Trusts and Estates Blog

Lancaster – Palmdale – Santa Clarita – Estate Tax Planning

Although California has no estate tax, the federal estate tax bite can be substantial enough to justify careful planning for estate tax liabilities. The larger your estate, the more carefully you must plan and choose from many options, depending on your specific circumstances and objectives.

For experienced and insightful advice and custom estate plans that will help you meet your wealth preservation and asset transfer goals while minimizing or avoiding estate tax liability, contact the Antelope Valley estate tax planning attorneys at Thompson Von Tungeln, A P.C. , in Lancaster. Our estate plan solutions may involve any of the following approaches to cut your future tax liability down to size:

* Use of revocable living trusts and irrevocable life insurance trusts to transfer assets out of your estate while maintaining control and beneficial use
* Qualified personal residence trusts , especially where your primary residence represents a significant asset within a larger net worth profile
* A/B bypass trusts, dynasty trusts, and generation skipping trusts to avoid and manage the complications presented by California community property law
* Charitable remainder trusts , charitable lead trusts, or gifts
* Community property agreements, prenuptial agreements, and postnuptial agreements

There are essentially two main approaches to managing estate tax liability: transferring assets out of your estate through trusts or gifts, and maximizing the value of your federal estate tax exemptions. Some of the instruments described above emphasize only one approach, while several cover both. What’s right for you will depend upon your broader estate planning goals, the characteristics of your family, and the nature and value of the particular assets you hold.

An important feature of sound estate tax planning is integrating tax management strategies into a broader estate plan without overwhelming or distorting it. Unintended and unfortunate consequences–such as the disinheritance of one’s own children –can result from too close a focus on tax planning without sufficient attention to your other wealth transfer objectives.

How to Get The Most Out of the Increasing Estate Tax Exemption

Estate taxes must be paid when you die if the net value of your estate (assets less debts) is more than the amount exempt from taxes at that time.

In 2001 President Bush signed a tax bill that increases the estate tax “exemption” from $675,000 in 2001 to $3.5 million in 2009. Congress went so far this time as to “repeal” the estate tax in 2010, but unless it takes further action, the estate tax is automatically scheduled to return in 2011 with the exemption back at $1 million.
Year

Exemption
2001

$675,000
2002 – 2003

$1 million
2004 – 2005

$1.5 million
2006 – 2008

$2 million
2009

$3.5 million
2010

n/a (repealed)
2011

$1 million

Federal estate taxes still carry a wallop. In 2009, the tax rate is 45% on every dollar over $3.5 million. Estate taxes must be paid in cash, usually within nine months after you die. But with careful planning, they can be substantially reduced or even eliminated, especially now. Here’s what you can do to get the most out of the increasing estate tax exemption.

1. Married? You can “double” your exemption. By setting up an A-B living trust, both spouses can use their estate tax exemptions and in 2009 protect up to $7 million from estate taxes. But unless you plan ahead, you can waste one spouse’s exemption. The cost to your family: $1,575,000!

2. Check the wording. If you already have an A-B living trust, make sure the language to use your exemptions is flexible and does not state a specific dollar amount (e.g., $1 million or $2 million). Instead, it should apply a formula or use language such as “the amount that is exempt from estate taxes at the time of the grantor’s death.”

3. Shift assets. If you and your spouse have separate trusts, you may need to move assets from one trust to the other as the exemption increases.

4. Switch to a trust. If a will is your only estate plan, consider changing to a living trust now. It will probably cost more initially, but it can avoid probate, prevent court control of assets at incapacity, and will give you more control over the distribution of your estate after you die.

5. Review your plan annually with a qualified attorney. Your estate plan is a snapshot of you, your assets, your family, your goals and the tax laws in effect at the time it was prepared. Any time one of these changes, you need to review your plan. As frequently as the laws are changing these days, it would be smart to do this every year. A qualified attorney can quickly review your plan and see if any changes need to be made.

How Can I Prevent My Children from Fighting Over My Belongings After I Die?

You probably own some items of real or sentimental value (jewlery, antiques, art, heirlooms, furniture, clothing, etc.) that you want a certain child, grandchild, special friend, relative, or organization to have after you die.

Or maybe you just want to provide for some orderly way for your belongings to be divided among your heirs after you’re gone. We’ve all heard stories about the heirs fighting over Grandma’s piano or china. The damage is often so deep that sisters don’t speak to each other for the rest of their lives!

