Los Angeles Estate, Probate And Tax Law Blog

What Is Undue Influence In California Probate Courts?

2012-01-30T06:49:00.000-08:00

As a law firm that focuses on probate and estate and trust litigation, we are seeing an increase in the number of allegations of undue influence in our cases. What do you do if you think a loved one is the victim of undue influence? Or what do you do if you are accused of exercising undue influence? Or what can you do to help prevent allegations of undue influence in the future?

Claims of undue influence can be difficult to understand and prove, both because of the lack of a definition in the Probate Code and because it occurs behind closed doors without witnesses. Increasingly, though, probate courts have staff such as investigators or visitors who go out and interview proposed conservatees and determine their circumstances, including the presence of apparent undue influence. Probate courts are also receiving more information from community practitioners such as Adult Protective Services social workers, physicians, and hospital discharge planners.

In California, the definition of undue influence is contained in California Civil Code §1575. This statute was enacted in 1872, a date which calls into question its application in the 21st century. Thus, probate judges in California lack probate statutory support when they must consider imposing a conservatorship on an elder who is allegedly being victimized by someone using undue influence. Additionally, we see that cases are not always handled consistently.

Complicating the picture is traditional thinking that mental capacity and undue influence are intrinsically linked. In other words, undue influence occurs only if there are deficits in mental functioning. Even though California law is clear that soundness of mind and body does not imply immunity from undue influence, the perception that undue influence cannot exist without mental deficits persists. Thus, if your loved one does not have mental deficits it may be more difficult to prove undue influence.

The first and most commonly invoked statute regarding undue influence is California Civil Code §1575, which was enacted in 1872 and is commonly cited as a definition of undue influence. The elements are:

1. The use, by one in whom a confidence is reposed by another, or who holds real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him;

2. In taking an unfair advantage of another’s weakness of mind; and

3. In taking a grossly oppressive and unfair advantage of another’s necessities or distress.

Pressure of some type is always a part of undue influence situations. In a seminal California case, Odorizzi v Bloomfield, undue influence was used against a person who was not an elder and had mental capacity. The court cited factors that indicated excessive pressure:

1. Discussion of the transaction at an unusual or inappropriate time;

2. Consummation of the transaction in an unusual place;

3. Insistent demand that the business be finished at once;

4. Extreme emphasis on the untoward consequences of the delay;

5. Use of multiple persuaders by the dominant side against a servient party; and

6. Absence of third-party advisors

More recent law is contained in California Welfare and Institutions Code §15610.30 et seq., which address financial abuse of an elder or dependent adult. In 2009, that section and others in the Welfare and Institutions Code were amended. The term u"ndue influence" was added. Section 15610.30(3) of the California Welfare and Institutions Code now states that financial abuse of an elder or dependent adult occurs when a person or entity does any of the

following:

“Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriate, obtaining, or retaining, real, or personal property of an elder or dependent adult when the elder or dependent adult lacks capacity pursuant to Probate Code §812, or by undue influence, as defined in Civil Code §1575, or both.”

Thus, undue influence is legally related to financial abuse. Section 15657.6 of the Welfare and Institutions Code—which references an elder lacking capacity (pursuant to California Probate Code §812) or being of unsound mind, but not entirely without understanding—states that a person or entity must return real or personal property if the elder or the elder’s representative demands it. Failure to do so in a timely fashion subjects the perpetrator to the same remedies available for financial abuse, namely, damages, attorney’s fees, and costs.

Although the California Probate Code does not contain a definition of undue influence, it does contain specific information as to determining deficits in mental functions in §811 and the capacity to make decisions in §812.

What do you do with this information regarding undue influence? If you or your loved one are in the planning stage, it may be wise to take steps to avoid such allegations in the future by involving an experienced attorney to guide you through the process. If you suspect undue influence, before you jump to allegations consult an attorney so you can make an objective assessment of whether you can prove your case. Probation litigation can be costly and a case should be evaluated by an objective attorney before you decide on a course of action. As our population ages, we can expect to see an increase in undue influence allegations in probate court.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

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 and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

Legal Skirmishes Over Heiress Huguette Clark's $400-Million Estate Comes Down To A Battle of Wills — Two of Them.

2011-11-29T13:12:00.000-08:00

Estate and probate lawyers a battle taking place in New York regarding the Estate of Huguette Clark. Huguette Clark, who had significant California property, died at the age of 104 in May 2011 in the New York City hospital where she had lived for at least 20 years. An MSNBC investigation also plays a role in this case. Her estate is estimated to be worth over $400 million.

In her 2005 will, she left large sums to a few people — including about $34 million to her nurse caretaker of 20 years — and asked that her Santa Barbara mansion be turned into an art museum. On Monday, however, a second will surfaced in court documents. It was signed just six weeks before the will that was previously made public and didn't mention anything about a museum. Instead, it left everything to 21 distant relatives who are now accusing Clark's longtime attorney and accountant of "plundering" her holdings.

That's a marked contrast from the later will, which specified that no money go to her family members, with whom she had "minimum contacts" over the years. What caused such a dramatic change of heart in such a short period is unknown. But in a filing with New York Surrogate's Court, the relatives' attorney, John R. Morken, wrote of "alleged deceit, undue influence and exploitation of a very elderly and extraordinarily wealthy woman at the hands of two professionals who, with the help of certain others, took control of her life, isolated her from family, and ultimately stripped her of her free will, as well as millions of dollars."

A group of family members made the same charges last year but failed to convince a New York judge that attorney Wallace Bock and accountant Irving H. Kamsler were helping themselves to Clark's fortune. However, after a series of reports on msnbc.com, New York prosecutors opened an investigation that is ongoing, according to Morken. Attorneys for both men have said they did nothing wrong and always acted in Clark's best interest.

But relatives, who said Bock kept them from visiting their great-aunt, were skeptical — and not just for financial reasons, according to Morken. "Even of greater concern to them is the family's heritage," he wrote. Huguette Clark's father was copper baron and former Montana Sen. William Andrews Clark. She grew up in privilege and at her death still owned apartments in one of Fifth Avenue's most elegant buildings, a large home in Connecticut, artworks that included a painting from Monet's "Water Lilies" series, a collection of French dolls, and a 23-acre bluff-top estate in Santa Barbara called Bellosguardo —Italian for "beautiful view."

By all accounts, it had been at least 50 years since she last set foot in Bellosguardo, a home with formal gardens that was maintained by a live-in manager. In her more recent will, she directed that a foundation be set up to run the new museum, with Bock and Kamsler operating it. That arrangement, the relatives said Monday, would allow the pair unfettered access to much of Clark's fortune. Even as Clark's executors, the men would make more than $20 million in commissions, according to Morken. Clark outlived her six brothers and sisters. She was divorced in 1930 and had no children.

Settlement of the conflict over her estate is expected to take several years. Although most estates are not worth this amount, once family disputes occur and litigation begins, it can take anywhere from months to years to settle all the claims. The trust will have its own attorney, the beneficiaries will have their attorneys, and the relatives presenting the second will and challenging the first will also have a set of attorneys. And what happens if the beneficiaries do not agree? More delays. Probate litigation is a very sensitive type of litigation and the emotions tend to run high.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person) regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

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 and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

ABLE Bill Creating Tax-free Savings Accounts to Supplement Special Needs Trusts Is Expected To Pass This Year

2011-11-18T22:31:00.000-08:00

Parents raising children with disabilities, including autism and Down's Syndrome, could soon save for their futures with tax-free “529″ savings accounts without jeopardizing their eligibility for other benefits.

The new accounts would be authorized under the Achieving a Better Life Experience (ABLE) Act of 2011 (H.R. 3423), which was introduced on November 15, 2011 in Congress with the support of Autism Speaks, The Arc, the National Down Syndrome Society and a host of other disability rights groups. The bill appears to have bipartisan support.

The ABLE Act, sponsored with bi-partisan support in the House by Congressman Ander Crenshaw (R-FL) and Congresswoman Cathy McMorris Rodgers (R-WA), and in the Senate by Senators Robert Casey, Jr. (D-PA) and Richard Burr (R-NC), would amend Section 529 of the Internal Revenue Service Code to allow individuals with disabilities and their families to deposit earnings to tax-exempt savings accounts.

The funds could be used to pay for qualified expenses, including education, housing and transportation, and would supplement, not replace, benefits provided through private insurance, employment or public programs.

Qualified disability expenses would include: school tuition and related educational materials; expenses for securing and maintaining a primary residence; transportation; employment supports; health prevention and wellness costs; assistive technology and personal support; and various miscellaneous expenses associated with independent living.

Currently, there are few options for families to save money for those with disabilities who often cannot have more than $2,000 to their name without forfeiting many government benefits. One existing option that our office specializes in is the "Special Needs Trust," which allows families to set money aside for the benefit of a person with a disability under the care of a trustee. An ABLE account would operate more like a bank account and would be less involved than a Special Needs Trust.

Special Needs Trusts will remain important tools in planning for the disabled especially since ABLE will have significant limitations once those accounts reach $100,000 (for example, disqualifying a disabled person from receiving SSI).

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

With respect to tax and estate law issues, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate and trust tax attorneys and Los Angeles Special Needs Trust attorneys and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. We can also arrange to have consultations at your home or office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office. Call (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Call

IRS Offers Filing & Penalty Relief for 2010 Estates; Basis Form Now Due Jan. 17, 20; Extension to March Available For Estate Tax Returns

2011-09-23T04:03:00.000-07:00

Since we help our clients prepare and file estate tax returns, it is important to note that the IRS announced on September 13, 2011 that the due dates for filing Forms 8939 and 706, as well as paying the estate tax for those estates that do not elect out of the estate tax, will be extended.

The IRS announced that large estates of people who died in 2010 will have until early next year to file various required returns and pay any estate taxes due. In addition, the IRS is providing penalty relief to certain beneficiaries of these estates on their 2010 federal income tax returns.

This relief is designed to give large estates, normally those over $5 million, more time to comply with key tax law changes enacted late last year.

The IRS is providing the following relief:
1) Large estates, opting out of the estate tax, now will have until Tuesday, Jan. 17, 2012, to file Form 8939. This special carryover basis form, required of estates making this choice, was previously due on Nov. 15, 2011. Because this is a change in the specified due date rather than an extension, no statement or form needs to be filed with the IRS to have this new due date apply.
2) 2010 estates that request an extension on Form 4768 will have until March 2012 to file their estate tax returns and pay any estate tax due. Normally, a six-month filing extension is automatically granted to estates filing this form, but extensions of time to pay are granted only for good cause. As a result, most 2010 estates that timely file Form 4768 will have until Monday, March 19, 2012 to file Forms 706 or 706-NA. For estates of those dying late in 2010 (after Dec. 16, 2010 and before Jan. 1, 2011), the due date is 15 months after the date of death. No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date.
3) Special penalty relief is provided to many individuals, estates and trusts that already filed a 2010 federal income tax return, or obtained an extension and plan to file by the Oct. 17, 2011 extended due date. Late-payment and negligence penalty relief applies to persons inheriting property from a decedent dying in 2010, who then sells the property in 2010 but improperly reports gain or loss because they did not know whether the estate made the carryover basis election. Details are in Notice 2011-76 posted on the IRS website.
Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

With respect to tax and estate law issues, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate and trust tax attorneys and Los Angeles probate litigation attorneys and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. We can also arrange to have consultations at your home or office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office. Call (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Call (818) 769-4221.

IRS May Seek Gift Tax Returns from Donors to GOP Leaning 501(c)(4)s

2011-05-26T09:23:00.001-07:00

The IRS confirmed May 13 that it is examining donations to one or more Section 501(c)(4) organizations to determine whether the donors should have paid the federal gift tax on the donations.

The development has shocked some tax lawyers, who have been advising clients for decades that donations to 501(c)(4) "social welfare" groups—including those that get involved in political and issue-advocacy campaigns—routinely are not subject to the gift tax.

Stay tuned. If the IRS takes the position that the donations are taxable gifts, there will surely be a battle that will spill into the Federal courts. Donations to 501(c)(4)s are not characterized by the "disinterested generosity" that is required of a gift for transfer tax (estate and gift tax) purposes.

Internal Revenue Code Section 501(c)(4) exempts from tax "civic leagues...operated exclusively for the promotion of social welfare...."

It will probably be high profile Section 501(c)(4) groups that will be targeted for audit. High profile Section 501(c)(4)s include Crossroads GPS, an organization that opposes President Obama's agenda and became a force as a fundraising juggernaut in the 2010 elections. Others include Priorities USA; Americans For Tax Reform; and Americans For Prosperity, a group fronting special interests started by oil billionaire David Koch. People For The American Way is a prominent left wing 501(c)(4).

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

With respect to tax and estate law issues, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate and trust tax attorneys and Los Angeles probate litigation attorneys and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

FAQ: How Do I Reduce The Potential For Probate Litigation While I Am Planning My Estate And Trust?

2011-04-15T11:29:00.000-07:00

We have seen an increase in probate litigation in our practice. Perhaps this is due to the economy and shrinking real estate values in California. Even when litigation is necessary, and we have had to aggressively defend our clients or trustees -- we know that litigation can be costly, time-consuming and destructive to family relationships.

Accordingly, I wrote a post a couple of years ago addressing the question of how to reduce the risk of litigation in the estate and trust context during the planning stage. Although these methods are not guaranteed ways of avoiding litigation and every estate plan is different -- the ideas here are useful starting points to consider in the estate planning stage.

Here are six methods to reduce the potential for litigation:

1. Advise Inheritors of Inheritance Plans. Especially when children of the decedent are treated unequally, will contests and litigation arise from disappointed feelings of entitlement. Telling the children ahead of time what their shares will be may avoid a later dispute. One could enter into a contract (for consideration or something of value) with such a person that he or she will not object to the validity of the document. Be careful however, that advising a child that he or she will not receive an equal share may have adverse effects even if it prevents litigation after death. Thus, informing inheritors of the plans could cause family problems in the present. This will vary from family to family.

2. Use a Revocable Trust in Lieu of a Will. Since a revocable trust can be funded and operate during lifetime, it is difficult to contest on the grounds that the individual was unaware of its terms. When the Settlor of the trust dies, there is no need to begin a court proceeding to "prove" the validity of the trust, such as there is for a will.

3. Use an Irrevocable Trust in Lieu of a Will or Revocable Trust. An irrevocable trust is even less likely, in my experience, to be challenged than a revocable trust. Irrevocable trusts can be drafted in such a way so that transfers of property to them are not completed gifts. However, there are other risks and issues with irrevocable trusts that must be considered.

Alternatively, making a transfer that is a completed gift, paying gift tax, and filing a gift tax return disclosing details may be additional evidence that the transfer was truly intended. Again, I believe that a lifetime trust that is significantly funded is less likely to be challenged.

4. Use a Disinheritance Or No Contest Clause. If the testator lives in a state such as California that will enforce it under certain circumstances, a disinheritance clause (also called an in terrorem clause for the Latin word "in fear") could be used. The goal here is to prevent beneficiaries from causing a legal ruckus after the testator is gone. A lot of trust and estate litigation is not about the validity of the document, it is about its interpretation or about actions taken by the fiduciary. In order to reduce this type of litigation, a disinheritance clause can cause a forfeiture of a beneficiary's interest if such a challenge is made. The entire estate plan must be consistent with this clause.

With the advent of passage of Senate Bill 1264 which enacts Probate Code Sections 21310-21315 effective January 1, 2010, California's "no contest" law has been significantly weakened. This weakening affects wills and trusts that became irrevocable after January 1, 2001 and later. "No contest" clauses traditionally penalize parties who attempt to attack a will or a trust. Now, it will be significantly easier to attack a will or a trust in California.

To review Senate Bill 1264, go to: http://info.sen.ca.gov/pub/07-08/bill/sen/sb_1251-1300/sb_1264_bill_20080707_enrolled.pdf

5. Use Mediation or Arbitration Provisions. Arbitration or mediation cannot be used with respect to the challenge of a document's validity unless the parties agree to it. Using a disinheritance clause to cause forfeiture if the parties will not participate can be used. This could stop claims that are filed only to harass other beneficiaries or to delay distributions to others. Another approach would be having the parties enter into a contract agreeing to arbitration before the transfer.

6. Use a Condition Precedent to a Bequest as an Alternative Method of Causing Participation in Mediation or Arbitration. Since a person cannot be forced to participate in arbitration or mediation unless the law provides for enforcement, consideration must be given to how to get parties to use these methods. One can use the carrot instead of the stick. Parties can be given a benefit if they consent to use arbitration or mediation instead of resorting to court.

When creating estate plans or trust documents it is important to consider the potential for litigation and whether it should be addressed prior to the death or after the death of the people creating it. While much can be done prior to death to resolve potential disputes and keep communications open, often issues only arise after the death of the trustees. During the estate planning stage, this is the time for you to consider what can be done to reduce the likelihood of estate and trust litigation.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

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 and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

Probate Litigation: Family Law And Probate Law Collide Where Widow Must Pay Support to Her Husband’s Previous Wife

2011-02-16T07:16:00.001-08:00

In estate planning and probate, one sees the intersection of family law on a frequent basis. Late last year, the California Court of Appeal (Div. Three) held that a San Francisco-area widow must continue making support payments to her deceased husband’s previous wife. This case is now pending before the California Supreme Court. Kircher v. Kircher, 10 S.O.S. 6238.

This case shows the importance of consulting with an estate planning attorney at the time a marital or dissolution agreement is made. It is apparent that no one representing the husband or the new wife considered what would happen if the husband passed away. Perhaps the husband would have purchased separate insurance to provide for this continuing obligation or made some other changes to his trust. If the agreement or judgment is already entered into, it is still important to consult an estate planning attorney to provide for obligations under prior marital settlement agreements.

Div. Three said that the form of title in real property that passed to the widow (Wife 2) upon her husband’s death—joint tenancy—did not shield it from consideration when determining the extent of her personal liability for his obligation to pay Wife 1 support till she died. That ruling followed the panel’s conclusion, in an unpublished portion of its opinion, that the man’s written agreement to support Wife 1 until she died was sufficient to waive state law providing that such an obligation would normally terminate upon his death.

Wife 1 Bonnie Kircher, the former wife of San Francisco hotel and apartment house operator Vincent Kircher, sued Wife 2 Adelaide Kircher, his widow, when the latter stopped making monthly support payments in 2008, three years after her husband’s death.

Vincent and Wife 1 separated in 1970 following almost 10 years of marriage and entered into a settlement agreement in which he agreed to pay monthly support until either of the two died or she remarried. The two modified the agreement in 1987, agreeing to increase support and for payment of Wife 1's health insurance. The modified agreement provided that the obligation continued until Wife 1 died, remarried, or lived with another person “in a marital-like relationship” for 30 days, but omitted any language cutting off the obligation at Vincent Kircher’s death.

In 1998, Vincent Kircher married Wife 2 Adelaide Kircher and revised his will to leave his property to her upon his death. He also transferred title to three real properties to himself and his new wife as joint tenants, and continued to meet his support obligations while living. These properties had been separate properties.

Interestingly, if he had not transmuted them to community property, all of the value of the properties could have been used to pay Wife 1 instead of just his community share. Probate Code §13551 limits the liability of a surviving spouse for the deceased spouse’s debts to the fair market value of the deceased spouse’s separate property or his share of community property.

Upon his death in 2005, Wife 1 filed a creditor’s claim against his estate asserting a claim for past and future obligations under the modified agreement. Wife 1 filed a complaint against Wife 2 Adelaide Kircher three years later when Wife 2 terminated the ongoing monthly support payments while continuing to pay for the health insurance. Wife 1 claimed that Wife 2 was personally liable for husband's debts under Probate Code §13550-13552 and seeking damages and attorney fees for Wife 2’s breach of the modified marital settlement agreement’s terms.

Wife 1 sought a declaration that Wife 2 was obligated to continue to comply with the terms of the settlement agreement. Wife 2 argued that the support obligations could not be enforced against the real properties she held in joint tenancy with her late husband because a surviving joint tenant takes the property free of creditors’ claims.

