The IRS recently declared that same-sex married couples will enjoy the same tax treatment as straight couples beginning on September 16, 2013. This is an important decision since the practical realities of life post-DOMA were uncertain. Now, same-sex married persons can file joint returns, amend previous returns and request refunds for the past three years. Additionally, the IRS explained that it will recognize any legal marriage irrespective of the state of residence of the filers. This means that a gay couple in Kansas could travel to Washington and get legally married and this marriage would be recognized by the IRS. When the Kansas couple returns to their home state they must file as a married couple on their federal income tax returns. (They would not be able to file as a married couple for their state tax returns, however.)
While the end of DOMA is wonderful, it doesn’t solve all problems for same-sex couples. The lifting of DOMA restrictions only applies to married same-sex couples. Unmarried same-sex, and also opposite-sex, couples have unique issues and concerns when creating an estate plan. Various techniques and tax saving vehicles are unavailable to unmarried partners.
Joint trusts are unadvisable for unmarried partners since the couple does not enjoy marital exemptions in gifting. Unmarried partners may choose instead to have separate trusts with identical provisions. For example, when one partner dies the other inherits everything.
There are numerous tax and other important consequences of the Supreme Court’s decision to overturn the Defense of Marriage Act (DOMA). Also, estate planning for same-sex married couples will be easier and less cumbersome than ever before. Some of the effects of the recent decision are discussed below.
“Married” Filing Status for Federal Income Taxes
Same-sex married couples will now file their annual federal income taxes as married, either jointly or separately. Tax preparation should be less expensive and simpler than under DOMA. Married same-sex couples will no longer have to decide which spouse takes which deduction or who claims which dependent child.
The Supreme Court ruled that the Defense of Marriage Act (DOMA) is unconstitutional. The act defined marriage under federal law as between a “man and a woman.” That definition is no longer valid. This means that same-sex couples who are legally married will be treated like any other married couple under federal law.
This does not mean that all states must recognize same-sex marriage. This decision only means that where same-sex marriage is already legal, these couples will be recognized as married under federal law. However, this decision can vastly affect estate planning opportunities and tax advantages for same-sex married couples.
We at Julia Burt Law are happy to share the news that Julia E. Burt was named “Top Lawyer” by Palm Springs Life Magazine for 2013. Julia is a certified specialist in Estate Planning, Trust and Probate Law as well as a California Certified Public Accountant. You can read all about this year’s Top Lawyers in the current issue of Palm Springs Life Magazine.
We didn’t fall off the fiscal cliff. In the wee hours of January 1, 2013 Congress finally reached a deal on taxes. The American Taxpayer Relief Act (ATRA) outlines the changes to taxes in 2013. The new laws are similar to those in existence in 2012 with some slight modifications.
Ordinary Income Taxes
Tax rates are 10%, 15%, 25%, 28%, 33%, 35% and an additional 39.6% was added in 2013. This new tax bracket will be assessed for incomes >$400,000 for single filers and $450,000 if married filing jointly.
Qualified Dividends/Long-Term Capital Gains
0%, 15% and a new 20% bracket was added for incomes >$400,000 for single filers and $450,000 if married filing jointly.
Medicare Tax on Net Investment Income
This is a brand new tax of 3.8% for modified adjusted gross incomes >$200,000 for single filers and $250,000 if married filing jointly.
Social Security Payroll Reduction
The 2% reduction enjoyed for the past two years expired January 1, 2013.
40% for Estates/Gift/Generation Skipping Transfers over $5,000,000 adjusted for inflation. (Adjusted amount for 2013 is $5,250,000).
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Our Palm Desert Estate Planning lawyers see too many clients fail to timely update their estate plan. Since Congress has not given us any idea if they will address the tax laws before January 1, 2013, our lawyers are planning for Estate Tax Armageddon. As we have previously posted, the laws for gift and estate taxes are changing at 12:01 A.M. on January 1, 2013 unless Congress passes new legislation. Unfortunately, this means there is only eight more weeks to schedule an appointment with your estate planning attorney to revise your documents.
Engaging in last-minute estate planning can be sloppy and dangerous. Numerous issues can arise having very costly consequences if you don’t timely review and revise your plan. If you’re interested in taking advantage of the life-time gift exemption of $5.1 million, make sure your gift is completed before January 1, 2013. This doesn’t mean you can hand a check to your child and hope that he or she cashes it before New Year’s Day. A safer method is to do a wire transfer that ensures the funds are deposited fully before January 1st. If you’re gifting real property, make sure the deed is signed AND recorded before January 1, 2013.
Don’t miss out on these valuable opportunities by waiting until the last minute to address your estate planning problems. Schedule an appointment with your attorney early so that you have enough time to review, revise and execute new documents before New Year’s Eve.
We had a very great summer here at Julia Burt Law. Palm Springs Life named Julia Burt as a Top Lawyer in the field of Estate Planning again this year in their June 2011 issue. Julia also recently received her specialist designation in Estate Planning, Trust & Probate Law by the State Bar of California on June 30, 2012.
A Successor Trustee must follow all the provisions in the actual Trust document. However, a California Trustee must also follow the rules and procedures mandated by the California Probate Code. The following are some of the most common pitfalls that get Trustees into Trouble.
Failing to serve the required Notice to Beneficiaries AND heirs-at-law
Whenever a Trust becomes irrevocable, or there is a change in Trustees of an irrevocable Trust, the Trustee must send out notice pursuant to Probate Code § 16061.7. Failure to give timely notice or no notice at all can open the Trustee up for personal liability as well as allow for any beneficiaries or heirs-at-law to contest the trust for a prolonged period.
Failing to Account
Some Trust documents waive all accounting and thus a Trustee may believe that he or she is not required to provide any accounting. However, under California law a Trustee must account at least annually and any waiver of such accounting is against public policy.
Failing to Act Impartially
Trustee must act impartially among all the beneficiaries of a Trust. Favoring one beneficiary over another may result in a breach of fiduciary duty.
Failing to Keep Trust Assets Separate
A Trustee must manage an estate completely separate from the Trustees own personal assets. Trust accounts have their own EINs and must be vested in the name of the Trust, not the Trustee individually.
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A Conservatorship is a legal proceeding where a judge appoints an individual to care for another adult who is incapable of caring for themselves or managing his or her own finances. If you have a complete estate plan which includes a Durable Power of Attorney and an Advance Health Care Directive, then a conservatorship can usually be avoided. However, there are times when this proceeding is absolutely necessary and thus you should nominate a conservator while you are living. This can easily be accomplished by including nomination language in your Durable Power of Attorney or your trust instrument. If you do not nominate someone, then a judge will appoint someone over you and possibly your estate.
A recent article in the Los Angeles Times highlights the need to have your wishes clearly defined with respect to your potential conservator. The infamous Zsa Zsa Gabor is in poor health at the age of 94 and requires a conservator to manage her heath care and finances. Zsa Zsa’s daughter petitioned the court for appointment as conservator but was denied in favor of Zsa Zsa’s husband, Frederic von Anhalt, and a team of attorneys. Von Anhalt will serve as conservator of the person (making medical decisions for Zsa Zsa) while several attorneys will oversee Zsa Zsa’s finances.
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