New Estate Tax Laws

I almost posted this post with no words in it. Frankly, nobody on earth knows what the tax laws are going to be once the governemnt sorts it out.  However, let’s talk about some possibilities.

What is the state of the law as of TODAY?  Luckily today is a holiday (Martin Luther King Day) so the state of the Federal estate and gift tax laws TODAY should be in effect at least until Tuesday morning!   The federal gift and estate tax laws have long been called “unified” although right now they aren’t as unified as in the past. Essentially gift taxes are taxes paid on transfers made during life and estate taxes are taxes paid on transfers made after death.  There are some gifts that become more confusing but for today’s blog we will keep things as simple as possible and just refer to gift taxes as during life transfers and estate taxes as applying to after death transfers.

Let’s start with the gift tax laws.  As of today you can gift $1,000,000 during your lifetime tax free.   Yes, you have a $1,000,000 during LIFE gift tax exemption.  You also can give $13,000 a year without any tax to anybody you like.  These are individual numbers so a husband and wife can give $2,000,000 and/or $26,000 per year if set up properly. In the simplest of math let’s say you are single and wanted to write a check to your only child. You could write a check today for $1,013,000 without any tax. Any gifts over that amount would be taxed at a rate of 35% as of today. By the way, if you are thinking of that and need a new child feel free to contact me to discuss!  Yes, that’s a joke.

At death, as of January 1, 2010, there is no federal (but some states still have) estate tax (or some call it a death tax).  Thus, as of today (but subject to change almost any day now) you can die and leave your family $20,000,000 or $200,000,000,000 or whatever without federal estate tax. There are some potential new capital gains (or income) taxes now, that didn’t exist prior to January 1st.  However, it’s a lower rate than the estate tax has been and we will not be talking about that today.

In recent history our federal government has consistently had an estate tax rate around 50%.  Thus the new numbers are historically low.  It was not that long ago that the highest marginal estate tax rate was 55% and, guess what happens January 1, 2011… the 55% estate (and gift) tax rate is BACK… unless the government does something sooner.

What could be done?  Ok, this is the real meat and potatoes of my blog.  Let’s start with the fact that you could die today with the last thought of, “well, shoot I am dying but, on the bright side, at least my kids won’t have to pay Uncle Sam that dreaded estate tax….”  HOWEVER, not to rain on the dead’s parade but there is talk that if the feds ever figure out what they want the law to be they could make it a retroative application.  Thus you could die today, January 18th, thinking there is no estate tax but then the feds decide to make the tax free amount $2,000,000 and make it retroactive to people dying after January 1st!  Oh the horror!

However, the experts say a retroactive change in the gift tax rate could not be done.  Thus, some experts suggest that people, with very large estates, consider making some gift taxable gifts ASAP and utilize the historically low 35% gift tax rate. This goes against the basic notion that you should never pay tax you don’t have to but many experts suggest this.  Talk to YOUR tax expert to get her opinion.

Ok, ok but what’s going to happen?  I really don’t know.  However, I find it impossible to believe there will not be some gift and estate tax going forward. I say this because if the feds were serious about repealing the estate tax wouldn’t they also repeal the gift tax?  Of course. However, they have not. As stated above, it’s still at a $1,000,000 exemption.  Certainly begs the question….  So, with the assumption there will be an estate tax what level would it kick in?

My thought is the government clearly needs tax dollars pretty badly. The estate tax is a known money maker for the government.  For a couple years now the vast majority of experts thought the $3.5m exemption level would stick. I myself think that’s more than reasonable.  At $3.5m the tax effects fewer than 1% of the population.  Probably something like 1/10th of one percent but I don’t know the official numbers.  Even at $2m the tax would effect very few people. Thus you have a government in need of money, a tax that is a known money maker, and a tax that directly effects only a tiny percentage of the population… hmmmmm, you do the math.