In response, Wife 1 asserted that she did not seek a lien on the properties, only to impose liability for continuing payments up to the amount of the properties’ value, and Marin Superior Court Judge Verna A. Adams ruled in Wife 1's favor. The trial court judge Adams determined that calculation of Wife 2’s personal liability for her husband’s debts encompassed property held in joint tenancy, and that the support obligation to Wife 1 survived his passing, and the Court of Appeal agreed in an opinion by Justice Martin J. Jenkins.

Jenkins pointed out that the Probate Code provides that a surviving spouse is personally liable for the debts of a deceased spouse, and that liability is chargeable against property described in Sec. 13551. He said that the properties Vincent and Wife 2 held in joint tenancy fell within that section because the Legislature clearly intended for it to reach all property, including joint tenancies, so long as it could be characterized as community property or the decedent’s separate property.

Noting California’s presumption that property acquired by a married couple is community property, and explaining that characterization of property is not dependent on the form of title, Jenkins wrote: “At the time of decedent’s death, the property held in joint tenancy by Vincent and was presumed to be community property subject to rebuttal by Vincent that it remained his separate property. Either way, the property at issue falls within the ambit of section 13551."

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

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 and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

Cyberspace When You're Dead - Interesting New York Times Article Addresses Our Digital Afterlives

2011-01-09T08:21:00.000-08:00

There is an interesting article in the New York Times entitled "Cyberspace When You're Dead" that addresses the fact that estate law has only begun to consider the topic of what happens to our digital afterlives.

Considering that only about a third of Americans even have a will, how many people write down all the passwords and screen names for digital photograph servers like Flickr, email, social networks and leave them in a place where their family or heirs could find them? Facebook now has an option that allows a profile to be switched to "Memorial" mode when an individual dies.

For some family-owned businesses that rely on the Internet for sales and marketing, the digital rights and passwords may be very important for running a business. For many of our older clients, this has not been much of an issue but this is something for each person to consider.

Years ago, you could find a person's address book and contact their friends and family to tell them of their passing. Now much of that information is kept in Outlook Contacts or on an iPhone. Another thought is that some people are creating online memorials with photographs or video and allow friends and family to share memories. This is obviously a personal preference but is something that can be addressed at the planning stage.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

Tax Relief Act of 2010: It Finally Happened

2010-12-26T11:37:00.000-08:00

Well, no one would have predicted this!

Essentially, Congress had ten years to provide some certainty to the U.S. Federal Estate and Gift tax system. Incredibly, with the Democratic Party in control of both houses of Congress and the White House, the Estate tax was allowed to lapse completely in 2010. As 2010 wore on, there were periodic statements of what should happen to the law, should there be a retroactive bill? Would the law really be allowed to return to the 2001 standard, with high rates and only a $1,000,000 exemption?

Then, the mid-term elections occur and we have divided government again. Yet now, with a technical "lame duck" congress, incredibly, a new tax bill emerges!

And what a bill! In addition to extending the Bush tax cuts on the income tax side (along with some very interesting temporary adjustments to the Social Security withholding tax), the Tax Relief Act signed into law on December 17, 2010, lowers estate, gift and generation-skipping transfer (GST) taxes for a two-year period.

Here are some of the estate and gift highlights of the Act:

■ The estate tax will be reinstated for 2011 and 2012 with a top rate of 35 percent. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years.

■ Estates of people who died in 2010 can choose to follow either 2011 or 2011's rules. The estate may choose between an estate tax based on the $5 million exemption and a step up in basis of the estates assets, or no estate tax and a modified carryover basis in the estates assets.

■ For gifts made after December 31, 2010, the Act reunifies the gift tax with the estate tax, allowing for an exclusion of $5 million and the 35% tax rate. For gifts made during 2010, the exclusion amount is $1 million and the maximum tax rate is 35%.

■ The generation skipping transfer tax exemption for gifts made or decedents dying after December 31, 2009 will be equal to the applicable exemption for estate tax purposes. Transfers made during 2010 subject to the generation skipping transfer tax are subject to a tax rate of 0%, and will be subject to a rate of 35% for transfers in 2011 and 2012.

■ In addition, the TRA allows for the estates of decedents dying after December 31, 2010 to elect to transfer the unused portion of the $5 million exclusion to a surviving spouse.

Aside from the fact that a $5 million estate tax exemption per person, or $10 million per couple, is good news, there are many other planning opportunities raised by this new bill, many of which are caused by the fact that the gift tax exemption will now also be $5 million per person. This is the huge difference between the law since 2001 and now. Under prior law, with the gift tax exemption at $1 million, many clients who could otherwise afford to do so (from a financial perspective) could not make gifts to children or grandchildren. Now, there are many gifts which can be made, in trust or otherwise, and the parent/donor will not owe tax.

Perhaps the most surprising part of the Act is that estates of people who died in 2010 can elect to use either the new rules or the "old" rules. This addresses the situation in which an estate may owe significant capital gains tax even though no estate tax is owed. This is a surprising change because many times such inconsistencies are allowed to remain in the tax code because there is not much in the way of political capital to simply fixing an inconsistency. We have several estate matters which will be affected by this part of the Act.

The fact that the Act is in place for only two years is interesting. Perhaps Congress has realized that having these "deadlines" in place actually helps when it comes to compromise. We will see in two years' time.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Proposed Estate Tax Deal for Two Years: 35% Tax Rate And $5 Million Exemption. Bigger Question For Most Americans: Do You Have An Estate Plan?

2010-12-09T05:49:00.000-08:00

On December 6, 2010, President Obama announced that he has reached a deal with Republicans regarding the estate tax and other Bush Tax Cuts. Under the deal, the repeal of the estate tax in 2010 would not be extended. The estate tax would be revived, but not as it is scheduled.

Under current law, if Congress reaches no agreement, the estate tax is scheduled to come back in 2011 at a top rate of 55% (60% in some cases) and an exemption of a mere $1 million for individuals.

Under the Obama-Republican deal, the estate tax would come back at a rate of 35% and with an exemption of $5 million for individuals -- for two years. However, it is unknown whether the lame duck House would pass an estate tax exemption this high. This proposal may also not be popular among the Democrats.

From a planning perspective, the question is what should we advise our clients? Our approach is simple. Plan with the current law and not based upon any politicians' proposal.

One problem with this current proposal is that it's not a permanent solution. Under the deal the 55% tax rate and $1 million exemption would return in 2013. Married taxpayers will still need to utilize highly flexible planning that will allow the surviving spouse to adjust the planning after the first spouse’s death. This can be done by utilizing a “wait-and-see” trust that can adjust for different Federal and State exemptions and can be adjusted for up to 15 months after the date of the first spouse’s death if congress changes the law.

Get an estate plan. According to a Lawyer.com survey in early 2010, many Americans do not have proper estate plans. Only 35% of Americans now report having a will and only 21% have a trust. Thus, while a great deal attention is focused on the proposed legal changes, it is important to focus on yourself and your family and get an estate plan in place and not wait for Congress to act.

Probate Battle Involving Heirs Of Book Author And Undue Influence Allegations Settles After Two Years And On Eve Of Trial

2010-11-07T11:40:00.000-08:00

A notable probate battle in Vermont has settled just before trial was to start after a 2½-year-old fight among the heirs of children's book author and illustrator Tasha Tudor. The estate was worth $2 million. Ms. Tudor, 92, died in 2008 of complications from a series of strokes. The settlement agreement was confidential and not filed with the court.

The fight was over the legitimacy of the will and the key issue was whether Ms. Tudor was unduly influenced when she rewrote it to give nearly everything to her oldest son.

Although this case is not in California, it highlights trends we see in cases here in California. First, given the cost of probate litigation and the risks involved, most cases settle before trial. With a $2 million estate, a significant amount of the estate can be consumed in legal fees over a two-year period. It is important to analyze legal expenses and costs as part of the business side of evaluating whether it makes economic sense to proceed to trial.

Second, there is an increase in probate litigation given the economic and housing crisis with some heirs not willing to settle for less and with real estate prices being depressed. Third, when wills or trusts are changed to leave out other children -- it increases the likelihood of probate litigation unless the changes are well documented and planned.

Ms. Tudor, who quit school after the eighth grade, won a worldwide following with her whimsical watercolors and drawings in "Pumpkin Moonshine," ''Corgiville Fair," and "Little Women," among nearly 100 children's books she illustrated or wrote. Ms. Tudor celebrated old-fashioned family life at home, becoming known for her anachronistic lifestyle — often going barefoot, wearing vintage dresses or making linen for her own clothing and living in a replica of an 18th-century New England farmhouse built by her sons, in Marlboro, Vt.

Her 2001 will requested that her cremated remains be buried with her beloved predeceased Corgis and the ashes of her pet rooster. It left her copyrights and most of her assets to sons Seth Tudor and Thomas Tudor and Seth's son, Winslow Tudor, giving only $1,000 each to daughters Bethany Tudor and Efner Tudor Holmes.

But an amended 2002 version cut out Thomas, save for an antique highboy, because of his "estrangement" from his mother. Thomas contended his brother wielded undue influence over their mother and that there are suspicious circumstances surrounding the changes in the will.

He focuses his practice on Probate Litigation, Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

NYT Article On Competency: "Money Woes Can Be Early To Alzheimers" And How This Effects Deciding When A Client Lacks Capacity

2010-11-01T06:20:00.000-07:00

The New York Times recently had an article entitled "Money Woes Can Be Early Clue To Alzheimers" which is a case study on why early estate planning and having powers of attorney in place before there are competency issues is important -- especially to avoid later charges of undue influence and competency. It also raises the issue, however, of “What do we mean when we say someone has enough decision-making capacity to be ‘competent’?" The issue promises to become even more complicated as researchers and doctors diagnose Alzheimer’s earlier and earlier.

The article notes that the Financial Industry Regulatory Authority, the largest nongovernmental regulator for securities firms doing business in the United States, recently met with individual financial services companies and the Alzheimer's Association to formulate guidelines on how to deal with clients who have trouble remembering and reasoning, a problem that is not new but is increasing as the population ages.

On one hand, it is generally agreed that decisions by a competent adult should be respected. On the other hand, if new brain scans and other methods show signs that a person is developing dementia, does that mean the patient should be watched, or that there should be limits on his or her abilities to make financial or legal decisions?

The article cites experts who say confusion over money and finances is perhaps the most important and most predictable early functional change as people descend into dementia. For lawyers, the main question is at what point a client lacks the capacity to execute a will, trust or other document, and who decides when that point has been reached. And if a lawyer lets a client go ahead, will the document be challenged?

The American Bar Association's Commission on Law and Aging created guidelines on this issue in 2005 entitled "Assessment of Older Adults With Diminished Capacity." The guidelines that include warning signs of diminished capacity, like memory loss and problems communicating and doing calculations. The guidelines instruct lawyers to look at the legal requirements for capacity in specific situations, like making a gift. Courts are always struggling to come up with principles and definitions of capacity and definitions of capacity vary among the states.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

LEGISLATIVE UPDATE -- Odds On No Action On Estate Tax This Year Just Went Through The Roof

2010-10-03T16:17:00.000-07:00

Its October 1, and there is still no action pending on Federal Estate Tax this year. Based upon several well publicized remarks, including a speech by Charles Grassley on the floor of the Senate and an op-ed piece by Robert Rubin in the Wall Street Journal ("Bring Back The Estate Tax Now"), it is fair to say that, with one quarter left in 2010, policymakers have finally noticed that the tax is coming back at only a $1 Million exemption and a 55% rate next year.

With an election looming in a month, there is basically no chance of action prior to Mid-November, I think that any retroactive application is now over.

I also think that a return to the $3.5 Million exemption and 45% rate is now the most likely scenario, because the government needs the money and has to get it from somewhere.

In an October 2, 2010 New York Times article entitled "TARP Bailout to Cost Less Than Once Anticipated" there is a good opportunity to imagine, as a legislator, (or even a top aide, like all those guys and gals in "The West Wing") how you would (a) address this issue and more importantly (b) explain it to your constituents.

It is no easy task. The New York Times article mentioned above, for example, points out that, according to one poll, 3 out of 10 voters are against the"bailout" even though the bailout is not going to cost $700 billion and may actually make money for the government. In another New York Times article "In Tax Cut Plan, Debate Over the Definition of 'Rich'" (Sept. 30, 2010) is a very thorough dissertation on one of the major issues in tax policy -- who, exactly, are "the rich?"

The only thing missing is the one fact which is rarely discussed, tax policy must address distribution of whatever it is that is being taxed. (It is rarely discussed because it is not entertaining enough, that is for sure!) For example, imagine an economic system with one peasant who is only paid in food, who works for the farm owner. The farm owner, who is "only 50% of the population" pays "100% of the taxes." He pays 100% of the taxes because he makes 100% of the income. The U.S. economy is more complex than that, but the principal is the same, in order to raise money you have to levy taxes on actual streams of income or assets -- you cannot just tax "in theory."

So, now read the two articles and figure out the best solution. (I know I don't know the best solution, that is for sure!) Remember, these are the guidelines:

(i) if you actually apply the taxation to those who have the money, you are vulnerable to the argument that "so and so voted to have 5% of the population pay 37% of the tax";

(ii) you know the average voter basically does not like rich people, since a program to essentially stabilize one of the worst recessions in memory is thoroughly demonized even though it may actually be profitable for the taxpayers, basically on the grounds that people don't like banks; and

(iii) no one agrees on who the "rich" are -- at least no one agrees based on any logic.

Good luck. And if you ever wonder why the Internal Revenue Code is complicated, or why politicians only speak in sound bits with no substance, imagine trying to explain these considerations in 30 seconds.

Recent California Decision On Breach Of Trust & Trustee Fiduciary Duties - Uzyel v. Kadisha

2010-09-27T05:28:00.001-07:00

A recent decision from the California Court of Appeal (10 S.O.S. 5529) serves as an incredible reminder about the duties of a trustee not to engage in self-dealing even if the trustee believes he or she is also acting in the best interest of the trust and beneficiaries.

It also demonstrates how long these cases can take to run through the courts. The lower court trial lasted for almost four years before it went to the appellate courts.

In this case, the Court of Appeal affirmed a judgment against trustee Neil Kadisha, a venture capitalist and philanthropist who is reportedly one of Los Angeles’ wealthiest residents, for actions arising from two trusts he was administering for a young widow. The lower court found that Neil Kadisha used the trusts for his own benefit. Neil Kadisha served as the trustee of two trusts.

The beneficiaries, Dafna Uzyel and her children Izzet and Joelle Uzyel (collectively the Uzyels), filed petitions for breach of trust against Kadisha and terminated the trusts. After a nonjury trial, the trial court awarded the Uzyels over $59 million in compensatory damages and disgorgement of profits, plus $5 million in punitive damages and over $13 million in attorney fees. The Court of Appeal upheld the lower court's findings and also added about $20 million in prejudgment interest to the judgment.

Justice Walter Croskey, writing for the Court of Appeal, cited numerous instances of self-dealing by Mr. Kadisha, who agreed to assist then-28-year-old Dafna Uzyel, who had a 10th grade education and spoke little English, after her 40-year-old husband died unexpectedly. Rafael Uzyel had emigrated from Israel with his wife and two children and had a successful export-import business.

Mr. Kadisha appealed the judgment, challenging the awards on several claims, the punitive damages, and the attorney fee award. The Uzyels also appealed, challenging the denial of relief on some of their claims, the denial of prejudgment interest on some claims, the punitive damages, and the costs award.

This case raised several questions concerning a trustee’s liability for breach of trust under Probate Code Section 16440(a). With respect to these questions, the Court of Appeal concluded:

(1) tracing is not required for the disgorgement of profits made by the trustee “through the breach of trust” under section 16440(a)(2);

(2) the fact that an act is consistent with or even compelled by the duty of prudent investing does not excuse a trustee from liability for breach of the duty of loyalty, including liability for appreciation damages as lost profits under section 16440(a)(3);

(3) the determination as to which of the statutory measures of liability “is appropriate under the circumstances” under section 16440(a) is reviewed for abuse of discretion;

(4) an investment loss resulting from a breach of trust should be offset against a profit resulting from a breach of trust only if the breaches were not separate and distinct;

(5) prejudgment interest is mandatory on an award of damages under section 16440(a)(1); and

(6) the absence of an express provision for prejudgment interest under section 16440, subdivision (a)(3) does not preclude an award of prejudgment interest under Civil Code section 3287, subdivision (a) on damages awarded under that provision.

Citing legal treatises and the 3d Restatement of Trusts, Justice Croskey wrote: “A trustee is strictly prohibited from administering the trust with the motive or purpose of serving interests other than those of the beneficiaries....A trustee also is strictly prohibited from engaging in transactions in which the trustee’s personal interests may conflict with those of the beneficiaries without the express authorization of either the trust instrument, the court, or the beneficiaries...."

"It is no defense that the trustee acted in good faith, that the terms of the transaction were fair, or that the trust suffered no loss or the trustee received no profit. This is known as the no further inquiry rule...Such a transaction is voidable at the election of the beneficiaries, and other remedies may be available, including an award of profits that the trust would have made if not for the breach of trust.”

Mr. Kadisha argued, among other things, that many of the challenged transactions, such as a sale of Qualcomm stock in 1992 at the time the investment was properly classified as risky, were in the trusts’ best interests. But a trustee cannot enter into a transaction solely for his personal benefit, even if it makes economic sense from the trust’s point of view, Croskey wrote.

Croskey said the additional prejudgment interest, which the trial judge denied as a matter of equity, had to be added to the award under Probate Code provisions setting forth remedies for breach of trust.

Attorney Comments: Where there is a conflict of interest or possible conflict of interest, obtaining written consent or legal advice is important at the outset. The fiduciary duties a trustee holds to the trust and beneficiaries impose serious legal duties that sometimes get overlooked especially where the trustee is also a beneficiary (which was not the case in Mr. Kadisha's case). Trustees should seek legal advice before making decisions that could cause them potential liability and exposure. In Mr. Kadisha's case, it seems he obtained legal advice and then ignored some of it to his later detriment.

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust administration attorney and Los Angeles probate litigation attorney. He has more than 20 years' experience in probate and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210. The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Financial Planning's Fraternal Twin Is Estate Planning. New York Times' Article "Estate Planning Step 1: Recognize You Are Going To Die"

2010-09-22T08:30:00.001-07:00

Estate planning has been called “the fraternal twin of financial planning.” A financial plan devises a strategy of accumulating wealth and preparing for retirement, long life, ill health, college educations for children, and so on. An estate plan determines the best means of disposing of the accumulated wealth and for supporting loved ones after you die.

A recent New York Times article entitled: “Estate Planning Step 1: Recognize You Are Going To Die” is a useful reminder of why an estate plan is part of sound financial planning. The article confirms that the first step in working on an estate plan is to accept that you are going to die at some point. The article is excellent in explaining how estate planning is a process since you can only plan with what you have at the moment or for the children or grandchildren or wife/husband you have at the moment. You need to keep things under periodic review.

You also need to ask yourself some questions: Will a trust help you ensure that your children do not inherit money in one lump sum or avoid tax liability? Do you want to leave more to one adult child than another? Do you want there to be asset protection for your spouse? Are you an American residing overseas or with property overseas? Do those countries have forced-heirship laws? What are the advantages to avoiding probate? There are a lot of questions that an estate planner can help you assess as part of your financial and estate planning and these are just the tip of an iceberg. It is also important to assess each family's unique circumstances and financial situation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Court Upholds Medicaid-Planning Annuity Purchase -- Income Stream From An Annuity Is Not An Asset For Medicaid Eligibility

2010-09-06T14:37:00.000-07:00

An interesting and useful case was decided in Connecticut federal court last month regarding whether the income stream from an annuity can be treated as an "asset" for Medicaid (or here in California Medi-Cal) eligibility. The decision was in favor of the annuity owner whose husband was in a nursing home.

On August 30, 2010, a federal court in Connecticut ordered the state Medicaid agency to determine the eligibility of an institutionalized applicant without regard to his wife’s purchase of a single-premium annuity, which converted assets to income. It rejected the agency’s attempt to treat the annuity as an asset, which would have put the applicant over the resource limit until the couple spent down about $180,000. The agency’s denial of assistance was based on the wife’s failure to cooperate, specifically, her refusal to sell her interest in the annuity as it directed. The case is Lopes v. Starkowski (U.S.D.C. Conn., No. 3:10-CV-307, August 10, 2010).

