Los Angeles Estate Planning Blog

Spring 2010 Estate Tax Update

noreply@blogger.com (Christopher R. Twining, Esq.) — Mon, 05 Apr 2010 17:43:00 +0000

The 2010 Baseball Season is starting this week which is a sure sign that Spring is upon us. Congress must be more interested in the baseball season and the Nationals because they do not seem intent on fixing the Estate Tax mess they left for us.

According to the Association for Advanced Life Underwriting (AALU), as of April 1, there are not enough votes in the Senate to pass a "permanent" estate tax bill. The Senate is deadlocked, with both the House and the Obama Administration agreeing that the exemption amount should be what it was in the 2009 law, when individuals could protect $3.5 million ($7 million for spouses who properly planned). Although, currently there is no estate tax in 2010 (assuming Congress does not reinstate the estate tax retroactively), the exemption amount drops to $1 million in 2011 if Congress doesn’t act.

Could we again have a $1,000,000 Applicable Exclusion Amount? It seems to be implied that Congress may chose not to act according to an article in the March 29, Daily Tax Report, which began: "The legislative picture in coming months is likely to be dominated by the need for revenue, as the budget deficit worsens and Congress seeks more funding to pay for ..."

ABOUT CHRISTOPHER R. TWINING
Christopher R. Twining, Attorney at Law, based in the Westwood Neighborhood of Los Angeles is an innovative estate planning, probate & trust administration, and elder law attorney, who offers in home services for busy and movement challenged clients. The Law Office of Christopher R. Twining serves the cities of Los Angeles, Santa Monica, Culver City, Beverly Hills, West Hollywood, Pasadena, Burbank and the neighborhoods of West Los Angeles, Westwood, Brentwood, Bel-Air, Pacific Palisades, Palms, Pico-Robertson and Encino. Dedicated to helping individuals and couples prepare comprehensive estate plans according to their wishes; he offers them these services at an affordable price, in the relaxed comfort of their homes. For more information about his services, please visit http://www.twininglaw.com or call (310) 492-5990.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775-9774
http://www.twininglaw.com

What Happens to your Digital Estate on death

noreply@blogger.com (Christopher R. Twining, Esq.) — Thu, 18 Mar 2010 09:57:00 +0000

A while back I wrote a post on the topic of social networks, online bank accounts and other high tech issues in estate planning today. Specifically, the issue has come up with how do you plan for your death, when you are not supposed to share your passwords. Often, it becomes difficult for loved ones to gain access to a social network or online bank account after someone passes away. In my personal life, I know of a family friend who passed last year who still has a facebook profile.

If you remember there was an article back in July 2009 in the Wall Street Journal that did an excellent job of discussing the issue.
Well now Scott Brown at Wired Magazine has gone along and written about it. Apparently, now a host of companies has sprung up to offer solutions, at a price of course.
Here are three companies mentioned in the article:

AssetLock.net

deathswitch

Legacy Locker

Be advised that this area is so new I have no experience with any of these companies mentioned. I have contacted all three companies to inquire as to more information regarding their services and prices. I will let you know my feelings after I hear back.

And as mentioned in my previous post there are different ways to deal with this. One way might be to leave your personal representative a flash drive
with a .txt file named Online Passwords. Of course, then it would be up to you to update the passwords in .txt file and to ensure that it finds its way to your personal representative when you die. Additionally, you will have to worry about it not falling into the wrong hands until you die.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775-9774
http://www.twininglaw.com

Property Tax Estate Planning Errors

noreply@blogger.com (Christopher R. Twining, Esq.) — Wed, 10 Mar 2010 16:43:00 +0000

Recently I have discovered that many so called "estate planning professionals" have neglected to consider Property Taxes and the affects of reassessment upon survivors.

In California, as many people know, the property tax laws we have today were largely the effect of Proposition 13 and its progeny. Proposition 13 effectively capped how high an assessment could grow on an annual basis. This artificial percentage cap did not keep pace with California's rapidly rising real estate market.

Consequently, there are many people, especially older Californians who have lived in their homes for decades, who find that there homes are assessed at 1/3 or 1/4 of the Fair Market Value, even in today's bad real estate market.

Most people do not realize but the death of an owner is considered a "change in ownership" for property tax purposes. A change in ownership ordinarily means that a property will be reassessed all the way up to fair market value, unless the survivors can make use of one of the few "exclusions" in the Revenue & Taxation Code which exclude the transfers from "change in ownership treatment"

The most common Property Tax Reassessment Exclusions are:

Inter-spousal transfers
Transfers between registered domestic partners
Parent-child transfers
Grandparent-grandchild transfers

Of late I have seen both confusion in the way the Grandparent -Grandchild Transfer works and the failure of a same sex couple to take advantage of the exclusion between registered domestic partners ( by failing to become registered domestic partners to qualify for the exclusion).

ABOUT CHRISTOPHER R. TWINING
Christopher R. Twining, Attorney at Law, based in the Westwood Neighborhood of Los Angeles is an innovative Estate Planning, Probate & Trust Administration, and elder law attorney, who offers in home services for busy and movement challenged clients. The Law Office of Christopher R. Twining serves the cities of Los Angeles, Santa Monica, Culver City, Beverly Hills, West Hollywood, Pasadena, Burbank and the neighborhoods of West Los Angeles, Westwood, Brentwood, Bel-Air, Pacific Palisades, Palms, Pico-Robertson and Encino. Dedicated to helping individuals and couples prepare comprehensive estate plans according to their wishes; he offers them these services at an affordable price, in the relaxed comfort of their homes. For more information about his services, please visit http://www.twininglaw.com or call (310) 492-5990.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Repeal of Estate and GST Tax Provides Opportunities

noreply@blogger.com (Christopher R. Twining, Esq.) — Mon, 11 Jan 2010 22:56:00 +0000

December 31, 2009 , and Congress never acted as all ( including myself) expected to reinstate the Estate and Generation Skipping Transfer Taxes. The closest it came was when the House passed H.R. 4154 on December 3. The Senate read it once and placed it to be read again on December 24. The Senate won't be back in session again until January 19, 2010. It is unclear whether the Senate will take up the bill or not. Some members of the Senate apparently favor a $5 million estate tax exclusion and a top estate tax rate of 40%. Interested persons can monitor any action from the Senate Finance Committee which Democrat Max Baucus of Montana chairs.

