Estate Planning Archives - Page 17 of 22 - Lonich Patton Ehrlich Policastri

2011 Tax Laws Affecting the Inheritance of Real Property

November 11, 2011/in Estate Planning /by Michael Lonich

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (Tax Relief Act) of 2010 extended the sunset of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) for two years through 2012. For those who may be inheriting real property in 2011, it is important to note that the “step up in basis” rules will remain through 2012.

In order to adequately explain what this concept entails, here is an example from the Wall Street Journal:

Suppose your Uncle Joe died earlier this year and left you some valuable stocks, bonds and other items. Those assets have risen in value over the years. You’re thinking of selling them to buy a new home or to invest in something else. How would you figure out your tax cost for capital-gains tax purposes?

Typically, your tax cost is the fair market value of the assets on the date your uncle died — or, in certain cases, their value six months later. That means you don’t have to worry about figuring out what Uncle Joe originally paid for them. You don’t have to rummage through his old records or search the Web.

All that should matter is their fair market value on the date he died (or, in certain cases, six months later). This is known as “step up in basis” because your tax basis on those appreciated assets typically gets stepped up to the date-of-death value.

The General Basis Increase (the sum of the aggregate basis increases) is the maximum allotted amount the Tax Code will allow to be “stepped up.” The EGTRRA of 2001 preserved the step up in basis for up to $1.3 million dollars (plus an additional $3 million for assets given to a spouse) through 2010. Then the Tax Relief Act of 2010 extended the EGTRRA to 2012. Thus, the General Basis Increase for 2011 will remain at $1.3 million, and if assets are given to a spouse, up to $4.3 million. Therefore, if the value of assets inherited totals more than $1.3 million, assets beyond that sum will not be “stepped up.”

While creating an estate plan, it is always important to consider tax consequences on the estate, any named beneficiaries, and the planner himself. Any named beneficiaries who have an interest in real property should also be aware of the taxes they will be responsible for after inheriting real property. The Tax Code is intimidating and daunting; however, the Estate Planning Attorneys at Lonich Patton Erlich Policastri can help clarify the process. If you are interested in learning more about taxes on your estate plan or how you may be affected by receiving an inheritance, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Gifts to Caregivers Prohibited

October 31, 2011/in Estate Planning /by Michael Lonich

An estate plan may be created to do almost anything a person desires. For example, a will can distribute the decedent’s personal and/or real property; passing on specific items to a relative, friend, or organization. A trust can hold specific property or funds for a designated beneficiary; any and all terms of which may be determined by the trustor. While drafting these estate planning documents, it’s important to keep in mind restrictions that state laws impose on to whom transfers can be made. In California, an important restriction is outlined in Probate Code section 21350.

Section 21350 outlines California’s limitations on transfers to “drafters, care custodians, and others.” Specifically, provisions that make donative transfers (i.e. gifts) to (1) the person who drafted the instrument, (2) any person who has a fiduciary relationship with the transferor, or (3) a care custodian, among others, are strictly prohibited. Despite the statute’s clear restrictions, there have been issues relating to who exactly qualifies under these categories. In Estate of Austin, 188 Cal. App. 4th 512 (2010), the Fifth District California Court of Appeal needed to decide whether a former stepdaughter should be considered a “care custodian” under the statute and thus disqualified from receiving gifts. The former stepdaughter took her former stepfather to his doctor appointments, prepared meals for him, and helped out whenever she could after he broke his hip and while he recovered from triple bypass surgery. Decedent’s daughter filed a lawsuit seeking to disqualify her former stepsister from receiving gift transfers totaling about $185,000.

Earlier in the case, the Fresno County Superior Court ruled that the gifts to the former stepdaughter were valid. The Appellate Court affirmed. A care custodian is defined by California case law as someone who provides care or services to elders or dependent adults, whether paid or as a result of preexisting personal friendship. Health or social services were defined as including cooking, gardening, running errands, assisting with banking, and driving to doctor’s appointments. The Appellate Court found that the former stepdaughter’s “services” could not be reasonably characterized as providing substantial, ongoing health or social services and she was thus not a care custodian. Further, the decedent made the gift transfers to the former stepdaughter while he was residing in a nursing home, when the former stepdaughter was not providing any services to him. Therefore, the gift transfers were valid and the former stepdaughter was not disqualified from receiving them.

Statutes do not always clearly define who falls into certain categories, the courts are able to make decisions based on specific factual scenarios. If you care for an elder relative and think you may be considered a care custodian, an attorney can help clarify what, if any, impact this may have on your ability to inherit from that relative. If you are interested in learning more about individual gift transfers or estate planning, please contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

No-Contest Clauses in Trusts

October 28, 2011/in Estate Planning /by Michael Lonich

Trusts are incredibly useful estate planning instruments (see Testamentary versus Inter Vivos Trusts blog). They can be drafted and administered in almost any way you want; they can even protect your heirs’ inheritance from creditors (see Spendthrift Clauses blog). Another useful way to ensure that your estate is administered in a particular way is to include a “no-contest” clause in your estate planning documents.

