California Tax Attorney Blog

Tax planning for family wealth transfers and California-based family owned businesses is complex and requires input from qualified advisors. Self-study may also be important: A resource for family business executives includes Fambiz.com.

That site covers topics in depth such as:

Asset Protection

Estate Planning

Family Business Trends

Inter-generational Issues

Shareholder Agreements

Strategic Planning

Succession

Tax Issues

Transfer of Ownership

Valuation

Women in Family Business

Use the Family Business Search engine to find a multitude of articles that can be searched by subject. A great resource for owners and executives of California's family businesses.

To talk to a California attorney about these and other business succession topics, call Mitchell A. Port at 310.559.5259.

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Californians making gifts often believe the federal gift tax is paid by the recipient/beneficiary. Unfortunately, it is the one making the gift who pays the tax. Tax free gifts are possible, however.

An estate planning attorney in Florida, David M. Goldman, has a good article on the taxation of gifts and how to make tax free gifts. Those of us living in Los Angeles County, Orange County, Santa Barbara County, Ventura County and throughout California come within the rules explained in Mr. Goldman's article.

To discuss tax free gifts, taxable but tax efficient gifts or other estate planning topics, please call Mitchell A. Port, an estate planning attorney, at (310) 559-5259.

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GRATs
Grantor Retained Annuity Trusts can "leverage" your Applicable Credit and allow you to gift more at less tax cost.

QPRTs
How a Qualified Personal Residence Trust can save gift and estate taxes.

FLPs/LLCs
Using Family Limited Partnerships and Limited Liability Companies to facilitate estate planning.

Intentionally Defective Grantor Trusts
IDGTs used as an estate freezing device. You create a trust which is defective for income tax purposes (but not for estate and gift tax purposes) for the benefit of children and/or grandchildren. You sell assets (stock in a closely held or family business, real estate, marketable securities, limited partnership interests) to the trust in exchange for an installment note with interest. IDGT works best if the sold assets are subject to discounts in determining their fair market value and if it is expected that the sold assets will appreciate in value at a rate greater than the interest rate payable on the note.

Charitable Trusts
A charitable remainder unitrust or annuity trust can provide income and estate tax benefits, avoid capital gains tax and provide funds for research, helping the needy or other philanthropic goals.

Private Foundations
Private foundations can be a philanthropic legacy for wealthy donors.

To discuss these and other estate planning techniques, call Mitchell A. Port, a California tax attorney in Los Angeles, at (310) 559-5259.

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The "Property & Probate" online magazine of the American Bar Association published an article by attorney Stephanie B. Casteel of Atlanta, Georgia, entitled "Estate Planning for Pets".

Estate planning topics include:

Traditional Estate Planning Options

Outright Gifts

Traditional Trusts

Fiduciaries
Terms
Distributions
Funding
Remainderman
Identification of Animal

Euthanasia

Charitable Remainder Trust

Statutory Pet Trusts

Federal Law and Tax Consequences

Income Tax
Estate Tax

Here's an interesting excerpt from the article:

"Pets are valuable members of a client’s family, as illustrated by Leona Helmsley’s $12 million bequest to a trust for her dog, and it is important for the practitioner to address the care of the client’s pets in the event of his or her earlier death. Regardless of whether the client’s jurisdiction has enacted legislation allowing the creation of statutory pet trusts, clients may make outright bequests of their pets to a trusted caregiver or establish a traditional trust for their pets’ care. Many states are enacting statutes recognizing and enforcing trusts the beneficiaries of which are pets. Accordingly, it is important for practitioners to consider the available estate planning techniques and the factors that contribute to a plan that ensures the care and protection of a client’s pets."

If you would like to set up a trust like this, please call attorney Mitchell A. Port at (310) 559-5259 to discuss it.

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California probate law says that if the person who died left property worth $100,000 or less, then the proper person may claim the property without using the probate court in Los Angeles County, Ventura County, Santa Barbara County, Orange County or any other county throughtout California.