The Annuity

The terms of the annuity provided that no interest in it could be sold or transferred, including the right to payment of the income. The spouse named the state agency as remainder beneficiary up to the amount expended for her husband’s care as required under the Deficit Reduction Act (P.L. 109-171) and state regulations. Payment of the premium depleted the couple’s assets by about half, and the amount remaining was close to the resource allowance allowed to a community spouse under Soc. Sec. Act §1924.

Court Holding

The federal court found that the Medicaid agency violated federal law when it demanded that the wife sell the annuity. Soc. Sec. Act §1902(a)(10)(C)(i) requires that the agency’s methodology for determining financial eligibility for Medicaid for institutional care be no more restrictive than the methodology used for the Supplemental Security Income (SSI) program. The SSI program treated annuities with similar terms as income, not an asset that the spouse could be required to sell. The applicant and spouse were granted judgment as a matter of law.

Attorney Commentary

Estate planning with respect to Medi-Cal eligibility has become a more important consideration given the costs of health care, long-term care and longer life spans. One of our partners Bentley Mooney was at the forefront of this issue in California and continues to write and speak about it. Thus, our firm is uniquely situated to address these issues for our clients where it could be an issue.

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles probate attorney. He has more than 20 years' experience in estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

N.Y. Times Article On Family Limited Partnerships In Estate Planning - 5 Basic Issues To Avoid I.R.S. Scrutiny

2010-09-03T22:24:00.001-07:00

The New York Times recent article "Partnerships May Aid Your Estate, But The I.R.S. Is Watching" is a short but interesting read for those interested in how family limited partnerships are used to reduce the size of an estate for tax purposes and how the I.R.S treats them.

Family limited partnerships can help keep family interests in sync after death and protect their estate from a high tax bill, but the government wants to make sure they operate as true businesses, not solely to avoid estate taxes.

Apart from other business reasons, family limited partnerships are often used to reduce the size of an estate for tax purposes. What makes them attractive is that the value of whatever is in the partnership — buildings, a business, publicly traded stock — can be discounted because selling shares in a partnership to outsiders is difficult since all the partners are related.

The article addresses whether or not a family limited partnership stand up to the I.R.S. test. The article is a basic summary of a complex area of law. The article suggests discussing five basic issues.

1. WHY DID YOU SET IT UP? Do you have a legitimate business interest beyond lowering estate taxes because you can discount the value of the assets in them? If it is solely estate tax discount driven, there could be a problem with the I.R.S. Examples of legitimate business interests are (a) jointly managing the collective wealth of a family to gain access to better managers, and (b) operating an illiquid asset like a family business or a portfolio of buildings. The article notes that a "family can also use a partnership as a stealth prenuptial agreement since all the assets are wrapped up in the partnership and not easily dividable."

2. DID YOU DISCOUNT THE PARTNERSHIP TOO DRASTICALLY?

If you discounted the value of the partnership too drastically, the I.R.S. may not agree. The article quoted one expert that "the I.R.S. had seemed to settle on a discount of 25 percent in cases it had litigated." One problem noted in the article is that the I.R.S. has not given strict guidance on what you can and cannot do.

3. WHEN DID YOU SET IT UP? Was the partnership set up on a parent's deathbed? This could draw scrutiny. The Times cited one case involving the $10 million estate of Albert Strangi, a Texan who made his money in manufacturing and was in declining health when his son-in-law moved nearly all his assets into a family limited partnership. After seven years of litigation, the federal courts ruled that the partnership had been set up solely to avoid estate taxes. With such an I.R.S. ruling, the whole amount could be deemed a taxable gift. This Texas case is an extreme example, but it helps point out that timing as well as intent count.

4. HOW DO YOU MAINTAIN IT? For a family limited partnership to seen as legitimate, it needs to be run as a true business. This means regular meetings and audits as well as professional distributions. If you fail to do this, it can invite I.R.S. attention.

5. WHAT DO YOU DO WITH IT? Beyond tax reasons, many partnerships are set up out of a legitimate interest to keep families together after the parents die. But this is not always what the heirs want, particularly when they do not like one another. A partnership can be unwound, but how easily depends on how it was set up and cared for.

Many of the problems described above could be avoided by talking to lawyers at the formation and over regularly time periods to see if the partnership is being run properly. For example, during the formation stage it would be a good idea to address the issue of succession. Partnerships can be a useful estate planning tool but clients need to be very careful about how they’re setting up partnerships. The devil is really in the details.”

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles tax attorney. He has more than 20 years' experience in estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Tax Season Is Here: Estate Planning And Tax Issues

2010-08-28T12:35:00.001-07:00

As we head into the fall, Tax Lawyers and Accountants know that this time of the year, more so than the spring April 15 deadline, is really Tax Season -- the time when Congress typically passes new law to be effective the following year.

This "Tax Season" is especially interesting (well, it's "interesting" if you follow tax laws for a living) since (i) many general provisions of the pre-9/11 2001 Tax Act are set to expire at year end, and (ii) among those provisions is the Federal Estate Tax, currently repealed but set to return at a very low exemption amount $1,000,000 per person. Throw in a weak recovery from a recession and a fairly serious Federal Deficit (and, for us in California, what can only be described as a continuing budget crisis), and there is a lot of potential for laws which could effect large swaths of taxpayers in a material way.

Of course, its also a mid-term Congressional election year, which means both parties will be due to issue "highly tactical" if not always "technically accurate" statements about tax law.

Here is a short list of what might make the front page of the papers this fall:

1. At what rate will the Estate Tax return? With so much of the year gone by, the odds of any sort of retroactive tax appear to drop by the day. However, Congress may be tempted to simply let the law switch back on January 1st, and if that happens a $1,000,000 exemption will mean that many taxpayers who did not have to concern themselves with Estate Taxes at all will need to do so.

2. Will income tax rates return to something approaching Clinton-era rates? For taxpayers in the top bracket, this means about a 4 to 5 percent increase. The debate about whether that should or will happen would require quite a bit of space (maybe a couple of blogs?) but what it may well mean is that if there is an opportunity to take income this year as opposed to next year or later, the savings could be material.

3. Will the Social Security and Medicare tax rates change? There is no area of tax more misunderstood than this one, mainly because neither political party has any interest in boring taxpayers with the actual details when so many votes can be had by getting everyone fired up with policy debate.

The fundamentals are:
(i) Both programs are more than 70 years old,
(ii) for the first 40 or so years, they were "pay as you go" the rates of tax were based on the payouts of the programs on an annual basis,
(iii) in the mid 1980's it was decided that workers should be, essentially "over charged" to build up a "reserve" for the baby boom generation bulge.

I put "over charged" and "reserve" in quotes because both terms are highly subjective, the reality is that if Social Security paid out $X since 1985 all of the taxpayers were charged about $2X during that time. Why? Well, this excess did not technically go into a big mattress, but went to basically reduce overall Federal Government borrowing (i.e., we own less to China and more to "ourselves").

So, when anyone says "the Social Security Trust fund will run out" it actually means that general tax revenue will need to start paying back the excess revenue borrowed since 1985. This is sometimes portrayed as a disaster, but in actuality its about what the Iraq occupation has cost. This will not happen in the short term (i.e., this fall), but there are going to have to be some adjustments somewhere in the system, and the information given to taxpayers is going to be far from the basic facts needed to make an informed decision -- it's just too easy to demagogue this issue.

4. Will California adjust its own taxes at some point? We don't talk about State taxes much, especially since California does not have a separate Estate Tax. However, with the state budget crisis seeming to persist year after year, how long will it be before California considers it?

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Announcing Merger And Second Office in North Hollywood, California To Better Serve Our Clients

2010-08-28T11:56:00.000-07:00

Moravecs, A Professional Corporation, and F. Bentley Mooney, Law Corporation announce their merger. The new law firm will become Moravec, Varga & Mooney, a Partnership, maintaining the strong reputation each firm has established in Los Angeles and Southern California.

The decision to merge is about the firm's commitment to our clients’ needs, not about numbers. “This is a strategic merger designed to increase the depth of the legal service we provide to clients,” said Henry ("Hank") Moravec.

“The Mooney firm shares our core values and commitment to unparalleled client service. Combining these two great small estate, tax and probate law firms in Los Angeles will benefit each firm and our clients as we expand the reach and depth of our practice areas." Moravec says that the Mooney firm has an excellent reputation among the courts, clients and other lawyers.

“This is a great pairing of two Los Angeles-founded estate planning and probate law firms,” said Linda M. Varga, one of the Moravec firm’s original co-founders. Varga added: “We also complement our geographic footprints. We had long considered expanding our practice west into the San Fernando Valley where the Mooney firm has an established office. Los Angeles is geographically large and we needed a second office to better serve our clients. ”

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

The firm focuses its practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. They represent clients throughout Southern California and their offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

FAQ: Do I Need To Hire A Probate Lawyer? What Is Probate Court Litigation?

2010-08-20T09:41:00.000-07:00

Do I Need To Hire A Probate Litigation Lawyer?

If you think you need a probate lawyer, it's probably because a relative or someone close to you has passed away (called the "decedent"). This is not an easy time to try to find a lawyer, but it must be done.

If you're involved in a lawsuit over an estate -- or if you think you may end up in a lawsuit -- look for a probate attorney who also handles litigation. There are basically three types of probate lawyers:

(1) those who only handle the administrative side of probates and drafting of will, trust and estate documents (who can loosely be called transactional lawyers);

(2) those who only represent clients in fights over who gets the estate (called probate litigators); and

(3) those estate and trust firms which do both.

Our firm, for example, does both. If you anticipate litigation, it is not a good idea to hire only a transactional attorney since at some point you will need to bring in another attorney who will need to get up to speed and this can increase your or the estate's legal fees. A probate litigation attorney may also be better at positioning you or the estate for the anticipated lawsuit.

A related question is what is probate court litigation?

What Is Probate Court Litigation?

Probate Court is the court that handles matters concerning wills and estates, such as the distribution of property or money to those named in a will. In California, the Probate Court also handles guardianships and conservatorships.

The terms “contested matters” and “litigation” are often used interchangeably. Both refer to situations that may require the Probate Court's action to resolve a dispute or fix a problem. Some contested matters do not involve animosity between the parties, while others do. If the matter surfaces because of a person's death or mental incapacity, then any necessary court proceeding will usually be filed in a court that has “probate jurisdiction.” Most of the matters handled by probate courts, such as admitting wills to probate and appointing executors, are routine and not contested.

Routine probate matters can be handled very efficiently. “Contested matters” handled by probate courts (also known as “probate court litigation”) is a broad term that includes a variety of situations, including, but not limited to:

■ Will contests (a challenge to the validity of a will);

■ Will and trust construction suits (a request that the Probate Court make a determination regarding the legal meaning or effect of particular wording used in a will or trust);

■ Guardianship contests. An example includes a fight over:

(1) whether a guardian should be appointed for a particular individual who allegedly has lost his mental capacity (and did not do any advance planning, such as executing powers of attorney), and (2) if so, who should be appointed as the guardian to make medical decisions and handle financial matters for that mentally incapacitated person);

■ Trust modification and trust reformation suits. This is a proceeding that requests the Probate Court to change (or "fix") the terms of a trust because something is wrong with the way the trust is worded);

■ Trust termination suits. This is a legal action brought to terminate a trust because the purpose of the trust has been fulfilled or can no longer be fulfilled; and

■ Breach of fiduciary duty actions. These are lawsuits by beneficiaries against an executor, trustee, guardian, or agent alleging that the fiduciary failed to act in accordance with the law and/or the instrument appointing her and thereby caused damage to the beneficiaries).

Needless to say, the best way to prevent most probate litigation is by good planning. Good planning is what estate planning is all about. We will address ways to prevent probate litigation in other articles in this blog. The old statement "an ounce of prevention is worth a pound of cure" is especially true in estate planning and probate litigation. All litigation, however, cannot be prevented even with excellent planning. In those circumstances, you need a probation litigation attorney.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

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).

Can My 401(k) Or IRA Be Part Of My Estate Plan? Can I Designate My Trust As A Beneficiary?

2010-08-18T08:30:00.000-07:00

No longer are traditional pensions the norm. Today is the age of the 401(k), Roth 401(k), 403(b), 412(i), the SIMPLE, the SEP, the IRA, and the Roth IRA, among others. In our practice, we help our clients incorporate their varying investment vehicles into their estate plan and understand how to designate and change beneficiaries to be consistent with their estate and trust plans.

Common Question: Can I designate my trust, multiple individuals or favorite charity as a beneficiary in my 401(k) or IRA?

Answer: Yes, but each designation comes with separate issues which are discussed below. In addition, designations set forth in a will or trust are generally ineffective unless the proper designation forms have been completed with and submitted to the investment company.

What Do I Need To Bring To My Estate Planning Session Regarding 401(k), IRA And Similar Plans?

1. Bring copies of current 401(k), IRA and related investment plan statements. All the information you provide to us is confidential and attorney-client privileged. We need the statements so we can obtain:

(1) the present value of 401(k) or similar assets;

(2) the name of their managing institution;

(3) the name of the investment representative, if any; and

(4) respective contact information.

In addition, this helps us educate our clients about the true nature of their investment vehicle. Sometimes a client may believe they have a 401(k) but it is really an annuity, IRA or other investment vehicle, and possibly subject to different rules.

2. Contact your plan manager prior to our planning session and determine the current primary and alternate beneficiary of record. The proper contact is usually found in the upper right or left portion of the 401(k) statement.

3. Begin the process of determining the percentage of assets you want to allot to each beneficiary. This information will be finalized and provided before the estate plan is finalized.

Beneficiary Designation Form

If you recall, as a participant in a 401(k) or other plan, you probably designated a beneficiary using a "beneficiary designation form." Forms typically require the name, relationship and date of birth of the beneficiaries. Designating individuals, estates, trusts and charities is permissible.

And married participants designating someone other than their spouse will require spouse approval. However, each designation comes with separate issues, some of which are discussed below. Additionally, designations set forth in a will or trust are usually ineffective. Investment companies require original signatures and often signature guarantees from a financial institution (i.e., bank or brokerage); notarization may not be acceptable.

If you "never" received a beneficiary designation form should contact your investment representative for assistance. Beneficiary designation forms are often available online. However, execution in the presence of a professional (or review by a professional) prior to submission is highly recommended to ensure proper execution.

What Are The Default Rules In Your 401(k), IRA Or Other Plan?

Sometimes clients have simply not completed a designation form and relied upon the plans' default rules that are in place in each plan. General rules place the spouse first, children second and the estate third. Still, each client should research his or her plan's hierarchy before relying upon defaults. An uninformed decision could wreak havoc upon the estate and estate plan.

When relying on default provisions, we educate our clients so they understand both the legal and practical effects. For example, the definition of "spouse" affects plan participants differently. Someone in a long-term relationship or same-sex relationship (or marriage) may not benefit from a default definition, unless it specifically encompasses his or her set of circumstances.

Likewise, a perceived husband in a "common law marriage" might not receive his wife's assets if the default definition does not consider him a spouse. In either event, plan assets could pass from the deceased owner to someone other than the "intended" beneficiary. Thus, we help our clients understand default provisions before using them.

Multiple Beneficiaries, Allocations And Contingent Beneficiaries

One thing that can happen is that clients have designated less or even more than 100% of their IRA or 401(k) plan's assets. Active designation of beneficiaries requires disposition of 100% of the assets. Allotment in excess of 100% often results in the payment of proceeds in proportion to the proposed allocations.

For example, when two primary beneficiaries are named and each is supposed to receive 100% of the assets, each ultimately receives 50%. Also, when two or more primary beneficiaries are named and one predeceases the plan owner, all assets should pass to the survivor beneficiary.

Clients often do not know, or understand, this possibility. Therefore, clients looking for relief from the contractual standards should consider the use of estate-planning instruments.

In addition, failure to name contingent beneficiaries results in distribution pursuant to default provisions. Without designations, assets are paid to the deceased participant's estate unless otherwise determined by law. Allocations up to 100% are required. Also, the death of one of the two or more contingent beneficiaries leaves the survivor receiving all assets.

Designating Your Trust As A Beneficiary

Participants with a trust, of any kind, can designate it as the beneficiary by inserting the trust name in the form. Designating a trust allows the plan participant to:

(1) avoid probate or administration delays and expenses;

(2) possibly enjoy creditor protection of assets; and

(3) further the trust's stated purpose using additional funds.

Depending on the terms of the trust a lump sum distribution may be required, causing a taxable event. Each situation differs.

A trust holding net, lump sum proceeds will have flexibility in management and investment. Alternatively, a trust that is eligible to continue the plan or roll it over may defer taxable gains, albeit while investing in the respective plan's products.

Conclusion

Clients participating in 401(k), IRA and other plans must make informed decisions when designating their trust, estate, charities or individuals as beneficiaries. At our firm, we take the time to review the effect of beneficiary designations with our clients.

We inform them of the positives and negatives of defaults, specific designations or using a combination of both. We discuss what happens, for example, if beneficiaries predecease the plan owner, under certain default situations, or if specifically named. We review distribution under those circumstances. We remind our clients of the ability to name trusts and charities as beneficiaries.

We handle the technical and legal aspects. Our clients do not need to become expert in these issues or feel bogged down in them since we are the experts. Instead, we focus our clients on their intent and provide them with the methods of achieving their goal.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Health Care Directives - Recommended New Yorker Article On Hospice Care: "Letting Go: What Should Medicine Do When It Can't Save Your Life?

2010-08-17T12:13:00.001-07:00

One of my favorite physician writers is Atul Gatwande, a practicing physician in Boston. He recently wrote a 15-page article in the New Yorker titled titled "Letting Go: What Should Medicine Do When It Can't Save Your Life?" which focuses on the use and application of hospice care in terminal patients regardless of disease and/or condition.

In creating trusts, drafting estate plans and health care directives, we encourage our clients to think about these end-of-life issues. What would you do if you are hit with news of a terminal illness? How do you think you and your family will react as treatment choices are made or when non-treatment is chosen? How should hospice/palliative care be defined? Do you want to incorporate your wishes on these subjects into your health care directive or estate planning?

If you are given fewer than 90 days to live, do you want to "fight death" as long as possible? It may be impossible to know how you really feel about these issues unless you or another family member have gone through it. This article addresses the fact that medical insurance (including Medicare) does not pay for doctors to have extensive conversations with the family about the options and whether "fighting death" at all costs for a month or longer is worth it and how such a fight could affect the quality of life in those last months.

In our practice, we see that in our society we are often not good at helping people sort out what is most important to them when they are facing a terminal illness and helping them achieve it. This is why advance health care directives have become popular in estate planning.

In our practice, the Advance Health Care Directive identifies the individuals that you desire to act for you if you become unable to make medical decisions for yourself. 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. This is part of our basic estate plan package.

It is an excellent article and it will help you think about these issues,

Hospice medical care for dying patients: newyorker.com

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

With respect to estate planning and probate, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate attorneys and Los Angeles probate attorneys and is available should you need legal advice regarding your own or a family member's situation. For a consultation, You can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221 to request a consultation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

Lesson In Why Not To Put Off Your Estate Planning - MSN Article "46 Days to Live: What's Your Plan"

2010-08-14T11:15:00.000-07:00

MSN's financial writer Chuck Jaffe had a recent article on his family's experience with estate planning. See Chuck Jaffe, 46 Days to Live: What's Your Plan?, Market Watch, July 22, 2010. This article is a good reminder of why we should not procrastinate the seemingly tedious task of estate planning.

The article is about how advanced estate planning helped one couple enjoy the last months of life after the husband was diagnosed with a terminal illness and given a short time to live.

Two years before the diagnosis, Chuck Jaffee's brother Rob knew there were health issues in his family and forced his wife Eileen to go with him to get their estate planning done. When Rob was ultimately diagnosed with a terminal illness, Rob asked his brother to write about him after he died, informing people that they shouldn’t wait to take care of the important things in life. Rob only lived 46 days after his terminal diagnosis.

Rob asked the question, “If you had only 46 days to live, what would you not want to do and not want to worry about?” Rob was very thankful that he and his wife took care of their affairs at a time when they were healthy and thinking clearly, and he thought that having to focus on death after being diagnosed would be unimaginable. He was thankful to not have to waste a minute of his life “having to do estate planning or worrying that I live long enough to get documents filed or whatever garbage comes with it.” He wanted his story shared so that others can enjoy their last days as he did his.

