Estate and Tax Planning for Same-Sex Couples

Posted June 27, 2013 in Estate Planning by Lonich and Patton.

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June 27, 2013
Estate and Tax Planning for Same-Sex Couples
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Yesterday morning, the U.S. Supreme Court delivered a landmark decision: the Defense of Marriage Act (DOMA), a federal law that offered federal marriage benefits to only opposite-sex marriages in the United States, was struck down. With the overturning of the statute, same-sex couples challenging DOMA have achieved a clear victory: DOMA had impacted over 1,100 federal laws – from veterans’ benefits and family medical leave to Social Security and tax benefits – all of which are now available to married same-sex couples just as they are to married opposite-sex couples.

Yesterday’s ruling will have widespread estate and tax planning implications for the nearly 130,000 married same-sex couples in the United States because they will now have access to, amongst a host of other benefits, the following*:

  • Immigration rights, including eligibility for benefits;
  • Social Security retirement and disability benefits;
  • Veterans’ benefits, including pensions, nursing home care, educational assistance, and housing;
  • Equal income and estate and gift taxes as opposite-sex couples; and
  • Employment benefits, including employer-sponsored health benefits and the right to unpaid leave to care for a seriously-ill spouse.

Additionally, as a result of yesterday’s decision, California will likely become the 13th state to legalize same-sex marriage – boosting the incentive to properly create and execute an estate plan consistent with updated laws. Also, for legally married same-sex couples who have moved or now live in a state that does not yet recognize same-sex marriage, there are still obstacles towards accessing federal marital protection.

If you have any questions regarding your estate plan and the legal consequences that current changing laws have on your rights and your partner’s rights, please contact the experienced estate planning attorneys at Lonich & Patton for further information. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including  same-sex estate plans, and we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

 

*U.S General Accounting Office, Defense of Marriage Act, GAO-04-353R (Washington, D.C.: January 23, 2004) (listing federal statutory provisions involving marital status).

 

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Educational Debt: Be Smart at Divorce

Posted June 24, 2013 in Family Law by Lonich and Patton.

Upon divorce, many people find that they are still saddled with substantial educational debt. So, where does that debt go? It depends. California is a community property state. When a couple divorces, each spouse receives fifty percent of all assets earned during the marriage. Similarly, a couple must split whatever debts they have acquired during the marriage. (For example, if you owe $10,000 on a particular credit card, each spouse is responsible for $5,000 of that debt or a debt of equal value.) Simple enough, right?

Not always. The allocation of educational debt at divorce can look much different. “A loan incurred during marriage for the education or training of [one spouse] shall not be included among the liabilities of the community for the purpose of division….but shall be assigned for payment by the [student spouse].”*

It is sometimes said that “the debt follows the debtor” in this situation. Usually, the student-spouse will keep the loan taken out for his or her education. Take, for example, the situation where a husband takes out a loan (in his name) to pay for his wife’s nursing credential. There, it is likely that the wife will be solely responsible for paying off that debt after dissolution, not her husband. (So, if you and your spouse have no debt except for your spouse’s student loans, you may be able to walk away from the marriage debt-free!)

On the other hand, however, the distribution could be much more complicated. Educational loans come into play in several ways upon divorce depending on when the loan was taken out and whether payments were made during marriage. Here are some scenarios you could face:

  • If your student-spouse took out an educational loan during your marriage and your combined earnings were used to repay that loan, you might be a candidate for reimbursement. In this situation, you could potentially receive half of whatever was paid for the student-spouse’s educational costs (e.g., tuition, books, transportation, supplies).
  • On the other hand, if your student-spouse took out an educational loan during your marriage and your combined earnings were used to fully repay that loan, you may not be able to recover all of those expenses. If the student-spouse can show that the community (you, your spouse, and the property acquired by you and your spouse during marriage) substantially benefitted from the educational loan, the community may not receive a reimbursement .
    • For example, if you put your husband through medical school but have been enjoying a high standard of living due to his increased earning capacity, you may be out of luck as the non-student spouse. Nevertheless, every situation is unique, and depending on the specific circumstances of your case, reimbursement could still be on the table and it is worthwhile to investigate fully.
  • If the student-spouse took out the loan before the marriage, the debt incurred is probably the student-spouse’s separate property obligation, meaning that you will not be liable for repayment of that loan.**
  • If both spouses went to school during marriage, there could be a reduced right to reimbursement or offset of the resulting debt.
  • Additionally, the likelihood of reimbursement could be reduced for a non-student spouse if the education or training funded by that spouse enables the student-spouse to engage in gainful employment that substantially reduces the student-spouses need for financial support.
    • In the long run, keeping spousal support payments in mind, eating the educational debt could be best alternative when compared with financially supporting your ex for many years to come (or indefinitely).