What should be doing with your estate plan?  If you have several million dollars you should continue your gifting program.  Writing checks for $13,000 (or slightly less) is the easiest. If you want to get more bang for your gifting buck then you might look into an irrevocable life insurance trust (aka: “ILIT”) or family limited partnership (or Family LLC) which are often called FLP’s or FLIPs.  You can also gift small pieces of real estate by deed.  All of the above should be done with your estate planning attorney of course.

Also, in addition to the above, if you are married you should be reviewing your trusts with your attorneys to make sure your tax planning trusts are set up correctly. They may be called A/B trusts, credit shelter trusts, exemption trusts, QTIP trusts, bypass trusts and who knows what else. If you are married and have this language in your trust talk to your attorney to make sure your trust is accurate with the current uncertainty.  Another day I will talk about these problems in more detail.

In conclusion, as stated above, nobody has any clue what the tax laws are going to be as this year goes on. The key is paying extra attention to your estate plan during this time of uncertainty.


Every California lawyer knows what these letters stand for… Mandatory Continuing Legal Education.  Some attorneys dread it.  Yes, sitting in some hotel ballroom listening to non-professional speakers drone on and on can be tiring. As the years have gone on I have learned to really appreciate MCLE.

I remember sitting in a session, as a new attorney, down in Coronado.  Could practically see the big blue bridge from the conference room windows!  I was with my mom who also is an attorney. Want to hear something even scarier… my dad was an attorney too!  I’ll tell you about that some other day. Anyway, my mom and I were at at the Southern California Tax Institute which generally has high level speakers. However, this was about 1995 and I was a newbie attorney. Oh boy, some of those presentations were over my head!  However, I learned then that you get what you can out of each presentation. Sometimes I would walk away with only a little and sometimes a lot.

Fast forward 15 years and I have taught MCLE courses on probate.  I am a certified specialist in this area of law and now some young buck gets to be the one who doesn’t understand it all!  In addition to teaching I go to a large number of MCLE courses a year.

Well anyway, today I am going to a couple of MCLE presentations. I have a three hour session on recent developments in estate planning and probate law which is one that most specialists go to every year.  The other three hour class is called “Practical Problems in Trust Administration.”  Of the two I am more excited about the second but they both should be good.

By the way the State Bar of California does not let you get cheapie “hours” either.  The actual presentation time is three hours AND fifteen minutes with a 15 minute break. Hours equal hours with the State Bar!

The recent developments class can drone on as the lawyers presenting it typically tell you about each new case, and other law, which might effect you this year.  They tend to flip through a course book and almost read, word for word, out of the book.  The laws tend to be pretty obscure although the new no contest laws will probably be discussed which is good as they are confusing to all!

The second presentation sounds very interesting. The problem with trust administration is that people (clients and also attorneys who do not practice regularly in this area of law) think it’s easy and often, mistakenly, think they don’t need an attorney.  Though a properly drafted and funded trust should be much less costly than a full probate to administer there still can be costs involved.  An experienced probate and trust lawyer knows what needs to be done to make a trust administration run smoothly. Anyway, I am excited about this one. Oh my, it sounds funny to say but really I am excited about it.

So how many hours of MCLE does an attorney do a year?   The current requirements, in California, are 25 hours spread over 3 years.  I have always exceeded that number. On top of that as a certified specialist I have a minimum of SIXTY hours, every five years, in MCLE courses specifically approved by the state bar for specialization credit in estate planning, trust and probate law.  Many courses, even if on topic, do not qualify. Only the high level programs count!

So, every lawyer does about 12 hours a year.  However, as a certified specialist I basically double that number each year!  Plus, as one who takes pride in being the best I can be I exceed the number I am required to do! Your lawyer should too!

In my opinion, any lawyer that says that don’t need MCLE because they already know everything is flat out lying to you.  Even when I teach an MCLE course I learn stuff… in fact, that’s when I learn the most because no presentor wants to be caught flat footed with a room full of attorneys!  Sincerely, I pick up something from just about every MCLE class I go to. Sometimes I am reminded of something, sometimes I learn a new practice tip, and sometimes I here other attorney’s analysis of a new law. In total I think MCLE is great and am glad that we are required to do it!

