Estate Tax Planning for 2011, 2012, and Beyond

As we enter 2012, time is running out to make all of your gifting, planning, and other tax-related decisions which will impact tax year 2011. With the start of the new year, it is also time to consider planning for the 2012 tax year. There is a sunset on the horizon, but it is not as pretty to look at as most. It is the sunset of the "Bush tax cuts," which were extended through 2012 by legislation in 2010. What lies beyond 2012 is too far beyond the horizon to see just yet, and much depends on how Congress deals with the impending change, assuming Congress deals with it at all.

Estate and Gift Tax Exemption

For 2011 and 2012, a $5 million exemption from estate and gift taxes is in place. This unified tax credit is per person, so proper planning between married couples can create an effective $10 million exemption. Estates above the exempted amount are taxed at a 35% top rate. If nothing changes, however, for 2013 and thereafter, the exemption would drop to $1 million, with a top tax rate of 55% for amounts above the exemption.

Will Congress continue the current exemption beyond 2012, or allow it to drop to the $1 million level of a decade ago? Will Congress eliminate the estate tax altogether, as it briefly accomplished for 2010, or will some compromise figure be reached, such as a $3.5 million exemption with a 45% tax rate? It may be too early to tell, but it is not too early to plan. If your estate lies between $1 million and $10 million in value, it may be wise to consider reducing the size of your taxable estate through charitable giving, the establishment of trusts, and other available mechanisms. Schedule some time to talk over your estate plan with a knowledgeable and experienced estate planning attorney, who can advise and assist you with immediate and long-term planning. In San Diego, contact the Casiano Law Firm for assistance.

Removing Assets From the Probate Estate

Probate is the court-supervised process used to determine whether a will is valid and to distribute the property of the estate according to the terms of the will or state laws of intestate succession for property not otherwise disposed of by will, trust, or other testamentary instruments. While court supervision is sometimes necessary, such as when there is a challenge to a will, a complaint about the executor or administrator of the estate, or other dispute among the intended heirs or beneficiaries, probate is generally a process to be minimized or avoided altogether if possible. This is because probate can take a long time to complete while the process winds its way through the legal system, while the cost of probate is taken out of the estate, reducing the value of the estate that would otherwise be distributed to intended heirs and beneficiaries.

In California, probate can be avoided altogether if the value of the estate is less than $100,000. Even if you have a larger estate, there are many ways to convert your property to non-probated assets, which will reduce the size of your estate for probate purposes. Below are some of the most popular instruments and vehicles used for removing assets from the probate estate:

Revocable Living Trusts - Assets properly placed in a living trust do not need to be probated. Living trusts have many other benefits as well, such as certain tax advantages, avoiding conservatorship of your assets, and generating income during your lifetime.

Jointly-Titled Property - When property is titled in the names of two people jointly, title to the property passes to the surviving spouse or other named party upon the passing of the other party. This could apply to your house, car, or any other investment property. There may be other reasons not to place the property in joint title; discuss this issue with attorney before making any major changes.

Insurance Policies, 401(k) plans - Any type of insurance policy or retirement plan that has a named beneficiary can automatically transfer the benefit to the beneficiary or beneficiaries upon death, without having to go through probate.

These are just some of the ways you can minimize or avoid probate of your estate. When forming or revising your estate plan, raise the issue of probate with your estate planning attorney to discuss the mechanisms which will work best with your overall estate plan. In San Diego and Southern California, contact the Casiano Law Firm to speak with an experienced estate planning and probate attorney.

Tony Curtis Estate Dispute: Children Allege Undue Influence, Duress, Fraud

Few disputes have the potential to be as emotionally-charged and contentious as trust and estate disputes, especially those pitting the children from the decedent’s prior marriage against a stepparent. When actor Tony Curtis died in September of last year, following years of poor health, he left behind an estate plan that completely disinherited his five children. In his will dated in May of last year, just months before his death, the actor named each of his five children-including actress Jamie Lee Curtis-and specifically and intentionally disinherited each of them. No explanation was given in the will. The will left the actor’s entire estate to his widow and fifth wife, Jill Vandenberg Curtis, with a small portion of the estate going to the couple’s charity.

Lawsuit Filed Contesting their Father’s Will

The actor’s daughter, Kelly, has filed a lawsuit alleging that their father was the victim of “duress, menace, fraud or undue influence” by his widow, Jill, which resulted in his changing the dispositive provisions of his estate plan just prior to his death. Kelly contends that she and her siblings were completely blindsided by the disinheritance and that their father would never have eliminated them entirely from his estate plan.

