Articles Posted in Estate Planning

2012 provides a unique opportunity for making gifts using the federal estate, gift and generation skipping transfer (“GST”) tax exemption of $5,120,000 (reduced by any prior use of such exemption).

Unless Congress takes action, the exemption decreases to $1 Million on January 1, 2013 and there is a possibility that those who miss the opportunity will have lost the ability to make significant tax free gifts.

ยท Based upon the existing estate and gift tax rate of 35%, the additional taxes from not taking advantage of the gift exemption of $5.12 Million that could expire on January 1, 2013 as compared to the $1 Million gift tax exemption that is scheduled to be effective on January 1, 2013 could be over $1.4 Million.

Are you married?

Estates of married individuals dying after 2010 must file an estate tax return to pass along their unused estate & gift tax exclusion amount to their surviving spouse.

Available for the first time this year, the new portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, normally $5 million in 2011, to their surviving spouse. Enacted in December, 2010, this provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.

In November, 2010, a court action was filed in the U.S. District Court, Southern District of New York, seeking a refund of the estate tax levied on a married same-sex couple, which would not have applied to a married straight couple and which arguably violated the United States Constitution. The plaintiff in that action, Edith Schlain Windsor (“Edie”) challenged the constitutionality of section 3 of the Defense of Marriage Act (“DOMA”) which required Edie to pay federal estate tax on her same-sex spouse’s estate.

Edie met her late spouse, Thea Clara Spyer (“Thea”), nearly a half-century ago at a restaurant in New York City. Edie and Thea went on to spend the rest of Thea’s life living together in a loving and committed relationship in New York.

After more than forty years, Thea and Edie were finally legally married in Toronto, Canada in 2007. Having spent virtually their entire lives caring for each other in sickness-including Thea’s long battle with multiple sclerosis-and in health, Thea and Edie were able to spend the last two years of Thea’s life together as married.

Currently, on account of the enactment of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “2010 Tax Act”), the Federal estate tax exemption is $5.12 million, or twice that for a married couple.

It was and is common practice for a married person to provide if his or her surviving spouse survives to have his or her estate to be divided into two broad portions. One part is made equal to the estate tax exemption. That part is exempted from estate tax when that spouse dies on account of the so-called unified or applicable estate tax credit (which may be translated into a dollar exemption of $5.12 million). That part may be placed into a trust of which the surviving spouse is a beneficiary but need not be included in the gross estate of the survivor. Typically, that trust is called the “credit shelter trust” (because it is protected from type by reason of the unified credit), “estate tax exemption trust” or a “bypass trust” (because it “passes by” the estate of the surviving spouse for estate tax purposes).

The second part of the estate of the surviving spouse usually passes to or in a marital deduction trust for the surviving spouse and avoids estate tax when the first spouse dies by reason of the estate tax marital deduction. The property that passes to or in trust for the surviving spouse under the protection of the estate tax marital deduction is included in the gross estate of the survivor (unless consumed, given away or dissipated before the survivor dies). (In some cases, this second part of the estate is also divided by directing an amount equal to the otherwise unused generation skipping transfer tax (GST) exemption of the first spouse to die to pass into a separate qualified terminable interest property (QTIP) trust described in Section 2056(b)(7) of the Internal Revenue Code (Code). A QTIP trust qualifies for the estate tax marital deduction only by affirmative election.

Ethical Wills are documents designed to pass ethical values from one generation to the next. It is not a legal document and typically it is in the form of a letter written by parents to children or grandchildren. It is drafted by you, not me or any other attorney. Today it does not need to be in the form of a letter but could be an audio or video recording.

Ethical wills often contain meaningful family stories, personal values and beliefs, statements of faith, blessings, advice, and expressions of love. They may even share regrets, apologies, and final requests. There are no rules or laws about the length or content of an ethical will. It can be a few lines, or paragraphs or many pages in length.

Every ethical will is unique. And, while there is no standard format for writing one, samples of ethical wills can be found at this link.

