A Gift Isn't Always A Gift

If you as a parent give a substantial amount of money to one of your children, it is important for the parents to decide how they want to treat that money.  First, if you decide it is a loan, it is important to have a proper promissory note drawn up and terms of payment.  It is also important to determine what will happen if the loan is not repaid.  For example, do you want the loan to be forgiven if you die, or should the unpaid balance be deducted from that child's inheritance.

But what if you decide to treat the amount as a gift.  If you have more than one child, it is very important to understand and document how you want to address this gift.   If the other siblings discover a gift  was made to one of them but not all of them, it could create some resentment or fighting after both of the parents have  passed away.

When making a gift to a child, you need to decide if this is an outright gift with no bearing on future inheritance, or rather, do you want the gift to be considered an "advance" of future inheritance.  In this case, the gifted amount would be deducted from that child's share of their inheritance at the time they are to receive their inheritance.

So in simple terms,  if you chose to treat the amount given as a "gift", you will need to do one of the following (depending on your wishes):
1) Intend to provide disproportionate amounts to your children through gift and inheritance
2) Gift equalizing amounts to all siblings (be sure to understand any tax implication of your gifting)
3) Consider the gift an advance on inheritance.

Whichever option you choose, you should be sure to document, document, document - either with an update to your will and/or trust, in other writing, or through documented action.  If you don't, there will most likely be a a great deal of fighting and frustration among your children after you have passed away.

Disclaimer: The information provided is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem. Use of this information or any related information does not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual authors and does not reflect the opinions of any firm or attorney.

Happy New Year! Happy New Tax Law?

Well, the year of waiting to find out what would become of the Estate Tax is finally answered, or is it? A better statement would be that the answer will be temporarily postponed for another two years but in the meantime… here’s a tax law to hold you over and to even cause you additional planning questions.


Last year was there was no federal estate tax law in effect. Now, the new tax law (effective 1.1.11) provides two options to the surviving heirs of individuals who died last year. They can either follow the 2010 rules – no federal estate tax, or follow the new 2011 tax rules which provide individuals with a $5 Million dollar exemption.

If you chose the new 2011 rules you can pay estate tax (35%) of a taxable estate over the $5 million exemption and your heirs get a “stepped up basis” of all such inherited property. “Stepped up” means that the cost basis of any property you inherit is determined by the value of that property at the date of death of the previous owner. This is important for capital gains tax savings when the property is later sold.

Alternatively, if chose to follow the 2010 tax rules, you will not pay any estate tax regardless of the size of your estate and the estate will be subject to a modified “carryover basis” rules. When you inherit property under this option, the cost basis of the property stays the same as it was for the previous owner. (Typically the price they paid plus capital improvements). When you sell the inherited property, your capital gains tax will be based on the older and typically lower cost basis.

The carryover however, is modified in that an heir can still step up the first $1.3 million of an inheritance, and a surviving spouse can take another $3 million. Anything in excess of these amounts would be fully carried over at the original cost basis.

So for anyone administering a large estate for a 2010 death, many options are available and careful consideration needs to be made with your tax advisor to determine which tax rules will be more beneficial to your estate. And the lingering question, what will happen if you die in 2013 when we may potentially be facing another period of uncertainty

Disclaimer: The information provided is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.

If I set up a living trust, does this guarantee that my estate will not have to go through a probate?

Unfortunately, despite what most people believe, the answer to this question is not always “No”. Yes, a properly drafted living trust is very effective at avoiding probate of your estate at death; however, there are several situations which can arise which will require some, or maybe even all, of your assets to still have to go through probate. In fact, many of the probate cases I handle for my clients are for one or two assets that were just not in the decedent’s living trust.

One primary reason for this is that when people create their living trust, especially when they try one of the “do it yourself” methods, they fail to properly “fund” the trust. What this means is that they do not re-title all of their assets like real estate, bank accounts, and brokerage accounts into their living trust.

Another reason for this is that people simply fail to review their trusts and assets on a regular basis to ensure that they are still funded in their trust. For example, it is extremely common that when you refinance your home, the lender will require you to pull the property out of your living trust to fund the loan. After escrow closes, people often forget to put the property back into their trust and then, when they pass away, they have a piece of real property out of their trust that requires a probate action to put it back in the trust.

Problems like this can be avoided by many easy steps. The most obvious and least expensive way to do this is to be sure all of your assets are funded in your trust and to have an annual trust review. Another important step really goes back to the formation of your estate plan and having the proper contingencies in place. This is in the drafting language in the living trust and all the supporting documentation to your living trust. With proper planning and evidence, there are ways to petition the court to transfer assets back into your living trust, even after your death, without a formal, lengthy, and expensive probate proceeding. To find out more about how you can ensure your living trust will avoid probate, call Amy Alvis at Alvis Frantz and Associates, A PC at (925) 516-1617.

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Disclaimer: The information provided is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem. Use of this information or any related information does not create an attorney-client relationship. The opinions expressed are the opinions of the individual authors and does not reflect the opinions of any firm or attorney.

