1 / 38

UPDATE ON SELECTED LEGISLATION

UPDATE ON SELECTED LEGISLATION. Michael J. Morris 19 June 2009

byron-ewing
Download Presentation

UPDATE ON SELECTED LEGISLATION

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. UPDATE ON SELECTED LEGISLATION Michael J. Morris 19 June 2009 This material is presented to point out selected changes in Federal and California statutes as well as to look at some proposed legislation that may become law in the near future. As is the case with materials of this nature, it is not legal advice and should not be relied upon to form legal analyses or substituted for proper consultation of the applicable statutes, cases or other authorities.

  2. New State Legislation • Graduated Filing Fees in Probates • Notaries • Witnesses to Wills • Pet Trusts • No Contest Clauses • Elder Abuse

  3. New State Legislation • Graduated Filing Fees in Probates • Declared unconstitutional, now Government Code §70650 codifies that the fee is a flat $350.00

  4. New State Legislation • Notaries • §§1185 & 1196 of the Civil Code and §8206 of the Government Code: • Can Use Government ID Cards for Identification • Can no longer use witness who is personally known to Notary as evidence for acknowledgment (Narrow exception for individuals who do not have and I.D.)

  5. New State Legislation • Witnesses to Wills • §6110 Probate Code: • Witnesses must sign during testator’s lifetime • A will that fails to meet the requirements of a formal witnessed will is treated as complying if the proponent proves by clear and convincing evidence that the testator, at the time of signing, intended it to be his/her will

  6. New State Legislation • Pet Trusts • §15212 Probate Code: • Allows non-profit organizations to have standing to petition to check on the status of animals and review the books of the trust

  7. New State Legislation • No Contest Clauses • Background: • Probate Code §21320 “Safe Harbor Petition” allowed a person to petition to determine if something was a contest – proliferation of petitions • Cases saying that later documents must incorporate the no contest clause by reference if not completely restate it – reaffirming the original trust or will provisions is not enough

  8. New State Legislation • No Contest Clauses (cont.) • New Legislation: • This is effective January 1, 2010 • Repeals PC §§21300-21322 • No more Safe Harbor Petitions

  9. New State Legislation • No Contest Clauses (cont.) • Adds Probate Code §§21310-21315: • No Contest Clauses are effective against: • Direct contest without probable cause • Indirect contest • Challenging transfer of property on grounds it was not the transferor’s; or • Filing of a creditor’s claim • But a. & b. only apply if the clause expressly calls for the application

  10. New State Legislation • No Contest Clauses (cont.) • Grounds for Direct Contest – forgery, lack of due execution, lack of capacity, menace, duress, fraud or undue influence • Mistake is no longer included • Probable cause means a reasonable likelihood exists that relief will be granted after further investigation • Reasonable likelihood is more than merely possible but less than “more probable than not”

  11. New State Legislation • Elder Abuse • §§15610.30, 15657.5, 15657.6 and 15657.7 Welfare and Institutions Code: • Adds to the definition of financial abuse of elders – taking property by “undue influence” – not just fraud • Includes failure to return property obtained from a person of unsound mind – don’t have to show “bad faith” just that the defendant should have known it would produce harm not to return the property

  12. New State Legislation • Elder Abuse (cont.) • Four years statute of limitations after facts are discovered or should have been discovered

  13. New Federal Legislation • FDIC Insurance Coverage • Estate and Gift Tax Exemptions & Rates 1/1/2009 • Extension to Pay Tax IRC §6166 • Special Use Valuation IRC §2032A • Sale of a Residence IRC §121

  14. New Federal Legislation • FDIC Insurance Coverage • Now $250,000 per depositor extended to December 31, 2013 • What about trusts: • Interim rule issued September 26, 2008 provides $500,000 coverage if a trust has 5 beneficiaries and $1,000,000 coverage if it also has two settlors • These rules apply regardless of how much each beneficiary will ultimately receive

  15. New Federal Legislation • Estate and Gift Tax Exemptions & Rates 1/1/2009 • $3,500,000 estate tax exemption • $1,000,000 gift tax exemption – remaining the same • $13,000 in annual gift tax exclusion • Tax rate is 45%

  16. New Federal Legislation • Extension to Pay Tax • If granted, the 2% interest rate is increased to cover $1,330,000 of tax due, IRC §6160 • IRC §6166 Caveat: Baccei v. United States (ND CAL 2008): • Must complete Form 4768 Part III • Failure to do so is fatal even if cover letter asks for extension to pay tax

  17. New Federal Legislation • Special Use Valuation IRC §2032A • Maximum estate tax value reduction increased to $1,000,000

  18. New Federal Legislation • Sale of a Residence IRC §121 • Basic Rule $250,000 protected from tax. $500,000 for husband and wife • Must reside in house 2 of 5 years. • New Rule: • Exclusion does not apply to periods of “unqualified use” starting after 2008 • Starting January 1, 2009 use a formula with a numerator of unqualified use and a denominator of period of ownership

  19. New Federal Legislation • Example: • Property acquired January 1, 2009 • Rented out through December 31, 2011 • Principal residence January 1, 2012 through December 31, 2013 • Sale on January 1, 2014 with $250,000 gain • 3/5 x $250,000 = $150,000 gain