Here is what the California Probate Code provides to avoid probate:

If the gross value of the decedent's real and personal property in this state does not exceed one hundred thousand dollars ($100,000) and if 40 days have elapsed since the death of the decedent, the successor of the decedent may, without procuring letters of administration or awaiting probate of the will, do any of the following with respect to one or more particular items of property:

(a) Collect any particular item of property that is money due the decedent.

(b) Receive any particular item of property that is tangible personal property of the decedent.

(c) Have any particular item of property that is evidence of a debt, obligation, interest, right, security, or chose in action belonging to the decedent transferred, whether or not secured by a
lien on real property.

Continue reading "Avoid Probate In California" »

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Of the many probates I work on as a probate lawyer in Los Angeles County, Ventura County, Santa Barbara County and Orange County, California, I often am asked before starting work what can my client look forward to spend for the entire matter.

California probate costs are fairly standard since the procedures are uniform throughout the State. Other articles on this subject include:

"Los Angeles Times Discusses Estate Planning And Probate"

"California Probate Court - Court Rules"

"California Probate Costs"

Here's a breakdown:

The cost to file for probate is $320 no matter what is the value of the estate. Before the law changed in March, 2008 when the California Court of Appeal issued its ruling in the Estate of Pierre P. Claeyssens, eight different incremental amounts were charged as filing fees and the schedule can be found here.

Next, a publication fee is charged by the local newspaper where the decedent died which announces the person’s death and how interested persons can contact the attorney, executor or administrator. The cost to run legal notice depends on the area, but fees can generally be between $350 to $500.

An appraisal by a court-appointed independent third party (a probate referee) is necessary if there are real property or other non-cash assets in the estate. The probate referee ordinarily charges 1/10 of 1% of the appraised value in each case plus miscellaneous charges (e.g., mileage, photos).

Often a bond must be posted by the executor or administrator to insure that if the value of the probate property declines as a result of the executor’s or administrator’s misconduct, a bond will make the estate whole again. Obtaining such a probate bond can be costly and depends on the value of the property subject to the bond. If there is a Will and if it waives the bond requirement, then the California Probate Court will often - but not always - waive the bond.

The costs of paying the mortgage, property taxes and homeowner's insurance for the real property need to be paid as well so as to avoid foreclosure by the lender or the imposition of a lien by the local tax authority.

Attorney's fees are also based on the value of the gross estate. The fee is calculated based on a statutory formula. The fees are 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000, and 1/2% of the next $15,000,000. For estates larger than $25,000,000, the court will determine the fee.

The fee for the executor or administrator is the same fee based on the same rate as attorney's fees are calculated. Fee discounts are subject to the probate attorney's, executor's or administrator's discretion.

To discuss this and other probate questions, call Mitchell A. Port at 310.559.5259.

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I read an ad and it went something like this:

"There's really no difference between law firms."

Many people believe that Los Angeles law firms are pretty much the same. I don't. I believe that what separates me from the pack is not what I do, but how I do it - aggressive not conservative, team player and not a one-man-band, problem solver not just a legal practitioner. My clients clearly understand and value this difference. How can I help you? Contact Mitchell A. Port at (310) 559-5259.

I liked this because it describes me and my practice. If you need help with probate, Wills, living trusts, powers of attorney, tax problems or business transactions, please call me for your consultation.

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Posted In: Tax Controversy , Probate , Estate Planning , Business Transactions

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Consumers have been warned in the past on the fraudulent use of the IRS name or logo by scammers trying to gain access to consumers’ financial information in order to steal their identity and assets. The Internal Revenue Service has issued several recent warnings with a lot of detail on how to prevent being scammed. When identity theft takes place over the internet, it is called phishing.

Phishing (as in “fishing for information” and “hooking” victims) is a scam where internet fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity. Current scams include phony e-mails which claim to come from the IRS and which lure the victims into the scam by telling them that they are due a tax refund.

Identity theft is somewhat different that phishing since it can not only be committed through e-mail (phishing) but it can also be done by other means such as regular mail, fax or telephone, or even by going through your trash.