Here are some suggestions that can help you prevent this from happening in your family.

Make A Special Gifts List: If you have a living trust, you can make a list of these special gifts and whom you want to have them. Date the list, have it notarized (or witnessed; your attorney can tell you which is appropriate in your state) and keep it with your trust document. If you change your mind, just make a new list and have it notarized. To prevent disagreements about your intentions, be very specific. If your list is long, make a separate list for each person. If your estate is sizeable or if a gift is of substantial value, have your attorney review your list to resolve potential tax issues.

If you have a will, your special bequests will be listed on a codicil prepared by your attorney. If you want to make a change, your attorney will need to prepare a new codicil. (There’s one often overlooked advantage of having a living trust.)

Ask What They Want: Ask your children and others if there is something of yours they would like to have. There may be an item that has special meaning to someone that you aren’t even aware of. Wouldn’t it be nice to know that?

Make gifts now, especially if it is something that you no longer need, or if you are concerned there might be a problem later on.

Hold a family “sale” now, while you can provide information and referee. Gather your kids some weekend or holiday and have them take turns selecting items they want. If one item proves popular, let them bid against each other or make trades. Then write up a list for each person. What doesn’t “sell” to family members can be sold in an estate sale after you die and the proceeds divvied up. (If your family is reluctant to do this, tell them you’ll leave instructions for everything to be sold after you die.)

Write a description, especially if it has sentimental value or is a family heirloom. How else will they know this turkey platter belonged to your favorite Aunt Jessie and that one was picked up at a garage sale?! If the item is large enough, label it.

Business Owners: Have You Planned Your Exit?

You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?

According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.

Who could take over your business? You may have more choices than you think.

Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.

Depending on your financial needs, you can gift and/or or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.

Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.

Business partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.

Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.

How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.

Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.

A good business succession (exit) plan should also provide for the possibility of a long-term illness or disability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.

Happy 18th Birthday, Honey.

You’ll Never Guess What I’m Giving You!
Here’s the perfect gift for the new adult in your family….

What are you planning to give your teenager when he or she legally becomes an adult? A car? A deposit for an apartment? A trip to Europe?

Those are all fine gifts, depending on how much you can afford to spend. But here’s one you may not have thought of…and it won’t cost you a bundle.

Take your son or daughter to your attorney’s office and have them prepare a trio of documents: a simple trust or will, a durable power of attorney, and a medical power of attorney.

Actually, it’s a gift for both of you, because once your child reaches legal age, you will no longer be able to automatically make medical and legal decisions for him or her without the appropriate legal documents authorizing you to do so.

If your son becomes ill or injured and cannot handle his own financial affairs, you will not be able to step in for him and conduct business (sign checks, sell assets, etc.) unless he has a trust or a durable power of attorney and has named you as his successor or agent. If he hasn’t, you’ll have to go through the courts…and that will take time, cost money, and restrict you in ways you cannot imagine. (Some financial institutions also require their own forms; make sure you and your child check with each bank, etc.)

If your daughter cannot make her own medical decisions, it will be much easier for you to make them if she has a medical power of attorney that names you as her agent. And what if she should be so ill or injured that she is placed on life support before you get to the hospital? Unless she has made her wishes known through a legal document, you may not be able to have the equipment removed without court approval.

Finally, if your adult child should die without a will, the court will distribute his assets according to the laws of the state in which he lived…regardless of what you (or he) would have wanted.

Make sure your new adult understands that all of these documents will need to be changed as his (and your) life changes…as he accumulates more assets, and as he and those he cares about move, marry, have children, divorce, die, and so on.

Helping your child get started with this adult responsibility at the moment when he or she becomes an adult is just one more responsibility we have as parents. It fits right in there with how to balance a checkbook, how to handle a credit card, and how to buy insurance.

Chances are, it will be a long time before any of these documents will be needed. But you’ll be sending your child out of the nest with a full layer of protection…just in case.

Failing to Designate Beneficiaries on Assets

There are many ways in which hiring an estate planning attorney can help you to navigate the often treacherous landscape of estate law. One in particular is in understanding the necessity of designating beneficiaries for all of your accounts.

Regardless of how polished your Will might be, or how clearly you have designated and divided your estate among your loved ones, failing to ensure that the right beneficiaries are noted on your retirement and investment accounts could critically disrupt your carefully-laid plans.

If you have created a Will or revocable trust, then you are already taking the right step in securing your family’s financial future in the event of your death.