There are several different ways the educational-loan story can pan out. Similar to other areas of family law, the outcome really depends on the facts of that case.

Needless to say, educational debt problems can be complicated under California law, and you may need legal assistance to ensure that debt distribution is fair at divorce. Contact the certified Family Law Specialists (as certified by The State Bar of California Board of Legal Specialization) at Lonich & Patton to learn more about handling educational debt at divorce. Our attorneys have decades of experience handling complex family law matters.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may include legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

*Quoting California Family Code §2641.

**See California Family Code §2627.

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You Say Estate Planning is Terrifying: We Say, Meet the BDIT

Posted June 18, 2013 in Estate Planning by Michael Lonich.

In theory, setting up a trust and reaping its many benefits sounds great. In practice, however, giving up all control of your assets can be downright frightening. Well, now you can avoid “Estate Planning FOMO” (Fear Of Missing Out) and cozy up to the Beneficiary Defective Irrevocable Trust without fear.

When used correctly, the BDIT is as sensible as it is beneficial, offering substantial asset protection and tax planning benefits. So how does it work?

  • First, a third party such as a grandparent or parent, creates a trust and names you as beneficiary and trustee to that trust.
    •  This gives you management rights over the trust.
  •  Second, the trust should name an independent trustee to choreograph the trust and make strategic decisions regarding things like trust-owned life insurance, discretionary distributions, and tax matters.
    • Since you (the client) didn’t set up the trust on your own or initially fund the trust with your own money, you can benefit from all the wonders the trust world has to offer.
  •  Third, you can sell large appreciated assets to the trust in return for a promissory note for the purchase price, without triggering capital gains tax implications.
    • By doing this, you essentially “freeze” the value of your taxable estate.
    • For example, if you sell your family business to the BDIT, any growth of income and assets within the BDIT can benefit you and your family without being touched by estate taxes.

If it isn’t clear already, why is a BDIT a good idea? It’s not—it’s a GREAT idea. If executed properly, the BDIT can shield your assets inside the trust from claims against creditors. Also, you will receive a multitude of rights as trustee and beneficiary of the trust. For example, you’ll be able to:

  • Receive income from the trust;
  •  Make withdrawals from the trust assets (usually limited items related to health, education, or support);
  • Remove and replace the independent trustee;
  •  Use trust property rent-free;
  •  Generally manage the trust assets, and;
  •  Have the power to rewrite the trust under special circumstances.

Notably, a BDIT is “income tax defective,” which means that as the grantor and trustee, you are “granted” with withdrawal powers and other benefits, but you are required to pay the trust’s income taxes. “Hmm…well, why would I want to pay more income taxes?” With grantor trusts like the BDIT, paying the income tax is a big trade-off, allowing the trust’s income to grow outside of your estate, allowing you to use the income as you wish, let it grow inside the trust, and reducing your taxable estate by the amount of taxes you have paid. Over time, you and your descendants will be thrilled with your prudent choice to embrace the BDIT.

This is complicated, of course, but the extra effort can really pay off in the end. If you have any questions regarding your estate or are interested in creating a BDIT, please contact the experienced estate planning attorneys at Lonich & Patton for further information. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including wills and living trusts, and we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

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The Indian Child Welfare Act: Child Custody and Adoption Issues Hit The Supreme Court

Posted June 13, 2013 in Family Law by Lonich and Patton.

