On February 14, 2010, President Obama introduced his 2012 fiscal budget proposal. When Congress takes up the President's budget, most of the discussion will be on income taxes and expenditures for national security and safety-net programs (such as Social Security and Medicare).

However, the President's proposal includes the following provisions that would affect wealthier taxpayers:

• An increased top rate on ordinary income from 35% to 39.6%; and on dividends and long term capital gains from 15% to 20%.
  
  
• A limit on the value of itemized deductions for wealthier taxpayers, which faces opposition from charities and the housing industry.
  
  
• A crack-down on short term GRATs.
  
  
• A return on the estate tax to its 2009 state in 2013, which includes a $3.5 million estate tax exemption, a $1 million gift and GST tax exemption, and a 45% top rate.
  
  

However, the President's proposal does not eliminate the portability clause for married couples.

For more information regarding this topic, please e-mail your requests to Julius Giarmarco, or call Julius at (248) 457-7200.

In In re Thiem, 2011 Bankr. LEXIS 376, the Arizona Bankruptcy Court decided that, in Arizona, inherited IRAs are protected under both the federal opt-out state exemption for retirement plans and the state exemption for retirement plans. (An "opt-out" state is a state that has "opted-out" of the federal bankruptcy exemptions, requiring its citizens to use only the state-provided exemptions in bankruptcy. The State of Michigan is not an "opt-out" state.) Our updated summary chart can be found here: Inherited IRAs In the Courts.

It should be noted that in using the chart, it is the beneficiary's state that is relevant, not the plan owner's. For example, an Arizona 401(k) plan participant whose children live in Florida, Texas and Illinois should not rest easy with this Arizona decision. The favorable outcome in her home state will be of no use to her non-resident children when at her death they rollover her plan into inherited IRAs of their own. Rather, she should be concerned by the fact that all of her children live in "Loss" states. The same would be true of a Michigan plan owner whose children live in "Loss" or "Win**" states, or in states not on the chart for lack of case law, such as Michigan.

For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.

Whether the estate tax exemption remains at $5 million or is reduced to $3.5 million in 2013 (as President Obama is requesting in his fiscal 2012 budget), less than 2% of Americans have taxable estates. Even so, for those clients, estate planning is still very important.

Everyone should have a revocable living trust to avoid the costs, delays and publicity associated with probate - not only upon death, but also in the event of incapacity. Probate is a lawsuit that you file against yourself and then lose. Besides avoiding probate, living trusts assure grantors that what they have, goes to whom they want, when they want, and how they want. For example, a living trust can provide for a surviving spouse's health, maintenance and support, while at the same time preventing the surviving spouse from intentionally (or unintentionally) disinheriting the grantor's children. A living trust can also protect the grantor's heirs from their inability, their disability, their creditors and predators (including ex-spouses). This is accomplished by leaving the assets in trust for the benefit of the heirs (until they reach certain ages) under the management of a qualified trustee. To add flexibility, the trust agreement can provide the beneficiaries with a limited power of appointment so that the beneficiary can determine who receives the property upon his/her death (either outright or in trust) prior to the complete termination of his/her trust.

In addition, everyone needs a general power of attorney for financial matters and a health care power of attorney. The former document complements the living trust in helping to avoid a conservatorship or guardianship if the grantor becomes incapacitated. The health care power of attorney allows the patient advocate to carry out how the patient wants to spend his/her last days.

Finally, a will is needed to name guardians for minor children, to name a personal representative of the estate, and to "pour over" into the testator's living trust any assets that the testator failed to transfer to his/her living trust during lifetime. But assets that are transferred to a living trust at the testator's death will have to be probated. That is why funding living trusts is an important part of the planning process. Moreover, to assure that both income and estate taxes are minimized, careful consideration must also be given in deciding what assets to put in each spouse's living trust, as well as selecting the proper beneficiary for retirement plans.

For more information regarding this topic, please e-mail your requests to Julius Giarmarco, or call Julius at (248) 457-7200.