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Nebraska Inheritance Tax Summary

Nebraska does not have an “estate” tax that is levied on the size of a person’s estate at death.  Instead Nebraska has an “inheritance” tax that is imposed on the person who receives property at the death of a Nebraska resident or receives Nebraska real estate at the death of a non-resident.  In addition, inheritance tax is payable on certain gifts made within 3 years of death.

The tax rate and allowable exemption depends on how the recipient/beneficiary is related to the person who died.

In general, (1) if the recipient is a parent, grandparent, child or grandchild of the person who dies, the tax rate is one percent (1%) of all property received in excess of $40,000; (2) if the recipient is an aunt, uncle, niece or nephew of the person who died, the tax rate is thirteen percent (13%) of all property received in excess of $15,000; (3) if the recipient is not related to the person who died, the tax rate is eighteen percent (18%) of all property received in excess of $10,000; and (4) transfers to charities are exempt from inheritance tax.

The inheritance tax is due in Nebraska one year after the date of death and there are severe penalties for late payments.

This is a brief summary to help you better understand this complex tax structure.  Space does not permit discussion of the many detailed rules and exceptions that apply.

We believe that better understanding leads to better planning.  Our mission is Effective Planning Made Easy.

Estate Planning: A Project for the Whole Family

The objective of all estate planning is to pass your property to your loved ones at the lowest possible cost.  Additionally, once your property is in the hands of your loved ones, your planning should take advantage of strategies that will help protect your property long after you are gone.  In other words, all estate planning focuses on your children or loved ones.  Therefore, an effective estate plan should involve not only you and your spouse, but also your children and other beneficiaries of your estate plan.

Because all estate planning is essentially a gift to your children, it is essential that the children play an active role not only in the planning process, but also in the administration of your plan in the event of a death or disability.  For example, a good estate plan should be designed to protect property, save taxes and costs, while keeping you and your spouse in complete control of your property.  But for the vast majority of us, there will come a day when we are not able to manage our own financial affairs due to a disability.  Your plan should specify what is to occur in the event of your disability.  Typically your plan should set forth exactly when you are disabled, who manages your property when you are disabled, and how your property is to be managed when you are disabled.  Frequently, family members are called upon to fulfill these duties and will be actively involved in your estate plan.

The children are likely to play an even greater role in your estate plan after your death.  Children, along with a surviving spouse, play a critical role in the administration process that is necessary after you pass away.  Additionally, children will be receiving property as beneficiaries of your estate plan. 

Therefore, your children should be informed and educated regarding your estate plan to ensure that they understand their duties in the event of your death or disability.  Also, when your children understand your estate plan and the strategies employed therein, there is very little confusion and contention amongst the family after your death.

You worked hard to acquire property during your lifetime.  Your children should be given all of the tools to ensure that your property will pass smoothly to the next generation.  Those tools should include a customized estate plan that addresses your family’s specific goals, as well as an atmosphere of open communication between you and your children to ensure that there are no surprises in the event of your death.

Conversely, children whose parents are living should openly discuss estate planning issues with their parents.  Doing so will encourage parents to talk to an estate planning specialist to make sure that all of their property passes to their children and loved ones as intended.  If children do not discuss estate planning with their parents, unintended results can materialize which cannot be corrected.  The time to address these issues is today.

How a Trust is Like An Acre of Land

Having an acre of land may tell you what you have, but it says nothing about the value of the land.  Some land is worth $500 per acre and some is worth $5,000 per acre.  Having a trust is much the same.  Many folks know they have a trust, but the value of that trust depends on what it says and how it says it.  Some trusts say the right things and some don’t. Trusts that are incomplete, out of date or simply incorrect are of little value.

Our mission statement is “Effective Planning Made Easy”.  Here are some things to look for in your trust to help insure it’s as effective as it should be in meeting your planning needs:

 1.  Have you re-titled your property? In order to avoid probate your revocable living trust should be “funded” properly.  Funding is re-titling your property to the Trustee of your trust.  You are normally at least one of the Trustees of your trust.  Having assets titled in your individual name with no reference to your trust is a dead giveaway that your trust is not completely funded.  If you are married, you and your spouse usually each have your own trust with some assets/property titled in each trust.  Very few trusts are funded properly.  Remember that retirement accounts are treated differently and you should never change the name on your retirement account while you are alive.

 2.  If you are married, does your trust contain up-to-date estate tax planning?  There have been many law changes over the years and many existing trusts contain out of date language dealing with estate tax planning.  More and more farm families are having estates that will be subject to estate tax next year when the current law rolls back the exemption amount to $1,000,000.  It is vitally important that your trust contain current strategies for minimizing or avoiding estate tax.  Don’t pay needless tax dollars.