Most sophisticated estate planning attorneys, such as our firm, quote a flat fee and there are no products being sold or conflicts of interest in advising you on the best estate plan for you and your family. Refer to my prior post on "What Does Estate Planning Cost?" for information about our firm's flat fees for estate plans.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Santa Barbara, Orange, Riverside and San Bernardino Counties.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. There is ample free parking adjacent to the firm's office.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878.

Estate Planning For Your Pet?

2010-08-11T14:34:00.001-07:00

Estate Planning For Your Pet?

Most of the articles we write are about protecting one's family, loved ones and children. However, 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 and horses, have long life-spans.

Last year, I wrote an article entitled: "Frequently Asked Questions About Including Provisions For Pets In Trusts." This article (which I am reposting for the convenience of our readers) addresses the statutory framework for pet trusts in California.

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 f ree 30 minute 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 sophisticated estate planning for clients throughout Southern California.

Why Do I Need A Written Estate Plan?

2010-07-21T07:52:00.001-07:00

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. For a complimentary 30 minute telephonic or in-person consultation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210.

Most sophisticated estate planning attorneys, such as our firm, quote a flat fee and there are no products being sold or conflicts of interest in advising you on the best estate plan for you and your family. Refer to my prior post on "What Does Estate Planning Cost?" for information about our firm's flat fees for estate plans.

Posted by Henry J. Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation, and is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles probate attorney. He has more than 20 years' experience in estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm is located at 2233 Huntington Drive #17, San Marino, CA 91108. There is ample free parking adjacent to the firm's office.
The firm is a boutique estates and trust law practice specializing only in Estate Planning, Probate, Trust Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law. 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

L.A. Times Opinion Article Favors Congress Passing Estate Tax This Year

2010-07-08T08:44:00.000-07:00

The estate tax is controversial and the fact that it is not settled is making it to the opinion page of the nation's leading newspapers including the Los Angeles Times. This article by Boston law professor Ray Madoff entitled "Inherited Wealth Shouldn't Get A Free Pass On Taxes" argues that the wealthy should pay estate taxes. As estate lawyers, we seek to minimize all taxes to our clients and plan for the avoidance of taxes.

Nevertheless, it is important to keep up with the issues even when we may disagree with the views expressed in this article. Professor Madoff does not address the fact that taxes have already been paid on the income earned by the wealthy but this is his opinion on inherited wealth passing to the next generation. The article addresses the amount of money generated by the estate tax. Opinions such as this one and the current federal budget crisis are some of the reasons why we believe that Congress will act and pass an estate tax within the next year.

Inherited wealth shouldn't get a free pass on taxes - latimes.com

Posted by Henry (Hank) J. Morevec III. With respect to tax and estate planning, Hank Moravec has over 20 years' experience as one of the best Los Angeles estate and trust attorneys and is available should you need legal advice regarding your own or a family member's situation.

For a free 30 minute 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.

Advance Health Care Directives: L.A.Times Article On California Program That Helps People Record Wishes At End Of Life

2010-07-02T06:55:00.000-07:00

Part of our basic estate plan is helping our clients draft Advance Health Care Directives. The Advance Health Care Directive identifies the individuals that you desire to act for you if you become unable to make medical decisions for yourself.

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. This is part of our basic estate plan package.

On July 2, 1010, the Los Angeles Times had an article entitled "California program helps people record wishes at end of life." This article is about a program used in California to help nursing home and terminally ill patients express their wishes regarding treatment at the end of life.

Efforts to increase awareness about the program are being led in California by the Coalition for Compassionate Care of California and the California HealthCare Foundation. Information and opportunities to learn about the program can also be found on this web site.

The program is called Physician Orders for Life-Sustaining Treatment (POLST) and has been adopted in many nursing homes, hospitals and long-term care facilities in California beginning in January, 2009. The program involves an innovative medical form, that is signed by a doctor, allowing patients to specify what kind of care they want at the end of life, such as feeding tubes and other medical interventions. The form was designed 20 years ago in Oregon because of concerns that traditional Do Not Resuscitate orders and advanced directives do not fully communicate patients' wishes for many situations and types of treatments.

POLST forms are different that advanced health care directives. However, advanced health care directives can help your family members complete the POLST forms in the event that you are incapacitated and are evidence of your intentions. Here are sample POLST forms in a variety of languages.

POLST forms address when and if there should be (1) cardiopulmonary resuscitation when the person has no pulse is not breathing or if there should be a DNR [do not resuscitate]; (2) medical interventions when the person has pulse and/or is breathing ranging from only comfort, limited interventions (such as IV or antibiotics) or full treatment (intubation, defribillation, intensive care); and (3) artificially administered nutrition. This form can be modified at any time as long as there is capacity. When there is not capacity, the advance health care directive can demonstrate intent. POLST forms are signed by the physician at the hospital.

In order to prepare for determining your intentions, I would suggest that you read an Advanced Health Care Directive or read the information available on these websites, and think about the following questions:

(1) Who do you want to make health care decisions for you when you can't make them?

(2) What kind of medical treatment do you want or don't want?

(3) How comfortable you want to be?

(4) How do you want people to treat you?

(5) What would you want your loved ones to know about your health condition?

It is an excellent idea for those executing Advance Health Care Directives to speak openly and honestly with the person or persons they designate and go through the different situations that might come up. While no one can anticipate every medical situation, a thoughtful and reasoned discussion can cover the more likely scenarios.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

Forbes Article "Six Estate Planning Questions For Women" Highlights Unique Issues Women Face In Estate Planning

2010-06-29T04:53:00.000-07:00

Forbes Magazine has a useful article "Six Estate Planning Questions For Women" by Deborah Jacobs. It is worth a read even if you have an estate plan since it highlights some facts that are easy to overlook. The article addresses that fact that estate planning can be more important for women.

One reason is that of Americans 65 and older, 42% of women are widowed but only 14% of men are widowed. In addition, women typically have a longer life expectancy, a tendency to marry older men, and lower lifetime earnings, meaning that they are more likely than men to see their living standards compromised if proper estate planning isn’t completed. Further, since women typically live longer, they usually have the last word about which assets go to family, charity, or Uncle Sam.

As the article points out, when considering estate planning, here are six basic questions women should think about:

1. Whom can you trust? Medical advancements enable women to live longer which increases the likelihood of suffering from a diminished mental state - and the need for a durable Power of Attorney.

2. Who would raise your children? You want to prevent a custody battle and the possibility of nobody wanting to take over. See our prior post entitled "15 Important Tips For Picking A Guardian For Your Child Or Children."

3. Do you need life insurance? Life insurance is a good way to replace lost income or to pay for estate taxes, especially when your estate is made up of illiquid assets.

4. Do you have assets of your own? You may need to transfer property from one spouse to another or out of joint ownership.

5. Is there money in the bank? Make sure there is enough money to cover immediate expenses should one spouse pass away. Funds from the deceased spouse’s separate account won’t be available for use right away.

6. Should you shed assets to save taxes? Make sure you leave yourself enough before you start giving things away.

This article is just a beginning on the issues women need to address in estate planning but it is a good starting point. This is an important time to have your estate plan created or updated due to the uncertainty in estate planning law. See my prior post entitled "Planning For Dormant Estate Tax in 2010. What Happens in 2011. Why You Need To Seek Advice And Have Estate Plan Updated."

Consulting with an experienced estate planning attorney will help you answer these questions and address other questions that are important to you and your family.

Florida Heiress Leaves Bulk Of Estate To Caretakers And Dogs & Leaves Son A Fraction. Result? Probate Litigation & Undue Influence Allegations.

2010-06-22T08:08:00.000-07:00

When Gail Posner of Miami, a daughter of the corporate takeover businessman Victor Posner, died in March 2010 at age 67 from cancer, a cute Chihuahua named Conchita and two other dogs inherited the right to live in her Miami Beach mansion and have a $3 million trust fund. Ms. Posner's caretakers and staff (7 bodyguards, housekeepers and other personal aides) were left a total of $26 million under her will, and some also were allowed to live, rent-free, in the mansion to care for the dogs.

Ms. Posner's only surviving adult son Brent Carr was left $1 million. He filed a lawsuit in probate court last week in Miami-Dade County seeking damages and a petition to revoke probate of will. A copy of the lawsuit has been posted by the Wall Street Journal.

The lawsuit names the trustee Mellon Private Trust and the caretakers and staff as defendants. Mr. Carr alleges among other things that there was undue influence by her caretakers. It makes for a sad story of what can happen after someone passes away. The Wall Street Journal's article on this lawsuit points out that Mr. Carr had his share of problems in the past.

For those that are interested in what a trust document looks like for a large estate, the Wall Street Journal also posted online a copy of Gail Posner's Revocable Trust. This trust was from 2008 almost two years before she died. The son's lawsuit contends that the changes to a trust from 1965 were the result of undue influence.

In order to prove undue influence, a person must show that there is a vulnerability to undue influence, the opportunity to influence, and the likelihood of the influencer to commit the act. Ms. Posner was only 67 and died of cancer. There are allegations of mental illness and prescription drug abuse in the son's lawsuit. The cost of defending this lawsuit could certainly cost the estate more than the $1 million left to Mr. Carr and obtaining a settlement when everyone knows the cost of litigation may be the goal of Mr. Carr and his attorneys.

It will be up to the courts to decide if Gail Posner knew what she was doing when she signed that will and no one who stood to gain from the will exerted "undue influence" on her. This will be a factual determination and good estate planning can help avoid subsequent charges of undue influence. Large and small estates alike need to be aware of this possibility and do their best to minimize probate litigation.

In a prior post, I wrote an article about six methods to reduce estate and probate litigation. For example, it would not be surprising if the attorneys had a video made of Gail Posner signing the new will or independent third-party witnesses on the issue of why the son was left $1 million and Ms. Posner's intent in amending her trust and will.

It will probably take a year or more for this case to be resolved. Further, since 98 percent of probate litigation cases settle, I would predict an out-of-court settlement in this matter unless Mr. Carr is deemed to be unreasonable or his settlement demands are considered to be much greater than his ability to recover at trial.

Posted by Henry (Hank) J. Morevec III. 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 and is available should you need legal advice regarding your own or a family member's situation. 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 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).

Planning For Dormant Estate Tax In 2010. What Happens In 2011? Why You Need To Seek Advice And Have Estate Plan Updated.

2010-06-15T01:19:00.000-07:00

One reason I like to refer to articles in newspapers is that it helps explain to non-lawyers what is happening in estate and tax law. It also helps remind people when they need to engage in estate planning. The New York Times' article on June 12, 2010 is informative and is entitled "Confusion Over The Dormant Estate Tax Keeps Advisers Busy."

Why might you need to consult an experienced California estate planning attorney?

1. If Congress fails to act again this year, the estate tax laws next year will revert to their levels before 2001 which is $1 million.

This means that if you set up your estate prior to 2010 on the assumption that estates worth more than $1 million but less than $3.5 million or more would not be subject to estates taxes upon death will need to revisit their estate plan.

If the law stays the same and Congress does not act, the heirs of a single person who dies next year with more than $1 million would be subject to a 55 percent tax. (For couples, it is $2 million.) Heirs of that same person, with a $3.5 million estate, would have paid nothing in 2009 but could pay as much as $1.375 million in 2011, depending on the level of planning. The numbers speak for themselves.

2. How Can My Estate Be Worth Over $1 Million?

In California and the Northeast, the value of a home combined with retirement accounts means that a large percentage of the upper-middle class can have estates worth over $1 million (or $2 million for couples).

Estate planning can save a great deal of money and the cost of planning (flat fees in our office ranging from $3,500 to $5,000 for most estates) is minor compared to the savings in estate tax. See our prior article about "What Does Estate Planning Cost?"

3. Some wealthier clients are interested in creating grantor retained annuity trusts (GRATs) which is a short-term trust that allows people to pass money to heirs tax-free. There is a concern that the federal government could change the terms of these trusts. See our prior article about GRATs and other ways of transferring wealth.

4. For 2010, elimination of automatic step-up in basis requires determining the original purchase price and waiting for IRS to issue documents on how to apply artificial step-up in basis.

As discussed in other articles, in 2010 the automatic "step-up" in basis for capital gains tax purposes was also repealed. Here is a brief explanation of how this works. Prior to 2010, the assets of people who died under the old estate tax law were valued at the date of their death for tax purposes. For example, any capital gains on stocks purchased 20 years' earlier — which would have been subject to tax if sold — were erased. In 2010 that is no longer the case, and figuring out what is owed requires determining the original purchase price — however long ago that was.

Without an estate tax this year, the Internal Revenue Code grants an artificial step-up in basis, as it is called, of $1.3 million to be used at the executor’s discretion and $3 million on assets passed to a spouse. The problem is that the IRS has yet to issue documents or forms to record how this exemption has been applied.

For an estate where the deceased passed away in 2010, the tax would not be due until April 15, 2011. However, a problem could arise, for example, if the heirs need to sell stock for cash or to diversity holdings. The sale can be made but the heirs would incur a 15 percent capital gains tax on the appreciated amount.

The New York Times article gave one example showing how not having an automatic step-up in basis could affect property. For example, if an heir inherited a property worth less than $3.5 million (the 2009 exemption) but worth more than the $1.3 million (with a basis near zero) that the IRS step-up in basis would exempt -- there is a large difference between the taxes owed in 2009 and 2010. For a 2009 sale, there would have been no estate tax or capital gains tax owed. But if the property is sold in 2010, capital gains tax would be owed.

5. What do estate planning attorneys want to happen?

I cannot speak for others, but I (and most others I believe) want predictability and certainty in what the tax laws are going to be in 2010 and afterwards. Previously, it was predicted that the estate tax would be enacted retroactively but that has not occurred and may not. Given that the first billionaire has passed away in 2010 and has saved his estate an enormous amount of money, the IRS may not want to litigate against his estate which could easily outspend the IRS.

For the heirs middle-upper class who are moderately wealthy due to property and retirement plans, they will pay significantly more unless Congress acts to change the law. People who would not have had to worry about estate tax will need to plan if Congress changes the law or if Congress allows the tax to revert to 2001 rates.

6. What should I do if my estate is worth more than $1 million (or $2 million for couples)?

You can do a couple of things. First, have your estate plan updated before the end of 2010. There may be gifts and other estate planning vehicles available to you this year.

Second, watch what Congress does and plan to have your estate plan reviewed again in 2011. Depending on your net worth, the types of assets you own and your intended beneficiaries, it might turn out that you will not need the 2011 return visit — but we won't know until Congress acts or fails to act.

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 estate planning attorneys and one of the best Los Angeles probate attorneys with an excellent tax law background and is available should you need legal advice regarding your own 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.

First Billionaire Dies in 2010 While Estate Tax Is Dormant. Don't Forget About Elimination Of Automatic Step-Up In Basis For Capital Gains Tax.

2010-06-12T09:12:00.000-07:00

When America's first billionaire John D. Rockefeller (pictured at right) died in 1937, his estate paid tax at a 70% rate. In contrast, the estate tax rate on Houston billionaire Dan L. Duncan's estate, unless Congress passes a retroactive Estate Tax, is 0%. Last week the New York Times weighed in concerning Duncan's death in an article entitled "Legacy for One Billionaire: Death, But No Taxes."

The issue that was not addressed, however, was whether or not there was any tax due to the fact that in 2010 the automatic "step-up" in basis for capital gains tax purposes was also repealed.

Mr. Duncan’s worth was estimated by Forbes magazine at $9 billion, making him as the 74th wealthiest in the world. If Mr. Duncan's life had ended three months earlier, his estate would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher — 55 percent.

Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.

As is typical with New York Times articles, the most interesting analysis is in the "comments" to the article. Both sides of the Estate Tax argument are well represented, and make for good reading. Well, good reading if you like to read about estate and tax policy, at least.

However, do not forget that 2010 was a year in which there was an "estate tax capital gains tax" swap. At least 20 New York Times commentators were unaware that in 2010 the estate tax was repealed, but so was the automatic "step-up" in basis for capital gains tax purposes. In 2009, for example, the law provided that for estates which did not contain retirement plan assets (which are taxed as income to the heirs as such funds were never taxed at all to the decedent) there would be no tax at all for estates up to $7 million in value per couple.

Depending on the composition of the estate, and the state in which the decedent lived, in 2010 a $7 million estate could pay as much as $1 million or so in capital gains when assets are sold.

Capital gains vs. Estate tax is not quite an "apples to apples" comparison, as the taxes are imposed at different rates, and of course at different times (for example, if Duncan's company is not sold by his heirs, capital gains will not be due) but 2010 was definitely not a "totally tax free year" in the case of inherited assets.

Posted by Henry J. Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. The firm is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. He is a very experienced Los Angeles estate planning attorney and is available should you need legal advice regarding your own 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/

How Do You Prepare Your Business For Succession As Part Of Your Estate Plan?

2010-03-17T22:16:00.000-07:00

On March 17, 2010, the New York Times had an article entitled "How To Prepare Your Business For Succession." Even though there is no estate tax at the moment in 2010, the article touches on many of the non-tax issues which should be addressed by any family business owner irrespective of its form (corporation, LLC or partnership).

Previously, I wrote on this subject last year on a post entitled "As A Business Owner, What do I Need To Consider When Planning My Estate?"

The article mainly addresses the business related points of how to avoid a succession disaster. It recommends the following ideas:

First, identify your successors. Make an honest assessment. Succession specialists advise business owners to put their possible successors through rigorous outside analysis if possible.

Second, prepare the new successor or boss. If a child or other relative expresses interest in taking over the family business, the owner should set up a formal system of hurdles to make sure the child gets the skills required of any other prospective manager.

Third, deal with crucial employees. One idea given by the article is that to ensure that a new leader does not lose top lieutenants, it can be wise to offer them a percentage of the business. Businesses can be severely harmed when a top employee leaves or a salesperson takes his clients elsewhere.

Fourth, cover your tax exposure by obtaining good estate and tax planning advice.

Although the article covers many of the common issues, it does not even touch upon many of the strictly estate related issues which arise such as how to be fair to children who are not party of the family business and whether or not to take affirmative steps to protect the "inherited" family business from the creditors of children and grandchildren (including for example divorce).

The real challenge here is there is not one right answer. Some children may naturally thrive in the family business and help it grow. Should they not get a larger share of the business than a sibling who had no interest in it? Then some businesses require the children to have a professional license (law, medicine, architecture, etc.) to become a shareholder in the business.

The article deals with if you want your business to continue -- it says these are the things you ought to do. Most family businesses are sold not because they cannot be continued not because they cannot be continued but because the children/heirs do not want to continue and want the cash. That is a different issue that should also be addressed in the planning stages. Each business and family is unique and it is important to have a plan that is tailored to yours.

Posted by Henry J. Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation. The firm is located at 2233 Huntington Drive #17, San Marino, CA 91108. He is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles tax attorney who has more than 20 years' experience in business succession issues in estate planning.

Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

How Do You Talk To Your Family About Estate Planning?

2010-03-06T08:45:00.000-08:00

The New York Times recently had an article entitled "Estate Planning as a Family Conversation" which reminds us how difficult it can be to bring up estate planning, wills and trusts and related financial topics with parents, children and relatives.

Why is it so difficult to have these financial conversations? Whether it is the parents explaining their estate planning to their adult children or those children asking their parents about whether they have enough money to see them through a long retirement - these are touchy conversations.

It may be likely that your parents or you grew up at a time when money was not discussed openly so there may be a discomfort at sharing details of your financial lives with each other. There may be pride and privacy barriers. Other family dynamics can also be at work. Estate planning can be viewed as simultaneously a private topic and a morbid issue. Many years ago, I recall one estate planning meeting with an actress regarding estate planning where I was asked by her manager not to mention the word "death" during any meeting.

The New York Times article mentioned two examples where enduring some uncomfortable moments in initiating estate planning discussions gave the families peace of mind and helped ensure future family harmony. In one example, a vocational consultant in Seattle asked her father, a lawyer specializing in American Indian rights, about his estate plan after learning he had brain cancer. She was surprised to find that her father did not even have a will.

