12.30.10
Posted in Taxation Law, Trusts and Estates at 10:59 by Administrator
Q. My spouse and I have been procrastinating when it comes to regular reviews of our estate plan. Now, with another new year about to being, and a new tax law just around the corner, we would like to know whether there is any compelling reason to have an attorney review our estate plan now.
A. The Middle Class Tax Relief Act of 2010 (”2010 Tax Act”) was enacted during December 2010. However, contrary to its name, the 2010 Tax Act does not offer much relief at all. In fact, in the area of estate taxation, tax rates increase from 0% in 2010 to 35% in 2011, on that portion of estates which exceed $5 million. But that is only the tip of the taxation iceberg.
Using the new $5 million estate tax exclusion, married couples can avoid estate taxes on the first $10 million of their combined estates. If the first spouse to die does not fully use his or her exclusion, the unused portion can be used by the surviving spouse. However, with an A-B Trust – a type of trust which commonly was used prior to 2011 – the transferability of all or part of a deceased spouse’s $5 million exclusion may cause problems which reasonably could not have been anticipated when the A-B Trust was created.
The problem arises in the interplay between the “unlimited marital deduction” (”UMD”), on the one hand, and the $5 million exclusion which was created by the 2010 Tax Act, on the other hand. Many existing estate plans were drafted with an eye toward taking advantage of the UMD, without, of course, any consideration of the newly-enacted 2010 Tax Act.
In most cases, the UMD provides that, regardless of the size of an estate, there are no estate taxes on the first death. Because A-B Trusts typically were drafted to take advantage of the UMD, and did not transfer assets to take advantage of an exclusion that did not exist prior to 2011, continued use of an A-B Trust may result in married couples being subject to estate taxes on that portion of their estate which exceeds $5 million, rather than on full $10 million exclusion that they should be able to enjoy.
Thus, beginning on January 1, 2011, A-B Trusts will be obsolete. Accordingly, most, if not all, A-B Trusts should be reviewed and revised to take advantage of the new $5 million exclusion.
Now, as Paul Harvey might have said, here is the rest of the story: A-B Trusts, in order to take advantage of the UMD, intentionally waived a step-up in basis to avoid estate taxes because, with the exception of 2010, estate tax rates have always been significantly higher than capital gains tax rates. Now, however, use of an A-B Trust may expose the estate of all married couples – regardless of the value of the estate – to a loss of their step-up in basis which, in turn will increase their exposure to capital gains tax, while simultaneously doing nothing to protect against or mitigate estate taxation.
Estate plans should always be reviewed and updated any time there is either a change in the law or in your personal circumstances. So resolve now to put a review of your estate plan (or creation of an estate plan, if you do not already have one) at or toward the top of your 2011 list of “To Do” items.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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11.11.10
Posted in Bankruptcy, Business Law, Constitutional and Civil Rights Law, Criminal Law, Family Law, Litigation, Real Estate Law, Trusts and Estates at 12:24 by Administrator
For one low, annual fee, the LAW Plan will provide you with the following benefits:
Priority telephone access to a lawyer
Four, 15-minute telephone consultations in the areas of:
Bankruptcy
Business Law
Constitutional & Civil Rights Law
Criminal Law/Defense
Family Law
Real Estate Law
Trust and Estates
Review of basic legal documents during telephone consultations
10 percent discount on legal fees for matters not covered by the LAW Plan
For more information and to subscribe, please visit:
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07.05.10
Posted in Trusts and Estates at 09:29 by Administrator
Q. My wife and I have been married several years. We have a fast-paced California lifestyle, which, unfortunately has resulted in us having not yet put together a will. Can a will guarantee that our wishes will be carried out when we are no longer here? Is there a better alternative?
A. As the saying goes, nothing is certain except death and taxes. A good estate plan can help you prepare for both.
Any estate plan should, of course, provide for the distribution of your assets after your death. Other goals which can be accomplished with a good estate plan include, for example, designation of an executor for your will or trustee for your trust; nomination of a guardian(s) for your minor child(ren); tax planning; and certain pre-death matters.
Formally stating one’s desires for post-death division and distribution of one’s assets is probably the most recognized and understood purpose of an estate plan. People often, if not usually, want their property divided and distributed in a manner which deviates, in at least some respect, from the division and distribution which would be made pursuant to intestacy laws, the “default” laws which apply when a person does not have an estate plan. Perhaps a person creating an estate plan wants to provide for a distribution to someone who would not be a beneficiary under the intestacy laws or, alternatively, wants to prevent distribution to someone who otherwise would receive a distribution under the intestacy laws. Or, perhaps a beneficiary should receive a distribution in the form of payments over time, rather than as a lump sum. The estate plan is the place where these, and other, deviations from intestacy laws can be accomplished.
If you have a child(ren), chances are that you would prefer to state your preference and order of preference of guardians, rather than leaving that choice to a judge. An estate plan is the place for you to nominate guardians for your minor children so that if necessary, a court can be guided by your wishes. In the absence of such nomination, the court will have no choice but to use its own discretion in determining the “best interests” of your child(ren).
