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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What is Probate and Why Should I Avoid It?

Posted February 21, 2014 in Estate Planning, Probate by Michael Lonich.

Probate is a court process that is known for being time-consuming and expensive. It is also a public process that makes personal information about your assets and debts part of the public record. If you die without a will, the probate process can be a nightmare for your family. However, even if you have a well-written will, the probate court still must oversee the payment of your debts and distribution of your property. These are just a few of the reasons why many people want to avoid sending the estate, and oftentimes their family, through the probate process after their death.

To avoid the probate system entirely, you will need to use an estate planning vehicle other than a will to transfer property after your death. For example:

  • Life insurance: Life insurance policies generally pass outside of probate as long as there is at least one named beneficiary.
  • Retirement accounts: Similarly, retirement accounts, including IRAs and 401(k) plans, pass outside of probate as long as there is at least one named beneficiary.
  • Joint tenancy real property: If you own a home with your spouse (or any other individual) as joint tenants with right of survivorship (as opposed to tenants in common), your ownership interest will be “extinguished” upon your death and the remaining owner will own the property outright as a matter of law.
  • Joint tenancy bank accounts: Bank accounts may also be held in joint tenancy so that when one spouse (or account holder) dies, the other spouse (or account holder) is automatically the sole owner of the account.
  • Pay-on-death accounts: Selecting a pay-on-death beneficiary for bank accounts or investment accounts allows you to designate who your accounts will be transferred to upon your death without the need for probate.
  • Trusts: A living trust is a legal document that, much like a will, contains instructions for what you want to happen to your property when you die. But, unlike a will, a living trust can avoid probate at your death. While you place your property and assets (i.e., your family home) in the trust, you maintain control over all trust assets during your lifetime. When you are no longer alive, your property can be transferred to your designated beneficiaries in a timely manner without going through probate.

Trusts are a favorite of estate planners because they are simple, flexible and effective. Trusts can be used to easily transfer property to family members or charitable organizations at death. In some circumstances, trusts can also be utilized to decrease or minimize estate taxes.

If you would like to learn more about trusts or avoiding probate in general, 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.

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Wise Beyond His Years: Paul Walker’s Estate Plan

Posted February 13, 2014 in Estate Planning, Probate by Lonich and Patton.

Paul Walker was not known for being one of the more prolific or intelligent actors of his era. Even so, the young actor made some sharp estate planning decisions during his short life, probably due to top-notch legal advice. Even so, his estate plan could have been better. Regardless of whether your estate is anything like Paul Walker’s $25 million estate, there are some great lessons* to be learned from Mr. Walker’s estate plan.

The Good

Paul Walker died at the much-too-young age of 40. However, he was smart and recognized that even young people need estate plans. Walker signed his will at 28 years old—an age when most young men still believe they are invincible. He should be commended for taking control of his future for the benefit of his loved ones.  Walker realized that accidents happen, and he was prepared. You should do the same.

Walker was survived by his 15-year-old daughter, Meadow, and he privately provided for her future with a trust. Unlike a will that must be processed through the state court system, trusts are completely private and avoid the onerous probate process. Trusts are relatively easy to create, are protected from public scrutiny, and most importantly, can help your loved ones get the assets they need much faster than in the case of a will.

The Bad

Although it is great that Walker named a guardian for his minor child (he named Meadow’s grandmother—his mother), he should have updated his choice with the passage of time. In 2001, his mother was 13 years younger and probably the most appropriate option. However, today, a younger family member could have been a better option in the event that his mother was not up to the task or physically incapable of being Meadow’s guardian.

Walker had both a will and a trust, which was smart at the time. Nevertheless, when he first created those documents, Fast and Furious had not become the monstrous success it is today. His financial picture has changed and his estate planning documents should have reflected those changes. Over a decade ago, he probably had no idea how much money he would be leaving his daughter; he couldn’t have. Furthermore, Walker’s estate will have to cover significant tax obligations before his beneficiaries receive their share; this obligation could have been avoided or  reduced with some creative estate planning and trust creation.

The Ugly

Walker’s long-time girlfriend, the woman he reportedly wanted to marry, was apparently left with nothing. Boyfriends and girlfriends have no legal relief in this sad scenario, and it happens far too often. It goes without saying that Walker would have wanted to take care of his girlfriend for the rest of her life. However, since he failed to update his estate plan, she probably will not receive a penny.

You should consider your estate plan to be a living and breathing document; when your life changes, your estate planning documents should change along with it. This is why having a great relationship with a reputable estate planning attorney is so important.  If you are interested in creating an estate plan or have any questions regarding your current 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  living wills and 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.

 

*Post inspired by: Danielle and Andrew Mayoras, “Five Estate Planning Lessons From The Paul Walker Estate,” from Trial and Heirs: The Legacy Experts. Find the original article here: http://trialandheirs.com/blog/celebrities/paul-walker-estate-good-estate-planning-lessons

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Can A Will Written on a Tablet Be Valid?

Posted July 30, 2013 in Estate Planning, Probate by Michael Lonich.

Apparently so, according to Ohio Probate Judge James Walther. Last year, Javier Castro needed a blood transfusion but chose to refuse the health care because of his religious beliefs. Unable to find a piece of paper and pen, Castro wrote and signed his will with a stylus on his Samsung Galaxy tablet while his brothers watched – and it’s valid. Judge Walther explained that Ohio law requires wills to be written, signed, and witnessed (much like in California) and technically, Javier’s electronic will met each of those requirements.  Does this mean you should consider drafting up a will on your tablet right now and forego that visit to your estate planning attorney? Probably not.

The requirements for a valid will in California are quite similar to those in Ohio. In California, a will must be in writing, signed, and witnessed by two individuals in the presence of the testator.* However, unlike in Ohio now, there is limited case law regarding the validity of electronic wills. In fact, very few states have addressed the issue.**

You might be wondering: so many aspects of our lives nowadays are electronic – from bills to communication devices – so why shouldn’t my will be electronic as well? Why are there so many guidelines to creating a proper will? Having an appropriately designed and executed will ensures your wishes are carried out in the manner you intended them to and decreases the possibility of fraud.  With little to no law to rely upon, until the California legislature develops a statute addressing what is required of an electronic will, it would be anybody’s guess whether your Samsung tablet will would be considered valid and probated in this state. Therefore, until that happens, it would be prudent to continue creating your will the traditional way – with your estate planning attorney.

If you are interested in creating an estate plan or have any questions regarding your current 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  living wills and 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.

 

*Cal. Prob. Code §§ 6110 – 6113.

**Nevada is one of the few states that have statutes concerning electronic wills (http://statutes.laws.com/nevada/title-12/chapter-133/execution/133-085).

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