The Basics of the District of Columbia Probate Administration…Part V: Notice to Creditors, Verification and the First Ninety Days

This is the fifth in a series of posts on the basics of D.C. probate administration. You can read previous posts in this series including Part I: high-level differences between Virginia and D.C. estate administrations (here), Part II: qualifying to be a D.C. personal representative (here), and Part III: Opening the Estate (here), and Part IV: Supervised/Unsupervised (here).

Now, that the personal representative has received letters of administration there are a couple of additional issues that need to be accomplished in relatively quick order.

First, the Notice of Appointment, Notice to Creditors, and Notice to Unknown Heirs (“Notice“) must be published once a week for three successive weeks in a newspaper or periodical of general circulation of the District of Columbia. It is incumbent upon the personal representative to determine what constitutes a newspaper of general circulation. The Daily Washington Law Reporter is informally designated by the Register of Wills as a required newspaper. Many personal representatives make the assumption that the Washington Post or Times are the only other publications of general circulation that qualify. But, that is not true. There are many others in the area and it might be forth a little effort to investigate other options. 

The Notice provides creditors and unknown heirs six months from the date of first publication to file claims against the estate or to contest the appointment of the personal representative. The first date publication of the Notice is determined by the Probate Division after the Court appoints the personal representative. The Probate Division will transmit the Notice to the two publications designated by the petitioner when the original petition was filed. 

Once the Notices have been published by the publications of general circulation, the publications will send invoices to the personal representative for the costs in publishing the notice. The invoices need to be paid or the administration process comes to halt. Depending on publications, the cost can vary to publish a Notice. The Washington Post is one the most expensive publications of record in the area and can be almost 4 times as expensive as other accepted general circulation publications. Once the personal representative has paid the invoices from the publications, the publications will send the personal representative original proofs of publications

Within twenty (20) days of the date of publication of the Notice, the personal representative must send the Notice plus the General Information for Heirs, Legatees, and Creditors (click here), the “General Information Document.” As you would suspect, the General Information document provides the interested persons with brief introduction into the administration process, basic definitions and other basic information.

Within ninety (90) days, the personal representative must file a document entitled “Verification and Certificate of Notice”, VCNO for short. The VCNO certifies that personal representative has sent the Notice and the General Information document to all of the interested persons. If the VCNO is not filed within ninety days, the Court will schedule a summary hearing with the personal representative to question the reasons for the VCNO not being filed. If the personal representative does not provided an adequate reason the Court may remove the personal representative.

You would be surprised the number of times a personal representative is removed for not filing the VCNO or appearing at the summary hearing. It is almost staggering. If a personal representative is removed, most times the Court will appoint a disinterested member of the Bar to become successor personal representative. That general means an increase in costs because an attorney will charge their normal rate and not the lower rate attributed to the reasonable compensation for non-attorney personal representatives.

I guess I will have to wait until next time when I talk about the inventory and account.

The Basics of the District of Columbia Probate Administration…Part IV: Abbreviated v. Standard Probate and Unsupervised v. Supervised. Hunh?

This is the fourth in a series of posts on the basics of D.C. probate administration. You can read previous posts in this series including Part I: high-level differences between Virginia and D.C. estate administrations (here), Part II: qualifying to be a D.C. personal representative (here), and Part III: Opening the Estate (here).

One of the biggest roadblocks for many petitioners wanting to open a D.C. probate administration is completing the actual petition form. Click here to see what a blank form for a Petition for Probate for someone dying after July 1, 1995 looks like.

Doesn’t look too onerous. But, it is the first set of boxes that tends to give some pro se petitioners a difficult time.  Most non-lawyers seem to struggle to figure out the differences between an abbreviated probate petition and a standard probate petition and how those differences plays into supervised administration and unsupervised administration.

• Abbreviated Probate Proceeding 

An abbreviated probate proceeding requires less legal formality to open the estate.  In this type of proceeding, the court can determine the validity of a will, or establish that the decedent died intestate and appoint a personal representative without advance notice to interested persons and without the necessity of formal proof of the will. In an abbreviated proceeding, the will may be admitted to probate without the testimony or affidavits of the witnesses if the will appears regular on its face and contains an attestation clause reciting that appropriate formalities were followed.

• Standard Probate Proceeding

A standard probate proceeding requires more legal formality. A standard proceeding typically occurs when the petitioner asking to open the estate does not have the statutory priority to be the personal representative, not nominated in the will or the administration is initiated by a creditor. Advanced notice must be given to all known interested persons via certified mail. In a standard probate proceeding, the proponent, or person in support of the will, must present affidavits of the subscribing witnesses to the will and if there is a disagreement concerning the formalities of surrounding the execution of the will, a formal hearing before a judge could be required.

An abbreviated probate proceeding is the preferred option and only in rare occasions would a petitioner opt for standard.  However, an abbreviated probate proceeding can be set aside any time within 6 months of notice to interested person of the appointment of a personal representative and a standard proceeding can be instituted.

But, once, the personal representative is appointed in either – abbreviated or standard, the estates are administered in the same manner.

• Supervised Administration

The major difference between a supervised and unsupervised administration is the number of documents that the personal representative needs to file with the Probate Court. In a supervised administration almost every estate document needs to be filed with the court. The personal representative would need to file documents like the inventory or the account with the court. Each filing with the court needs to be filed within a certain time frame. For example, the initial inventory needs to be filed with the court within three months from the date of the personal representative’s appointment. With a supervised administration, the inventory also needs to be in the formal manner as proscribed by the court. See Super. Ct. Prob. R. 409(f) 

You can see how time consuming and costly that can be. In fact, the court prefers not to clog the system with relatively routine filings that if a supervised administration is requested by the petitioner the reasons for the request must be stated in the petition. See D.C. Code § 20-402 (2001). There is also the ability for interested persons to convert a supervised administration to an unsupervised administration by filing a waiver.

• Unsupervised Administration

In an unsupervised administration, fewer documents are required to be filed with the court. Many times, the documents only need to be sent to the interested persons. For example, the inventory shall be delivered or mailed to each interested person but the inventory is not required to be filed with the court.  The inventory still needs to be sent to interested persons within three months from the date of the personal representative’s appointment.  But, the format of the inventory does not have to meet the formal requirements of Superior Court Probate Rule 409(f). 

Clearly, having an unsupervised estate is preferred because of the fewer formal filings and requirements. As I move through the process, I will show you some of the issues where having an unsupervised estate can save time and money.

In short, abbreviated/standard relate only to the requirements to open the estate administration while supervised/unsupervised relates to the filing requirements and process for administering the estate.

Next time, we will move into the actual process of administering the estate and discuss the inventory and account.

Windsor Argument Today at Supreme Court is about Estate Tax

I am taking a break from my series of posts on the Basics of Probate Administration in the District of Columbia to address current events before the Supreme Court that could have wide ranging impact on estate planning.

I mentioned about a year ago that the Supreme Court rarely hears estate planning cases because rarely do estate planning matters reach federal or national matters that would need the Supreme Court to weigh in on. Last term, the Supreme Court’s held oral arguments and issued a ruling denying that a child conceived post-death is entitled to Social Security Survivor Benefits. But, the Supreme Court will address an estate planning issue this week as the court addresses state and federal laws that involve the issue of same-sex marriage.

Yesterday, March 26, 2013, the Supreme Court held oral arguments over whether California’s Ballot Proposition 8 that amended the California Constitution, which provides that “only marriage between a man and a woman is valid or recognized in California.  You can read and listen to the oral arguments from yesterday by clicking here.

Today, the Supreme Court hears another argument, in U.S. v. Windsor (“Windsor”), related to same-sex marriages.  In this case, it involves federal laws and benefits. In 1996, the U.S. enacted the Defense of Marriage Act, or DOMA, which stated that federal benefits and inter-state recognition division of marriage would only apply to opposite-sex marriages. Section 3 of DOMA codifies the non-recognition of same-sex marriages for all federal purposes, including insurance benefits for government employees, Social Security survivors’ benefits, immigration, and the filing of joint tax returns.

While the bigger picture of Windsor is on same-sex marriage, drilling down into the facts of Windsor demonstrates that at the heart of the case is estate taxes and the surviving spouse in the Windsor wanting to minimize the taxes she would owe. Gee, just like every one else wanting to minimize their tax liability.

Edie Windsor and Thea Spyer, her partner, were married in 2007, in Canada. While New York recognized the marriage, the federal government did not. When Spyer got sick, she chose to leave her entire estate to Windsor when she died. If Windsor had been a man, she would not have had to pay any estate tax because of the unlimited marital deduction.  The unlimited marital deduction provides that a married person has the ability to gift/transfer unlimited amounts of money to the other spouse without paying any type of tax on that transfer.  In Windsor, Edie Windsor had to pay $363,000 in federal estate taxes on the inheritance she received from Spyer.  As such, Edie Windsor argues that DOMA violates the equal protection clause of the U.S. Constitution that does not grant the same protections to same-sex “married” couples as it does to opposite sex ones.

It will be interesting to see where the Supreme Court Justices go on this one because of the number of inflection points in the case. In 2011, President Obama, has stated his administration will not defended Section 3 of DOMA in court.  Some legal experts have argued based on the administration’s decision not to defend Section 3 of DOMA then there is no “case or controversy” pursuant to Article III of the U.S. Constitution and the case should be dismissed. If the case is dismissed, this would uphold the Second Circuit Court of Appeal’s decision affirming the District Court’s ruling that Section 3 of DOMA is unconstitutional. One some level, I find this outcome unlikely, since why would the Justice take up the matter to merely dismiss the case.

Another point is the facts are not extremely great for Edie Windsor. While New York recognizes same-sex marriages, it is not as cut-and-dry as same-sex marriage proponents argue. The issue with Windsor is Spyer’s death in 2009. Spyer’s estate and tax issues would be based on federal and state laws in place in 2009 not changes in laws in later years. There is a 2006 New York Court of Appeals ruling that held the “New York Constitution does not compel recognition of marriages between members of the same sex.” Hernandez v. Robles, 885 N.E.2d 1, 5 (N. Y. 2006).  Subsequently, but not before 2009, there were New York cases that had contradictory outcomes to Hernandez.

Given the controversial nature of same-sex marriages within the political spectrum, it will be interesting to see what the Justices decided. I don’t think I would want to be in their shoes.

The Basics of the District of Columbia Probate Administration…Part III: Opening the Estate

This is the third in a series of posts on the basics of D.C. probate administration. You can read previous posts in this series including Part I: high-level differences between Virginia and D.C. estate administrations (here), Part II: qualifying to be a D.C. personal representative (here). This post will focus on the initial process of opening the estate in the District of Columbia (D.C.).

To start off, the third part in the Virginia Probate Administration series dealt with the duties and liabilities of the personal representative.  However, there is not a meaningful difference between the duties of a D.C. personal representative and a Virginia personal representative to warrant a new post. You can read more about the duties and liabilities of the personal representative by clicking here.

To open and estate and become a personal representative, the petitioner, the person trying to become personal representative, needs to file several documents in the Clerk’s office for the Probate Division. The documents that need to be filed depend on whether the decedent’s estate was a large estate or a small estate. A small estate is one where if the decedent died after April 26, 2001, owned assets of $40,000.00 or less in the decedent’s sole name or only real estate in another jurisdiction. (I will go in to more detail about small estate petitions at a later date.) A large estate is open when the decedent owned assets in the decedent’s sole name in excess of $40,000 or for any value, if medical records are being sought to pursue litigation or litigation is going to arise.

For a large estate, the documents required to open the administration for a decedent that died after July 1, 1995 are:

1. The Last Will and Testament (if there is one) and the certification of filing a will form;
2. A petition for probate (form);
3. An abbreviated probate order (form);
4. A Notice of Appointment of Personal Representative, Notice to Creditors and Notice to Unknown Heirs (form);
5. Forms related to a Person Representative’s Bond, either:
   1. Bond of Personal Representative Pursuant to D.C. Code § 20-502(a) (form), or
   2. if all heirs waive bond, a waiver of bond form from each heir, or
   3. if the will waives the need for the petitioner to have a bond or no bond is required; and
6. A check, money order or credit card to pay Court Costs. Court Costs depend on the size of the estate. The Filing Fee Schedule can be found here.

But, before you can even file the documents with the Clerk’s office for the Probate Division, a petitioner needs to ensure that all of the necessary documents have been submitted and that the filings comply with minimum legal requirements. This means the petitioner needs to meet someone from the Probate Division’s Legal Branch. This step tends to trip up many non-attorney petitioners that just go straight to the Clerk’s office.

A Branch Member will not provide legal advice only ensure all the documents are there. Once, a Branch Member signs off on the petitioner’s documents, the documents can be filed with the Clerk’s office. After the petition is accepted for filing, the petition and any attachments, including a draft order, are transmitted to a judge. A judge will review the documents and issue an order approving the documents or denying the petitioner’s filing.

If judge issues an order approving the petitioner’s filing, the order will state that the will is admitted to probate, appoint the personal representative, determine whether the administration of the estate is to be supervised or unsupervised, approve or waive bond, and order payment of the allowances provided for by law.

A copy of the signed order will be mailed to the personal representative and his or her attorney with letters of administration and a Schedule of Mandatory Filings. The personal representative can now take steps to administer the estate.

Completing the actual petition is one of the more tricky steps for a non-attorney petitioner.  Next time, I will discuss those pitfalls including the dreaded standard probate v. abbreviated probate and supervised v. unsupervised decision that seems to throw off many petitioners.

The Basics of the District of Columbia Probate Administration…Part II: Qualifications of the Personal Representative

This is a second of series of posts on the basics of D.C. probate administration. You can read the first post on the high-level differences between Virginia and D.C. estate administrations and what type of assets are controlled by a D.C. probate administration by clicking here. This post will focus on qualifications of being able to become the personal representative.

Like in Virginia, the personal representative’s role is to administer the decedent’s estate by finding and marshaling the decedent’s probate assets, pay claims or bills and expenses of administration and, generally, wind up the affairs of the decedent. The personal representative is a fiduciary to the estate. Being a fiduciary means that the personal representative is in a trusted role. The personal representative owes a duty of care and loyalty to the estate.  A personal representative must provide a surety bond unless posting a bond was waived by the decedent in the will or waived by the beneficiaries.

The first issue for any person that wants to administer a person’s estate is to become the personal representative. Unlike Virginia, a court appoints a personal representative because of some relationship to the decedent or the decedent’s estate. D.C. code Sec. 20-303 provides a specific order for a person to become personal representative. The court is under no obligation to follow the priority though the court needs a reason to appoint someone out-of-order.

A personal representative will be appointed by the court in the following order:

1. the personal representative named in the will,
2. the surviving spouse, domestic partner, or children of an intestate decedent or the surviving spouse or domestic partner of a testate decedent,
3. a residuary legatee(s),
4. the children of a testate decedent,
5. the grandchildren of the decedent,
6. the parents of the decedent,
7. the brothers and sisters of the decedent,
8. next of kin of the decedent,
9. other relations of the decedent,
10. the largest creditor of the decedent who applies for administration, and
11. any one else.

There are also several other factors that the court will look at in appointing a personal representative. A younger family related person will be preferred over an older one e.g. the court prefers a niece/nephew over an uncle/aunt. It is very difficult for people with different levels of personal representative priority to serve as co-personal representatives.

The court will also exclude those people who attempt to become personal representative that have the following restrictions:

• filed a written renunciation in not wanting to be the personal representative,
• not over eighteen (18) years of age,
• a mental illness or ward,
• a convicted felon,
• an alien who has not been lawfully admitted for permanent residence,
• a judge of any court established under the laws of the United States or is an employee of the Superior Court of the District of Columbia, the District of Columbia Court of Appeals or the District of Columbia Court System unless that person is a surviving spouse/domestic partner of the decedent, and
• non-resident of D.C. unless they file a power of attorney.

Next post will get into one of the basics of the D.C. administration but results in a great deal of confusion: what is the difference between standard probate, abbreviated probate, supervised and unsupervised probate administrations.

The Basics of the District of Columbia Probate Administration…Part I

Seems like only yesterday, but way back in September of 2010, I wrote a series of posts on   the Virginia probate administration process. If you missed it, you can click here and work your way through the ten part series.

It has taken me over two years but I thought I would start a series of posts on the District of Columbia probate administration process. Maryland will have to wait for another day. I hope it doesn’t take me more than two years to get to it. But, I can’t promise.

First, you might ask: aren’t Virginia’s and DC’s probate administration processes the same. Unfortunately, it depends. At a high level, the administration processes are the same. After a person dies, a personal representative is appointed to marshal all the decedent’s assets, pay off debts, distribute inheritance to the heirs, wind down the affairs of the decedent, and attempt to fulfill the wishes of decedent’s Last Will and Testament. The court is involved, on some level, to monitor and ensure the personal representative follows through on their appointment.

At the low-level, the processes are much different. Each jurisdiction places emphasis on different areas of the administration. Not surprising, DC, generally is more restrictive. But, that is not always the case and I will get into the differences along our journey through DC’s probate administration.

To start off, like Virginia, DC’s probate administration only covers probate assets. Probate assets are anything held solely in an individual’s name at the time of death. It could be a bank account with only the decedent’s name on it.  Or, it could be a piece of real estate, like a home residence, with a deed titled only in the decedent’s name.  It is any asset that after the decedent’s death you can not determine what beneficiary should receive an ownership interest in the asset through joint ownership with a right of survivorship or has some type of beneficiary designation.

Non-probate assets, such as an IRA account, become the property of the designated beneficiary upon the decedent’s death that owned the asset.  Assets owned in either joint tenancy with right of survival or tenancy by the entirety (click here for more information on joint tenancy) where the surviving owner of the property takes ownership of the asset upon the decedent’s death are also non-probate assets. The existence of a will is irrelevant to those assets because you know who receives the ownership interest in the asset by operation of law. Non-probate assets will not become part of the decedent’s probate estate and probate administration will have no control over those assets.  You can learn more about the differences between probate and non-probate assets by click here.

Lastly, unlike the Basics of Virginia Probate Administration, I will mix in other posts about various estate planning items in between this series.

Copyright © 2013 Law Office of Christopher Guest, PLLC.

What’s the Difference between Probate and Non-Probate Assets?

About 7 months ago, I went though the various concerns people confront using joint tenancy with the right of survivorship (JTWROS) as an estate plan. The next step is to demonstrate the issues between probate asset and a non-probate asset. As you can from an Estate of the Month I did in my newsletter, not correctly accounting for probate assets can lead to problems.

Probate assets are assets that are in the sole name of the decedent at the decedent’s passing without any other owners or without a payable on death or similar type of beneficiary designation. Individual assets include bank accounts, investment accounts, stocks and bonds, cars, boats, airplanes, business interests, and real estate. Any portion of an asset owned by the decedent as tenants in common would be a probate asset, too. Probate assets are controlled by a person’s Last Will and Testament and the Will dictates to whom that asset will be bequeathed.

Non-probate assets are the assets not controlled by the decedent’s will and are distributed in some other fashion. Examples of non-probate assets include:

1. Property owned as either as JTWROS with another person or tenants by the entirety by a husband and wife. A will also does not control JTWROS assets because the decedent loses ownership of the asset upon the decedent’s death. Wills only control assets after the testator dies.
2. Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself i.e. the age old property example: Blackthorn to A for life, then to B.
   
3. Assets owned by your Revocable Living Trust.
4. Assets that pass by operation of law when a decedent has designated a beneficiary to receive the asset e.g. a husband lists his wife as the primary beneficiary to receive his life insurance on his death. Other designated beneficiary examples include:
   • Payable on death (POD) accounts, transfer on death (TOD) accounts, in trust for (ITF) accounts and Totten trusts;
   • Retirement accounts, including IRAs, 401(k)s and annuities; or
   • Health savings accounts (HSAs) or medical savings accounts (MSAs).

To make it even more confusing, non-probate assets, especially assets in number 4 above can revert to probate assets.

The decedent can take active steps to make the non-probate asset a probate asset. For example, a decedent can name the decedent’s estate as the beneficiary of a life insurance policy. The estate is the beneficiary of the life insurance policy and, if there is a will, the will controls where the death benefits go.

The decedent can take also passive steps for the non-probate asset to become a probate asset. In a very common scenario, the decedent will not name a beneficiary on a POD account and, thus, the estate is considered the beneficiary. Another passive way is for the decedent to not update designated beneficiaries, if the primary and secondary beneficiaries have passed away. The non-probate asset will flow to the estate since no beneficiary is there to receive the non-probate asset.

Making sure how your assets are transferred can go a long way to preventing assets being distributed to the wrong person or contradictory to your intent.

Copyright © 2013 Law Office of Christopher Guest PLLC.

The Fiscal Compromise and Estate Planning

Luckily…

It is a few days since the world was allegedly going to end – either on the Mayan Calendar or the Fiscal Cliff Calendar – and we survived. We also got an answer to the question of whether there would be an estate tax fix for 2013? The answer is “yes.” But, what was that answer.

