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Thursday, March 26, 2009

Legislation, or Making Sausage?

There was a time when tax legislation was so boring that much of it was made in a back room in Washington. That started to change in the mid-1980s when Ronald Reagan brought tax policy out into the open, and the trend has only accelerated now that we have several political news cable networks which need a constant stream of "news" to fill air time.

Even the Federal Estate Tax became ripe for public discussion in the months leading up to the 2001 tax bill. The result of that discussion was a scaled increase in the exempt amount, to the present $3,500,000 per person, with the Estate Tax to be eliminated for those dying in the year 2010, only for the tax to come back with the exemption to be lowered to $1,000,000 in the year 2011.

Not many tax professionals thought that the 09/010/011 back and forth would actually occur, but it did provide for a rare opportunity for humor in meetings with clients over these past several years. Imagine a hypothetical meeting of a doctor discussing the health of a parent with a child in December 2009, with no Estate Tax a few weeks away.

Doctor: "I'm afraid I have some bad news, your (Mom/Dad) may be brain dead and in any event will probably not live much longer. I'm sorry, we should probably discontinue life support."

Child/heir: "Thanks, Doc, but (Mom/Dad) looks great to me, keep the life support going and I'll give you a buzz on January 2."

At the moment, it is expected that the Obama administration will propose to Congress to simply freeze the $3.5M exemption in place, eliminating the 010/011 flip flop, and it would also appear that there are the votes in Congress to pass such a bill. This would certainly allow many clients to do some logical estate planning, rather than wait and guess what the law could be.

But the reality is that "what the tax laws will be" is harder to predict than ever, because there is only one sensational news story between the American public and a new, fresh tax bill. If one Congress passes a law, the next Congress can change it.

In the Estate Tax context that sensational news story might be a simple one about a ne'r-do-well heir or heiress living the high life while the rest of the country struggles. Or, the sensational story could be about a small business forced out of business by an Estate Tax levied upon the death of the founder. Either one of these stories, of course, would be an anecdote.

But if you think making laws via anecdote is far fetched, consider the AIG bonus debate which raged last week. I thought after 20 years I'd seen it all, but a tax bill proposed to basically confiscate a payment under an employment contract to such a small group of identifiable people -- even for a cynical tax lawyer that was news. Is Congress making law, or sausage? Would it matter how the bonuses were going to be spent? Or is it just the concept of the use of taxpayer money?

Certainly, many bills are passed by the House of Representatives with the knowledge that the cooler heads may prevail in the Senate.

But in the meantime it is harder than ever to explain the law to clients when every discussion must contain a disclaimer about how quickly the law can change.

Tuesday, March 17, 2009

New York Nonprofits Making Political Donations - Risk Of Losing Nonprofit Status

The New York Times has pubished an article regarding tax-exempt charities giving contributions to political candidates and paying for tickets to politicians' fundraisers.

According to the article, a review of New York campaign-finance and federal tax records shows that at least 81 tax-exempt charities have given contributions to legislative candidates since 2005, with some organizations giving more than once to multiple candidates. The article further noted that there was a relationship between the contributions and the politicians who helped the charities secure state money.

Federal law prohibits nonprofits classified as 501 (c) 3 organizations from making political donations or participating in campaigns. Those that do risk losing their tax-exempt status. This is just one of the many rules which govern the operations of nonprofits which provides a trap for the unwary.

For the article:
http://www.nytimes.com/2009/03/17/nyregion/17charities.html

Questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210.
Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation, in San Marino, California. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his office is conveniently located for clients in the Los Angeles, Pasadena and surrounding areas. The firm's website is: http://www.moravecslaw.com/

Estate Planning For "Online" Assets: What Will Happen To Your Email And Facebook Accounts?

Although all assets are created equal, some offer more challenges for estate planning than others. For example, the most common type of question asked after the death of a loved one is "how do I transfer that?" Even if your estate planning documents cover the asset in question, each asset category has its own set of rules. Cars are different than bank accounts. Real property is different from retirement plans.

So, what happens to all the assets you've created on the Internet: your email addresses, your PayPal account, your Facebook or MySpace profile or anything else that is online and requires a password? The answer is that your Trustee or Executor has the authority to transfer them or wind them up. But how exactly does he or she do that?

PC World has an article about a new company Legacy Locker that is slated to open for business in April 2009 which wants to address these issues with estate attorneys and their clients.

It is an interesting concept since most of the websites we use on a regular basis have little-to-no provisions in place on how to transfer account information in the event of death or incapacitation.

For the PC World article see:
http://www.pcworld.com/printable/article/id,161089/printable.html

According to its website, Legacy Locker is a secure way to pass your online accounts to your friends and loved ones. They describe it to be like a digital safety deposit box - you can put all your online accounts (emails, photos, social networks, everything online that requires a login) in it. For every account you store, you can assign a beneficiary, someone to whom you want to entrust your digital assets for the future. In the unfortunate event of your death or should you become incapacitated, Legacy Locker claims that it will securely pass your account information on to your named beneficiaries. Their website is: https://www.legacylocker.com/


Legacy Locker indicates on its website that it has lifetime and annual fees in addition to free accounts. The electronic age will continue to present new issues for estate planners to address in helping to help solve these problems. Since the company has yet to begin offering services, we cannot comment upon them but the idea is excellent and often overlooked in this digital age. Legacy Locker is also offering to email letters and videos to loved ones and beneficiaries.

