Estate Tax Portability: A Valuable Asset You May Not Know You Had

Posted March 27, 2014 in Estate Planning, Probate by Michael Lonich.

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March 27, 2014
Estate Tax Portability: A Valuable Asset You May Not Know You Had
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Have you heard about the “portability provision?” Believe it or not, your estate (or your spouse’s estate, if you were to pass first) could benefit tremendously if the executor of your estate elects this provision. In short, the portability election allows the transfer of any unused estate tax exclusion amount of the first spouse to die (commonly referred to as the “deceased spouse’s unused exemption” or “DSUE”) to the surviving spouse, who can then utilize the remaining amount to benefit his or her gift or estate tax purposes. Essentially, this provision operates as a safety net for couples with joint assets exceeding the exemption amount for the estate of the first spouse to die because the surviving spouse can reduce his or her estate or gift tax liability. Depending on the size of the estate, electing this provision can mean saving a significant amount on estate taxes.

Although this portability provision technically expired after 2012, Congress passed the American Tax Relief Act of 2012 (“ATRA”), which made the “portability” of the applicable exclusion amount between spouses permanent. This favorable estate tax rule should be incorporated into estate plans because as previously mentioned, the potential impact of the portability provision can be quite substantial.

For example, suppose the following: A husband and wife each own $2 million individually and $3 million jointly with rights of survivorship, bringing their estate to a total of $7 million in assets. Suppose their wills instruct that all assets pass first to the surviving spouse and then to the couple’s children. If the husband dies in 2014, his $2 million in assets is covered by the unlimited marital deduction. His $5.34 million exemption remains unused (his DSUE). When the wife dies, her estate can use that leftover DSUE amount, in addition to the exemption for the year in which she dies, to shelter the remaining $7 million of assets from tax. ATRA has permanently set the top estate tax rate at 40 percent. As such, if the wife died later in 2014, $1.66 million in assets would have been subject to estate tax without the portability provision. Therefore, the family saves $664,000 in federal estate tax (40% of $1.66 million).

Not only is the portability provision an excellent tool to use for estate and gift planning considerations, the provision can also be used as a negotiation tool during marital agreement negotiations. The portability provision can be viewed as a highly valuable asset that attorneys and their clients should consider when drafting marital agreements. However, there are also certain limitations to be aware of. For example, the executor of a deceased spouse’s estate must elect portability for the provision to take effect, and the election must be made on an estate tax return filed within nine months of death.*

If you or your loved ones are in the planning stages of creating an estate plan, take the necessary steps to ensure that you and your family members are maximizing the benefits available to you by an experienced, knowledgeable estate planning attorney guide you through the process. Estate planning laws are constantly evolving and having a trusted estate planning attorney by your side can prove to be invaluable. 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.

Sources: http://www.bizactions.com/n.cfm/page/e120/key/259853661G1005J3585631N0P0P2268T2/;http://www.forbes.com/sites/lewissaret/2014/02/25/estate-tax-portability-and-marital-agreements-a-new-consideration/

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Elder Abuse: Protect Your Loved Ones From Financial Exploitation

Posted March 24, 2014 in Estate Planning, Probate by Michael Lonich.

Financial exploitation of the elderly is a growing – and mostly silent – epidemic in our country. In fact, one study estimates the amount lost by exploited seniors to be nearly $5 billion every year. One prime example occurred in 2007, when renowned New York society queen and philanthropist Brooke Astor left behind a coveted estate of nearly $200 million dollars. Though her will appeared to be adequately in place, the three codicils that followed turned out to be anything but.

Under Astor’s will, her only son, Marshall, stood to take tens of millions of dollars – with the condition that remaining funds after his death be given to charity. Marshall, however, had other plans, and the country watched as the truth behind Ms. Astor’s will began to unravel: Marshall, along with his lawyer, had convinced the elderly Astor – while she was suffering from dementia – to sign a series of codicils allowing him to leave much of her fortune to whomever he wanted. Rumor has it that Marshall wanted to share his mother’s fortune with his much-younger wife – whom Astor reportedly detested.

Fast forward to 2009 after 6 months of trial and many millions of dollars later, Marshall (then 85-years-old) and his attorney were convicted of 14 counts out of 16 for financially exploiting Astor. But after 8 weeks in jail, Marshall was out – the parole board found his age, ailing health, and hundreds of support letters from some of New York’s most influential people compelling and released him. With these turn of events, Marshall’s financial exploitation of his mother (to the tune of tens of millions of dollars) essentially went unpunished.

