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Mississippi Real Estate Recording Changes

June 27, 2011 By Leave a Comment

The Mississippi legislature recently passed new laws that change and clarify the rules for recording legal documents in Mississippi.  The new amendments , which have been signed by the governor and take effect on July 1, 2011, will change the way Mississippi real estate attorneys prepare documents for recording with local chancery clerks.

New Acknowledgement Provisions

The new legislation provides a safe-harbor form of general acknowledgment that can be used by business organizations:

Personally appeared before me, the undersigned authority in and for the said county and  state, on this ________ day of ________, 20________, within my jurisdiction, the within named ________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed in the above and foregoing instrument and acknowledged that he/she/they executed the same in his/her/their representative capacity(ies), and that by his/her/their signature(s) on the instrument, and as the act and deed of the person(s) or entity(ies) upon behalf of which he/she/they acted, executed the above and foregoing instrument, after first having been duly authorized so to do.

Mississippi real estate attorneys typically use the model language in the current statute for acknowledgment by business entities, but the model language doesn’t cover every possible combination of business entity.  This new safe harbor language will help address these deficiencies.

The new legislation also allows chancery clerks to refuse to record an instrument that is not properly acknowledged.  But if the chancery clerk does record the document, it is constructive notice notwithstanding the defective acknowledgement.

The original bill included language stating that acknowledgments used in other states would be recognized in Mississippi if they were proper in the laws of the state where the document was signed.  This provision generated a heated discussion within the Mississippi Bar’s Real Property Section prior to the passage of the bill.  Some felt that this would place too great a burden on Mississippi attorneys by requiring them to make a judgment call about the validity of out-of-state acknowledgments.  The exclusion of this language is likely to have little effect, however, since the recordation of an acknowledgement done in another state, even if defective, will serve as constructive notice.

New Real Estate Recording Requirements

New legislation will also change the requirements for recording Mississippi legal documents, including deeds and certificates of trust.  These new requirements update the changes made a few years ago, which significantly changed the way we prepare documents for recording in Mississippi. Here’s a summary of the new changes:

  • All documents must now use at least 10 point font.  This is an increase from the 8 point font permitted under the prior law.
  • The document preparer must list his or her physical address and business telephone number. The prior law allowed the preparer to use a post office box and a cellular or home telephone number.
  • The first page of the document must list the name, physical mailing address and business phone number of ever grantor, grantee, borrower, beneficiary, trustee, or other party to the instrument. Prior law required this information on deeds only (and not deeds of trust, etc.).

All of these changes go into effect on July 1, 2011.

Filed Under: Mississippi Real Estate Tagged With:

Breach of Fiduciary Duty Causes Loss of Florida Homestead Protection

June 22, 2011 By Leave a Comment

I wrote recently about the hurdles a judgment creditor recently had to jump through to enforce a Georgia judgment against a Florida defendant.  In a similar vein, the 5th DCA recently issued an opinion dealing with a California court’s attempts to force the sale of Florida homestead property that had been placed under a constructive trust.

The Takeaway

While a court in another state does not have in rem jurisdiction to convey Florida real estate, it can have personal jurisdiction over a Florida resident so as to force the Florida resident to convey the real estate.

The fact that the property is being used as a home will not necessarily qualify it for Florida homestead protection if it was acquired as a result of constructive fraud. “Constructive fraud” may include breach of fiduciary duty by someone other than the Florida homeowner.

The Story

1992 – Richard and Edith, a married couple residing in California, create a Trust and transfer their marital home into it. The Trust provides that:

  • The Trust will be divided into a Survivor’s Trust and a Residuary Trust after the death of the first spouse.
  • The surviving spouse will serve as sole trustee of both the Survivor’s Trust and the Residuary Trust.
  • The surviving spouse is entitled to both principal and income of the Survivor’s Trust.
  • The surviving spouse cannot access the principal of the Residuary Trust unless all of the survivor’s assets are fully depleted.

1996 – Edith dies. The marital home is divided, with 75 percent going to the Residuary Trust and 25 percent to the Survivor’s Trust.

