On Fri, 15 Sep 2006 07:47:59 -0500, sgallagher[at]rogers.com wrote:


- quote -

One of the things I have learned not to do is attempt to predict the
future - especially where taxes are concerned.

For example, a decade ago, only in my wildest dreams would I have
conjured up a unified credit equivalent of $2 million. And that's
just the beginning - in my years of consulting I have seen wholesale
changes in tax deductions, tax rates, the rules regarding retirement
plans, investment income and gains, etc. And most recently, Congress
cut the Kiddie Tax rules off at the knees.

So I pay attention to tax rules when I do my tax return. I ignore tax
rules when making long range plans, preferring to make good decisions
mostly based on common sense.




-HW "Skip" Weldon
Columbia, SC

- quote -

The increase to $2M is only in the past few years, and in 2011, it goes
back down to $1M.

On top of that, the baby boomers hold the largest amount of wealth than
ever before in US history, over $33 trillion. Their heirs can easily
find that the value of their parent's estates will exceed that $1M
limit which will be reinstated in 2011. I grew up in a middle class
neighborhood with a home, where in 1970, the homes cost $27,000.
Today, the average house there is $500,000. That leaves only $500,000
of other assets before that 2011 limit of $1M is reached.

sparksals wrote:
- quote -

An irreversible QDOT election is an election by the executor of the
estate on the Estate Tax Form 706 that assets placed in the QDOT are
excluded from current Estate Taxation but that estate tax taxation on
those assets is deferred until removal of the principal, "Corpus", from
the trust, or the death of the second spouse. This election prevents
the election of the marital estate non-refundable tax credit allowed
under the US Canada tax treaty, currently $780,800.

A distribution is a removal of money from a trust to the beneficiary.
Either from Corpus or from Income. Current income must be distributed
each year from the QDOT. Corpus distribution must have Estate taxes
withdrawn by the trustee. Note: when trustee, trust acountant, brokeer,
etc, take out their fees and commisions, these withdrwals are not
distributions.

<sgallagher[at]rogers.com> wrote in message
news:1158147475.879805.306200[at]e3g2000cwe.googlegroups.com...
- quote -

The Tax Foundation, best known for Tax Freedom Day (hardly a group of tax
lovers) writes in a May 2006 publication: "typically between 1 and 2 percent
of estates" are liable for federal estate taxes. "Wealthy estate holders
my [sic] bear the legal incidence of the tax, but the economic incidence is
borne by many other groups...."
http://www.taxfoundation.org/files/sr142.pdf

In other words, the estate tax falls on the same small percentage of estates
("wealthy" estates) that it has since it started in 1916. This graph from
the Tax Policy Center shows that the percentage of estates affected
typically ranges between 1 and 2%.
http://www.taxpolicycenter.org/Uploa...cts_063003.pdf

- quote -

Table 1 in the Tax Foundation publication shows that the estate tax
exemption started in 1916 at $50,000. That translates to around $1M in
current dollars. The current exemption is $2M; thus the exemption has
increased more than proportionately.

(CPI-U, using 1982-1984 as 100, was 10.9 in 1916, and 200.6 through July
2006; being generous, and calling that a 20-fold multiplication, we get 20 *
$50K = $1M).
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

(See also the Tax Policy Center's graph for a plot of the exemption in 2002
dollars.)

We should separate out the hype from the substance. The hype is what
enables sales people to push expensive "solutions" that aren't needed. For
example, I'm currently watching a personal annuity trust being pushed at
someone to avoid/defer capital gains on a sale of a home (where gains are
under $250K). Could be reasonable, I don't know all the facts, but there
are a fair number of red flags.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

sgallagher[at]rogers.com wrote:
- quote -

=============

Thank you so much for that explanation. Very much appreciated.

I am certainly learning how complicated they are and I'm glad I have
started to research this on my own before going to a professional.

One other question I have about trusts and I really hope it's not a
stupid one! When one sets up a trust, I presume the assets under the
trust must be documented. What happens if other assets are accumulated
after the trust is in effect? Does another trust have to be set up or
can the assets be added to the existing trust?