Here are some of the warnings provided by the IRS on such scams:

IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting

IRS Warns of New E-mail Scam Offering Cash for Participation in “Member Satisfaction Survey”

IRS Warns of Phony e-Mails Claiming to Come from the IRS

IRS Establishes e-Mail Box for Taxpayers to Report Phony e-Mails

Identity Theft and Your Tax Records

As soon as the IRS learns about designs involving use of the IRS name, it tries to alert consumers as well as authorities that can shut down the scheme. The most recent schemes are listed below.

Continue reading "Identity Theft, Phishing And Your Tax Information" »

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The State Bar of California has a publication free for downloading called: "When You Become 18: A Survival Guide For Teenagers."

Once our children become adults, they may need to have their own set of legal documents to address their incapacity and where their property will go should they die too young. An earlier blog post discusses the benefit of having a California advance health care directive for young adults.

Speak with a California estate planning attorney about this and other tax topics. Call Mitchell A. Port at 310.559.5259.

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During their marriage, the Stevenses purchased a dilapidated investment property in Chicago. (Investors are making similar purchases in Los Angeles, Ventura, Santa Barbara and Orange Counties, California, all of which may lead to a similar outcome as occurred in Chicago.) The couple borrowed $256,000 for the purchase of the property, only to realize shortly thereafter that not only did they not like each other, but they also could not make the payments. Rather than falling into foreclosure and ruining their credit, they entered into a short-sale agreement with the lender and, in 2003, found a buyer willing to purchase the property for $200,000.

Even though the lender had informed the Stevenses that they would report the discharge of indebtedness to the Internal Revenue Service and had mailed separate letters to Mr. Stevens and his ex-wife informing them of the exact dollar amount, neither reported the discharged indebtedness as income on their tax return.

Generally, a taxpayer must include income from the discharge of indebtedness under Section 61(a)(12) of the income tax regulations. However, there are exceptions to this rule. Section 108(a) provides that a taxpayer may exclude income from the discharge of indebtedness if the discharge occurs in a bankruptcy case, or when the taxpayer is insolvent, or if the indebtedness is qualified farm or business real estate debt.

The IRS determined and the Tax Court agreed that in addition to the tax deficiency, a 20 percent accuracy-related penalty under Code Section 6662(a) to be applicable because Mr. Stevens understated his income tax by $21,323 on his return. Because Mr. Stevens’ understatement of tax was greater than 10 percent of the tax required to be shown on the return or $5,000, the understatement was a substantial understatement of income tax pursuant to Code Section 6662(d)(1)(A). Mr. Stevens argued that he should not be held liable for the penalty because of his reliance on Ms. Stevens to report all of the relief from indebtedness income (Form 1099-C income) from the cancellation of indebtedness on her income tax return since both Forms 1099-C were mailed to her address.

The argument that Mr. Stevens had relied on his ex-wife to report the income from the indebtedness did not hold water with the Court.

The Tax Court concluded that Mr. Stevens failed to show that his reliance on Ms. Stevens’ reporting the full amount of income and paying the requisite tax on that income was reasonable. Mr. Stevens admitted that he knew Ms. Stevens had received both Forms 1099-C and that the amount at issue, $74,494.96, should have been reported--either in full or in part--on one of or both of the Stevenses’ returns for that year. The record is silent as to any facts that would have led to a reasonable assumption on the part of Mr. Stevens that he was not responsible for reporting the amount contained on the Form 1099-C in income.

The lesson, of course, is not to trust your ex-spouse to pay your taxes. The Court did state that Mr. Stevens could look to civil remedy against his ex-wife, as they did own the property as joint tenants and should be equally responsible for the declaration of the income tax.

You can read the entire Court decision here.

Need help negotiating with the IRS the amount of tax to be paid on relief from indebtedness income? Call tax attorney Mitchell A. Port at (310) 559-5259 for tax help.

