New Tax Laws finally….

We estate planning attorneys have been waiting for a new law since the “old” law went into effect in 2002.  Surely the smart people in Washington DC will come up with a new law prior to the sunset of this law at the end of 2010… surely… and time kept ticking on toward December 31, 2010.  Now, FINALLY, on December 17, 2010 the new law was signed.

The headlines read that the Bush era tax cuts are continued for two years.  This is true in many ways but in the estate planning field the tax cuts were not only continued but, in my opinion, cut more.  Starting January 1, 2011 and for the next two years, each of us can give away FIVE MILLION DOLLARS tax free at death.  Yes, $5,000,000… and yes, TAX FREE!  Plus, you can use a deceased spouse’s unused exemption thus creating a $10,000,000 exemption!  Of course, you have to have the five or ten mil for this to apply but there are people out there who do… many of them my clients!

Plus, and this is the HUGE change… starting January 1, 2011 you can give away $5,000,000 during your lifetime.  The only $1,000,000 “gift tax” exemption at stayed in place from 2002 until 2010 while the “estate tax” (or death tax) exemption made it’s march up, up, up.  To me this was always the tell that eventually the estate tax exemption would go back down. However, this $5,000,000 gift tax exemption is just huge. It tells me the people in Washington DC are more serious about long term estate tax cuts. We shall see in the next two years if I am right.

Additionally, the dreaded generation skipping transfer tax (“GSTT”) will go up to a $5,000,000 exemption on January 1st.  This is huge for families that want to set up multi-generational dynasty trusts.

The bottom line is whether you have a trust or not, whether you have five mil or not, you need to get with an estate planning attorney ASAP and review your estate!

Call me if I can help!  -John

My mom died in Sacramento….

I get this call a lot. “My mom died in Sacramento and I need help!”  Often the caller or emailer grew up in Sacramento but left and never returned. However, mom and dad stayed behind.  Often dad died a few years ago and now mom moved on. These clients do not live here anymore, often do not have reliable contacts here, and thus are left with the Internet to find their attorney.  The lucky ones find me!

I have become a specialist in helping people, living around the world, who lost a loved one in California… often right here in Sacramento or Roseville my main stomping grounds. However, I can efficiently conduct probates throughout California.

Often mom owned a modest house, maybe a car, and sometimes a few dollars in the bank.  My new client’s goal is to settle the estate with as little trouble, as few (or zero) cases to California, and as quickly as possible. That’s where an attorney like me comes into play. I know what needs to happen and when it needs to happen to keep a probate moving, sell the real estate, take care of the taxes, deal with the creditors, and get the client their money! I not only know what is needed but I have contacts throughout the state to make everything happen quickly and smoothly.

I usually can get the initial documents filed in court within 72 hours of first contact and often same day (if you are local). Call me to discuss your probate case in Sacramento, Placer, San Joaquin, Contra Costa, Solano, Yolo, or any other county in California!


Irrevocable Life Insurance Trusts for Term Insurance

Did you know life insurance is a taxable asset in your estate?  It’s true. A lot of people think life insurance is “tax free” and that’s simply not the case. It does, generally, build in value without income tax.  However, at death it is an asset of the deceased’s estate and subject to estate tax at whatever the then prevailing tax rates are.  If they do not change the laws in the next three weeks life insurance could be taxed at 55% at your death. Yes, really I said FIFTY-FIVE PERCENT!  If not properly owned your two million dollar term life policy might be worth less than one million to your loved ones.  Can that problem be fixed?

The good news is that if life insurance is properly owned, in an irrevocable trust, it will not be subject to that horrific tax rate.  As long as the policy is acquired, at the time of issuance, by the irrevocable trust or you live at least 3 years after transferring into the irrevocable trust there will be no tax.

Yes, really!

An irrevocable life insurance trust, often called an “ILIT” is an incredible estate planning device. However, avoiding tax is not the only thing it can do.

What about establishing a creditor protected sum of money for your spouse, kids, or other loved ones?  YES, an ILIT can do all that too!

I just set up an ILIT for a doctor client and his one million dollar term life insurance policy. He is not currently married but we built in the possibility of leaving some of the money to a future wife if he does marry and otherwise the money will be held in trust for his children.

The key is the money will be HELD IN TRUST with a trustworthy trustee managing the money for his future wife and/or kids. Next time he goes in for surgery he will have great peace of mind that his affairs are set up properly!

Historically a lot of people set up ILITs only for “whole life” (or cash value) life insurance policies.  They were often used for second to die policies that didn’t pay until the second death and were mainly for creating tax free wealth.  However, it’s my opinion that setting them up for term policies can be even smarter.

The cost to establish an ILIT is not great, the administrative issues are minimal, there should be no on-going costs of having the trust and you can create an incredible vehicle for your loved ones. A vehicle that can provide tax free and creditor protected money for your spouse, kids or other loved ones.

There is really little down side, in my opinion, to setting up an ILIT for term life policies.   Yes, an ILIT is irrevocable which means it can’t be changed but hopefully we can build in enough flexibility that changes are factored into the original trust!  The key with an advanced estate planning device, like an ILIT, is to select a highly competent estate planning attorney.

I, for example, am a Certified Specialist in Estate Planning, Trust, and Probate law by the California State Bar Board of Legal Specialization. This means I took a second bar exam and passed a rigorous background check regarding my knowledge of estate planning laws.

I am only licensed in California so if you are in another state you should find an attorney near you with similar qualifications. However, if you are anywhere in California please contact me and I can assist you with an ILIT!

New Year coming – new tax rules too?

We still don’t know what the laws will be on January 1, 2011.  However, you should remember there IS a tax law in place for January 1, 2011 and it is a one million dollar exemption.  Today there is no estate tax and January 1st there is a big tax (up to 55%) with only a one million dollar exemption.  Will a new law be agreed to this month?  I really don’t know.  I thought they would fix this tax loophole a few years ago.  What loophole do I speak of?  Let me explain.

Let’s say you are a 95 year old guy worth twenty million dollars.  If you die in late December your estate passes without any estate tax. There is the potential for some income tax, depending on what type of assets one owns at death but that capital gains tax is usually a pretty low tax rate (let’s call it 20% on some assets).  Now, if this same guy dies January 1st his estate will pay about ten MILLION in tax within 9 months of death.  Now, remember you are 95 so you lived through the depression, you still count your pennies even though you have twenty mil, and you are sick. If you die before January 1st there is no estate tax.  If you die January 1st, or after, your loved ones will pay a huge estate tax.  Hmmmmmmmm…..

How on earth did the politicians in DC come up with this idiotic law in 2002?   Well, who knows but they did.  They probably assumed a new law would be put into effect before January 1, 2011.  I know I assumed they would come up with a new law by 2005…. ok, 2006… ok, 2007… and each year I kept adding a year as I kept assuming the new law would be put into place to close the loophole in 2010.  They didn’t. We have already had several BILLIONAIRES die this year and their loved ones paid ZERO estate tax.  Sooooo, we approach the end of the year with a completely screwed up tax law situation.    Don’t let your loved ones be surprised if you die all of a sudden!

In any event, YOU should be talking to your estate planning attorney.  Be ready for the new year… and whatever law the feds come up with!

Ratings and Reviews

10.0John Bernard Palley
Wealth Counsel Member
2015 Best of the Best Badge