The highly-publicized financial exploitation of Ms. Astor is only one of the millions of cases of financial elder abuse that goes on quietly behind closed doors each year. When a family member manipulates a person with dementia, it is undue influence. California Civil Code § 1575 explains that undue influence comprises of:

  • The use, by one in whom a confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him;
  • The taking of an unfair advantage of another’s weakness of mind; or
  • The taking of a grossly oppressive and unfair advantage of another’s necessities or distress.

Financial abuse of an elder or dependent adult can occur through various ways – undue influence is only one of them.* Sadly, many greedy individuals will find their elderly family members to be easy targets for financial gain, particularly when the elderly individual’s mind is stricken with a degenerative disease like Alzheimer’s or dementia. The undercover coercion and undue influence to change an estate plan can be hard to notice because these manipulative acts are generally covert and completed with no witnesses around. Even if the coercion is discovered in time, proving it in court can often be an uphill battle.

If you or your loved ones are in the planning stages of creating an estate plan, take the necessary steps to ensure that you and your family members are protected by having an experienced, knowledgeable estate planning attorney guide you through the process. If you suspect undue influence, consult an experienced estate planning attorney for an objective assessment to ensure the decedent’s assets are distributed as they intended. Estate planning laws are constantly evolving and having a trusted estate planning attorney by your side can prove to be invaluable. 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.

* California Welfare and Institutions Code §15610.30(a).

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The Disclaimer: An Arrow in the Savvy Planner’s Quiver

Posted March 21, 2014 in Estate Planning by Michael Lonich.

We won’t all be lucky enough to inherit a large sum of money upon the death of a loved one. But, if you do, you may want to consider disclaiming that inheritance under special circumstances.  When you disclaim an inheritance, you are refusing to accept it.

Some of you reading this are probably thinking, “You’ve got to be crazy if you think I am ever going to flat out refuse any money that I have coming to me.” Nevertheless, for others who already own plenty of property or are looking to reduce gift or estate or gift taxes, disclaiming an inherited gift could be in the best interests of you and your family.

Let’s say you already have a healthy estate of several million dollars when your father dies, leaving $400,000 to be split evenly between you and your sister. You know that your sister, a single mother, could really use the money and you would like to help her out. In this situation, disclaiming could be beneficial for in two ways.

First, by disclaiming your half of the gift, the entire $400,000 can be transferred directly to your sister. This kind gesture ensures that the person who really needs the property can have it with little difficulty or complications, since a disclaimant never truly owns the property. Furthermore, disclaiming a large gift could help minimize the size of your estate for the benefit of your family at the time of your death. Estates beyond a certain size have to pay steep estate taxes* before your money can go to your beneficiaries. By disclaiming gifts you don’t need, your family can avoid those taxes and enjoy more your hard-earned wealth.

Second, by disclaiming your half of the gift, you will not have to pay gift taxes on any amount you want to give to your sister. In 2014, the IRS limits the amount of cash that can be given tax-free to a particular individual. In this situation, if you were to accept the $200,000 and then try to give it to your sister as a cash gift, any amount over $14,000 given to your sister in a given year would count towards your lifetime gift limit.** Any amount of cash gifts which exceed that limit—$5.34million in a lifetime—will be subject to a gift tax of up to 40 percent. Ouch. To keep things simple and tax-free, disclaiming the inheritance is your best bet.

Deciding whether or not to disclaim is a big decision that can have serious benefits or consequences. In order to make the decision that is best for you and your family, speak with an experienced estate planning attorney before you act. If you need estate planning advice, call Lonich & Patton to schedule a free half-hour consultation. Our attorneys are passionate about estate planning and 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.

*To learn more about estate taxes, click here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax

**This is known as the “annual gift exclusion.” For those who are interested in learning more about the exclusion, click here:  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Gift-Tax

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Does “Shacking Up” Mean We’ll Be “Splitting Up”?

Posted March 17, 2014 in Family Law by Gina Policastri.

As it turns out, cohabitation doesn’t cause divorce after all – but rather, the age at which you cohabitate determines your risk for divorce. For years, social scientists have linked cohabitation with divorce, cautioning couples to resist moving in together by correlating “shacking up” with “splitting up.” However, recent studies reveal that the biggest predictor of divorce is actually the age at which a couple begins living together, whether before the wedding vows or after.

Previous studies compared the divorce rates of couples who cohabitated with those who didn’t by using the age of marriage as the focal variable. Arielle Kuperberg, a sociologist behind the new studies, used a different variable: Kuperberg compared the relationships using the date of first moving in together. That date, she reasoned, is when a couple really takes on marriage roles, regardless of whether they have a legal certificate. Using this novel method, Kuperberg found no link between whether people had cohabited before marriage and their rate of divorce. She also found that the turning point in age for picking a life partner appears to be around 23, an age that likely coincides with college graduation. “That’s when people are able to pick a partner who is more compatible,” she explains. “Maybe they are a little more mature. They’re a little set up in the world.”

