We are pleased to announce that, once again, for the second year in a row,
Stuart R. Morris has been named a member of Worth magazine's 2007 Top 100 Attorneys. This annual list is the result of over a year's exhaustive research by Worth's editorial staff.

To pare down its list to 100, Worth's staff "searched for those who can think beyond the numbers and routine of their daily work," explained Worth Features Editor Emily DeNitto. "We wanted to know what types of strategic recommendations our nominees have made. We asked how they are responding to current trends and pivotal cases. We then examined their years of experience, time spent both behind a desk and in front of judges, as well as their thinking concerning the best and worst qualities for a lawyer in their field."

Please join us in congratulating Stuart on this notable achievement.

After a brief hiatus, is our pleasure to once again bring you the latest news about estate and wealth preservation planning. Below you will find an update on the status of the estate tax repeal and an informative article addressing what Florida residents need to know if they own property in more than one state.

Wishing you and your loved ones health, happiness and continual wealth as we begin the holiday season!

Billionaire Warren Buffett, the chairman of Berkshire Hathaway and the second-richest man in America according to Forbes magazine, testified before the Senate Finance Committee on Nov. 14, 2007. He urged Congress to preserve the estate tax. He noted to the panel, which is exploring ways to replace the rules of the current estate tax system, that so few Americans are subject to the estate tax that "you would have to be at 200 funerals to attend one where the decedent paid the tax."

"Dynastic wealth, the enemy of a meritocracy, is on the rise," he went on. "Equality of opportunity has been on the decline... We ought to do more for [low-income Americans] and take more out of the hides of people like me."

Those who support an estate tax repeal claim that the estate tax sometimes forces the heirs of family businesses and farms to sell pieces of the business just to pay the tax bill. Testifying in favor of repeal was Dean Rhoads, a rancher and state senator from Nevada, who stated that when his in-laws died, the family had to sell land to pay the estate taxes and are now paying $18,000 in taxes, plus interest, every year.

Currently, only estates worth more than $2 million are subject to federal taxation. The threshold is scheduled to rise to $3.5 million in 2009. For the year 2010, estates will be entirely free from the estate tax. However, the repeal expires at the end of 2010. Thus, unless Congress acts in the interim, the estate tax exemption will then revert to $1 million per person in 2011.

Buffett advocated raising the amount of estate assets exempt from the estate tax to $4 million per person. He also seemed to support more lenient laws for small family-owned businesses.

Senators from both parties now agree that complete repeal of the estate tax is not going to happen now. "I think everyone in this room knows we're not going to repeal the estate tax. It's not going to happen in the foreseeable future," said Committee Chairman Max Baucus (D-MT).

"We can't get [repeal] done," said Sen. Jim Bunning (R- KY). "We ought to be able to come to a compromise."

In connection with the hearing, the Joint Committee on Taxation released its background research memorandum, "History, Present Law, And Analysis of the Federal Wealth Transfer Tax System" (November 13, 2007, Report No. JCX-108-07, PDF, 50 pages). To get a copy of the report, click here. To obtain more information about the hearing, click here.

A Florida resident owning property--particularly real property--in another state gives cause for concern to estate planners and, without proper consideration, can undermine other estate planning that has been accomplished. This article is intended to review the issues associated with persons owning property in multiple states, and to offer possible solutions to these issues.

There are two main concerns in play when there is property owned in multiple jurisdictions. First, property held outside of Florida could be subject to estate tax in the state where the property is located even though the individual dies a resident of Florida, and, therefore, would not otherwise be subject to state estate tax in Florida. Secondly, the property held outside of Florida could be subject to estate administration in that state, even though the individual dies a Florida resident. Both of these issues can be time consuming, and, even more importantly, extremely costly. Each will be discussed in more detail below.

Estate Tax Concerns

Prior to the passage of the Economic Growth and Tax Reconciliation Act of 2001 ("EGTRRA"), most states conformed their state estate taxes to equal the amount of the federal credit for state taxes pursuant to Internal Revenue Code Sec. 2011. When EGTRRA was enacted, however, some states, facing substantial declines in revenue, modified their estate- tax strategy by decoupling their estate tax laws from those of the federal government. By doing this, these states can collect a state estate tax on estate assets having a value that is less than the federal threshold for taxable estates.