Her father had been separated from his wife for 30 years but had never divorced. Without a will under his state's law, everything he left behind would go to his "wife." The father decided he would rather have his assets divided between their two adult children. Due to this conversation, the father met with a lawyer to discuss the necessary documents to carry out his intention.

In a second example, a mother had decided to leave one adult son a larger inheritance than the others because that son had more children. When the mother shared these details with the son, the son persuaded her that he would rather receive less money than cause any family disharmony or face the wrath of his siblings. As a result, the mother changed her plan so that all her children would receive equal shares.

In future articles, I will discuss different ideas and approaches for parents to share their estate plans with adult children. I will also discuss how adult children can talk to their older parents about their finances and help determine if an estate plan is in place and whether the children will need to support them and when.

How families handle sensitive issues depends both on the particular circumstances and the personalities involved. A bit of advance role playing can help and an experienced estate and trust lawyer can provide guidance. In my experience, and as noted by the New York Times article, it is sometimes better have a series of talks, rather than addressing everything at once. Instead of one giant family meeting, it may be decided to speak to each individual one-on-one.

Five Initial Strategies

Whether you are the adult child or the parent initiating the conversation, here are five strategies to guide you overall during this process. In some cases where there has been no planning, it may be necessary to have the initial conversation to get the other family member to consult with an estate planning attorney and get their affairs in order.

1. Have the right tone. Too much force and the person on the other side of the conversation will focus more on the money side of the discussion rather than the fact that you care about the family and them and want to have this discussion for the right reasons. However, if you are too timid, the other person could attempt to dodge the conversation.

2. Use yourself or your family as an icebreaker to bring up the subject. You can explain how you and your spouse are just going through estate planning, long-term insurance and then ask the relevant follow-up question such as "Is it time for you to update your estate plan?" Or you can state that you want to share your plans with your relative at a convenient time and place. You can also share the story of a friend whose affairs were not in order and what a disaster it was for the family or the friend whose family was torn apart when the estate plan and its reasoning was not known in advance by the adult children.

3. Use current events or recent headlines of a well-known person's death. Use a recent case such as Michael Jackson, Brooke Astor or a recent death of a celebrity as a reminder about how easy it is for us to put these important tasks off until it is too late.

4. If they are more comfortable writing or communicating in writing, think about how to write out your plans or help them write out their plans. While you are talking to your family member, you can pull out some paper and start jotting notes to help them go through this process.

5. Schedule a meeting with an experienced estate planning attorney to get the process moving. There is nothing like a deadline or meeting to get people focused on getting a task (especially potentially sensitive ones) done. Select an experienced estates and trust attorney who has a tax background rather than an insurance agent who is selling life insurance products for commission. One advantage of hiring a California estate planning attorney is that they can help guard against later claims that there was undue influence or lack of mental capacity.

Most sophisticated estate planning attorneys such as our firm quote a flat fee and there are no products being sold or conflicts of interest in advising you on the best estate plan for you and your family. Refer to my prior post on "What Does Estate Planning Cost?" for information about our firm's flat fees for estate plans.

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 estate planning attorneys, Los Angeles probate attorney, Los Angeles trust administration attorney, Los Angeles beneficiary attorney, and Los Angeles trustee attorney with an excellent tax law background and is available should you need legal advice regarding your own 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.

Estate Planning & Annuities: Should Parents Take Smaller Monthly Payments So Survivors Can Receive Some Sort Of Inheritance?

2010-02-22T07:06:00.000-08:00

On February 20, 2010, the Wall Street Journal's online edition has an article entitled "A Tough Choice: Your Or Your Kids." The article discusses the dilemma some families face when buying an annuity: Should a parent take smaller monthly payments so that their surviving spouse or children can get some sort of inheritance?

Each person or family's situation is different but the article has several interesting points that can be considered.

1. Have your financial planner work with your estate planning attorney when deciding on how to structure annuities, whether to have a fixed or variable annuity, whether to pair the annuity with an insurance policy and/or whether to purchase riders to guarantee payments for your heirs.

Often times without the input of an estate planning attorney, most people opt for the smaller payment without considering other and possibly better strategies to help the heirs come out ahead, including pairing an annuity with an insurance policy.

2. Pairing an annuity with an insurance policy. The WSJ article gave the example of a certified financial planner who advised an 80-year-old client to use the $266,000 value of a variable life-insurance policy to buy an immediate annuity, providing her with $2,500 a month for the rest of her life. The mother is using $1,500 a month from that $2,500 payment to buy a guaranteed life-insurance policy worth $300,000. Now her son stands to inherit more than the annuity's cost.

The WSJ article gave another example of pairing an annuity with an insurance policy to hedge against inflation. Let's say you and your spouse have $1 million saved at age 65 from which you hope to pull 4% a year. You could spend $185,000 to buy a second-to-die permanent life-insurance policy with a $1 million guarantee that would eventually go to your children. And with about $800,000, you could get an immediate inflation-indexed annuity that would pay $40,750 the first year and continue paying through both spouses' lifetimes.

3. There are two main types of annuities, each usually starting with a lump-sum payment. With variable annuities, you invest in stocks or bonds with an insurance guarantee. There usually are surrender payments if you withdraw the money in the first few years. With immediate fixed annuities, your lump sum buys regular payments from an insurer for the rest of your life. They are being hailed by everybody from financial planners to President Barack Obama as a way for Americans to stretch their retirement nest eggs.

4. Riders to guarantee payments for your heirs or to adjust monthly payments for inflation. Annuities come with complex features and fees that are often not found in investments like mutual funds. It takes careful analysis to figure out if an annuity makes sense for you and, if so, which features to purchase.

When one spouse has health problems and the other could live a long time, variable annuities with guaranteed-minimum payments can pay off, despite annual fees that can top 3.5% of the invested amount. The WSJ gave an example of a 69-year-old retired teacher whose husband died last year from post-polio syndrome. The couple was drawing 6% a year from a variable annuity in which they had invested $300,000. The investment had lost half its value during the financial crisis, but the retired teacher inherited the original amount invested because of a guarantee they had purchased. The money should still be there for her two daughters as well.

5. Immediate fixed annuities are simpler to understand and cheaper: You get a regular payment for life. But when you die, the downside is that your family loses that payment unless you pay extra for a rider returning at least some of the money you invested. The rub is that such a rider will typically lower the monthly payment you receive by anywhere from 2% to 15% or even more.

6. The WSJ article suggested an approach for buying an annuity that involves determining one's basic expenses—utilities, food, taxes, insurance and so on. Purchase a plain-vanilla annuity to cover those costs. Then you can invest the rest of your savings to spend on vacations, cars or grandchildren. Anything left over can be your family's inheritance. As the article pointed out, however, if you are early in retirement, who knows how much the basics will cost in 20 or 30 years? And what if your savings barely cover an annuity that will pay for those basics?

7. As annuities gain in popularity, make sure you consult with an experienced estate and trust lawyer as well as with your financial planner before you purchase the annuity so it is consistent with your estate plan and wishes for providing for your heirs.

Posted by Henry J. Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation in San Marino, California, a suburb of Los Angeles. He is a very experienced estate planning attorney. Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

How Should You Plan Your Estate In This Time Of Federal Estate Tax Uncertainty?

2010-02-13T09:39:00.000-08:00

Now let's move on to a more practical topic. I keep writing about the uncertainty with the federal estate tax. A more pertinent question that applies to everyone is: With this uncertainty in the law, what should and can I do about it?

How Do We Plan In This Time Of Flux?
3 Key Things To Remember.

First, do an estate plan. If you fail to plan -- you are planning to fail. Also, keep your plan updated. Make an annual checkup with your estate planning attorney (even if for 15 minutes) to let him or her know if there are any changes in your circumstances or to see if the changes in the law effect you.

Second, it's all about your loved ones! If estate taxes would not affect you, don't think there is no need for an estate plan. The reality is that estate taxes currently affect less than one percent of people. So why do you need an estate plan or trust? Your family, your loved ones or your charities. That's why.

Third, don't procrastinate on this issue. We all procrastinate on some tasks but put this one at the top of your "to do" list as what I call a "most important task"! And don't even think about using this estate tax uncertainty as another excuse to procrastinate. (Please excuse my lame procrastination joke :)

An experienced estate attorney can help break all this down into very manageable tasks for a reasonable fixed fee and will do almost all the work for you in tax planning and helping you carry out your wishes. You just have to make the major decisions such as who will be your child's guardian and who will receive your assets.

Without a current estate plan, you could be harming the futures of those people who are the most important to you. Ask yourself: Do I want confusion and turmoil to be what I leave to my heirs and family? We all know the answer to that question is a resounding "no."

But go ahead and ask yourself:

How would I want my assets to be managed if I became incapacitated with early dementia or passed away?

Who would care for my minor children if something happens to me or my spouse?

Do I want my family in litigation over my estate? How do I avoid probate litigation?

Do I want piece of mind on a day-to-day basis that my estate plan is in place?

These are questions we all have to ask ourselves. And the answers remind us why we all have to plan regardless of whether or not we are subject to the federal estate tax.

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles probate attorney. He has more than 20 years' experience in avoiding taxes with estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Some States Race To Clean Up Congress' Estate Tax Mess:

2010-02-13T07:56:00.000-08:00

With the federal estate tax law having lapsed — a growing number of states are taking matters into their own hands.

"Investment News" has an article on this topic which I have linked this post to and it can be found here:

Dead Federal Estate Tax Rises From The Ashes - Investment News

The article discusses how lawmakers and estate attorneys in the District of Columbia and at least 13 states, including Florida, Georgia, New York and Virginia, are drafting or have introduced legislation aimed at clarifying estate tax law in the absence of a federal statute. Specifically, they hope to avoid a wave of lawsuits that will likely arise from ambiguities in wills and trusts filed this year.

For example, here's the way it would work. On Jan. 12, Virginia introduced a bill that would require all estates and trusts to be treated as though they were governed by 2009 federal tax law. I have not seen any proposed California legislation yet.

For those who want more related information on this issue, you can read a February 3 Forbes Magazine article entitled "States Race To Clean Up Congress' Estate Tax Mess."

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

Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

Potential Estate Tax Implications Of J.D. Salinger's Death

2010-02-01T02:17:00.000-08:00

"If you really want to hear about it, the first thing you'll probably want to know is where I was born, and what my lousy childhood was like, and how my parents were occupied and all before they had me, and all that David Copperfield kind of crap, but I don't feel like going into it, if you want to know the truth."

"Catcher In The Rye" by J.D. Salinger (who passed away on January 28, 2010 at age 91 when there is no federal estate tax under current law)

Famously reclusive, Salinger withdrew from public life, refusing interviews for many decades. Although he was understood to have continued to write in his isolation, those manuscripts have remained private. From a federal estate tax perspective, what are those manuscripts worth?

I have written previously about the potential estate tax implications of someone's death during this time period when there's no current federal estate tax. Let me use Salinger as an example.

What happens if Congress reinstates the federal estate tax later this year and makes it retroactive to Jan. 1, 2010? Some estate tax attorneys have predicted that the representatives of the estate of someone who dies during this window of time (such as Salinger) would mount a constitutional challenge to the retroactivity of the law that would go all the way to the Supreme Court.

I am not saying it would be Salinger but it would be quite ironic if the estate of the notoriously private Salinger filed a public lawsuit challenging this law. I suspect that Salinger's estate representative and attorneys -- like the rest of us -- are waiting for what Congress is going to do.

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

Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

What Can Happen When Beneficiaries Fight Sale Of Asset Or Proposed Distribution In Bad Faith?

2010-01-26T06:45:00.001-08:00

A recent California Court of Appeal decision serves as a reminder that beneficiaries need to consider the downside if they decide to oppose the sale of an asset and proposed distribution. In other words, beneficiaries need to analyze whether their opposition to a proposed sale or distribution is "objectively" in "good faith."

An experienced probate litigation attorney, trust and estate attorney or beneficiary attorney can often help beneficiaries see the "objective" viewpoint. Sometimes, however, emotions and long-standing disputes get in the beneficiaries' way of seeing what is best for the estate.

In December 2009, the California Court of Appeal published the decision of Rudnick v. Rudnick, 09 S.O.S. 6928. A copy of the decision can be found at the court website: http://www.courtinfo.ca.gov/opinions/documents/F056587.PDF

In this case, three of the beneficiaries of the Rudnick Estates Trust (RET), Philip Rudnick, Robert Rudnick, and Milton Rudnick, hold a minority interest in RET. We will call these three the "minority beneficiaries." Oscar Rudnick is the trustee of the RET.

The RET was created in 1965 by the beneficiaries of 11 separate trusts, which each owned an undivided interest in various real property and business entities and were managed as an integrated enterprise. Its purpose was to liquidate the trusts’ assets and distribute proceeds to beneficiaries, and any sale or disposition negotiated by the trustee was subject to approval by a majority of beneficiaries.

The litigation in this case arose after the majority of the RET beneficiaries approved the $48 million sale of the RET‟s principal asset — the 68,000-acre Onyx Ranch, located in the Sierra Nevada Mountains just outside of Bakersfield. The trustee Oscar Rudnik petitioned the Kern County probate court for instructions requesting approval of both the sale and the proposed distribution.

The three minority beneficiaries opposed this petition and claimed that the Onyx Ranch was worth substantially more than $48 million, that the trustee violated his fiduciary duty and that the transaction violated the terms of the RET.

The probate court concluded that the minority beneficiaries' opposition was primarily for the purpose of causing unnecessary delay in the sale and was in bad faith. The probate court then awarded approximately $226,000 in attorney fees and costs to the trustee and ordered these fees charged against the minority beneficiaries' future trust distributions. The probate court reasoned that it was unfair to burden the majority of beneficiaries who approved the sale by a vote of 60 percent.

The Court of Appeal upheld the order of attorneys' fees on the ground that the probate court, as a court sitting in equity, had the authority to charge the awarded fees against the minority beneficiaries' trust interests. The decision sets forth the law as follows: “[W]hen a trust beneficiary instigates an unfounded proceeding against the trust in bad faith, a probate court has the equitable power to charge the reasonable and necessary fees incurred by the trustee in opposing the proceeding against that beneficiary’s share of the trust estate.”

15 Important Tips For Picking A Guardian For Your Child Or Children

2010-01-26T06:33:00.001-08:00

Naming a guardian is a difficult but necessary estate planning tool. While it’s difficult enough to think about not being there to raise your children, imagine a court choosing their guardian with no input from you. Imagine your relatives arguing in court over who gets your children—or having them agree but not on the people you would have chosen. That's why it's important to nominate a guardian while it's still up to you.

In our practice, we find that this is one of the most difficult decisions. In fact, estate plans sometimes get held up because this is the most difficult decision for people to make. Here are some definitions and tips to help you make this decision.

What is a guardian? A guardian is an individual, typically a family member or close friend, who can handle the responsibility of raising your child if you and your spouse (or ex-spouse) die or become severely incapacitated before your kids reach adulthood.

What is a Nomination of Guardians? If a person or couple has minor children it is very important to prepare a Nomination of Guardians to serve if both parents are deceased or incapacitated. A court proceeding in the Family Law court is required to formally approve a guardian but the court affords the written nomination of the parents great weight in making its decision. Guardianship is a court proceeding in which a judge gives someone who is not the parent: custody of a child, or the power to manage the child's property (called "estate"), or both.

Here are 15 tips to help you make your best choice for guardian for your child or children.

1: Think beyond the obvious choices. Make a list of all the people you know who you would trust to take care of your children. You do not need to limit your list to close family members. While siblings and parents can be excellent choices, consider also extended family members who are old enough to raise your children – cousins, aunts, uncles, nieces, nephews, and others.

2: Friends can make excellent guardians. Beyond family, consider close friends, families with whom your family is close, the families of your children’s friends, friends you know from your place of worship, or other adults with whom you and your children have a special relationship.

3: Do not make the decision solely about the other person's finances or the size of their house. Do not eliminate anyone from consideration because you don’t think they have the financial wherewithal to take care of your children. You can take care of the finances with what you leave. (That's what adequate life insurance is about.) You can even instruct your trustee to provide funds for your chosen guardian to build an addition to their home or move to a larger home to accommodate your children.

4: Focus on love. Consider whether each couple or person on your list would truly love your children if appointed their guardian. If they have children of their own, will your children be relegated behind their own children? Or is the couple or person sufficiently loving that they will make your children feel loved no matter what?

5: Consider values and philosophies. Ask yourself which people on your list most closely share your values and philosophies with respect to your:

•child-rearing philosophy
•educational values
•social values
•religious beliefs
•moral values

6: Personality counts. Consider whether each of your candidates has the personality traits that would work for your children.

•Are they loving? •Are they good role models?

•Do they have the patience to take on parenting your children?

•How affectionate are they? (If your family is particularly affectionate, a guardian who is loving but not physically affectionate could be damaging.)

•If they're fairly young, how mature are they?

7: Consider practical factors. For example:

•How would raising children fit into their lifestyle?

•If they’re older, do they have the necessary health and stamina? Do they really want to be parents of a young child at their stage in life?

•Do they have other children? How would your children get along with theirs? Are there potential problems if your children were to live with theirs? How easily could the problems be dealt with? (For instance, do you want to place a child who struggles in school with a high-achieving child of the same age for whom everything comes easily?)

•How close do they live to other important people in your children’s lives?

•If a couple divorced, or one person died, would you be comfortable with either of them acting as the sole guardian? If not, you need to specify what you would want to happen.

8: Look for a good – but not a perfect – choice. Most likely, no one on your list will seem perfect – that is, just like you. But if you truly consider what matters to you most, you will probably be able to make some reasonable choices. In the end, trust your instincts.

If one couple or person meets all of your criteria, but doesn’t feel right, don’t choose them. By the same token, if someone feels much more right than any of the others on your list, there’s a good reason for it. Make your primary choice, then some backup choices. It’s essential that both you and your spouse agree. If you cannot make a decision, or if you and your spouse cannot agree, an experienced counseling-based estate planning attorney can help you through the process.

9: Select a temporary as well as a permanent guardian. Temporary guardians may be appointed if both parents become temporarily unable to care for their children – for example, as the result of a car accident. Depending on your choice for permanent guardians, you may want to designate different people to act as temporary guardians.

If your choice for a permanent guardian lives a considerable distance away, choose someone close by to serve as temporary guardian. If you're temporarily disabled, you'll want your children close by. And you won't want their lives unnecessarily disrupted by moving them to a new town and school. If you have no relatives or close friends nearby, consider families of your children’s friends.

10: Consider a Guardianship Panel. Because it's difficult to predict what your children’s needs will be as they grow older, consider appointing a “Guardianship Panel” to decide who would be the best guardian when and if it becomes necessary. Choose trusted relatives and friends to make up the panel. This allows for maximum flexibility, so the most appropriate choice can be made at the time a guardian is actually needed. The Panel can consult with your children and assess their needs and desires to make the most appropriate choice based on the current situation.

11: Write down your reasons. If you’ve chosen friends over relatives, or a more distant relative over a closer one, be sure to explain your decision in writing. That way – in the unlikely event your choice is challenged by people who feel they should have been chosen – a court should readily uphold your decision, knowing you've made your choice for good, solid reasons.

12: Talk with everyone involved. If your children are old enough, talk with them to get their input as well. And be sure to confer with the people you'd like to choose, to ensure they're willing to be chosen and would feel comfortable acting as guardians.

13: Once you’ve made your choice, take steps to make sure the potential guardians you’ve chosen will have guidance and support they need. One idea is to create a set of guidelines to convey information about your children, your parenting values and your hopes and dreams for your children.

14: Set up a trust that will hold the assets you pass to your children, and instruct the trustee to provide necessary financial assistance to the guardians. You can also create specific instructions about special things you’d like the trust funds used for (for example, annual trips for your children to visit close friends and relatives, a particular summer camp, putting in a swimming pool at the guardians’ house).

