Ahmed Shaikh

Dying to avoid taxes?

ashaikh — Sat, 10 Jul 2010 08:12:16 +0000

Another article addressing the Estate Tax situation and the lengths people will go to avoid paying it. It looks grim and its an interesting story. The estate tax goes from 0 to 55% the very next calendar year. Congress is unlikely to do anything. So people will commit suicide, children will kill their parents. Its all about taxes and its all so sad.

However such articles, though they cite lawyers who talk about such things, do not address how it may be possible more many families to have estate taxes dramatically reduced or eliminated without going through such grim measures. That's was lawyers in this area are supposed to do. No lawyer would ever suggest 2010 is a good year to die because Congress never got around to fixing a law. Not only should taxes not be a reason to make life or death decisions, the idea people are doing this is melodramatic media nonsense. If you have good enough advice, you would not be worried.

forced or unforced shares

ashaikh — Fri, 09 Jul 2010 18:18:57 +0000

The rights of the surviving spouse loom large when it comes to inheritance. The surviving spouse often receives everything in the United States. Indeed its fair to say the system is rigged that way. However what about those who do not want to give everything to the surviving spouse. The options exist from statute.

In California, its much easier to exclude, even fully exclude a surviving spouse. There are no forced shares in California. In Probate Code § 21611 addresses this issue by stating a surviving spouse may be excluded if:

1) the exclusion is on purpose and made plain in the documents

2) There was a transfer made outside the estate plan meant to take care of the spouse and there is evidence of this

3) The surviving spouse does not want any inheritance

Of course the last one is obvious. Though typically people want whatever inheritance they can get. This provision is more relevant in more complex family situations, particularly in a second marriages, where litigation is more likely.

Surtax for the very, very wealthy?

ashaikh — Fri, 25 Jun 2010 17:58:46 +0000

More estate tax proposals keep the issue at the fore. However there has been no indication the US Senate is about to agree on anything at all. One proposal is highlighted in recent news. While it styles itself as progressive, and because it taxes the extraordinarily wealthy at a higher rate then the less extraordinarily wealthy, it sort of it. However its striking how generous it is for a left wing, pro-estate tax proposal.
According to the Journal:

"Under the proposal, as in 2009, the exemption would be $3.5 million for an individual, or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million."

Other proposals would curtail certain kinds of estate planning techniques, particularly the use of "discounts" in valuations and eliminate the 2 year Grantor Retained Annuity Trust, which can be used as an offset in the budget since Congress is under the impression it will raise revenue.

While many are skeptical of the Senate's ability to do anything substantive on the estate tax, its still not too late. It would be helpful for Estate Planners (and clients) to know what the rules actually are as most of us seem to think that the assumption of a $1 million exemption and a 55% tax rate, which is current law starting in 20111, is wrong.

Life Insurance for Charity

ashaikh — Wed, 23 Jun 2010 06:28:59 +0000

An Article in the San Francisco Chornicle on Charitable giving through Life Insurance explores ways to give charity using this asset that could be a tremendous benefit. however I don't agree with parts of it, in particular the notion that "Transfer of assets from an insurance contract is also absolutely incontestable, thus rendering anyone contesting the estate settlement powerless to stop it." Thats a particularly silly statement. There are a wide range of reasons why transfers can be contestable

Legalzoom’s Troubles

ashaikh — Sat, 05 Jun 2010 08:06:47 +0000

LegalZoom needs lawyers to protect its interests. Its own clients also need lawyers in a class action against Legalzoom. As always, efforts to end the participation of lawyers only ends up causing more work for lawyer.

The company often compares itself to lawyers when comparing fees and even uses a lawyer in its commercials. The fast talker at the end of each commercial typically says that they are not a law firm and they do not provide legal services, which is of course true. Merely providing document preparation software or documents to do-it-yourself is not the practice of law. Its plain however Legal Zoom is something else. Its also true they do not compete with lawyers since their services seem to appeal to more marginal and unsophisticated people who would never hire lawyers and would not realize they are overpaying for a template filling service that fills forms that without much more effort can be obtained for free.

The problem may be these unsophisticated people are being had by a company that simultaneously says they are cheaper then a lawyer, do the same thing, and yet, are not really lawyers.

No Deal on the Estate Tax, no surprise

ashaikh — Wed, 19 May 2010 06:52:31 +0000

It appears there was no deal on the Estate Tax, according to a report by "the Hill." In all likelihood, there never was anything resembling a deal. The United States Senate has been in a state of paralysis for some time. As they did not bother to fix the estate tax last year, or do it yet, the likelihood continues to be it will not happen at all until after the midterm elections.

A stranger cares for the elderly. What comes next?

ashaikh — Sat, 08 May 2010 00:44:21 +0000

One heavily litigated area is when non-relatives get inheritance. Imagine this: A woman comes into the life of a man who is old and is about to die. She cares for him, feeds him, takes him to the doctor. Perhaps she bathes him and otherwise looks after his welfare. This man has other family, but they may be in another town and do not really know what is occurring. Perhaps he is in a nursing home and is being taken care of by attentive staff. Perhaps he has a housekeeper who goes beyond the call of duty. Perhaps a long lost friend drops by…

As we have the freedom to give our wealth to whomever we choose, can this man just give whatever he owns to the person who took care of his needs during his last days? The answer is not necessarily. In California, it is presumed that such transfers were done through "fraud, duress, menace or undue influence."

