Monthly Archives: December 2011

Estate Tax Change Coming?

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As most of my readers know the current federal estate tax exemption is $5,000,000.  This means you can pass $5,000,000 at death without incurring any tax.  However, as many know that law is set to sunset December 31, 2012 and revert the estate tax exemption to $1,000,000.

On November 17, 2011 Rep. Jim McDermott (D-WA) introduced the “Sensible Estate Tax Act of 2011.”  It would reduce the estate tax exemption to $1,000,000 on January 1, 2012. It would also raise the highest estate tax rate from 35% to 55% which is what the law was up until 2001. It does some other things like caps the lifespan of generation skipping trusts to 90 years, cuts estate discounts, and some other things. However, the $1,000,000 exemption is the key!

Will this become law? No, I assume not but the fact that a member of the US Congress has introduced it means you need to be aware that this could happen and you need to factor it into your estate planning now.  Do not wait.  With such uncertain times you should be in touch with your California estate planning attorney!

By the way, if you are really interested I have pasted the text of the bill below.

Happy New Year to all my loyal readers!

-John

 

HR 3467 IH

112th CONGRESS

1st Session

H. R. 3467

To amend the Internal Revenue Code of 1986 to reform the estate and gift tax.

IN THE HOUSE OF REPRESENTATIVES

November 17, 2011

Mr. MCDERMOTT (for himself and Mr. RANGEL) introduced the following bill; which was referred to the Committee on Ways and Means
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A BILL

To amend the Internal Revenue Code of 1986 to reform the estate and gift tax.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Sensible Estate Tax Act of 2011’.

SEC. 2. AMOUNT OF ESTATE TAX EXCLUSION AND ESTATE TAX RATES MADE PERMANENT.

(a) Exclusion Amount-

(1) IN GENERAL- Subparagraph (A) of section 2010(c)(3) of the Internal Revenue Code of 1986 is amended by striking ‘$5,000,000’ and inserting ‘$1,000,000’.

(2) INFLATION ADJUSTMENT- Subparagraph (B) of section 2010(c)(3) of such Code is amended–

(A) by striking ‘2011’ in the matter preceding clause (i) and inserting ‘2012’, and

(B) by striking ‘2010’ in clause (ii) and inserting ‘2000’.

(b) Estate Tax Rates-

(1) IN GENERAL- The table contained in subsection (c) of section 2001 of such Code is amended by striking ‘Over $500,000’ and all that follows and inserting the following:

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‘Over $500,000 but not over $750,000 $155,800, plus 37 percent of the excess of such amount over $500,000.

Over $750,000 but not over $1,000,000 $248,300, plus 39 percent of the excess of such amount over $750,000.

Over $1,000,000 but not over $1,250,000 $345,800, plus 41 percent of the excess of such amount over $1,000,000.

Over $1,250,000 but not over $1,500,000 $448,300, plus 43 percent of the excess of such amount over $1,250,000.

Over $1,500,000 but not over $5,000,000 $555,800, plus 45 percent of the excess of such amount over $1,500,000.

Over $5,000,000 but not over $10,000,000 $2,130,800, plus 50 percent of the excess of such amount over $5,000,000.

Over $10,000,000 $4,630,800, plus 55 percent of the excess of such amount over $10,000,000.’.

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(2) ADJUSTMENT FOR INFLATION- Subsection (c) of section 2001 of such Code is amended–

(A) by inserting the following before the table contained therein:

‘(1) IN GENERAL- ’, and

(B) by adding at the end the following new paragraph:

‘(2) INFLATION ADJUSTMENT- In the case of any decedent dying in a calendar year after 2012–

‘(A) each minimum and maximum dollar amount for each rate bracket in the table in paragraph (1) shall be increased by an amount equal to–

‘(i) such dollar amount, multiplied by

‘(ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘2000’ for ‘1992’ in subparagraph (B) thereof, and

‘(B) each of the amounts setting forth the tax under such table shall be adjusted to the extent necessary to reflect the adjustments in the rate brackets made by subparagraph (A).

If any increase determined under subparagraph (A) is not a multiple of $10,000, such increase shall be rounded to the nearest multiple of $10,000.’.

