President Obama's 2014 Budget Proposal Calls for Estate Tax Hike

Casting aside the many other tax tweaks in the President's new proposed budget, I scoured the document for any proposed changes to the Federal Estate Tax.  It appears that, although he recently signed into law an increase in the Federal Estate Tax exemption amount allowing the first $5 million to pass tax-free, the new budget proposal ratchets that exemption back to $3.5 million.  Specifically, the budget calls for a return to the "2009 estate tax parameters," which leaves me wondering whether they intend to repeal the portability of the exemption between spouses, and whether there will be any attempt to curb the use of FLP's, LLC's and other business entities for minimizing the estate tax.

Here's the actual language used in the budget summary:

              "Return Estate Tax to 2009 Parameters and Close Estate Tax Loopholes.
The Budget returns the estate tax exemption and rates to  2009 levels beginning in 2018.              
Under 2009 law, only the wealthiest 3 in 1,000 people who die would owe any estate tax.
As part of the end-of-year “fiscal cliff” agreement, congressional Republicans insisted on permanently cutting the estate tax below those levels, providing tax cuts averaging $1 million per estate to the very wealthiest Americans. It would also eliminate a number of  loopholes that currently allow wealthy individuals to use sophisticated tax planning to  reduce their estate tax liability. These proposals would raise $79 billion over 10 years."

This may be much ado about nothing, as many are saying the proposal is dead on arrival in Congress, but it does indicate a desire to take back the estate tax concessions that were granted in the fiscal cliff deal.  Stay tuned.

Do You Need to Probate a Will?

Most folks, regardless of the value of their assets, will have made a Will at some point in their lives.  I'm often asked by family members after a loved one has passed whether it is necessary for them to probate the decedent's Will.  As with most legal questions, the answer is "it depends."

First, I should quickly explain what it means to "probate the Will." In Indiana, "probating" a Will, means to formally petition the Probate Court in the county in which the decedent resided at the time of his or her death to admit the Will into probate.  An Indiana estate attorney can prepare the necessary "Verified Petition to Probate Last Will and Testament," as well as the necessary proposed orders and Letters Testamentary that will be executed by the Court and the County Clerk, should the Court find in your favor that the Will should be admitted to probate.  Only then can the probate administration process actually begin.

The general rule in Indiana is that formal probate administration can be avoided if "the value of the gross probate estate, wherever located (less liens and encumbrances), does not exceed fifty thousand dollars ($50,000)." (See Indiana Code Section 29-1-8-1)

In estates where the value is under this $50,000 threshold, most of the necessary transfers of property can be conducted using what is commonly referred to as a "small estate affidavit."  An experienced estate attorney can prepare these affidavits for you, and more importantly, can evaluate the estate situation as a whole to determine whether the use of a "small estate affidavit," even if allowed by statute, is appropriate or advisable under the circumstances.

One should tread carefully, for example, if one of the estate assets happens to be real estate.  Even if the real estate value (less liens and encumbrances) is less than $50,000, it may be necessary to probate the Will and transfer the real estate through traditional probate administration to ensure that clear (and insurable) title to the property passes to the intended beneficiary.  

Also, it may be the case that even though the estate does not exceed $50,000 in value, the Will should be "spread of record."  This allows the Will to be admitted to probate without actually requiring a probate estate to be opened and without the need for formal estate administration.  One reason to file the Will with the Court to "spread the Will of record," would be to avoid the potential problems that can arise if additional assets are discovered later.  If a will is not offered for probate within three (3) years of the date of death, then it is not entitled to be admitted to probate, and the heirs will be stuck with passing the property according to the Indiana Laws of Intestacy.  In other words, it will be as if the decedent had never executed a Will at all.  Thus, if the will is admitted to probate without administration, and assets are discovered several years later, the Will can still be used as the mechanism to pass the property to its intended beneficiaries.

These are just a few of the many criteria that  your estate attorney will consider when helping you to make the decision as to whether to probate the Will of a deceased loved one.  The most important lesson is to always consult with experienced counsel before making any such decisions, as there are many pitfalls to which the "do-it-yourself-er" may succumb.
If you have questions about Wills, Trusts, probate issues, or other legal matters, please feel free to contact me at (317) 575-8222, or visit our website for more info at www.halcombsingler.com.