Valuable Estate Planning and Tax Tips from our Friends at the Jewish Community Foundation

10 Important Planning Thoughts for Year-End 2010

The following "10 Important Planning Thoughts for Year-End 2010" are not intended as specific tax advice but rather as a reminder of some of the issues you may want to raise with professional advisors before 12/31/10.


(1) There is no substitute for good professional advice.

Individuals are well-advised to consult with tax and financial planning professionals between now and year-end. Conversations with your estate planning attorneys and/or CPAs are essential. And the discussion should also include your financial planner or broker as well as a philanthropic advisor such as a Jewish Community Foundation planned giving professional. Decisions can be made now and implemented when most beneficial (after Congress acts or fails to act and before year-end).

(2) Run and re-run the numbers under different scenarios.

Tax projections are probably the most common year-end tool used by tax and financial planners estimating taxable income and potential savings using historical data, projected income and expenses and deductions, such as charitable contributions. The wild card this year is determining what the income (and estate and gift) tax rates will be for 2010 and 2011. Alternative scenarios will be necessary and adjustments in both projections and resultant planning strategies should be discussed early to allow for time for change where necessary.

(3) Traditional tax planning is probably not the only answer.

Most years, the mantra from most tax and financial planners is to "defer income to next year and accelerate deductions into this year." This may not be the best approach this year-end, especially if individual tax rates rise in 2011 and future years. The Obama Administration and many congressional Democrats favor letting the 2011 income tax rates rise from 35 percent to 39.6 percent for those making over $250,000 (married) and $200,000 (single). (Note that if Congress fails to act by year-end, income tax rates for all taxpayers would increase.) In addition, there are over 50 other individual income tax provisions in the tax code that could be impacted by tax rate legislation, some of which would have the effect of increasing individual taxes for many. For example, if the "phase-out" to itemized deductions, including the charitable contribution deduction, is reinstated in 2011, this might encourage some donors to accelerate some charitable gifts before year-end 2010. On the other hand, if an individual's tax rate will be substantially higher in 2011, it may be preferable to defer a charitable gift until January.

(4) Accelerate income to 2010.

If tax and financial planners conclude that the best strategy is to accelerate income into 2010 based on specific facts and circumstances, they may suggest certain "one-time-only" strategies such as accelerating receipt of bonus payments traditionally paid in January, generating dividend income or in some cases recognizing gains from certain capital gain assets such as from the sale of stocks and securities.

(5) Those with primarily portfolio income really need to pay attention.

Families with income generated primarily from dividends, capital gains, and other investment income should pay close attention to the year-end tax debate. The effective tax rate on significant dividend and capital gain income could more than double from 2010 to 2011 under some scenarios and as such, income acceleration techniques to maximize potential savings this year-end may be most appropriate. Some thoughts to consider: the after-tax cost to net $1.00 from long-term capital gain increases from $1.18 in 2010 to $1.25 in 2011 and $1.31 in 2013 and later years. The after-tax cost for $1.00 of dividend income could increase to $1.77 in 2013 under current tax rate proposals.

(6) Take advantage of stock market gains, if there are any.

If you have a donor advised fund or family support organization, a great way to add funds to it is through appreciated stock. With the tax rate on capital gains almost certainly set to increase as of January 1, 2011, tax and financial planners may recommend selling stocks and bonds that have appreciated in value. (Remember: for stocks with gains, there is no rule prohibiting investors from buying back the same asset shortly after the sale without adverse tax consequences for those who think there is a potential for future growth.) At least two other points to consider: (a) it is often more advantageous to gift appreciated assets to charity rather than selling the asset; and (b) capital loss carryovers will be more valuable when tax rates are higher (2011 and later years). Bottom line: review your entire portfolio when considering capital asset planning.

(7) This could be the year for a Roth IRA conversion.