(c) Coordination With Gift Tax To Reflect Decrease in Applicable Credit Amount- Subsection (g) of section 2001 of such Code is amended to read as follows:

‘(g) Modifications to Gift Tax Calculation- For purposes of applying subsection (b)(2) with respect to 1 or more gifts–

‘(1) MODIFICATIONS TO REFLECT DIFFERENT TAX RATES- The rates of tax under subsection (c) in effect at the decedent’s death shall, in lieu of the rates of tax in effect at the time of such gifts, be used both to compute–

‘(A) the tax imposed by chapter 12 with respect to such gifts, and

‘(B) the credit allowed against such tax under section 2505, including in computing–

‘(i) the amount determined under section 2505(a)(1), and

‘(ii) the sum of the amounts allowed as a credit for all preceding periods under section 2505(a)(2).

‘(2) MODIFICATION TO REFLECT REDUCED APPLICABLE CREDIT AMOUNTS- The amount determined under section 2505(a)(1) for each calendar year shall not exceed the estate’s applicable credit amount under section 2010(c).’.

(d) Technical Correction- Clause (i) of section 2010(c)(4)(B) of such Code is amended by striking ‘basic exclusion amount’ and inserting ‘applicable exclusion amount’.

(e) Effective Date-

(1) IN GENERAL- Except as otherwise provided by in this subsection, the amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2011.

(2) TECHNICAL CORRECTION- The amendment made by subsection (d) shall take effect as if included in the amendments made by section 303 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

(f) Sunset Not To Apply-

(1) Subsection (a) of section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by striking ‘this Act’ and all that follows and inserting ‘this Act (other than title V) shall not apply to taxable, plan, or limitation years beginning after December 31, 2012.’.

(2) Subsection (b) of such section 901 of such Act is amended by striking ‘, estates, gifts, and transfers’.

(3) Section 304 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is repealed.

SEC. 3. RESTORATION OF CREDIT FOR STATE TRANSFER TAX.

(a) In General- Section 2011 of the Internal Revenue Code of 1986 is amended by striking subsection (f).

(b) Repeal of Deduction for State Transfer Taxes-

(1) IN GENERAL- Section 2058 of such Code is amended by adding at the end the following:

‘(c) Termination- This section shall not apply to the estates of decedents dying after December 31, 2011.’.

(2) CONFORMING AMENDMENT- Section 2106(a)(4) of such Code is amended by adding at the end the following new sentence: ‘This paragraph shall not apply to the estates of decedents dying after December 31, 2011.’.

(c) Effective Date- The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2011.

SEC. 4. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; LIMITATION ON MINORITY DISCOUNTS.

(a) In General- Section 2031 of the Internal Revenue Code of 1986 is amended by redesignating subsection (d) as subsection (f) and by inserting after subsection (c) the following new subsections:

‘(d) Valuation Rules for Certain Transfers of Nonbusiness Assets- For purposes of this chapter and chapter 12–

‘(1) IN GENERAL- In the case of the transfer of any interest in an entity other than an interest which is actively traded (within the meaning of section 1092)–

‘(A) the value of any nonbusiness assets held by the entity shall be determined as if the transferor had transferred such assets directly to the transferee (and no valuation discount shall be allowed with respect to such nonbusiness assets), and

‘(B) the nonbusiness assets shall not be taken into account in determining the value of the interest in the entity.

‘(2) NONBUSINESS ASSETS- For purposes of this subsection–

‘(A) IN GENERAL- The term ‘nonbusiness asset’ means any asset which is not used in the active conduct of 1 or more trades or businesses.

‘(B) EXCEPTION FOR CERTAIN PASSIVE ASSETS- Except as provided in subparagraph (C), a passive asset shall not be treated for purposes of subparagraph (A) as used in the active conduct of a trade or business unless–

‘(i) the asset is property described in paragraph (1) or (4) of section 1221(a) or is a hedge with respect to such property, or

‘(ii) the asset is real property used in the active conduct of 1 or more real property trades or businesses (within the meaning of section 469(c)(7)(C)) in which the transferor materially participates and with respect to which the transferor meets the requirements of section 469(c)(7)(B)(ii).

For purposes of clause (ii), material participation shall be determined under the rules of section 469(h), except that section 469(h)(3) shall be applied without regard to the limitation to farming activity.

‘(C) EXCEPTION FOR WORKING CAPITAL- Any asset (including a passive asset) which is held as a part of the reasonably required working capital needs of a trade or business shall be treated as used in the active conduct of a trade or business.

