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Entries in gift tax (10)

Wednesday
May152013

A Living Trust – One of Many Tools for Protecting Your Estate

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

A living trust is not the only vehicle that individuals need to consider when completing an estate plan. There are several other types of trusts and tools, some of which are equally as important as a living trust, necessary to accomplish and complete planning goals.

A well rounded estate plan must also consider potential income tax problems, estate and generation skipping transfer tax consequences, as well as planning trusts for minor children or protecting a child’s inheritance from his or her spouse or creditors.

In the first of a six part series on Gift Tax and Estate Planning blogs, I'll explore how Living Trusts can help protect and secure you and your family members for the future.

 

What is a Living Trust?

 

A living trust is a way of holding title to your assets so they will not be subject to Court Conservatorship or Probate Proceedings during your life or upon your death.

The trust governs what happens to your assets if you are incapacitated during your lifetime, as well as providing for the distribution of your assets when you die. You can change your living trust while you are living and you keep control of the assets you place in the trust.

Estate for Federal Estate Tax purposes includes:

A living trust also includes estate tax planning provisions so that your family will not pay estate tax unnecessarily.

Estate taxes are presently at a 40 percent rate (of the value of all of your assets when you die). Your assets include your:

  • Real Estate
  • Personal Property
  • Business Interests  (Partnerships, LLCs, Corporations, Joint Ventures)
  • Money
  • Promissory Notes
  • Deeds of Trust
  • Investment Accounts
  • Retirement Plans (such as IRAs and 401(k) plans)
  • Life Insurance
  • Annuities

If the total value of these assets exceeds $5,250,000 (Federal Estate Tax Exemption in 2013), there will be an estate tax when you die on the amount in excess of the exemption at the rate of 40 percent.

While leaving your assets to your spouse avoids the estate tax at your death, it compounds the estate tax at his or her death. Therefore, it is not always the best strategy to leave all your assets directly to your spouse in joint tenancy or payable upon death accounts.

Instead, there are ways of allowing your spouse to have control over the assets, while still avoiding death taxes on those assets upon his or her death.  A living trust will generally provide estate tax planning provisions for a married couple by allocating the deceased spouse’s estate tax exemption to an Exemption Trust upon his or her death, so that his or her estate tax exemption will be fully utilized, thereby reducing the value of the surviving spouse’s estate upon his or her death.

Though a living trust is a very important and basic estate and tax planning tool, it is not the only one.  My next blog in this series will discuss Life Insurance, and how you can use that vehicle in conjunction with an irrevocable trust.

 

Kira S. Masteller is a Gift Tax & Estate Planning Attorney in our Trusts and Estate Planning Practice Group. Contact her for more information via email: 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
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.

 

 

Thursday
Feb232012

Charitable Trusts + Low Interest Rates = Tax Savings

Trusts & Estate Planning

 

by Kira S. Masteller
818.907.3244

 

Some people don't like to talk about death and because of that fear, distaste or superstition; they put off planning for the future. But think about it this way: 

When you pass away, your money and assets will go to one of two places. They will either go to (1) People you care about, or (2) Institutions who have already received your money throughout your lifetime – the State and Federal Governments. 

Those are very broad categories, but it's essentially true. When we talk about the people you care about, we mean more than just those individuals who make up your immediate family. 

In estate planning, “what” you care about may include people, such as yourself, your children, your siblings and your friends – but might also include your alma mater, a national animal rights group, your favorite church or the local Elks Lodge, among many, other organizations. 

The CLAT – Smart Moves in Tax Savings

 

One way to make sure you provide for all of the people and charities you care about is through a CLAT, or Charitable Lead Annuity Trust. The benefit of the CLAT is that you can take advantage of some huge tax breaks right now, while interest rates remain low. In fact, the lower the interest rate, the bigger the tax savings through CLAT. 

These charitable trusts will pay your favorite charity or charities a pre-determined amount of money for a pre-determined time frame, leaving whatever funds or assets that are left at the end to revert back to you, your heirs, or even to another trust. 

If using a CLAT to pass along assets to beneficiaries, your heirs wind up with whatever funds or assets you used to fund the CLAT, and the possibility of very little or no gift tax liability at the end of the term.  For example: 

You own stock that yields dividends (income) you do not need.  You put $100,000 of that stock into a 10 year CLAT that gives $5,000 annually to a program that benefits at-risk teens. The income from the stock increases the value of your CLAT, and at the end of the term, your children get the principal stock, plus the profits it generated. The gift tax your children will owe is based on what the IRS projected the charitable trust to be worth when you first set up the CLAT. 

If employing a CLAT for yourself, you will get the original assets back, and an income tax break. 

Charitable Trusts can be a convenient way to make sure both your heirs and your favorite organizations receive gifts during your lifetime, while you gain an ever-important tax break. 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. If you have questions about tax planning, business succession planning, or shifting your assets, please call her 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.

 

 

Tuesday
Oct112011

Maximizing Your Annual Gift | Tax Free Gift Exemption

Trusts & Estate Planning Attorney

 

by Kira S. Masteller
818.907.3244

 

If your estate is valued over the Federal estate tax exemption ($5,000,000 in 2011 and 2012 and returning to $1,000,000 in 2013), you should consider making annual gifts to your family now so that those assets that would be received by the family anyway, will NOT be exposed to unnecessary estate taxes .

 

Your estate includes your:

▪ real estate,
▪ bank accounts,
▪ investments accounts,
▪ retirement assets,
life insurance,
▪ personal property, and
▪ all other assets

Annual Gifts that Don’t Keep on Giving (to the Government)

 

You are allowed to give $13,000 to as many individuals as you desire each year prior to December 31st without having to report the gift to the IRS, and a gift of $13,000 or under will not reduce your lifetime Gift Tax Exemption (presently $5,000,000; scheduled to return to $1,000,000 in 2013).

This means that you can give your son $13,000, his wife $13,000, and each of his three children $13,000 so that you have removed $65,000 that would be taxed at a rate of 35 percent (in 2011-2012; may return to 45 percent in 2013) if you left it in your estate and paid estate tax upon your death.

You can also directly pay tuition for students (your children, grandchildren and great- grandchildren), and health care expenses without affecting your lifetime Gift Tax Exemption. This is another way to help your family and reduce your exposure to Federal estate tax at the same time.

Of course when you have less assets in your estate, you may earn less income. This is something to consider prior to making gifts. Alternatively, if you are paying excessive income taxes, by reducing your income annually, you will pay less income tax annually.

If you have any questions regarding making annual gifts, you should contact your estate planning attorney or accountant to determine whether or not you should plan to make annual gifts to reduce the value of your estate.

Kira S. Masteller is a California Trust Attorney in our Trusts and Estate Planning Practice Group. For more information, call Ms. Masteller 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.

 

 

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