Bill Amending the Estate Tax

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chaz
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Bill Amending the Estate Tax

Post by chaz » Fri Feb 13, 2009 7:54 pm

A bill to amend the estate tax has been introduced and sent to the Ways and Means Committee. I knew that such a bill would not be overlooked when revenue is needed and this tax was due to vanish for the 2010 calendar year.

http://www.govtrack.us/congress/billtex ... l=h111-498
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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woof755
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Post by woof755 » Fri Feb 13, 2009 9:28 pm

Pretty generous numbers in that bill.

5million bucks by 2015, 5 million plus an inflation adjustment from that year onwards.

Great--they nail the inflation adjustment for the estate tax but not the alternative minimum tax.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

fishndoc
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Post by fishndoc » Fri Feb 13, 2009 9:42 pm

UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED SPOUSE.
Difficult to sort out, but I believe this portion would mean there would no longer be a need to do a bypass trust to claim the credit for the first deceased spouse.

I'm also pleasantly surprised at the credit rising to $5million - didn't expect such generosity in a time when taxes are going to be in short supply.

Wayne
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Taylor Larimore
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No more need for bypass trusts?

Post by Taylor Larimore » Fri Feb 13, 2009 9:55 pm

Fishndoc:
I believe this portion would mean there would no longer be a need to do a bypass trust to claim the credit for the first deceased spouse.


I'll guess lawyers are already contacting their lobbyists to be sure this won't happen.
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Rick Ferri
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Re: No more need for bypass trusts?

Post by Rick Ferri » Fri Feb 13, 2009 10:06 pm

Taylor Larimore wrote:Fishndoc:
I believe this portion would mean there would no longer be a need to do a bypass trust to claim the credit for the first deceased spouse.


I'll guess lawyers are already contacting their lobbyists to be sure this won't happen.
Along with the insurance industry.

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chaz
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Re: No more need for bypass trusts?

Post by chaz » Fri Feb 13, 2009 10:21 pm

Rick Ferri wrote:
Taylor Larimore wrote:Fishndoc:
I believe this portion would mean there would no longer be a need to do a bypass trust to claim the credit for the first deceased spouse.


I'll guess lawyers are already contacting their lobbyists to be sure this won't happen.
Along with the insurance industry.
Rick, why would the insurance industry care about this tax bill?
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

GG
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Post by GG » Fri Feb 13, 2009 10:25 pm

Thank God theyre sreious about this

With a $0 net worth but $2M in term insurance its infuriating that my kids would pay estate tax.
Last edited by GG on Sat Feb 14, 2009 10:15 am, edited 1 time in total.

huskerblue
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Re: No more need for bypass trusts?

Post by huskerblue » Fri Feb 13, 2009 11:01 pm

chaz wrote:
Rick Ferri wrote:
Taylor Larimore wrote:Fishndoc:
I believe this portion would mean there would no longer be a need to do a bypass trust to claim the credit for the first deceased spouse.


I'll guess lawyers are already contacting their lobbyists to be sure this won't happen.
Along with the insurance industry.
Rick, why would the insurance industry care about this tax bill?
Insurance is often used as wealth replacement with the policy owned by the kids or, preferably by an irrevocable life insurance trust.

fishndoc
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Post by fishndoc » Fri Feb 13, 2009 11:09 pm

why would the insurance industry care about this tax bill?
Hopefully someone will jump in that knows more about this than me, but several times insurance agents made a sales pitch to me about using a whole life policy owned by an irrevocable trust as a way to avoid estate tax (and earn them large commissions). Luckily, I didn't bite.

With the higher limits for estate taxation, this will undermine their arguments for most estates.

Wayne
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle

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Mel Lindauer
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Re: No more need for bypass trusts?

Post by Mel Lindauer » Fri Feb 13, 2009 11:11 pm

chaz wrote:
Rick Ferri wrote:
Taylor Larimore wrote:Fishndoc:
I believe this portion would mean there would no longer be a need to do a bypass trust to claim the credit for the first deceased spouse.


I'll guess lawyers are already contacting their lobbyists to be sure this won't happen.
Along with the insurance industry.
Rick, why would the insurance industry care about this tax bill?
Insurance is often used as a funding mechanism to pay the estate taxes on estates subject to the tax.
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Jack
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Post by Jack » Sat Feb 14, 2009 12:14 am

The bill lowers the estate tax rate to 15% for the first $25 million and 30% for above $25 million. The bill also makes permanent the 15% capital gains tax which expires in 2010.

I seriously doubt that this bill will survive without major modification. It is sponsored by a congressman who happens to represent a lot of very wealthy retirees in Scottsdale, AZ. I doubt that it will have wide enough appeal for passage with the stated tax rates. So don't rush to make your funeral plans.

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woof755
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Post by woof755 » Sat Feb 14, 2009 7:43 am

fishndoc wrote:
why would the insurance industry care about this tax bill?
Hopefully someone will jump in that knows more about this than me, but several times insurance agents made a sales pitch to me about using a whole life policy owned by an irrevocable trust as a way to avoid estate tax (and earn them large commissions). Luckily, I didn't bite.

With the higher limits for estate taxation, this will undermine their arguments for most estates.

Wayne
Always buy term ("and invest the difference" --what you save on the premium). A trust should get you around the estate tax.

I'm still trying to trudge my way through Estate Planning for Dummies.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

GG
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Post by GG » Sat Feb 14, 2009 10:19 am

fishndoc wrote:
why would the insurance industry care about this tax bill?
Hopefully someone will jump in that knows more about this than me, but several times insurance agents made a sales pitch to me about using a whole life policy owned by an irrevocable trust as a way to avoid estate tax (and earn them large commissions). Luckily, I didn't bite.

With the higher limits for estate taxation, this will undermine their arguments for most estates.

Wayne
All of what you say is true, but an ILIT is still a great way to pass money to the next generation(s). How many people should be using it? Very few. And are they sold by insurance agents instead of bought by individuals? Yes. But they're still a good idea for lots of reasons.

1 - If someone lives a short life, the insurance maximizes the estate they pass on

2 - Tax free growth in addition to tax free at death

3 - State estate tax is not being changed and probably never will be. It's great the federal limit is $5M, but it's a small win if everything between $1M and $5M is subject to state estate tax.

4 - If someone has illiquid assets to pass, this can create liquidity for heirs.

GG

Disclaimer - I'm not an insurance agent and never have been and dont own an ILIT myself

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