‘(3) PASSIVE ASSET- For purposes of this subsection, the term ‘passive asset’ means any–

‘(A) cash or cash equivalents,

‘(B) except to the extent provided by the Secretary, stock in a corporation or any other equity, profits, or capital interest in any entity,

‘(C) evidence of indebtedness, option, forward or futures contract, notional principal contract, or derivative,

‘(D) asset described in clause (iii), (iv), or (v) of section 351(e)(1)(B),

‘(E) annuity,

‘(F) real property used in 1 or more real property trades or businesses (as defined in section 469(c)(7)(C)),

‘(G) asset (other than a patent, trademark, or copyright) which produces royalty income,

‘(H) commodity,

‘(I) collectible (within the meaning of section 401(m)), or

‘(J) any other asset specified in regulations prescribed by the Secretary.

‘(4) LOOK-THRU RULES-

‘(A) IN GENERAL- If a nonbusiness asset of an entity consists of a 10-percent interest in any other entity, this subsection shall be applied by disregarding the 10-percent interest and by treating the entity as holding directly its ratable share of the assets of the other entity. This subparagraph shall be applied successively to any 10-percent interest of such other entity in any other entity.

‘(B) 10-percent INTEREST- The term ‘10-percent interest’ means–

‘(i) in the case of an interest in a corporation, ownership of at least 10 percent (by vote or value) of the stock in such corporation,

‘(ii) in the case of an interest in a partnership, ownership of at least 10 percent of the capital or profits interest in the partnership, and

‘(iii) in any other case, ownership of at least 10 percent of the beneficial interests in the entity.

‘(C) EXCEPTION FOR ACTIVELY TRADED INTERESTS- Subparagraph (A) shall not apply to any nonbusiness asset which consists of an interest which is actively traded (within the meaning of section 1092).

‘(5) COORDINATION WITH SUBSECTION (b)- Subsection (b) shall apply after the application of this subsection.

‘(e) Limitation on Minority Discounts- For purposes of this chapter and chapter 12, in the case of the transfer of any interest in an entity other than an interest which is actively traded (within the meaning of section 1092), no discount shall be allowed by reason of the fact that the transferee does not have control of such entity if the transferee and members of the family (as defined in section 2032A(e)(2)) of the transferee have control of such entity (determined immediately after such transfer).’.

(b) Effective Date- The amendments made by this section shall apply to transfers after the date of the enactment of this Act.

SEC. 5. CONSISTENT BASIS REPORTING BETWEEN ESTATE AND PERSON ACQUIRING PROPERTY FROM DECEDENT.

(a) Consistent Use of Basis-

(1) PROPERTY ACQUIRED FROM A DECEDENT- Section 1014 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

‘(f) Basis Must Be Consistent With Estate Tax Return-

‘(1) IN GENERAL- For purposes of this section, the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the value of such interest as finally determined for purposes of chapter 11.

‘(2) SPECIAL RULE WHERE NO FINAL DETERMINATION- In any case in which the final value of property has not been determined under chapter 11 and there has been a statement furnished under section 6035(a), the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the amount reported on any statement furnished under section 6035(a).

‘(3) REGULATIONS- The Secretary may by regulations provide exceptions to the application of this subsection.’.

(2) PROPERTY ACQUIRED BY GIFTS AND TRANSFERS IN TRUST- Section 1015 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

‘(f) Basis Must Be Consistent Gift Tax Return-

‘(1) IN GENERAL- For purposes of this section, the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the value of such interest as finally determined for purposes of chapter 12.

‘(2) SPECIAL RULE WHERE NO FINAL DETERMINATION- In any case in which the final value of property has not been determined under chapter 12 and there has been a statement furnished under section 6035(b), the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the amount reported on any statement furnished under section 6035(b).

‘(3) REGULATIONS- The Secretary may by regulations provide exceptions to the application of this subsection.’.

(b) Information Reporting-

(1) IN GENERAL- Subpart A of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by inserting after section 6034A the following new section:

‘SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING PROPERTY FROM DECEDENT OR BY GIFT.

‘(a) Information With Respect to Property Acquired From Decedents-

‘(1) IN GENERAL- The executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent’s gross estate for Federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.

‘(2) STATEMENTS BY BENEFICIARIES- Each person required to file a return under section 6018(b) shall furnish to the Secretary and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described in paragraph (1).