We need to set up the QDOT due to my lack of US citizenship. Both my
husband and I expect rather significant inheritences from our
respectful parents, moreso from his mom. However, my parents have an
extremely valuable home in Canada that their intent is for my sister
and I to inherit and then the proceeds would be our financial
inheritence from them. This could amount to close to $1.5M in today's
RE market as they are in a community that is still very hot, growing
and projected to grow for a few more years (Alberta Oil Boom).

I know I can bring any amount of money from an inheritence into the US
tax free, but the growth would be taxed. Understandable. I also have
learned that in order to avoid huge estate taxation should I survive my
husband, that this kind of money should be kept in my name so it is not
subject to the marital exemption limit should I predecease him.

So, in this case of events, would we be able to add such monies/assets
to an existing trust or would we have to create a 2nd one?

- quote -

That's because, previously, it was only "rich people" who left estates
with values that were higher than the estate tax exemption.

The exemption for estate taxes has not increased proportionately with
inflation since it was first created. Originally, only the very
wealthiest people ended up being subject to estate tax in the US.
That is why they very often set up trusts, to be able to shelter their
estates from tax. But now, with more Americans owning their own homes,
and given the skyrocketing values of real estate, a modest home can
easily be valued at $500,0000 in certain parts of the country. When
you combine this with insurance proceeds, and the value of retirement
savings that some people have built up over their careers, it's not too
difficult to exceed the estate tax exemption. Transferring assets into
a trust can help avoid a painful tax bite.

Trusts are also a good way to avoid probate costs on large valued
items, like real property. A parent can place property into a trust,
and then designate his heirs as the beneficiary trustees. When the
parent dies, the heirs simply take over control of the trust, rather
than having to have a will probated, for which a lawyer could charge 3%
of the property's value.

Trusts are not just for "rich people" anymore, but they are
complicated, so seek professional advice as part of an estate plan.
It has to be done with all the "i"s dotted and the "t"s crossed
properly.

HW "Skip" Weldon wrote:
- quote -

If you do that, then just make sure that your situation doesn't change
(either by a change in the tax laws or in the value of your assets).
While we'd all like to believe that death is a long way away, if
someone dies suddenly it can be a painful lesson if you find the tax
man is at your door because you didn't tweak when you should have
tweaked, especially if it could have been avoided. Once someone dies,
it's hard to tweak.

Plus, a basic estate plan is important to make sure that probate costs
can be avoided. Legal probate fees are based on the value of an estate
and can be 3% or higher. If a house worth $350,000 needs to be
probated, that means a lawyer would charge $10,500 in legal fees.
Spending a few thousand to set up a trust can avoid a lot more of your
estate being eaten up in legal costs.

Hi Gary,

Thank you for that information. This certainly is complicated! I am
passing that on to my FP, but I am more convinced we need a lawyer or
CPA well versed in this. I know there is a firm in Phoenix who
specializes in Canada/US estate planning. I think I will have to
contact professionals for this type of situation.

I don't quite understand this from the site you gave:

****The QDOT is simply a trust that, if the requirements are met,
allows transfers at death to the trust for the benefit of the
non-citizen to qualify for the 100% estate tax marital deduction.
Generally to qualify as a QDOT a trust must have at least one US
trustee, no distribution (other than income) can be made unless the US
trustee can withhold the applicable US taxes from the distribution, and
the executor must make an irrevocable QDOT election. ****

What is "irrevocable QDOT election" and "distribution"? sorry if
that's a stupid question, but I never thought I would need a trust
before. I always thought a trust was for the children of rich people!

Cathy




- quote -

You might check this link out as it provides more info:

http://www.mechanicsofmoney.com/2006_06_20_.php



Gary Brolis
http://www.mechanicsofmoney.com
http://www.mechanicsofmoney.com/blog.php


sparksals wrote:
- quote -

On Sun, 10 Sep 2006 05:13:45 -0500, sgallagher[at]rogers.com wrote:


- quote -

That's one possibility. Another would be to base our actions now on
what we have and know now (especially if that means do nothing and
incur no costs). We can always tweak it later.

