Articles Posted in Estate Planning

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 That definition is no longer valid.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 Burt + Clerc 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.

As La Quinta probate attorneys, we have many clients with children in high school or college. In the wake of graduation season, it is important to note that even 18 year olds needs some type of estate planning. We recommend the unconventional graduation gift this year: a durable power of attorney and an advance health care directive.

The minute your child turns 18 he is considered an adult in the eyes of the laws of California. The problem for parents is that this means they no longer have unfettered access to financial and health records. Most parents are surprised by this realization and often shocked at the legal barriers imposed once their child reaches the magical age of majority.

What happens if your child has a medical emergency during his first semester at college 2,000 miles away? Without a signed Advance Health Care Directive you will not have any access to information regarding your child’s medical condition and have no legal authority to make any health care decisions. This can be devastating for any parent but especially so for the parent of a child with a medical emergency.

The Supreme Court heard arguments last week regarding the constitutionality of the Defense of Marriage Act (DOMA). The legal arguments focused primarily on the 10th amendment and the freedom of individual states to choose how to define marriage. Ending DOMA would mean that the federal government would recognize any union that an individual state recognizes. For instance, a same-sex married couple from Massachusetts would be treated as a “married couple” under federal law. As the law stands now, that same-sex married couple from Massachusetts is not recognized as married under federal law.

The impact of DOMA on same-sex married couples is vast. DOMA prevents these couples from enjoying federal pension benefits, immigration benefits, gift and estate tax benefits, income tax benefits and many other things that opposite-sex married persons enjoy. Another important impact of DOMA is the effect on estate planning for same-sex married couples.

An opposite-sex married couple’s estate plan is usually pretty straightforward. They create a joint trust, execute some Power of Attorneys and Advance Health Care directives and reciprocal wills. However, estate planning for a same-sex couple is much more complicated. If a same-sex married couple creates a joint trust there are various legal and tax hurdles to overcome. Since the federal government does not recognize the couple as “married” any gifts made between the couple will be subject to federal gift taxes. When the couple funds the joint trust with assets they must trace the genesis of the assets. If one partner contributes more than the other, then there may be some gift tax complications. Furthermore, the Trust would require its own Taxpayer Identification Number since a same-sex couple could not use one of their Social Security Numbers as the identifier for joint assets.

Many parents fail to complete a will because they struggle with the decision of who to nominate as a guardian. However, failing to put your wishes in writing is detrimental to your whole family. The following are some of the most common concerns and possible solutions when naming a guardian for minor children.

Guardian is Too Old
Grandparents are increasingly popular guardian nominations. But, some parents worry that if they pass away in 10-15 years their parents (the children’s grandparents) will be too old. Do not worry about the age of the guardian in 10-15 years. By that time, you may have a different person to nominate. Also, your children’s’ needs will be significantly different in 10-15 years so an older guardian may be perfectly fine.

Your Family Won’t like Your Choice
Try to disregard the opinions of your family members when nominating a guardian. You understand and appreciate the needs of your children better than anyone else. Explain your choices in your will and don’t get hung up on whether your sister or mother-in-law will agree with your choice.

Your Children Won’t Like Your Choice
If your children are old enough to understand, have a discussion with them about your choice. Teens can nominate their own guardian and judges are generally receptive to their choices. If your kids understand your choice this may help them better decide for themselves.

The Guardian is Bad with Money
A court will appoint a guardian of your children’s person and estate. However, these positions can be filled by different individuals. If you have a trust the trustee can be appointed guardian of your children’s estate and he or she will manage the money for the children’s benefit. However, if you want to name a different individual for the person and estate your wishes should be clear in your will.
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All parents want to make sure their young children are provided for financially in the event of their death. Grandparents may also wish to leave assets to grandchildren in a will or trust. However, leaving assets outright to minor children is usually not a good idea. Additionally, naming minor children as beneficiaries on life insurance policies or retirement accounts is also troublesome.

If you name a minor child as a beneficiary on a life insurance policy, retirement account or bank account the child has the right to 100% of the proceeds upon their 18th birthday. Equally scary is that the guardian of the child can’t access any of the money while they are raising the child. Some parents have overcome this by naming the guardian as the beneficiary with the agreement that all proceeds will be used for the child. This is not foolproof since technically the guardian has no legal obligation to use the funds for the child. Also, once the funds are transferred to the guardian they become assets of the guardian and can be used to satisfy personal debts of the guardian.

Overcoming these hurdles is simple. Establish a revocable trust and name the trust as the beneficiary for all of the accounts. We still recommend that if you have a spouse you name your spouse first, but as a contingent beneficiary you can name your trust. This way, all the financial institutions will pay out the proceeds to the trust and the trust provisions will dictate when and how the money is used.
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There are some common estate planning mistakes that our Palm Desert estate attorneys frequently see in our practice. Avoid these mistakes to ensure your estate plan is valid and accurately reflects your wishes.

Beneficiary Designations

Check your beneficiary designations on life insurance and retirement accounts. These assets generally pass outside of a living trust through a beneficiary designation. However, if you neglect to designate a beneficiary court action may be required to transfer these assets.

Our Palm Desert estate planning attorneys continually see clients who have not updated their Will or Trust since it was first established….20 or more years ago. Although out-of-date documents are better than no document at all, current and updated documents are best. Estate tax laws change regularly and so do changes in state laws regarding estates and trusts. We recommend clients review their estate planning documents at least every five years. However, there are some circumstances which necessitate reviews and revisions sooner than the five year mark.

If your immediate family experiences a major event such as a marriage, death or birth, you should review your current documents.

Current estate tax rates and exemption levels are set to end on December 31, 2012 absent an act from Congress. The new law effective January 1, 2013 is dramatically different than our current laws.

When you buy or sell a home you need to revisit your estate plan and make sure you update your documents to reflect this change. If you have a trust, make sure that all new pieces of real estate are vested properly.

Whether you sold a business and are expecting significant financial gains or realized considerable losses, you need to review your plan. Some estate planning mechanisms may no longer work for your changed financial status.
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The current estate tax laws are likely to revert to pre-EXTRA levels beginning on January 1, 2013. This means that the estate taxes will be levied at estates over $1,000,000 with a tax rate of up to 55%. Considering the value of real property, life insurance and retirement accounts many individuals may find themselves included in the estate tax bracket. However, 2012 has historically low tax rates and historically high exemptions which allows for creative and unique planning before January 1, 2013.


The current lifetime gift exemption is $5,000,000. The annual exclusion amount is currently at $13,000 but an individual can give up to $5,000,000 during life tax free. This gift exemption is scheduled to go back to $1,000,000 as well in 2013. Therefore, 2012 is a great year for making lifetime gifts.

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