1998 – Richard remarries to Ann.  He transfers the prior marital home from the Residuary Trust to himself at a time when his assets have not been fully depleted.  He then sells the prior marital home and uses the proceeds to purchase a new home with Ann.

2003 – Richard dies.  Ann sells the California home and uses the proceeds to buy a home in Kissimmee, Florida.

After Richard’s death, the successor trustee of the Trust discovers Richard’s inappropriate transfer of the original marital home from the trust to himself.  The trustee brings suit in California to compel Ann to refund 75 percent of the proceeds from the sale of the original marital home.

The California court holds that Richard’s conveyance of the original marital home to himself was a breach of fiduciary duty.  The California court places a constructive trust over the Kissimmee property to prevent Ann from dealing with the property until the constructive trust is satisfied.

The trustee domesticates the California judgment in Florida.  Ann claims that the judgment was unenforceable since the property qualified for Florida homestead protection.   The Florida trial court doesn’t rule on the homestead argument, though, since the California order did not order a change in ownership of the Florida property.

The California court issues a “Postjudgment Order” requiring Ann to convey the Kissimmee property to a court-appointed receiver so that the property can be sold.  When Ann does not comply with the Postjudgment Order, the California Court has a quitclaim deed executed on Ann’s behalf conveying the property to the receiver.

The Law

  • Real estate is governed by the laws of the jurisdiction in which it is located.  No state has jurisdiction over real estate located in another state.
  • Unlike property jurisdiction, one court can have jurisdiction over a person that is living in another state. This jurisdiction over the person allows a court in one state to compel a person to convey property that is located in another state.
  • Florida’s (generous) homestead exemption prevents a court from forcing the sale of or otherwise encumbering property that meets Florida homestead requirements.
  • There is an exception to the Florida homestead exemption for constructive fraud.  “Constructive fraud is the term typically applied where a duty under a confidential or fiduciary relationship has been abused, or where an unconscionable advantage has been taken. Constructive fraud may be based on misrepresentation or concealment, or the fraud may consist of taking an improper advantage of the fiduciary relationship at the expense of the confiding party.”

The Analysis

  • Since the California court did not have jurisdiction over the Florida property, the quitclaim deed that the California court had executed is not enforceable in Florida.
  • Since the California court did have jurisdiction over Ann, the California order requiring her to convey the property to the receiver is enforceable in Florida.
  • Richard’s breach of fiduciary duty was a “constructive fraud” that prevented Ann from taking advantage of Florida homestead protection.  (Note: Richard’s breach of fiduciary duty defeated Ann’s homestead protection.)

The Holding

Remanded to the trial court with instructions to force Ann to convey the Kissimmee property in accordance with the California order.

Hichert Family Trust v. Hichert, 36 Fla. L. Weekly D1290b (Fla. 5th DCA June 17, 2011)

Filed Under: Asset Protection, Florida Homestead, Trusts & Trustees

State Bars Still Struggling to Come Out of the Legal Advertising Stone Age

June 7, 2011 By Leave a Comment

The June 1, 2011, edition of the Florida Bar news has a pair of articles reflecting the Bar’s ongoing struggle to apply an outdated paradigm to the changing legal marketplace.

The first article reports that a “special Florida Bar committee studying private, for-profit lawyer referral services” will have a public hearing at the Bar Annual Convention on June 22.  The article comes complete with the usual paternalistic propaganda about preserving the integrity of the legal profession and hints at the mass chaos that would ensue if the Bar associations weren’t here to hold the center together:

  • “We want to hear from lawyers who participate in the services and what impact their participating is having on compliance with Bar rules and maintaining the integrity of the profession.” (Grier Wells, Jacksonville Board of Governors Member)
  • “This is not a witch hunt.  But by the same token, we are aware of what appears to be some horror stories of consumers, and we need to make sure that attorneys are mindful of the Rules Regulating the Bar, and their obligation to the profession and the public.” (Wells, again)
  • “Lawyer advertising is heavily regulated to retain the integrity and honor of the profession.  In my opinion, those rules should not go out the window if lawyers enlist a third-party agent to do the dirty work.”  (Jonathan Neuman, Miami attorney)

The meeting will also discuss recent, failed legislation to further restrict advertisements by medical or lawyer referral services related to automobile accidents.

The second article opens with the (true) statement: “These ain’t your grandmother’s lawyer referral services.”  (I would add: “This ain’t your grandfather’s law practice, either.”)  It reports on three proposals to the Bar’s Standing Committee on Advertising from companies that are bringing innovative technology to the legal marketplace:

  • TheLaw.TV allows attorneys to record FAQ videos about their areas of practice.  The videos are then posted for viewing by consumers, with advertising referring the viewers back to the attorneys’ websites.  Committee members “weren’t sure” whether this was a lawyer referral service or not.  They decided to table the review until June 23.
  • LawButler.com allows consumers to input all the information necessary to file for divorce from the privacy of their own home. The consumers are then matched with attorneys interested in handling their case.  Law firms are charged $300 for each case they accept.  The Bar has questions about whether this arrangement is impermissible fee-splitting with non-lawyers and whether the company is engaging in the unlicensed practice of law.  One member of the committee thought that the intake role was “acting like a public adjuster” and raised UPL concerns; another felt like the company’s role was little more than collecting information.  The committee decided to punt the proposal to UPL department and the ethics committee.
  • The third site, which is unnamed in the article, would “offer networking services for lawyers, law students, expert witnesses, and the public,” including allowing the public to post law-related questions.  Attorneys would pay to be listed in the legal directory or to advertise on the site.  How this differs from the proliferation of other sites (like this one, this one, this one, and this one) that are offering similar services is unclear from the article.  The committee “agreed that although somewhat different from a traditional LRS, the website did appear to be a lawyer referral services but added there doesn’t appear to be any problem because it will be complying with Bar LRS rules.”

Articles like these reflect the state bar associations’ collective failure to grasp how radically technology has disrupted (and will disrupt) the way in which legal services are advertised and delivered.  Many bar associations have been drinking the “law-as-a-noble-profession-not-a-business” Kool-aid for so long that they cannot let go of sentimental nostalgia with no basis in reality outmoded, paternalistic paradigms.  These paradigms rest on the dubious assumptions that (a) legal services have been or will ever be motivated by noblesse oblige instead of profit and (b) the public can’t be expected to recognize this profit motive and exercise the same common sense that they do when purchasing other services.

So far, the Florida Bar’s predominant approach has been a hopeless attempt to contort the old paradigm to fit the new reality.  I don’t envy them in this struggle because it is destined to fail.  The time has come to rethink the regulation of legal advertising from the ground up.  Thankfully, the ABA has already taken the lead.  Hopefully state bar associations will soon follow suit.

What do you think?  Is the traditional legal advertising paradigm still relevant?

Filed Under: Marketing and Technology Tagged With:

Florida Asset Protection Case: “Renewed” Judgment is Enforceable Action on Judgment

June 2, 2011 By 1 Comment

A recent Palm Beach County case illustrates the problems that a Florida judgment creditor can have when trying to enforce a judgment in another jurisdiction.  In Corzo v. West, the judgment creditor had to jump through several hoops in response to a Georgia court’s refusal to recognize a 20+ year old judgment.  And it’s not over yet.

The Takeaway

Florida attorneys should know how to use an action on judgment to facilitate enforcement of a judgment when the statute of limitations is about to expire.   And it doesn’t hurt to style your pleadings correctly.

Summary of Holding

4DCA:  In spite of confusing terminology, a “renewed” judgment was an action on judgment and, as such, was a separate cause of action.  Although the action on judgment would have been barred by the statute of limitations, that defense was waived since it wasn’t pleaded.

The Story

  • March 6, 1985 – Corzo obtains an amended final judgment against West, but is unable to enforce it (presumably because West didn’t want to be found).
  • 2001 – Corzo finds out that West is living in Georgia.  It seeks to enforce the 1985 judgment, but the Georgia court holds that the judgment is barred by Georgia’s 10-year statute of limitations.  The court holds that the statute of limitations began to run in 1985 because that is “the date the judgment [was] entered or last renewed in the rendering state.”
  • August 3, 2006 – Picking up on the “last renewed” language in the Georgia decisions, Corzo files a “Complaint to Renew Judgment” in Florida.  West is personally served with notice of this complaint.  The Circuit Court (15th Judicial District) enters a default final judgment stating that the 1985 judgment is “renewed with all accrued post judgment interest.”
  • Early 2009 – The Georgia court will not allow the Florida court’s “renewed” judgment to circumvent the 10-year statute of limitations.  The court reasons that to hold otherwise would give Florida judgments a longer shelf life than Georgia judgments.
    • Note: Undergirding the Georgia opinion is the court’s belief that the 2006 judgment was “a renewal of the 1985 judgment and not a new action.”
  • March 2009
    • Seeking to get around the Georgia court’s decision that the 2006 judgment was not a new cause of action (and was thus barred by the statute of limitations), Corzo files a new case in Florida seeking an “action on judgment.”
    • West responds that the action on judgment is also time-barred since the statute of limitations on the original judgment expired in 2005.
    • Corzo moves for summary judgment.  The Circuit Court denies the motion and dismisses the complaint with prejudice, and enters a final judgment in favor of West. Corzo appeals.

The Law

  • An action on judgment is a common law cause of action that is separate from the original judgment on which it is based. Its purpose is to allow a new, independent judgment to help enforce the original judgment. If the statute of limitations is about to run on a judgment, a judgment creditor can start the clock over by bringing an action on the original judgment to obtain a new judgment.
  • When defending an action on judgment, the defendant can’t raise defenses that could have been asserted in the original action. The defendant can only raise defenses that have arisen since the time of the original judgment (e.g., payment, release, accord and satisfaction, statute of limitations).

The Analysis

  • The 2006 judgment was not a renewal of the 1985 judgment.  It was an action on judgment and, as such, was a new and independent judgment.  The use of terms like “renew” and “renewed” in the Circuit Court’s 2006 opinion caused confusion, but those terms have been used in other Florida cases to refer to an action on judgment.
  • Although the 20-year statute of limitations on an action on a judgment had expired by 2006, that defense is waived unless pleaded.  Since West didn’t raise that defense in 2006, he “could not attempt to resurrect that defense in this current and separate action.”

The Holding

Reversed. Since the 2006 judgment was a new cause of action and since West waived the defense of statute of limitations, the Circuit Court’s dismissal was improper.

Filed Under: Asset Protection Tagged With:

Florida Intestate Law: Dying Without a Will in Florida

May 31, 2011 By Leave a Comment

One of the most frequent questions I get from clients has to do with Florida intestate law.  Clients want to know what happens when someone has died without a will.

Intestate succession can vary from state to state, but usually the decedent’s assets will pass to his or her spouse and children in various proportions.  Florida intestate laws are no different.  The Florida Probate Code divides a deceased person’s estate between his or her spouse and children.  But the question of who gets what depends on the decedent’s family situation.

If the Decedent Was Married and Had No Descendants

This is the easy one:  If the deceased person was married but has no living descendants (children, grandchildren, etc.), the spouse gets everything.

If the Decedent Was Married and Had Living Descendants

If the deceased person was married and had living descendants, the spouse gets one-half of the estate and the descendants will share the balance of the estate equally.  If all of the descendants are all the spouse’s children (as opposed to being children from another marriage, for example), the spouse gets an additional $60,000 off the top, before the estate is divided.

For example, suppose that John dies leaving a surviving spouse (Mary) and two children (Jack and Jill).  He had $300,000.00 in assets.  If Jack and Jill are not Mary’s children, Mary would get $150,000 in assets and Jack and Jill would get $75,000 each.  But if Mary is the mother of Jack and Jill, she would get $180,000 ($60,000 off the top plus $120,000 as her half of the $240,000 balance) and Jack and Jill would each get $60,000.

Suppose that Jack is Mary’s son but Jill is a child from a prior marriage.  Does Mary get $60,000 off the top?  No.  In order for Mary to get the $60,000, Mary must be the mother of all of John’s descendants.  If even one of John’s descendants is not also Mary’s descendant, Mary’s share is limited to one-half of the estate.

If the Decedent Was Unmarried and Had Living Descendants

If the decedent had no spouse but had living descendants, the descendants get everything on a per stirpes basis.  This means that the estate is divided at each generation, with children of any deceased parent to take the share their parent would have taken.

Suppose that John was unmarried at the time of his death.  John had three sons, Curly, Larry, and Moe. Moe died before John, leaving two sons, Little Moe and Shemp.  John’s estate would be divided in equal thirds at the first generational level (his children).  Curly and Larry would each get one third.  Since Moe predeceased John, his one third would pass to Little Moe and Shemp in equal halves, giving them one-sixth each.

If the Decedent Was Unmarried and Had No Descendants

If the decedent was unmarried and had no descendants, his estate would pass to more remote family members in order of priority:

  • First, his estate would pass to his father and mother equally.  If only one of them survive the decedent, that parent would get everything.
  • Second, if the decedent’s father and mother are dead, his estate would pass to his brothers, sisters, and descendants of deceased brothers and sisters on a per stirpes basis.
  • Third, if there is no surviving father, mother, siblings, or descendants of siblings, the estate is split equally between the decedent’s mother’s relatives and the decedent’s father’s relatives.
    • The grandmother and grandfather (or the survivor of them) on each side would have first rights.
    • If the grandmother and grandfather are deceased, the estate would go to uncles, aunts, and descendants of deceased uncles and aunts.
    • If there are no surviving relatives on the mother’s side of the family, everything will go to the father’s side of the family, and vice versa.

So there’s the nuts and bolts of Florida intestate distribution.  Check our article on Florida Intestacy and Intestate Succession for more information.

Filed Under: Florida Probate

Updated 2011 Value Threshold for Alabama Small Estates

May 26, 2011 By Leave a Comment

I have written about the 2009 amendment to the Alabama Small Estates Act that made it much more useful to Alabama probate attorneys.  Specifically, the Act was amended to raise the dollar threshold from $3,000 to $25,000.  Under the 2009 amendment, estates worth $25,000 can qualify for summary distribution under the Act.

The 2009 amendment also provided that the $25,000 threshold was to be indexed for inflation (tied to the Consumer Price Index).  The Alabama State Finance Director is responsible for making the inflation adjustments and reporting to the probate court.

On April 5, 2011, the State Finance Director notified the probate judges that the adjustments have been computed.  Here they are:

  • For 2009, an estate must be worth $25,000 or less to qualify for summary distribution.
  • For 2010, an estate must be worth $25,410 or less to qualify for summary distribution.
  • For 2011, an estate must be worth $25,791 or less to qualify for summary distribution.

The State Finance Director issued this accompanying statement:

“Because the CPI-U for a calendar year is not published until January of the succeeding year, the adjustment provided will reflect the change for the previous calendar year, but will be effective for twelve months beginning the following March 1. For example, the value of $25,791 established for 2011 will be used for the period March 1, 2011 through February 29th, 2012.”

To sum it up, the Alabama Small Estate procedure could be useful for personal representatives of for decedents dying between March 1, 2001, and February 29, 2012, if:

  1. The decedent owned Alabama assets but did not own real estate;
  2. The total value of the decedent’s assets is less than $25,719; and
  3. There are no outstanding debts of the estate.

For more information, check out my discussion of the Alabama Small Estates Act.

Filed Under: Alabama Probate Tagged With: ,

Florida 4DCA: No Abuse of Discretion in Undue Influence Case

May 25, 2011 By Leave a Comment

Levin v. Levin, 36 Fla. L. Weekly D997a (4DCA May 11, 2011)

In a Palm Beach County case, the Florida 4DCA recently upheld the lower court’s decision in an Florida will contest involving allegations of undue influence and insane delusion.

Shirley Levin signed a will in 1987 that split her estate between her two children, Gail and William.  In 2008, she set up a trust and signed a new will and died shortly thereafter at the age of 84.  Under her new estate plan, Gail received only $350,000 of her $3 million estate.  The rest went to William and his children in various amounts.

Gail objected to William’s probate of her mother’s will, arguing that the will was the product of William’s undue influence and that her mother lacked testamentary capacity.  On the issue of undue influence, William conceded that he was a substantial beneficiary of his mother’s estate plan and that he had a confidential relationship with his mother.  But he denied that he was “active in procuring” his mother’s new estate plan.

After applying the Carpenter factors to the case, the trial court felt that there was “overwhelming” evidence that William did use undue influence to procure his mother’s estate plan.  On appeal, the 4DCA found no evidence that the trial court abused its discretion on the issue of undue influence.  In the lack of such evidence, the 4DCA upheld the trial court’s decision on the issue of undue influence.

Gail brought a second, related argument: that her mother was under an “insane delusion” when she executed the will.  For support, Gail offered evidence that Gail had visited her mother on multiple occasions within a seven-year period.  Before she died, her mother claimed to have only seen her once in the prior ten years.  Because the trial court did not address this argument, the 4DCA remanded the case to the trial court for a ruling on this issue.

Filed Under: Florida Probate Tagged With: , ,

How to Customize your Avvo Ratings Badge

May 24, 2011 By Leave a Comment

The Avvo rating badge is a great way to showcase your Avvo rating to prospective clients and allow them to link back to your Avvo profile.  But since Avvo provides limited customization options, you will need to tweak the code yourself if you want it to match your site.  Here’s how to do it:

Get the Code from Avvo

It is important to start with the code that Avvo provides.  This code is dynamic and will update your Avvo badge when your rating changes.  This functionality is lost if you just try to copy the rating badge image alone without using the underlying code from the Avvo website.

Here’s how to grab the code:

  1. Log in to your Avvo dashboard.
  2. Scroll down the right sidebar until you see the section called “Syndicate your ratings and contributions.”  Click “Put an Avvo Badge on your web page.”  This will take you to the Avvo Badges page.

  3. You have a choice of three different badges: the micro-badge, the small rating badge, and the large rating badge.  Which of these is right for you will depend on where you intend to include it on your site.  Select the badge you would like and copy the code from the box below your choice.

Customize the Avvo Ratings Badge

At this point, you could paste this code directly into to your website or blog.  But where’s the fun in that?  Since you are reading this article, I assume you want to customize the badge to match your site design.  Here’s how:

Paste the code that you copied into a text editor.  I recommend a simple text editor like Notepad so that you don’t end up with any unnecessary formatting.  I am going to use the small ratings badge in this example.  You should get something like this:

Those of you who are familiar with website design will notice that the badge uses in-line CSS styles. While this works from a purely visual standpoint, the better choice is to externalize the CSS by pulling it out of the inline code and including it in your website stylesheet.

To extract the CSS from the code, you can cut out the highlighted portions below:

To keep the same formatting in your stylesheet, simply move these styles into your stylesheet. The new additions to your stylesheet should look something like this:

Modify the CSS. Now that the CSS is externalized into your stylesheet, you can modify it to match your site. You can use CSS to position the badge and style it however you choose.  Say, for example, that you wanted the links in the badge to appear in Arial font with a size of 30 pixels.  You would modify the [.avvo_rating_badge_small a] style in your stylesheet to look like this:

Modify the HTML. You may decide that you want to cut out a portion of the default text that surrounds the Avvo badge.  For example, in my attorney profile page on my website, I wanted a stripped-down version of the badge to appear just below my photo, without any surrounding text.  To do this, simply delete the unnecessary HTML from around the portion that you want to keep.  In my example, the final HTML looked like this.

By tweaking the CSS stylesheet, I was able to position the stripped-down badge so that it appeared just below my profile picture, proving a quick-but-visible reference for prospective clients.

Have any of you seen Avvo rating badges used in creative ways? Let us know in the comments below.