15: Designate “mentors” consisting of special people in your children’s lives to help guide them in ways for which the “mentor” is particularly well-suited. For instance, the person you choose for trustee may also be a good “financial” or "educational" mentor for your children. Or you may want to designate a “spiritual” mentor, particularly if the guardians you choose have religious philosophies that differ from yours. You can also name in your estate planning documents people who you simply want to have ongoing involvement in your children’s lives. This can be a good way to include both sides of the family.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles guardianship attorney. He has more than 20 years' experience in estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, Guardianship and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

Tip Of The Week: You May Need To Alter Will

2010-01-17T08:37:00.000-08:00

The Wall Street Journal's article on January 17, 2010 is entitled "You May Need To Update Your Will." The article relates to what I have written about this month - the recent repeal of the federal estate tax for 2010 and the uncertainty of when, how and whether Congress will pass a retroactive law.

The article is educating its readers on how the recent repeal of the federal estate tax could have one consequence families may not be aware of: some people who do not update their wills could end up leaving nothing to their spouses.

The reason this could happen is as follows. It is a common practice for people to use formulas in their wills designed to send the maximum amount of assets not subject to the estate tax into a trust, often for their children. The remaining assets are usually left to the surviving spouse.

But at this moment in 2010, there is no limit on the assets people can pass to their heirs without being subject to federal estate tax. So there are some wills and trusts where all of the assets could go into a trust and the surviving spouse would get nothing.

There is some relief for these spouses if wills are not updated since most states allow a surviving spouse to claim part of the estate even if he or she has been disinherited. However, this can be an expensive court process.

To avoid potential problems, people should review their wills with their estate planning attorney and determine if they need to revise their wills. For those people who left all assets to the trust without any to the spouse, it may be appropriate to remove the formulas and use dollar amounts instead to designate where assets should go. Another idea to consider is whether to transfer some assets to a spouse now, so he or she has sufficient funds directly in his or her name.

There are numerous planning tools - and each individual situation is different. Once the law is passed and retroactive -- as is predicted by me and most estate planning experts -- the will will need to be revisited once again. Remember to set up everything as if you would die tomorrow. Procrastination in this area can lead to many unintended consequences.

Posted by Henry Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation in San Marino, California, a suburb of Los Angeles. He focuses his practice on Estate Planning, Probate, Trust Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

Greetings from Moravecs Law Firm

2010-01-16T07:53:00.000-08:00

Greetings from Moravecs Law Firm

NYT Article: "A Bizarre Year For The Estate Tax Will Require Extra Planning"

2010-01-10T21:16:00.000-08:00

Given the uncertainty in the estate tax this year which I have written about previously, estate planning may require new strategies for various wealth levels.

Paul Sullivan has authored an article in the January 8, 2010 New York Times entitled "A Bizarre Year For The Estate Tax Will Require Extra Planning." This article is a good summary of current thinking on this issue and includes some common sense advice such as having one's will and estate plan reviewed in these uncertain times.

The consensus among estate planners is that Congress will revive the estate tax and make it retroactive to Jan. 1, 2010. As the New York Times article noted having an expired estate tax is unsettling since "[t]he situation has thrown a wrench into the core tenet of estate planning: set up everything as if you would die tomorrow. What happens if the law changes by then?" This is the question all of us should ask ourselves.

The article gives one excellent example using the gift tax. Presently, the gift tax is down to 35 percent, from 45 percent, and the generation-skipping tax on assets passed to grandchildren is gone. In 2009, if a wealthy businessman wanted to give his granddaughter a gift above the exemption, he would have paid an effective tax of 74 percent on that amount. This year, the grandparent would pay only the 35 percent gift tax.

No one wants to be a test case and this uncertainty can be used as a reminder for all of us to take a look at our estate plan and wills and pay attention to the anticipated legal changes.

Posted by Henry Moravec, III. Henry (Hank) Moravec is a partner at Moravecs, A Professional Law Corporation in San Marino, California, a suburb of Los Angeles. He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

Congress Has Adjourned Without Making Changes In Estate Tax Law: Evaluating Your Estate Plan

2009-12-26T08:13:00.001-08:00

Congress has adjourned for the year without making any changes in that tax law. Statements have been issued to the effect that the Senate will take up Estate Tax reform in early January, so the issue is still up in the air.

It seemed incredible that Congress would allow some unknown number of days to elapse in January of 2010 during which there would be "no estate tax" yet pass a retroactive bill later.

The concept of "retroactive tax law" is not a strange one, it actually happens almost every year. Most of the time, though the "retroactive" laws apply to the income tax, and such bills benefit taxpayers. This year, there are a significant number of deductions which expire on December 31, 2009 and have not been extended to 2010. Most are expected to be extended "retroactively" sometime in the first quarter of 2010, but most people will pay no attention.

Similarly, at the level of tax regulations (one step below actual statutes or, to put it another way, at the level of "interpretation" of existing statutes) it is common for the Treasury Department or the IRS to issue a formal Notice which states, for example that the tax consequences of a certain type of transaction are under review. Later, often several months to more than half a year later, actual regulations are issued which apply to transactions which occur after the date of the formal Notice.

But the Federal Estate Tax is not a regulation, it's an actual statute, and to politicians on both sides as a concept it appears to draw a strange mix of importance and casual disregard. For example, in early December, the House of Representatives passed an Estate Tax Bill which provides that the current law would remain in effect. The House could have included this bill as part of a mandatory Defense Funding Bill (which I understand had to be passed in 2009) but, apparently because the House figured that the Senate was busy with Health Care, decided not to do so. So it's important enough to pass a bill, but not important enough to actually get it done before the end of 2009.

If it's considered funny, at some level, to make fun of heirs who are greedily waiting for an inheritance, the concept of no estate tax for a defined period of time takes this area of "humor" to a whole new level. The jokes are already starting to flow, at the Huffington Post, Steven Clifford weighs in with a list of things that parents ought to take a second look for now that there is no estate tax in a couple of days, including children removing the steering wheels on their cars or sending texts to parents while the parents are driving.

So as of now, the law remains that the tax will disappear in 2010 before reverting in 2011 to the old rate of 55 percent for estates worth more than $1 million. Thus, if Congress does not act, the repeal is only for 2010. After that, the tax is to be reinstated at pre-2001 levels.

Today, the estate tax applies to estates that are worth more than $7 million (for couples), or $3.5 million (for individuals). More than 99 percent of all estates are exempt. In addition, under today’s law, when heirs sell inherited property, no capital gains tax is due on the increase in value that occurred during the lifetime of the original owner. (If your parents pass on stock worth $2 million that they bought for $200,000, and you sell it for $2 million, you owe no tax on the $1.8 million gain.)

But the big issue today is not the status quo, its retroactivity, what it means, and how it would work. An estate does not have to file an Estate Tax Return and pay the estate tax until nine months after a person’s death. The Senate could wait, then, until the summer to decide on the estate tax and make it retroactive to the beginning of the year.

This does not mean retroactivity will be easy to navigate. Many estate plans name individual relatives (i.e., non-accountants, non-tax lawyers, and certainly "non" Trust Companies) as the executors of Estates or the Trustees of Trusts. Most, if not effectively all, of these individuals are unaware of their personal liability for estate taxes owed. It's almost a statistical certainty that some individual trustee will try to distribute all assets to "beat" the enactment of any law, only to discover that when the law is passed later that they have liability.

It will be an interesting January.

Posted by Henry Moravec, III. Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

Lesson For Beneficiaries Opposing Sale Of Assets Or Suing Trustee: Act In Good Faith. Court Upheld $226,000 Fee Award Against Losing Beneficiaries

2009-12-10T05:20:00.001-08:00

There are times when beneficiaries can challenge the sale of an asset but it is important to determine whether such a challenge is in good faith. A recent California case shows what happens when a probate court determines that the beneficiaries are opposing the sale in bad faith and that their lawsuit against the trustee is in bad faith. The beneficiaries ended up being charged with $226,000 in attorneys' fees and had their future trust distributions reduced by that amount.

Our firm handles many estate disputes but it is always important to assess the risks and benefits. In addition, it is important to not let emotions alone drive the litigation. This recent case is a lesson on how beneficiary disputes can go wrong. In a case decided on December 2, 2009, Rudnick v. Rudnick, the California Court of Appeal held that a probate court had authority to charge approximately $226,000 in attorney fees generated defending a trustee’s proposed sale of an asset solely against the shares of the minority of beneficiaries who brought the challenge in "bad faith."

The probate case was in Kern County. This was a complicated trust (RET) which was created in 1965 by the beneficiaries of 11 separate trusts, which each owned an undivided interest in various real property and business entities and were managed as an integrated enterprise. Its purpose was to liquidate the trusts’ assets and distribute proceeds to beneficiaries, and any sale or disposition negotiated by the trustee was subject to approval by a majority of beneficiaries.

The trust was intended to expire in 1974, but the Court of Appeal ruled in 1999 that it would continue to exist for a reasonable time until either the assets were sold or a majority of beneficiaries elected to terminate it. Trustee Oscar Rudnick petitioned the probate court for instructions on consummating the sale to real estate investor CIM Acquisition Group and a proposed distribution after a majority of RET beneficiaries (60 percent) gave their approval.

Thethree minority beneficiaries (Philip Rudnick, Robert Rudnick and Milton Rudnick) brought their challenge when they claimed that the Rudnick Estates Trust’s principal asset—the 68,000-acre Onyx Ranch, located in the Sierra Nevada Mountains just outside of Bakersfield—was worth substantially more than $48 million, that the trustee violated his fiduciary duty and that the transaction violated the terms of the RET. The minority beneficiaries sued the trustee in probate court.

After extensive litigation, Kern Superior Court Judge Robert S. Tafoya made the award against the minority beneficiaries (Philip Rudnick, Robert Rudnick and Milton Rudnick) after concluding it was unfair to burden the majority of beneficiaries who approved the sale by a vote of 60 percent. Judge Tafoya also determined that their opposition was primarily for the purpose of causing unnecessary delay and in bad faith.

Reasoning that a Kern County judge had the equitable power to make the award, the court upheld an order reducing the shares of three beneficiaries who sought to keep the trustee from closing the $48 million sale of a ranch on time. Judge Tafoya, concluding that the minority beneficiaries’ opposition was unfounded, awarded approximately $226,000 in attorney fees and costs to the trustee and ordered the fees charged against the minority beneficiaries’ future trust distributions.

The beneficiaries appealed, but Justice Bert Levy said that Judge Tafoya had authority for the award under the broad equitable powers that a probate court maintains over the trusts within its jurisdiction. The decision written by Justice Levy set forth the rule of law as follows: “[W]hen a trust beneficiary instigates an unfounded proceeding against the trust in bad faith, a probate court has the equitable power to charge the reasonable and necessary fees incurred by the trustee in opposing the proceeding against that beneficiary’s share of the trust estate.”

In an unpublished portion of the opinion, Justice Levy also concluded that Judge Tafoya did not abuse his discretion in making the attorney fees award. “[T]he court determined that appellants had demonstrated their ‘intent to derail any sale approved by the majority,’” he said. “In the court’s opinion, appellants had made their position clear, ‘namely that they oppose any sale of the Onyx Ranch unless it involves wind energy development’ and hoped to disrupt the sale by preventing respondent from closing by the due date…." Justice Levy concluded that “[o]n this record, it cannot be said that there was no reasonable basis for the probate court’s ruling.

Attorney Commentary: This case is a lesson for all beneficiaries to consider when deciding to challenge the sale of an asset especially where the majority of beneficiaries has approved the sale. The downside of filing this lawsuit against the trustee in this case was paying the attorneys' fees for their own attorneys and for the other side. An expensive lesson.

We aggressively represent our clients but it is important to remember that if we are representing the trustee that there are fiduciary duties to the beneficiaries. Similarly, if we represent the beneficiaries we need to ensure that there is evidence demonstrating good faith if we decide to challenge the trustee's actions in court.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga and Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.

House Bill Extends Current Estate Tax - Will Legislation Make It Through Senate?

2009-12-04T06:59:00.001-08:00

With a year-end deadline approaching, the House moved to prevent a repeal of the estate tax from taking place next year, voting instead to approve a permanent extension of the current levy.

But the legislation may not make it through the Senate. That means the tax could lapse entirely next year, based on the provisions of Bush-era legislation.

The House bill exempts the first $3.5 million of an estate, or $7 million for married couples, and taxes inherited wealth above that at 45%, the same as the 2009 rate. It passed by a vote of 225 to 200, largely along party lines, with most Democrats in favor and Republicans in opposition.

If the legislation isn't completed before January 1, the estate tax would vanish in 2010, which is how the Bush-era tax cuts were designed to work. If the matter remained unaddressed, the tax would return in 2011 at the old Clinton-era rate of 55%.

In 2001, when the current law was adopted, Republican demands for a permanent repeal were beaten back by concerns over the deficit, forcing them to settle for a one-year repeal instead. This is why we are facing this issue now.

As an estate planner, I do not like the potential for wild swings in tax rates. A permanent resolution of this tax issue by the House would allow families and business owners to plan with certainty rather than this unusual and unpredictable tax policy that has been in effect since 2001.

Recent California Decision Highlights Trustee's Breach Of Duties And Misconduct When Trustee Is Also A Beneficiary

2009-12-01T17:59:00.000-08:00

A recent California Court of Appeal decision from Division 4 highlights what can happen when a trustee who is also a beneficiary commits misconduct and breaches fiduciary duties to the other beneficiaries. The case is Chatard v. Oveross, Case No. B213392.

In sum, the Chatard case held that a trust beneficiary whose misconduct as trustee harmed the trust cannot rely on a spendthrift provision to protect her interest from other beneficiaries. The Court of Appeal reasoned that damage from the breach of duty would otherwise be sustained by the others, and held that they could hold liable a spendthrift trust beneficiary’s distributive share for a surcharge imposed due to her misconduct as a trustee.

In other words, when the trust beneficiary was held liable to the other beneficiaries for her malfeasance as a trustee -- the trustee's share of the estate (which she was to receive as a beneficiary) could be impounded to pay the over $433,000 in damages and legal fees assessed against her.

Grown Adult Child Served as Trustee

Joyce Chatard began serving as a trustee of her family’s trust in 2003 after the death of her mother, Vera Chatard, who created the trust in 1989 with her husband Frederic Chatard. The trust included a "spendthrift provision", by which beneficiaries could not assign or alienate their own interests, and those interests were not subject to the claims of beneficiaries’ creditors.

When Frederic Chatard died in 1995, the trust divided into two subparts for his wife’s benefit, and after her death their three adult children—Joyce, David and Jeanee Chatard—each received one-quarter of income and principal from one of the subparts.

The remainder of the subpart was to be split between the four children of deceased sibling Douglas Chatard when each reached the age of 30, while the other subpart was split into equal thirds among beneficiaries other than Joyce Chatard, subject to the same age restriction.

Disputes Over Trust Administration

After disputes arose over Joyce Chatard’s administration of the trust, other beneficiaries filed a lawsuit in Los Angeles County Superior Court. Judge Aviva K. Bobb, who has since retired, imposed a surcharge of more than $333,000 on Ms. Chatard for breaching her duty as trustee and an award of more than $100,000 for other beneficiaries’ legal fees and costs.

Judge Bobb held that Ms. Chatard:
(1) failed to rent or pay rent on residential property she occupied that was owned by the trust;
(2) awarded herself excessive compensation;
(3) inappropriately used trust assets to pay personal expenses;
(4) unnecessarily incurred attorney fees opposing well-founded petitions to remove and surcharge her for mismanagement; and
(5) failed to distribute her siblings’ shares of assets within a reasonable time.

Relying on Judge Bobb's judgment, an interim trustee then sought to reduce Joyce Chatard’s share by the amounts of the surcharge and attorney fees. In an interesting argument, Ms. Chatard contended the surcharge could not be taken from her share because of the spendthrift provision.

Former Trustee And Beneficiary Ms. Chatard Unsuccessfully Appeals

Judge Bobb rejected Ms. Chatard's argument and concluded that the provision was inapplicable and granted the interim trustee’s request. Ms. Chatard appealed and the Court of Appeal affirmed Judge Bobb's ruling. The Court of Appeal's decision explained its opinion as follows:

The justice explained: “Reasonably construed, the language of the spendthrift provision here suggests protection against the claims of persons foreign to the trust—‘creditors, or others’—who might use a writ of ‘attachment, execution or other process of law’ to satisfy a claim from a beneficiary’s interest. The language does not reasonably refer to the claims of fellow beneficiaries relating to a breach of trust, which might be satisfied, in the exercise of the probate court’s equitable power, by surcharging the interest of the trustee-beneficiary in the distribution of trust assets.

“In short, absent clear language to the contrary, we decline to read the spendthrift clause so as to permit the perverse result of depriving the court of its equitable power to surcharge the interest of dishonest trustee-beneficiary to compensate other beneficiaries for breaches of the trust.”

A copy of the decision can be found at http://www.courtinfo.ca.gov/opinions/documents/B213392.PDF

Attorney Commentary: This case is a reminder of what can happen when a trustee either (1) does not hire an attorney to represent and advise him or, at least initially or (2) hires the attorney and refuses to follow the attorney's advice because he or she is caught up in negative family dynamics (or some other issue) and is unable to think clearly and objectively.

If you are a trustee beneficiary it is important to remember that you owe fiduciary duties to the other beneficiaries and can be held liable for not performing those duties properly. Thus, I recommend hiring an attorney at the beginning to advise the trustee since many of the easiest mistakes to avoid are made in the first several months of an administration.

For those engaging in estate planning, this case illustrates why appointing one grown child as a trustee over another adult child's trust can be a disaster and create significant litigation. It can also be no problem depending on the person appointed, whether they are equipped to perform the duties and whether there are underlying family dynamics that could be problematic later.

Posted by Henry Moravec, III. Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

Lesson for Trustees: Court Allows Recovery from Third Party for Ex-Trustee’s Breach of Fiduciary Duty

2009-11-19T06:26:00.000-08:00

In a very interesting case and one that involves a little used legal theory called de son tort, the California Fourth District Court of Appeal in King v. Johnston ruled that a trust beneficiary could recover from a third party who helped a former trustee breach the trust, even though a successor trustee had been appointed. This ruling was issued in November 2009.

The Court of Appeal held that a woman had standing to sue her grandfather’s stepdaughter for inducing his widow—the stepdaughter’s mother and the trustee—to transfer trust property and mortgage it for her daughter’s benefit, and for then holding herself out as trustee after her mother’s death. This was a reversal of the trial court ruling.

The case is now remanded to the trial court and it has been instructed to rule for Tammy King on her claim that Barbara Johnston, as a third party, actively participated in the breach of trust by Lenora Gilbert, widow of trust settlor Arthur Gilbert.

De Son Tort - Common Law Principle

The Court of Appeal also directed the trial court to determine whether King could show that Johnston was liable as a trustee for breaches after Lenora Gilbert’s 2002 death as a trustee de son tort. The common law theory allows for those who wrongfully hold themselves out as a trustee and exercise authority over property to be treated as trustee and sued for any breach of duty.

King filed suit as a beneficiary, alleging Johnston induced her mother to transfer a piece of trust property to herself, without consideration, and then induced her mother to mortgage the property for a personal loan.

The bank eventually foreclosed on the property, and Lenora Gilbert lost title. King further alleged that Johnston took money and rents that belonged to the trust and used them for her own personal benefit.

She alternatively argued that Johnston had essentially taken over the role of trustee while her mother was still alive but in failing mental and physical health, and that Johnston’s actions during this period of time and after Lenore Gilbert’s death made Johnston trustee de son tort and liable for failing to properly care for and/or recover trust property.

Lack of Standing

After a bench trial, Imperial Superior Court Judge Jeffrey B. Jones ruled that King should recover nothing from Johnston because she failed to show a conspiracy between Johnston and her mother or establish that Johnston was a de facto trustee before her mother’s death, and because King lacked standing to sue Johnston without joining the current trustee—Lloyd Gilbert, Arthur Gilbert’s son—in the action.

He also concluded that Johnston had unduly influenced her mother to breach the trust and had “acted as trustee” before Lloyd Gilbert accepted the role, but ruled that King could not recover under the theory because she lacked standing.

He further declined to award King any relief on her claim that Johnston acted as trustee after her mother’s death because Lloyd was “actively recouping” the value of the trust rental income that Johnston had wrongfully retained by withholding her share of the trust distributions.

King appealed, and the Court of Appeal rejected Jones’ determination on standing.