Planning issues abound with respect to one's "digital estate" depending on one's online presence. Would one want a designated person to go into their email account and delete all the existing emails and cancel the account? Would you want to designate the person to answer all outstanding emails and access the contact list in order to contact friends and colleagues for service arrangements? Would you want to designate who could takeover your blog? Who will own your domain names?

Practically, to implement transfer of passwords and one's digital estate would not require a separate online company. However, the decedent would have to keep good records of the online accounts and the passwords to control them. In our experience the ability of clients to keep accurate records varies greatly from client to client.


It appears that Legacy Locker is seeking to be a one stop shop for online accounts and digital property and make it simple for individuals although one could accomplish the end result without them. It will be interesting to see if the general public finds this to be helpful, or an incredibly risky way of sharing what could be extremely confidential information.

Certainly, these days people share information on line in ways that a mere decade ago would have been considered rash (remember when online banking was exotic?). It will be interesting to see if this concept catches on or ends up as another Internet experiment.

Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210.
Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation, in San Marino, California. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his office is conveniently located for clients in the Los Angeles, Pasadena and surrounding areas. The firm website is http://www.moravecslaw.com/

Monday, March 16, 2009

Protecting Your Pets In California

Estate Planning For Your Pet?

Although Leona Helmsely giving her beloved Maltese named Trouble $12 million (while leaving her late son's children nothing) got national attention and practically became a national joke, there is the issue of what happens when our pets outlive us. For many, their pets are part of their families. Some pets, like parrots, have very long life-spans. Last year, in July 2008, California's permissive pet trust statute was amended with a more modern statute with enforceable provisions. See California Probate Code Section 15212. As pet owners, we can certainly relate to some of our clients' wishes to plan for the future care of their pets.

California Probate Code Section 15212

Here is a summary of this relatively new statute:

■ A trust for the care of an animal is deemed to be for a "lawful noncharitable purpose."

■ "Animal" is broadly defined to include pets of any type as well as domestic animals.

■ The trust terminates when the last animal dies that was alive when the settlor died (unless the settlor provided otherwise in the trust instrument).

■ The court must liberally construe the trust. Extrinsic evidence is admissible to ascertain the settlor's intent.

■ Trust funds may be used only for the benefit of the animal unless the trust instrument provides otherwise.

■ When the trust ends, the balance of the trust property passes (1) according to the terms of the trust (i.e., to the remainder beneficiaries), (2) if none and the settlor created the trust in a non-residuary will clause, under the residuary clause, or (3) in other cases, to the settlor's heirs.

■ The settlor may name a trust enforcer in the trust. The court may appoint a trust enforcer.

■ Anyone interested in the welfare of the animal and any nonprofit charitable organization that has as its principal activity the care of animals may petition the court to enforce the trust.

■ If the settlor did not name a trust or if the named trust is unable or unwilling to serve, the court must appoint a trustee.

■ Accountings must be given to the remainder beneficiaries (or those who would take upon the death of the animal) as well as to any nonprofit charitable corporation that has as its principal activity the care of animals and has made a written request for accountings.

■ Trusts with property valued at $40,000 or less are exempt from accountings, filings, reportings, and other requirements which normally apply to trusts under California law.

■ Upon a reasonable request, the animal and the trust records may be inspected by any beneficiary, the trust enforcer, or a nonprofit charitable corporation that has as its principal activity the care of animals.

How Your Estate Planning Attorney Can Help

As noted above, the laws of the state of California allow for trusts for the care of pets or domestic animals for the life of the animal. We will work with you to design the legal documents to take advantage of these laws for your pet’s protection. Proper planning can provide for the care of your pets not only in the event of death, but also for incapacity or temporary emergencies. Planning can lead to peace of mind, so you can rest assured that your pets will be cared for in the way that you desire.

You can provide directions regarding your pet’s medical conditions, health care, exercise needs, dietary needs, preferred veterinarian, and burial. Provisions for immediate access to your home for caregivers can be made. You can also appoint a different person to oversee the ongoing care of your pets to ensure that the caregiver is treating your pet in the manner that you set out in the trust.

Posted by Henry (Hank) J. Morevec III. With respect to estate planning and pets, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate and trust attorneys and Los Angeles pet trust and is available should you need legal advice regarding your own or a family member's situation. He is also a devoted pet owner and understands the needs of his clients to take care of their pets in their estate planning.

For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 to request a consultation. The firm website is http://www.moravecslaw.com/. The firm is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The office is located in San Marino, California, a suburb of Los Angeles in the San Gabriel area located 20 minutes from downtown Los Angeles. The firm represents clients throughout California and its attorneys engage in estate planning for clients throughout Southern California (Pasadena estate attorney, Los Angeles estate attorney, Santa Monica estate attorney, Pomona estate attorney, Torrance estate attorney, Long Beach estate attorney, Van Nuys estate attorney, Santa Barbara estate attorney, Orange County estate attorney, Riverside estate attorney, San Bernardino estate attorney).


Sunday, March 15, 2009

Using Taxable Gifts To Shrink An Estate


The Wall Street Journal has published an article entitled "Why Children May Get More Gifted" about renewed interest in using taxable gifts to shrink an estate for tax purposes given President Obama's plan to freeze estate-tax rates.