What is also unclear as other blog commentators point out is the legality of making a tax act retroactive. Some extremely wealthy persons with large estates and no plans to die in 2010 will certainly try and take a chance.

To summarize the current status of the law and opportunities:

No Estate Tax (period)
Gift Tax rate of 35% (down from 45% in 2009)
Still lifetime $1,000,000 Gift Exclusion ( rate above applies to gifts above $1,000,000)
No Generation Skipping Transfer Tax

A Forbes Article Today sums it up well:

"Meanwhile the rich are racing to make taxable gifts. Taxable? Yep. Under the Bush tax cuts, the gift tax, which is paid on wealth of more than $1 million transferred while you're alive, did not disappear as of Jan 1. But the gift tax rate fell from 45% to 35%. Absent a political compromise, it too will rise to 55% in 2011."

Additionally, the Article mentions but doesn't do a great job of explaining the consequences of the Generation Skipping Transfer Tax being repealed ( at least for right now). What this means is that its a great year (potentially) for the wealthy to make large gifts to grandchildren. Because instead of paying an additional tax for any transfers to skip persons on top of any gift tax, there is none ( for the time being).

Some planners for extremely wealthy clients are trying to make use of the repeal of the Generation Skipping Transfer Tax in their GRAT and CLAT instruments. Usually these instruments can't have a generation skipping component because of so called ETIP ( estate tax inclusion period) rules, but if there is no GST in effect when its time for them to distribute the remainder it makes sense for them to go to Grandchildren, particularly if the Grantor's own children are already well off.

It should be an interesting year. Stay tuned for updates!

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Estate Plans Need Updating

noreply@blogger.com (Christopher R. Twining, Esq.) — Wed, 06 Jan 2010 18:58:00 +0000

Not too long ago I wrote an article indicating that for many people because of the $3.5 million dollar estate tax exclusion , that they needed to revise their estate plans.

Specifically, if you have a marital deduction aspect to your revocable living trust and it was drafted when the estate tax exclusion was far lower ( it was around $675,000 in 2001) then a surviving spouse could see themselves entirely cut out of an estate plan.

Normally one reserves a life estate in income to the surviving spouse along with a right to invade principal for Health, Education, Support and Maintenance in the BYPASS trust. If this is the case there is no great danger. However, for many people who may have children from different marriages it is possible that such a provision does not exist and your kids would take all. It really depends on the terms of the bypass trust.

The Wall Street Journal is at least bringing up the issue, even if they don't discuss it in detail.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

How to Make Beneficiary Designations

noreply@blogger.com (Christopher R. Twining, Esq.) — Tue, 08 Dec 2009 18:40:00 +0000

Ensuring that your life insurance policies, individual retirement accounts and pension accounts have the proper named beneficiaries is an essential part to any comprehensive estate plan. As recently as October 2008 the U.S. Supreme Court weighed in on the importance of beneficiary designations.

Karri Kennedy, the daughter of a former Dupont Inc. employee had sought her share of her father's retirement plan benefits. She claimed that he had said that he wanted it to go to her but had never changed his beneficiary designations despite getting a divorce from Karri's mother. Instead the court ruled that the mother was entitled to the retirement plan as the designated beneficiary.

A recent online guide from Yahoo Finance, entitled "Naming Beneficiaries of Insurance Policies and Retirement Plans" answers some questions and gives some advice for naming beneficiary of various policies and retirement accounts.

House Votes to make permanent 2009 Estate Tax

noreply@blogger.com (Christopher R. Twining, Esq.) — Fri, 04 Dec 2009 04:38:00 +0000

The U.S. House of Representatives passed a bill today which would make this years $3.5 million dollar per person estate tax exclusion permanent.

You can see a Bloomberg story on this event here.
The bill that passed is H.R.4154, entitled "Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009."

Next the Senate will take up the Estate and Gift Tax Issue. All indications are that the Senate will keep the $3.5 million estate tax exclusion as well.

Indeed in a previous article I noted that all current proposals pending before Congress would have made the $3.5 million Estate Tax Exemption permanent. There are some important differences between the bills involving the use of intra-family discounts, new limitations on GRATS (Grantor Retained Annuity Trusts), and portability of the exclusion.

Stay tuned. When a new bill passes both houses I will write on what changes were enacted.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

VIDEOTAPING YOUR ESTATE PLAN

noreply@blogger.com (Christopher R. Twining, Esq.) — Thu, 03 Dec 2009 21:38:00 +0000

An article in Today's Wall Street Journal discusses the pros and cons of videotaping your will signing or estate plan. It does a good job of discussing the advantages and disadvantages.

Among the pros identified are:

It can head off a fight over your estate plan, by demonstrating your competence and reasons for why you might give unequal amounts to children etc.
Ofcourse, if a dispute does materialize after you die, it can serve as evidence of your testamentary capacity and your desires.
It can also serve as a more personal legacy than a legal document on paper.

Among the potential cons identified are:

It can serve of evidence of a lack of capacity if the person on the videotape seems senile, unresponsive, or uncomfortable, and therefore ultimately lead to a dispute that might not have materialized otherwise.
It can of course cost more. (You will need to have your attorney consulted and present to ask appropriate questions.)
It can create confusion as to the intent of the person, if they make statements that conflict with the terms of the estate planning documents.

It also cautions that this is not something that you want to do yourself or have one of your children videotape. First of all this document is going to serve as evidence in any potential proceeding, you need the advice of an attorney. Secondly, if a non neutral party like a child makes the videotape it can be argued that its evidence of undue influence.

And the article makes the excellent point that if you are going to leave unequal amounts to children or other similarly related relatives, you may want to let them know that you are leaving them unequal amounts while you are still alive so that you can set their expectations early instead of having them be shocked when they discover that after you pass.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Importance of Sharing Your Estate Plans with Others

noreply@blogger.com (Christopher R. Twining, Esq.) — Thu, 03 Sep 2009 06:21:00 +0000

My practice is always interesting. In my conservatorship cases ( cases where an elderly person either is unable to take care of their personal needs ( medical, housing, food, clothing, health etc) or their financial matters ( person cannot resist undue influence, or is unable to manage their financial affairs) I have recently come across some troubling situations.

These cases illuminate why you should share your estate plan with those you intend to represent your estate as well as those who will inherit.

In these cases a child has had to petition the court because some other person is acting under a durable power of attorney or other Estate Planning document. But the situation could just as easily present itself in a will or trust contest.

In these cases, I believe that the Conservatee ( person for whom the court appoints a conservator) should have shared their intentions as well as perhaps the actual documents with their intended heirs or those the Conservatee wanted to represent their Estate after he or she dies. In one case the Conservatee had shared a letter from his/her attorney which stated the name of the estate planning documents in the attorney's possession and the execution date. However, obtaining the actual documents themselves has been extremely difficult.

But if the Conservatee had not given his/her children such a letter and instructions to contact his attorney should anything happen to him, they would be unaware of the documents that Conservatee's significant other persuaded Conservatee's long time attorney to draft, effectively changing who would inherit from the Conservatee. Additionally, they would lack any evidence that the Conservatee had previously planned to provide for them. This could become extremely important if a contest ensued after Conservatee passed away.

However, if the Conservatee had provided his/her children with copies of the actual documents they would have had good evidence to seek emergency type orders from the court. ( these types of orders are called ex parte orders).

In short if you trust your heirs and future representatives of your Estate, you must provide them with information as to your wishes, a description of where original documents are kept, and possibly even copies of the documents. This will serve as valuable evidence, in the event that someone tries to fraudulently induce you to sign documents while you are drugged up in a hospital or otherwise change who your property will pass to.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Lessons from Michael Jackson's Death

noreply@blogger.com (Christopher R. Twining, Esq.) — Fri, 07 Aug 2009 20:17:00 +0000

What Lessons can even the poorest person learn from Michael Jackson's death?

Answer: This is a prime example, for rich and poor alike, of one of the most important reasons to execute a last will and testament. Anyone who has minor children be they married, separated, divorced, never married etc., should take lesson.

You can see from this copy of Michael Jackson's Last Will and Testament that he named his mother Katherine Jackson to be guardian of his children should he die before they were the age of 18. He likely also provided for them until a later age, financially in his Michael Jackson Family Trust that earlier pages of the will reference. He also named a backup guardian of Dianna Ross, in the event that his mother was not able to serve.

Notice Michael Jackson did not nominate his mother and his father. This was smart because you never know what the status of couples can be at the time when they would be called upon to act. Although in Michael Jackson's case there were likely other reasons also influencing his choice to not name his father.

Now bear in mind that the probate court judge who officially approved Katherine Jackson to be the childrens' guardian could still have denied her petition and approved someone else. Usually this only happens when someone makes an allegation that the proposed guardian is unfit to be a parent. Possible reasons include a proposed guardian with a criminal background, who is a substance or heavy alcohol abuser or someone who has a history of child abuse.

But the lesson is clear, that the judges give the wishes of the person who died, the most weight absent a substantiated allegation that the proposed guardian is unfit.

I have not bothered to ascertain who drafted his Will, but in my opinion from what I have seen so far, the Estate Planning attorney did a fine job

ABOUT CHRISTOPHER R. TWINING
Christopher R. Twining, Attorney at Law, based in the Westwood Neighborhood of Los Angeles is an innovative estate planning, probate & trust administration, and elder law attorney. The Law Office of Christopher R. Twining serves the cities of Los Angeles, Santa Monica, Culver City, Beverly Hills, West Hollywood, Pasadena, Burbank and the neighborhoods of West Los Angeles, Westwood, Brentwood, Bel-Air, Pacific Palisades, Palms, Pico-Robertson and Encino. For more information about his services, please visit http://www.twininglaw.com or call (310) 492-5990.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

What Happens to your Facebook When You Die or become incapacitated?

noreply@blogger.com (Christopher R. Twining, Esq.) — Wed, 29 Jul 2009 01:52:00 +0000

Do you need an online Estate Plan? What happens to your Facebook, Myspace, Linkedin, Twitter accounts and profiles when you die or become incapacitated?

A recent Wall Street Journal Article suggests that everyone needs a separate plan to deal with online issues when you die or become incapacitated.

Among the issues for your heirs that the article identifies are what can happen to online accounts where you traditionally do not receive monthly statements as well as the status of various trendy online sites like the social networking site Facebook.

It points out that without the necessary login and password the person or persons trying to wrap up your affairs will have difficulty accessing the statements and information. Of course, I see no reason why a beneficiary could not be named for an online savings account, or why an online savings account could not be held by a trustee. But of course in either case it is going to require some time to gain access to the information the person requires.

And although we are always advised to have super secure, varied and frequently changed passwords for all of our accounts, which we are supposed to never share, this presents a problem upon your death or incapacity. The article suggests that you may want to share various logins and passwords with certain trusted people. Or you may want to divy up these logins and passwords and give them to several people.

Unfortunately, I do not think that this is a viable option as passwords are frequently changing as we forget them and are forced to reset them. Also in the social networking arena, the answer that the facebook spokesperson gave that they will place a site in memoriam but not give the personal representative access to the account to retrieve possible items of significant emotional value such as messages, pictures, notes etc. is rather unsettling. I am not sure what representatives from Myspace, Twitter, Linkedin, etc. would say.

To me the only solution is legislation on a federal level that would require these social networking sites to allow you to name a beneficiary or caretaker of sorts for your online persona. In the alternative, the profiles should be treated as pseudo intellectual property of the decedent or incapacitated person and should be under the control of their personal representative, be it an executor, administrator, or trustee of their revocable living trust. Imagine the battles that might be waged when a celebrity with a significant social networking presence dies or becomes incapacitated if nothing is done to standardize the solutions.

As the population ages this will become more and more of an issue.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Advantages of an Attorney Drafted Estate Plan

noreply@blogger.com (Christopher R. Twining, Esq.) — Tue, 14 Jul 2009 15:55:00 +0000

A recent LA times article highlights several instances where you will want to use an attorney in preparation of an Estate Plan.

The article first describes the various ways consumers can make their own wills under California Law. First, it talks about holographic wills, those handwritten wills entirely in the person's handwriting. These holographic wills present several problems.

Among the problems with a holographic will are: (1) it has to be clear that the writing was intended to serve as a will (2) the ink can more easily be smudged and there is no copy of it in case it is damaged, destroyed etc. (3) lay people are likely to have difficulty being clear with their instructions, and (4) there is no witness to testify as to what was intended if a will contest develops.

The article suggested the following situations when you would want to use an estate planning attorney: when you want to disinherit any family members, when you anticipate a dispute among your heirs, if you are very wealth, or if you want contingencies written into the document like ( child X only gets this if she attains a college degree).

While the article does hit an important point in why you should utilize an attorney, that there will be a witness should a dispute arise, it misses several other reasons.

The article assumes falsely that all someone needs in an Estate plan is a simple will. Well even in the simplest case this is simply not true. Even a 30 year old couple with a young child will want to have a durable power of attorney for financial matters so that if one becomes incapacitated it is clear that the spouse or someone else can act for them. This can save thousands upon thousands in dollars by avoiding a conservatorship.

In the case of a durable power of attorney, one intended to remain effective or kick in when someone becomes unable to manage their own affairs, it is important to utilize an attorney because often you will encounter problems getting the major financial institutions to honor them without an attorney. An attorney in this situation can assure the institution that the document was created validly and if need be threaten to take the institution to court. Legalzoom is not going to be able to do this! A website company simply doesn't have personal knowledge of the circumstances surrounding the creation and execution and it cannot represent you in court.

Additionally, most California homeowners will want to utilize a revocable living trust because it avoids the expense, lack of privacy, and time consuming nature of probate. And if you do create a trust, your successor trustees ( those who take over when you can no longer manage your affairs or you die) will need the advice of an attorney to administer the trust properly and avoid liability for wrongdoing. If you utilize the services of someone like myself, who also does trust and probate administration, then your loved ones will have someone they can turn to for help, without relying on the uncertainty of choosing a lawyer from a phonebook.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Boomers Kids better have life insurance

noreply@blogger.com (Christopher R. Twining, Esq.) — Mon, 13 Jul 2009 17:04:00 +0000

Recently I have encountered quite a few young couples with the same situation. They have little to plan for besides nominating a guardian for their children. However, many of the young couples I talk to with Boomer parents seem to think that Grandma and Grandpa could care for their minor children if something happened to them.

I think this notion is highly unrealistic. Many boomers will not have the resources to care for additional dependents. Many have not saved enough for retirement especially with the ballooning costs of health care and the recent downturn in the markets that may be here to stay.

A recent Wall street Journal article highlights the problem. Many Boomers are essentially planning not to leave anything to their children because they don't think they will have anything left after retirement. This means that similarly Boomers won't have the financial resources to adequately care for your minor children. And that's just the essentials, food, clothing etc let alone trying to pay for your children's college education.

If you have a concern that your parents may not be able to provide fully for your children should something happen to you then its time to consider some life insurance. Most agents I talk to recommend purchasing between 8-15 times annual income to provide for dependents.

There is no need to go out and purchase complicated insurance policies when all you really need is to purchase some affordable term insurance coverage. If you are relatively healthy and in your thirties this should be fairly affordable. You may want to have spouses own the policies on each other as well as name the children as contingent beneficiaries of the policy. So long as you have nominated guardians in your simple will, then it would be relatively easy for the named guardian to receive the life insurance proceeds and manage them for your minor children.

You can check the cost of simple term policies at sites like selectquote.com.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Firm News - Providing Free Notarizations to existing and new clients

noreply@blogger.com (Christopher R. Twining, Esq.) — Wed, 24 Jun 2009 19:00:00 +0000

Just a firm update. I have recently become licensed as a notary public in the county of Los Angeles. As a courtesy to all my current clients I will be offering free notarization of all the estate planning documents this office prepares as well as any other documents which clients would like notarized. However, to take advantage of this free service for documents other than estate planning documents which the firm prepares, you will have to travel to my offices, as I am not including travelling services.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

For Many Couples its time to update their Estate Plan

noreply@blogger.com (Christopher R. Twining, Esq.) — Fri, 19 Jun 2009 08:06:00 +0000

It may be time for married couples to update your estate plan. Particularly if you executed a revocable living trust with an A-B provision, also referred to as a Bypass trust, or a credit shelter trust. For a decent discussion of how these trusts work click here.

The problem is that as recently as 2000 the applicable exclusion amount was near $1 million dollars per spouse. Typically these bypass trusts were established so that no Estate taxes would be due upon the death of the first spouse. They accomplished this by making use of the unlimited Marital Deduction which allows one to leave an estate of unlimited size to one's U.S. citizen Spouse ( non-citizens have to use special and burdensome devices known as Qualified Domestic Trusts- QDOTS)

As an example, assume a couple, we will call them H & W for this example. Assume further that H has a separate property estate of 2.5 million dollars and W has only modest sums. Further assume H dies first with the current annual exclusion amount( See here for a discussion of why the applicable exclusion amount is likely to remain at $3.5 million for the foreseeable future).

Assume further that H & W had a credit shelter trust established when the applicable exclusion amount was far lower ( $1 million or lower). Assume further that the credit shelter trust did not provide for income and principal distributions to the surviving spouse because it was established solely for members of H's family ( those other than W).

Under the current rules and the above scenario no marital deduction trust would be created when the deceased spouse's estate was less than $3.5 million. So assuming H dies first, upon his death all of H's property would stay in the credit shelter ( aka bypass trust) and the marital deduction trust would never get funded. Now W does not have access to the income that she would have had when the applicable exclusion amount was lower.

What was contemplated when this plan was made was that given the same size of Estate ($2.5 million) and an applicable exclusion amount of $1 million ( what would have happened as recently as 2001) $1 million would have gone into the bypass trust for H's family, with the balance ( $1.5 million) going to fund the Marital deduction Trust which W could raid at will for her living expenses.

So those with Estates greater than $1 million and less than I would say 4.5 million may presently have a plan that will not accomplish the common goal of providing income and if need be principal to the surviving spouse. Indeed in the extreme example above W might soon end up penniless.

So what's the solution? Well for starters its time to see an Estate Planning Attorney in your area to amend your revocable living trust. Though technically called a modification in California, or a restatement, either way you are amending the terms of the trust. Most revocable living trusts are fully amendable while both spouses are alive and well and acting as trustees. With some relatively simple amendments, the problem can be avoided and the surviving spouse can be left with the certainty that there will be some means of support.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Legislative Update on the Estate Tax Exclusion

noreply@blogger.com (Christopher R. Twining, Esq.) — Fri, 19 Jun 2009 06:20:00 +0000

Although there are at least three sets of proposals currently being proposed by either the House, the Senate or the Treasury Department, the aspects which these proposals have in common indicate one thing. Congress seems very likely to cement the $3.5 Million applicable exclusion amount by making it permanent.

The House bill is H.R. 436,entitled the Certain Estate Tax Relief Act of 2009 was introduced January 9, 2009. Notably it would eliminate the sunset provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)and make permanent 2009's $3.5 million annual exclusion amount. Additionally, it would set the highest marginal tax rate at 45% with a five percent (5%) surcharge for Estates over $10 million.

The Senate Bill is S.B. 722, entitled the Taxpayer Certainty and Relief Act of 2009, was introduced March 26, 2009. Section 301 would make permanent the 2009 $3.5 million applicable exclusion amount and provide an adjustment for inflation.

The Obama Administration has also issued a proposal in the form of the "Treasury Department's General Explanations of the Administration's Fiscal Year 2010 Proposals."This document essentially containing all the administration's tax proposals,and also known as the "Green Book" was released on May 11, 2009. In this document the administration proposed to make this years $3.5 million applicable exclusion amount permanent.

Although there are some significant difference between these three proposals in other areas of exclusion portability, family entity valuation discounts, and term restrictions on Grantor Retained Annuity Trusts ( GRAT) they all propose to cement the $3.5 million per spouse applicable exclusion amount. So it seems that this will most likely be the appropriate figure for the near to midterm.

However, given the huge fiscal deficits and the changing nature of the world's monetary system the federal government may soon need to raise revenue wherever it can. And since such a tiny percentage of Americans will leave an estate anywhere near the ballpark of 7 million dollars, it is possible and perhaps likely that this level may be reduced in future years. One other possibility is that if we experience hyper-inflation and the applicable exclusion amount isn't indexed for inflation, that many more people will leave an estate coming close to or exceeding $3.5 million.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Good Estate Planning Article

noreply@blogger.com (Christopher R. Twining, Esq.) — Thu, 21 May 2009 19:13:00 +0000

The June 2009 edition of Money Magazine has a good article on Estate Planning issues facing older Americans. It basically discusses how current plans may not be adequate for upcoming possible changes to the Estate Tax regime.
Although the article suggests that Congress will likely extend the 3.5 million Estate Tax Exemption for 2010, it also suggests that Congress will likely be forced to lower the exemption back to something closer to 1 million dollars because of the fiscal pressure facing the country.

The article discusses the tradeoffs between lifetime giving and leaving stuff to people, as well as what types of assets are the best to give ( assets that have been beaten up in the recent market turmoil). Additionally, the article discusses the advantage of a bypass trust, particularly with the tax uncertainty. The article also discusses Charitable Remainder Trusts as a means of avoiding capital gains on appreciated assets and Grantor Retained Annuity Trusts, that may make sense in this low interest rate environment.

Finally the article concludes suggesting that estate plans need to be revisited when large changes occur to taxes and or personal circumstances. It suggests a re-examination of estate plans every three years or so.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Estate and Gift Tax Rates and Exemptions 2009

noreply@blogger.com (Christopher R. Twining, Esq.) — Wed, 13 May 2009 19:35:00 +0000

Since I am often asked these amounts and rates I thought I would post to a document which contains the rates and amounts. Click here to access the pdf document.

The Estate Tax Applicable Exclusion Amount is $3.5 million for 2009.

This amount is also commonly referred to as the Estate Tax Exemption. This applicable exclusion amount is reduced by any lifetime gifting over and above the Annual Exclusion Amounts that make use of the Gift Tax Exclusion Amount.

This amount is per spouse to die in 2009. So assuming both spouses die in 2009 and an A-B or A-B-C type living trust was utilized the amount passing free of Estate Taxes can potentially double to $7 million dollars. As of this date Congress has yet to act on the Estate and Gift Tax rates and exemptions set to go back to 2001 levels in 2011 ( if Congress doesn't act).

The Gift Tax Exclusion Amount (currently at $1Million for 2009) is the maximum amount ( over and above annual exclusion amounts) that one can have given away in lifetime free of gift tax. The Annual Gift Tax Exclusion Amount is currently $13,000 in 2009. This means that one can make a gift to any person or persons for $13,000 or below and not incur any gift taxes and not reduce the Gift Tax Applicable Exclusion Amount.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Death Doesn't stop the Debt Collector

noreply@blogger.com (Christopher R. Twining, Esq.) — Mon, 09 Mar 2009 19:07:00 +0000

A recent article in the Business Section of the New York Times highlights one of the main reasons for Estate Planning, mainly the orderly paying of your debts so that your heirs or beneficiaries can enjoy their inheritance without being pursued by a decedent's creditors.

The article details in quite livid detail the extent to which collection firms start phone calls. It points out that these debt collectors do not bother to tell people upfront that often times they have no legal requirement to pay. Only after the person(s) being called inquire do they inform them of this fact.

To me it is one more reason to implement an attorney crafted Estate and Incapacity Plan. By designating an executor and successor trustee you are putting one person in charge of verifying and paying off any of your remaining debts including: outstanding credit card balances, medical expenses, and funeral expenses.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

A Good Time to Revise Estate Plans

noreply@blogger.com (Christopher R. Twining, Esq.) — Sat, 31 Jan 2009 17:48:00 +0000

A recent Wall Street Journal article discusses how with asset prices depressed and new annual gift tax exclusion amounts, now is a great time for some more advanced estate planning techniques.

The article discusses the use of direct gifts, intra-family loans, and Grantor -retained annuity trusts (GRATs).
Direct Gifts - The annual exclusion amount in 2009 has been bumped up to $13,000. This means that one can give up to $13,000 to as many people as one wants gift tax-free. This is a particularly useful device now that stock prices are depressed.

Intra-family Loans< - The IRS sets rates of minimum interest that one must charge to loan money to a family member. However, these rates are typically far lower than market rates, so this can be a nice way to help a family member invest in a business venture or other asset. Additionally, portions of such loans can be forgiven using the annual exclusion amount.

Grantor Retained Annuity Trusts - These devices are useful for wealthy investors who own assets which they expect to appreciate highly. A well constructed GRAT can help these wealthy persons pass most of the appreciated value to heirs tax-free when the trust expires. Although conditi0ns for this planning technique are ideal given interest rates, many in the industry fear that Congress will reign in their popularity with new legislation.