The Court of Appeal opinion provides: “If it is true that ‘the right of the beneficiaries against the [third party] is a direct right and not one that is derivative through the trustee' . . . we see no reason why an independent claim that exists prior to the appointment of a successor trustee should be extinguished upon that appointment, and [Johnston] has offered no reason why the appointment of a successor trustee should serve to wipe out a beneficiary’s ‘direct right’ against a third party.”

Necessary Findings

The Court of Appeal also provided that the trial court erred in failing to consider and make the necessary findings as to whether Johnston’s conduct was sufficient to hold her her liable as a trustee de son tort for some or all of the trust property and, if so, whether she breached her duties and what relief would be appropriate.

The opinion states: “[O]ne should not be permitted to assume the character of a trustee and wrongfully benefit from doing so without also having to assume the responsibilities of a trustee."

Attorney Comments: This opinion and the legal theory of this case is important for trustees and beneficiaries to understand, but not just because of the legal theory. This case arose because of an extremely common factual pattern -- an elderly surviving spouse, who has more than one child (which children are not close, and do not particularly get along), the situation where the elderly surviving spouse is the trustee of a trust created by the couple jointly, and, finally, the situation where one of the children is in closer proximity to the surviving spouse.

To begin with, although it is not immediately apparent from the opinion, when one spouse dies it is typical in most estate planning documents that the deceased spouse's property, his or her separate property and one-half of the community property, is held in a trust which becomes irrevocable. The effect of the "irrevocability" is that the contingent beneficiaries of the trust (i.e., where the assets go upon the death of the surviving spouse) are sometimes fixed. In plain English, the plaintiff in this case wanted a full 30% of all of the assets as of the death of the first spouse to die, and basically felt that any transfers of any of those assets between the first and second death were improper.

It is not at all clear that this is a justifiable argument (based upon the equities), however, as the surviving spouse may well have no experience at all in acting as a trustee we often see that during the period after the first spouse dies, many trust requirements, from filing tax returns to other things, are simply ignored or not properly accomplished. So, the argument may have no equitable basis, but may be a very good argument based upon technical trust law.

This is how a carefully crafted estate plan becomes completely subject to the "spin applied to the facts," as it were. The surviving spouse may not realize that he or she cannot make gifts of property out of the trust estate, at least without observing certain formalities. Perhaps the child who lives closer is actively assisting the surviving spouse, after all, one person's "undue influence" is another person's "well deserved gift." There is no way of telling, even from a 30 page legal opinion, which of the beneficiaries is factually correct.

The one thing that is clear is that despite the almost certain inclusion of a no-contest clause in the operative documents, this family is now going through two trials and an appeal.

Had the surviving spouse consulted a lawyer during the time these transfers were made, all of the litigation could have been avoided.

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, Orange and San Bernardino Counties.

Estate Planning Tool: Using "Caregiver Contracts" For Family Members Who Take Care Of Elderly Relatives

2009-11-16T06:11:00.001-08:00

In prior posts, I have discussed minimizing the risk of probate litigation between family members. Such disputes often arise when parents or relatives decide to leave unequal inheritances to the beneficiaries, sometimes to reward the person who has taken on significant family caregiving duties.

Studies show that nearly 25 percent of adult Americans provide long hours of voluntary care for older or sick family members and friends. These numbers are likely to grow as the population ages and more people live longer. According to an AARP study, family caregivers provide more than 20 hours of care a week and the average length of time spent providing care is 4.3 years. Many caregivers must balance family duties with their day jobs with many having to make adjustments to their work life, including taking time off for doctor appointments or even giving up their jobs entirely.

The October 21, 2009 online edition of the Wall Street Journal had an article on this topic entitled "Getting Paid To Take Care Of Mom Or Dad" which raises the increasingly common idea of families entering into caregiver contracts or arranging payment for care. The article is at:
http://blogs.wsj.com/juggle/2009/10/21/getting-paid-to-take-care-of-mom-or-dad/

These payment arrangements are increasingly becoming a part of estate planning. Rather than leave uneven inheritances for their heirs, those that need care are sometimes entering into formal "caregiver contracts," in which adult children or other relatives are hired, for modest salaries, to take care of elderly or disabled family members.

These arrangements, also called personal-service or personal-care agreements, help reward family members for the significant amounts of time, effort and money they often spend taking care of an elderly relative. They also can help reduce the size of a person's estate and may prevent battles between siblings and other family members. As I often emphasize, communication with other siblings or relatives about these contracts is important in order to help minimize family tensions later.

There's another key reason for this arrangement. It is more difficult to qualify for Medicaid/Medi-Cal long-term-care coverage where there have been outright gifts to family members. The rules preventing outright gifts are meant to prevent seniors who have the means to pay for their own care from obtaining Medicaid/Medi-Cal, which is intended for poor patients.

However, if set up properly, caregiver contracts shouldn't be considered gifts to children because the patient is receiving a real service in return. Medicaid isn't likely to disqualify a senior for making those payments to his or her children or relatives if you there is an arm's length, commercially reasonable contract, in writing, ahead of time.

To establish that the contract is commercially reasonable, you should specify what duties the caregiver is expected to perform and then contact local home-care agencies or geriatric-care managers to establish the market value of those services in your area. Such duties can vary from payment of bills, household management, preparing meals to arranging doctors appointments and driving for social outings. Depending on the services provided, the pay can range from $15 per hour to $100 per hour. Some families choose to pay a discounted rate to family caregivers, which is also acceptable.

As with all estate planning documents, it is preferable to set up the caregiver contract when the incapacitated adult is of sound mind, as the arrangements can become far more complicated if a person acting as power of attorney signs the contract.

The contract should also specify whether the payment will be done in one upfront lump sum based on the senior's life expectancy --a technique often used for Medicaid/Medi-Cal-planning-- or in regular weekly or monthly payments. It's also prudent to create safeguards to prevent a caregiver from taking the money and not performing the services, such as depositing the upfront lump sum payment into an escrow account to be paid over time.

There are also tax consequences to consider. The compensation is considered ordinary income, so the caregiver has to pay income taxes on the payment. Also, depending on how the contract is structured, Social Security and other payroll taxes may have to be withheld.

At the same time, the estate planning attorney and family should research whether there are other sources of funding you can use to pay family members. Some long-term-care insurance policies, such as those that pay lump-sum "indemnity" benefits, may be used to pay family members who provide care. This is the time to see if you already have a policy or whether you should consider obtaining one. The coverage may allow you to pay family members for their caregiving services.

Where appropriate, we generally set up these contracts as part of a more-comprehensive estate plan, including power-of-attorney documents, trusts and pourover wills, but where there is an existing trust, it can be reviewed and amended to provide for this caregiver arrangement.

Posted by Henry Moravec, III. Should you have any questions regarding your own situation, you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is http://www.moravecslaw.com/

Frequently Asked Questions About Including Provisions For Pets In Trusts

2009-11-14T07:47:00.001-08:00

Over two-thirds of pet owners treat pets as members of their families while 12% to 27% of pet owners include their pets in their wills and/or trusts. Many pet owners want to make sure that even if they can't take care of their pets due to death or disability, those animals will be provided for and well cared looked after.

Sometimes people make informal arrangements with a relative or friend to care for their pets. Sometimes this can work out but things can go wrong. What if the new owner doesn't have the money to provide care for your pet? What if a there's a dispute as to who should get the pet? What if something happens to the new owner? What if the new owner's pet and your pet don't get along?

If you don't have a will or trust, your pet will go to your next of kin as determined by state law. Many pets end up in shelters if the next of kin is unable or unwilling to care for the pet.

To avoid problems and be assured that your pet will be cared for after you die or are disabled, consider making more formal provisions for your pet's care. Remember: you can't leave money in your will to your pet. The law treats pets as property and you can't leave property to other property (your pet).

However, one thing you can do to make sure your pet will always be well provided for is to make your decision legally binding by including it in your revocable living trust and pourover will. The laws of the state of California allow for trusts for the care of pets or domestic animals for the life of the animal. In California, this is governed by California Probate Code Section 15212.

For those who reside outside California, a summary of pet trusts state by state is on the Humane Society website at: http://www.americanhumane.org/assets/docs/protecting-animals/PA-laws-pet-trusts.pdf

In a prior posting, I discussed the amendment in July 2008 of California's permissive pet trust statute to make it a more modern statute with enforceable provisions in post entitled "Protecting Your Pets in California":
http://losangelesestateprobatelawyer.blogspot.com/2009/03/pets-estate-planning-for-protecting.html

Making provision for your pets in your will and trust is becoming more common. Some people have bought "pet trusts" online while neglecting to take care of their own estate planning. In estate planning for our clients, it is relatively simple to make a provision for your pets. Here are some frequently asked questions and things to think about when you want to make a provision for your pet in your trust and pourover will:

1. Do you to want to be sure your pet receives proper care after you die or in the event of your disability?

If so, as part of your trust you will want to give enough money or other property to a trusted person or bank (the “trustee”) who is under a duty to make arrangements for the proper care of your pet according to your instructions. The trustee will deliver the pet to your designated caregiver (the “beneficiary”) and then use the property you transferred to the trust to pay for your pet’s expenses.

2. How do I decide on the individual to name as the beneficiary (my pet’s caregiver)?

Selecting the caregiver is obviously important. You should name at least one, preferably two or three, alternate caregivers in case your first choice is unable or unwilling to serve as your pet’s caregiver. In addition, to avoid having your pet end up without a home, consider naming a sanctuary or no-kill shelter as your last choice. Here are some things to consider in making the decision on who to name as caregivers:

· Is he or she willing to assume the responsibilities associated with caring for your pet?

· Is he or she able to provide a stable home for your pet?

· How will his or her family members (including pets) get along with your pet?

3. What type of instructions can you leave in the trust provisions relating to your pet?

You can have significant control over your pet’s care after you pass or are disabled. For example, you can specify who manages the property (the trustee), the pet’s caregiver (the beneficiary), what type of expenses relating to the pet the trustee will pay, the type of care the animal will receive, what happens if the beneficiary can no longer care for the animal, and the disposition of the pet after the pet dies.

Before you create the provision for your pet, think about specific instructions you may want to specify for the pet's caregiver (beneficiary):

· What are the pet's food and diet; daily routines; grooming; toys; exercise and socialization needs?

· What are the pet's medical needs? Who is the preferred veterinarian and boarding place?

· What amount of compensation, if any, do you want to pay the caregiver? Will the caregiver agree to care for your pet without compensation?

· How do you want the caregiver to document pet expenditures for reimbursement?

· Do you want the trust to pay for liability insurance in case the animal bites or otherwise injures someone?

· How do you want the trustee to monitor caregiver’s services?

· How can the trustee identify the animal (I have seen one case where a replacement animal was obtained so the caregiver/beneficiary continued to receive compensation from the trust)

· How do you want the disposition of your pet’s remains, such as burial, cremation, memorial, and so on, to be handled?

4. What is the advantage of an inter vivos or living trust in terms of taking care of my pet?

An inter vivos trust takes effect immediately and thus will be functioning when you die or become disabled. This avoids delay between your death and the property being available for the pet’s care. An inter vivos trust, however, has start-up costs and administration fees.

A testamentary trust, in contrast, is less expensive in some ways because the trust does not take effect until you die and your will is declared valid by a court (“probating the will”). However, there may not be funds available to care for the pet during the gap between when you die and your will is probated. In addition, a testamentary trust does not protect your pet if you become disabled and unable to care for your pet.

5. How do I "fund" my pet trust?

First, what is "funding"? Funding means to transfer money or other property into your trust for the care of your pet. Without funding, the trustee will not be able to provide your pet with care if you become disabled and after you die.

You need to consider a number of facts in deciding how much money or other property to transfer to your pet trust. These facts include:

· The type of animal and its life expectancy (especially important in case of long-living animals such as parrots);

· The standard of living you wish to provide for your pet including providing for care when the caregiver is out-of-town;

· Any medical conditions, payment for vet insurance, and your desire to provide for future medical treatment;

· Whether the trustee is to be paid for his or her services;

· Adequate funds should also be included to provide the animal with proper care, including boarding for times the caregiver is on vacation or unable personally to provide for the animal.

· Consider the size of your estate and how you can fund the care of your pet. If your estate is sufficiently large, you could transfer sufficient property so the trustee could make payments primarily from the income and use the principal only for emergencies.

On the other hand, if your estate is small, you may wish to transfer a lesser amount and anticipate that the trustee will supplement trust income with principal invasions as necessary. Or you may consider funding with life insurance or direct transfers of property (such pay on death accounts of annuities, bank accounts, and retirement plans). Be sure to consult with your estate planning attorney about the correct way of naming the trustee of your pet trust as recipient of these funds.

· Consider whether transferring a large amount of money or other property to your pet trust will encourage your heirs and beneficiaries to contest the trust.

· Consider funding with life insurance. This policy may be one you take out just to fund your pet trust or you may have a certain portion of an existing policy payable to the portion of the trust for your pet. This technique is particularly useful if you do not have or anticipate having sufficient property to transfer for your pet’s care. Life insurance “creates” property when you die which you may then use to fund your pet trust. Be sure to consult with your estate planning lawyer about the correct way of naming the trustee of your pet trust as a beneficiary.

· Consider making the caregiver or trustee different than the “remainder beneficiary” (the person or entity who will receive any remaining trust property after your pet dies). By not making the caregiver the remainder beneficiary, the caregiver has more of an an incentive to keep your pet alive.

· Consider what would happens if the trust runs out of property before your pet dies. If no property remains in the trust, the trustee will not be able to pay for your pet’s care. Perhaps the caregiver will agree to continue to care for your pet with his or her own funds. If the caregiver is unwilling or unable to do so, you should indicate in your pet trust the person or organization to whom you would like to donate your pet.

6. How do I provide for my pet in my estate plan?

Consult with an attorney who specializes in estate planning. If you want to ensure that your pets are properly cared for, you should address these issues sooner rather than later. It is common to put these type of projects off and we are skilled at helping our clients begin and go through the estate planning process including provisions for pets. By considering and answering the questions above, you will be well-prepared to work with an estate lawyer.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravecs, A Professional Law Corporation. For a free 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210.

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles probate attorney. He has more than 20 years' experience in estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm is located at 2233 Huntington Drive #17, San Marino, CA 91108. There is ample free parking adjacent to the firm's office.
The firm is a boutique estates and trust law practice specializing only in Estate Planning, Probate, Trust Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

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.

Will The Estate Tax Disappear: WSJ Article And Our Prediction

2009-10-24T08:39:00.000-07:00

The Wall Street Journal has an October 23, 2009 article entitled "Will The Estate Tax Disappear? Changes in the Way Inherited Assets Are Valued Could Cost Heirs and Cause Hassles."

A copy of the article can be found at: http://online.wsj.com/article/SB10001424052748704224004574489581033118194.html?mod=WSJ_hpp_sections_personalfinance#articleTabs%3Darticle

By way of background, in 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was enacted to provide for a 10 year federal estate tax phase-out plan. From 2002 through 2009, the portion of an estate exempt from federal estate tax was gradually increased from $1 million to $3.5 million and the federal estate tax rate decreased from 50% to 45% until the magical year of 2010 when the federal estate tax would disappear for one year.

Under current law, the federal estate tax is scheduled to reappear in 2011 with a much lower federal estate tax exemption of $1 million and a maximum federal estate tax rate as high as 55%, unless legislation is passed to change the law. Notably, the federal gift tax remains in existence in 2010, despite the non-existence of the federal estate tax, with gift tax rates equal to the highest individual income tax rate (expected to be 35% in 2010).

The point raised in the WSJ article is the "step-up in cost basis" that all assets receive when an owner dies. The way the law is currently written, if the estate tax goes away, so does the step-up in cost basis. According to the article, that's where the problem lies.

Step-up means that the property heirs receive is valued as of the date of death. The WSJ article gives an example where if Grandma leaves a grandchild stock selling for $75 a share that was bought in 1970 for $2 per share -- the heir's "cost basis" in the stock is $75. If the grandchild then sells the stock for $80, the taxable gain is $5 per share.

However, if Congress fails to extend the current system for 2010, then at the owner's death all assets would retain their original cost, called "carry-over basis." Under this system the heir's stock would have a cost basis of the original $2 per share rather than $75. If he then sells the stock at $80, the taxable gain would be $78 instead of $5—a huge difference.

Now for the bigger question: is Congress going to allow the estate tax to disappear in 2010?

Although the House and Senate have introduced numerous bills addressing federal estate tax reform, the four main bills to watch are (1) the Pomeroy Bill (H.R. 436), (2) the Baucus Bill (S. 722), (3) the Mitchell Bill (H.R. 498) and (4) the McDermott Bill (H.R. 2023). Further, another source of possible changes to the federal estate tax can be found in the Treasury’s recently released General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals (the “Greenbook”), which reflects the Obama Administration’s revenue proposals and contemplates federal estate tax reform.

Although nothing is certain -- except death and taxes -- it is anticipated that Congress will pass legislation before the end of the year to continue the current federal estate tax exemption of $3.5 million per individual and a maximum federal estate tax rate of 45% for one more year until a more permanent bill is passed in 2010.

In fact, the House and Senate versions of the 2010 budget resolution (H. Con. Res. 85 and S. Con. Res. 13) both as proposed by the respective Budget Committees and as passed by the House and Senate respectively, allow for 2009 estate tax law to be made permanent.

Overall, I predict that we can expect that the federal estate tax will not disappear in 2010, but will continue in its present form with some modifications.

WSJ Article On How Estate Tax Exemption Could Mean There's A Trap In The Bypass Trust Or Credit Shelter Provision Of Your Will

2009-10-17T11:59:00.000-07:00

On October 15, 2009, the Wall Street Journal had an article entitled "Is There A Trap Lurking In The Language Of Your Will?" The article is a good reminder as to why it is critical to have your will reviewed every few years, especially if there is a significant event in your life or the law changes.

Why could there be a "trap" in your will? Since 2001, the federal estate tax exemption has stepped up from $675,000 to its current level of $3.5 million per individual or, with planning, $7 million per couple. Thus, people who have not updated their wills could have some unintended consequences if this exemption increase has not been taken into consideration.

For example, in many wills and trusts, lawyers often put a "credit shelter" or "bypass" trust provision into the will of each partner in a married couple. This allows the couple to take full advantage of both individual exemptions. At the death of the first spouse, some assets go into a bypass trust that the other can draw on if necessary. These assets escape tax at the second spouse's death and pass directly to heirs.

As the WSJ article explains, when the estate tax exemption was $2 million and below, bypass trusts were especially important to those who were affluent but not hugely wealthy. Used properly, they helped shelter the greater part of a couple's assets from estate tax. If each spouse instead left all his or her assets outright to the other, in many cases the value of one exemption was lost and unnecessary taxes had to be paid upon the death of the second spouse.

The current trap mainly affects those couples who benefited most from bypass trusts in the past—those with up to, say, $4 million in assets. The problem lies in the wording of many wills drafted even a few years ago, which often directs that the "full amount" of the estate tax exemption go into the bypass trust when the first spouse dies. If the language of the will hasn't changed while the exemption has grown, the bulk of a couple's assets could in some cases wind up in a bypass trust after the death of the first spouse, leaving the survivor with little or nothing outright.

For example: A couple with $4.5 million of assets made wills in 2002, when the exemption was $1 million. At the time, the wife's share consisted of their $750,000 home and $250,000 in other assets, with the rest belonging to her husband. The will's language directs the full exemption amount into a trust at his death, with the income to the spouse for life and the remainder to heirs—which, if he died in 2002, meant $1 million would go into the bypass trust, and $2.5 million would transfer to his wife. But if he dies in 2009 or 2010—assuming the exemption remains at $3.5 million—she would get nothing outright. All of his assets would go directly to the bypass trust.

One New York estate planning attorney was quoted in the article discussing a bad family situation where the husband signed a will in 2000 leaving the "full exemption" amount in trust for his children and the rest of his estate to his wife, thinking this would split his $2 million estate down the middle. When he died in 2008 without updating the will, the exemption had risen to $2 million, so the bulk of the estate bypassed the wife. She was left only with the house and some cash of her own.

As the article notes, writing a will or trust is not something you do once, place in a safety deposit box and then forget about it. It needs to be reviewed when the law changes, when there are life changes and every few years to ensure it reflects your current intentions and plans. Updating your will and trust does not have to be expensive and can save you and your family from facing unintended consequences.