For the article:
http://blogs.wsj.com/wallet/2009/03/05/why-children-may-get-more-gifted/

The article addresses the fact that using taxable gifts to shrink an estate for tax purposes became less common in recent years, as the Bush administration’s plan was for estates to be scheduled to pass tax-free in 2010. That has changed.

The uncertainty has made estate planning more complicated. It also caused some people to wait and see what happens on the estate tax before embarking on any gift strategies. If Obama’s plan is approved by Congress, making taxable gifts will be more compelling for some individuals with estates of more than $3.5 million and married couples with estates worth more than $7 million. In 2007 and 2008, estates over $2 million could be taxed as much as 45%. In 2009, the threshold rose to $3.5 million. Obama’s proposed budget keeps the tax rate for 2010 and beyond at 45% on estates over $3.5 million.

Gift strategies can get complicated and require an experienced estate and tax lawyer, but the basic idea is this: One gives away assets, usually to heirs, to shrink the size of the taxable estate. Gifts over $13,000 are taxable in 2009. Exceptions include tuition or medical expenses paid directly to an institution for someone and gifts to a spouse, political organization or a charity, which are generally tax-free.

Though many taxpayers want to defer paying taxes, it may be smarter to pay taxes now. An experienced estates and trust attorney who has expertise in tax law can help make sure taxable gifts are made in the most tax-efficient way that also considers the future taxable effect on the trust.

The article is a good reminder for our clients to consider the following about making gifts:
* Do you want to put the gift into trust to protect the assets from creditors?
* Have you given away enough ownership so that the gift is completed today? (Giving cash is easy, but what if you are giving away a beach house and plan to continue using it?)
*Have you valued the gift properly for purposes of filing the tax return?

Estate planning is significantly more complicated than portrayed in this WSJ article, but it is a starting point to help people understand the concept.

Questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210.

Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

Circular 230 Disclosure: To ensure compliance with Treasury Department rules governing tax practice, we inform you that any advice contained herein (including any attachments) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer; and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

Saturday, March 14, 2009

When Does Estate Planning Involve Tax Planning?

As part of answering common basic questions we see in our practice, here is one:

When Does Estate Planning Involve Tax Planning?

Estate taxes are imposed upon an estate which has a net value - in 2002 and 2003- of $1 million or more. Under current law, that amount will increase to $1.5 million in 2004 and 2005, to $2 million in 2006 through 2008, and to $3.5 million in 2009. For estates which approach or exceed this value, significant estate taxes can be saved by proper estate planning, usually before death and, in the case of married couples, before the death of the first spouse. Estate planning for taxation purposes must take into account not only estate taxes, but also income, gift, property and generation-skipping taxes as well. Qualified legal advice about taxes should be obtained during the estate planning process.

Any questions or comments should be directed to: moravecs@earthlink.net Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

Friday, March 13, 2009

Why Do I Need a Formal Written Estate Plan?

In California, everyone has an estate plan even if they have no Will or Trust. That is because California law provides a detailed scheme of who is entitled to your property when you die. However, very few people would be happy with the results under the law because the law does not take into account an individual's wishes or family situation.

Regardless of who you are, how much money you have, who you want to inherit your estate or when you want them to receive distribution, your wishes are likely very different from the basic disposition provided under California state statutes. For instance, if both spouses ultimately die from a common accident but one outlives the other, even for a short time, all of the property of both spouses could go to the survivor's family rather than be split between the heirs of both spouses.

Having no estate plan can also be a problem for those with minor children. For example, if a couple with children died, California law provides that the children would be entitled to full ownership of the property, including any businesses, at age 18. Most people consider age 18 far too young an age to receive a full inheritance.

However, with a well thought out Estate Plan you can make sure that your children are well cared for (food, clothing and schooling) by a responsible adult trustee and that your minor children receive their inheritance at an age when they are more mature and less likely to blow through their inheritance on frivolous items.

Proper estate planning is important as a means of avoiding Probate Court. When you die without a Will or with a Will but no Trust, your heirs are required to bring the matter to Probate Court. Until such time as someone is appointed by the Probate Court, your assets are frozen and your heirs are unable to access your accounts to pay any bills and expenses.

In addition to being costly, Probate Court is time consuming and many acts require Probate Court approval. Even the most basic of estates can take over one year to close. Moreover, all documents filed in Probate Court are fully accessible by the public.

Another pitfall with the no estate plan philosophy is that lack of clarity most often breeds disputes and heirs tend to fight over the smallest of estates. These disputes are expensive to litigate and the fees incurred by the estate come from the estate's assets.

A properly drafted Will and Trust can avoid both the application of California's default provisions, as well as unnecessary expenses and the inconveniences of Probate Court. Not only does this keep the estate administration private, but it ensures that your wishes are followed and done so in a timely fashion.

We encourage you to contact an experienced estate planning lawyer to create an estate plan or to review your existing estate plan and determine whether changes should be made.

Any questions or comments should be directed to: moravecs@earthlink.net Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. His practice is located in San Marino, California but he represents clients throughout Southern California and his office is close to Los Angeles, Pasadena and the surrounding areas.