‘(3) TIME FOR FURNISHING STATEMENT-

‘(A) IN GENERAL- Each statement required to be furnished under paragraph (1) or (2) shall be furnished at such time as the Secretary may prescribe, but in no case at a time later than the earlier of–

‘(i) the date which is 30 days after the date on which the return under section 6018 was required to be filed (including extensions, if any), or

‘(ii) the date which is 30 days after the date such return is filed.

‘(B) ADJUSTMENTS- In any case in which there is an adjustment to the information required to be included on a statement filed under paragraph (1) or (2) after such statement has been filed, a supplemental statement under such paragraph shall be filed not later than the date which is 30 days after such adjustment is made.

‘(b) Information With Respect to Property Acquired by Gift-

‘(1) IN GENERAL- Each person making a transfer by gift who is required to file a return under section 6019 with respect to such transfer shall furnish to the Secretary and to each person acquiring any interest in property by reason of such transfer a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.

‘(2) TIME FOR FURNISHING STATEMENT-

‘(A) IN GENERAL- Each statement required to be furnished under paragraph (1) shall be furnished at such time as the Secretary may prescribe, but in no case at a time later than the earlier of–

‘(i) the date which is 30 days after the date on which the return under section 6019 was required to be filed (including extensions, if any), or

‘(ii) the date which is 30 days after the date such return is filed.

‘(B) ADJUSTMENTS- In any case in which there is an adjustment to the information required to be included on a statement filed under paragraph (1) after such statement has been filed, a supplemental statement under such paragraph shall be filed not later than the date which is 30 days after such adjustment is made.

‘(c) Regulations- The Secretary shall prescribe such regulations as necessary to carry out this section, including regulations relating to–

‘(1) the application of this section to property with regard to which no estate or gift tax return is required to be filed, and

‘(2) situations in which the surviving joint tenant or other recipient may have better information than the executor regarding the basis or fair market value of the property.’.

(2) PENALTY FOR FAILURE TO FILE-

(A) RETURN- Section 6724(d)(1) of the Internal Revenue Code of 1986 is amended by striking ‘and’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ‘, and’, and by adding at the end the following new subparagraph:

‘(D) any statement required to be filed with the Secretary under section 6035.’.

(B) STATEMENT- Section 6724(d)(2) of such Code is amended by striking ‘or’ at the end of subparagraph (GG), by striking the period at the end of subparagraph (HH) and inserting ‘, or’, and by adding at the end the following new subparagraph:

‘(II) section 6035 (other than a statement described in paragraph (1)(D)).’.

(3) CLERICAL AMENDMENT- The table of sections for subpart A of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 6034A the following new item:

‘Sec. 6035. Basis information to persons acquiring property from decedent or by gift.’.

(c) Penalty for Inconsistent Reporting-

(1) IN GENERAL- Subsection (b) of section 6662 of the Internal Revenue Code of 1986 is amended by inserting after paragraph (7) the following new paragraph:

‘(8) Any inconsistent estate or gift basis.’.

(2) INCONSISTENT BASIS REPORTING- Section 6662 of such Code is amended by adding at the end the following new subsection:

‘(k) Inconsistent Estate or Gift Basis Reporting- For purposes of this section, the term ‘inconsistent estate or gift basis’ means the portion of the understatement which is attributable to–

‘(1) in the case of property acquired from a decedent, a basis determination with respect to such property which is not consistent with the value of such property as determined under section 1014(f), and

‘(2) in the case of property acquired by gift, a basis determination with respect to such property which is not consistent with the value of such property as determined under section 1015(f).’.

(d) Effective Date- The amendments made by this section shall apply to transfers for which returns are filed after the date of the enactment of this Act.

SEC. 6. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR GRANTOR RETAINED ANNUITY TRUSTS.