Ok, ok I better get back to work as I only have a couple hours this morning in the office before heading off to class.  The bottom line is you should work with an attorney that exceeds their MCLE requirements rather than one that just meets it!

Have a great day!


Legal Zoom – Good and Bad

I was listening to the Dan Patrick show this morning on Fox Sports Radio. He went to a commercial break where he read the commercial. It was for Legal Zoom.  For those of you who don’t know, is a website that will draft simple legal documents for you for fees that are typically much cheaper than lawyers like me.  I then flipped over to ESPN Radio and guess what… similar commercial being read on there.  I see adds on TV, bus benches, magazines, and on and on it goes.  Obviously Legal Zoom’s marketing budget is a little bigger than mine, eh!?  I felt frustrated that companies like Legal Zoom mis-represent things and the American consumer buys into it. Let me start by saying that I am not telling you that you can’t get decent legal documents from Legal Zoom. I am mearly saying if you are getting a $49 will it is caviat emptor in my opinion… buyer beware!  Or, to remember what my mom (and your mom too) used to always say, “if it seems to be good to be true….”

Let’s start with the first major problem with Legal Zoom… it’s primary spokemen, and partial owner I believe, is Robert Shapiro.  Mr. Shapiro is a well respected lawyer who got his name for being involved in the OJ Simpson defense. He was a well respected lawyer before that, of course, and I believe he was a very minor piece of Team OJ, but that’s his real claim to fame. Without OJ most of us would not know who Robert Shapiro is. Ok, so let’s assume Robert Shapiro is an excellent criminal defense attorney.  Does that mean he knows anything about wills and trusts? Or incorporations? Or anything else they do at Legal Zoom?  Furthermore, do you really think there is any chance, on earth, that Mr. Shapiro is sitting in an office reviewing YOUR case? Let me say here, at the risk of offending someone, if you think Robert Shapiro is going to have any direct involvement with your case please do NOT contact me to be your attorney. Yes, really.

Ok, so most of you agree (or at least anybody still reading) that Robert Shapiro is not going to personally review your case and write your will. Do you think the Zoom has a team of other top notch lawyers like Robert Shapiro reviewing cases?  I won’t be quite as strong as above but let me say it is HIGHLY unlikely that an experienced lawyer is reviewing your $49 will. Do the math.  We thus are left with the conclusion that whatever lawyer is looking at your will is likely very inexperienced and likely reviewing about 50 or 60 wills an hour. That is not an exaggeration. He probably is very good at reviewing simple wills.  Thus if your situation is really simple maybe having the Zoom write your will is for you!

However, how do you know if your case is really simple until you talk to an attorney that really knows this area of law?  How do you know about all the options for what can be in a will, or trust, until you talk one-on-one with an experienced attorney?  Obviously, what I bring to the table is something that can not be simply duplicated for your $49 will at the Zoom.

Let’s back up a little bit.  We agree Robert Shapiro is not writing your will. We also, likely agree, that another attorney with Robert Shapiro’s experience is probably not reviewing your will.  We also, hopefully agree, that a computer program or phone operator can not possibly ask the right questions AND distill what the right follow up questions are as can an experienced estate planning attorney. Then what….

Well, I probated a Legal Zoom will last year. It was probated in Placer County, California.  A gentleman, who we will call Wally, resided at Sun City Lincoln Hills. Wally wanted a will. Wally contacted the Zoom and had them prepare a will to meet Wally’s wishes.  In my opinion it was an extremely poorly drafted will.  Among other oddities, it set up a continuing trust, for a small estate, for a retired beneficiary who is a successful businessman after a career in law enforecement. Hmmmmmm, that doesn’t sound like a good time for a continuing trust but that’s how the Zoom set it up. Ok, it is what it is.  However, how did the execution of that will go? Was it signed correctly?