There has been much written about converting traditional IRAs to Roth IRAs in 2010 as there is no income limit this year on who can qualify for this transaction. As with other income and estate tax planning, it is essential to run the numbers to see if this strategy makes sense. A further point to consider is that charitable giving can offset some of the additional taxes that will be generated by the Roth IRA conversion. Making significant charitable contributions before the end of 2010 may be a tax-efficient strategy, especially for those who have sufficient assets to pay the Roth IRA conversion and who will consider making what could be a larger than normal charitable donation this year.

(8) Don't forget basic estate planning, even in times of uncertainty.

Continued congressional deadlock over the estate and gift tax makes most crystal ball prognostication over the final outcome cloudy at best. But don't forget the basics such as taking advantage of the annual gift tax exclusion amount of $13,000 per donee ($26,000 where a spouse joins the gift). In addition, a variety of other estate planning techniques remain very attractive in the current low-interest rate environment including charitable lead annuity trusts.

(9) Don't forget about the alternative minimum tax.

For many middle and high-income taxpayers, the alternative minimum tax is an additional factor in tax planning scenarios, often requiring strategies that differ from those for the regular income tax. All things being equal, the AMT may be less of a factor in 2011 and future years if individual income tax rates increase. Again, it is essential to sit down and run the numbers to determine which planning strategies are most appropriate.

(10) Start the conversation with advisors as soon as possible.

Use the remaining weeks before year-end as a time to sit down with trusted advisors to review both short- and long-term charitable giving strategies and objectives. From a tax perspective, 2010 may represent the best time in almost a quarter-century for individuals to address their overall tax, estate, and philanthropic portfolio.

Who Has Standing to File a Petition for Nullity of Marriage?

This year our firm has been working on a nullity proceeding which has raised interesting questions of law with regard to third parties who have standing to file the Petition on behalf of a spouse. Our client filed a Petition for nullity on behalf of his grandmother, based upon the fact that at the time of the purported “marriage” to the 27 year old purported husband, his 80 year old grandmother was of “unsound mind,” and lacked mental capacity to enter into a marriage contract. A deposition of the Reverend who officiated the marriage revealed that upon request by the “husband,” he had issued a “confidential marriage license” to the couple. Several months after filing the Petition, our client’s grandmother passed away.

When we appeared in Court on this matter, the Court, on its own motion, posed the following question: Whether, during the pendency of a nullity proceeding and before entry of Judgment, upon the death of a Party, does the Family Law Court lose Jurisdiction to enter a Judgment of Nullity of Marriage. At that hearing, the Court asked the Parties to brief the issue and pay particular attention to the recent case of Pryor v. Pryor (2009) 177 Cal.App.4th 1448, which involved the well known actor/comedian Richard Pryor.

In the Pryor case, Richard Pryor had married Jennifer Lee Pryor in 1981 but then divorced her in 1982, without having any children with her. Twenty years later, on June 8, 2001, Richard and Jennifer remarried pursuant to a confidential marriage license. On December 10, 2005, Richard passed away, leaving behind six children. At some point after his death, one of his children, Elizabeth, discovered her father's 2001 remarriage to Jennifer and on July 17, 2007, a year and a half after his death, she petitioned to annul the marriage on the grounds of fraud.

As we successfully argued in our brief, the pertinent statutes, Family Code § 2210 and Family Code § 2211 reflect that our client clearly has standing because, as differentiated from the facts in the Pryor case, in our case (1) the Petition for nullity was filed several months before his grandmother’s death and (2) the nullity action was based on “unsound mind” and not on “fraud.”

Family Code § 2210 reads in pertinent part, as follows:

“A marriage is voidable and may be adjudged a nullity if any of the following conditions existed at the time of the marriage:...(c) Either

party was of unsound mind, unless the party of unsound mind, after coming to reason, freely cohabited with the other as husband and wife.

(d) The consent of either party was obtained by fraud, unless the party whose consent was obtained by fraud afterwards, with full

knowledge of the facts constituting the fraud, freely cohabited with

the other as husband or wife....” [Emphasis added].

