some income from the federal estate tax paid, but now they do not.

The above-mentioned potential tax problems are too complicated to discuss in one article. Next month we will start a series of four in-depth articles discussing each of the above mentioned topics. We look forward to helping you work through these complicated and confusing estate tax changes.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .