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Tuesday
Jul032012

Will Contests & Estate Disputes – Five Ways to Avoid a Family Feud 

Trusts & Estate Planning

 

by Kira S. Masteller
818.907.3244

 

Even in the most complacent of families, estate disputes can sometimes arise under the added strain of bereavement and emotional loss.

When family members don't get along (which is more common than not) family feuds can take on a costly aspect in terms of time and money spent in litigation. Estate disputes can drain all of the resources you've worked hard for, and leave the ones you love most feeling bitter, neglected and without the gifts you intended to leave them. 

 

Avoiding a Contest

 

First, you'll need to take some common sense measures.

The most common argument a family member will make when disputing a will or trust is that the writer, or testator, was not of sound mind. Based upon your age or medical condition, consider having your doctor and a psychologist evaluate your physical and mental health just before finalizing your will, so that you can avoid this allegation.

Seek your own legal counsel, separate from other family members to protect your interests and the interests of those you wish to give gifts to.  

Consider hiring a corporate trustee to serve instead of family members. Corporate trustees are less likely to be seen as abusing their trustee powers; whereas a stepparent or favored child may unwittingly cause suspicion or jealousy among your other heirs.

Last, make sure you own the property you plan to bequeath outright. Jointly owned property such as business interests, real estate, time shares, etc., may revert to other owners.

Once you've done all of these things, you're ready to put your intentions in black and white. Here are five simple steps you can take to avoid inheritance disputes when you pass: 

1. Equal and Unequal Distribution of Property:

Try not to play favorites. The general rule here is to ensure that all of your children and/or your spouse are treated equally. There's not much room for argument when three children each get 1/3 of the house, business, or other property. 

Even better, if you can distribute property while you're still living – make sure you have legal documentation reflecting what you gave or sold to your heirs – you may avoid a contest altogether. 

But how should you handle distribution of your estate if you absolutely don't want to treat all of your family members equally?  

2. Disinheritance:

Make your intentions clear by defining which people will not inherit property, or which will get smaller shares of your estate. Avoid the whys and wherefores – these only encourage bad feelings and potential contests.  

3. Family Financial Obligations:

Seed money for an heir to buy a house or start a business should be thought out carefully. Is the money an outright gift? Is it a loan that needs to be paid back to your estate? Or is it an advancement on your estate? Clearly define your intentions here, to avoid family arguments and litigation.  

4. Business & Property Contracts:

Your business is thriving and all of your children want a share, but one in particular devoted a career to nurturing and running it while the others pursued other interests. Consider selling it to your heir of choice outright, while you're still alive.  

5. No Contest Clauses:

Make your heirs forfeit their interests in your estate should they contest your trust. This can make the more disgruntled members of your family think twice before raising disputes.

 

Kira S. Masteller is a Trusts and Estate Planning Attorney who helps family members avoid will and estate disputes and probate proceedings. Contact her via e-mail: kmasteller@lewitthackman.com.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Jun202012

Tax & Estate Planning - Small Win for Same Sex Couples?

Trusts & Estate Planning

by Kira S. Masteller
818.907.3244

 

The Defense of Marriage Act, or DOMA, was enacted in 1996 to "define and protect the institution of marriage." It defined marriage as a legal union between one man and one woman – and defined spouse as a person of the opposite sex who is a husband or wife.

The Act also says that states, territories, possessions or Indian tribes of the U.S. are not required to recognize public acts and judicial proceedings regarding relationships between persons of the same sex that occur within other states, territories or tribes.

These definitions and directives have been under fire for a long time, but recently, a district court in New York ruled parts of DOMA unconstitutional.

In Edith Schlain Windsor v. The United States of America, the question revolves around tax obligations for estates passing to same-sex spouses.

 

Trust and Estate Planning for Same Sex Couples Under DOMA

 

For context: Windsor and Thea Spyer met in 1963, entered into a committed relationship and lived together. In 1993, Windsor and Spyer registered as domestic partners in New York. They married in Canada in 2007.

Spyer's estate passed to Windsor in 2009 when she died. But Windsor paid over $350k in taxes on the estate because under DOMA, she did not qualify for an unlimited marital deduction.

Windsor sought a refund, claiming DOMA violates the Equal Protection Clause of the Constitution of the United States' Fifth Amendment. Windsor had to prove that:

  1. She suffered an "injury in fact," in this case, her interests were legally unprotected;
  2. There was a causal connection between the injury and the Defendant's actions, not between the injury and a third party; and,
  3. It is "likely" the injury will be remedied with a favorable decision

The defense, the Bipartisan Legal Advisory Group (BLAG) of the U.S. House of Representatives, alleged among other things, that Windsor did not meet the second condition. The group claimed that the State of New York did not recognize Windsor's marriage to Spyer in the year that Spyer died. Defense cited the 2006 decision Hernandez v. Robles, which said "New York Constitution does not compel recognition of marriages between members of the same sex."

The District Court disagreed. According to Justice Barbara S. Jones:

In 2009, all three statewide elected executive officials – the Governor, the Attorney General, and the Comptroller – had endorsed the recognition of Windsor's marriage [Justice Jones cited two other court decisions, Godfrey v. Spano, and Dickerson v. Thompson]. In addition, every New York State appellate court to have addressed the issues in the years following Hernandez has upheld the recognition of same-sex marriages from other jurisdictions.

There were other claims and defenses made. But the Court granted summary judgment for Windsor, and declared Section 3 of DOMA unconstitutional in this case. Though a victory for Windsor and same-sex couples for the moment, we can only wait and see what happens next.

Kira S. Masteller is a Trust & Estate Planning and Probate Attorney. If you have questions about your own estate planning, contact her at kmasteller@lewitthackman.com .

 

 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Tuesday
Dec062011

Steve Jobs Estate Taxes – Which Way is “Up” for the Jobs Family and for You?

 

by Robert A. Hull

As the world mourns the loss of innovative tech giant Steve Jobs, we learn he may have left his wife, Laurene, and family up to $6.78 billion dollars in Disney and Apple stock.

He also left his family in a quandary not of his own making, namely, how to negotiate financial pitfalls while traveling on uncertain terrain.

Unfortunately, with the recent failure of the so-called congressional Super Committee to address tax and spending reform, the “Bush tax cuts” are set to expire in 2013.

Capital Gains Tax Legislation: As it Stands Now

 

If there are no further changes in the law:

▪ The current 15 percent capital gains tax rate is set to rise to 20 percent,
▪ Income tax rates are due to increase,
▪ The current $5 million gift/estate tax exemption will return to a $1 million exemption.

The key takeaway is “absent further legislation”, i.e., no one knows what the law will be in 2013.

At least as far as the Jobs family is concerned, if they sell the stock before 2013, and (here’s the kicker) if indeed the Bush tax cuts lapse, the Jobs family may avoid almost hundreds of millions in capital gains tax they would have to pay at the higher 20 percent rate if they sold after 2013.

The great news is that the beneficiaries of Steve Jobs’ stock will receive an automatic step-up in basis of the stock to the value of such stock on Jobs’ date of death (including a step-up on Laurene’s ½ community property interest in such stock) – i.e., they will receive the benefit of the increase in the stock’s value since acquisition, tax free. However, any further increases (after Jobs’ death) in the value of the stock interest Jobs’ passed to his heirs will be subject to capital gains when the stock is sold.

So, there’s a capital gains tax of 15 percent or ‘possibly’ 20 percent, which prompt some questions:

1. How are individuals and businesses supposed to make certain financial decisions in the face of such uncertainty?

2. And, how are financial and estate planning professionals supposed to give sage advice and counsel when none of them know what the law will be in 14 months?

Steve Jobs’ Estate Taxes: Looking Up

 

The answer to both questions above is that effective planning in such uncertain times is a challenge. Obviously, if considerations other than tax consequences are paramount, then those business decisions may take care of themselves.

