3.8% Medicare Tax

Bob Keebler, the well known CPA, recently posted about the new 3.8% Medicare tax. Rather than getting your tax news from Facebook or while standing by the water cooler at work how about letting me give you the basics about this hotly discussed tax.

Bob posted,

For tax years beginning after 2012, new Internal Revenue Code (IRC) section 1411 imposes a 3.8 percent surtax on certain passive investment income of individuals and of trusts and estates based on a mathematical formula. For taxpayers to be able to plan around the tax they must first understand what income it applies to and how the tax is calculated.”  

The applicable threshold amounts for individuals vary depending on filing status and are shown below:

Here are the thresholds before which you need not worry about it:

Married Taxpayers, Filing Jointly                       $250,000

Married Taxpayers, Filing Separately                 $125,000

All other individual taxpayers                             $200,000

For more information you should visit Bob’s website.

Options for the Surviving Spouse

Spousal property petitions are tools that are used by surviving spouses or surviving domestic partners to transfer the title of the decedent’s assets from the decedent to the spouse or partner. It is cheaper and less complex than probate, which is why many people will find it advantageous.  If the decedent died with a will and the surviving spouse or partner is the only named beneficiary, then the spousal property petition can be used to transfer both community and separate property. If the decedent’s will names other beneficiaries besides the surviving spouse or partner, probate may be required before the distribution of the estate’s assets can continue.

If the decedent died intestate, the estate will pass according to the rules of intestate succession.  In this case, the spousal property petition can only transfer title of the community property. When a decedent dies intestate and has separate property, full probate may be required to determine who will take possession of the separate property.

The process of filing the surviving spouse petition goes as follows: The spousal property petition is filed with the Superior Court in the county where the decedent lived. Although it is advisable that an attorney assists in the preparation of the petition, it is not required. The petition must contain the facts of the case and all of the community property that the decedent owned at the time of death, except those assets that were owned in joint tenancy. The spousal property petition makes the following requests of the court: (1) that the decedent’s share of the community property be passed on to the surviving spouse or partner by law; and (2) that the surviving spouse or partner’s share of the community property also belongs to the surviving spouse or partner. Notice of a hearing is then sent to all interested parties and the court waits to hear if there will be any objections to the petition. If there are no objections, the court will usually grant the petition and the title of the community property assets will be transferred to the surviving spouse.

While it is possible to file a spousal property petition without the assistance of an attorney, it is certainly not advisable. If you are a surviving spouse and you are considering how to proceed with the settling of your deceased spouse’s estate, please consult with an estate planning and probate lawyer who is experienced in these areas. Estate-planning attorney John Palley at Meissner, Joseph & Palley, Inc. is a Certified Specialist in Estate Planning, Trust, and Probate Law. His office will be happy to assist you with any of your estate planning needs. Call today at 1-888-920-5983.

Small Estates Law in California

In 2012, the law in the state of California changed regarding small estates. Currently, California Probate Code §13100-§13116, the Small Estates Law, says that if the value of the decedent’s estate at the time of death is less than $150,000.00, the estate does not have to go through probate. An affidavit is signed which is then used to distribute the estate to the rightful heirs. The affidavit has to be signed at least 40 days after the death of the decedent. If the estate is administered under the typical probate provisions, there are no documents needed for filing with the Superior Court.

The $150,000.00 limit on the value of the estate includes the following assets: Brokerage accounts, mutual funds, bank accounts, stocks, bonds, and real property not to exceed a value of $50,000. Other assets similar to the ones previously listed are also included in the $150,000.00 fair market value of the estate. The assets have to be owned by the decedent and titled in his or her name. However, the following assets are NOT included in the determination of the estate’s value:

  1. Property (real or personal) held in joint tenancy.
  2. Assets that are held in trust.
  3. Pension accounts, including IRAs and 401(k)s.
  4. Life insurance benefits.
  5. Death benefits.
  6. Vehicles registered in the decedent’s name.
  7. Pay from military service.
  8. Up to $15,000.00 in salary not paid prior to the decedent.
  9. Pay on death (POD) accounts.
  10. Accounts that name a third party beneficiary.

The value of the estate is determined as of the date of the decedent’s death. The day that the affidavit is signed is irrelevant.

The small estates law only kicks in after the affidavit has been signed. The affidavit cannot be signed before a 40-day time period has elapsed since the decedent’s death. All affidavits signed after January 1, 2012 trigger the $150,000.00 limit for the small estates law. The key here is the day that the affidavit was signed, and not the date that the decedent died.