Furthermore, under Family Code § 2211, the legislature has clearly delineated provisions for who has standing to file a nullity petition, and has provided different limitations periods, depending on the ground for annulment. These distinctions are expressly stated in Family Code § 2211, which reads in pertinent part, as follows:

“A proceeding to obtain a judgment of nullity of marriage, for

causes set forth in Section 2210, must be commenced within the

periods and by the parties, as follows:....(c) For causes mentioned

in subdivision (c) of Section 2210, by the party injured, or by a

relative or conservator of the party of unsound mind, at any time

before the death of either party. (d) For causes mentioned in

subdivision (d) of Section 2210, by the party whose consent was

obtained by fraud, within four years after the discovery of the facts constituting the fraud....” [Emphasis added].

In our brief to the Court, we argued that Family Code § 2211 reflects the legislature’s

intention that standing for nullity actions based on “fraud” [Family Code § 2210(d)] be limited to “the party whose consent was obtained by fraud.” By contrast, standing for nullity actions based on “unsound mind” [Family Code § 2210(c)], is extended to include relatives.

Additionally, the period in which to commence the action is limited differently for each cause upon which the nullity may be based. Specifically, a nullity action based on fraud is delimited by the period “within four years after the discovery of the facts constituting the fraud...." By contrast, a Nullity action based on “unsound mind” can be brought, “at any time before the death of either party.”

In our case, because our client was a relative and had filed the Petition within his grandmother’s lifetime and the nullity action was based on “unsound mind,” the trial court ultimately found that our client had standing to file the Petition for Nullity.
However, the trial court also ruled that although his grandmother was personally served with a copy of the Petition prior to her death, our client should have joined his grandmother (or her conservator) as a Party and had failed to do so. Accordingly, the Court ordered the case stayed until we joined the grandmother’s (as of yet, unappointed) personal representative. Appointing a personal representative for a person now-deceased is unusual, and, as explained below, in our case, this task fell to the Probate Court to accomplish.

In addition to the family law matter, our client is also in the midst of several probate cases concerning his grandmother’s $8 million estate. In the probate matters the salient issue is whether his grandmother had mental capacity to execute certain amendments made to her trust several years before her death. We have recently learned that our client’s probate attorney has successfully petitioned the Court to appoint a personal representative, and the Court has appointed a neutral party to so act.  We are grateful that the issue of third-party standing is now behind us and we look forward to taking this complex and interesting case to Trial.

Not So Happy Wanderer

Traveling to a new venue to argue against a motion in civil court. Has been 20 years since my law & motion days. I hope for a smart judge who has read my opposition and wish the best for my well-deserving clients.  This case arose from a probate case in an attempt to get a creditor's claim for funeral expenses paid.  The costs of litigation will soon be more that the amount of the claim, which is why, I guess, the defendant simply refuses to pay the bill.

Saddened by Mindless Killings of Medical Teamin Afghanistan

I read that members of a medical team gunned down in Afghanistan brought some of the first toothbrushes and eyeglasses villagers had ever seen and spent no time talking about religion as they provided medical care.  What has happened to people to be so callous about life?  And, on the other hand, what possesses other people to put the needs of others less fortunate in front of their own safety? Plus ca change, plus ne change pas.

Great Week for Acknowledging Freedom We Take For Granted

This week, Elena Kagan was confirmed as a centrist U.S. Supreme Court Justice without mention of her gender or religious preference in the midst of one of the most contentious partisan lack of sensibility in modern times.  Also, this week a Republican conservative federal judge upheld the concept of freedom as set forth in our federal constitution and included gays and lesbians as a suspect class subject to the protections of the 14th Amendment.  We also remember the 65th anniversary of the bombing of Hiroshima, a dark day for humanity, but a bright light for the future of democracy.  Take a moment to contemplate the true meaning for each of us on the passage of these events.

Wiping Hard Drives Clean

Almost all copiers and fax machines manufactured after 2002 have a hard drive that stores all images processed through the machine. Once you no longer own or lease your machine, the next user can view all of the images on the hard drive. Most trade-ins end up in foreign countries where they are recylced for re-use. Free software is currently available to the new users on the internet which provides them access to the hard drive. Although security and encryption software is available to the seller,it is rarely purchased. Thus we should never dispose of a copy/fax machine without absolute assurance that the hard drive has been DESTROYED or WIPED CLEAN.

A Strange Time for Life and Death

Life can be cruel and harsh.   Some lives cut short before their time.  Others linger on and on with ugly and debilitating illnesses and conditions.  Families suffer so much during those times.  We can all help comfort those in need and think about how to help others in meaningful ways much more than we do.  I will try harder to do so.

Why Every Adult Needs a Complete Estate Plan

Nearly eighty percent of Americans own a home and over fifty-five percent of American citizens have minor children living at home; yet less than half of the population of the United States has ever executed a will, much less the other necessary documents making up a complete estate plan.   Some of us may need long-term health care now or in the future, but clearly, since both death and taxes are certainties for all of us, finding ways to limit the amount of taxes your heirs or beneficiaries will have to pay after you are gone should be a priority, whether married or not, a parent or not, wealthy or not.  The estate tax threshold may be as low as $1 million in 2011 and the estate tax could be as high as 55%.  $1 million may seem like a lot of money but bear in mind that the amount of life insurance you have is added to your estate immediately upon death, so that $1million can quickly sneak up on you.  Also, it is not the net value of your assets that apply to the threshhold, but the gross, so if you have a mortgage worth even as much as your house, your estate will still include the fair market value of the property. 

The government taxes wages each year at somewhere between 20 and 35 percent.  After your death, the government will tax an additional 45 to 55 percent of what you managed to preserve in your estate.  Almost 80 percent of what you earn in your lifetime will go directly to pay your taxes unless you take the time and spend the money to work with an attorney and draft your estate plan.

There are five components to a basic estate plan.  A Will is a legal declaration by which a person names one or more other persons to execute or perform the duties required of him or her pursuant to the terms of the Will.  It provides for the transfer of his or her property at death as well as instructions for appointment of a guardian of children and even of pets.   An Advance Health Care Directive, sometimes known as a "Living Will," is a written document that states a person's wishes regarding healthcare decisions for you when you become unable to make them for yourself, as well as life-support or other medical treatment in certain circumstances, usually when death is imminent.  It also allows a person to direct  his or her agent as to burial wishes, autopsies, and anatomical gifts.  Finally, it should include your HIPAA designation, which allows certain designated individuals to have access to your medical records.  A General or Special Durable or Limited Power of Attorney is a written authorization to an agent to perform specified acts on behalf of his/her principal.  This estate planning tool makes it easier in transition to have a close friend or relative handle financial affairs without having to obtain a court order first in the form of a conservatorship.  Another time I will discuss ways in which a trust, of which there are many types, may help control your estate beyond your death as well as limit your tax exposure. If you have a spouse, a child, particular charities that you support, own a home, or want to leave behind a legacy of any kind, you need to talk to an attorney about getting your will and other estate planning documents in order. If you have one, but it is older than five years, you should wait no longer to have it reviewed.  It is so important that this task is not put off any longer. None of us can control how much time we have left but we can control how our loved ones are left behind.

Wit and Wisdom from a Wise Financial Planner

Aspirations Realized       By Colin S. Mackenzie, CFP ®

There are moments that stick with you for a lifetime. I’d like to share one such moment among many that I have been blessed with over the years. During the years I spent working in the Home Office of Financial Network, there were a wide variety of assignments that caused me to call offices around the country to research various issues. One of these projects put me in touch with several very good people who support advisors.

One lady, Sandy had been selected because she runs interference for one of the most successful financial advisors in the country. During our conversation she revealed that this advisor is a very smart man and rewards productive people who help him leverage his time. What really got me though was Sandy saying that by saving her bonuses it allowed her “to buy much more of a Harley than I ever thought I would be able to buy!”.

Good for You!

Though I was a little surprised, it was the deep sense of satisfaction that she could realize her dream…..and it was within her means….. that impressed me most. Her “Dream/Big Purchases Bucket” had been filled high enough that these funds could be poured out to acquire something that brings her the joy of the open road, something very meaningful to her.

Ever notice that the things that seem to provide the deepest and greatest satisfaction are things that require focus, determination, patience, sacrifice and follow through? Only the things that stir people deeply can inspire that type of prolonged effort. Each reader has done this to one extent or another for something important to them. As friends from New Zealand or Australia might say: “Good on ya mate!”

Honesty

In client meetings I will often see where conversation and thought takes us. In one meeting with a very dear client I was led to ask the question: “What is all the money for?”. After lightly complaining that I ask very difficult questions, she said that the money was there to share experiences with people she loves. It was an interesting moment of clarity for her and also of honesty with what is most important to her.

Once you have that jewel of what is most important (or what couple of things are most important), then you can proceed to develop specific dreams to honor what is important to you. Specific dreams are things of beauty and are most compelling when you visualize them coming true as vividly as possible.

While we are on honesty and dreams at the same time, we need to keep balance in mind too. At some dollar figure a specific dream may not be wise. The wisdom comes in when creativity takes over and modifies the specific so that it is attainable. If owning a Lear Jet was a dream, then perhaps renting one on occasion might be a way to satisfy the dream, in a way that is more attainable.

Get Inspired

Some of the most inspirational dreams I hear from people have very little to do with travel or possessions, rather they can involve making the world a better place and caring for others. A client of mine will become a grandmother this year and her current number one dream is a college education for her grandchildren.

At church, my wife and I heard an interesting story from Rick Warren the minister at Saddleback Church and the author of “The Purpose Drive Life”. Rick’s dream years ago was to lead off the capital campaign to build their Lake Forest campus with a quarter of a million dollar donation of his own. Only one problem, his salary wouldn’t come close and he hadn’t written the book yet. Interestingly enough, the book was finished just before the campaign began and the initial payments he received allowed him to realize the dream of that contribution. Faith can truly be a powerful thing.

It Doesn’t Take a Windfall

Most of us (even those who write newsletters) may not receive windfalls that allow us to realize our dreams quickly. The time frame is less important than identifying what your dream is and beginning a systematic way to save and invest for it. For instance, one of my dreams is to provide a good amount of funds for my daughter (age 28) to get married, if she meets the right man one day. The equivalent of the cost for about 2 guests is being invested in her name each month for the next 4 years to help realize that dream.

What specific dreams do you have? How much will need to go into your “Dream/Big Purchases Bucket” to have enough to realize that dream when the time comes? How much needs to be set aside each month for that dream to come true.

Bottom Line - In this and the two previous issues we covered three of “The Four Buckets”. (If you would like me to send you those issues again just let me know.) Where the other two dealt with life’s every day and emergency costs, this issue goes well beyond those mundane requirements to “pay the bills”. This “Bucket” truly is ours to use to express what we love and want most. To get the most from your “Dream/Large Purchase Bucket” you will want to:

• Be clear about what is most important to you

• Use that clarity to develop a mental picture of a specific dream you would like to realize

• Identify what resources are necessary to realize the dream

• Begin a systematic way to develop the necessary resources

Life doesn’t always allow us to realize all of our dreams, still your life will be a little more full as you aspire to the fulfillment of certain dreams.

Your Feedback

I would love feedback on this newsletter. Future issues may include a host of good ideas, insights, specific steps to take financially, life insights and of course "Wit and Wisdom". Most importantly, I’d like it to be of value to you and to encourage an exchange of great ideas and insights. Please send your feedback to:

Colin S. Mackenzie, CFP ®
Financial Network
301 E. Colorado Blvd, #400
Pasadena, CA 91101
mackenziec@financialnetwork.com
(626) 795-8896

Finding Time for Life and Sharing Life with a Companion Animal

Every day so many problems come across my desk to solve.  Yet I cannot solve the problem of time passing by at an ever-increasing rate of speed.  I have been looking for dogs to share my life with and allow me a more appropriate balance between my work life and my personal life.  Not any easy task when I am so busy and so rarely at home; and I have plenty to take care of between my work, my home and my family.  Nevertheless, sometimes I feel that I am on call all the time thinking about how to solve other people's problems and am not devoting enough time to doing what I need to do to fulfill my asperations.  Just being me and caring for a companion animal who doesn't judge me and loves me unconditionally is very important to me.  Anyone reading this who loves animals will understand.  If you have animals, please don't forget to include them in your estate plans, now that pet trusts are legal.

