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NOTES
and Updates - Spring 2003
"We
suffer from an incurable malady. Hope."
As previously reported, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA-2001) provided a number of changes to our estate tax system, including an annual drop in the top estate tax rate, increases to the estate tax exemption amounts over the next few years, and the repeal of estate taxes in 2010 only (unless additional legislation is passed). Another change of EGTRRA-2001 included a phase-out of state death tax credits. The state death tax credit is a credit on the federal estate tax return for the amount of estate taxes paid to a state, previously resulting in a net wash to the taxpayer. California has a "pick-up" tax, which means California receives the exact amount of the credit that was allowed for the estate. (This explains why California death taxes have not been discussed with any frequency.) Under EGTRRA-2001, the amount of this credit has been reduced 25% in this year, will be reduced another 25% in each of the next two years, and is repealed in 2005, at which time the pick-up tax (that is, the amount that had been going to California) would be zero. As any new California state death taxes would have to be approved by the voters, it seems extremely unlikely that there will be any death tax in California after 2004. Please note that this does not result in a savings to the taxpayer, but is simply a shift of the tax funds from California to the Federal Treasury. Furthermore, for those Californians owning real property located outside the state of California, this change to the Federal Tax Code could result in more taxes being due. Some states do not impose a pick-up tax, but instead have their own state estate tax, and some have inheritance taxes which are taxed directly to the beneficiaries. Due to the way the formulas are drafted by the individual states, the amount of tax imposed by those states can be based on the full value of the estate (even those assets owned here in California) rather than just the amount of assets in that other state. With this result, the tax can even exceed the value of the asset located in the other state! If the estate is valued at $1,000,000.00 or less, it does not appear that the state estate taxes will pose much of an issue. For larger estates, though, the potential of state estate taxes can be a problem. Some of the states where this may happen include New York, Kansas, Oregon, and Washington. If you have out-of-state property and are concerned about potential estate tax consequences, please contact our offices. California Law Changes Two changes: First, nursing homes are now required to make a reasonable effort to notify the "contact person" of the resident/patient within 24 hours of any significant change in health status. Second, the Department of Health Services is in the process of drafting regulations which would implement the 1993 transfer regulations enacted under the Omnibus Budget Reconciliation Act (OBRA). These regulations would require that California begin utilizing the rules enacted under OBRA and would change some of the Medi-Cal planning and eligibility requirements. On a sale of real property in California, a recent change to California's Revenue and Taxation Code has provided for the withholding of three and one-third percent of the full sales price of the property for resident taxpayers. The only exceptions from the withholding requirement include the sale of a personal residence, property sold for less than $100,000, like-kind exchanges, installment sales, sales by estates, and sales by irrevocable trusts. This forced withholding can amount to some unfair situations, notably in cases where no tax would be due as a result of the sale (taxpayer can't get funds back until tax return is filed), or in cases where little cash is in fact received (where property is sold with high mortgage). Thus, even if your net proceeds are less than three and one-third percent, you still must deposit excess cash to the escrow account to be forwarded to the Franchise Tax Board. Although you can claim a refund on your annual state income tax return for any excess tax paid, in essence this withholding amounts to a "loan to the state treasury," without payment of interest back to the taxpayer. These drawbacks have given rise to a movement to "fix" the new law with additional legislation. However, the solutions proposed thus far appear to be even less viable than the existing law. Feel free to phone us with any concerns. We will keep you posted on the situation. Domestic Partner Legislation Effective July 1, 2003, the intestate inheritance rights of a domestic partner will be the same as those of a spouse. The statute will not apply however, unless the domestic partners were registered as domestic partners as of the date of death. Registration must be made with the California Secretary of State, and the requirements for registration include that neither partner be married, that they have a common residence, and that they be the same sex, unless one partner is over the age of 62. Partners who are already registered with the Secretary of State should receive notice from the Secretary regarding this change in the law. This new legislation, while providing some protection to a registered domestic partner, should only be considered as a back-up to a good estate plan and not as an alternative. Asset Protection Due to the proliferation of lawsuits in this country, many of us are concerned about finding ways to protect our assets for our family and loved ones. A transfer of your assets in an attempt to hide them from a known creditor is a "fraud on creditors." However, protecting your assets prior to any known liability is perfectly fine. Our Seminar, "Feeling Unnerved? Get Those Assets Preserved!", set for May 8th, 2003 at 7:00 p.m., will cover various options for asset protection. We will discuss such asset protection options as Irrevocable Trusts, Alaska Trusts, Off Shore Trusts, Family Limited Partnerships, Limited Liability Corporations and others, including a discussion of when such options are appropriate as well as the costs and risks associated with each. We have also invited Michael K. Fiamingo, of Fiamingo Insurance, to speak to us about Umbrella Liability Insurance Policies and the protections these policies offer. We hope you will join us for this informative seminar to better protect yourselves and your loved ones. Fraud Alerts Living Trust MillsPlease be advised that the California Attorney General issued an alert on February 18, 2003 warning seniors about "living trust mills" and annuity scams. The alert can be read at www.ag.ca.gov/newsalerts. File online complaints at www.ag.ca.gov/consumers/mailform.htm. Remember, trust mill con artists try to make seniors believe their bank accounts are less safe than annuities or investments they're strongly encouraged to buy. Pretending to be living trust experts, such individuals work through assisted living centers, churches and other places where seniors gather. Sadly, more than a few seniors have paid large sums of money to dishonest agents who served only to damage their estate plans and jeopardize the security of their life savings. A recent internet fraud involves receiving a letter, supposedly from one of several highly-placed or wealthy individuals in the Congo (or other African or Middle Eastern country), asking for your "reputable" assistance in moving sums ranging from $10,000,000 to over $25,000,000 to your personal bank account. For this "selfless" act on your part, you will receive up to 10% of the money. Those who write these letters say your help is needed to move the funds out of the country, (which they cannot do themselves due to the murder or incarceration of their father, leader, etc. or for some other reason), and that without your immediate help the money will be lost or confiscated. Once your interest is piqued, they ask you to advance them some money, maybe $10,000 or so, for "minor" expenses. They will also "need" your bank account number in order to deposit the money into it. Needless to say, you will never see the fortune; you will be out any money you advanced, and you may have your bank account cleaned out. Remember, if something sounds too good to be true, it usually is! Thieves are using a new scam to empty their victims' bank accounts. Apparently, a clear plastic "sleeve" is placed into an ATM card slot, causing the machine to reject any given customer's card repeatedly. As the customer re-enters his card and pin number several times, a "plant" stationed behind him makes note of that information and uses it later to steal funds from the account. Avoid being duped by running a finger along the card slot before inserting your card. The rigid plastic sleeve has a couple of tiny prongs used by the thieves to remove it from the slot, so you will be able to feel these and either remove the sleeve or use another unit. The National Council on the Aging is launching a new website, www.benefitscheckup.org, which promises to be a helpful and money-saving service for people 55 and over. Those who visit the site will immediately learn which prescription savings programs a senior qualifies for and how to claim them. After completing a brief questionnaire, users will be able to view a personalized list of all benefits available to them, along with instructions on how to enroll. This fast, free, and confidential service debuts June 5th. For further questions, contact the N.C.O.A. directly at www.ncoa.org. back to top |
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