(a) In General- Subsection (b) of section 2702 of the Internal Revenue Code of 1986 is amended–

(1) by redesignating paragraphs (1), (2) and (3) as subparagraphs (A), (B), and (C), respectively, and by moving such subparagraphs (as so redesignated) 2 ems to the right;

(2) by striking ‘For purposes of’ and inserting the following:

‘(1) IN GENERAL- For purposes of’;

(3) by striking ‘paragraph (1) or (2)’ in paragraph (1)(C) (as so redesignated) and inserting ‘subparagraph (A) or (B)’; and

(4) by adding at the end the following new paragraph:

‘(2) ADDITIONAL REQUIREMENTS WITH RESPECT TO GRANTOR RETAINED ANNUITIES- For purposes of subsection (a), in the case of an interest described in paragraph (1)(A) (determined without regard to this paragraph) which is retained by the transferor, such interest shall be treated as described in such paragraph only if–

‘(A) the right to receive the fixed amounts referred to in such paragraph is for a term of not less than 10 years,

‘(B) such fixed amounts, when determined on an annual basis, do not decrease relative to any prior year during the first 10 years of the term referred to in subparagraph (A), and

‘(C) the remainder interest has a value greater than zero determined as of the time of the transfer.’.

(b) Effective Date- The amendments made by this section shall apply to transfers made after the date of the enactment of this Act.

SEC. 7. LIMITATION ON GST EXEMPTION OF PERPETUAL DYNASTY TRUSTS.

(a) In General- Section 2642 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

‘(h) Expiration of GST Exemption 90 Years After Establishment of Trust-

‘(1) IN GENERAL- In the case of any generation-skipping transfer made from a trust after the date which is 90 years after the date on which such trust is created, the inclusion ratio with respect to any property transferred in such transfer shall be 1.

‘(2) SPECIAL RULES- For purposes of this subsection–

‘(A) DATE OF CREATION OF CERTAIN DEEMED SEPARATE TRUSTS- In the case of any portion of a trust which is treated as a separate trust under section 2654(b)(1), such separate trust shall be treated as created on the date of the first transfer described in such section with respect to such separate trust.

‘(B) DATE OF CREATION OF POUR-OVER TRUSTS- In the case of any generation-skipping transfer of property which involves the transfer of property from 1 trust to another trust, the date of the creation of the transferee trust shall be treated as being the earlier of–

‘(i) the date of the creation of such transferee trust, or

‘(ii) the date of the creation of the transferor trust.

In the case of multiple transfers to which the preceding sentence applies, the date of the creation of the transferor trust shall be determined under the preceding sentence before the application of the preceding sentence to determine the date of the creation of the transferee trust.

‘(C) EXCEPTION FOR CERTAIN TRANSFERS FOR EDUCATION AND MEDICAL EXPENSES- Subparagraph (B) shall not apply to the transfer of property from 1 trust to another trust if–

‘(i) such transfer is described in section 2642(c)(2), and

‘(ii) the individual referred to in such section with respect to the transferee trust was also a beneficiary of the transferor trust.

‘(3) REGULATIONS- The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this subsection.’.

(b) Effective Date-

(1) IN GENERAL- The amendments made this section shall apply to–

(A) trusts created after the date of the enactment of this Act, and

(B) generation-skipping transfers made from trusts created on or before such date, but only to the extent such transfer is made out of corpus added to the trust after such date (or out of income attributable to corpus so added).

(2) DETERMINATION OF DATE OF CREATION- For purposes of this subsection, the rules of sections 2642(h)(2) (as added by this section) and 2654(b) of the Internal Revenue Code of 1986 shall apply for purposes of determining the date of the creation of any trust.

(3) EXCEPTIONS- The Secretary of the Treasury, or his designee, shall issue regulations or other guidance which provide exceptions to the application of the amendments made by this section which are substantially similar to the relevant exceptions under paragraph (2) of section 1433(b) of the Tax Reform Act of 1986.

This bill is very large, and loading it may cause your web browser to perform sluggishly, or even freeze. This is especially true for old and/or bad browsers. As an alternative you can download the PDF of the bill or read the text on THOMAS.
Continue on to the bill…
 

Will AND Trust

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Clients always ask which is right for them, a will or a trust.  In California the answer is generally BOTH!

The centerpiece of an estate plan is one of three choices:

1) DO NOTHING – Use the state sponsored plan… if you dare!  The state plan generally distributes assets to next of kin and/or your spouse. This can lead to confusion as the treatment of community property and separate property are different.

2) A WILL – Using  a will as the centerpiece of an estate plan makes especially good sense for young couples with young children. It’s a way to establish a guardianship after death and establish a “testamentary trust” to protect assets for your children so they don’t get everything at age 18.

3) A TRUST – A California revocable “living” trust is the third option and is really appropriate for the majority of clients I meet with.  When the trust becomes the centerpiece there should ALSO BE A “pour over” will to act as back-stop.