Spring 2010 Newsletter Hot Off the Press

Cooper-Gordon LLP nvites you to read the most recent newsletter written by Frieda Gordon and Avery Cooper which can be found at their website http://www.cooper-gordon.com/. Photos have also been included in the newsletter.

AVERY COOPER A HUGE SUCCESS IN INDIAN WELLS SEMINAR

Avery Cooper presented a program on Crossover Issues Between Probate and Family Law related to Transmutations along with another distinguished family law specialist from San Francisco and Judge Mitchell Beckloff, sitting as Supervising Judge of Probate Court in Los Angeles.  This was part of a larger 3-Day Seminar brought every Spring for 20 years by the Association of Certified Family Law Specialists, composed of members throughout the State of California.  It was held in Indian Wells, California at the luxurious Hyatt Grand Champions Hotel and Spa.  Avery has proven himself to be one of the leading specialists not only in family law, but in probate and estate planning as well.  He brought up many important issues for family law attorneys to be aware as they prepare prenuptial agreements and review various issues with new clients.  The laws regarding community property differ depending on whether the parties are getting a divorce or one of them dies.  Rather than have to pay for two and sometimes three or four attorneys to handle the various specialities overlapping family law, such as probate, estate planning, real estate and tax matters, Avery Cooper as well as his partner Frieda Gordon are very experienced in all of those matters and will be knowledgeable enough to ask the right questions so that the client will be completely protected and informed.

Congratulations to Avery for a job extremely well done!

Web Traffic for Cooper-Gordon Firm Doing Well

After a lovely meeting with our FindLaw marketer, Dyonne Wollin, I was happy to learn that we have a very high number of hits to our web site, of which I am very proud.  I would love to hear from anyone visiting our web site, and this blog, whether they like the web pages and whether some changes might improve the site and/or my blog.  We are grateful for your responses, both positive and constructively critical.

Happy New Year from all of us at Cooper-Gordon LLP.

Where Oh Where Has the Estate Tax Gone?

A virtual Black Hole was created for all of us who have, or intend to create an estate plan this year. As of January 1, 2010 our federal estate tax laws were repealed. However, only persons dying on and after January 1, 2010 but no later than December 31, 2010 will be affected. It may be comforting to note that Senate Finance Committee Chairman Max Baucus has pledged that the Senate will pass a bill reinstating the tax, which has passed through the House of Representatives in legislation previously passed on December 3, 2009, but this fact still leaves us with the question of whether a retroactive reinstatement of the federal estate tax will survive constitutional scrutiny for persons dying on or after January 1, 2010, but before the date of the bill’s passage and signing by the President. Best solution is to see your estates and trusts professionals and do whatever it takes to shelter your assets from estate taxes now, rather than later.

Time to Review and Fund the Assets in Your Estate

Every five to seven years it is wise to review your estate plan, and if there has been any life-changing events, or large purchases, divestments or inheritances, or if you no longer speak to the person(s) you listed as next in line to make the most important decisions of your life for you when you are no longer capable of doing so yourself, it is time to contact your estates attorney and get your estate plan modified. Should you be among the majority who have put off that very important task too long, let this be a reminder that it is NEVER too soon to take care of those near and dear to you.

I was saddened recently to learn that a client of mine passed away, having done all he could to preserve his estate and provide for his intended beneficiaries. Unfortunately, the person he chose as Trustee did not change title to the liquid assets in the estate, thus negating one of the best the reasons for the Trust in the first place. At some cost, I am in the process of rectifying that situation. Please do not be one of those who forgets that every asset that should be in the trust must affirmatively be transferred to the trustee of that trust. It does not happen automatically!