The Effect of Economic Growth and Tax
Relief Reconciliation Act of 2001 on Estate PlanningOn June 7, 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001. This is the same Act that resulted in a significant portion of the American population receiving a tax rebate in August and September of this year. The Act also makes significant changes to the existing estate, gift, and generation skipping tax rules gradually reducing the tax rates and until 2010, when the estate and the generation-skipping gift taxes are repealed. This memo briefly summarizes some of the significant changes of the tax repeal and how it will effect estate planning over the next decade.
Gift Tax
The gift tax will remain in effect even after 2009, and the gift tax exemption increases to $1 million lifetime gift tax exclusion. The top rate of taxation will be steadily decreased from the current rate of 55% and will steadily decrease at the same rate as the estate tax to 35% in 2010. The gift tax lifetime exemption will remain capped at $1.0 million dollars while the rate of taxation will steadily decrease to 35% in 2010. The $10,000 annual exclusion is unaffected by the new legislation.
Estate Tax
The Act leads to the eventual repeal of the estate tax in 2010 but gradually increases the exemption amount and decreases the highest rate of taxation. Currently the estate tax exemption is $675,000 and is taxed at a rate of 55%. In 2002, the exemption increases to $1,000,000 and the rate decreases to 50%. Under the Act, the estate tax is repealed in 2010. Please see the table for a yearly breakdown of the tax-exempt amount and the corresponding tax rate.
Generation Skipping Transfer Tax
The generation skipping transfer tax has some complicated modifications regarding generation skipping gifts often established to pass an estate or trusts to grandchildren will be repealed in 2010. The exemption for generation skipping transfers will be will be the same amount as the estate tax and increase at the same rate. Valuation of the property received from the decedent has been modified from the current system, which utilizes the present market value, to a system where the lesser of the value of the property at the time of the decedent’s death or at the time of the transfer will be used in calculations.
Sunset Rule
The Economic Growth and Tax Reconciliation Act of 2001 contains a Sunset Provision, meaning that absent Congressional Action, after 2010, the rules for estate, gift and generation skipping transfers will be reinstated to the pre-2001 level.
Summary
Economic Growth and Tax Relief Reconciliation Act of 2001 will eventually repeal the estate and generation skipping taxes in 2009 and decreases the highest rate of taxation for transfers. Absent Congressional action the repeal will only be in effect for 2010 and then the Act will expire and rates and exemptions will return to their previous level. While the tax repeals will only affect a very small percentage of the population, the Act provides an incentive for people to pass on their property through their estate, rather than through lifetime gifts. You should contact your attorney or estate planner to discuss the significance of Economic Growth and Tax Relief Reconciliation Act of 2001 and how it will effect your estate planning over the next ten years.
Calendar Year Estate and Generation
Skipping Tax ExemptionTop Estate and
Gift Tax Rate2001 $675,000 55% 2002 $1,000,000 55% 2003 $1,000,000 49% 2004 $1,500,000 48% 2005 $1,500,000 47% 2006 $2,000,000 46% 2007 $2,000,000 45% 2008 $2,000,000 45% 2009 $3,500,000 45% 2010 Tax Repealed Top individual tax applicable for gift tax only Disclaimer: The material that appears in this website is to be used for general information purposes only and is not intended to be construed as legal advice. The law changes from time and new developments in the law may not be reflected here. If you have any questions with regard to this or any other legal matters please contact the office.
The High Costs of Security Deposits for Landlords
Security deposits on rental property are often viewed as beneficial to the landlord, enabling them to repair damage to property caused by tenants. However, if not properly dealt with, security deposits can result in costly fines and legal fees assessed against the landlord. It is therefore in a landlord’s best interest to stay well informed and pay close attention to the law in this area.