Here is the impact of the American Taxpayer Relief Act of 2012 (ATRA) compromise as it relates to estate planning:

• Extended the inflation-adjusted individual $5 million gift, estate and generation-skipping transfer (GST) tax exemptions that were put in place in 2010. For 2013, inflation adjusted exemption amount for the three taxes will be $5.25 million.
  
• Raised tax rate on estates with assets above the gift, estate and generation-skipping transfer (GST) tax exemptions levels to a top rate of 40%.  This is an increase from 35% in 2011 and 2012.
• Made permanent portability for married couples.  As long as a federal estate tax return is filed in the death of the first spouse, portability allows the surviving spouse to use the unused federal estate tax exemption of the first spouse to die. If both spouses die in 2013, that would result in the ability to shield $10.5 million in combined assets from federal estate taxes.
• Retained the ability to deduct state estate taxes on the federal estate tax returns. A gift to those states that apply a state estate tax and complain it makes their states less attractive to older residents.
• Retained,  for the time being, the current tax and legal status of grantor retained annuity trusts, valuation discounts, unlimited-term generation-skipping trusts and other high-level estate planning techniques. All of these techniques have targets on their back and could be reduced or eliminated in the upcoming negotiations.

In addition to ATRA raising the income tax rates on affluent Americans – those making more than $400,000 (single) and $450,000 (married) – ATRA impacted other areas of the income tax that cross-over with estate planning. Those changes include:

• Reinstated the tax-free distribution from an individual retirement plan directly to a qualified charity. The ability to make this charitable transfer technically expired at the end of 2011.  But, ATRA included a special provision permitting individuals to make a  payment directly to a charity in January 2013 and still be treated as a tax-free 2012 distribution from the IRA.
• Eliminated the need for the Alternative Minimum Tax “patch” that occurred every year by adding an inflation index to the AMT exemption levels.
• Reintroduced back into the tax code limits on itemized deductions (PEASE) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers). In the past, PEASE applied across the board on all of a person’s itemized deductions including donations to qualified charities. With PEASE reintroduced, it will likely mean a reduction in clients creating Charitable Lead Trusts and other similar entities because of the reduced tax savings that occurs because of PEASE.  I think I will get into this more in a future post.
• Reintroduced back into the tax code phases out personal exemptions (PEP) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).  PEP and PEASE are rather nasty tax provisions because it slashes a persons deductions and silently increases a person’s effective tax rate e.g. a married couple having an AGI of $350,00 would be in the 35% tax bracket but have a higher effective tax rate.

However, there are still three more big  fiscal issues (debt ceiling increase, remaining 2013 budget reconciliation and sequestration) confront the federal government over the next 60-90 days.  Anything can happen and the above estate and tax provisions could all change by the first day of spring.

I also apologize for the long silence, the fiscal cliff created a great deal of work in December. I worked at least some on everyday of the month, including Christmas, aiding clients to prepare for the end of the year tax changes and that left no time to add to my blog. My New Year’s resolution is to do better.

Will there be an Estate Tax Fix in 2013?

It’s been about ten days since the Presidential election and with everyone relaxing a little, now is a good time to talk about what the election results mean for the estate tax and estate planning.  If you are not aware, on January 1, 2013, the estate tax reverts back to a $1 million exemption level, the lifetime gift tax exemption is lowered to $1.0 million and the generation skipping tax exemption level  will be approximately $1.0 million.

Late in 2010, I presented the various scenarios on where the estate tax would go. I’ll note, not one of the scenarios was 100% accurate.  The estate and gift tax realm in 2011 and 2012 had the following main tax provisions:

• $5.0 million per person federal estate tax exemption with a tax rate of thirty-five percent (35%) that was indexed with inflation.
• $5.0 million per person federal lifetime gift tax exemption with a tax rate of thirty-five percent (35%) that was indexed with inflation.
• $5.0 million per person generation skipping tax exemption with a tax rate of thirty-five percent (35%) that was indexed with inflation.
• Portability was introduced to allow a married couple to shift their individual federal estate tax exemptions between the two spouse to provide a $10 million exemption.

But, where will go from here?

