By DAVID BERTOLA
Business First

As it stands today, the good news for heirs of New York state's wealthiest is that there is a way to avoid paying taxes on your loved one's estate when he or she passes.

The bad news? To avoid the taxes, said loved one will need to die in 2010.

Current federal tax laws dictate different credit-shelter amounts on estates in 2008 and 2009. There are no federal taxes on estates in 2010, but there will be again in 2011.

The amount of taxes to be paid is based on the value of the estate.

If someone leaves a substantial estate to a surviving spouse, no taxes are imposed.

But if there is no surviving spouse, that's when the estate tax goes into effect. And things become more complicated if assets are willed to spouses and children from previous marriages.

Dale Demyanick, partner in charge of the tax practice at downtown accounting firm Lumsden McCormick LLP, and other experts who make their livings offering counsel and solutions to help the wealthy mitigate the impact of federal and New York estate taxes agree: The estate-tax law as it is structured could - and probably will - change.

Experts: Estate tax will never go away

The upcoming presidential election and the makeup of Congress may dictate new details for how the law is structured.

"The expectation is those laws will change, and Congress will come up with a program the president will sign," said Demyanick. "It's not likely anything will be done before the election."

"I don't think it'll ever go away," Mark Tronconi, tax partner at Tronconi Segarra and Associates, said of the estate tax. "But the thresholds may increase."

Charles Telford, chair of the trusts and estates department at the law firm of Damon & Morey LLP, agrees with Tronconi's assessment.

"I don't think the estate tax will be repealed, as it's too much of a hot political football, and there's not a whole lot of people clamoring to push that football down to the goal line," he said, adding that the annual changes in amounts being taxed make it problematic for local practitioners to draft wills.

"You have to take into consideration that the federal law is in flux for the next several years, and you have no idea when someone is going to die," he said.

Currently, federal law states that any estate valued at $2 million or more is subject to tax. That figure increases to $3.5 million in 2009, and in 2010, the law is repealed.

In 2011, the law calls for estates valued at $1 million to be taxed.

New York will impose taxes on estates of $1 million or higher over all four years.

Gayle Eagan, partner in the estate and trusts practice group in the law firm of Jaeckle Fleischmann & Mugel LLP, is one of those practitioners Telford referred to.

"Had Congress not made the estate tax sunset, they'd have had to (run) projections and show the actual cost of the law," she said of the reason there's no estate tax for 2010. "Some believe the sunset provision can be extended. Others think there will be a more permanent fix for this."

Giving to charities and family members helps

When dealing with a client whose net worth is in a heavier weight class, those significantly more than $1 million, estate planning becomes more important.

Charitable planning, Demyanick said, is one way to approach paying less in estate taxes. Tronconi said there are a variety of trusts and ways to freeze the value of an estate.

Gifting money away is another way people can move a significant amount of wealth while softening the blow of estate taxes. An individual can gift up to $12,000 a year to as many friends and family members as he or she wants.

And if the wife's or husband's name was attached to the monetary gift, and presumably the accompanying greeting card, that ceiling extends twice as high: $24,000.

Conceivably, someone with four kids and seven grandchildren can move up to $300,000 to $400,000 annually with this strategy.

Under this scenario, over a 10-year period, the amount gifted away could total $3 to $4 million that would have otherwise been part of the estate, and subject to tax.

 

The Bills' tax story

Buffalo Bills owner Ralph Wilson said earlier this year that he has no plans to sell the team in his lifetime.

Instead, the team will be sold after he dies, as he does not plan to leave the team to his wife Mary or his three daughters.

If he had decided to will the team to his wife, no estate tax would be paid. That's because if assets are transferred to a surviving spouse, there's a 100 percent marital deduction. There's also the slim possibility that the estate tax will be repealed.

Upon the death of the spouse who has assets transferred to him or her, the family could then be subject to an estate tax.

Tax lawyers and accountants recommend various kinds of charitable solutions or trusts that can be used as shelters.

The estate tax is complicated, and becomes more so when assets are willed to children from previous marriages, and the process of determining the ultimate disposition of assets can get tricky.

With this in mind, if Wilson had chosen to leave the team to his daughters, the estate tax could possibly total nearly half the value of the franchise, approximately $600 million, and could increase in the coming years.

- David Bertola