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HOW AN ESTATE PLAN COULD HAVE CARRIED ON PRINCE’S CHARITABLE LEGACY

May 27, 2016/in Estate Planning /by Riley Pennington

In the wake of rock & roll legend Prince’s untimely death, a number of issues have arisen regarding his estate plan – or lack thereof. One of the biggest issues is that none of the charities that Prince donated to throughout his life will inherit from his approximately 150 million dollar estate.

CNN Political Commentator, friend, and philanthropic partner of Prince, Van Jones, described Prince as “The Silent Angel.”* During Prince’s lifetime, he anonymously donated millions of dollars to dozens of charities. Unfortunately, since Prince died without a will, the charities that used to receive substantial donations from Prince will inherit nothing. Instead, his estate will be distributed pursuant to Minnesota’s intestacy laws. For those who die without a will, intestacy laws are a state’s default estate plan. The estate is usually distributed among the decedent’s heirs. Prince dying intestate is strange because of the the size of his estate, and his propensity to give to charity.

It is uncommon for someone with an estate as big as Prince’s to not do any kind of estate planning. In fact, those with big estates often do what is referred to as “advanced estate planning.” One advanced estate planning practice is to create a charitable trust. A charitable trust is an estate planning vehicle that can fulfill your philanthropic endeavors, all the while, having your estate receive beneficial tax treatment. There are generally two kinds of people that set up charitable trusts: those who are charitably inclined and those who take advantage of the tax benefits.

For those who are charitably inclined, a charitable trust can and should be tailored to accomplishing your philanthropic undertakings. A charitable trust allows an individual to make charitable donations during life and after death. Setting up a charitable trust is a way to ensure that a charity will continue to receive donations after the settlor has passed away. Other benefits of creating a charitable trust, and an estate plan, include, but are not limited to, avoiding probate, minimizing conflict during trust administration, and fulfilling the settlor’s intent.

For those who are primarily tax-driven, there are various tax benefits of which one can take advantage. In short, there are different kinds of charitable trusts. Each receives different kinds of tax treatment, has different formation requirements, and other distinguishing characteristics. If creating a charitable trust is something that you want to do, or are at least considering, meeting with an experienced estate planning attorney is imperative, because estate planning requires expertise and precision when determining which avenues should be taken. Had Prince set up a charitable trust during his life, not only would the charities that relied upon his generous donations be taken care of, but his estate would be taking advantage of the tax benefits.

Unless a will is found, we will never know how Prince would have wanted his estate to be distributed. It is likely that he would have had wanted a portion of it to go to charity. If you possess a philanthropic disposition, creating a charitable trust is something that should definitely be considered. A few of the benefits of creating a charitable trust are accomplishing your charitable goals, helping those who need it, and receiving tax benefits.

If you are interested in creating a charitable trust or have any questions regarding your current estate plan, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. The attorneys at Lonich Patton Erlich Policastri have decades of experience handling complex estate planning matters, including charitable trusts, and we are happy to offer you a free consultation. 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 detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

* http://www.cnn.com/2016/04/22/opinions/prince-eight-things-to-know-jones/

Tax Traps to Avoid During Divorce

December 15, 2015/in Family Law /by David Patton

Many individuals negotiate and finalize their divorce without taking into account the tax impact of the decisions they are making. However, there are several tax traps that people could avoid while preparing to undergo divorce proceedings, which include their division of assets, their tax filing status, alimony, and child support.

One of the most hectic and stressful processes during divorce is the division of assets. However, instead of worrying about getting half of everything, there is something that individuals can do before they get divorced that would save them money. Before signing the divorce papers, the parties may transfer property tax-free using a property settlement agreement. Using a property settlement agreement, the ownership of major assets can either be signed over or the property can be sold and the proceeds can then be split amongst the parties.

Depending on an individual’s specific situation, certain filing statuses may be more beneficial than others. If an individual is legally divorced by December 31^st, then he or she must file either as “single” or “head of household.” These statuses may also be used if parties have a legally binding separation agreement, or if the parties have lived apart for at least the last six months of the tax year. However, if the parties are still legally married as of December 31^stand are still living together, then they must file as either “married filing jointly” or “married filing separately.” Generally individuals who file as either “head of household” and “married filing jointly” have lower taxes than those who file as “single” or “married filing separately.” So even though an individual may be going through divorce, he or she may still find it beneficial to file a joint tax return to save money.