Posted by Henry Moravec, III. Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210. The firm website is http://www.moravecslaw.com/

What Happened To NFL Player Sean Taylor's Mother When He Died Without A Will And Left Entire $5.7 Million Estate To 18 Month Old Daughter?

2009-10-11T18:04:00.001-07:00

An article in the September 30, 2009 Washington Post regarding the death of young NFL Redskin player Sean Taylor reminds us what can happen when someone dies without a will or any type of estate plan.

Sean Taylor was a first-round pick in the 2004 draft, signed a seven-year $18 million contract with the Washington Redskins, and became the team's starting free safety after the third game of the season. He quickly gained a reputation as an outstanding athlete, and in 2006 was named to the 2007 Pro Bowl. He was young and probably did not think about estate planning.

Sean Taylor helped support his mother Donna Junor, and bought her a home. On November 26, 2007, a terrible tragedy happened when an armed intruder broke into Taylor's Florida home and shot the football player in his leg. The bullet struck his femoral artery and, despite several hours of surgery, Taylor died at the hospital on November 27. He never regained consciousness.

Taylor died without a will, and Taylor was not married. Most of Taylor's $5.8 million estate went to his 18-month old daughter (now 3) who lives with her mother. His father took possession of the contents of a $328,000 joint account that he shared with the football player, and Taylor's sister received the proceeds of a $650,000 life insurance policy. His mother, however, received nothing. Nor did his grandmother, great-grandmother, two of his half-siblings or any of the cousins or relatives who had grown accustomed to his financial assistance.

According to the article, Taylor's mother was left with possessions that carry costs and fees that she says exceed her income as a substitute teacher since she cannot find a full-time job. She could not pay the real-estate taxes last year on the townhouse she bought in 2005 with the $222,000 her son had given her. Another tax bill is due at the end of November. Taylor's mother said she doesn't have any of his memorabilia, either. All of it either was auctioned to raise money for the estate, or, she says, collected by Taylor's father or the mother of his daughter.

Taylor sister was quoted in the article stating that she understood the frustration over the way her late brother's assets were distributed since she thought he would have wanted it to be different. The article can be found at:

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/29/AR2009092902051.html

Attorney Comment: The article painted a picture of financial hardship for the mother and it is hard to say whether anyone should feel sorry for her or not. Nevertheless, the article is a reminder of the necessity for planning especially when there are assets and family members who you want to provide for in the future. It certainly is not wise for the daughter to have access to the entire estate when she turns 18 years' old. Nor does it seem like it would have been Taylor's plan to leave his mother nothing from his estate.

However, it is clear that Taylor could have better protected himself, his daughter, his mother, his family, and his assets by making an investment in his estate plan before his untimely death. It is a reminder for all of us to take the time and energy to engage in estate planning.

Posted by Henry Moravec, III. Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210. The firm website is http://www.moravecslaw.com/

Astor's Son Convicted Of Stealing From Mother's $180 Million Estate When She Had Alzheimer's Disease

2009-10-08T15:07:00.000-07:00

In a rare criminal case involving a will dispute, Anthony Marshall, the 85 year old son of Brooke Astor (legendary New York society matriarch) was convicted on Thursday, October 8 after a 5 month jury trial.

Mr. Marshall was found guilty of 14 of the 16 counts against him, including: (1) one first-degree grand larceny charge (the most serious he faced); (2) offering to file a false instrument, and (3) conspiracy. A second defendant in the case, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was convicted of forgery charges. Sentencing is set for December 8, 2009 in the New York court.

Jurors convicted Mr. Marshall him of giving himself an unauthorized raise of about $1 million for managing his mother’s finances. Prosecutors contended that Mrs. Astor’s Alzheimer’s was so advanced at age 101 when her will was amended that there was no way she could have consented to this raise and understood the other complex changes to her will and the financial decisions that benefited Mr. Marshall.

Mrs. Astor, whose fortune was estimated at more than $180 million when she died two years ago at 105, was well known for channeling large sums toward New York charities and cultural institutions like the Metropolitan Museum of Art and the Bronx Zoo.

Defense lawyers had argued that Mrs. Astor was lucid when she bequeathed money to her only child Mr. Marshall, and that he had legal power to give him gifts while she was alive. Mrs. Astor's last will, dated in 2002, left millions of dollars to her favorite charities. Changes to that document in 2003 and 2004 awarded Mr. Marshall all of his mother's property, instead of placing it in a trust as she had initially stipulated.

The jurors heard testimony from prominent friends of Mrs. Astor regarding her Alzheimer's and inability to recognize them. The witnesses included Henry Kissinger, Barbara Walters and Annette de la Renta. The prosecution portrayed Mr. Marshall as driven by his wife, Charlene, to obtain more money and obtain control of the estate.

Today's New York Times article on this case can be found at:

http://www.nytimes.com/2009/10/09/nyregion/09astor.html

Usually these types of allegations are handled in probate court. The civil case will now proceed now that the criminal case is concluded. One of the core issues in the civil case will be whether Mrs. Astor was mentally competent when she signed the 2002 will, which was amended in late 2003 and again in early 2004. Those later revisions gave her son more control over her estate, and in the process she reduced the amount of money she left to the New York universities, libraries, parks and museums she had spent much of her life supporting. There is an earlier version of the will which directed more money to charity.

Posted by Henry Moravec, III. Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210. The firm website is http://www.moravecslaw.com/

WSJ Article "Transferring Wealth Via The Bank of Mom & Dad" - Low Interest Rate Loans Via SCINs, GRATs & IDGTs

2009-10-07T18:47:00.000-07:00

The October 3, 2009 Wall Street Journal had an article entitled "Transferring Wealth Via the Bank of Mom & Dad." The article addresses in detail some sophisticated estate planning tools (SCINs, GRATs and IDGTs) that are used by closely held family business companies and those who want to transfer more wealth to their heirs tax-free. The article addresses how falling interest rates can be used to transfer more wealth to family members tax-free via intra-family loans and transactions.

A copy of the article can be found at: http://online.wsj.com/article/SB125452042817860431.html

The article gives an example regarding the applicable federal rates in October 2009. Under the rates set monthly by the IRS, you can make a nine-year fixed-rate loan to your child for as low as 2.63%. This allows the child to borrow at a very low rate. In addition, you and your spouse could forgive up to $52,000 of the loan annually ($26,000 if the child is single), reducing their future estate tax liability without triggering current gift taxes. There are numerous rules regarding written agreements, collection of payments and the loan itself that need to be followed so the IRS does not accuse you of planning it as a gift all along.

There are three tools discussed in the article. A Self-Canceling Installment Note (SCIN) is a technique used to sell an asset, usually shares or partnership interests in a closely held family business, in exchange for an interest-bearing promissory note. An appropriately structured SCIN will remove the future appreciation in the family business from the seller’s estate. In addition, if the seller dies prior to the maturity of the promissory note, the then-outstanding principal amount of the note may be excluded from the seller’s gross estate. The article makes a SCIN look simpler than it is and there are numerous requirements that must be met in order for the IRS to respect the validity of the cancellation provision.

A Grantor-Retained Annuity Trust (GRAT) may enable you to transfer future appreciation on an asset to your heirs. If you outlive the term of the trust, most commonly two or three years, then a portion of the gain on the assets will move to your heirs free of gift or estate tax. If you die before the term of the trust expires, however, the assets revert to your estate and are taxable.

An Intentionally Defective Grantor Trust (IDGT) involves making a partial gift to a trust, which then purchases the rest of the asset in installments. IDGTs (sometimes pronounced "idjits") are sometimes preferred to GRATs, because IDGTs move an asset out of your estate immediately. There are advantages and disadvantages of the IDGT technique which are not addressed in the WSJ article.

The costs and benefits of a SCIN, GRAT or an IDGT must be carefully evaluated on a case-by-case basis. In appropriate circumstances, these tools provide families and family business owners with valuable estate planning tools to transfer the business or wealth to the next generation.

As with any sophisticated estate planning: do not try this at home or try to do it yourself. These tools demand the expertise of a trust attorney who specializes in estate planning.

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

Posted by Henry (Hank) Moravec, III. Any questions or comments should be directed to: hm@moravecslaw.com or contact Hank (626) 793-3210 for a complimentary consultation about your own situation. The firm website is http://www.moravecslaw.com/

The firm is a boutique estates and trust law practice specializing only in Estate Planning, Probate, Trust Administration, Beneficiary and Trustee Representation, Tax Law, and Nonprofit Law.

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 estate planning attorney, Los Angeles estate planning attorney, Santa Monica estate planning attorney, Pomona estate planning attorney, T orrance estate planning attorney, Long Beach estate planning attorney, Van Nuys estate planning attorney, Santa Barbara estate planning attorney, Orange County estate planning attorney, Riverside estate planning attorney, San Bernardino estate planning attorney).

California Court Rules Daughter Cannot Annul Father Richard Pryor's Marriage Or Set Aside Bequests To Stepmother After His Death

2009-10-03T07:02:00.001-07:00

On September 28, 2009, the California Court of Appeal issued two companion decisions relating to the estate of Grammy award-winning comedian and actor Richard Pryor.

The court rejected an attempt by Pryor's eldest daughter Elizabeth to annul her father’s marriage to stepmother Jennifer Pryor and void certain gifts and bequests to her stepmother. The daughter's goal was to invalidate Pryor's most recent will and reinstate an earlier will in which he split his fortune between his six children. The Pryor probate litigation has been pending for more than four years.

Richard Pryor married Jennifer Pryor in 1981 and they divorced one year later. Shortly thereafter, Richard Pryor was diagnosed with multiple sclerosis and his condition began to deteriorate. His ex-wife Jennifer Pryor became Richard Pryor’s care custodian in 1994. At that time, there was an earlier will in place in which he split his fortune between his six children.

In 2001, Richard and Jennifer Pryor were remarried pursuant to a confidential marriage license. Elizabeth Pryor apparently did not learn of this marriage until after her father died of a heart attack in 2005. By this time -- both before and after his remarriage -- Richard Pryor had revised his estate plan to leave substantial assets to Jennifer Pryor rather than his six children.

After his death, daughter Elizabeth prior filed two actions. First, styling herself as successor in interest to her father, she petitioned to annul the marriage under Family Code Sec. 2211(d) on the grounds of fraud. She claimed her father's signature on the marriage certificate was forged.

Second, she filed a probate proceeding seeking to set aside various gifts, bequests, and transfers of property or assets made by her father to Jennifer between 1994 and 2005. Legally, she was seeking to use Probate Code Section 21350 to presumptively disqualify Jennifer, who was a care custodian, from receiving a donative transfer from a dependent or elder adult. Elizabeth argued that her stepmother Jennifer may not invoke the spousal exception to this presumption because the marriage was the product of undue influence and fraud.

Elizabeth did not win on either ground in the family law or probate courts. The same judge presided over both matters in the superior court. She then appealed.

On appeal, Elizabeth lost both cases. In the family law matter which is the subject of a companion appeal, Pryor v. Pryor (No. B207398), the Court of Appeal affirmed the denial of Elizabeth's petition to annul the 2001 marriage between Jennifer and Richard on the ground of fraud.

In the probate matter, the Court of Appeal declined to recognize an exception to the rule under Probate Code Section 21350 that a spouse may receive a donative transfer from a dependent or elder adult for marriages allegedly obtained by fraud and undue influence. The appellate court found no support in the language of section 21351, subdivision (a), or in the legislative history, which would make the spousal exception to the presumption of invalidity unavailable to a spouse who allegedly persuaded the transferor to marry through undue influence or fraud.

A copy of Estate of Pryor, CA Court of Appeal, 2nd Appellate District, Div. 4, Case No. B207402 can be found at:
http://www.courtinfo.ca.gov/opinions/documents/B207402.PDF

Attorney Comments: First, this case brings to light the conflict that can exist between children of a prior marriage and a stepparent. Second, the failure to disclose to the children the marriage and the changes to the will or estate plan can also increase the likelihood of probate litigation.

Third, there are ways to document that there is no incapacity or fraud. For example, doctors can be used to assess the capacity of a person to make a will or trust. In some cases, there can be limited ability to speak (which happens in some advanced muscular sclerosis cases).

Because most trouble arises from disappointed potential beneficiaries, a doctor (such as a psychiatrist or neurologist specializing in geriatrics) as part of his examination should ask whether the testator has ever made a will before and who is now going to be excluded and why. Doctors and attorneys must understand the legal tests for testamentary capacity.

Attorneys can also document these issues and show their client's intent and capacity in that they understand their prior wills, their assets and the proposed disposition. Videotaping may be used to help prevent accusations of forgeries at a later date. In other words, good planning can help minimize the risks of probate litigation after the death of a loved one and provide strong evidence in the event of a challenge.

Posted by Henry Moravec, III. Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210. The firm website is http://www.moravecslaw.com/

Estate Litigation: Martin Luther King Jr.'s Children Wrangle In Court Over Estate

2009-10-01T06:20:00.000-07:00

Once estate or probate litigation happens, there are probably many silent prayers that there be a peaceful resolution. Litigation among family members is often very stressful, disruptive and sometimes emotionally painful.

It's not often, however, that such prayers become public. On September 29, 2009, the Rev. Joseph Lowery, a follower of the Rev. Martin Luther King Jr. invoked the spirit of the civil rights icon and his wife, Coretta, in praying for a peaceful resolution to the legal battle among the King children. He led dozens of clergy, civil rights veterans and others in prayer at the Kings’ crypt in Atlanta.

If the King family can have a family and legal dispute over the valuable estates of Martin Luther King Jr. and Coretta Scott King -- it shows that anyone can. It is apparent that the lawsuit is embarrassing to those who are intent on preserving Kings' legacy.

In July 2008, the lawsuit was filed in Fulton County, Georgia with two of the siblings claiming that a third has misappropriated money from their parents' estates. Bernice King and Martin Luther King III charge that in late June 2008, their brother Dexter improperly transferred "substantial funds" from Bank of America to accounts he controls. The Bank of America account contains funds from the estate of Coretta Scott King, who died in 2006 at age 78.

Bernice is administrator of her late mother's estate, while Dexter is president of the Estate of Martin Luther King Jr. corporation -- of which the siblings are all shareholders. The operation of that business is in disarray, with the siblings "deadlocked" in its management, according to the complaint, which charges that the company's assets are "being misapplied or wasted."

Lawsuits often result in cross-complaints and this was no exception. Dexter countersued, claiming that his siblings had improperly borrowed office space and company cars from the King Center, an Atlanta civil rights museum. He also accused Bernice of corrupting their father’s legacy by acting as host of an anti-gay-marriage rally at the center.

Recently, on September 14, 2009, Judge Ural Glanville ordered the children of the Rev. Martin Luther King Jr. to meet in their capacity as the sole shareholders of the corporation that manages their iconic father's estate. The three siblings have not held such a meeting since 2004. The removal of Dexter King as the estate's administrator was unlikely because that would require a meeting of the board of directors.

Judge Glanville also ruled in favor of dismissing some of the allegations against Dexter King, but left the question of whether he failed to act in the best interest of his father's incorporated estate to a jury. A trial on the allegation of breach of fiduciary duty could happen as early as next month.

Attorney Comments: First, like many estate lawsuits, this occurred after the death of the children's mother, Coretta Scott King, in 2006 and another sister Yolanda in 2007. The parent or older sibling is often the glue that is holding the family together and informally resolving disputes.

Second, the "breach of fiduciary duty" cause of action alleged against the brother Dexter King is a reminder to all estate trustees that they should appreciate the fiduciary nature of his or her position. The trustee may understand his or her concrete duties and responsibilities -- but when emotions are involved and family or beneficiary disputes arise, he or she may lose sight of their "fiduciary duty."

What is fiduciary duty? A fiduciary's duty requires honesty of course. In addition, it requires the trustee to have undivided and undiluted loyalty to those whose interests the fiduciary is to protect. Thus, the trustee must treat each beneficiary with loyalty and protect their interests. This becomes more complicated when the trustee is also a beneficiary. A trustee cannot favor his or her own interest over another beneficiary's interest. The trustee is not entitled to treat the property of the trust as if it were his or her own. The trustee is wearing two hats (trustee and beneficiary) and the trustee hat imposes fiduciary duties of loyalty to the other beneficiaries. The greatest exposure to litigation for a trustee arises from his or her fiduciary duties.

Not even the slightest hint of self-dealing or unfairness is acceptable in the relationship between a fiduciary and those whose interests he or she is to protect. It is sometimes difficult for a fiduciary to recognize a problem when it occurs and it can be more difficult to be truly objective. It is therefore important for trustees to carefully review their financial decisions with experienced counsel in order to insure that they are acting appropriately.

One advantage in using an attorney as counsel rather than an accountant or another professional is the protection provided by the attorney-client privilege. All communications between the trustee and his or her attorney will be privileged and not discoverable in the event of litigation. A communication with the CPA, however, where the trustee/beneficiary writes emails that he will never turn over the family house to another beneficiary without a fight could be discovered in future litigation.

In certain cases, for example, trustee's legal counsel may advise the trustee to obtain a release from the beneficiary or seek a court order before taking certain action. In other cases, the attorney may advise the trustee to immediately dispose of certain real property to a beneficiary so that the estate is no longer liable for that property (taxes, insurance, liability, etc.) and to minimize the risk that the beneficiary will have any future claim against the estate or the trustee.

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 and is available should you need legal advice regarding your own or a family member's situation. 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 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)

Religious Preference Clause: Illinois Supreme Court Rules In Favor Of Couple's Trust That Disinherits Grandchildren Who Marry Non-Jews

2009-09-27T19:15:00.000-07:00

Chicago dentist Max Feinberg died in 1986. Prior to his death, he had a standard pourover will and revocable living trust. The trust had an unusual catch: His grandchildren wouldn't inherit a penny if they married someone who wasn't Jewish or whose non-Jewish spouse did not convert within one year. We could call this a "religious preference clause."

More specifically, the trust provided that upon his death, his assets would be split into a standard credit shelter trust and a marital deduction trust. Max's widow, Erla, was the lifetime income beneficiary of both trusts, and had a limited right to withdraw principal.

Upon Erla's death, the property would be distributed to Max's descendants. Fifty percent of the trust estate was to be held in further, separate trusts for Max's grandchildren during their lifetime on a per stirpital basis. The trust provided that any descendant who married outside the Jewish faith or whose non-Jewish spouse did not convert to Judaism within one year would be disinherited.

Feinberg's will gave control of the trusts to his wife, Erla. When she died and the grandchildren were to inherit $250,000 each, she followed her husband's wishes and imposed the same restrictions. By that time, four of the five grandchildren had married gentiles. Erla Feinberg's death triggered a series of disputes. One disinherited granddaughter had argued it was improper for a will to set up conditions that promote religious intolerance in people's marriage decisions or even encouraged couples to divorce.

On September 24, 2009, the Illinois Supreme Court unanimously ruled that Feinberg and his wife were within their rights to disinherit any grandchildren who married outside the faith as long as the method of doing so did not encourage divorce. The court's ruling was based partly on technicalities in the way this estate was arranged. The court did not provide a broad ruling on whether similar religious restrictions would be valid under other circumstances.

The state Supreme Court based much of its decision on the fact that Erla Feinberg's will awarded set amounts of money based on the marriage status of the grandchildren at the time of her 2003 death — either they qualified for the money or they didn't. The court said that meant the will didn't try to control what the grandchildren would do in the future and didn't offer any incentive for a particular couple to divorce.

A will that provided money year after year if the heir did not marry a gentile might not pass muster, the court suggested. That's because it would amount to a dead man trying to control actions for years to come and would encourage divorces so that people could claim an inheritance.

"Equal protection does not require that all children be treated equally . . . and the free exercise clause does not require a grandparent to treat grandchildren who reject his religious beliefs and customs in the same manner as he treats those who conform to his traditions," Justice Rita Garman wrote in a ruling that overturned decisions by two lower courts.

A copy of this interesting decision, In Re Estate of Max Feinberg, can be found at: http://www.state.il.us/court/OPINIONS/SupremeCourt/2009/September/106982.pdf

Posted by Henry Moravec, III. Any questions or comments should be directed to: hm@moravecslaw.com or (626) 793-3210. The firm website is http://www.moravecslaw.com/