Tax Ruling: Joint Federal Tax Returns For Everyone!

Posted August 30, 2013 in Family Law by Gina Policastri.

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August 30, 2013
Tax Ruling: Joint Federal Tax Returns For Everyone!
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For many married couples across the country, filing your federal taxes just got a lot less complicated. As of last Tuesday, if you are a part of a legal same sex marriage, you will be treated just like heterosexual married couples under federal tax laws.  The Treasury Departments and the IRS just announced that all married couples will receive identical benefits for filing jointly regardless of where the couple lives.

“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” Treasury Secretary Jacob Lew said in a written statement*

The tax ruling, however, will not apply to persons in civil unions or domestic partnerships. Nevertheless, the ruling is another huge milestone for same-sex couples. Moving forward, everyone will receive the same treatment across the board.

If you have any questions regarding your marriage or are interested in creating a prenuptial agreement, please contact our California 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 a wide array of family law cases and are more than 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.

 
*Via Fox News, “IRS Extends Tax Benefits to Married Gay Couples.” Find the full text here: http://www.foxnews.com/politics/2013/08/29/irs-issues-tax-rules-for-married-gay-couples/#ixzz2dTc44G5n

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We’re Getting Divorced – Who Gets the Stock Options?

Posted August 20, 2013 in Family Law by kfrench.

This year, compensation packages for top levels executives rebounded considerably following a decline last year and the most significant increase was seen in stock option awards.*  For example, Apple’s Bruce Sewell led the pack with a whopping $66,571,750.00 in stock options! Though usually not to the tune of $66 million dollars, you or your spouse may have received some number of stock options during your marriage.  During divorce, characterizing stock options and how determining how to appropriately allocate the options between the spouses often becomes very contentious.  However, there are two prevailing methods for allocating intermediate stock options, i.e., options that were awarded during the marriage but will vest after the date of separation: the Hug formula** and the Nelson formula***. Ultimately, the Hug formula tends to be more favorable to the community, while the Nelson formula is typically more favorable to the employee spouse.

Under the Hug formula, the number of options determined to be community property is the product of the following fraction: the numerator is the total number of months between commencement of employment and the date of separation, and the denominator is the total number of months between the commencement of employment and the date when each option vested. This fraction is then multiplied by the number of shares of stock which could be purchased on the date each option vested.

In the Marriage of Hug, the Court recognized that stock options could be construed, depending on the particular facts of the case, as compensation for either past, present, or future services or a combination of these possibilities.  The Court found that in Hug, the stock options were granted partly to entice the husband to leave his prior job and partly as an incentive to work hard in the future.  Therefore, the Court concluded that the husband was earning the options from the date his employment started to the date the options vested.

On the other hand, under the Nelson formula, the numerator is the number of months from the date of grant of each block of options to the date of separation, and the denominator is the period from the time of each grant to its date of exercisability.

In the Marriage of Nelson, the Court observed that the options in Marriage of Hug were designed to attract new employees and more generously reward past services. However, in Nelson, only prospective increases in the value of the stock could result in a profit to the employee option-holder. Therefore, the Court determined that it was appropriate to place more emphasis on the period following each grant to the date of separation than on the employee’s entire tenure with the company up to the time of separation.

Allocating stock options is a very complicated and confusing issue. If you have any questions regarding the appropriate characterization of your stock options or you are simply looking for more legal advice regarding your current situation, please contact our California 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 dissolution proceedings and are more than happy to meet with you.

 

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.

 

*Corporate Counsel Finds 2012 General Counsel Compensation Turnaround: Every Pay Category Rose, Stock awards Jumped 64.8%: http://www.alm.com/about/pr/releases/corporate-counsel-finds-2012-general-counsel-compensation-turnaround-every-pay

** In re the Marriage of Hug, 154 Cal. App. 3d 780 (1984).

*** In re the Marriage of Nelson, 177 Cal. App. 3d 150 (1986).

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You Only Die Once: How To Avoid Gandolfini’s Estate Planning Errors

Posted August 8, 2013 in Estate Planning by Michael Lonich.

Poor James Gandolfini. Actually, poor everyone involved in the Gandolfini case. That is, except for the IRS. Due to the fact that Gandolfini (of The Sopranos’ fame) had some major missteps in creating his estate plan, the IRS could easily be the lucky recipient of up to 55% of his $70 million estate, leaving little left for his wife and daughter.

We can’t fault the guy too much—at least he had a will to speak of. However, he is probably the victim of bad advice because his will really is what everyone says—a tax nightmare. His will left 80% of his estate to his sisters and infant daughter, which doesn’t sound terrible, but it actually is. Gandolfini could have left 100% of his estate to his wife tax-free by taking advantage of the marital deduction. Instead, the widowed Mrs. Gandolfini will only be left with something in the neighborhood of $10-14 million. Sadder still is that the federal government will walk away with $30 million of what Gandolfini’s daughter and sisters were promised. The worst is that this could have been easily avoided by putting the proper documents in place.