A no-contest clause is a “provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.” California Probate Code sections 21310-23315 govern these provisions and define a contest as a “pleading filed with the court by a beneficiary that would result in a penalty under a no-contest clause, if the no contest clause is enforced.” The Probate Code also defines a “direct” contest, which, if brought with probable cause (as defined by statute) does not violate the no-contest clause.

Direct contests allege the invalidity of a protected instrument or one or more of its terms based on forgery; lack of due execution; lack of capacity; menace, duress, fraud, or undue influence; revocation of a will by statute; and/or disqualification of a beneficiary by statute. However, it is important to note that a no-contest clause will only protect the instrument containing the no-contest clause and other instruments only if they were already in existence and expressly identified in the no-contest clause. Accordingly, it is important to consult an experienced estate planning attorney to ensure your estate is protected from contests.

If you are interested in learning more about estate planning and protecting the administration of your estate, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Executing an Estate: A Blessing or a Curse?

October 5, 2011/in Estate Planning /by Michael Lonich

Friends or family come into the role as the executor of an estate in different ways. Some are asked by a friend or family member and are honored to have been considered. Some find out they were designated as the executor only after that person’s passing. Some step up to the plate amidst grief and sorrow while other surviving relatives mourn their painful loss. Regardless, executing an estate is not an easy task; there are legal, and often times personal, repercussions if something goes wrong.

According to a recent Wall Street Journal article, “executorships gone bad” are rising. There are a number of possible reasons for this increase but tough economic times may be the driving force. As families struggle economically, disagreements over shares of inheritances or interpretations of wills are occurring more often. This adds to the heavy burden already placed on executors of an estate.

An executor administers a will through the probate court process which can take years (if the decedent created a trust during their lifetime, this significantly simplifies the process for an executor). The probate process includes accounting for assets, paying outstanding bills, and distributing property as indicated by the decedent’s will. Depending on a number of factors, the probate process can take as long as three years for larger, more complex or contested estates. While not impossible for a nonprofessional to handle, it is generally worthwhile for complex wills to be handled by a professional to avoid mistakes and contentious dealings between the executor and other family members.

If you are interested in learning more about the probate process or creating a plan to ensure your family members are well-prepared to handle your estate, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship

Despite Mandated Reporting Laws, Financial Institutions are not Subject to Civil Liability

September 28, 2011/in Estate Planning /by Michael Lonich

The elderly population in the United States has steadily been on the rise. Between 1900 and 1996, the population of elders grew from 3 million to 34 million. As the “baby boomer” generation begins to retire, our society will need to make several adjustments. While the first thing that comes to mind when discussing the elderly may be programs such as social security or healthcare, the laws applicable to elders deserve some attention as well.

The California Welfare Code includes sections on who is required to report signs of physical or financial elder abuse to Adult Protective Services or the local law enforcement agency. Included in that law are nursing home workers, healthcare practitioners, ombudsmen, and members of the clergy. The law also deems all officers and employees of financial institutions mandated reporters of suspected financial elder abuse. Recently, a California Appellate Court decided whether the mandated reporting requirement for financial institutions could serve as a legal basis for civil liability.

In Das v. Bank of America, N.A., 186 Cal. App. 4th 727 (2010), Mr. Das’ (the deceased) daughter filed several suits against Bank of America for allowing her father—who suffered from strokes, brain tumors, and dementia—to make a series of transfers overseas totaling over $300,000. She claimed her father’s lack of capacity was readily apparent to casual observers and that bank employees even “wondered” about his state of mind, but did not report Mr. Das’ strange behavior despite the suspicious nature of his transactions. The Second Appellate District, however, found that the legislative intent of the section on mandated reporting for financial institutions was explicitly limited to the government and negates any intent to enlarge the legal basis for a private civil action. Accordingly, they were unable to expand the application of the law despite the egregious circumstances.

There are many ways to protected loved ones from financial elder abuse including conservatorships and financial powers of attorney. If you are interested in learning about how you might be able to protect a loved one from financial abuse, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Testamentary versus Inter Vivos Trusts

September 23, 2011/1 Comment/in Estate Planning /by Michael Lonich

A trust is an arrangement where property is transferred with the intent that it be held and administered by the person to whom the benefit is for. There is a large assortment of trust types, however, the two main types of trusts are (1) the inter vivos trust and (2) the testamentary trust. The inter vivos trust, often referred to as a living trust, refers to a trust transfer made during one’s lifetime. The testamentary trust, on the other hand, only arises upon one’s death—typically specified in one’s will.

An inter vivos trust is created by a settlor and signed by the settlor and any named trustees. It is created and funded during one’s life time and may be revocable or irrevocable. A testamentary trust is usually created in the will of a settlor and must be probated. Testamentary trusts are irrevocable as they are created after one’s death and, therefore, cannot be amended or revoked. Inter vivos trusts generally do not have to go through probate and are created primarily to provide an economic benefit to specific people or institutions. Payments to the beneficiaries can begin immediately during one’s lifetime or upon death as specified.