The advantages of a living trust are many but here are just a few:

1) Avoid Probate – This is a costly beast after death and many like to avoid it.  The combination of attorney fees, executor fees, and Court costs can be up to 7% of your GROSS estate.

2) Keep your affairs PRIVATE – Probate is a very public process where documents are available for all to see. In fact, in some counties documents are accessible on-line for FREE to the general public. This includes the Sacramento probate Court where all documents, including your will after death, will be viewable by all!

3) Protect Your Assets BEFORE death – A trust is not just for after death. It can have someone appointed to protect your assets before death should you become incapacitated as well as to protect you from scam artists who prey on the elderly.

4) Make things EASIER for your loved ones – This is probably the #1 reason clients give me for doing a trust. They want to make things as easy as possible after death. A living trust is that hands down!

5) Speedy Distribution after death – Probate ties up your assets for a minimum of 7 months. A living trust makes money available immediately upon death.

There are many more reasons why a trust is advantageous over a will as the centerpiece of a California estate plan. However, there are other documents including powers of attorney, general transfer, certified extracts, deeds, and other documents that complete a proper estate plan. Don’t cut corner!  Do everything to protect your assets and make things easier for your loved ones!

Read more Estate Planning Articles here

-John

FAST Probate

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Fast… but CAREFUL should be the key to just about all California probates.  Why not?  You just dealt with a death and you want to get on with life, right?  Make sure your attorney is on board with that plan too!

As I have told you before probate is a 7 month process, minimum, in California. That is for a standard or “full” probate as opposed to one of the mini probate options (under $150,000, spousal property petition, or Heggstad petition). The timeline is roughly as follows:

- File initial petition day 1;

- First Court date will be about 6-7 weeks after filing;

- Assuming all documents have been filed properly the Court Order and Court’s Letters of Administration, or Letters Testamentary, will issue on that first Court date;

- The 4 month probate period starts the day letters issue and during that time you will sell property, marshal assets, deal with creditors, deal with taxes, ascertain who the heirs are, etc…;

- Assuming everything is completed during the 4 month period you will then file the final probate petitions on, or just after, the 4 month period ends. I try to plan ahead, in many cases, by having the final petition ready to go a few days ahead of time so it can be filed on the exact 4 month date;

- After filing the final petition, or accounting, you will wait 6-7 weeks until the final Court date;

- Assuming everything was prepared and filed right the Judge will sign the Court order on the day of that final hearing;

- Checks are then written;

- After that a few administrative matters are taken care including filing receipts, final discharge and exoneration of the bond if there was one;

- You are then free to get on with your life!

There are cases where we do not want to conclude within 7 months. For example, in cases we want to deal with creditors in the probate we may wait until one year after death. However, most cases can be safely completed in 7 months.

Before you hire your California probate attorney make sure they know about the 7 month timeline and ask them for their plan to keep your probate moving FAST!

Contact me with questions.  -John

Prop 13 and Property Taxes

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Most Californians known about the famous “Prop 13.”  Just google “Prop 13″ without specifying California and it will come up very high in your search I am sure! It’s the 1978 statewide proposition that established California’s modern day property tax system.  It set a ceiling on property tax based on your assessed value in 1975 (a 1% tax on that value) and allowed for increases of up to 2% a year. Of course value increased a lot more than 2% a year in many years since 1975!  Thus there are people with multi-million dollar homes paying $800 a year in tax. The biggest problem comes up when a person dies and their child (or grandchild) wants to continue living in that multi-million dollar home but can’t even afford the property tax if they were paying what their neighbors were paying.

I should state that this law benefits a lot of people with less than multi-million dollar homes and the above is merely to show the reader how the law works in an extreme example.

The problem at death is that mom and dad may be paying $800 a year but if daughter wants to keep living in that house her property tax should be $800 a month… or MORE!  Thus, in 1986 they came up with the PARENT TO CHILD EXCLUSION.  In simple terms this allows a parent to pass their property tax basis to their child. This is totally separate from income, estate and gift taxes which are discussed in other posts. In the case of property taxes the goal is to pass on the same property tax base so that the child can continue paying the low property taxes.

The law was written so that a parent can pass their primary residence (amazing how many beach front properties become “primary residences” shortly before death) AND $1,000,000 of other property, at the assessed value, to the child without change in property tax. Again, this has absolutely nothing to do with income, gift or estate tax so don’t confuse them. This is strictly limited to California property taxes. Of course, property taxes are annual so if the child is planning to keep mom’s house this is a very important tax to plan for!