Tax Provisions Of American Recovery And Reinvestment Act Of 2009


On February 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009. A significant part of the economic stimulus provided by the legislation is in the form of tax cuts and other tax benefits and incentives. These are contained in a part of the legislation called the American Recovery and Reinvestment Tax Act of 2009 (the “Act”).

Many of the tax provisions are in the form of credits to low and middle income taxpayers to stimulate consumer spending. These types of credits are phased out at various levels of adjusted gross income and are generally not relevant to high income taxpayers. Once again, Congress has acted to keep millions of middle income taxpayers from being subjected to the alternative minimum tax by further increasing the exemption amount at an estimated cost to the government of more than $70 billion. In addition to these provisions which benefit low and middle income taxpayers, the Act also contains several provisions that are of interest to high income taxpayers or their families and numerous additional provisions that are relevant to businesses.

Individual Tax Provisions

Temporary expansion of permitted uses for funds in Section 529 plans. Section 529 education savings plans may be used to pay qualified higher education expenses which to date have included tuition, certain room and board, books, supplies and required equipment. The Act provides that during 2009 and 2010, these accounts may also be used to pay for the purchase of computer technology or equipment and internet access and related services, if such items are used by the beneficiary or his family during years in which he is enrolled at an eligible educational institution. Computer technology or equipment includes software, computers, computer peripherals and fiber optic cable related to computer use.

Extension of first time homebuyer tax credit. The first time home buyer credit may be applicable to your children or grandchildren. The credit is equal to 10% of the cost of the home with a maximum credit of $7,500, and was originally applicable for first time home purchases between January 1 and June 30 of 2009. The Act increases the maximum credit amount to $8,000 and extends the credit for first time purchases through November 30, 2009. Previously, the credit was recaptured over a period of 15 years or sooner, if the taxpayer disposed of the home. Under the Act, there is no recapture if the taxpayer owns the home and uses it as his principal residence for at least 36 months.

Deduction of sales taxes on certain motor vehicle purchases. The Act permits sales or excise taxes paid on new passenger vehicles (including motorcycles) purchased by December 31, 2009, to be deducted to the extent the tax is attributable to the first $49,500 of the vehicle’s purchase price. This deduction is not useful for high income taxpayers because it is phased out for those with adjusted gross income in excess of $125,000. However, this deduction may benefit children and grandchildren who need to purchase a vehicle, as they may take this deduction even if they do not otherwise itemize deductions on their income tax return.

Increased tax benefit upon sale of Qualified Small Business Stock. If a taxpayer sells Qualified Small Business Stock that he held for more than five years, he is permitted to exclude from his taxable income 50% of the gain realized on the sale. There is a limit of the greater of ten times the taxpayer’s basis in the stock or $10,000,000 of gain per issuer to which the 50% exclusion can be applied. In order to be Qualified Small Business Stock, the taxpayer must have acquired the stock upon its original issuance by a C corporation that is engaged in the active conduct of a trade or business and which has gross assets of $50,000,000 or less. Under the Act, for Qualified Small Business Stock acquired after February 17, 2009, and before January 1, 2011, 75% of such gain upon sale may be excluded from the taxpayer’s taxable income. The five year holding period rule still applies, with the result that stock purchased during 2009 will have to be held past the corresponding date in 2014 for the 75% exclusion to apply.

Business Tax Provisions

Bonus depreciation extended for property purchased in 2009. The special 50% bonus first year depreciation on certain kinds of new property, including aircraft, was originally applicable only to property purchased by December 31, 2008. The bonus depreciation is applicable for both the regular income tax and the alternative minimum tax. The Act extends the 50% bonus depreciation to qualifying property purchased during 2009 as well. Most kinds of equipment and other tangible personal property qualify for the bonus depreciation, as do leasehold improvements that are placed in service more than three years after the building in which they are located was placed in service. Certain assets having a longer production period may be placed in service before January 1, 2011, and qualify for the bonus depreciation.

Increased limitation on amount of business property that can be expensed is extended through 2009. The Economic Stimulus Act of 2008 increased the amount of business property that could be expensed from $125,000 to $250,000 for property acquired during 2008. The Act extends the $250,000 limit through 2009.

Expanded carryback of net operating losses for small businesses. The normal period for which a net operating loss may be carried back and deducted against income from prior tax periods is two years. The Act increases the carryback period for small businesses for losses incurred during 2008. Those losses, at the election of the taxpayer, may also be carried back three, four or five years. Only small businesses are eligible for the extended carryback. A small business is one which, for the three taxable years prior to the loss year, had average gross receipts not exceeding $15,000,000. This is a significant disappointment as it was initially proposed that the expanded carryback apply to all taxpayers. In the first Conference Agreement, the average gross receipts was limited to $5,000,000 but applicable to both 2008 and 2009 losses. Further lobbying by business groups resulted in the limit being raised to $15,000,000 but limited to 2008 losses. The limitation was imposed to help contain the cost of the Act.