ABOUT CHRISTOPHER R. TWINING
Christopher R. Twining, Attorney at Law, based in the Westwood Neighborhood of Los Angeles is an innovative estate planning, probate & trust administration, and elder law attorney, who offers in home services for busy and movement challenged clients. The Law Office of Christopher R. Twining serves the cities of Los Angeles, Santa Monica, Culver City, Beverly Hills, West Hollywood, Pasadena, Burbank and the neighborhoods of West Los Angeles, Westwood, Brentwood, Bel-Air, Pacific Palisades, Palms, Pico-Robertson and Encino. Dedicated to helping individuals and couples prepare comprehensive estate plans according to their wishes; he offers them these services at an affordable price, in the relaxed comfort of their homes. For more information about his services, please visit http://www.twininglaw.com or call (310) 492-5990.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

Free Estate Planning Organizer

noreply@blogger.com (Christopher R. Twining, Esq.) — Wed, 28 Jan 2009 04:50:00 +0000

I have just posted a free estate planning organizer.

With this free organizer you can now gather most if not all of the information that you should have in one central location regarding your estate planning and incapacity planning.

For my clients I include a special engraved 3 ring binder estate planning organizer.

My binder has imprinted tabs to organize copies of all the relevant estate planning documents such as: Living Trust, Irrevocable Trust(s), Other Trust(s), Will(s), Property Agreements, Deeds, Business Agreements, Gift Tax Return(s), Gift Transfers, Charitable Transfers, Personal Property Transfers, Real Estate Transfers, Special Instructions, Life Insurance, Durable Powers of Attorney,and Advance Health Care Directives.

I also don't skimp when it comes to testamentary documents. Many of the most expensive Estate Planning Law Firms in Los Angeles no longer use high quality paper. To me this makes no sense. I care about my clients and want them to have documents that will last the test of time. That is why all the original executed documents my firm produces are printed on archival quality 32 lb business paper and backed with manuscript covers ( aka bluebacks). Additionally, we provide clients with a photocopy of every executed document and scan all the original documents once executed. This way we can provide clients with an electronic copy which can be shared more easily with loved ones or kept as an ultimate back up copy in the event all paper copies are lost.

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775 - 9774
http://www.twininglaw.com

2008 Tax Law Changes Highlights

noreply@blogger.com (Daphna BarTal JD, LL.M) — Wed, 28 Jan 2009 02:25:00 +0000

Each year, the IRS and Congress makes changes that effect how much income tax we’ll end-up paying. This year, such changes were made with an eye toward assisting both struggling taxpayers, and our Treasury. Not an easy line to walk or harmonize. Congress worked to adjust various deductions in accordance with our current inflation, provide various new credits to stimulate spending, assist businesses, and as always: worked to ensure that the AMT still serve its true purpose.

Here are the main changes that affect most taxpayers:

AMT Exemption Increased
For those of you who do Not know what AMT( "Alternative Minimum Tax"), which is the additional income tax you have to pay in addition to your regular income tax–Good! You are not yet affected by it. For those of you who are facing AMT(seems like more and more of us these days), congress realized that too, and therefore in 2008, the Alternative Minimum Tax Exemption was raised to the following levels:

$69,950 for married couple filing jointly, and qualifying widows ,up from $66,250
$34,975 for a married person filing separately, up from $33,125 and
$46,200 for singles and heads of household, up from $44,350

Note that this rise helps those taxpayers who have too many deductions (those that do not qualify for purposes of AMT calculation). For now, this adjustment is only effective for 2009, and unless Congress will soon act many taxpayers will face greater tax payments.

Personal Exemption Increases
According with inflation, the personal exemption on all family members claimed rises up. The exemption is $3,500, up $100 from 2007.

Tax Brackets Readjusted
The tax brackets for Both 2008 and 2009 have been adjusted according with inflation, which will most likely assist you!

Standard Deduction Increases
For those taxpayers who chooses to take the Standard Deduction in lieu of the Itemized Deduction, you can enjoy higher deduction amount as follows:

$10,900 for married couple filing jointly, and qualifying widows
$5,450 for single filers, and married filing separately, and
$8,000 for heads of household; All signifying $100 -$200 increase

Note that the Standard Deduction you can get is reduced if you are claimed as a dependent of someone else.
This year, as opposed to prior years for only Itemized filers, The Housing Assistance Tax Act of 2008 allows homeowners who claim the Standard Deduction, to claim an additional standard deduction for property tax.

The additional amount is limited to $500 or $1,000 for joint filers.
Additionally, if you suffered net disaster losses you may increase the Standard Deduction by such losses. The Standard Deduction amount will increase again in 2009, particularly helpful in case of inflation.

Qualified Tuition Deduction Continues
This is a tax break, allowing you to deduct up to $4000 in qualified tuition expense. It is available for both 2008 and 2009.

Sales Tax Deduction Still Available
For those taxpayers who can not enjoy the State Tax Deduction, in States without income taxes, the Sales Tax Deduction is available through 2009.

First Time Home Buyers Credit
If you bought a house in 2008, or wish to do so, buy the house by June 30, 2009. A $7,500 Credit is available for your 1040 income taxes. This credit however, is an interest free loan essentially, that has to be paid back to the government within 15 years. Still, this credit can really be of help to many young couples.

Adoption Tax Credit Increase
For those of you adding new members to your family through adoption, you may enjoy higher credit for such for both 2008 and 2009.

Earned Income Tax Credits ("EITC")
For those who are at lower tax brackets, and can enjoy this credit, the amount Increased from 2007. Note, that as opposed to many other credits, this credit Is Refundable.

Kiddie Tax is Revised
The tax on a child’s investment income, which previously only applied to children under age 18, in 2008 will also apply to 18 years and older. These 18 years of age, who had earned income that was equal to or less than half of his or her total support, and for those who fall in age group of 18 to 24, a student, with earned income equal to or less than half of his or her total support, such income is subject to the kiddie tax! Form 8615, is used to determine the amount. This is one of the not so favorite revision this year.

IRA and Other Retainment plans contribution Rise
Make your deductible contribution to your IRAs by April 15, to get the deduction for your 2008 taxes. If you are over 50 years old, you can now contribute up to $6000, rather than $5000 as before. Also,if you are covered by a workplace retirement plan, then your tax-deductible contribution to a traditional IRS is phased out(at higher amount for 2008)if:

Your filing status is married filing jointly and your AGI is more than $85,000 but less than $105,000
Your filing status is single, head of household and your AGI is more than $53,000 but less than $63,000
Your filing status is married filing separate returns your deductible phase-out starts at under $10,000

On a similar note, if you are age 70 1/2, for the 2008 according with the current state of the economy, Congress put a law into effect that does not require the mandatory distribution from your retirement account. Again, whether to take the distribution or not is a function of assessing your need for cash, and your ability to pay the income tax on the distribution.