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Estate tax audits continue to be scattered across the country. With the drop in the number of federal estate tax returns expected to be filed because of the increased filing threshold resulting from the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, the IRS offered voluntary early retirement to many Estate and Gift tax employees across the nation.

A great deal of employees accepted the buy-out and thereby created a coverage problem for local audits. The workload nevertheless has to be handled.

Here is a list of estate tax managers and their contact numbers located throughout the U.S.:

ESTATE TAX MANAGERS

Kym Taborn
Van Nuys, California
(Covers Los Angeles)
818 756 4522

Janet Holman
Oakland, California
(Covers Oakland, Los Angeles, San Jose)
510 637 4557

Ralph Perez
New York
212 436 1114

Virginia Hunt
New York
(Covers Albany, Syracuse, NYC)
212 436 1145

Faiza-Vardag-Muzaffar
New York
212 436 1094

Patrick Leahy
New York City
212 436 1146

Stephen Gordon
New York City
212 436 1082

Thomas Fleming
Boston
(Covers MA, ME, NH, VT)
617 316 2326

Richard Murray
Boston
(Covers MA, CT)
617 316 2328

Louis Kaufman
Philadelphia

(Covers PA, DE)
215 861 1585

Elliot Pleener
New Jersey
(Covers NJ, MD, DC, VA)
973 993 7401

Vacant
Trenton N.J.
(Covers International)

Elizabeth Williamson
NC
(Covers NC, VA)
336 378 2873

Martin Horn
Nashville
(Covers AR, GA, TN)
615 250 5573

George Dewey Jacksonville
Jacksonville
(Covers SC, N&C. FL)
904 665 1300

Martin Basson Plantation
Plantation
(Covers S. FL)
954 423 7232

Elaine McCarroll
Cleveland
(Covers MI, Cleveland OH)
216 520 7170

Donald Grigsby
Cincinnati
(Covers IN, KY, Roanoke, VA, OH)
513 263 4071

Frederick Herzog
New Orleans
(Covers LA, OK, MS)
504 558 3245

James McMullen (Acting)Chicago
Chicago
(Covers Chicago & Milwaukee)
312 566 2207

Jerry Voeller
St. Paul
(Covers MN, CO, SD, MT, ID)
651 312 7757

Vacant
MO, IA, S. IL

Michelle Moser
Omaha
(Covers KS, MO, NE, New Orleans)
402 221 3779

Lee Schwemer
Ft. Worth, TX
(Covers Dallas, Ft. Worth, Lubbock)
817 759 2900 x 620

Vacant
AZ, San Diego, Laguna Niguel

James Hammerstrom
WA
(Covers WA, OR, HI)
425 468 6009

Kyle Martin
Oakland, CA
(Covers UT, Denver, San Jose, Bakersfield)
510 637 4549

Toby Stewart
Houston
(Covers NM, Houston, Austin)
713 209 4415

If you have an estate tax problem, call Los Angeles estate tax attorney Mitchell A. Port at 310.559.5259.

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The Washington Post online ran an interesting story about estate planning with the use of a post-nuptial agreement. The article featured a couple as they were inching toward the edge of the divorce cliff.

Here is an excerpt:

Now they are starting over. They've settled their arguments over money. They've divided up some of their assets. They are maintaining two households but agree to try to spend no more than 10 days apart in a month. They are about to celebrate their 40th wedding anniversary. "Deep down we really do love each other," she says. "If you once loved in a passionate way, you can reclaim that."

The news is the tool this 60-something couple used to reclaim their marriage: the post-nuptial agreement.

The post-nup is a contract signed during marriage to manage financial affairs and divide income and assets in the event of death or divorce.

One purpose of the post-nup is estate planning. "That is a perfectly good reason to do it," says Jeff Atkinson, principal author of "The American Bar Association Guide to Marriage, Divorce & Families" (Random House, 2006). It is a way to direct retirement benefits to children of a previous marriage, or to an adult child with special needs.

For a further discussion of this technique, call a California estate planning attorney, call Mitchell A. Port at (310) 559-5259.

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