Oftentimes, parties forget that alimony is considered taxable income for the recipient and an above-the-line tax deduction for the payer. It would be beneficial to the recipient of alimony to add his or her monthly alimony taxes into their monthly budget in order to understand how much alimony they really need.

While alimony can be considered in tax returns, child support payments cannot be included on the recipient’s tax return and they are not deductible to the payer. However, the payer of child support may remit the payments in the form of alimony in order to save money on taxes. Though the IRS allows this, any alimony that does resemble child support may not be fully deductible.

In an already costly process, these few tax tips may be able to help individuals save some money. While taxes may be the last thing on their mind, they should be prepared for these tax changes as soon as possible.

If you have any questions about taxes in the divorce process or any other issue, the Certified Family Law Specialists at Lonich Patton Erlich Policastri have decades of experience handling complex family law matters. Please contact the Certified Family Law Specialists 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.

Source: http://www.irs.com/articles/how-to-avoid-the-tax-traps-of-divorce

Source: http://www.divorcemag.com/articles/5-tax-traps-to-avoid-during-divorce

Common-Law Marriage in California

September 19, 2014/in Family Law /by Gina Policastri

A common-law marriage is an informal marriage by agreement, without compliance with the statutory formalities associated with a marriage license. Only a handful of states recognize common-law marriage, and each state has specific requirements. In Texas, for example, the elements of a common law marriage include 1) an agreement presently to be husband and wife, 2) living together as husband and wife, and 3) holding each other out to the public as such. Once a common-law marriage is established, the spouse has the same rights as a married spouse and the marriage can be terminated only by death, divorce, or legal separation.

California abolished common-law marriage in 1895, and a couples’ failure to comply with the statutory marriage requirements will invalidate a marriage. However, non-marital cohabitation is not a barrier to the enforcement of express and implied agreements. California courts recognize Marvin claims, where unmarried individuals can enforce property, support, and other financial agreements arising out of their relationship. Such equitable remedies include: action on an implied contract based on the parties’ conduct (e.g., to share earnings and provide support or for support upon termination of relationship); action for specific performance of personal property with sentimental value (e.g., to return family heirlooms); and action to recover the reasonable value of services rendered, less the reasonable value of support received. Further, if traditional remedies prove inadequate, trial courts may create additional remedies to protect the parties’ reasonable expectations.

In other words, there is no way to form a common-law marriage in California, no matter how long you live with your partner. Under Family Code section 308, California will recognize common-law marriages validly established in other states. This means that a couple who establishes a common-law marriage in Texas will be treated as married if they move to California. Non-marital parents have the same custody and visitation rights as married parents. However, the recognition of a common-law marriage comes with the recognition of a spousal status, and this is significant with regards to tax, property, and inheritance issues.

For example, the Texas couple can use the “married filing joint” status with both the IRS and the California Franchise Tax Board. An employer, even the California government, must provide medical insurance to the spouse. The spouses receive community property rights. Each spouse will be considered a surviving spouse for purposes of the California intestate system and for social security survivorship benefits. Additionally, to end the marriage, the common-law spouse must file for divorce.

Recognizing a common-law marriage in California can quickly become a complicated legal matter and should be discussed with an attorney. If you have any questions about a Marvin claim or common-law marriage, please contact our California Certified Family Law Specialists. Our attorneys have decades of experience handling complex family law and estate planning matters and offer a free consultation.

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.

You Only Die Once: How To Avoid Gandolfini’s Estate Planning Errors

August 8, 2013/8 Comments/in Estate Planning /by Michael Lonich

Poor James Gandolfini. Actually, poor everyone involved in the Gandolfini case. That is, except for the IRS. Due to the fact that Gandolfini (of The Sopranos’ fame) had some major missteps in creating his estate plan, the IRS could easily be the lucky recipient of up to 55% of his $70 million estate, leaving little left for his wife and daughter.

We can’t fault the guy too much—at least he had a will to speak of. However, he is probably the victim of bad advice because his will really is what everyone says—a tax nightmare. His will left 80% of his estate to his sisters and infant daughter, which doesn’t sound terrible, but it actually is. Gandolfini could have left 100% of his estate to his wife tax-free by taking advantage of the marital deduction. Instead, the widowed Mrs. Gandolfini will only be left with something in the neighborhood of $10-14 million. Sadder still is that the federal government will walk away with $30 million of what Gandolfini’s daughter and sisters were promised. The worst is that this could have been easily avoided by putting the proper documents in place.