President Obama’s 2013 budget proposal released earlier this year had the following positions:

• Reversion of the estate and gift tax rates and exemptions back to 2009 levels (i.e. federal estate tax and generation skipping tax exemptions would be lowered to $3.5 million and lifetime gift exemption would go back to $1.0).
• Portability would remain between spouses but at $7.0 million level. This is a change for President Obama’s 2011 Budget proposal.
• Basis reporting requirements for donated and inherited property to better track capital gains.
• Minimum 10 year term for Grantor Retained Annuity Trusts (GRATs).
• Elimination of the tax benefits associated with the sale to an Intentionally Defective Grantor Trust (IDGT).
• Duration of GST tax exemption limited to 90 years to limit future dynasty trust planning.

My best guess is that the above will be the opening position for the President in any estate tax discussions. In other words, this is the floor you can probably work from if you believe some form of compromise will occur. I am not so sure of that anymore. I’ve been telling most people you have to plan for how the 2013 estate tax law is currently written. To make matters worse, I have also seen a number of experts state the going over the fiscal cliff might be a good plan long-term because it would allow a fresh start for everyone.

The biggest proponents in the Senate for estate tax reform on the side of higher estate tax exemptions or elimination of the federal estate tax exemptions – Blanche Lincoln and Jon Kyl – are no longer or will no longer be Senators in 2013.  That means a level of uncertainty. It is not determined what Congressman or Senator will replace Senator Kyl as an advocate for higher exemption levels.  For those people wishing lower levels, Senators Bernie Sanders, Tom Harkin and Carl Levin  and Carl’s brother Representative Sander Levin are still in Congress.

Another big issue is that estate tax could get pulled into the broader discussions reforming the entire tax code – personal, corporate, etc.  That means anything can go and any number of outcomes could result. And, without the strongest advocate for a higher level of estate tax exemptions that means the chances of a lower level are certainly greater.

Needless to say, the political arm twisting in D.C. over the next few months will be interesting and could provide unsuspected outcomes.

The Need for Digital Estate Planning – Part II

Last time, I discussed the importance of planning for a person’s digital estate. I also mentioned the need to plan for your digital assets has only emerged over the last few years.  Unfortunately, that means how digital assets are treated with respect to your estate are untested. Luckily, there is some public and private help available.

On the public front, at least five state legislatures have passed laws addressing a person’s digital estate. First, Connecticut and Rhode Island’s laws only address a person’s email accounts. They didn’t address digital assets like Photobucket™, Itunes™, etc. It is hard to forget that the Iphone™ was only released 5 years ago.  Second, even the more thorough Oklahoma and Idaho laws have not been challenged in court to date to determine their validity and constitutionality.

So that leaves individual solutions.

You could keep a slip of paper listing all your information and store it in your house somewhere.  Though, the lack of security sounds like the start of a bad movie.

One practical solution is to keep a list of passwords and similar information on a flash drive or stored on your computer somewhere but title the file something unique – i.e., not “passwords” – and informing a person you trust about the file. One caveat, do not make the document that lists your passwords password protected.

You could also place your flash drive with the passwords stored on it in a safe deposit box. But, make sure someone knows where it is and can access it. Many providers also require periodic updating of your password, which means a trip to the bank every time you update a password. That isn’t very convenient.

A number of private companies have been established to meet the needs of consumers looking to protect their digital assets. But, living in a capitalist society, it will come at a cost.

Generally, the companies offering digital asset protection services break into two groups.

The first group of companies will secure the passwords of the digital assets accounts allowing the account holder to list beneficiaries to a particular digital asset. This would be similar to a person designating beneficiaries on a life insurance policy. I can’t vouch for these companies but two companies that provide these services include LegacyLocker™ and Securesafe™.

The other type of company in this field preserves all the assets in one place digital location. It incorporates all the digital pictures, emails, and the like into a digital legacy that a person can pass on to that person’s heirs. One company in this field is Gen-Ark™. Again, I have not used them personally and can’t vouch for them.

One issue that needs to be considered when using these digital asset protection services is the relative youth of the industry.  Most of these companies offering digital asset protection are start-ups. The company could be bought by a competitor that could drastically change services provided and/or pricing. In fact, Securesafe™ bought Entrustet™ – a company I mentioned in another article a year ago. Or, the company could go under.

One other hi-tech solution would be to use a cloud type answer. Maybe keep all of your digital assets in DropBox™ or other cloud type system and give access to another person to ensure the digital assets can be passed on. Maybe not ideal, but at least a thought.

I feel confident in saying that given the growth in digital assets and their importance, better solutions will emerge in the coming years.