Sociologists also discovered that while moving in may be irrelevant to divorce rates, rushing into cohabitation may have its disadvantages. Sharon Sassler, a sociologist at Cornell University, found that most cohabitors with college degrees move in together only after a long stretch of dating. On the other hand, more than half of the cohabiters without college degrees move in together after less than six months of dating. Sassler explained this phenomenon through financial motivators: financial need seems to push the less well-off into romantic roommate situations before they are ready, increasing the chances that the relationship will dissolve. Therefore, Sassler argues that it is the type of premarital cohabitation that predicts divorce, and not necessarily cohabitation in itself.

If you are interested in cohabitating with your partner and are concerned with your rights in the event the relationship dissolves, please contact our California Certified Family Law Specialists (as certified by the State Bar of California Board of Legal Specialization). Having a knowledgeable, experienced family law attorney by your side can prove to be invaluable for resolving your concerns. Lonich & Patton’s attorneys have decades of experience handling complex family law proceedings and offer a free half-hour 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.

Sources: http://news.yahoo.com/best-predictor-divorce-age-couples-cohabit-study-says-131122832.html?soc_src=mediacontentstory; http://www.foxnews.com/health/2014/03/10/cohabitation-doesnt-cause-divorce-after-all/

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Can Your Child Sue You For Child Support?

Posted March 12, 2014 in Family Law, In the Community by Rachel Leff-Kich.

No, your child cannot sue you for child support – not yet, anyway. Recently, 18-year-old Rachel Canning caused a national stir when she sued her parents in a potentially precedent-setting lawsuit: the New Jersey teenager filed a lawsuit against her parents requesting $654 in child support per week, thousands of dollars in attorney fees, and immediate reimbursement of her high school tuition.

Ms. Canning claimed her parents threw her out of their Lincoln Park home two days before her 18th birthday, whereas her parents insisted the teenager moved out voluntarily. Her father, Sean Canning, explained that his daughter left the family home because she didn’t want to do reasonable household chores, be respectful, or abide by their curfew. Mr. Canning stated that “the whole thing is just destroying our family. We love our daughter. She’s our pride and joy.” A retired Police Chief, Mr. Canning explained that he’s “a liberal, liberal parent… I was tougher on my cops at work than I’ve ever been at my home, that’s for sure.”

Last week, Morris County Court Judge Peter Bogaard ruled in favor of the Canning’s, reasoning that any other decision would set a bad precedent by setting limits on parenting. The court expressed concern that Ms. Canning’s rare case, if successful, could inspire similar suits in the future. Brian Schwartz, chairman of the New Jersey Bar Association’s Family Law Section states that “in my 20 years of practicing family law in New Jersey, I’ve never seen anything like this.” Adds Jeralyn Lawrence, the incoming Family Law Section chair: “This could open the floodgates of recalcitrant kids fighting with their parents, moving out, and then suing them to keep paying.”

To the relief (presumably) of all parties involved, Ms. Canning returned home to her parents and siblings this morning. During this afternoon’s press conference, Ms. Canning’s lawyer said the suit brought against her parents had been settled “amicably,” and that her return home was not contingent upon any financial or other considerations.

Notably, Ms. Canning was not seeking to be emancipated from her parents – her lawsuit was primarily financially driven. With emancipation, minors essentially function as adults in society. Generally, they can attend the schools of their choice, enter into legally binding contracts, purchase a home, keep any income earned from a job, and so on. In court filings, Ms. Canning insisted she was “old enough to do what she wanted” – but perhaps she realized that without anyone bankrolling her endeavors, her options to do whatever she wants at this stage in her life are fairly limited.

If you have any questions about your family law issues, please contact our California Certified Family Law Specialists (as certified by the State Bar of California Board of Legal Specialization). Having a knowledgeable, experienced family law attorney by your side can prove to be invaluable for your situation. Lonich & Patton’s attorneys have decades of experience handling complex family law proceedings and offer a free half-hour 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.

Sources: http://www.foxnews.com/us/2014/03/05/new-jersey-teen-sues-parents-for-support-claiming-was-kicked-out-home/; http://www.latimes.com/nation/nationnow/la-na-nn-rachel-canning-goes-back-to-family-20140312,0,1541517.story#axzz2vmlZmHUm

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