How exactly, then, does one go about creating an iron-clad estate plan? Foresight is first and foremost, obviously. Beyond that, however, here are some great steps Gandolfini could have taken* that would have saved his family millions:

Use trusts to protect your family and your privacy. Trusts don’t have to be complicated (they can be as simple as a common will), but they can really pay off since trusts are private. By having a will, your family will be forced into Probate Court and your will is going to become a part of the public record. Even if you are not in the public eye, your family will appreciate the simplicity that trusts can offer as they grieve.
Remember that tax implications will make a difference. Even if you are not a Sopranos star, you should have taxes in mind. Otherwise, you may be giving your hard earned money away to the government when you’d really like your family to enjoy it. By setting up various trusts or by leaving the lion’s share of his estate to his wife tax-free, Gandolfini could have instructed either the trustees of his trust or his wife to make small cash gifts to various named individuals over time (the government allows each person to give $14,000 per year per person untaxed). By giving large lump sums of cash to individuals that were not his spouse, Gandolfini opened the door for the devastating 55% death tax.
But Remember, Taxes Aren’t Everything. Like Gandolfini, if you want to give a large sum of money to a non-spouse, taxes might be inevitable. However, by working with a knowledgeable estate planning professional, there are ways to make sure your family will get the best bang for your buck perhaps by moving funds through a trust which will disperse money as necessary for living expenses, education, and travel without the pain of estate taxes.
Take The Age of Your Child Into Consideration. Does your eight-year-old know what to do with $10 million dollars? Of course not, and she probably won’t know how to invest her money or protect her wealth at age 16 or 21, like Gandolfini’s daughter, either. There are ways to set conditions on how and when your beneficiaries can receive their wealth. Perhaps you can add a clause to your will or trust which states your child can receive part of their inheritance for college expenses but will receive the remainder after graduation. With a trust, you can leave the tough decisions and investment strategy up to an experienced trustee who may be able to stretch your child’s inheritance further than you ever imagined.
Foreign Property Can Be Complicated. Gandolfini’s wish was to leave a fifty percent interest in his Italian property to each of his two children. However, Italian inheritance laws may trump American laws in this situation, forcing a share of the property onto his wife. Of course, this outcome could be worse, but it is imperative to get sound local advice so that you cover your bases incase foreign law comes into play.

This abbreviated list highlights the sticky issues that can come about if your estate plan is incomplete. You’ve spent your life working hard for your money; do what you can now to make sure your money is available to provide for your loved when you no longer can.

Estate plans can have a lot of moving parts; make sure you get the best advice possible. The attorneys at Lonich Patton Erlich Policastri have decades of experience handling complex estate planning matters including wills and living trusts. If you are interested in developing an estate plan or reviewing your current estate plan, 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 detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

*Originally found on Forbes.com, “6 Estate Planning Lessons From James Gandolfini’s Will,” used with permission by author Robert W. Wood found at: http://www.forbes.com/sites/robertwood/2013/07/20/key-lessons-from-james-gandolfinis-will/

Steer Clear of Potential Spousal Support Tax Pitfalls

February 11, 2011/in Family Law /by Mitchell Ehrlich

Generally speaking, spousal support is taxable to the recipient and is deductible by the payor. For example, if you are paying spousal support to your ex-wife the money she receives would be taxable to her as income. Likewise, generally you would be able to deduct it on your tax return. However, you may not be aware that there are several exceptions to this rule. In fact, it is necessary that you closely observe the spousal support formalities in order to take advantage of deducting payments to your ex-spouse.

In order for spousal support payments to be deductible, they must be made in cash. However, in this context, “cash” is not only currency. It can also include check or money orders payable on demand. The payment itself must be received on or on behalf of the supported spouse, and the spouse must be entitled to this payment under a divorce or separation instrument. As an illustration, if you and your ex-spouse privately decide you will pay her a certain amount per month, you cannot deduct this amount from your taxes as the payment was not made pursuant to a divorce/separation instrument. On the other hand, if your Marital Settlement Agreement states that you must pay your ex-wife, you can likely deduct the payments on your taxes.

In addition, the payment obligation must be limited by the recipient spouse’s death. For example, assuming that your settlement agreement requires you to make payments beyond your ex-spouse’s death, none of these payments are deductible support.

These are just some of the several requirements for deductible spousal support. For more information about making sure you are following the proper tax rules in relation to your spousal support payments, please contact the San Jose divorce attorneys at Lonich Patton Erlich Policastri. 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.