Estate Planning Archives - Page 21 of 22 - Lonich Patton Ehrlich Policastri

Lifetime Gifts May Have Significant Tax Advantages

November 30, 2010/in Estate Planning /by Michael Lonich

An estate planning attorney can help you develop a plan that maximizes your assets and helps you take advantage of the estate and gift tax system. If you are considering leaving an asset to someone upon your death, you may be interested in learning about the tax benefits of an “inter vivos” gift. An inter vivos gift is a gift that is transferred during the giver’s lifetime.

Lifetime gifts have several tax advantages. These advantages are particularly helpful to individuals whose estate will likely be subject to federal estate taxation. Also, lifetime gift plans are particularly important for people whose estates will exceed the applicable estate tax exclusion ($3.5 million for decedents dying in 2009).

The main advantage of an inter vivos gift is that some, or all, of the gift may not be subject to transfer tax. The Internal Revenue Code provides that individuals may make gifts of $13,000 per year per donee without incurring gift tax liability and without having to file a gift tax return.

In addition, interspousal gifts provide the donee spouse with an adequate estate and also allow the donee spouse to use his or her annual exclusions and estate and gift tax exclusion amounts. The gift tax marital deduction is unlimited for a donee spouse who is a United States citizen. For non-citizen spouses, there is an inflation adjusted annual gift tax exclusion that totaled $128,000 in 2008.

For more information about lifetime gifts, please contact us. 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.

The Proper Estate Plan May Help You Avoid the Expense and Hassle of Probate

November 23, 2010/in Estate Planning /by Michael Lonich

If you are trying to decide what estate planning instruments you need in order to meet your goals and to avoid the cost of probate, you might want to look into the revocable trust. A revocable trust is the primary testamentary transfer device used by professional estate planners in California. A revocable trust can be used not only to manage your property during your lifetime, but it also serves to distribute your assets upon your passing.

There are several key advantages of a trust. First, it avoids probate. Probate is the court-supervised process of distributing a deceased person’s assets according to their will or California intestacy law. This process can sometimes take over 6 months to complete and can be expensive. For example, the estate of a person with only a will operating to distribute their assets after death would have to carry the costs associated with providing and preparing the initial petition, petitions for instructions, and the petition for final distribution. In addition, costly court hearings to discuss creditor (and other) issues may be required.

Second, a trust can help to maintain confidentiality regarding your assets. Probate proceedings are a part of the public record. This means that anyone is able to access the information in the record regarding your assets and their distribution. If privacy is important to you, a trust can help you achieve greater (but not necessarily complete) confidentiality.

Third, a trust also serves property management functions during your lifetime. With a trust in place, there is no need to incur the costs and inefficiency associated with a formal conservatorship in the event of your lifetime disability or incapacity. In addition, a trust is useful as it provides for long-term continuity for handling your assets.

For more information about wills and trusts, please contact our San Jose estate planning lawyers at Lonich Patton Erlich Policastri for more 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.

Selecting a Successor Trustee for Your Revocable Trust

November 22, 2010/in Estate Planning /by Michael Lonich

A “trustee” is a person who is responsible for managing the trust assets. Many individuals choose to name themselves as the trustee of the trust so they can exercise control over the trust during their lifetime. In addition, it is wise to add a successor trustee who will manage the trust assets if you ever become incapacitated or die.

When choosing a person to serve as your trustee or successor trustee, make sure you pick someone who is reliable and honest. The trustee has a vast amount of authority and will not be required to act under the court’s direct supervision.

Just recently, the individuals in charge of the estate of 104 year old heiress, Huguette Clark, have come under attack for some questionable dealings with her estate. A criminal investigation is pending regarding the attorney and accountant in charge of handling Clark’s money. The investigation is looking into the sale of her Stradivarius violin for $6 million and a Renoir painting for $23.5 million. Click here for the full article.

To learn more about successor trustees, please contact us. 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.

Estate Taxes Cause Some to Plan their 2010 Death

November 22, 2010/in Estate Planning /by Michael Lonich

Estate Taxes Cause Some to Plan their 2010 death.

Recently the AP press reported, U.S. Rep. Cynthia Lummis says her constituents are planning to die just to avoid estate taxes.[1] Currently, there is no estate tax for individuals who pass away in the year 2010. However, if legislators do not act quickly then the estate tax will revert back to a one million dollar exclusion with a 55% top rate. Many had speculated with recent current events that Congress would not be able to pass any estate tax legislation prior to the November elections. Now that the November elections are finished, it is hopeful that some guidance will be given to the future of estate taxes.

Sometimes the Estate Tax is nicknamed the Death Tax. In reality the tax is imposed on the inheritance of wealth. For much of the country a one million dollar exclusion is generally enough to exclude their inheritances from being taxed. However, in the Silicon Valley area where detached single family homes are nearly a million dollars this exclusion can be used up rather quickly.