Seventeen states and the District of Columbia have retained their estate taxes after the federal changes. Of these, 15 states - Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Vermont, Virginia and Wisconsin - and the District of Columbia decoupled from the EGTRRA changes in some form. Nebraska and Washington have retained their tax by enacting similar but separate estate taxes.

Even though Florida residents are not subject to a state estate tax and will not be unless there is an amendment to the Florida Constitution to authorize such a tax, many Floridians own property in other states. Such out-of-state property ownership, particularly ownership of real property, in a state that has decoupled, can cause the unintended burden of a state estate tax.

Ancillary Probate

When a Florida decedent owns real property in another state in his/her name individually, an ancillary probate proceeding in that state may be required. There are several reasons to avoid such a proceeding:

1. Cost. There is, of course, an additional expense involved in an ancillary proceeding. These costs can include local attorney fees, filing fees, fiduciary fees and publication costs. Remember that these costs are in addition to the costs of administration in Florida.

2. Time. When an ancillary proceeding is involved, it will likely take more time to administer the estate from start to finish.

3. Liability Concerns. If there is an ancillary proceeding, a person wishing to file an action against the estate may have the opportunity to choose which state laws are more favorable for the litigation.

Strategies for Avoiding Non-Domiciliary State Issues

1. Limited Liability Companies (LLCs). By employing this technique, real property in another state is transferred to an LLC in exchange for a membership interest in the LLC, which, in most states, is considered intangible personal property not subject to state estate taxes or administration. The person owning the interest in the LLC then disposes of the interest in the LLC pursuant to the provisions created in his/her will or trust, as the case may be. When transferring property to an LLC, attention must be paid to issues concerning the continuity of the entity, and decisions must be made concerning how the members desire the LLC to be operated and level to which the members, and future members, are willing to abide by the restrictions necessary to maximize the members' liability protection. These issues will be particularly significant when the property is for some other purpose than personal use (i.e., rental property or retail store). It is important to note that there are many state tax considerations (other than the estate tax) that should be examined before this technique is used. Federal income tax consequences on sale of the property after the contribution of it to the LLC should also be carefully analyzed.

2. Irrevocable Trusts. If the Florida resident creates an irrevocable trust and transfers the property to the trust, it will generally not be subject to estate tax whatsoever. The caveat to this is that the individual cannot retain any interest in the trust which would cause its assets to be included in the individual's estate upon his/her death. Such retained interests which will frustrate the planning purpose include retaining a life estate or a general power of appointment. So, before employing this technique, the individual must be ready to relinquish control of the property in question. In addition, the federal and state gift tax implications of such a transaction, if any, must be carefully considered.

3. Intra-Family Sales. When using this technique, an individual sells his/her out-of-state property to one or more of his/her heirs for fair market value (note that an appraisal is highly recommended to determine accurately the fair market value of the property). At the conclusion of the transaction, the individual owns an intangible asset, such as cash or a note, rather than the property itself. Obviously, the cash or the note could be distributed to whomever the individual desires at death pursuant to the terms of his/her will or trust. One should keep in mind that if a note is used in this transaction, it should bear interest in accordance with the applicable federal rates at the time of the transaction and the principal of the note should be due at some date certain in the future. Capital gains tax issues should be carefully considered when employing this technique; however, note that the transaction can be structured so as to avoid any such tax.

• We welcome Laura Ahlers, Legal Assistant, in the Corporate/Estate Planning department.
• We welcome Kellie Bender, Assistant to Stuart Morris and Tasha Dickinson.
• Congratulations to Leslie Lautin Davis, Director of Marketing, on the birth of her daughter Nava.
• Congratulations to Andrea Davis, Probate Paralegal, on her children's graduation this month. Raymond Bongiovanni will graduate from the University of North Florida with a Bachelors of Health Science and Rosanne Bongiovanni will graduate from the University of Central Florida with a Bachelor of Arts, Major in Anthropology, Cum Laude.

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This publication is intended for general information purposes only. It is not intended to constitute individual legal advice to any specific client.