There was a major problem in the execution of the will.  I will assume the Zoom sent instructions on how to sign the will properly, with two witnesses, yada, yada, yada. However, it was not executed properly by Wally. The lack of proper execution could have been fatal to that will if anybody had contested it. The fact is this will could have easily been contested as Wally had two kids who he was disinheriting and he left his estate to someone else. That is a ripe situation for a contest. Luckily it was not contested. If that will had been contested by Wally’s kids it is my opinion they could have easily invalidated the will drafted by the Zoom. Then that $49 would have really been a waste, eh!?

I could go on but if you are still reading you understand the bottom line… just hire an attorney and get your estate plan done right!

P.S. Ok, ok, the above reads like a conclusion but I do have a P.S. for you. I should clarify that I think Legal Zoom can be a great resource for people. No, I am not saying that because I don’t want Robert Shapiro to sue me. Rather I say that because there are situations where Legal Zoom can help you. For example, if you just can’t afford an experienced estate planning attorney I think a $49 will, from Legal Zoom, is probably better than having no will at all.  Plus, they have a California State Bar approved laywer referral service where they will refer you to attorneys that they have pre-screened.  That’s great!   My real point is that be careful about signing up for the $49 will or similar discount legal services. Make sure you do your homework and work directly with a qualified attorney!

New Year’s Resolution – GET TRUST DONE

Ok, maybe it’s not exactly a “resolution” but I think it’s akin to it.  Many people go into the new year with a list of self improvement goals, including the thought to get their estate plan done.  The list might be something like this:

– Go the gym at least 5 days a week;

– Don’t eat sweets;

– Cut down to 2 cups of coffee in the morning;

– Get estate plan done this year;


I already go to the gym, or run, 7 days a week so Iam not vowing any change there!  I don’t eat a lot of sweets and I don’t drink coffee. However, I am not changing my iced tea consumption!  I have a great estate plan set up! Oh wait, this blog isn’t about me….

I have found that a lot of people enter each new year with the idea that, “this year we will finally get our trust done.”  Often they admit they have been talking about getting their estate plan done since their child was born. Those people generally have college age, or OLDER, “kids.”  However, whenever you get your estate plan done doesn’t matter… just GET IT DONE!

I occasionally meet with someone who tells me they will get back to me “soon” to finish their plan.  I tell them, “just call me at least two weeks before it’s needed.”  Some laugh and some don’t… I suspect the ones that don’t laugh are the ones that actually GET IT… that is, the day your estate plan is actually NEEDED may be a day too late for you to sign your documents!

A simple trust may avoid probate.  That avoidance of probate, in simple math, will probably saved your loved ones about 4% on average. That is, 4% of your GROSS estate.  That can add up quick!  Probate also takes 7 months MINIMUM to complete and a lot of people don’t want to make their loved ones go through that.

A more complex trust may avoid estate taxes.  Did you know that, under current law, for all deaths happening after January 1, 2011 you can only give away $1,000,000 tax free? Did you know your assets above that could be subject to an estate tax above fifty percent?  FIFTY PERCENT!  That is, fifty cents of EVERY SINGLE HARD EARNED DOLLAR could go to the tax man!  Yes, it’s true!

Beyond the dollars and cents are the personal issues. You know what I am talking about… huge fights over mom’s crystal, fights over dad’s antique gun, etc… avoid all that drama by getting your estate plan in writing!

I encourage you to make a new year’s resolution to get your estate plan done this year. I encourage you to put a date on that resolution. For example, “I will make an appointment with a qualified estate planning attorney by January 15, 2010.”

As discussed previously I can get your plan done in two-three weeks. The first step is to contact an attorney and that’s up to YOU.  If you don’t know who to call I hope you will call me. If you find my blog amusing but you don’t want to hire me then contact another attorney who is a certified specialist in estate planning, trust and probate law.  You can find this list at the California State Bar website….

Happy New Year to you and yours… and speaking of YOURS, get your estate plan done as it’s a big gift to your family and loved ones!


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10.0John Bernard Palley
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