One question that many people have regarding the California small estates law is: “How are the estate’s assets collected?” The required affidavit has to include all of the information in California Probate Code § 13101. After the affidavit is signed, it is given to the person or financial institution that is holding the estate’s assets. The assets are then transferred into the custody of the one who signed the affidavit. After the creditors are paid, the remainder of the estate is distributed to the heirs.

Deciding whether to go the Small Estates route or whether to endure probate can be a difficult decision and one that should be made by consulting someone with knowledge of the subject. California estate-planning attorney John Palley at Meissner, Joseph & Palley, Inc., is a Certified Specialist in Estate Planning, Trust, and Probate Law. His office will be happy to assist you with any of your estate planning needs. Call today at 1-888-920-5983.

5 Common Errors in California Probate Cases

There are dozens of errors that people make when they do not have a highly experienced California probate attorney handling their case. Here are five common ones to avoid:

1) Failing to file the will within 30 days – by law the will is required to be filed with the Court within 30 days of death. Failure to do so can expose the holder of the will to penalties. FILE THE ORIGINAL WILL RIGHT AWAY.

2) Failure to complete every section of initial petition correctly – The California probate petition for probate is a form. It is a very simple form if you have completed them in 500-600 probate cases. However, if you have never done one it’s easy to mess them up. In fact, I have seen many so-called probate attorneys or probate paralegals mess them up in multiple ways.  ANSWER EVERY SECTION!

3) Failure to put creditors on notice in a timely fashion – creditors are entitled to notice at least 60 days before the probate period ends. This include creditors the Executor SHOULD HAVE KNOWN ABOUT so make a complete list of every possible creditor and make sure the notice gets sent out about half way through the 4 month probate period. This avoids delaying the probate. NOTICE TO ALL POTENTIAL CREDITORS!

4) Failure to file a parent-child exclusion form – If you are selling real estate during probate, and if there is a parent to child transfer, make sure you file the PS-58 parent to child exclusion form BEFORE ANY SALE takes place. Failure to do so can lead to a supplemental tax bill.

5) Failure to complete the final probate petition – there are many statutory notice requirements in a California probate final accounting or waiver of accounting (i.e. the “first and final report.”)  If your attorney doesn’t have an up-to-date form they might not know about Franchise Tax Board or Victims Compensation Board requirements. USE A CURRENT FORM!

The point of this post is to highlight that you should an experienced California probate attorney for your probate case. There are too many things to get caught on. Any of those things can delay probate, cost the estate money, and even cost the Executor money PERSONALLY!  Yes, PERSONAL LIABILITY IS POSSIBLE!  Don’t mess around.  Don’t try to save a few bucks. Get it done right!

Contact our lead probate attorney, John Palley, so we can discuss with you how quickly we can get your probate petition prepared and filed with any probate Court in California.

Transferring Cars After Death in California

Transferring cars, boats and other vehicles after death is really easy in California. The California Department of Motor Vehicles (DMV) has some very simple forms to use. In most cases you do not need a probate lawyer and can do it yourself.  There are a few different types of transfers to consider after death:

1) the most common is the transfer without probate.  The California DMV has a form, aptly titled “Affidavit for transfer without probate.” Here is a link to that form.  This transfers the vehicle to the next of kin, or beneficiary in the will, and then that person can sell it or whatever they want to do.

2) the second most common way to transfer a vehicle after death is in a probate. In that case the Executor, or Administrator, of the estate will sign the pink slip (title paper) by actually signing the decedent’s name and then writing, “by ______ Executor.”  The executor just writes their actual name in where the blank line is. The buyer can then register the car. Of course the money from the sale should go into the estate bank account. There is not a set DMV “form” for this as there is for transferring without probate.

3) transfer by trustee is the third way. That is, for the minority of people who hold title in their trust the successor trustee can sell or transfer the car.

In all cases it’s a good idea to review things with a California probate attorney to make sure you do things properly.

If you have any questions, please don’t hesitate to give me a call at 916-920-5983 today.

Estate Planning in the Hospital

If you are reading this you are either in the hospital or you have a loved one in the hospital. I am sorry for your situation.  We do make hospital visits to help people set up or improve their estate plans.  However, please note it is imperative that the person is not heavily medicated and that they are very aware of what’s going on.  The lawyer who visits will make that determination.

We make visits to hospitals within 45 miles of Sacramento. Our most frequent hospital “house calls” are to the following:

Mercy General

Sutter General

Sutter Roseville

Kaiser Morse Avenue

Kaiser South Sac

Kaiser Roseville

Sutter Memorial

UC Davis

Mercy San Juan.

This is, of course, just a partial list as we will be happy to make house calls within 45 miles of Sacramento.

Contact us to discuss your will, trust, power of attorney for financial, health care directive, and other estate planning documents.

