Massachusetts enacts the Massachusetts Uniform Probate Code (“MUPC”) Many other states have or will do the same

(While the following applies to Massachusetts, there are many other states that have recently made the same changes)
Massachusetts adopted the “MUPC” on March 31, 2012. It affects almost every aspect of the law of wills and the administration of estates including changes outlined below:
• Personal Representative: The law does away with classifications of executors, temporary executors, administrators, special administrators and the like by adopting the one-size-fits-all title of “personal representative.” The personal representative acts for people with a will (“testate”) or people without (“intestate”).
• Descendants: Any portion of the estate which passes to the decedent’s descendants will pass under a new system of distribution called “per capita at each generation.” Under this rule, living children inherit equally. If a child pre-deceases the parents, and has living children, the shares of all deceased children are combined and divided equally among all the surviving children.
• Effect of Divorce on the Estate Plan: The impact of divorce is broadened from partially revoking wills and unfunded revocable trusts to expressly apply to non-probate transfers, such as life insurance policies and trusts, whether funded or unfunded, in the case where an individual has the sole power to make certain changes to at the time of the divorce or annulment. The new law also operates to revoke bequests to relatives of the ex-spouse, as well as appointments of such relatives of executor or trustee under certain situations.
• Effect of Marriage on Will: Where marriage used to automatically revokes a prior will, the MUPC does not provide for such automatic revocation. Instead, the will survives, and any legacy to descendants of the decedent (who are not descendants of the new spouse) is preserved. If any part of the estate is left to persons other than such descendants, the new spouse would receive his or her intestate share under law, to be satisfied from the assets left to such other persons (and from any bequests made to the surviving spouse, if any, in the premarital will). The testator’s choice of personal representative and guardian of minor children is also preserved. Note that this rule can be avoided by updating the will after marriage.
Because of these changes to the MUPC, it is important that your estate planning documents are up to date. If you have not updated your estate plan recently, be sure to do so as soon as possible.

Tax Law Changes Coming, including raised capital gains and dividend tax rates

This month, President Obama released his proposed FY 2014 budget which contains new taxes, limits on deductions, and other changes intended to meet the goal of raising more than $580 billion in revenue.
The most significant of these is the termination of capital gains breaks and qualified dividend treatment, causing them both to be taxed as ordinary income. The Kiplinger Tax Letter suggests taking capital gains before 2015 to lock in the lower rate. However, as always, do not let a tax strategy override a good investment plan.
Here is a summary of other changes that may affect you:
The 28% Limitation:
• Affects married taxpayers filing jointly with income over $250,000 and single taxpayers with income over $200,000.
• Limits the tax rate at which these taxpayers can reduce their tax liability to a maximum of 28%.
• Applies to all itemized deduction including charitable contributions, mortgage interest, employer provided health insurance, interest income on state and local bonds, foreign excluded income, tax-exempt interest, retirement contributions and certain above-the-line deductions.
The “Buffet Rule”
• Households with income over $1 million pay at least 30% of their income (after charitable donations) in tax.
• Implements a “Fair Share Tax,” which would equal 30% of the taxpayer’s adjusted gross income, less a charitable donation credit equal to 28% of itemized charitable contributions allowed after the overall limitation on itemized deductions. The Fair Share Tax would be phased in, starting at adjusted gross incomes of $1 million, and would be fully phased in at adjusted gross incomes of $2 million.
Estate, gift, and generation-skipping transfer (GST) Tax
• Reintroduce rules that were in effect in 2009, except that portability of the estate tax exclusion between spouses would be retained.
• This change would take effect in 2018.
• Top tax rate would be 45% and the exclusion amount would be $3.5 million for estate and GST taxes, and $1 million for gift taxes.
The Kiplinger Tax Letter anticipates the changes being acted on as early as 2014. On April 23, 2013, Max Baucus (D-MT), the head of the Senate Finance Committee, announced he would retire from the U.S. Senate at the end of his term in 2015. In The Kiplinger Tax Latter, Vol. 88, No. 9, Kiplinger predicts that “he’ll push to make revamping the tax code his legacy.”
You may feel as though you are done with taxes and do not need address them for another year. Resist that urge and schedule a meeting with us so we can review the potential impact of proposed tax changes on your portfolio and investments. We can also discuss the best strategies for saving money on your 2013 and 2014 tax returns.

Possible tax law changes and tax planning opportunities

From the predictions we see, Congress will be reviewing and in most cases renewing certain tax cuts. They will also pass some additional tax changes.

Here is a summary of what is expected to become law (let me know if you need more detail):

The following expired provisions are expected to be renewed: The tax free status of distributions made directly from IRAs to charity; the add-on to the standard deduction for state and local property taxes; tax breaks for state sales tax, college tuition and teachers’ school supplies; 15-year write-offs for restaurant renovations and leasehold improvements; and the R&D tax credit. The will also be a small business tax cut for hiring (let me know if you need details).

2010 is the year for Roth IRA conversion strategies, where the taxes can be paid over two years. Because of market volatility, you may want to have separate IRAs by asset classes so if one goes down, you can “un-convert”. (See prior posts on this) Note, however, that Roth conversion income can affect Medicaid premiums and taxation of Social Security benefits.

Also expected is an increase of tax rates for income and capital gains taxes for high income tax filers, where one possibility is raising the top tax rate to 39.6% on singles with taxable income above $196,000 and on married couples for taxable income over $231,000. With this could be a top capital gains rate of 20% for this group, up from 15% now. Itemized deductions could be affected as well – perhaps by capping at 28% the rate at which itemizations reduce a filer’s tax liability.

Future changes to tax rates will affect planning for 2010 – taking more income and possibly selling assets then later buying them back to up the basis for future sales.

The item still missing from the list is the fix for the estate tax (see prior posts on this). The expected change will be reviving the estate tax retroactive to January 1. However, Democrats support a $3.5-million exemption amount and a 45% rate while Republicans want $5 million and 35%. If no action is taken, 2010 will continue to have no estate tax and 2011 will have a $1 million exemption with a 60% top rate.

If you want to consider how this all applies to you, for income taxes or estate planning, let us know.

Let us know if you have questions or comments. Thanks,

Steven