-HW "Skip" Weldon
Columbia, SC

- quote -

Yes, it includes the entire estate. However, if you are both on the
deed to your house, and you equally own it, then only half of the
house's value would be included in the value of the estate, since you
would only be inheriting your spouse's half. You already own your
half.

Note, by the way, that the current estate tax exemption will be $2
million in 2006, 2007, and 2008. It will increase to $3.5 million in
2009, and then in 2010 the estate tax is repealed. BUT..... the estate
tax returns in 2011 with its old $1 million exemption. That means if
your spouse dies in 2011 or later, you would be subject to estate tax
on any part of the estate that exceeded only $1M, and not the current,
more generous $2 million. You should base your estate planning on
having only a $1 million exemption.

- quote -

Well, that's better news than the 117K gift amount that I mistook for
the total amount that can be inherited.

I want to make sure I understand you correctly. If I survive my
husband, is the current $2M for the entire estate, including the house
even though I'm on the deed?

We're not at the $2M estate size, but will be in the future with
parental inheritences. Would it be better to leave any monies in Canada
that I receive from my parent's estate and sale of their home? This
could easily amount to nearly $1.5M just from the sale of their house
in a very booming RE market up there.

I know I can bring any amount of money into the US from an inheritence
out of country tax free, but the growth would be taxed. I guess the
prudent thing to do with that is to avoid the lumping of those funds
into joint accounts in case they are added to my dh's estate by keeping
those funds in my name only?


- quote -

Can you please give me an idea of what rules, gotchas and expenses we
can anticipate?
- quote -

The citizenship thing is really tough for me. The reason I don't want
to take US citizenship is the oath. Essentially, you have to verbally
renounce your loyalty and allegiance to your home country. In all good
conscience, I just couldn't take an oath that says I can't be Canadian
anymore, even though Canada allows dual citizenship, the US does not
recognize it. I consider such an oath to be something that the person
must take very seriously and believe in all their heart. I just
couldn't take it when I wouldn't fully intend to honour those words to
verbally renounce my loyalty to Canada. Hope that makes sense.

Thank you so much for your time, Skip. YOu have been extremely
helpful!

Cathy

On Fri, 8 Sep 2006 04:02:24 -0500, "sparksals"
<sparksals[at]0608.zuym.com> wrote:


- quote -

You won't get the unlimited marital deduction that US Citizens enjoy.
Rather, anything over the current unified credit equivalent (I think
it is $2 million but check me on that) is taxed.

There is a trust that solves this but like all trusts, there are
rules, gotchas and expenses.

So if your estate is greater than $2 million (again, check me on this
number and watch out for future changes to the rules), then
Citizenship for both spouses my preferred solution. If not possible,
get thee to an attorney specializing in this. And take your wallet
with you.


-HW "Skip" Weldon
Columbia, SC

I have posted this to the taxation forum, as well as here because the
topic covers both financial planning and estate taxation. I have been
in the US for 4 years and I'm trying to learn the ropes.

I am not a US citizen, but I am married to one. I do not
plan to take US citizenship, but I am a permanent resident.
I am from Canada and was well versed with the laws there and
I am trying to learn how it is done here - which can be very different.


My husband and I are doing our estate planning. We are
working with a financial planner and she researched the
effect of my lack of US citizenship on our estate, if I
survive my husband.

I am told that there is a limit a permanent resident spouse
can inherit from their US citizen spouse and it's quite a
small number. From what I understand, there is no federal
estate taxation when the estate is being passed to a US
citizen spouse. The estate is only taxed when the second
spouse (the US citizen) dies. However, if I survive my
husband, anything over a certain amount (I think 117K) would
be taxed.

I know the way around this is to establish a trust (which we plan to
do), but I
have been told that there is a specific trust to establish
for persons in my situation - a QDOT? Can anyone tell me if
this is correct and if I have the information correct that
my husband's estate would be taxable after a certain point should I
survive him?

I understand that we need to speak to an estate lawyer well versed in
this type of thing. I"m the type of person who likes to research and
arm
myself with knowledge so I don't go to the appointment looking like a
total
idiot.

I apologize in advance for any mistakes in terminology.