Bay Area Estate Value Much Higher then Average

Take for example, an estate valued at $1.5 million dollars. Although mere mention of the word million suggests this is not the type of estate that affects the majority of the population. It is actually very common in the Bay Area. Home values in the Bay Area are much higher than national average values. In a recent report, Cupertino, CA median home value is over $1,000,000.00. The median home value in Sunnyvale, CA is reportedly over $750,000.00. Since the value of a home is much more in California the one million dollar exclusion does not allow for much of the estates to transfer without tax.

Practical Calculation How Estate Tax is Applied

To calculate the Estate Tax on $1.5 million dollar estate, we must examine the Estate Tax Tables below.

Estate Tax Rates Table
Subject to Exemptions and Maximum Tax Rates Table
Estate Amount Exceeding:	Up to:	Is taxed at a rate of:
$1,000,000	$1,250,000	41%
$1,250,000	$1,500,000	43%
$1,500,000	$2,000,000	45%
$2,000,000	$2,500,000	49%
$2,500,000	$3,000,000	50%
$3,000,000	$10,000,000	55%
$10,000,000+	$17,184,000	60%
$17,184,000+		55%

Exemptions and Maximum Tax Rates
Year	Estate Tax Exemption	Highest Rate
2003	$1 million	49%
2004	$1.5 million	48%
2005	$1.5 million	47%
2006	$2 million	46%
2007	$2 million	45%
2008	$2 million	45%
2009	$3.5 million	45%
2010	N/A (taxes eliminated)	0%
2011	$1 million	60%

In 2010, the estate would incur no estate tax and the inheritance would be the full 1,500,000.00.

In 2011, the estate would have a $1,000,000.00 exclusion, and the balance would be taxed. The table below shows my tax calculation on a $1,500,000.00 estate in the year 2011.

Tax Rate	Calculation	Tax	Total Inherited
0%	1,000,000 exclusion		$ 1,000,000.00
$1,000,000-$1,250,000 @ 41%	41% of $250,000.00	$ 102,500.00	$ 147,500.00
$1,250,000-$1,500,000 @ 43%	43% of $250,000.00	$ 107,500.00	$ 142,500.00
		$ 210,000.00	$ 1,290,000.00

In 2010, the estate would be free of estate tax but in 2011 the estate tax would be $210,000.00. Estates of even higher values would have even more drastic tax differences in 2011. Simply put a 2 million dollar estate would have to pay nearly a million dollars in estate taxes.

This is only a theoretical computation and many people are hopeful that Congress will pass new estate tax legislation, while others argue that estate tax relief is not an important issue. Although there is no way to be certain if Congress will act, many believe that the only certain thing in life is death and taxes. However, no one says that you have to pay the maximum tax rate. In fact, each individual is permitted a $13,000.00 gift tax exemption per year. That is only one of the many ways an attorney can assist in your estate planning.

For more information about Estate Planning, please contact us. 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.

[1] CHEYENNE, Wyo. (AP) — U.S. Rep. Cynthia Lummis says some of her Wyoming constituents are so worried about the reinstatement of federal estate taxes that they plan to discontinue dialysis and other life-extending medical treatments so they can die before Dec. 31. The Associated Press: US rep.: Estate tax rise has some planning death, http://www.google.com/hostednews/ap/article/ALeqM5iE6x5QNARlHHqT8EKF-KUYWflVpg?docId=01c363eeccd542fe9dc9f9742699686b (last visited Nov. 4, 2010).

Making Your Wishes Known at the End of Life

April 30, 2010/in Estate Planning /by Michael Lonich

April 16, 2010 is Health Care Decisions Day, a national campaign to encourage Americans to complete their advance directives, living wills, and basically document their preferences regarding medical treatment at the end of life.

Researchers at the University of Michigan in Ann Arbor have discovered that almost a third of patients over the age of 60 would eventually become so incapacitated that they would be unable to express their preferences regarding end of life treatment. Patients who specified all care possible in their living wills were far more likely to receive aggressive care as opposed to those who didn’t.

The number of individuals who possess living wills has increased over the years. Without these documents, they patient remains vulnerable despite whether or not they had end of life discussions with their doctors. With 40 million new patients in the healthcare system and the decreasing number of physicians , end of life discussions are becoming nearly impossible.

An attorney is not needed to obtain these documents. Patients can designate a healthcare proxy. A healthcare proxy is a trusted friend or relative who can make decisions for a patient. Proxies won’t have as much of an effect as a documented living will, but it’s a good backup.

For Full Article: http://www.nytimes.com/2010/04/16/health/15chen.html

Estate Planning Red Flag

April 9, 2010/in Estate Planning /by Michael Lonich

If you’ve recently divorced and haven’t yet revisited your estate plan, or don’t have one, you may be in for some surprises. It is important to review your estate plan to be sure that it does not confer any unintended benefits or rights on your former spouse. Here are some questions to consider:

1. Does your former spouse have access to any jointly owned assets, such as bank accounts, investments or real estate?
2. Is your former spouse still the designated beneficiary of any life insurance policies, IRAs or other retirement plans?
3. If an ERISA plan, was an appropriate ERISA waiver obtained at the time you negotiated your divorce settlement?
4. Did you give your former spouse any powers of attorney or designate him or her as your agent for health care decisions?
5. Did you name your former spouse as a beneficiary of any trusts? Are they irrevocable? If so, do they provide for your spouses’ interest to terminate automatically in the event of divorce? If not, do the trust documents and applicable state law allow you to change beneficiaries or modify the disposition of the trust assets?
6. Does your divorce settlement or judgment address any of these issues?