Filed Under: Marketing and Technology

Guide to the New Estate Tax Law

May 23, 2011 By 1 Comment

I recently completed a series of articles on Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312 (TRA 2010), which was signed into law by President Obama on December 17, 2010.  I have given a few presentations on this topic recently and decided to turn my materials into a series of articles.  The four articles are:

  1. Introduction to the New Estate Tax Law – This article contains some of the background information and legislative history preceding the enactment of the new law.  I know you’ll want to skip ahead to the substance, but be warned: you can’t really understand the new Act unless you have a good grasp on what came before it and the situation we found ourselves in in 2010.
  2. Estate Planning Under the New Estate Tax Law – This article discusses the substantive provisions of the act, including the new applicable exclusion amount (exemption) and tax rates, retroactive application of the Act, and a few planning pointers.
  3. Portability Under the New Estate Tax Law – This article deals with a brand new feature of our estate tax laws–portability.  Portability allows the unused exemption of one spouse to be passed on to the surviving spouse.
  4. Why Tax Planning Still Matters Under the New Estate Tax Law - This article explains why estate tax planning–including credit shelter/bypass planning–is as necessary now as ever.

TRA 2010 provides welcome relief from the uncertainty that plagued estate planners at the end of 2010.  But it is more of a patch than a fix.  Since TRA 2010 sunsets in 2012, we can expect these same issues to pop up again, along with more of the usual political wrangling over a permanent solution.  And if the past ten years are any indication, Congress will wait until the eleventh hour to provide any clarity.

If Congress fails to act by the end of 2012, the applicable exclusion will drop to $1 million and the estate tax rate will go up to 55 percent.  In my opinion, that is probably the least likely scenario.  It is more likely that the law will remain at current levels or drop to the $3.5 million exemption and 45 percent tax rate proposed by Senator Baucus and backed by many Democrats.  Of course, the possibility of another temporary fix of a different nature should not be ruled out.

Over the next two years, the higher applicable exclusion amount and lower transfer tax rates will slash the revenue from transfer taxes.  Outright repeal of the estate tax will be an easier sell in 2012, after revenue has dwindled enough to make it less of a hot-button issue.  Estate tax repeal is a more likely scenario than it has ever been and is likely to be re-proposed by the end of 2012.  Whether the modified carryover basis regime will also be reintroduced is anybody’s guess.

Note:  The higher exemption amounts will also mean much fewer tax returns will be filed.  Check out our post on the Estate Tax Stats for 2001-2009 to get  good idea of how drastic the decrease may be.  This means the IRS estate tax division will have some time on its hands. Expect high audit rates.

Given the continuing uncertainty, estate plans should not place undue reliance on the new Act or predictions about what Congress may or may not do before the end of 2012.  As we did in the years leading up to 2010, we must plan for the law as it is and try to build in as much flexibility as possible into the estate plan.

Tax planning still has an important role in most estate planning documents.  And in many ways, it will be more of a challenge over the next two years.  Estate plans must now be flexible enough to (1) adjust for fluctuations in the applicable exclusion amount, (2) plan for the possibility of estate tax repeal at the end of 2012 and reintroduction of modified carry-over basis regime, (3) plan for special elections, such as portability and basis adjustments; and (4) do all of this while meeting the client’s non-tax goals.

Filed Under: Estate Tax

Trusts & Estates: Estate Planning After 2010

May 19, 2011 By Leave a Comment

Trusts & Estates magazine recently compiled a list of resources for planning under the new Federal estate tax law.  The list references an article on portability that I wrote earlier this year (but don’t let that detract from the quality of the other resources featured there!).  Here’s the introduction to the list:

In the January 2011 Tech Review 2011 Tax Law Changes, we discussed the estate and gift tax changes created by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Act) and their application to estate and gift tax related planning software. Enough time has now passed to note a number of new commentaries on the 2010 Act that have appeared on the Internet. Here are references to the most useful of these commentaries and summaries of their content …

The list should be required reading for attorneys who practice in the area of estate planning for high net worth individuals. Check it out.

Filed Under: Estate Tax
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