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Many people neglect planning their estate, creating a will or trust and thinking about the inevitable. Much of this is due to the fact that people are not especially pleased to discuss their own death and the misconception that estate planning is only for the wealthy. However, everyone needs an estate plan especially parents with minor children. Irrespective of how large or small your estate is, if you have a child under the age of 18 you need an estate plan.

At a bare minimum, we at Burt + Clerc, advise new parents to have a Will, a Durable Power of Attorney and an Advance Health Care Directive.

Will
A will is a written document that outlines your wishes regarding how you want your property distributed when you die. Importantly for parents, it can also outline who you wish to nominate as guardian of your minor children. Knowing who will care for and raise your children is a huge comfort to many parents. Nominating a guardian also helps make the transition for everyone, including children and family relatives, must easier.

Durable Power of Attorney (DPOA)
A DPOA allows you to nominate an agent to act on your behalf regarding finances. This document is important if you should become incapacitated or unable to make these decisions yourself. For parents this is especially important because if a parent becomes incapacitated the agent will be able to pay for the child’s health, education and other needs.

Advance Health Care Directive
An Advance Health Care Directive, also known as a living will, outlines your desires and wishes regarding health care decisions and end-of-life care. This document can sometimes be the hardest to complete but necessary and important. Ambiguity regarding your heath wishes can cause much confusion and consternation among family members. This is magnified when a parent has minor children. Every parent should think about their inevitable passing and what their wishes are regarding end-of-life care. You should share this document with your spouse and/or family and your health care provider.
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Common assets that are overlooked in most estate plans are digital assets. Nearly everyone today has some kind of online account. Whether it is online access to bank accounts, emails, photo albums, social media or shopping, all digital assets should be considered when creating a comprehensive plan.

Unfortunately, without the proper planning, digital assets can be very difficult to manage after a person dies. Most companies will only allow the family of a deceased person to close out accounts but they will not allow access to any of the information. Online photo albums and facebook profiles can be lost and all the information along with it. Email address and contacts will be inaccessible. This may all seem trivial until you need to gain access to one of these accounts and they are unobtainable.

As part of your estate plan, you should consider what you would like to happen with your digital assets when you pass away. Would you like to give access to your Successor Trustee or Executor? Would you prefer a family member or friend to handle them? Alternatively, would you like a third party to manage and close them?

Consider the following suggestions for all digital assets:

■ Tell your family about your wishes and give them an overview of the types of accounts you have.

■ Create a list of all your accounts along with usernames and passwords and include this in your estate planning documents.

■ Contact a company such as Entruted, Legacy Locker or DataInherit that will manage and distribute your digital assets when you pass away. Some can also send out messages to all your contacts and/or social media friends.
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For family members, lawyers and accountants of heirs of decedents dying in 2010, there is some relief from the IRS regarding filing requirements. On March 31, 2011 the IRS issued a statement explaining that the new Form 8939 will not be due on April 18, 2011. Instead, the form will be due in the near future but would allow for reasonable time for administrators of estates to prepare and file the form. Currently, there is no final version of Form 8939 available for administrators to use and previous statements from the IRS have indicated that the form will be due 90 days after the final version is released.

Form 8939 allows administrators of estates to opt-out of estate taxes. Since the United States has effectively had some form of estate taxes since the late 1790s, this comes as a foreign concept to many accountants and lawyers. The new form allows administrators to allocate basis of property acquired from a decedent for income tax purposes. Additionally, because it is an “opt-out” process, certain estates may choose to “opt-in” to the current estate tax laws. The current laws allow an exemption of $5 million and thus it is only estates valued at over that amount that would benefit from the “opt-out” procedure.
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Thumbnail image for Courthouse.JPGProbate is the legal process of transferring property after a loved one has passed away. It requires a petition to the Probate Court as well as various other forms and court hearings. Most Coachella Valley residents would rather avoid probate altogether because there are some serious drawbacks of having your estate administered through the court. Most notably, the reasons to avoid probate are:

Costs
The attorney fees for administering a probate case are outlined by statute and based on the gross value of an estate. The following are the statutory fees:
4% first $100,000 3% next $100,000 2% next $800,000 1% next $9,000,000 ½ % next $15,000,000 Therefore, an estate with a gross value of $500,000 will pay attorney’s fees in the amount of $13,000.

Privacy
Since a probate is a court process, it is entirely public. Anyone who has the time or desire can walk up to a court clerk and request to see your documents. This includes your last will and testament. Additionally, a notice about the probate case must be published in a local newspaper. Most individuals would rather have their estate administered privately and without court supervision.

Time Consuming
The statutory minimum length of a probate in California is four months long. However, due to court calendars and issues with court reporting requirements, most probate cases last between nine to twelve months. This means that your estate cannot be distributed quickly and any bequests outlined in your will cannot be carried out timely.
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An interesting piece by Lewis Saret in Forbes outlines the Treasury Department’s estate tax proposals for 2013. Coachella Valley residents should take note of these proposals since they are significantly different from our current laws expiring in 2012. Notably, the proposals include:

-Bringing back 2009 levels for estate, gift and generation-skipping transfer (GST) taxes -Requiring a minimum ten-year term on GRATS -Permanently allowing “portability”

Estate/Gift Taxes
For 2011 and 2012, the gift and estate tax exemption amount is $5 million and the tax rate is 35 percent. The proposals suggest returning to 2009 levels which included a $3.5 million exemption for estate taxes, $1 million exemption for gift taxes and a maximum tax rate of 45 percent. Although this change will likely face considerable difficulty in Congress, sophisticated estate planning attorneys should nonetheless take these proposals into consideration when drafting new estate plans.

GRATs
Grantor retained annuity trusts (GRAT) are a common technique loved by attorneys and clients alike to transfer wealth free from estate and gift taxes. An important requirement is that the grantor must survive the term of the GRAT. This has traditionally been overcome by the use of very short term GRATs (usually three years). However, the new proposal would mandate that all GRATs have a minimum term of 10 years.

Portability
Portability is the notion that a surviving spouse can use their predeceased spouse’s unused gift or estate tax exemption in addition to their own. Effectively this gives surviving spouses much greater exemption amounts upon their death. The current laws allow for portability but this technique is set to expire at the end of 2012.
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Palm Desert taxpayers will be affected by the new tax laws enacted after much debate and Congressional theatrics at the end of 2010. Many of the sunset provisions of 2010 have been temporarily extended while new laws for gifts and estate taxes have been imposed.

An important note to highlight is that many of the following provisions are temporary. They are currently set to expire at the end of 2012 at which time they will revert back to 2001 levels. This potentially means we may have to endure another Congressional battle similar to last year’s debacle but this time it will be in the middle of an election year. Due to the changing nature of these laws, it is imperative that you ensure that your estate plan conforms to current laws.

Estate and Gift Taxes

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