Tax law is complicated and ever-changing. However, with certain trusts, and depending on the value of your estate, certain tax planning strategies can be employed which often will result in significant tax savings. For this reason alone, you should review your estate plan with your attorney anytime there is a significant change in your personal situation, as well as when significant changes occur in tax law.
Although usually not a primary purpose in creating an estate plan, planning for pre-death issues can sometimes be just as important – if not more important – than planning for post-death matters. Pre-death issues include giving decision-making authority to someone – usually one’s spouse, if married – over health care issues (Advance Health Care Directive) and/or over the handling and management of property (Durable Power of Attorney). Such authorizations to make health care decisions or to manage property become effective only when the person who grants those powers becomes incapacitated, for example, in the event of a serious illness.
A comprehensive California estate plan – one that includes a trust, pour-over will, Advance Health Care Directive (ACHD), and durable power of attorney will give most people all the flexibility they need to accomplish their estate planing goals. A trust provides for private (with certain limited exceptions) and efficient handling of one’s affairs; a pour-over will provides for the transfer into the trust of any assets which inadvertently were not placed into the trust before death, and the ACHD and durable power of attorney will provide guidance for decisions relating to medical treatment and management of property, respectively, during periods of incapacity.
You and your spouse should obtain the assistance of an attorney who will help the two of you create, implement, and maintain an estate plan that will best meet each of your individual and joint needs. Doing so will lessen the burden your loved ones will have to endure when the inevitable occurs.
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11.22.09
Posted in Trusts and Estates at 17:38 by Administrator
When establishing an estate plan, you likely will be faced with decisions on how to provide for your children’s potential future inheritance. Life insurance, among other things, might be a vehicle for providing your children (or others) with an inheritance.
You also might want to consider including provision in your estate plan which controls until a certain age, perhaps age 25, distributions to children. A living trust will allow you to tailor provisions for distribution to achieve results appropriate for your specific goals and objectives. Generally, estate plan drafting considerations depend on the age of your children, the amount of money involved, and your level of concern. Following are three options for your consideration:
1. Distribution outright and free of trust for beneficiaries 18 years of age or older;
2. Distribution to a trust established for a child, with specific provisions for distributions and trust termination; or
3. Distribution to a trust for the life of the child.
For example, if the children are over 30 and have no tax, civil liability, health, or marital property issues, you may prefer an immediate, outright distribution, combined with the establishment of trusts for grandchildren.
These, and other, issues should be discussed with your attorney when you and your attorney formulate your estate plan.
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Posted in Trusts and Estates at 17:36 by Administrator
The Trust Administration process following the death of the settlor or, in the case of a married couple, the death of the last settlor, consists, usually, of four (4) phases: Intake, Transfer of Trustee Duties to Successor Trustee(s), Marshaling of Assets, and, finally, Trust Termination.
Intake: The intake phase generally consists of: (i) a review of the dispositive provisions of the Trust; (ii) a conversation about the family members, whether anyone has been disinherited or if there will be any other potential problems with family members; (iii) discussion of any potential problems immediately known; (iv) discussion of the roles of the successor trustee(s); and (v) discussion of the scope of work by the attorney and signing an engagement agreement.
Transfer of Trustee Duties to Successor Trustee(s): Once a successor trustee(s) is in place, an Affidavit of Death will be prepared, signed and recorded with the appropriate county recorder in counties where the Trust owns real property. An affidavit of Death clears title to real property so the sucessor trustee can manage the property. A Trust Notification will also be served in accordance with California Probate Code § 16061.7 (to initiate the period during which claims against, and contests to, the Trust may timely be initiated). A certification of trust will also be prepared to assist the successor trustee with the marshaling other assets, such as bank accounts. A federal tax identification number will also be obtained, if needed.
If there are assets which were not placed into the trust prior to the death of the settlor(s), it may be necessary to invoke other legal procedures, such as a Probate Code § 13100 Affidavit, Probate, or Heggstad Petition.
Marshaling of Assets: All of the settlor(s)’ assets must be identified and valued. Federal estate tax returns must be filed within nine (9) months of the date of death. If there are small cash gifts to be made in accordance with the Trust, preliminary distributions can be made.
Trust Termination: Finally, after all assets are identified, marshaled and valued, and all tax returns have been filed (for the decedent, for the estate, for the trust and federal estate tax returns) then it is likely that all trust assets can be distributed and the trust terminated. A trust distribution agreement will be prepared and sent to the beneficiaries for review and signatures. After all beneficiaries have agreed to the proposed asset distribution, and the assets have been distributed, it may be necessary to prepare and file a final fiduciary tax return on behalf of the Trust. Trust administration is almost always easier and less expensive than probate, as court oversight and approval of trust administration usually is not necessary. However, trust administration is something that is best done with the assistance and advice of counsel.
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