  20. New Federal Legislation • Sale of a Residence IRC §121 (cont.) • Exception – New rule doesn’t apply to periods after qualified use as a principal residence • So: • Use of personal residence for 2 years and thereafter rent it out – is ok • Rent it out for 3 years then live in it for 2 years – new proration formula

  21. Proposed Estate Tax Reform“Back to the Future” • The Cast • HR 436 Pomeroy • HR 498 Mitchell-Kirk-Nye • HR 1986 Childers • S 722 Baucus • HR 2023 McDermott • Obama Administration Proposals

  22. Proposed Estate Tax Reform“Back to the Future” • The Plot • Estate Tax Exemption • Estate Tax Rate • Unification of Estate & Gift Tax • Adjusted Basis • Portability • Minority/Fractional/Restrictive Discounts • GRATS

  23. Proposed Estate Tax Reform“Back to the Future” • HR 436 Pomeroy • $3.5MM Exemption - Not indexed • 45% rate plus 5% surcharge on estates over $10MM up to $41.5 MM • Unification of Estate & Gift Tax • Adjusted basis retained • Elimination of family based valuation discounts • GSTT made permanent and tied to estate tax exemption

  24. Proposed Estate Tax Reform“Back to the Future” • HR 498 Mitchell-Kirk-Nye • $3.5MM to $5MM Exemption by 2015 - indexed • Rate tied to capital gains rate, keep at 15% and double it for estates over $25MM • Unification of Estate & Gift Tax • Adjusted basis retained • Portability – no need for privity • GSTT appears to be repealed

  25. Proposed Estate Tax Reform“Back to the Future” • HR 1986 Childers • $4MM Exemption • 40% rate • Adjusted basis retained

  26. Proposed Estate Tax Reform“Back to the Future” • S 722 Baucus • $3.5MM Exemption - indexed • 45% rate • Unification of Estate & Gift Tax • Adjusted basis retained • §2032A special use valuation reduction equal to exclusion amount • GSTT made permanent and tied to estate tax return exemption • Portability – must have privity but can use more than 1 spouse

  27. Proposed Estate Tax Reform“Back to the Future” • HR 2023 McDermott • $2MM - indexed • 45% 50% over $5MM 55% over $10MM • Unification Estate & Gift Tax • Adjusted basis retained • GSTT made permanent • Portability – no need for privity

  28. Proposed Estate Tax Reform“Back to the Future” • Administration Proposals (Fiscal year 2010 Revenue proposals released May 11, 2009) • $3.5MM Exemption • 45% rate • Disregard restrictions in intra-family transfers of interests in family controlled entities IRC §2704(b) • Minimum term for Grantor Retained Annuity Trust (GRATS) to be 10 years • GSTT made permanent and tied to estate tax exemption

  29. Proposed Estate Tax Reform“Back to the Future” • Likely Ending • Extension of Current Law • Omnibus Tax Legislation in 2010 • Possible Lapse and retroactive legislation by 1 October 2010 • S 722 Baucus • HR 2023 McDermott • Obama Administration Proposals

  30. What Do We Do Now? • Importance of §2032 Alternate Valuation • Adjusted Basis • General Depression of Estate Values • Volatility and Discounts • GRATS • Credit Shelter Trusts

  31. What Do We Do Now? • Importance of §2032 Alternate Valuation • Consider this in every estate today • Remember – it has to save tax – can’t use to just increase basis • But, can sell during 6 months window if the property starts to appreciate again • E.G. DOD = 100 DOD + 4 months = 80 DOD + 5 months = 90 Sell

  32. What Do We Do Now? • Adjusted Basis • Not stepped up but adjusted • Consider gifting assets where basis is higher than FMV • There are exceptions here – limits on losses etc.

  33. What Do We Do Now? • General Depression of Estate Values • Be careful of large pecuniary gifts in planning estates

  34. What Do We Do Now? • General Depression of Estate Values (cont.) • Example: • $2,000,000 Estate [$1,000,000 real estate and $1,000,000 securities] • 2 children • 5 grandchildren • $200,000 to each grandchild • Residue to children [$500,000 each] • With a 35% decline in value: • $1,300,000 estate – children get $150,000 each

  35. What Do We Do Now? • Volatility and Discounts • Volatility creates discounts • Discounts may go away – use them now

  36. What Do We Do Now? • GRATS • GRATS are still a good vehicle – may go away • Volatility helps here too

  37. What Do We Do Now? • Credit Shelter Trusts • Traditional reasons for use: • Use both spouses’ exemptions • Allow each spouse to control ultimate disposition of his/her estate • Disadvantage: • Survivor saddled with irrevocable trust – tax returns, etc.

  38. What Do We Do Now? • Credit Shelter Trusts (cont.) • Change: • $3.5MM exemption • Portability • Portability does not protect appreciation in value between 1st and 2nd deaths • Portability may facilitate adjusted income tax basis • Survivor’s Trust doesn’t protect ultimate distribution of decedent’s share of estate

More Related