Capital Gain Rates Reduced
For those who are investing, and report capital gains, the 5% tax rate on qualified dividends and net capital gains is reduced to zero. In general however, these reduced rates are available for individual whom taxable income falls below:

$65,100 for married filing jointly, or qualifying widow
$32,550 if single filer, or married filing separately
$43,650, if head of household

Business Milage Rates Goes Up
Dramatically high gas prices in the first half of 2008, prompt the IRS to boost the milage rates up for business, medial, and moving expense activities of your car. Two milage deduction rates will apply for the two parts of 2008.

Teacher Reimbursed Expense Extended
Teachers can claim up to $250 in such deduction, even without itemizing.
Last Year’s Economic Stimulus Payments Not Taxable
Remember the Economic Stimulus payments we received last year. They are Not reportable on your 2008 tax return. However, the stimulus payment affect whether a taxpayer can claim the Recovery
Rebate Credit and How Much of the credit can be used. Look on your 1040, 1040A, and 1040EZ for instruction on the matter.

These are only Some of the 2008 tax changes that Might affect you. Consult with your tax professional, refer to the IRS’s website, at www.irs.gov, to learn about other changes impacting your particular situation. Paying attention to these changes may cause your tax liability to be lower. Either way, file your personal income tax return timely by April 15, 2009, or file for an extension. Also, pay any tax liability timely. Facing IRS Penalties and Interest is a costly option, which you can Not afford in our current economical state.

Prepping for the Preparer- Upcoming Tax "Holiday"

noreply@blogger.com (Daphna BarTal JD, LL.M) — Wed, 21 Jan 2009 23:11:00 +0000

The holidays are behind us, almost! There is still one more national holiday that unites us all: April 15 Tax Day. And just like we diligently clean, prepare, and organize for our Winter holidays why not do the same for this Spring holiday!

Ideally, it is always good to start early in the year in retaining and sorting out your records, important documentation of deductions, expenses, and income items. However, even if you have not organize your records throughout the year it’s never too late to start now and be way ahead the April 15 deadline.
It is during January and February that you should gather your W-2 and 1099s, and tabulate your possible deductible expenses for the year, with all supporting documentation. Be aware though that the IRS this year granted the mailing of brokerage tax forms, 1099s, an extension to February 15. Thus, getting organized with all your other documents, will be prudent while waiting for such other 1099s to arrive. If you fail to get your W-2 and 1099 by Mid- February, contact your employer and request it. If such efforts fail, contact the IRS with assistance in retriving those from your employer. Moreover, you may wish to complete Form 4852 "Substitute for Form W-2, Wage and Tax Statement, or Form 1009R, Distributions Form Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, etc." which will serve as a W-2 substitute for until the original one is received, or found. Not receiving these income documents timely, does not serve as a valid excuse to not filing your return.

Seek out a solid tax professional whom could help you both with organization, proper compliance, and maximizing your lawful tax benefits. Note that once tax season gets rolling it is harder to seek a prudent tax advisor. For those of you seeking more sophisticated tax planning, it is advisable to contact your tax professional(Tax Attorney, or CPA) long before December 31 of the Prior year. If on the other hand, your income tax filing is fairly simple, and you have maintained proper, sorted documentation you can use software such as TurboTax,and TaxCut to complete your return. This will minimize your cost, and you can still call your professional with questions and problem resolution along the way.

Still, if you have attempted all "cleaning", documents sorting and organization approaches by close to April 15, and seem to still not be prepared for when the "guests" are coming (IRS) –> File for an Extension, IRS Form 4868. Doing so will allow you to avoid late-fling, and failure to file penalties IRC Code Sec. 6651. Note, that if tax is due on your return, you must still pay it to the IRS by the April 15 deadline, Even If you filed for an extension. Remember to file with all applicable governmental entities in your state. In CA, file your income tax returns with both the IRS and FTB.

Also, why not start getting even better organized for next year tax season, by taking proactive measures early on in 2009. Start an organized filing system, which can be all the way from using bookkeeping software such as Quicken and Quickbooks, to maintaining written tabulations, to simply keeping your important records, deductible expense documentation in a small box, cabinet, or begs sorted by months. Also, consult with a tax professional as to Which documents are truly important, which expenses could be deductible to your particular situation and which are not. Through only maintaining the pertinent documents you will have less to sort out at year-end, and more time for you and your tax professional to engage in relevant tax planning. If your records are well maintained, kept in a secure location any case of an Audit will be a breeze, and the IRS might even be a welcomed guest.

Keep your tax and financial records for at least 3 years, the general applicable statue of limitation for the IRS to assess taxes on your income tax return, or 2-3 when your taxes involve a claim for credit or refund. Repeat the organization and filing system each year, you might even engage a friend into brainstorming about the best organization technique for you. Repetition will make the process easier, and tax season more enjoyable. You might even start to spot those great Tax "bargains", and benefit opportunities just like you know how to do when holiday shopping.

A Better Option For Holding Title to Your Home For Married Couples in California

noreply@blogger.com (Christopher R. Twining, Esq.) — Tue, 20 Jan 2009 18:05:00 +0000

Q: I am a California resident, I want my spouse to own 100% of our home when I die, so we've decided to hold it in joint tenancy, as husband and wife. Is that the best way to hold title?

A: No it's not, unless you feel the government deserves more than its entitled to. While Joint Tenancy does have one positive in that it avoids probate court administration after a death to clear title. However, it gives an unnecessary windfall to the IRS because the surviving joint tenant/spouse does not get the "step-up" in his or her tax cost basis to the home. A relatively new way of holding title in California, called Community Property with a right of survivorship * both avoids probate and gives the surviving spouse the full "step-up" in tax basis.

The "step-up" in tax basis means that upon death of the first spouse, the surviving spouse's two ½ interests ( his/her original ½ interest plus the ½ interest they inherit) have their original cost basis increased to the fair market value of the property as of the date of death of the initial decedent spouse or the alternative value date selection for estate tax purposes.

The following examples illustrate why holding title to your home as community property with a right of survivorship can save California residents a lot in taxes over holding title as joint tenants.

Example 1 (joint tenancy): Jane and John Smith are California residents who hold their home as joint tenants. They bought it ten years ago for $400,000. John was the first to die. At the time the fair market value of the house was $1,000,000. Jane inherits John's ½ interest in the house by right of survivorship as the surviving joint tenant. This means that the transfer avoids the lengthy and expensive process of probate.