However, what many people do not realize is that much of their wealth is tied up in retirement and investment accounts – each with their own rules for distributing those assets when the owner (you) can no longer claim them.

If you own such accounts – as most people do – it is important that you sit down with a qualified estate planning attorney and ensure that your desires that are outlined in your Will are reflected in the beneficiary designations of your accounts.

- Contact your account holders, especially those of accounts that have been established for quite some time, and inquire about the beneficiaries listed.

- Discuss with your lawyer the proper methods for changing beneficiaries to reflect the desires you have laid out in your Will.

- Include Life Insurance accounts, bank/savings accounts, investment portfolios, 401k accounts, or any account that requires a noted beneficiary. Your estate planning attorney can help you identify those accounts.

- Discuss with your lawyer the possibility of additional taxes that may be added to your assets if beneficiaries are not properly noted.

Often, when people do an inventory of their accounts with beneficiaries, they find beneficiaries listed whom they no longer wish to receive part of their estate (for example, ex-spouses).

In many cases, the beneficiary listed on an account would be given the assets within that account, regardless of what is stated in your Will. Essentially, the laws regarding beneficiary designation often override those regarding the settlement of a Will.

It is, therefore, always a good idea to discuss with your attorney ways in which you can keep your beneficiaries up-to-date at all times, especially when you cross important milestones such as a new marriage, a divorce, the death of a loved one, or the birth of a child.

Whether your estate planning goals are immediate or long-term, a qualified California estate planning attorney will be able to counsel you on the best options available to you to meet your individual needs.

Kevin Von Tungeln is the Managing Partner of EstatePlanningSpecialists.com and Thompson Von Tungeln, P.C. Kevin practices exclusively in the areas of estate planning, probate, wills, conservatorships and trust administration.Visit http://www.EstatePlanningSpecialists.com or http://www.linkedin.com/in/kevinvontungeln to learn more.

Antelope Valley Estate Planning Attorney Joins Board of CareNet Women’s Resource Center of North County

Antelope Valley estate planning law attorney Kevin Von Tungeln has joined the Board of Directors of CareNet Women’s Resource Center which provides pregnancy counseling services.

Lancaster, California (PRWEB) June 10, 2009 — Antelope Valley estate planning attorney Kevin Von Tungeln has joined the board of directors of CareNet Women’s Resource Center, a pregnancy counseling center located in Lancaster, California.

“I am honored to be asked to join CareNet Women’s Resource Center,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “Their mission of providing valuable pregnancy services to women in need is one that I am proud to be a part of. The staff and volunteers at CareNet are extremely compassionate and have assisted thousands of families during the stressful period of pregnancy.”

CareNet provides pregnancy testing, free childbirth classes, labor coaches, ultrasound, free maternity and baby clothes, baby furniture and supplies are available on a limited basis. CareNet also provides information on adoption and adoption referrals, individual peer and professional counseling, education on abortion and abortion alternatives, post-abortion counseling, mentoring (marriage and individual) and abstinence education.

For more information about CareNet, please visit their website at http://www.cprav.com/.

About Kevin Von Tungeln

When Should I Begin Estate Planning?

Estate Planning and Choice of Trustee or Executor

Antelope Valley estate planning law firm Thompson Von Tungeln advises its affluent and discriminating clients to choose a trustee or an executor very, very carefully.
“We see a lot of problems caused by a poor choice in executor or trustee of an estate,” said Kevin L. Von Tungeln, managing partner. “With careful selection, expert advice in the planning and by following these three guidelines, you can avoid problems altogether.”
High Integrity – Von Tungeln says you want someone you can trust. If the person isn’t trustworthy, you open yourself up to outright theft of your estate, depriving your heirs of their rightful inheritance or depriving you of the care you need if you become incapacitated.
Financial Competence – As time moves forward and conditions change, the trustee or executor will have to make a lot of hard financial decisions. Von Tungeln adds that the trustee or executor in California is also bound by the Uniform Prudent Investors Act (UPIA). In brief, this act stipulates that not only must the executor make prudent financial decisions but he or she must carefully document all of them. Since meeting this standard takes someone with a financial planning background, you need to make sure that your executor or trustee understands the complexity of the task and is willing to work with the certified financial planner or estate attorney whom you designate.
Financially-stable. Since your executor or trustee will be managing hundreds of thousands if not millions of dollars, you need to select someone who is financially stable, who will not be tempted to make “loans” to him or herself, says Von Tungeln. These loans are virtually never repaid.

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