3.  Does your trust address disability issues?  Your trust should contain instructions dealing with a possible mental disability.  It should define when and how you would be determined to be mentally disabled so that a successor Trustee could take care of you and your assets.  The goal for many folks is to avoid the expense of going to Court to deal with disability issues.  A well-drafted trust will address these issues and provide for your care with your assets.

4.  Does your trust contain protective strategies?  In recent years, trusts are including increased asset protection for beneficiaries.  They also are being drafted to protect assets if your spouse should remarry after your death.  They can also protect assets if your child is divorced.

If your plan is gathering dust, you’re not alone.  You owe it to yourself and your family to have your plan reviewed and brought up to date.  Contact your estate planning attorney to learn what your trust can and should say.

What Does a Good Estate Plan Look Like?

The primary goal of all estate planning is to pass your property to your loved ones at the lowest possible cost.  Many different costs, taxes, and fees can erode value from your assets as they are passed to your children.  For example, if you pass away after January 1, 2011, federal estate tax can take a huge bite from your estate if your assets are valued greater than $1 million on the date of your death.  Estate tax is a very large tax.  Families who do not effectively plan their estate to address federal estate tax can be forced to sell land or other significant assets in order to pay federal estate tax, which can be as high as 55%.

In addition, costs and fees associated with the probate process can reduce the value of the property ultimately received by your children.  Any assets that you own at the date of your death need to be transferred to your loved ones as directed by your last will and testament.  But, in order for those transfers to occur, your will must be probated through the court, and the power of the court enables your personal representative to re-title your assets from your name to your loved ones.  This probate process conducted through the court costs money.  Typically, an attorney is paid to file the proper pleadings and represent the personal representative in court.  Costs and fees are often assessed as a percentage of the size of the estate.

Probate fees and unnecessary estate tax can be eliminated by a proper estate plan.  The most effective tool to minimize these costs is a revocable living trust.  A revocable living trust can maximize the exemptions and deductions allowed by the federal government which eliminates any unnecessary taxes.  In addition, a trust plan can avoid the costs and hassles associated with probate court.  As a result, more of your hard earned assets will pass to your children and loved ones, thus accomplishing the primary goal of estate planning.

However, a good estate plan should accomplish many other goals, such as protecting your property in the hands of your surviving spouse after you are gone.  Your plan should ensure that your property will be passed to your children even though your spouse remarries after you are gone.  The estate plan you design today can protect property in the hands of your children.  Strategies can be employed to shield property from predatory creditors, or to ensure that property will not be lost if your child is divorced.

A good estate plan needs to be designed by an estate planning specialist in order to pass your property to your loved ones and the lowest possible cost, and to protect your property in the hands of your family after you are gone.  Talk to an estate planning specialist.  Your children can be given the tools to grow your assets and benefit your family for generations.

Essential Elements of Estate Planning: What does it cost? How do I know it will work?

Every estate plan which effectively passes property to your loved ones needs to address two very important issues:  First, you and your attorney must formulate a customized plan that addresses all the issues unique to your family, including farm succession issues, asset protection, minimizing taxes and expenses, and avoiding family conflict.  Second, you and your attorney must conduct regular reviews and updates of the plan to ensure that all of your issues are addressed by your plan.  Your estate plan needs to change over time as your life and family situation changes over time.  Even if you have the perfect estate plan today, it will fail to work properly at your death if the plan is not regularly updated.

Total Costs of Passing Property to Your Loved Ones

In order to minimize the costs of transferring your property at your death, you should have two very important discussions with your planning specialist.  One, how much will it cost to draft and put your plan in place.  Often, planning will involve not only preparation of a will, a trust or disability documents, but also will require new deeds and re-titling of assets.  Your attorney should tell you exactly what this will cost.

Two, how much will it cost my family when I pass away?  There are several different taxes and expenses which may be owing soon after your death.  Your initial estate planning design needs to consider the taxes to be paid by your estate.  Furthermore, your estate planning attorney will also charge your family a legal fee to represent your estate in probate court or administer your trust plan.  At the end of your initial meeting with the attorney, you should know how the attorney calculates these future fees.

Effective Planning Requires Updating and Maintenance

Once you have designed a customized plan which addresses all of your planning goals, your estate planning attorney needs to provide you with a process which allows your plan to be updated.  As the years pass, your family situation, planning goals, and assets are likely to change.  Your plan needs to be amended to account for those changes.  Additionally, new estate planning techniques or law changes will occur which will require an update to your estate plan.  Ignoring your plan will likely cause your plan to be ineffective at your death.