After a divorce, or any other major life change, such as marriage, birth of a child or death of a family member, you should meet with your estate planning advisor as soon as possible to review your plan. Failure to modify your plan to reflect these changes can lead to unexpected and, in many cases, undesirable results.

Is the Price Right?

April 7, 2010/in Estate Planning /by Michael Lonich

Buy/Sell Agreements and Estate Planning

Generally, for a buy/sell agreement to establish the value of a business interest for estate planning purposes it must:

1. Be a bona fide business arrangement;
2. Not be a device for transferring the business to family members at a discounted value;
3. Have terms comparable to similar, arms length agreements;
4. Fix a purchase price that is reasonable when the agreement is executed; and outline a pricing formula to consider evaluation changes in the intervening years;
5. Require an owner’s estate or beneficiaries to sell the shares at a specified price; and
6. Restrict owners’ disposition of their interests during life and at death.

If at least 50% of a company’s value is owned by non-family members subject to the same terms as family members, a buy/sell agreement is presumed to meet these requirements.

2010: The Year of No Estate Tax

April 5, 2010/in Estate Planning /by Michael Lonich

The Economic Growth and Tax Reconciliation Act of 2001 eliminated estate taxes for 2010, though they will return with a vengeance in 2011. (The maximum rate, previously 45% with an exemption of 3.5 million, rises to 55% next year with an exemption of just 1 million.) Although many expect Congress to retroactively apply estate taxes for this year, others are calling 2010 the “throw mama from the train” year. Adding an element of suspense is a push in Congress to make permanent the previous $3.5 million exemption. California’s estate lawyers are awaiting the outcome of HR4154. Even if Congress extends the 2009 exemption going forward there were many plans written with the current code in mind and once a permanent decision is made many plans will need rewriting.

Many observers doubt the HR4154 will pass unless it includes a provision to “reunify” gift and estate taxes which were split into different rates in 2001. That, in turn, could mean a two or three year boom in tax and estate law as gift givers scramble to take advantage of the shift.

With all of the changes happening recently as well as potential changes yet to be decided, many estate plans could have holes and will probably have some issues once the law is changed. If it ends up being no estate tax in 2010, it will make for an interesting year.

Study Shows Value of Living Will

April 2, 2010/in Estate Planning /by Gina Policastri

A new study suggests that more than one in four of the elderly population will need someone to make their end-of-life decisions for them. This finding places a significant emphasis on the importance of creating a living will and stating after-life wishes explicitly. A living will is a statement that is written by the patient that explains their choices for treatment if he/she becomes incapacitated. Researchers also stated that someone must be designated to make the treatment decisions for the patients. The results of a recent study concluded that those who explicitly stated their end-of-life wishes in a living will were more likely to get the treatment that they wanted. In 2009, the end-of-life care topic became a part of the health care reform debate. During the debate, the legislation proposed that if they were given a provision, Medicare would be allowed to pay doctors in order to counsel patients about end-of-life decisions. This idea got denied because critics thought end-of-life counseling was similar to a death panel.
The study also showed that due to dementia, a stroke, or a debilitating illness, the elderly are unable to make their own decisions near the end of life.

(This study included 3,746 people who were 60 and over. They passed away between the years of 2000 to 2006. )

Inherited IRA’s and Management in Your Living Trust or Marital Trust

March 8, 2010/1 Comment/in Estate Planning /by Michael Lonich

A husband and wife developed an estate plan that included a trust which was subdivided into Trust A, Trust B and Trust C. Trust A would contain the survivor’s separate and community property (Survivor’s trust). Trust B would contain the balance of the decedent’s estate (Decedent’s Trust). And Trust C (Marital Trust) allowed the surviving spouse to fund it with property or cash.

The husband died, he and his wife were residents of a community property estate at the time of his death. Prior to his death the husband had transferred two of his IRA accounts into one combined IRA and made the family’s revocable trust the primary beneficiary of his IRA.

Upon the husband’s death the wife has the power to amend, revoke, or terminate Trust A and as sole beneficiary of that Survivor Trust she will receive income and can take the corpus out at any time.

However, she cannot amend, revoke or terminate the Decedent (Trust B) or Marital (Trust C) Trust. She has the right to receive income or corpus from the trust as needed for her support, health, maintenance and education.

Under the foregoing scenario the survivor and successor trustee, the wife, could have the IRA distributed to Trust A, then withdraw the funds, and move the amount into an IRA in her own name. As such she may be treated as the payee or distributee of the IRA, the IRA would not be treated as an inherited IRA and she is eligible to move over the distribution to set up an IRA account in her own name. Considering the foregoing she would not have to report the IRA distribution as income if properly moved over.

This is an example of a significant benefit in utilizing a family or revocable living trust for purposes of managing retirement assets after the death of the first spouse.