In simple transfers the key is filing the proper form (PS-58) within 3 years of death (or transfer if done before death). However, many counties now impose a fee if you don’t file within a certain number of days after receiving the notice from the county assessor.

The key here is this is a complex tax system and the tax hungry state government is looking carefully at every real estate transfer for a slip-up.  Thus it is imperative that you work with a qualified California probate and estate planning attorney who understands the California property tax system and the complexity created by prop 13, prop 58 and prop 193 among other things.

Contact me with your California real property questions!  -John

Just Moved to California

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Should a person review their estate plan when they move to a new state?  YES!

Quite often there are no changes to be made but other times there are many changes to make. There are differences between community and separate property, other laws differ from state to state, your new property is probably not titled in your trust, and other similar issues.  For all these reasons, and more, you should review your estate plan when you move to California or move to any other state.

Beyond that most people should review their estate plans from time to time just to make sure they are current and accurate.  There are family changes, asset changes and law changes that create the need for review.  This is regardless of whether you have moved to a new state or not.

Lastly, and this is probably the most important issue, a large percentage of people have inadequate estate plans.  There are too many attorneys who practice in too many areas of law so create poor estate plans, there are paralegals who think you just fill in some blanks, there are too many people that use on-line forms, and other similar inadequate estate plans.

All told most people need to review their estate plan and update it with a properly licensed and experienced ESTATE PLANNING ATTORNEY.  In California the easy way to determine if an attorney is experienced as an estate planning attorney is if they are a Certified Specialist in Estate Planning, Trust and Probate Law as determined by the STATE BAR OF CALIFORNIA Board of Legal Specialization.  To get this qualification an attorney has to pass a second bar exam that is focused on California estate planning, trust and probate law.  Beyond that one must also pass a background check of other attorneys and Judges to confirm they have the proper experience and background to put a “Certified Specialist.”  Lastly, the applicant has to show they have completed a large number of cases in the areas of law that make up the specialist exam.

In short, if just moved to California meet with a Certified Specialist and get your plan reviewed!

-John

The Basic Estate Plan

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“No, I don’t need an estate plan, just a simple will….”

Oh really!?

I hear this a lot.  People think an “estate plan” is only for the rich people or an estate plan is going to cost too much.  Even the most basic documents, like a SIMPLE WILL, is part of an ESTATE PLAN. For that matter having no documents is part of an estate plan… one decided by the California legislature!

While it’s true that many clients do not need a living trust that does not mean they should use a computer program, paralegal or general practice lawyer to do their estate plan.  The ways to mess up an estate plan are many and the costs are huge.  The costs are not only monetary but emotional.

Talk to a licensed and experienced California CERTIFIED SPECIALIST IN ESTATE PLANNING, TRUST AND PROBATE LAW about your estate plan.  A basic plan should probably include some, or all, of the following:

- Will (with testamentary trust if anybody under 25 or 30 may inherit);

- Power of attorney for financial affairs;

- Power of attorney for medical affairs;

- HIPPA release;

- Nomination of Guardian (can also be in the will);

- Assistance with change of beneficiary forms for life insurance, IRAs, 401ks and other assets with a death beneficiary.

Again, Contact a Professional to get it done right. The costs of doing it wrong are really too great!

-John

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House Refinance and Trust

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It seems like it’s almost daily though I am sure it’s not that often that I talk to a client about re-financing their house. No, I am not a mortgage loan broker. Rather I am an estate and trust attorney.  My clients contact me to ask how best to re-finance their home that is in their living trust. I tell them all that if the loan company, or escrow agents, require the house to taken out of the trust that they mandate to the escrow officer that a second deed be made to put the house back into the trust. That second deed should be signed at the same time as the first one and usually will be recorded in succession with the other loan documents. That is, house taken out of trust by the first deed, deed of trust recorded to secure interest in house to the loan, and then the second deed is recorded to put the house back into the trust.

Other mortgage companies and banks require the attorney to sign a list of things that the attorney “certifies” to be true. I find this to be a funny exercise since I am not the bank’s attorney and it’s really hard for me to certify the trust has not been amended. Plus, there is no law that says you have to have an attorney. These banks and mortgage companies bother me a bit but I will play along for my client’s of course.