Contact an estate planning specialist that will customize a plan that addresses all of your planning goals, minimizes taxes and expenses paid by your family, and will have a process in place to update your plan as necessary.  Your plan needs to be effective, not today, but later on when your family will be relying on your planning.

Is My Estate Large Enough to Warrant Effective Planning?

Nebraska families have seen the value of their land skyrocket in recent years.  Farms that were purchased years ago for hundreds of dollars per acre are now selling for thousands.  This dramatic increase in value affects us in many ways, including subjecting many farm and ranch families to Federal Estate Tax.

The law on the books today states that individuals who pass away after this year with estates greater than $1 million will be subject to Federal Estate Tax.  Given the current prices of land, many farmers and ranchers are currently above this threshold.  Without proper estate planning, farm families may have to pay an enormous amount of estate tax to the IRS. 

However, the bad news is likely to get worse.  Leading economists and financial experts agree that the value of US dollar will continue to decline for many years to come.  The US is racking up staggering deficits.  According to the White House, the budget deficit for 2010 will be $1.565 trillion.  The total national debt is over $12 trillion. (That is $12,000,000,000,000.)  Other experts project that the US is on the hook for $99 trillion to pay for the government’s unfunded pension and health care liabilities.  This is more than 7 times the size of the entire US economy.

How do these debts affect Nebraskans?  The US government is relying on a gradual dollar devaluation to shrink its monstrous debt and to encourage exports. But this strategy for recovery will come at a cost to landowners in Nebraska.  The devaluation of the dollar will cause land values to rise even further, and can create an enormous Federal Estate Tax problem that will be inherited by our children.

For example, if John and Sue currently have an estate $1.5 million, which some may even consider a modest size operation based on today’s land values, and both John and Sue die next year with no estate planning in place, John and Sue’s children would owe approximately $210,000 in tax.  That tax bill is nothing to sneeze at.

But what if John and Sue are 55 years old and they live to their life expectancy?  If their estate experiences average historical inflation (approximately 3.5%), their children would inherit a tax bill of more than $1.7 million dollars based on current law.  If the devaluation of the dollar continues as a result of the government’s plan for economic recovery, and the estate increases at 6%, then John and Sue’s children would owe nearly $4.5 million in tax.

The federal government considers ag families wealthy enough to impose a severe Federal Estate Tax, and the tax problems will likely increase because of the government’s gradual devaluation of the dollar.  If your estate plan has not been reviewed or updated recently, contact an estate planning specialist.  More than ever before, farm and ranch families need to take advantage of every estate tax planning tool available in order to minimize or even eliminate estate tax paid to the IRS.

Save Even More Farm with “Upstream” Generation Skipping Planning

The mission of our law firm is to help our clients with effective planning that achieves results and is easy to put in place.  Even the most effective plan means nothing if it is not implemented.  Our process of plan completion, free legal news updates, and free phone calls for clients and free educational seminars for clients sets the standard that clients should expect in their planning experience.  

Quality estate planning is based on client goals.  In my 28 years of planning I find that clients have two overriding goals: to take care of their spouse and to keep all of their farming or ranching operation in the hands of their loved ones.

While taking care of the spouse in a plan is vitally important, it is easily done even in the most basic of plans.  Let’s assume that you’ve done that, now let’s save some more estate tax.

Last month I wrote the following:  One of the most effective strategies available to farm families for reaching their planning goals is Generation Skipping Tax Planning.  This effective tool has been ignored for two major reasons: a.). it was misunderstood and b). it was considered as a tool for only the super rich.

I then went on to explain the misconceptions as well as the benefits of adding Generation Skipping Tax Planning to your estate plan.  The bottom line is that with GST Planning, all or part of the estate tax skips a generation (or two), but your property does not. It can still pass to a trust your children can enjoy and control.  The big loser is the IRS. There are some clients that are uniquely situated for even greater estate tax savings by using GST Planning in an “upstream” manner. 

If you have or expect to have a taxable estate at your death, which is $1Million starting in 2011, and you expect to receive an inheritance from a parent, you can have your parent add GST Planning to their plan so that part or all of your inheritance will not be subject to estate tax in your estate.  This will not hurt your parent, but can be a great savings for your descendants. If you already have a taxable estate, you will not want your inheritance to add to the estate tax burden.  Your operation belongs in the hands of your family.

Many times we have seen traditional planning tools waste the estate tax exemption on the death of a spouse.  This is a tragic waste and can cost hundreds of thousands of dollars in wasted estate tax.  However it is even more common for folks to forget to use their Generation Skipping Tax Exemption and in so doing are causing their descendants to pay unnecessary estate taxes.  If you’re in this situation, talk to your parents while there is still time to update their estate plans.