Articles Posted in Emerging Issues

There is an interesting article in the Wall Street Journal discussing which taxation system to choose for those taxpayers who passed away in 2010. The choice is between the estate tax system or the modified carry-over basis rules initially in place in 2010 when the estate tax was phased out.

Previous law gradually reduced federal estate tax over the years and eliminated it altogether for decedent’s dying in 2010 subject to carry-over basis rules which could result in income/capital gains taxation. In 2011, the estate tax was to be applied to assets in a decedent’s estate over $1 million at a rate of 55%.

New law, the 2010 Tax Relief Act increases the exemption amount to $5 million for 2011 and 2012 and is retroactive to January 1, 2010. Representatives for estates of decedent’s dying in 2010 can choose between the estate tax scheme or no estate tax subject to the modified carry-over basis laws.

In August 2010, SB 105 was passed by the legislature. There is a new Probate Code Section (21362) updating the previous definition of “care custodian.” This Section addresses gifts that become irrevocable after January 1, 2011.

This Code states that a care custodian will no longer include “a person who provided services without remuneration if the person had a personal relationship with the dependent adult (1) at least 90 days before providing those services, (2) at least 6 months before the dependent adult’s death, and (3) before the dependent adult was admitted to hospice care, if the dependent adult was admitted to hospice care.”

And if all this is too confusing, or you are not certain if a gift will be disqualified under the statute, an independent attorney can provide a Certificate of Independent Review.

As 2010 looms near, our law office has received multiple inquiries about the status of the federal estate tax exemption for the upcoming years. Generally, federal estate taxation pertains to the amount of tax your estate will be liable for at your death.

Over the years, the federal estate tax exemption amount has been subject to a graduation system that provided for the federal exemption to increase while decreasing the estate tax rate.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, for this year (2009) each individual enjoys a 3.5 million dollar exemption as to federal estate tax. Assets over $3.5 will be taxed at 45% (compared to 55% in past years). Basically, this means that the first $3.5 million of your assets will escape estate taxation at the federal level.

It has been a long time since I have posted. The long lay off was due to a sports related injury that affected my right arm. Just imagine the things you can’t do without the use of your dominant limb. It gave me a whole new respect for the disabled.

Now that my arm is practically back to new…….or rather is restore to how it was prior to the injury, I can return to the blog.

It is an interesting time for estate planning issues. Especially considering the legal machinations occurring since Michael Jackson’s passing as well as changes in tax laws and cutbacks in the courts.

Who receives your property if you die without an estate plan, if your designated beneficiary(ies) predeceases you, disclaims their interest in your gift or is found to be a disqualified transferee?

Following our example in related postings on March 11,2009 and April 4, 2009 regarding California’s Custodian Care statute (California Probate Code Section 21350), Ken was found to be a disqualified recipient of his friend’s property and was not allowed to accept any property left to him by Bob, in Bob’s Last Will and Testament.  

Who then would receive Bob’s property?  Let’s assume Bob only provided for Ken and did not provide for a contingent beneficiary in the event Ken predeceased Bob.  Or alternatively, Bob’s contingent beneficiary properly disclaimed any interest that the beneficiary might have in Bob’s estate.  

How could Ken be disqualified as Bob’s beneficiary?

In our example posted on March 11, 2009, the contestant of Bob’s Will (Bob’s second cousin) who is attempting to circumvent Bob’s gift to Ken, will attempt to convince the court that Ken is a Care Custodian as described under Probate Code Section 21350 and invalidate Bob’s intent to bequest Bob’s property to Ken.  

Should the cousin prevail, it is logical to infer this to be an unfair resolution and that Ken logically should be able to receive Bob’s property as both were such good friends.  It is apparent that Bob appreciated Ken, especially in light of all Ken’s assistance during those last months of Bob’s life.  It also makes sense that without other family, Ken would be the logical choice as a beneficiary of Bob’s estate.

California’s Custodian Care Statute – Probate Code §21350

Do you think there are any restrictions or limitations on whom you choose to receive your property at your death? Often when people execute a Living Trust or Will to designate who is to receive their property when they die, they don’t give a second thought to the possibility that the intended recipient will not be allowed to take delivery of the property.

After all, isn’t it logical to believe you can give what you own to whomever you desire? It’s your property, you worked hard for it and you should be able to give it to anyone you want, right?

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