California Probate Code §21350 governs what are known as "a donative transfers" to particular classes of people. It states any provisions in an instrument, such as a will or trust, won't be valid if the transfers are made to particular classes of people. These will include

The person who drafted the instrument

A person related to the person who drafted the instrument
A person who is a partner or shareholder a law partnership or law Corporation in the same organization as the person who drafted in the instrument
A person who has a "fiduciary relationship" with the transferor
A person who is related to the person who has a "fiduciary relationship"with the transferor
A "care custodian" of a dependent adult who is the transferor
A person related to the care custodian of a dependent adult who is the transferor

The biggest area of dispute in this area is who constitutes a "care custodian." This is defined broadly and statute. it is not restricted to individuals were paid by the care custodian or other family members to take care of the transferor. It could even be a friend of the transferor who took care of an elderly or sick person out of kindness. The Supreme Court in California was asked to carve out an exception for just such a person. However, in the case of Bernard V. Folley, the only exceptions that apply are the exceptions that specifically exist in statute. it is possible for a friend who takes care of a sick or elderly individual to obtain a donative transfer, however, this must be done within the contours of probate code §21351.

Under probate code §21350.5 these individuals are "a disqualified persons"- they get nothing unless some specific exception applies.those exceptions are specified in probate code §21351.

Probate code §21351 exams people who are related through blood or marriage, our cohabitants or registered domestic partners.

There is also a provision for a "certificate of independent review" where independent attorney can assess and certify that there was no fraud, menace, duress undue influence. the specific language of the certificate is a specified in statute.

Another procedure, is after full disclosure of the relationships of the persons involved, the instrument is approved in a conservatorship proceeding. Of course, if this is done, litigation after death surrounding disposition of property would be less likely.

Another "out" for a "a disqualified person" is if the court determines, "upon clear and convincing evidence, but not based solely upon the testimony of any person" who would otherwise be disqualified persons, that the transferor was not the product of fraud, menace, duress or undue influence. If there is fraud, menace, duress or undue influence, the disqualified person bears all costs, including reasonable attorneys fees.

If you are a family member of a deceased person, finding assets going to a stranger you should note, you probably have remedies.

Second Life: There is no such thing as “virtual land”?

ashaikh — Mon, 03 May 2010 20:55:00 +0000

A lawsuit evidently by a group of disgruntled "second life" users highlights problem that could conceivably affect Trust and Estate Disputes in coming years: the large number of people who seem to own, by actually paying for with real dollars, "virtual" property. The nature of these "property rights" can be affected by whatever the company that "sold" or charged "property taxes" for the property. The lawsuit claims the plaintiff's were "lured" into thinking they were actually buying something.

Second life is a game. The mere fact that people engage in fantasy and a company gets paid to indulge them does not change that basic fact. Courts and the law should not be involved in any actions that equate Second Life real estate to a new kind of real estate. Fantasy real estate should be addressed in fantasy courts. But its best to not pretend Second Life is something it is not; some "new" form of property.

Unfortunately, this will not be the case if such real estate actually has value at death. A beach front home one can stare at on the computer can be passed on to children so they can do the same. Admittedly, I do not play or harbor appreciation for this game. However no matter how much we like games, society must recognize that games must end.

GRATs may be curtailed

ashaikh — Wed, 28 Apr 2010 17:57:45 +0000

An important estate planning method for families with high net worths may be significantly curtailed. Trusts and Estates Magazine reports today the Small Business and infrastructure jobs act of 2010 will include a provision concerning grantor retained annuity trust as a "revenue offset."

The Grantor Retained Annuity Trust (GRAT) is a kind of trust specifically authorized in the Internal Revenue Code that allows the giver of a gift the rights to retain annuity interest in that gift. This works very well in circumstances where assets have appreciated as a great deal of future value can be removed from the taxable estate. The particular changes being contemplated will effectively eliminate the prospect of a "zeroed out" GRAT, where a zero gift (or something close to it) might show on a tax return. the term of a GRAT can also be limited to 10 years, it is advantageous for those who may fear dying within the next 10 years. Shorter-term GRATS are frequently an optimal method the plan anyway. This route may be gone shortly.

Congress appears to be setting the stage for the return of the estate tax. Of course, this is only legislation pending in the House of Representatives. it is not close to being law yet been given that it appears in a jobs bill, it's worth a close look.

History of the Estate Tax

ashaikh — Fri, 23 Apr 2010 22:41:16 +0000

David Joulfaian has written a lengthy manuscript on the history and background of the Federal Estate Tax. Its a small portion of US revenue, however you will need to read it to appropriate why its not going anywhere, at least not for any substantial amount of time.

Some form of inheritance tax has been prevalent through much of recorded history. Like all taxes, it has been controversial and there have been many changes in the way its been calculated. There is a comprehensive review of the evolution of the estate tax in the paper itself, which you can download here.