Jane's ½ interest's tax basis is $200,000 (1/2 of $400,000). Jane inherits John's ½ interest with a 'stepped up" basis of $500,000 (1/2 of $1,000,000). Jane's total tax basis on the home is now $700,000 ($500,000 plus $ 200,000).

Assume Jane has financial problems and is forced to sell the house. She is able to sell the home for the $1,000,000 fair market value. She will pay capital gains taxes on $300,000 (or $1,000,000 FMV minus her $700,000 tax basis).

Now lets look at what happens if the California residents' house was instead held in Community Property with a right of Survivorship.

Example 2 (community property w/ right of survivorship): Assume the above facts except that Jane and John Smith now hold title to the home as Community property with a right of survivorship.

Again assume John is the first to die. Jane inherits John's ½ interest in the home by the right of survivorship as the surviving spouse. This means again that the transfer avoids the lengthy and expensive process of probate. However, Jane now gets a "stepped-up" basis on both her two ½ interests (her original 1/2 interest and John's ½ interest she inherited). Jane's new "stepped-up" basis is now $1,000,000 ($500,000 for her original ½ interest and $500,000 for John's original ½ interest bequeathed to her).**

So now if Jane has financial problems and is forced to sell the home for the $1,000,000 fair market value she will incur Zero federal capital gains taxes because there will be no gain to tax ($1,000,000 FMV minus her $1,000,000 tax basis = 0). **

Clearly holding title as community property with a right of survivorship is more likely a better alternative for John and Jane than Joint Tenancy. Community Property with a right of survivorship accomplishes two goals: one it minimizes capital gains taxes if the surviving spouse should ever need to sell, and two it avoids probate's lengthy process and rather large fees.

This is just an example and there can be other reasons why you might want to hold title differently (e.g. in a living revocable trust, or separate property of one spouse).

The contents of this article cannot be deemed legal advice, nor does it give rise to an attorney-client relationship. The contents of this article are not intended as attorney advertising or as solicitation for legal services.

Always consult a qualified estate planning attorney licensed in your state before making any changes to the way you hold title to your assets.

* Cal. Civ. Code § 682.1

** [Internal Revenue Code § 1014(b)(6)].

*** Note that Jane will also not incur estate taxes because property that one spouse wills or transfers to the other is not subject to estate taxes under an estate tax deduction called the "marital deduction." [ Internal Revenue Code § 2056(a)].

CHRISTOPHER R. TWINING
LAW OFFICES OF CHRISTOPHER R. TWINING
1440 VETERAN AVENUE, SUITE 509
LOS ANGELES, CALIFORNIA 90024
(310) 492-5990 Fax (310) 775-9774
http://www.twininglaw.com

Estate Tax - Here or Gone?

noreply@blogger.com (Daphna BarTal JD, LL.M) — Fri, 16 Jan 2009 01:45:00 +0000

Benjamin Franklin suggested that Death and Taxes are the only certainty in this world. What seems to be the difference still between the two, is that death is frequently painless. The deceased person who left us here (painlessly and peacefully hopefully), with lots of good memories, perhaps some gifts and inheritance even, also often left us with a great tax burden.

The deceased person Gross Estate, which includes all property that the deceased has, or has right to at the time of his/her death, is subject to tax. It seems a bit unfair to have a DECEASED person’s property taxed after his death, while that person already paid substantial amount of taxes during his/her life. However, whether you believe it or not, as with most tax laws, some logical policy Does exist. Estate Tax, a part of the unified Estate and Gift tax laws, comes to mitigate a potential class system whereby rich families get richer by transferring on wealth tax-free to future generations. Through the Estate Tax, we ensure that these future generations are "at least" as hard- working as we are in generating their wealth, and not just living "free" of previous generations’ untaxed inheritance. One can say it is simply a good incentive for our kids. And, as always, there is the other reason: Estate Taxes remains a large source of federal revenues.
In light of the fact that our government needs us Even After our death, it is important to know where are we standing now, and where are we heading too??

The Economic Growth and Tax Relief Reconciliation Act of 2001 revised the federal Estate and Gift Tax structure. In 2008, as has been since 2006 Only estates over $2 million are subject to Estate Tax, at a rate of 45%. In 2009 that amount goes up to exclude estates of up to $3.5 million. An Estate Tax Return, also known as an IRS Form 706, must be filed within 9 months from the decedent’s date-of-death, unless an extension is filed. The Estate Tax is paid from the assets of the estate, generally before any distributions are made to the beneficiaries and heirs. Thus, properly paying the estate tax requires identifying, gathering and valuing all the assets, filing of various forms, meeting deadlines, knowing the applicable tax laws and available benefits, and of course coming up with the funds to pay the tax if due.

Wow, so this seem pretty intricate, and the tax fairly hefty. Many Californians, specifically home, investment and business owners find themselves subject to the Estate tax. However, before one goes morn the loss of the person for yet another reason - ESTATE TAX, you should be aware that there Are ways to relieve the tax consequences. Careful planning and drafting of initial estate documents prior to one’s death, such as a Revocable Living Trust, QTIP Trust, and Charitable Trusts can maximize the benefits of the Unlimited Marital Deduction, Unified Credit, and Charitable Deduction. Even after death, consulting with a Tax Attorney can allow the estate to take advantage of the various deductions, exclusions, credits and exemptions available to reduce the estate tax.

Perhaps, the biggest break of all, the "Talk-of-The-Day", that Might be available in 2010, is the repeal of the Estate Tax for that one year. What?? did we hear correctly, Yes! However, before one plan to die in 2010, it should be noted that this benefit is not all that clear. Decedent’s properties that now enjoy a "Step-Up" basis to their fair-market-value at his/her date-of-death, will be subject to a "Carry Over" basis with some allowed modification instead. This means that any property YOU are to receive from the person who passed away, will carry in your hand the same value that the decedent had years ago. If you choose to turn around and sell that property the following day, you might have to pay a large sum of Income Tax. Moreover, it appears that in the current economic crises the Obama administration will work hard in the first few weeks to block the estate tax from disappearing. Some suggest that the administration will lock in the estate exemption rate at $3.5 million, while other believe that rate will revert back to the 2001 rate, of the $1 million exclusion amount. However, it appears that the 2001 rates, might cost an already struggling Treasury, billions of dollars. For that reason alone, the reversion might never happen.

Still, whatever the Estate Tax exemption rates might be, its worth hanging-around watching how this interesting topic will play out in the next several weeks/months. Happy New Year!