Expansion of Work Opportunity Credit. Employers are currently entitled to a tax credit equal to 40% of the first $6,000 of first year wages paid to new employees who are members of a “targeted group.” One targeted group was veterans who were either disabled or they or their family qualified for nutrition assistance under the Food and Nutrition Act of 2008. For hires during 2009 or 2010, the Act expands the group of veterans that qualify and adds a new class of eligible employees called “disconnected youth.” During this period, a veteran need only have been discharged during the prior five years and be receiving unemployment compensation for at least four weeks during the one-year period ending on his hiring date. A "disconnected youth" is one between the ages of 16 and 25 who has not attended school for six months prior to his hiring date, who has not been regularly employed for six months prior to his hiring date and who is not readily employable because he lacks a sufficient number of basic skills.

Built-in gains of S Corporations. If a C Corporation has unrealized gain in its assets at the time it elects to become an S Corporation, it must pay corporate level tax on such built-in gain if the assets are sold within the first ten years after the corporation becomes an S Corporation. The purpose of this provision is to prevent corporations from electing S Corporation status immediately before they sell their assets. The Act reduces the ten year period to seven years for sales of assets during 2009 or 2010.

Conclusion. This posting contains only a brief summary of those tax provisions most likely to be of interest to high income taxpayers, their families, and businesses.

Any questions or comments should be directed to: moravecs@earthlink.net Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

Circular 230 Disclosure: To ensure compliance with Treasury Department rules governing tax practice, we inform you that any advice contained herein (including any attachments) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer; and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

Anna Nicole Smith Estate Back In The News

How can we be Los Angeles' area based estate attorneys and not comment on the fact that the Anna Nicole Smith case is back in the news? Well, we could leave it to 24-hour cable news but there is one interesting estate law twist here that is not covered by the media.

The California Attorney General has charged one of the co-trustee's of Anna Nicole Smith's estate -- attorney Howard Kevin Stern -- with conspiring to "commit the crimes of prescribing, administering and dispensing controlled substances to an addict" and "unlawfully prescribing a controlled substance." Two doctors, Sandeep Kapoor and Khristine Eroshevich, have also been charged in this criminal complaint filed in Los Angeles County Superior Court. Given that the co-trustee of the estate has been charged, this may be grounds for his removal or other action by the other co-trustee who is the father of the sole heir to the estate (the young daughter of Anna Nicole Smith).

What happens when a co-trustee is charged with a crime relating to illegal activities relating to the deceased? We can certainly foresee activity on the estate side of this case flowing from these criminal charges.

The Los Angeles Times has a link to Anna Nicole Smith's will:

http://latimes.image2.trb.com/lanews/media/acrobat/2007-02/27956411.pdf

For the Los Angeles Times article on these charges:

http://www.latimes.com/news/local/la-me-anna-nicole-smith13-2009mar13,0,6818108.story

Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210.
Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. The firm website is: http://www.moravecslaw.com/

Review Your Estate Plan

Why You May Need To Modify Your Estate Planning Documents

The combination of declining asset values during 2008 and the increase in the estate tax exemption from $2,000,000 to $3,500,000 effective January 1, 2009 has created potential significant distortions in many estate plans. These distortions can potentially undermine the surviving spouse’s financial security and reduce the assets remaining under that spouse’s unilateral control. The examples below illustrate potential problems that may require prompt attention to modifying estate planning documents:

Example 1: As of January 1, 2008, husband and wife’s estate amounted to $10,000,000. The estate plan provides that an amount equal to the first spouse’s estate tax exemption is to be allocated to the children, and the balance is to be allocated to the surviving spouse (or to a Marital Trust for the surviving spouse’s benefit).

As of January 1, 2008, the distribution at the first spouse’s death would have been $2,000,000 to the children and $8,000,000 to the surviving spouse (or to the Marital Trust). As of January 1, 2009, the estate has declined in value to $6,000,000. Therefore, the distribution at the first spouse’s death would be $3,500,000 to the children (due to the increased estate tax exemption), and only $2,500,000 to the surviving spouse (or to the Marital Trust). The surviving spouse’s share has been reduced from $8,000,000 to $2,500,000.

Example 2: Same assumptions, except that the estate plan provides for an amount equal to the deceased spouse’s estate tax exemption to be allocated to a “Bypass Trust,” which provides that discretionary payments of income and principal can be made to the surviving spouse and children for “reasonable support.” At the surviving spouse’s death, the Bypass Trust passes to the children. The remaining assets are allocated to the surviving spouse. Here again, $3,500,000 is allocated to the Bypass Trust in which the surviving spouse has only limited access to the funds. The assets under the surviving spouse’s unilateral control have been reduced from $8,000,000 to $2,500,000.

Similar problems can occur in estate plans utilizing generation skipping transfer (“GST”) trusts based on the applicable GST tax exemption. That exemption also increased from $2,000,000 to $3,500,000 as of January 1, 2009. Estate plans that allocate assets to GST Trusts based on the applicable GST tax exemption may cause unexpected distortions by dramatically reducing the assets passing outright to children.

The foregoing examples illustrate some of the potential effects of declining asset values and the increased estate and GST tax exemptions. We encourage you to contact your estate planning lawyer to review your estate plan and determine whether changes should be made.

Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210.
Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. The firm website is http://www.moravecslaw.com/

Thursday, March 12, 2009

What Is Probate?



Although many of our clients are sophisticated, we are providing explanations of the terms that are commonly used in an estate and trust practice.


What is Probate? Probate is a legal proceeding that is used to wind up a person's legal and financial affairs after death. In California, probate proceedings are conducted in the Superior Court for the county in which the decedent lived, and can take at least six months and sometimes as long as several years.