Security deposits are governed under Connecticut General Statutes (C.G.S.) § 47a-21. In addition to specifying the amounts that may be collected and the rates of interest to be paid, the statute sets forth precise steps for the return of security deposits. The statute provides that a landlord must deliver the security deposit or the balance of the security deposit and an itemized listing of any deductions, plus interest, to the former tenant within strict statutory deadlines. If the landlord has written notice of the former tenant’s forwarding address, the deposit or balance of the deposit along with an itemized listing of any deductions, has to be sent within thirty days after the termination of the tenancy. If the landlord does not have written notice of the former tenant’s forwarding address, the deposit or balance of the deposit and an itemized listing of any deductions, has to be sent within fifteen days after notice of the tenant’s forwarding address is received or within thirty days after termination of the tenancy, whichever is later.
A landlord who fails to return a security deposit or to provide an itemized accounting of withholding within the required period is liable for twice the amount of the security deposit. This is true, even if the landlord believes it has a valid claim to the amounts retained. In addition, failure to return the interest accrued on the deposit, exposes a landlord to liability for twice the amount of the accrued interest. In addition, a landlord who does not comply with the statute is liable for fines of $250.00 and $500.00 respectively. And those figures, of course, do not include the legal fees, court costs and time spent correcting such a mistake.
The leading case, interpreting the statute is Kufferman v Fairfield University, 5 Conn. App 118 (1985). There the Appellate Court held that in reviewing a claim under § 47a-21(d) the court:
"need only determine two factual questions . . .
(1) Was the security deposit returned with interest, or a written notification of damages
delivered, within thirty days of the tenant’s termination; and
(2) if a written notification of damages was delivered, was the balance of the security deposit
and a statement of damages delivered within sixty days of termination."Kufferman at 122. Though the time period in which the landlord must return the security deposit has been shortened, recent cases continue to apply the two-part test in the cut-and-dry manner with which it was applied in Kufferman. The courts have further held that pursuant to the statute, the deposit must be delivered to the former tenant, the landlord cannot require that the tenant pick up the balance of the deposit. See e.g. DiStefano v. Smethurst, 1984 WL 255907 (Conn. Super.).
The one exception to this interpretation appears in the Superior Court case of Serenson v. Siegel, 1986 WL 296391 (Conn. Super.). There the court noted that "despite the language in Kufferman, situations can be envisioned where parties would forego statutory rights in favor of attorney negotiations." In making this statement the court was reviewing claims of the landlord that unsuccessful settlement negotiations somehow stayed the obligation to return the security deposit. The exact date when the settlement negotiations began is not stated in the case, nor is it precisely stated when the landlord retained counsel, but it was made clear that the landlord received notice of the tenant’s forwarding address in February 1982 and suit was not brought until May 1982. However, in Serenson, the court found that there was no forfeiture of the statutory right to twice the deposit because it determined that the security deposit could not have been a subject of the negotiations.
While the courts have allowed counterclaims by the landlord for damages, consideration of these claims does not appear to be made until after an assessment of landlord liability under the statute has been made. Whether the tenant is entitled to a return of the entire amount of the security deposit is not initially considered. Thus, In DiStefano, the court held that the landlord’s failure to actually deliver the check to the tenant within thirty days justified the award of twice the value of the security deposit. From that doubled sum the court deducted $53.05 in damages which the landlord could prove. See also, Bauer v. Del Valle, 35 Conn. Supp. 126 (1979).
In addition, the Connecticut Supreme Court has held that violations of the landlord-tenant act, which includes the provisions regarding the return of security deposits, are may also be deemed violations of the Connecticut Unfair Trade Practices Act (CUTPA). See Conway v. Prestia, 191 Conn. 484 (1983). Under CUTPA a landlord may be liable for both compensatory and punitive damages, as well as costs and attorneys fees.
In sum, failure to adhere strictly to the provisions of §47a-21 can be a very costly and time consuming mistake. Yet such a mistake can be easily avoided by strict adherence to the timetables and instructions set forth in the statute.
Disclaimer: The material that appears in this website is to be used for general information purposes only and is not intended to be construed as legal advice. The law changes from time and new developments in the law may not be reflected here. If you have any questions with regard to this or any other legal matters please contact the office.
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