Wills and Estate Planning

Probate Proceedings

Probate Proceedings

After the death of a loved one, there will be many legal steps which must be taken before their property can be divided as stated in the Last Will and Testament (“Will”). Generally speaking, this process will take place in probate court, unless legal steps to avoid probate were taken before the death. The Will has no legal authority until it has been approved in probate court, and only then will the assets and property be divided amongst heirs as required in the document. The process begins when the deceased person’s representative files a number of documents with the court, including the official death certificate and the original Will. It is then determined whether the estate will go through formal or informal probate. Informal probate proceedings are almost always much faster and less complicated, and therefore more desirable. However, formal probate will be required for estates in which the sum of assets is worth more than $150,000 (some exemptions to inclusion apply) or there is real estate worth more than $50,000 involved, and in which the deceased was not married with all assets designated to the surviving spouse. If the estate is assigned to formal probate, the court will hold a hearing in order to determine the validity of the Will as well as the competency of the testator at the time of the Will’s drafting . Witnesses may be called to testify to the Will’s authenticity and to affirm that it was properly executed as required by law. During this time objections to the Will may be filed, and this can often complicate proceedings and keep the estate tied up in probate for considerable time. Under informal probate, the process proceeds much more smoothly, and often without further address of the Court. The decedent’s representative will still need to complete a number of forms, provide notice to parties of interest, address any creditor claims, appraise assets and distribute as specified by the Will. Whether an estate is assigned to formal or informal probate, the process can be quite difficult and often includes many potential pitfalls unless legal representation is sought. The assistance of an experienced attorney will often help the process move along more quickly, and will protect heirs from various legal liabilities which can occur. Please contact us directly to set up a...

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Postmortem Administration

Postmortem Administration

After the death of a loved one, close family members face a number of complicated decisions relating to the funeral and other final expenses. It is common for an estate to end up in probate so that debts can be settled and assets dispersed to beneficiaries as required by law. If the deceased person created a trust before his or her death, it is often possible to avoid probate.   The trustee has the responsibility to precisely follow all instructions set forth in the trust, while also complying with state law. A trustee must be careful to fulfill his fiduciary duty, which includes such tasks as making sure all creditors have been paid, filing all necessary tax documents, managing assets and liquidating them when required, and providing accounting to the beneficiaries. In many cases there are additional requirements which must be fulfilled in order to wind up the deceased person’s affairs. The entire process for fulfilling all of these requirements may take place over several months, or even a year or more. There are many legal requirements that must be met while administering a trust. California state law sets forth strict time limits for the filing of various forms and documents. Both state and federal taxes must be filed in the correct manner, within the correct time periods, and all creditors must be satisfied, to the extent possible with remaining estate assets only, in accordance with the law. In addition, the distribution of assets as laid forth in the trust can often be complicated and problematic for the trustee. If all stipulations in the trust are not followed exactly, beneficiaries may raise legal objections and the trustee could be liable for any mistakes made while administering the trust. Since the process of postmortem administration can be a difficult one, and even result in legal difficulties if mistakes are made, it is highly advisable to consult with an attorney who is familiar with these procedures. The attorneys at Bethel Law Corporation are highly experienced in  both trust administration and probate procedures, and are able to guide trustees through these often difficult and complex processes. The trustee can be confident that the stipulations in the trust are being followed in accordance with the law, while protecting the trustee from legal...

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Changes in Estate Taxes for 2013

Changes in Estate Taxes for 2013

Update 1/7/2013 There has been much talk recently regarding the hypothetical Fiscal Cliff, and the good news is that Congress did indeed pass a bill to avoid it. The personal impact of H.R. 8 will vary from one person to the next, but the changes to estate taxes are a matter to which everyone should pay close attention. Those who have been, or will be, the beneficiaries of a large estate will be glad to know that the Bush tax cuts on estates have been extended permanently. Without these tax cuts, the lifetime applicable exclusion amount on an estate would have been 1 million, and after that the taxes could have topped out at 55 percent.  At the new rates, the first 5 million for individual estates will be excluded, with a top tax rate of 40 percent applying after that. For family estates, the exclusion is 10 million. These new rates are permanent, and will be adjusted for inflation. By the year 2020, the exclusion amounts are expected to be adjusted to 7.5 million and 15 million for individuals and married couples, respectively. Another piece of good news is that the exclusions will remain portable between spouses, meaning a surviving spouse can continue to use a deceased spouse’s federal tax exemption. Even though these changes in estate tax law are beneficial, one should not become complacent. There are many reasons such beneficiaries should still seek financial and legal counsel in order to manage the estate.  Protection will still be needed in order to guard assets from probate proceedings or creditors. Also, even though the need for bypass trusts may be reduced in some cases, there will still be many instances in which they are warranted. For example, if the assets are expected to appreciate in value, if a surviving spouse considers remarriage, or if a bypass trust is already in effect, legal counsel should be sought in order to maintain protection for the estate. The attorneys at Bethel Law are well versed in estate tax law, and are experienced in protecting estates from litigation, creditors, and other potential pitfalls. With all the recent changes in federal law taking effect in 2013, beneficiaries of estates would be wise to consult a qualified attorney in order to ensure the best protection for their...