If the Jobs family wishes to retain Steve Jobs’ control of Apple, for example, they might hold on to the stock, risking a higher tax in the future if Congress does nothing or increases capital gains.

But, if the tax consequences are the most important consideration (hey, who really wants to give the government $876 million?) they may wish to sell the stock. But, the Jobs family will be divesting themselves of Steve Jobs’ legacy.

Tax and Estate Planning for Your Family

 

Many of you may be facing similar questions, though not on the scale of the Jobs family: To sell or not to sell? To gift or not to gift? For example, do you as parents and owners of a family business utilize the current $5 million gift tax exemption to gift portions of the family business to your children, even though you may prefer to do so in a few years?

If you do so before 2013, you can pass along $5 million of business value tax-free. If not, you risk having to pay gift tax on the portion of the business you pass which is worth over $1 million. . . unless Congress takes some other action, of course.

Given our government’s penchant for last minute deal-making, short-term fixes, and for striking bargains that are difficult to predict (like a “default” return to a $1 million exemption in 2013 absent further action), it may not be prudent to wait till the last minute to make these financial decisions.

Some decisions take time and fit into a family’s overall strategy (e.g., making gifts of minority interests in a family business or property, over time) and you may not have the necessary time to effectuate such a strategy or sell the stock before the new law goes into effect.

So, which way is up? And, where does this leave us all?

It leaves us in the same boat we’ve been in longer than any of us care to imagine – making life-altering financial decisions based on less information than we wish we had. However, it is nonetheless helpful to have a first mate on this trip, a professional who can help you best negotiate the rocks and reefs which may be lying just below the surface.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Thursday
Jul142011

Carmageddon To Do List: Trust and Estate Planning

 

by Robert A. Hull

 

Of all the things your Carmageddon To Do list should include, trust and estate planning should be ranking right after:

#1. Avoid driving in Los Angeles unnecessarily this weekend like the city’s infested with bubonic plague (though, I vaguely remember that getting around town during the 1984 Olympics wasn’t so bad – here’s to hoping).

Plague or not, many businesses along the 405 corridor are encouraging visitors by offering discounts and other incentives to lure foolish drivers to their doors. Don’t take the bait. Instead, stay home, relax with your family, and plan for the future. When was the last time you did that?

I know, trust and estate planning is a chore, like dead-heading the geraniums or re-caulking the bathtub. But if you’re not going to plan for your future and that of your loved ones this weekend, when WILL you take the time for it?

That being said, here are some estate planning points to ponder while you’re doing other things around the house:

 

Is it better to have a will, a trust, or both?

 

Best to view a will and a trust as a unified whole. With a will, you can decide how to distribute all of your property upon your death and name an executor to do so. However, without a funded trust, your estate will be “probated” – i.e., subject to Court-supervised administration (which can be, to the uninitiated – like re-caulking geraniums and dead-heading bathtubs – all while paying for the privilege in time and money).

With a trust, you have even more flexibility to distribute your property. However, if enough of your assets are not transferred into your trust, you can end up, again, in probate.

A trust can be set up with your spouse or partner, and like a will, you get to name someone to administer the trust (the “Trustee”), who will very likely be your spouse or partner.

Again, you must fund your trust before your demise, so that your loved ones can avoid -- da, da, dum -- probate.

 

Make it Easy for Your Executor or Trustee

 

Don’t hide your assets unless you’re committing an act of revenge.

If you actually like your Executor or Trustee and want to make it easier for him or her, make a list of all of the assets you’re distributing and make sure s/he has a copy, along with your accountant or attorney (or at least one of the above).

Upon your death, your trustee or executor must maintain records regarding any transactions related to your estate, i.e. payments from the estate for your funeral expenses, interests and gains on your accounts, fund transfers between accounts and more. S/he has a fiduciary duty to the beneficiaries of your estate to administer the assets according to the terms of the operative will/trust, and may be liable to beneficiaries for failing to do so.