Family law cases, albeit important, are almost never heard by the U.S. Supreme Court because the Tenth Amendment typically leaves family matters to the states. However, a recent custody clash over an adorable Native American girl has found its way to our nation’s highest court, giving the Justices an opportunity to scrutinize the 1978 Indian Child Welfare Act (ICWA). The law was put in place to protect the one-third of Native American families who were losing their children to white foster and adoptive parents. However, as you will see, this 35-year-old law and its sweeping effects may be out of place in today’s modern society.

At the heart of the current dispute is a three-year-old girl who is the product of a relationship between a Cherokee Indian man and a Hispanic woman. The couple was previously engaged but, when the couple broke up before the child’s birth, the father let the pregnant woman know that he was relinquishing all of his parental rights. The child was born, put up for adoption, and spent two years with her adoptive parents until a South Carolina Court ordered that the girl be returned to her biological father. Apparently, the child’s father only intended to relinquish his parental rights to the Mother—not to an adoptive family—and he objected to the adoption four months after the adoption took place.

The little girl’s adoptive family is devastated, and rightfully so. If the state of South Carolina was permitted to apply its standard child custody procedures, and the “best interest of the child” standard adopted by many states including California, the biological father would have had no rights whatsoever and the little girl could have remained with the parents who raised her from infancy. Nevertheless, in the United States, the U.S. Constitution and Federal Statutes enacted by Congress are the supreme law of the land and completely trump any state laws that come into conflict. Justice Kennedy noted, “What we have here is a question of a federal statute which…displaces the ordinary best interest [of the child] determinations of the state courts.”

The Supreme Court will deliver its opinion on this case later this month.  In all likelihood, the effects of the decision will reach not only families interested in domestic adoption, but will also touch on the bigger question that asks who is best-suited to handle family law matters or determine parenthood—the states and their family courts or the federal government? We should have an answer soon.

As you can see, even simple family law matters like adoption can quickly become complicated.  If you have any questions relating to adoption or any other family law issue, please contact the certified Family Law Specialists (as certified by The State Bar of California Board of Legal Specialization) at Lonich & Patton. Our attorneys have decades of experience handling complex family law matters and would be happy to meet with you for a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may include legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

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Estate Planning is Important for Women Too

Posted June 10, 2013 in Estate Planning by Michael Lonich.

In fact, it’s arguably more important for women than men. Though a 2011 survey shows that women are more concerned with maintaining their weight than protecting their financial assets, there are several reasons why it would be wise to reconsider and rearrange those two priorities. For example:

  • Women live longer on average
    • By age 65, women are nearly 3 times as likely as men to be widowed, and as the surviving spouse, they will decide where the couple’s wealth goes after her death.
  • Women tend to survive their spouses
    • Retirement planning is a major issue – to ensure that their standard of living during later years does not decline, women need to make informed decisions about where to allocate their assets in order to protect their future.
  • Women often have custody of their children
    • In 2009, approximately 82% of custodial parents were women, making estate planning crucial to ensure that their children are cared for if unexpected circumstances arise.
  • Women are often the caregivers
    • Advanced estate planning will protect dependent grandchildren and aging parents – and even beloved pets – in the event of incapacity.
  • Women are often professionals
    • Although prior to 1975, men had the sole legal authority to control and manage community property*, that simply is not the case anymore – today, women are often professionals with significant businesses, careers, and assets to protect.
  • Women today often choose to remain unmarried
    • Without a proper estate plan in place, the state will determine who receives an unmarried woman’s assets and property – rather than her particularly close friend or a long-time partner.

At the very least, women should be as equally active in seeking estate planning tools as men – if not more. Whether you are single, married, divorced, or widowed, you will benefit from seeking out the various options you have to protect yourself. Estate planning can be overwhelming, but being educated and prepared will allow you to provide the best possible future for yourself, your family, and your loved ones.

If you have any questions regarding your estate or are interested in creating a new estate plan, please contact the experienced estate planning attorneys at Lonich & Patton for further information. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including wills and living trusts, and we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

*Married Woman’s Special Presumption, Cal. Fam. Code Section 803.

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