Auction of Personal Items Yields Over One Million Dollars

Earlier this month Tony Curtis’ personal effects were sold by his widow in an online auction which yielded over $1 million. Over 500 items were sold, ranging from cars to personal letters. The actor’s children were upset by the auction as they were not offered any personal effects from his estate, not even a personal item to remember their father by. In accordance with the terms of his will, the auction proceeds went to his widow, with a small portion to the couple’s charity. The auction served to only raise the ire of the actor’s children even further, and they were vocal about their displeasure in the media.

Families Feud When Children Disinherited in Favor of Subsequent Spouse

Whenever an estate plan completely disinherits children in favor of a subsequent spouse, a trust and estate dispute is likely to follow. In this case, the disparity in the age of Jill and Tony hasn’t helped matters-Jill is 42 years younger than Tony, and 11 years younger than Tony’s oldest daughter, Kelly.

Regardless of the size of the estate, estate planning involving blended families or children from previous marriages involves additional complexity and concerns. It is important to consult with an experienced estate planning attorney to ensure that your wishes are properly carried out, with minimal exposure to potential litigation. For experienced estate planning assistance in the San Diego area, contact the Casiano Law Firm.

Property Tax Considerations in Estate Planning

Property taxes are an important, and often overlooked, consideration in estate planning and estate administration, particularly in the State of California. Many people focus on federal estate tax considerations, with perhaps some concern for gift, generation-skipping transfer and income tax consequences. It isn’t until a client receives a large property tax bill indicating that their property has been reassessed for property tax purposes that it becomes apparent that there is a problem.

How California Property Taxes Work

In California, annual property taxes are calculated as a percentage of a real property's assessed value. Assessors may increase a real property's assessed value by only 2% each year unless there is a “change in ownership”. This has worked in favor of property owners because historically, real property values have increased at a rate greater than 2% per year.

When a “change in ownership” occurs, it triggers a property tax reassessment, and allows the County Assessor to adjust the assessed value of the real property to the current fair market value. The “change in ownership” rules are very complex and confusing. Property owners often inadvertently trigger a reassessment, which can cause significant increases in property taxes each and every year thereafter. This is one reason why you should never attempt to transfer an interest in real estate without first consulting an attorney – such a transfer could lead to a significant increase in property taxes, not to mention other problems.

Beware of Property Tax Issues in Business Succession Planning

If you own a business and have real property titled in the name of your business, you must be even more careful. A transfer of even a small interest in a business, even 1%, can trigger a reassessment of all of the California real property owned by your business. In addition, if you fail to report an event triggering a change in ownership in a timely manner, you face substantial penalties from the State Board of Equalization.

Experienced Estate Planning Attorney in San Diego

Careful consideration should be given when choosing an estate planning attorney, because it is easy to overlook property tax and other issues. Hiring the least expensive attorney to do your estate plan could result in increased property taxes for as long as you own your property.

In next month’s blog entry we will take a close look at property tax issues that arise in probate and trust administration. If you have any questions regarding estate planning, contact the Casiano Law Firm for assistance.

Estate Administration in 2011

The new tax law provides an option for the executor of an estate of a person who died in 2010 to select between the “repeal” regime of 2010 or the new “taxable” regime as it applies in 2011 and 2012. What exactly does this mean for an estate? The executor has a choice between (i) avoiding all estate taxes, regardless of the size of the estate, but receive only a limited stepped-up basis for capital gains tax purposes; or (ii) take an unlimited stepped up basis, but the decedent’s estate will be subject to estate tax to the extent it exceeds $5 million, excluding amounts passing to a surviving spouse or a charity.

For an estate less than the exemption amount of $5 million, or if the amount of the estate over the exemption passes to a trust for the surviving spouse, the executor will probably opt for the “taxable” regime in order to take advantage of the unlimited step up in basis. Even if the estate is significantly more than $5 million, if the excess amount is passing to the surviving spouse or in trust for the surviving spouse, there will be no estate tax owed due to the marital deduction; the estate tax will be deferred until the death of the surviving spouse.

However, if the surviving spouse’s estate is likely to be much higher than the $5 million new estate tax exemption, it makes sense to avoid the 35% estate tax under the taxable regime, even though it means the estate will only receive a limited stepped up basis. The larger the estate, the greater the incentive to elect for the repeal regime to avoid any estate taxes.

The new 2010 tax act makes significant changes to gift, estate, and generation-skipping transfer taxes which are complex and confusing. We will continue to analyze the 2010 tax act and share with you how it may impact your estate. Thanks for reading our blog. If you have any questions, or need assistance in an estate planning, probate or trust administration matter, contact the Casiano Law Firm.