Having said all that what about the people that die with the house out of their trust? What to do then?  This is oh so common. The bank or mortgage company requires the house to be out of the trust for the re-fi or line of credit so it’s removed from the trust. People forget to put it back into the trust or are so frustrated after signing 5,000 papers for their loan just can’t sign one more thing.

So, after death I am contacted to put the house back into the trust. We always try to file a Heggstad petition if we think it will work. A Heggstad petition is a probate Court petition, relying on case law (The Estate of Heggstad), that allows a property to be transferred back into a trust retroactively after death. It’s substantially less expensive and less time consuming than a full probate. I have a very high success rate with Heggstad petitions; probably above 95% if I counted all of them I have filed.

In the typical house taken out of trust for re-finance we can generally convince the Court to put it back into the trust. In particular, if the property was listed on the schedule of assets, or in some other way in the trust, we can get it done.  I have only had one Heggstad fail on these facts and I have filed a lot of them!

The Estate of Szanto is an unpublished case from 2008 which went the other way though. It’s from the California 1st Appeallate District and stems from a San Mateo County case. It should be pointed that it was a hotly contested and litigated battle which is unlike most Heggstad petitions.  That is most Heggstad petitions, or California Probate Code 850 petitions, do not have an opponent. In fact, usually there is a pour over will that would put the house into the trust anyway.  Thus the only question is what type of probate procedure is required to get back there; an efficient Heggstad or a long drawn out full probate.  Szanto is really an aberitition and is not “the law” since it is unpublished. However, it’s important to keep it in mind when you debate if you should file a Heggstad or a full probate.

Contact me to discuss your Heggstad facts and I will give you my opinion of success.

-John

Will v. Trust or Trust v. Will – Which is opt for me

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Clients ask me daily, “which is right for me… a will or a trust?”  They are really asking which should be the centerpiece of their estate plan.  A basic will is great and establishes important things like a guardianship for minor children and a testamentary trust to protect inheritances from immature youths. On the other hand a living trust avoids probate after death which can save tens of thousands of dollars.  Ya, but wills are less expensive than trusts.  Ok, but trusts are private after death. The debate goes on and on….  They are both good. Neither is wrong.

In the meantime these clients have NEITHER.  Thus you should pick one and get the Estate Planning Process started. You can always change later!

-John

Probate Bonds

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Do you need a probate bond, or “surety bond,” in your probate case? Or would it be ok for you to waive that requirement?  It’s really a loaded question and the purpose of this blog is only to let you know there are options.  So, to waive or not to waive that is the question….

- A bond is protection to create a fund in the case of an absconding Executor or Administrator. It’s like insurance.

- Some Courts require bonds no matter what. That is, some California probate Courts require $10,000 or $15,000 bonds in all probate cases. In those cases clearly you need to have a bond.  I would say that’s the minority of Courts though.

- Most Courts will allow all beneficiaries, or next of kin, to waive the requirement of a bond.

- If you are an only child, sole beneficiary or sole heir, then pretty clearly a bond is unnecessary.

- If you are an heir or beneficiary and you implicitly trust the Executor then you should probably waive the requirement of a bond. Having said that, sometimes people change after death when money is involved so waive bond carefully and with caution!

- There are options to a bond. There are options of using limited authority, Court ordered blocked accounts and other similar actions which create similar protection for all the heirs and beneficiaries.

If you have questions about any of these issues let me know.  -John

New Year’s Resolutions 2012

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Everybody is different but I suspect a lot of people have new year’s resolutions that include things like the following:

- Go to the gym 5 times a week;

- Eat less junk food;

- Wake up early;

- Don’t buy a cup of coffee every morning;

… and the list goes on and on. Everybody is different and people have different areas of life they would like to change and improve.  However, how many of you have no estate plan or an out of date estate plan?  If that’s you then how about you add to your new year’s resolution list:

- CALL CALIFORNIA ESTATE PLANNING ATTORNEY AND GET MY ESTATE PLAN DONE (or updated) BY MARCH 1, 2012!

How nice would it be to check that off the list this year?  Get it done! Call your attorney  now to schedule an appointment for the new year!

If you don’t have an attorney who is a Certified Specialist in Estate Planning, Trust and Probate Law as determined by the State Bar of California Board of Legal Specialization then call ME!  -John