Bowie & Jensen's Jay Merwin Says Death and Taxes Are Certain; But The Size of the Tax Is Anyone's Guess

TOWSON, Md., Aug. 22, 2012 /PRNewswire/ -- Bowie & Jensen's Jay Merwin, who heads the Estates & Trust Practice for the leading business law firm, asks how much are you worth?

After adding in the value of the house, life insurance policies and other assets, some people find themselves richer on paper than they feel in daily life, and in need of planning to reduce, defer or eliminate the taxes that loom over their estates. The process is complicated by the fact that the current federal estate tax law expires at the end of this year. If Congress does nothing before that, the federal estate tax will take a deeper cut.

At the end of 2010, as the previous federal estate tax law was about to expire, Congress passed the current one but could only agree on it lasting two years. The current law exempts from estate taxation to $5 million per person. Moreover, the law permits portability of these exemptions between spouses. That is, for a wealthy couple, if the first spouse to die does not use up all of his or her exemption, the unused portion is available to the surviving spouse, together with the surviving spouse's own $5 million exemption. The top tax rate on the excess of these exemptions is 35%. If Congress does nothing to extend the current law, however, exemptions will drop down to $1 million per person, and portability will no longer apply.

Without knowing the fate of the federal estate tax it is best to plan defensively. That means assuming a possible federal exemption of $1 million and, further assuming the loss of portability, providing for the creation of a trust funded to the $1 million exemption upon the first death to occur in a married couple. The resulting trust can exist for the benefit of the surviving spouse, but the strategy is to structure that trust so that it will not be includable in the surviving spouse's eventual estate, thereby taking advantage of the non-portable exemptions available to each.

The state of Maryland has its own estate tax, with a $1 million exemption per person but no portability.  The top Maryland tax rate is 16%. Even if the current federal estate tax is extended or otherwise made more certain with large exemptions, the Maryland estate tax may prompt similar trust planning. 

Mr. Merwin practices in the areas of: (i) general corporate work: mergers and acquisitions, business organization and dissolution, commercial loans, loan workouts, and private placements of securities; (ii) commercial real estate: leasing, acquisitions, certified as a LEED® Green Associate for purposes of compliance with the LEED (Leadership in Energy and Environmental Design) rating system developed by the U.S. Green Building Council; and (iii) estates and trusts: individual estate planning and estate administration, and succession planning for businesses and their owners. For more information, please contact Jay Merwin at [email protected].

About Bowie & Jensen
Bowie & Jensen is a leading business law firm with attorneys representing clients around the world. Bowie & Jensen focuses on Business Litigation, Business Transactions, Intellectual Property, Employment Law, Real Estate, Estates & Trusts, Patent Law, Tax and Construction Law. The firm is located in Towson, Maryland and is a full-service business law firm. Bowie & Jensen can be reached at 410-583-2400, or at [email protected]; on the Net www.bowie-jensen.com.

SOURCE Bowie & Jensen