Tuesday, June 29, 2010

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

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.

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.

Tuesday, June 22, 2010

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

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).

Tuesday, June 15, 2010

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

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.

Saturday, June 12, 2010

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.

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/