After a person dies, ownership (the legal title) of his or her property, assets and personal effects must be passed on (legally transferred) to the beneficiaries (heirs). "Probate" is the legal name given to this process.

The term "probate" is also used in the larger sense of "probating the estate." In this sense, probate means the process by which the decedent's property and assets are gathered and accounted; debts, creditors and estate taxes are paid, and how the remaining property, assets and cash are distributed to the beneficiaries.

Probate is a very time consuming and paperwork intensive process. Most people hire a probate attorney to help them with the probate administration process. Some probate estates can be administered in one year or less, but many take longer.

One of the disadvantages of probate is that the cost is usually much higher than would be required for the administration of a trust for an estate valued at the same amount. Another disadvantage is that it usually takes longer to probate an estate than to administer a trust. Most estates don't need the supervision of the court unless disputes occur.

Probate is concerned with:

• Cataloging all property of the deceased

• Paying any debts, claims or taxes that are due

• Collecting rights to any income (royalties, stock dividends, etc.) to which the deceased was entitled

• Settling financial and property disputes • Liquidating property (real or personal) of the deceased

• Distributing or transferring the remaining property to heirs

A personal representative is appointed by the Court to administer the decedent's estate. A personal representative can have various names (Executor, Administrator, etc.), depending on the type of probate estate, but each personal representative has similar duties and responsibilities, which include managing the probate estate.

Usually, in a will, the decedent names an "Executor" to act as personal representative. If there is no will or decedent failed to name an Executor, the court will appoint a personal representative called an Administrator. The Executor or Administrator will fulfill many of the same duties listed above.

For regular probate, attorney fees are set by statute (California Probate Code Section 10810) and payable at the conclusion of probate. The California Probate Code sets the maximum statutory fees that attorneys can charge for a probate. Higher fees can be ordered by a court for more complicated cases. We typically ask clients to pay a small costs retainer for the filing fee and related costs to open a probate matter. In more complicated matters, there may be a retainer for legal fees depending on the issues involved.

The descriptions above are merely simple explanations of the probate process. Each case is different and some probates require sophisticated legal expertise. Our firm is very experienced in probate matters. We have three attorneys who routinely handle probate as a regular part of our practice. Should you wish to schedule a consultation involving a probate matter to be opened, already on-going or engage in a probate litigation matter, you may contact our offices or one of the attorneys directly.

If you do not have a living trust for your assets, think about getting a trust in place to minimize the time, costs and emotional burden of probating your estate. In California, a living trust is easier to administer and almost always saves the estate untold attorneys' fees and costs.

Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210 for a complimentary telephone consultation. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

With respect to probate, Hank Moravec has over 20 years' experience as one of the best Los Angeles probate attorneys and Los Angeles probate litigation attorneys with an excellent tax law background and is available should you need legal advice regarding your own or a family member's situation.

The firm website is http://www.moravecslaw.com/. The firm is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The office is located in San Marino, California, a suburb of Los Angeles in the San Gabriel area located 20 minutes from downtown Los Angeles. The firm represents clients throughout California and its attorneys appears in probate court throughout Southern California (Pasadena probate attorney, Los Angeles probate attorney, Santa Monica probate attorney, Pomona probate attorney, Torrance probate attorney, Long Beach probate attorney, Van Nuys probate attorney, Santa Barbara probate attorney, Orange County probate attorney, Riverside probate attorney, San Bernardino probate attorney).

Wednesday, March 11, 2009

What Is A Will?


We are addressing the basics here, so let's start with the will. In California, which is a trust jurisdiction, we generally advise clients to create a trust with a pour-over will. For those with smaller estates who think they do not need trusts, we see even greater reasons why trusts --and not wills -- are the way to proceed. Some of our clients have existing wills created years ago which are reviewed when we're creating a comprehensive estate plan.

The Body of a Will

Most of the formalities of a will come at the beginning of the will and at the end of the will. The initial clauses usually announce the intention of the testator to make a will. The closing clauses usually indicate that the will has been signed and witnessed as required. In between the initial clauses and the closing clauses is the body of a will. The body of the will is where the testator directs the disposition of his or her estate.

Receiving Property Under a Will. In most states, a document is not a will unless it disposes of some property. Accordingly, the body of a will must dispose of at least some property. To avoid claims that the testator lacked the intent, capacity, or freedom to make a will, the body of a will should dispose of all property not otherwise disposed.

The testator must first pay the debts of his or her estate. What remains is the testator's net estate. A beneficiary is a person who receives property by from a testator's net estate. A gift is an intentional transfer of property from a person's generosity. A testator's direction to transfer property from his or her net estate to a beneficiary is a gift.

Testamentary Gifts A testamentary gift is a gift in a will. Traditionally, a gift of real property in a will is known as a devise. Traditionally, a gift of money in a will is known as a legacy. Traditionally, a gift of personal property other than money in a will is known as a bequest.

Today, any gift of personal property may be known as bequest or legacy. Today, it is generally said that a testator devises real property to a devisee and bequeaths personal property to a legatee. In each case, the testator gives or leaves property to a beneficiary.

A will may leave specific real property to a specific beneficiary. Each specific gift of real property is known as a specific devise. A will may leave specific personal property to a specific beneficiary.

Each specific gift of personal property is known as a specific bequest or specific legacy. A will may leave money from a specific fund to a specific beneficiary. Each amount of money from a specific fund is known as a demonstrative legacy. A will may leave money from the general assets of the estate to a specific beneficiary. Each amount of money from the general assets of the estate is known as a general legacy.

After all specific gifts, if any, are made, a will can and should contain a residuary clause. A residuary clause gives away any property remaining in the testator's estate. A residuary clause makes a residuary gift. Traditionally, any remaining personal property was known as the residue of the estate. Traditionally, any remaining real property was known as the remainder of the estate. Today, the words 'residue' and 'remainder' are used interchangeably. If there is no residuary clause, any property remaining in the testator's estate is disposed of by intestate succession (as if the testator died without a will).

A will may also contain provisions for a trust. As a general rule, a devise, a bequest, a legacy, or a trust in a will may benefit any person or legal entity, unless the gift violates public policy or a condition imposed by the testator is not met.

These are basic concepts and future posts will address the nuances of estate, trust and tax planning. If you have a will and have questions regarding it and whether you should instead create a trust with a pour-over will, please contact us.

Posted by Henry J. Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 to request a consultation should you need legal advice regarding your own situation. The firm website is http://www.moravecslaw.com/. The firm is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108.

He has over 20 years' experience as one of the most prominent and best Los Angeles estate and trust attorneys, Los Angeles will attorneys, and Los Angeles probate attorneys. Hank's practice is throughout Los Angeles County and Southern California, but since his office is in San Marino he has also become a well-known Pasadena probate attorney, Pasadena will attorney, Pasadena estate attorney and Pasadena trust attorney.

Tuesday, March 10, 2009

What Are The Basic Estate Planning Documents?


Let's start with the basics. What are the basic estate planning documents?


Basic Estate Planning Documents

Will. This Will is commonly referred to as a "Pour Over Will." The Will governs the property held in your name at your death. The Will provides for the administration of that property, and directs that the property remaining after the payment of your debts, expenses of administration, and estate taxes imposed on such property be added to your Revocable Trust.

Revocable Living Trust. The Trust Agreement creates what is typically referred to as a "Living Trust." The Trust Agreement is entirely revocable and amendable by you during your lifetime. The Trust Agreement becomes irrevocable and not subject to amendment upon the death of the first spouse to die.

Any property that you transfer to the Trust during your lifetime will avoid probate upon your death. Property that you do not transfer to the Trust will be subject to probate, but will pass to the Trust through the probate process.

The Trust Agreement contains the provisions governing the disposition of your property upon your deaths. The Trust Agreement provides for gifts, creates trusts, names successor trustees, and sets forth your instructions to the trustees. Your important estate tax planning is also accomplished through the provisions of the Trust Agreement.

You are the initial trustee of the Trust. Upon your incapacity or death, the person you have named to act as successor trustee will serve. You reserve the right to remove and appoint trustees during your lifetime and to designate who will serve as trustees in the future.

Durable Powers of Attorney for Assets. The Durable Powers of Attorney for Assets name the individuals that you desire to serve as your attorneys-in-fact, sometimes called your "agents," to deal with matters affecting your property. Your agents are given the power to transfer property to your Revocable Trust. Your agents are also given the power to act on your behalf, as if you were present and acting, with respect to your property, all as set forth in the Durable Powers of Attorney. Being a "durable" power means that the agents are authorized to continue to act during any periods of time when you are incapacitated.

Advance Health Care Directives. The Advance Health Care Directives identifies the individuals that you desire to act for you if you become unable to make medical decisions for yourselves. The most common decision involves when, and under what circumstances, extraordinary measures should be used to prolong life. There are also sections of the Advanced Health Care Directive which deal with whether or not you desire to be an organ donor.

Nomination of Guardians. If a couple has minor children we also prepare a Nomination of Guardians to serve if both parents are deceased. A court proceeding in the Family Law court is required to formally approve a guardian and the court affords the written nomination of the parents great weight in making its decision.

Conclusion: These are simply basic definitions to help you understand the key planning documents in an estate plan. We recommend using an experienced estate planning attorney who specializes in this area since although the definitions of the documents can be basic, their drafting, planning and implementation can be quite complicated and require sophisticated legal expertise. If you are in Southern California, feel free to email or contact us directly to see if we can assist you with your estate plan.

Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210.
Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. The firm website is http://www.moravecslaw.com/

Will A Trust Help Avoid Probate And Unnecessary Taxes?


How Do I Avoid Having My Estate Tied Up In Probate Court?


In addressing the basics of estate planning and trusts, one question that many in California want to know (especially since homes here can easily have value of $1 million or more) is: How Do I Avoid Having My Estate Tied Up In Probate Court? This can be one of the numerous advantages of having a properly drafted trust with a pour-over will.

The reason for this is that there is still another facet of the law which applies to those who die without a trust. Some assets pass by contract when the person who owns the asset dies. For example, a retirement plan such as a 401k account has a designated beneficiary as such those assets pass to the designated beneficiary. But many assets, including real property, do not automatically pass to anyone. Thus, California has a special Probate Court which exists to sort out who owns what, including, as you might expect, disputes over who owns what.