How exactly, then, does one go about creating an iron-clad estate plan? Foresight is first and foremost, obviously. Beyond that, however, here are some great steps Gandolfini could have taken* that would have saved his family millions:

  1. Use trusts to protect your family and your privacy. Trusts don’t have to be complicated (they can be as simple as a common will), but they can really pay off since trusts are private. By having a will, your family will be forced into Probate Court and your will is going to become a part of the public record. Even if you are not in the public eye, your family will appreciate the simplicity that trusts can offer as they grieve.
  2. Remember that tax implications will make a difference. Even if you are not a Sopranos star, you should have taxes in mind. Otherwise, you may be giving your hard earned money away to the government when you’d really like your family to enjoy it. By setting up various trusts or by leaving the lion’s share of his estate to his wife tax-free, Gandolfini could have instructed either the trustees of his trust or his wife to make small cash gifts to various named individuals over time (the government allows each person to give $14,000 per year per person untaxed). By giving large lump sums of cash to individuals that were not his spouse, Gandolfini opened the door for the devastating 55% death tax.
  3. But Remember, Taxes Aren’t Everything. Like Gandolfini, if you want to give a large sum of money to a non-spouse, taxes might be inevitable. However, by working with a knowledgeable estate planning professional, there are ways to make sure your family will get the best bang for your buck perhaps by moving funds through a trust which will disperse money as necessary for living expenses, education, and travel without the pain of estate taxes.
  4. Take The Age of Your Child Into Consideration. Does your eight-year-old know what to do with $10 million dollars? Of course not, and she probably won’t know how to invest her money or protect her wealth at age 16 or 21, like Gandolfini’s daughter, either. There are ways to set conditions on how and when your beneficiaries can receive their wealth. Perhaps you can add a clause to your will or trust which states your child can receive part of their inheritance for college expenses but will receive the remainder after graduation. With a trust, you can leave the tough decisions and investment strategy up to an experienced trustee who may be able to stretch your child’s inheritance further than you ever imagined.
  5. Foreign Property Can Be Complicated. Gandolfini’s wish was to leave a fifty percent interest in his Italian property to each of his two children. However, Italian inheritance laws may trump American laws in this situation, forcing a share of the property onto his wife. Of course, this outcome could be worse, but it is imperative to get sound local advice so that you cover your bases incase foreign law comes into play.

This abbreviated list highlights the sticky issues that can come about if your estate plan is incomplete. You’ve spent your life working hard for your money; do what you can now to make sure your money is available to provide for your loved when you no longer can.

Estate plans can have a lot of moving parts; make sure you get the best advice possible. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters including wills and living trusts. If you are interested in developing an estate plan or reviewing your current estate plan, contact the experienced estate planning attorneys at Lonich & Patton for further information.

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.

*Originally found on Forbes.com, “6 Estate Planning Lessons From James Gandolfini’s Will,” used with permission by author Robert W. Wood found at:  http://www.forbes.com/sites/robertwood/2013/07/20/key-lessons-from-james-gandolfinis-will/

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What Happens to Your Facebook Page When You Die?

Posted August 2, 2013 in Estate Planning by Michael Lonich.

Have you ever wondered what will happen to your Facebook page after you die? Or any of your other social media outlets, for that matter? Who can “retweet” from your Twitter account when you pass away? Who can access your Flickr photo albums? Who can look through all those old emails you saved? What about those photos you set on private – can that content still be downloaded?

Facebook has over 650 million users, Flickr hosts over 6 billion images, and Twitter users collectively “tweet” over 95 million times per day.* Although the executors of wills and estates have been around for centuries, digital will executors are also becoming more popular, as our lives now heavily involve (and often, revolve around) social media and technology. With an ever-increasing internet presence during our lifetimes, a new concern arises: our internet presence after our lifetimes. Just as a traditional will dictates where our property is dispersed following death, a social media will is a useful tool to help our loved ones determine how to dispose of our digital assets after we pass.

The United States government’s blog** suggests the following steps to consider when creating your social media will:

  • First, compile a list of all your digital accounts. Your digital accounts include email accounts, social networking accounts, photo accounts, bank accounts, and video accounts. You will need to provide enough information for an executor to access these accounts – this includes sensitive information including usernames, passwords, and pin numbers.
  • Second, write a clear statement of how you want your online identity to be handled. Your social media will operates much like a traditional will by allowing an executor access and power to handle your digital assets in the way you choose. For example, perhaps you want a certain account closed entirely, another account partially accessible, and another placed on private settings.
  • Third, appoint your digital executor. Find a trustworthy individual to be responsible for closing or maintaining your accounts. This individual also needs to have access to a copy of your death certificate because many websites will need to verify the executor’s power to act on your behalf.

Unfortunately, (or perhaps fortunately), nobody knows when they will need their digital assets managed for them. Therefore, much like a traditional will, the best time to put things in order is now – so that when the time comes, your executor will be able to carry out your “digital after-life” in precisely the way you want. If you are interested in managing your digital assets or appointing a digital will executor, please contact our experienced estate planning attorneys at Lonich & Patton. Our attorneys have decades of experience handling complex estate planning matters, including wills and living trusts, and we are more than 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 include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

 

* http://www.searchenginejournal.com/the-growth-of-social-media-an-infographic/32788/

** http://blog.usa.gov/post/22261234875/social-media-will

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