Whether an inter vivos trust or a testamentary trust is the better plan depends on the settlors’ objectives. Inter vivos trusts are an effective way to reduce the value of an estate and the subsequent effect of federal and state estate taxes. Testamentary trusts can provide for the care of beneficiaries without the need for a public trustee/guardian upon death.

If you are interested in discussing your estate, creating a trust, or creating a comprehensive estate plan, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Spendthrift Clauses: Protecting Your Loved Ones’ Inheritances

September 19, 2011/in Estate Planning /by Michael Lonich

Most people consider the protection of their assets from their own creditors when beginning to plan for their estate. However, few consider the prospect of their heirs’ creditors. Adding spendthrift language to a trust may help safeguard their heirs’ assets.

A variety of trusts can be spendthrift trusts as long as a spendthrift clause is included. Despite its name, a spendthrift trust does not simply protect heirs from being recklessly extravagant or wasteful in their use of funds. Spendthrift clauses restrict a beneficiary’s ability to assign or transfer his or her interest in the trust and restrict the rights of creditors to reach the trust assets. If your child gets divorced, it can prevent your child’s spouse from claiming a share of the trust property. If your child predeceases his or her spouse, it can ensure that your children or grandchildren receive their inheritance rather than your spouse. A properly designed spendthrift trust can even protect your heirs’ assets from being attacked by frivolous lawsuits, dishonest business partners, or unscrupulous creditors.

There are, however, some limitations. Government agencies may be able to reach the trust assets, regardless of spendthrift language, to satisfy something like a tax obligation. Further, ex-spouses may be able to reach the trust assets to satisfy child support arrearages. Generally, the more discretion granted to the trustee the greater the protection against creditors’ claims.

If you are interested in learning more about spendthrift trusts or creating an estate plan, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Tough Times Call for . . . More Estate Taxes?

September 9, 2011/in Estate Planning /by Michael Lonich

It is no secret that, in the present economy, states are looking to increase revenue any way they can. A report published earlier this year showed that total state tax revenue decreased by more than $14 billion from 2009 to 2010, a two-percent drop. So, not surprisingly, while fewer members of the wealthier class will owe an estate tax to the federal government, they may find that they owe it to the state.

Though the trend is not widespread, many states are looking to increase their receipt of estate taxes. Connecticut collects on estates of more than $3.5 million but wants to lower the exemption to $2 million; the state’s legislature is currently taking this proposal into consideration. Illinois reinstated its estate tax in 2011 with a $2 million exemption. And in 2010, Hawaii imposed an estate tax on residents and Hawaiian assets of non-resident, non-U.S. citizens.

Estate tax rules vary greatly across the country. A few states assess an inheritance tax and others an estate tax. Inheritance tax, now uncommon, is levied on assets a beneficiary gets; estate tax is collected based on the whole estate. About half of the states have an estate tax, with rates that range from 1% to 16%. It is worthwhile to note that some states are moving to reduce or eliminate the estate tax where estate taxes are not a huge source of revenue. In California, for example, decedents who passed away after January 1, 2005, are not subject to a California estate tax.

If you are interested in learning more about estate planning, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Los Gatos Art and Wine Festival Raffle Winners

September 7, 2011/in Estate Planning, In the Community /by Michael Lonich

Congratulations to our raffle winners from the Los Gatos Fiesta de Artes:

Grand Prize Winner of the Lonich Patton Erlich Policastri Estate Plan is Todd G.
First Prize Winner of the Tax Planning Consultation with Chan CPA & Company is Regina R.
Second Prize Winner of the Fitness Package with Mint Condition Fitness is Darrell P.

Thank you to everyone who stopped by the Lonich Patton Erlich Policastri booth at the Los Gatos Fiesta de Artes a few weeks ago. We had a wonderful time visiting with you and enjoyed participating in the community event. We hope to see everyone again next year.

Ensuring the Creation of a Valid Trust

August 15, 2011/in Estate Planning /by Michael Lonich

Many Californians fail to realize that a valid trust is created only if there is trust property. It is, therefore, very important to expressly transfer some piece of property, real or personal to the trust when making estate plans.

Whether property is part of the estate (to be administered by the probate court) or part of a valid trust (to be administered by the trustee) is reserved for the court. While written declarations and general assignments may be effective in transferring property to the trust and avoiding probate, this is not a risk that should be taken. A court must consider each case on its merits and this process typically ties family assets up in litigation, delays administration of the trust, and results in substantial attorney and court fees. An estate plan, designed to ensure that family and financial goals are met, can suddenly become a nightmarish burden on grieving loved ones.

Consulting an experienced estate planning attorney when planning for the future will ensure a trust is properly funded and timely administered. If you are interested in learning more about individual estate planning or creating a comprehensive plan so your family members are well-prepared to handle your estate, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.