There is nothing especially remarkable about Probate Court other than the cost and time it takes to open and close an estate. It now takes more than one year to close even a basic estate, and many acts require Probate Court approval, which in turn requires an appearance in front of the judge. In addition, all documents filed with Probate Court are public documents and fully accessible by the public. Finally, the California state budget crisis has imposed large fees to help cover the cost of the Probate Court, fees which are completely avoided with an executed and funded trust document.

A properly drafted Trust can avoid both the application of California’s default provisions and unnecessary trips to Probate Court. Not only does this keep the estate administration private, but it results in much less delay.

Can A Trust Help Avoid Paying Unnecessary Taxes?

In determining whether to create a trust, there are also transfer tax considerations. Gifts are not income to the person receiving the gift, but transfer taxes are imposed on lifetime gifts and gifts made at death above certain amounts. There is an exception which allows a person to make unlimited gifts to a spouse, and there is another exception which allows a person to make annual gifts to anyone as long as the value of such gift does not exceed a set amount per year ($13,000 in 2009). We advise our clients as to which of these taxes apply to them, and what steps they can take to minimize such taxes.

Posted by Henry (Hank) Moravec, III, a partner at Moravecs, A Professional Law Corporation. Hank Moravec focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. Any questions or comments regarding this post or your own situation should be directed to: hm@moravecslaw.com or (626) 793-3210.

Posted by Henry J. Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. He has over 20 years' experience as one of the best Los Angeles probate attorneys and is available should you need legal advice regarding your own or your family's situation. You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108, and there is ample free parking.

The office is located in San Marino, California, a suburb of Los Angeles in the San Gabriel area located 20 minutes from downtown Los Angeles. The firm represents clients throughout California and its attorneys appears in probate court throughout Southern California (Pasadena probate court, Los Angeles probate court, Santa Monica probate court, Pomona probate court, Torrance probate court, Long Beach probate court, Van Nuys probate court, Santa Barbara probate court, Orange County probate court, Riverside probate court, San Bernardino probate court).

What Is Estate Planning And Why Do I Need A Formal Written Estate Plan?


What Is Estate Planning?

The phrase “estate planning” is thrown around quite a bit these days. Insurance agents and investment advisors whose businesses primarily consist of counseling their clients with respect to “investment” products often use the term. However, in the legal field the term “Estate Planning” is more involved.

A true Estate Plan is one that encompasses every aspect of planning for the disposition of your assets, including such things as:

■ A review of the character of your property and existing property agreements (if any),

■ Discussions about how you wish to structure your estate plan and dispose of your property,
■ Analysis of the tax impact of your proposed estate plan,
■ Advice on how to minimize the impact of taxes,
■ Recommendations for alternative estate planning techniques, and

■ The preparation of the documents necessary to carry out your chosen estate plan.

A basic estate plan consists of the following documents (i) a Will, (ii) Living Trust, (iii) Durable Powers of Attorney for Assets, (iv) Advance Health Care Directives, (v) Nomination of Guardians, and (vi) in most cases, whatever legal assistance is necessary to transfer a person’s assets to the Trust, such as a deed for real property.


Why Do I Need A Formal Written Estate Plan?

In California, everyone has an estate plan even if they have no Will or Trust. That is because California law provides a detailed scheme of who is entitled to your property when you die. However, very few people would be happy with the results under the law because the law does not take into account an individual’s wishes or family situation. Regardless of who you are, how much money you have, who you want to inherit your estate or when you want them to receive distribution, your wishes are likely very different from the basic disposition provided under state statutes.

The law of succession for those who die without a will or trust, distributes your estate outright first to your children, if any, then to your parents, if any, then to your siblings, if any, and so on. This can be a problem for those with minor children. For example, if a couple with children died, California law provides that the couple’s property would pass to their children. As such, the children would be entitled to full ownership of the property at age 18. Most people consider age 18 far too young an age to receive a full inheritance. With a well thought out Estate Plan you can make sure that your children are well cared for (food, clothing and schooling) by a responsible adult trustee and that they receive their inheritance at an age when they are more mature and less likely to blow through their inheritance on frivolous items.

Another pitfall with the "No Estate Plan" philosophy is that the basic law of inheritance does not provide for many common wishes, such as if you wanted to put some assets aside to care for a disabled child, sick parent, uncle or aunt. For most individuals and family businesses, estate planning is very important.


In California, having a proper estate plan in place will typically avoid probate. It will also make your wishes known in case something happens. We recommend using an experienced estate planning attorney who has tax expertise. If you are in Southern California, feel free to email us directly to see if we can assist you with your estate plan.

Posted by Henry (Hank) Moravec, III, a partner at Moravecs, A Professional Law Corporation. Hank Moravec is one of the best Los Angeles estate planning attorneys. Any questions or comments regarding this post or your own situation should be directed to: hm@moravecslaw.com or (626) 793-3210. The firm website is http://www.moravecslaw.com

The office is located
in San Marino, California, a suburb of Los Angeles in the San Gabriel area. The firm, however, represents clients throughout California and the office is easily accessible to Los Angeles, Orange, Santa Barbara, Riverside, and San Bernardino Counties. San Marino is a short drive from Los Angeles, Pasadena, Arcadia, Alhambra, Glendale, Burbank and the surrounding cities.