The executors and/or trustees will have to give notice to your beneficiaries and heirs . . . in some cases, along with regular accounting statements. And courts may enforce notice and reporting, even for trusts outside of the court’s supervision, or not in probate.

 

Taxing Questions

 

Currently, California does not have an inheritance tax like some other states, and generally speaking, there is no federal estate tax due upon the death of the first spouse. Currently, there are no federal estate taxes for assets worth under $5 million dollars (and, a surviving spouse may use the deceased spouse’s unused portion of his or her $5 million exemption).

You may gift up to $5 million dollars, tax free. So, if you’re thinking about gifting property or funds to a particular someone…this may be the very time to do it because the law is set to reduce the estate/gift tax exemptions to $1 million dollars in 2013, absent further legislative action. Remember, though, that gifting now will reduce your estate tax exemption to the extent that you use your gift tax exemption…

 

Trust and Estate Planning Accountability

If you’d like more information, read my colleague’s, Michael Hackman’s blog, California Trust Attorney – Three Things You Should Know About a Trust.” 

Stay safe this Carmageddon weekend, steer-clear of driving and start a little estate planning for the family… 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Thursday
Jun232011

California Trust Attorney – Three Things You Should Know About a Trust

Tax Law Certified SpecialistState Bar Certified Specialist in Tax Law

 

by Michael Hackman
818.907.3279

 

 

 

 

What is a trust and how does it differ from a will? Before planning your California trust you should know three important things:  

1. A Trust Defined

 

A trust provides for the allocation of assets when you and/or you and your partner or spouse passes away. (Your California trust can be yours alone, or set up for both you and your significant other.)

By creating, and placing one’s assets in the trust (“funding” a trust), you ensure your assets are collected, managed and transferred according to your terms, without the hassle and expense of a probate process.

2. A Trust Administered

 

If you pass away with a California trust, you named a successor trustee to manage your assets upon your death. If you were married when you passed, your surviving spouse is generally the successor trustee.

If you create a trust with a spouse or partner, allocations are often made of certain assets into separate “sub-trusts,” which are managed or administered separately. Even if the survivor is the lifetime beneficiary, separate management of each sub-trust is required, as each sub-trust has its own rules for management and distribution. The subtrusts are often created for tax reasons.

Upon the first to die, title should be changed on assets to reflect the decedent’s death. A good trust attorney can best help you figure out which assets should be assigned to which sub-trusts.

3. Probate Avoided

 

For California trust assets to avoid probate, you should ensure your assets were actually transferred to the trust before you pass away. However, merely creating a trust won’t accomplish your goals and may saddle your family with years of expense during a probate process.

To avoid this, you should execute documents assigning your assets to the trust or re-title certain assets (e.g., transferring real property to the trust by deed). Have your trust attorney review your title to assets and the assignment document(s), to help you determine which assets to hold in trust.

Even if you have a valid trust, some assets may still be probated if not transferred to the California trust during your lifetime. But in California, a successor trustee may use a simple non-probate process to transfer some assets to the trust after the decedent’s death if the aggregate gross value of such otherwise probatable assets is under $100,000.

The state also permits courts to order that assets be added to trusts after death under certain circumstances. See your California trust attorney for more information.

California Trust, Will and Probate

Trust administration can be a lengthy process, depending on the terms of the trust. Many plans provide periodic distributions to your children or other beneficiaries until your beneficiaries reach certain ages (wills, of course, can also establish similar trusts for beneficiaries).

For more information about wills and probate, please see my colleague, Robert Hull’s blog “Will and Probate Explained – Why You Should be Prepared”.

Michael Hackman is a California trust attorney and a Certified Tax Specialist as specified by the State Bar of California’s Board of Legal Specializations program. Mr. Hackman Chairs our Tax and Estate Planning Practice Group and can be reached at 818.990.2120.

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120