Articles Posted in International Estate planning

Estate Planning: Income Tax Strategies

            Law firms have had to take a spike in income tax rates, a decline in the estate tax rate, and an increasing annual estate tax exemption threshold into account in devising estate planning strategies. There has been a decreasing gap between the income tax rates and estate tax rates: estate tax has moved to a maximum rate of 40% and a $5.45 million exclusion in 2016, from a 55% percent tax rate and a $675,000 exclusion in 2001; the maximum tax rate on ordinary income is 39.6%, up from a low of 35 percent in 2003; the maximum long-term capital gains tax rate increased to 20% from 15% in that same time frame. Furthermore, in 2013 an additional 3.8% surtax was added for net investment of individuals, estates, and trusts over statutory threshold amounts in certain cases. While these numbers might make you think that estate planning is only necessary for the super wealthy, financial planners advise that it is not. Taxes are just one consideration of estate planning: it is critical to plan for an orderly transfer of assets or for other circumstances such as incapacitation.

The capital gains tax rate – the long-term rate of 20% plus the 3.8% surtax – is significant because it affects the basis of assets. When a decedent dies, her beneficiaries get the benefit of a step-up in basis, which is appreciated assets held in the decedent’s estate are readjusted to fair market value at the time of inheritance. Through this mechanism, the beneficiary receives an income tax advantage because she is not liable for the capital gains tax on any appreciation that occurs up to the point she inherits the asset.

Florida Honors Foreign Wills

Florida is a prominent destination for immigrants.  Immigrants come from all over the world to live in Florida and hopefully become U.S. citizens.  Sunshine and beaches are not the only things that attract them to Florida, but also the hopes of providing a better life for their families.  Providing a better life for their family includes supporting them during life and after death.  A valid will ensures that immigrants have the ability to provide for their families after death by controlling the disposition of their property.

Accordingly, Florida Statute sections 732.502 and 734.104 have a significant impact on immigrants.  Section 732.502  states that, “any will, other than a holographic or nuncupative will, executed by a nonresident of Florida . . . is valid as a will in this state if valid under the laws of the state or country where the will was executed.”  A holographic will is a testator’s handwritten will.  A nuncupative will is an oral will whereby the testator states his wishes to someone and those wishes are never memorialized in writing.  Holographic and nuncupative wills are not valid in Florida even if valid in the person’s home jurisdiction.  Thus, Florida will respect foreign wills as long as the foreign wills are valid in the country in which they are executed and are not holographic or nuncupative wills.  People with foreign wills should be diligent to ensure that their foreign wills are not classified as holographic or nuncupative wills and that their wills were validly executed in their home jurisdiction.