Rights of publicity pass to the heirs of celebrities who are residents of California when they die. A hologram performance by Tupac Shakur (who died in 1996) at this year’s Coachella Valley Music and Arts Festival is a right which passed to his mother when he was shot.

Proper estate planning in California can help direct where revenue from those rights will go long after the person died.

California Civil Code section 3344 is for the publicity rights of living persons, while Civil Code section 3344.1, known as the “Astaire Celebrity Image Protection Act,” grants statutory post-mortem rights which prohibit the unsanctioned use of the “name, voice, signature, photograph or likeness on or in products, merchandise or goods” of any person.

Tax specialists are paying attention to how half a dozen of Facebook’s top names, including founder Mark Zuckerberg, appear to be using a perfectly legal maneuver called a grantor-retained annuity trust, or GRAT, to avoid at least $200 million of estate and gift taxes on their own Facebook shares.

A grantor retained annuity trust may be an effective means for a wealthy client who wants or needs to retain all or most of the income from a high-yielding and rapidly-appreciating property to transfer the property to a child or other person with minimal gift or estate tax. GRATs are particularly indicated where the client has one or more significant income-producing assets that he or she is willing to part with at some specified date in the future to save federal and state death taxes and probate costs, to obtain privacy on the transfer, and to protect the asset against the claims of creditors.

A GRAT is created by transferring one or more high-yield assets into an irrevocable trust and retaining the right to an annuity interest for a fixed term of years or for the shorter of fixed term or life. When the retention period ends, assets in the trust (including all appreciation) go to the named “remainder” beneficiary (ies). In some cases other interests, such as the right to have assets revert back to the transferor’s estate in the event of the transferor’s premature death, may be included.

Although this blog is focused primarily on matters of interest involving California probate, there are related topics worthy of discussion.

For example, while probate is the California court’s supervision over the transfer of property from the deceased person’s estate to the rightful heirs or beneficiaries, when that person is still alive he or she may not have the ability to make decisions about the property belonging to him or her. When we are alive but incapacitated (by a stroke, heart attack, auto accident, debilitating disease or some other reason), someone ought to be given the power to make decisions regarding our property when we are not able to make those decisions ourselves.

In those instances, a durable power of attorney for property management and financial affairs is useful. That type of California document “endures” our incapacity and continues to remain in effect. The person named in the durable power of attorney – the attorney in fact – steps into our shoes and is empowered to make decisions regarding our property.

Approximately 70% of Americans don’t have a will. A will is a fairly simple document to create so why do so many people avoid it? Some might say: I don’t have anything to leave to my heirs; I’ll let them sort it out when I’m dead; I’m dead so it’s not my problem; I’ve got plenty of time to write my will; I can’t afford it, etc. Read about how to write your own will here.

Families today tend to be blended, containing spouses, ex-spouses, children, step-children, and adopted children. Parents of blended families-or any family, really-should take the time to draft a will to ensure their wishes are followed after they die. You certainly are capable of writing your own will, but most attorneys and financial advisors recommend getting the help of an attorney to draft a will to ensure all required details are covered. Individuals should also consider preparing a durable power of attorney for health and financial reasons.

Naming a guardian for your minor children and naming an executor are two important components of your will. What happens if neither parent is able to take care of the children? Without a will, the court appoints a guardian for your children.

Among a California notary public’s various roles, one is to serve as an officer that authenticates the signing of important legal documents. A notary is simply an impartial witness to the taking of acknowledgements and/or affidavits, the signing of documents and administering oaths.

To become an officer of the state, a notary public must complete and pass a curriculum as well as a state standardized test. The would-be notary must also go through an FBI and California Department of Justice background check. The California Secretary of State publishes online the Notary Public Handbook which contains California laws relating to notaries public and is designed to assist an applicant in preparing for the notary public examination.

As an impartial witness to the execution of legal documents, all California notary publics are prohibited by law from giving or providing any information that can be construed as practicing law. A notary cannot provide legal advice; a notary is not an attorney (though some attorneys โ€“ like me – are notaries).