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Wednesday
Dec052012

The Tax Increases Have Begun

by Lewitt Hackman's Trusts & Estate Planning Practice Group 
December 4, 2012

Tax Attorney EncinoMichael Hackman - Certified Tax Law Specialist Kira S. Masteller - Gift Tax, Trusts & Estate Planning

With the “fiscal cliff” discussions front and center, many people do not realize that certain tax increases are already being implemented, both at the federal and at the state level. 

 

Federal Taxes

 

Earlier this week, the IRS released 159 pages of new tax rules related to the implementation of the 2010 healthcare reform law, sometimes known as “Obamacare”. 

First, there is a 3.8 percent surtax on “investment income” for individuals earning more than $200,000 in modified adjusted gross income, and married couples filing jointly with more than $250,000 of such income (notwithstanding the 159 pages, there are still numerous uncertainties as to what constitutes “investment income”). 

This surtax will be applied to capital gains and dividend income and is the first of its kind applying to capital gains and dividend income.  The IRS offered the example of a single taxpayer who makes $180,000 in wages plus $90,000 in investment income (a modified adjusted gross income of $270,000).  The 3.8 percent tax would apply to $70,000, resulting in a $2,660 surtax. 

In addition, there is a 0.9 percent healthcare tax on wages (i.e., the employee portion of the payroll tax) for such “high-income” individuals.  These rules are effective for the tax year starting January 1, 2013, though the IRS will take public comments and hold hearings in April before making the rules final in the fall.  It is estimated that these tax increases will raise $317.7 billion over 10 years.  We believe that employers must start to withhold once an employee’s wages pass $200,000 each year. 

There are numerous other changes as part of the healthcare law, including several changes in the deductibility of medical expenses.

 

California State Taxes

 

California voters recently passed Proposition 30 by a margin of 55.3 percent to 44.7 percent.  This proposition increases California sales tax to 7.5 percent from 7.25 percent.   

In addition, it will result in increases in state income taxes for “high-income” tax brackets.  These California income tax increases will apply retroactively to January 1, 2012, as follows:

  • 10.3 percent tax rate on taxable income for individuals between $250,000 and $300,000, and for married couples filing jointly between $500,000 and $600,000 (formerly 9.3 percent);

  • 11.3 percent tax rate on taxable income for individuals between $300,000 and $500,000, and for married couples filing jointly between $600,000 and $1,000,000 (formerly 9.3 percent); and

  • 12.3 percent tax rate on taxable income for individuals over $500,000, and for married couples filing jointly over $1,000,000 (in addition, though not part of Proposition 30, there continues to be an additional 1 percent tax assessed for an individual’s taxable income in excess of $1,000,0000, pursuant to the Mental Health Services Act). 

The Proposition 30 tax increases are temporary – the increased sales tax applies for four years and the increased income taxes apply for seven years. It is estimated that these taxes will bring in additional revenues to the state of approximately $6 billion annually (less after 2016-17 as a result of the sunset of the four year sales tax increase period). 

On the bright side, certain proposed deep cuts to education and other government services should not occur as the result of the passage of Proposition 30.

 

Michael Hackman is the Chair of our Trusts and Estate Planning Practice Group, and is a Certified Specialist in Tax Law, designated by the State Bar of California Board of Legal Specialization. Kira S. Masteller is a Gift Tax, Trusts and Estate Planning Attorney. 

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.

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