Have you had "the talk" with your PARENTS?

Reading another blog reminded me how often I am talking with my clients about sharing their estate plan and their health care wishes with their children.  But it is easy to overlook the fact that if your parents are still around, you may be the one to have to have that conversation with THEM, as they may not be as open to bringing it us with you.

Your homework for today is to make a date to have this conversation with them.  Some of the things you need to find out is:

1.  Do they have will, living trust, powers of attorney for financial matters, and health care directives?  If the answer is "No" then you need to have them make an appointment with a attorney right away and get something in place"  If the answer is "Yes", find out when the last time they have reviewed it and make sure it will still meet their objectives, and if they have a trust, if all of their property is still funded to the trust.  If you are not sure, having a trust review by an attorney is a small but very wise investment.

2.  If they have them, where are your parents estate plan documents?  In the house?  In a safe?  If so, where the combination?  Is it with their attorney?  If so, find out who they are and if they still have your parent's documents or have they retired and sold them to another firm?  Are they in a safe deposit box?  If so - where's the key - is there a power of attorney on hand so that someone will have the ability to access the box to get to their documents?

3. Are you named as the manager of their estate if they become incapacitated?  If so, are you okay with that role.  If not, do you know who is so that you can contact that person and notify them if/when something happens.

4. Do you know what their health care and end of life wishes are.  Having this discussion will alleviate a lot of guilt and uncertainty later.

5.  Have they met with a tax planner to identify an estate tax or income tax needs they may have and if so, have they addressed those objectives with that planner.

Spending a bit of time going over these questions with your parents can help identify what needs to be done now to reduce the stress, anxiety and financial burdens of having to manage their estate later from the lack of proper planning and estate plan maintenance.

Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

LIVING TRUSTS AND ESTATE PLANNING: A MUST FOR EVERY BUSINESS OWNER

Business owners survive many challenges and for family businesses, there are some unique challenges to protect and preserve your business… and your family. A living trust is an estate planning tool business owners can use to help their business continue to run after their death.
LIVING TRUSTS CAN:

• Avoid probate. Probate is the legal process where the court validates your will, sees that your debts are paid, and interprets your will to determine how and to whom your assets are distributed. The major problems with probate are that it is expensive, lengthy, public, and it places all the control in the hands of the probate courts.

Having a living trust will ensure that your estate will be settled quickly, privately, and inexpensively as it keeps your estate out of probate and allows you to maintain full control over the distribution of your assets and your business.
• Minimize or Eliminate Estate Taxes. A living trust can provide a means to reduce, or even eliminate estate taxes. With fewer tax burdens, there are fewer debts to satisfy and a better outlook for the continued health of the business as well as your families’ future.

• Create a Business Succession Plan. Establishing a system within your business will create a plan for someone to succeed you so that your business can continue to run smoothly without you. The death of a business owner causes a number of problems which can be addressed with proper planning, one of which is that the value of your business may be drastically reduce without you there to run the show unless you plan ahead. Ask yourself:

• Should the business remain in the family?

• Are there capable successors/owners?

• Should the business be sold? If so, to whom and at what price.

ESTATE PLANNING CAN:

• Minimize loss of business assets: What people may not consider is that often, assets from a business may have to be used to satisfy the personal debts of a business owner. When there are not enough personal assets to satisfy personal debts, the creditors/government will go after business assets to satisfy these debts. This may leave a business strapped or even insolvent. However, with proper estate planning, you can protect your business and allow it to continue and grow after you die.

• Plan for the financial needs of your estate. Take a look at your personal assets and debts. Can your family continue to survive based on your financial picture as it is today? If you do not have enough personal assets to cover your personal debts, start to put more money aside to cover those debts. Another option is to purchase life insurance. For many, life insurance can be a quick and less costly solution. Life insurance will provide you and your heirs with an immediate guarantee that when you die, the proceeds from the life insurance can be used to satisfy the personal debts, thereby, allowing your business to continue unharmed.

For many small business owners, it can be difficult to separate business and estate planning as they are each contingent on the other. With proper planning and advice, you can ensure that your family and your business will continue to survive when you are no longer there to hold the reins.

Have you had your trust check up lately?

Please remember to review your trust each year.  Make sure your home and your bank accounts are properly funded.  Every probate I have handled this year are for families having to probate a parent's estate where there was a living trust but either the home, or a bank account was outside of the trust. 

Haven't had a trust check up in a while, call Alvis Frantz and Associates and get your trust check up today.  Call 925-516-1617!

CONSERVATORSHIPS - The result of not preparing.

Client's mom & dad did their own trust. Dad is deceased and mom has alzheimers. Trust wasn't done right and there was no power of attorney. For son to get mom's property into her trust, he has to go to court to be appointed a conservator of mom's estate. Have your parents set up their estate plan properly? Call Amy Alvis at 516-1617 for an estate plan consult.