We typically charge for our travel time, in addition to the time meeting with the patient, but mention this post and there will be no charge for the travel. Just the time with the patient in the hospital.

Also, best of luck with a speedy recovery.

Community Property in California

California is a community property state, a distinction that may have significant estate planning consequences for couples who live here. When dealing with specifics assets, the first thing that must be determined is the classification of the property, whether it is community or separate. According to California Family Code § 760, community property is everything that the spouses bought or received during their marriage while living in California. It does not, however, include an inheritance or a gift made only to one spouse so long as the property is not co mingled. Separate property is everything that was purchased or received by either spouse prior to the marriage. It also includes inheritances or gifts made to only one spouse.

Once a classification of property has been made, the next question is how that classification will affect a couple’s estate-planning goals. Families are now more blended than ever. Individuals divorce and get re-married all the time. When one spouse is planning for their passing, they may want to leave certain items to a child from a previous marriage. Before a couple can finalize a plan distributing their estate, each spouse will have to consider the state’s law on property characterization due to the limits the law imposes on the transfer of marital property.

Although the distinction between community and separate property may be easy to understand, several decisions from California courts have muddied the legal waters. These decisions indicated that there are some ways in which separate property can become community property.

  1. Commingling. One way that separate property can become community property is through commingling. This occurs when separate property becomes so entangled with community property that it is difficult to separate the two. The most common example of this is a separate bank account that then becomes a community bank account. Most of the time it is difficult to tell what funds existed before the marriage and what has been added to the account since the marriage. For this reason, most California courts would say that the accounts have been commingled and therefore the entire account would be classified as community property.
  2. Payments to maintain separate property. Many times, spouses come to the marriage with separate property, like a residence. If, after the marriage, the other spouse contributes to the mortgage or upkeep of the house, most California courts will hold that a portion of the house has been transformed into community property.
  3. Income from separate property businesses. In most cases, income generated from separate property is also classified as separate property. However, in some cases, that income can be transmuted into community property if, after the parties are married, the spouse continues to work with that income-generating asset full time during the marriage. For example, if one spouse owns a restaurant prior to the marriage, then marries, and still works full-time in the restaurant, any income that the restaurant generates may be determined to be community property.

Couples can, by agreement, circumvent the community property laws. This is usually done by prenuptial agreement. As long as the agreement is valid, family courts will honor the parties’ decision. If you have questions about the impact of California property laws on your estate, you should discuss your case with a California estate-planning attorney. Estate-planning attorney John Palley at Meissner, Joseph & Palley, Inc. is a Certified Specialist in Estate Planning, Trust, and Probate Law. His office will be happy to assist you with any of your estate planning needs. Call today at 1-888-920-5983.

Legal Fees for Trust Funding After Death in California

Generally speaking one of the main reasons people get trusts is to REDUCE ATTORNEY FEES AFTER DEATH.  Yes, there are other benefits to a trust but this is one of the main reasons.  People want to avoid probate.  Sure probate takes 7 months minimum but beyond that it is costly… and most of that cost is attorney fees.  Thus, a living trust should reduce fees and costs after death. However, not all attorneys agree with that.  Sadly some attorneys use death as a money making opportunity. They use the confusion of a child who has lost a parent or the complete bewilderment of a widow who has never even written a check in their life to charge outrageous attorney fees.  As sad as this statement is it is the truth.

Successful attorneys make a fine living.  Successful attorneys make a fine living without gouging their clients. They make a fine living without preying on people who have just lost a loved one. However, for some that’s not enough.

Yesterday I was told of a situation I hear about a lot. It’s attorney who charge exorbitant fees after death for simple trust administration. Yes, some trust administration cases are difficult and cost thousands of dollars to clear up. Those cases would be ones where assets are not in the trust, where complex accountings are required or where there is fighting in general.  However, that’s the minority of cases.  Most trust cases are simple after death and attorney fees should be low to reflect that simplicity.

Yesterday I was told of an attorney that has preyed on a widow after her husband had a sudden death. Charges of $10,000 to administer an A/B trust at the first death. Sadly had they gone to an ethical attorney they might spend $1,000 to $2,000. From my understanding this attorney is not done yet! Hopefully the battered widow will listen to her advisors and find another attorney.

This case reminds me that you have to be careful when you choose an attorney. I am just a guy typing words here but I can tell you, from the bottom of my heart, that I was sickened when I heard this story yesterday. Absolutely sickened! I charge for my time, yes, but I never take advantage of my clients.  To me this behavior, that this other attorney has done, is criminal!

If you lose a loved one and need fair priced legal services, for a trust administration, please contact me to discuss your case.  -John

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