The IRS has released its Statistics of Income (SOI) Bulletin for the fall of 2009.  While this Bulletin may not have great appeal to the average consumer, there are a couple of interesting facts regarding the impact of recent estate tax law changes.

First, the Bulletin shows that the total number of estate tax returns filed between 2001 and 2007 fell significantly - from 108,071 in 2001 to just 38,031 in 2007.  This drop in the number of estate tax returns filed is attributed primarily to the increases in the estate tax exemption occurring during those years.  For example, in 2001, the estate tax exemption was $60,000.  By 2007, the exemption grew to $2 million.  Although the Bulletin does not cover years after 2007, we can anticipate that the number of estate tax returns filed in 2008 and 2009 will continue to decline significantly simply because the exemption has continued to increase.  For 2009, the exemption amount is $3.5 million.

These statistics support the intended goal of Congress in enacting the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001.  In enacting EGTRRA, it was widely anticipated that less than one percent (1%) of the population would be subject to the estate tax.  It appears that the passage of that legislation has had the intended effect.

Second, while there has been a significant reduction in the number of estate tax returns being filed between 2001 and 2007, the number of returns filed for wealthy decedents - those with estates in excess of $3.5 million - increased significantly, from 9,440 in 2001 to 14,281 in 2007.  It is interesting to note, too, that the greatest percentage of increase occurred between 2005 and 2007 - 33.7%.

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Today, I read an article from the New York Times that was written by Tim Grant.  The article is entitled, "Upon death, what happens to your digital assets?"  

This is a relatively new issue in estate planning, but one that will surely grow in importance as more people turn to the internet for business and pleasure.  As the article points out, many of the digital assets that people are accumulating on the internet do not have much monetary value - they consist of emails, photos, and the like.  But, even those assets may have significant sentimental value to the survivors. 

And, it's likely, too, that more people dying over the coming years will have bank accounts and other financial instruments that exist only in digital form somewhere in cyber space.  I'm reminded of my own PayPal account that I'm using more and more as a vehicle to make on-line purchases and sales from ebay and other websites.  On any given day, that PayPal account might have a fair amount of money in it.  Yet, if something happened to me, I doubt that anyone would ever know that it exists. 

Gone are the days when you could just walk to the few banks in town and ask if so and so had any accounts there.  You can't even locate a safe deposit box and check for stock certificates anymore - they're all in digital format these days.  

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There was a time when the IRS insisted that the annual gift-tax exclusion (currently $13,000) would not apply to gifts made directly from a revocable living trust.  The theory was that the annual gift-tax exclusion was available only to individuals, and a trust was not an individual.

As a result, many professionals advised their clients to take the property back from their revocable living trust before gifting it to the intended beneficiary, thereby insuring that the annual gift-tax exclusion would apply to the gift.

Some people would question why it would make a difference one way or the other, since the unified credit would shelter the gift from gift taxes in any event.  For many people, that's true.  However, for those individuals with large estates, once the current unified credit against gift taxes has been exhausted (currently $1 million), the loss of each annual gift-tax exclusion represented a potential tax of roughly 45% of the value of the gift.

Even if the unified credit against gift taxes is not exhausted during the grantor's lifetime, if the gift was made within three years of the grantor's death, the IRS insisted that the value of the gift be brought back into the grantor's estate for estate tax purposes.  At that time, the value of the gift was included with all other assets of the grantor and taxed at the appropriate estate tax rate.

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Yesterday, I reported that Joe Jackson had filed an objection to Michael's will, claiming that he never signed it.  Joe Jackson also objected to the appointment of attorney John Branca and music executive John McClain as executors of Michael's estate, claiming they committed a fraud on the court when they withheld the fact that Michael was in New York at the time his will was supposedly signed in California.

Today, it was reported that a judge threw out Joe Jackson's challenge to the will, saying that he didn't have locus standi in the case.  "Locus standi" is a legal way of saying that Joe Jackson didn't have a sufficient connection to the case to be able to present a challenge to the will.  In today's jargon, it's called, "Standing."  And, it simply means that only those who are in a position to be harmed by the court's action will have a say in the matter.

So, the court took the position that Joe Jackson couldn't challenge the will because he didn't have a sufficient interest in Michael's estate.  In the vernacular, he didn't have a dog in the fight.

But, is that really true?  We know that Michael never gave his father anything under his will.  But, if he was successful in getting the will thrown out, would he then be entitled to any of Michael's estate?  Apparently not!  Because Michael didn't have a surviving spouse or a surviving domestic partner, California's intestacy laws [see California Codes, Probate Code, Section 6402(a)] give all of his probate property to his three children - and nothing is given to his mother or father, or anyone else. 

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Joe Jackson has filed papers in a Los Angeles court claiming that Michael's will has problems. 

The "problems" apparently consist of Joe Jackson's claim that Michael  never signed his will.  He claims that the will presented to the court by John Branca and John McClain, the named executors under the will, was signed in California in July of 2002 but Michael was in New York at that time.  Besides contesting the will, Joe Jackson claims that the concealment of this information by John Branca and John McClain was a fraud upon the court and, therefore, both should be disqualified as executors.

Joe Jackson has also petitioned the court for an allowance of $15,000 a month to cover his expenses, including "$1,200 a month on rent for his Las Vegas home; $2,500 to eat out; $1,000 on entertainment, gifts and vacations; $2,000 on air travel and $3,000 on hotels." 

You can read all the details in a KTLA News article entitled, "Joe Jackson Says There are 'Problems' with His Son's Will."

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