Doctors, Lawyers and other professionals are concerned about claims of malpractice to the point that they take measures to protect themselves by purchasing insurance and structuring their assets appropriately.  One group that seem to care less about it is the Congress of these United States; at least with regard to the  Federal Estate Tax.

Because of the gross negligent inaction of Congress in 2009, there is temporarily no Estate Tax in 2010.  Those of us watching this issue would never imagined such a thing.  Throughout 2009 multiple bills were proposed in the House and the Senate, the latest simply extended 2009 law but none were ultimately debated nor passed.

Why is this so unthinkable? Because of the consequences!  How many people are terminating their existence for the benefit of their heirs?  Worse yet, how many 90 year old grandmothers are being discovered in the morning, deceased, with a pillow next to them?

According to existing law (no action by Congress necessary), the Estate Tax will return in 2011 at a 55% rate for all property valued in excess of $1 million.  Previously, the rate applied to all property value in excess of $3.5 million. What does that mean?  It means that a far greater amount of people will encounter the Estate Tax.  If a married couple executed a Living Trust and/or Will, their Estate Tax exemption will effectively double to $2 million at the second death. There is no Estate Tax for death transfers made to a spouse, if that spouse is a U.S. citizen.

Please contact us if we can answer any questions.

http://877probate.com

For the purpose of determining inheritance when there is no Will or other instrument disposing of property (called “intestate succession”) by, through, or from a person, California Probate Code Section 6450 provides that a relationship of parent and child exists in the following circumstances:

(a) The relationship of parent and child exists between a person and the person’s natural parents, regardless of the marital status of the natural parents.

(b) The relationship of parent and child exists between an adopted person and the person’s adopting parent or parents.

California Probate Code Section 6452 says that if a child is born out of wedlock, neither a natural parent nor a relative of that parent inherits from or through the child on the basis of the parent and child relationship between that parent and the child unless both of the following requirements are satisfied:

(a) The parent or a relative of the parent acknowledged the child.

(b) The parent or a relative of the parent contributed to the support or the care of the child.

When you have a California living trust, generally the trust is revocable while you are alive. That means no one has the right to ask to see it and it’s contents remain private. However, when either you or your spouse dies, a part or all of your California living trust becomes irrevocable. Once your trust becomes irrevocable, it’s contents are no longer private and any beneficiary can request a copy of it. California Probate Code Section 16061.5(a) provides that:

“When a revocable trust or any portion of a revocable trust becomes irrevocable because of the death of one or more of the settlors of the trust, or because, by the express terms of the trust, the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more of the settlors of the trust, the trustee shall provide a true and complete copy of the terms of the irrevocable trust, or irrevocable portion of the trust, to any beneficiary of the trust who requests it and to any heir of a deceased settlor who requests it.”

The American Bar Association published an interesting article in its “Probate & Property” online magazine written by attorney Karen S. Gerstner of Houston, Texas entitled “A Message to Clients . . . Avoiding Probate Court Litigation“. The material Ms. Gerstner discusses applies to probates in California as well.

Here is an excerpt of her article:

“How to Avoid Probate Litigation

“Don’t do things that could cause serious legal consequences without first discussing them with legal or other advisors. Come in for a “check up” on a regular basis and be prepared to discuss every issue and concern. Follow through on necessary “homework” such as account titling and beneficiary designation matters (see above). Plan ahead for possible mental incapacity by having the appropriate documents in place. Make sure the persons appointed to fiduciary positions are completely trustworthy and responsible.

“If a nonstandard estate plan is being implemented, use stronger techniques (such as a funded living trust) and additional provisions (such as a “no contest” clause). Consider creating a “will wall”: a series of wills executed over a lengthy period of time, designed to make it undesirable for a relative who the client wishes to “cut out” (or treat less favorably) to contest the will, so that if the last will is successfully contested, the contestant will still have to contest the prior will, which, through advance planning, would have been prepared to provide even less generous gifts to the contestant than the last will (and so on).

“In discussions with family members, the client should explain the reasons for the plan being implemented, although the client will need to be careful to state the reasons in a way that is calm and rational (“incendiary” statements will only add fuel to the fire and could be detrimental in a will contest).

“Not all probate litigation can be prevented, of course, but a large portion of probate litigation can be prevented by good planning. Good planning is what estate planning is all about.”

The Federal estate tax is a tax on the right to transfer property at death. The tax, reported on Form 706, United States Estate (and Generation Skipping Transfer) Tax Return, is applied to estates for which at-death gross assets, the “gross estate,” exceed the filing threshold. Included in gross estate are real estate, cash, stocks, bonds, businesses, and decedent-owned life insurance policies. Deductions are allowed for administrative expenses, indebtedness, taxes, casualty loss, and charitable and marital transfers. The taxable estate is calculated as gross estate less allowable deductions.

The IRS Estate Tax page provides further information concerning the estate tax. Covered are topics including:

Frequently Asked Questions on Estate Taxes Gift TaxFrequently Asked Questions on Gift Taxes

Filing Estate and Gift Tax Returns

Forms and Publications – Estate and Gift Tax

Publication 950, Introduction to Estate and Gift Taxes

What’s New – Estate and Gift Tax

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your “Taxable Estate.” These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that only total taxable estates and lifetime gifts that exceed $1,000,000 will actually have to pay tax. In its current form, the estate tax only affects the wealthiest 2% of all Americans.

Most relatively simple estates (cash, publicly-traded securities, small amounts of other easily-valued assets, and no special deductions or elections, or jointly-held property) with a total value under $1,000,000 do not require the filing of an estate tax return. The amount was $1,500,000 in 2004 and 2005. For 2006 through 2008, the amount is raised to $2,000,000.