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Family Limited Partnerships

Family Limited Partnerships

This memorandum is intended to be a reminder of the importance of proper management and operation of your Family Limited Partnership. In order to preserve the estate tax benefits and creditor protection that can be provided by your Family Limited Partnership, it is extremely important that you follow the guidelines described in this memorandum. This is a standard memorandum and will not necessarily apply to all clients. Nevertheless, virtually every client of ours with a Limited Partnership needs to be aware of these rules. Your Family Limited Partnership is a separate legal entity, and must be treated as such. While the case law on valuation discounts with respect to Family Limited Partnerships has generally been extremely positive, there have been several cases where the taxpayers failed to adhere to the necessary legal formalities and ignored the Partnership structure, with disastrous results. Here are some do’s and don’ts in this regard: Don’t use the partnership account as your own personal checkbook. These funds belong to the Partnership and should only be used to pay partnership related items. If you need to obtain funds from the Partnership, a pro rata distribution will usually need tobe made to all of the partners. This requirement is discussed in more detail below. Don’t contribute personal use items to the Partnership and retain the use of those items without paying fair market value to the Partnership for their use. Any implied agreement whereby you can use partnership assets like the vacation home without paying fair market value rent can result in the entire limited partnership being subject to federal estate tax. This was the result that one taxpayer recently experienced in Tax Court. Don’t make distributions from the Partnership that are not pro rata to the ownership to the ownership percentage interests as of the date of distribution. For example, if your Partnership is owned 1% by a corporate General Partner which you own, 79% by your Living Trust, and 20% by an irrevocable Gifting Trust, and you wish to receive $10,000 from the Partnership, then a total distribution of $12,500 will need to be made from the Partnership, of which $125 will be paid to the Corporation (and may immediately thereafter redistributed to you if you own the Corporation), $9,875 will be paid to your Living Trust, and $2,500 will be paid to the Gifting Trust. Please notify us or your CPA if you...

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Estate Planning in a Bear Market

Estate Planning in a Bear Market

Lower interest rates mean that income interests may be under-valued, while remainder interests and annuities may be over-valued, which means that QPRTs are less attractive while GRATs, CLATs, private annuities, SCINS, and installment sales are more attractive. Meanwhile, stagnant or uncertain stock values make all kinds of transfers (including simple gifts) much riskier. DISCOUNT RATES AND GROWTH ASSUMPTIONS: Many interest rates are at or near record lows again because of cuts in the federal discount rate by the Federal Reserve Board. Most importantly for estate planning, the section 7520 rate is near its lowest level in history at 2.4% for the month of January and 2.0% for the month of February. The lower section 7520 rate means that future interests are worth relatively more while present interests are worth relatively less. Income interests are therefore worth less, while remainders and annuities are worth more. And uncertain prices make almost all estate planning more of a gamble. Most estate planning transactions are based on the assumption that assets such as stock will be worth more in the future (or at least not worth any less). For example, any strategy designed to freeze the value of an asset in an estate is useful only if the asset goes up in value. It’s counter-productive to freeze the value of an asset in an estate when the value of the asset is falling. ESTATE PLANNING TECHNIQUES: How do lower interest rates and uncertain market values affect some specific estate planning techniques? UNIFIED CREDIT GIFTS – These are usually recommended in the belief that values will go up (or income will be accumulated), so that the present gifts will remove future growth and income from the donor’s taxable estate. However, these lifetime gifts can be a tax disaster if values go down because (for example) you may have used the $1,000,000 unified credit exclusion to remove assets that are worth only $800,000 at death. So whether unified credit gifts make sense now depends on whether you are an optimist or pessimist. If you are an optimist and believe that the market will rebound, now is a great time to make gifts because values are low and will go up. If you are a pessimist, then you see the danger that prices will go down and not up. INSTALLMENT SALES – Intra-family installment sales suffer from a good new/bad news split personality. The good news...

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The Steps of Post-Mortem Administration

The Steps of Post-Mortem Administration

When the administration of a decedent’s estate begins, those who are most directly concerned are often uncertain about what to expect and how to proceed. Most clients are not familiar with the administration of decedent’s estates and with the many steps to be taken before the estate may be distributed and closed. This memorandum will outline in general form the matters to be considered in the administration of a decedent’s estate and the obligations one assumes as a trustee of the trust. A memo such as this must be general in nature. Most of what is contained this memo applies to all estates regardless of whether the trustee is an individual or a financial institution. However, our primary purpose is to introduce individual trustees to the process of administering a decedent’s estate and to possibly anticipate some of your questions and concerns. As trustee of the trust, you are the person designated to administer the decedent’s estate. The succeeding paragraphs are in a certain order, but are not written in any order of importance or in any chronological sequence. Some of them may not be applicable to your decedent’s estate. I. PURPOSE OF ADMINISTRATION In general all steps in the administration of the estate will be directed toward three major goals: (1) the collection, conservation and valuation of assets, (2) the payment of debts and taxes, and, (3) the distribution of the balance of the assets as provided in the trust. Your duties as trustee would be to collect and conserve, manage and control the assets of the estate, pay the debts and taxes, and distribute in accordance to the terms of the trust. The law expects you to use care and diligence in carrying out these duties. As the trustee of your trust, you in general will conduct the following: a. Take possession of all of the estate’s property insofar as practicable. b. Collect all dividends, interest and other income, and deposit all such items in an interest-earning estate bank account(s) until the estate is closed. c. Keep a detailed account of all your receipts and disbursements for the estate, listing the date, source and amount of each receipt, and the date, nature of payment and amount of each disbursement. d. File all tax returns and pay all taxes on a timely basis. e. Keep the estate property adequately insured, reviewing all casualty, property and liability insurance policies...

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