California Tax Attorney Blog

In California, if you die without a will or if all you have is a will and you don’t have a living trust, your estate will probably have to go through probate. The Courts in Los Angeles County, Santa Barbara County, Ventura County and Orange County (as well as all the other counties in California) will oversee the probate of all the property that you owned at the time of death such as real property, personal property, bank accounts, investment accounts, etc. But there are some exceptions. You may have in your estate some assets that do not go through probate in California. These are some of them:

Payable on Death Accounts (POD accounts). This is a type of bank account where you choose a beneficiary who will receive the account without probate when you die.

Life Insurance Policies and Retirement Accounts – like an IRA. The death benefit from the life insurance and IRA benefits payable to named beneficiaries automatically pass to them and avoid probate.

Property held in joint tenancy. Many Californians who happen to be married own their home in joint tenancy with their spouse. When a joint tenant dies, the other joint tenant inherits the property without going through the probate process.

Another way you can avoid probate is to transfer your assets into a revocable living trust. Assets which have been transferred into the name of the trust are non-probate assets. Contact an experienced estate planning lawyer if you would like more information about a living trust. Call Mitchell A. Port at (310) 559-5259.

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As a California probate lawyer in Los Angeles, I have seen time and again that do-it-yourself wills – cheap wills – “simple” wills - are a probate attorney’s dream. Over and over again I have seen the damage that self-written wills have done to well-intended people that bought stationary and tried to do it themselves. Instead of giving their money to their beneficiaries - the beneficiaries end up fighting over the vague terms of the document leading to an unnecessary loss to the estate. If you don’t believe me, read this article to find out more about the disputes that arise over off-the-shelf wills.

Avoid these mistakes by working with a qualified tax attorney to discuss your estate plan, that is, your living trust, pour-over will, durable power of attorney and advance health care directive. Call Los Angeles attorney Mitchell A. Port at 310.559.5259.

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Whether you live in Los Angeles, California, anywhere else in California or across the U.S., if you get a letter from the IRS you must respond appropriately and timely. Here's a sampling of some of the letters commonly used:

Collection Letters

Letter 11 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing

Letter 1058 – Final Notice Reply Within 30 Days

Letter 1085 – 30-Day Letter Proposed 6020(b) Assessment

Letter 3172 – Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320

Examination Letters

Letter 525 – General 30 Day Letter

Letter 531 – Notice of Deficiency

Letter 692 – Request for Consideration of Additional Findings

Letter 1153 – Trust Funds Recovery Penalty Letter

Letter 1389 – 30 Day Letter, Tax Shelter Activity

Letter 3016 – IRC Section 6015 Preliminary Determination Letter (30 Day)

Letter 3391 – 30-Day Nonfiler Letter

Letter 3727 – 30-Day Letter Notifying Taxpayer No Change to Original Report Disallowing EIC Based on Failure to Meet Residency Test for Children Claimed

Letter 3728 – 30-Day Letter Notifying Taxpayer No Change to Original Report Partially Disallowing EIC Based on Failure to Meet Residency Test for 1 Child

Notices

CP 90 – Final Notice of Intent to Levy

CP 92 – Notice of Levy upon Your State Tax Refund

CP 242 – Notice of Levy upon Your State Tax Refund

CP 523 – IMF Installment Agreement Default Notice

CP 2000 - You receive this letter when the IRS receives income, deduction or credit information that does not match your return.

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Want to contest a California Will? Do you believe the terms of the Will should not be enforced? A Will can be contested and invalidated for a variety of reasons, not all of which are included here.

Undue Influence. Although there are several tests for undue influence, it boils down to a confidential relationship between the testator (will drafter) and the influencer and suspicious circumstances. Suspicious circumstances can be shown by procurement of a will, secrecy, no independent advice by the testator (person who executes the will), an unnatural or unjust gift, susceptibility to influence, haste in the signing of the will, or a change in attitude.

Menace. Menace is essentially blackmail. Menace can be shown by threat of unlawful and violent injury to the person, property or character of any person and will invalidate a will if it was used to coerce a transfer or prevent someone from changing a testamentary document.

The testator may lack capacity. In California, the person must be 18 years of age and of sound mind. The fact situations are often varied, but often the person does not understand the nature of the testamentary act sometimes because of dementia, or lacks the ability to recall the nature of the individual’s property.

Fraud. Fraud may be actual or constructive. Actual fraud generally can be intentional if a person tells a lie, suppresses a fact, or makes a promise without intent to perform. Constructive fraud is a breach of a duty with fraudulent intent to gain advantage to another’s prejudice.

Duress. Although the rule is stated differently in California, duress may invalidate a will if a transfer is obtained after the wrongdoer threatened to perform or did perform a wrongful act that coerced the donor into making a donative transfer that the donor would not otherwise have made.

Mistake. It is hard to show that a mistake will invalidate a will or part of a will, but under certain circumstances it may be possible to prove.

Have other questions, call a probate lawyer; call Mitchell A. Port at (310) 559-5259.

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Attention California business owners: A Restricted LLC (limited liability company) and a Restricted LP (limited partnership) are special entities that will be allowed under Nevada law starting October 1, 2009. Nevada is the first and only state to allow these types of entities.

With a restricted LLC, the new statute imposes restrictions and limitations on the LLC's ability to make distributions. The statute provides, in part, that unless otherwise provided in the articles of organization, a restricted LLC shall not make any distributions to its members with respect to their membership interests until ten years after the date of formation of the LLC (or amendment of the articles of an existing LLC to become a restricted LLC), so long as the LLC has remained a restricted LLC.

Why set up an LLC which by its charter may not make any distributions to members for up to ten years? The reason is Internal Revenue Code Section 2704(b), which provides that when valuing an interest in an entity for gift tax purposes, the liquidation restrictions contained within the LLC operating agreement have to be disregarded by the appraiser if the LLC is owned by family members both before and after the transfer. Code Section 2704(b)(3)(B) provides however that a restriction that is imposed by state law cannot be ignored.

With these new entities, some appraisers provide a range of an additional 10% to 35% for the additional valuation discount. So, for example, if the valuation discount would have been 35% for a regular LLC, after adding the additional valuation discount, the valuation discount would instead be between 45% and 70%.

Remember that the new Nevada Restricted LLC and LP statutes only create a new ceiling on valuation discounts that no other state allows. This doesn't mean that you must lock the underlying assets in for ten years. Maybe five years is more appropriate. Maybe three years.

The Bill can be read online. The Restricted LLC language can be read in Sections 26 and 27 of the Bill. The Restricted LP language can be read in Sections 38, 39 and 49.2 of the Bill.

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The LA Times ran an article on July 14 which in part discussed the risks and benefits of preparing a do-it-yourself Will in California or using cheap online sources for estate planning documents. It also discussed when using an estate planning attorney and paying a higher fee makes sense. Here's the full article.

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Starting a new business? Be aware of your federal tax responsibilities. Here are the top six things the IRS wants you to know if you plan on opening a new business this year. Also be sure and look at the IRS website for more information.

1. Decide the type of business entity you are going to establish either in California or some other state (such as Nevada or Delaware). The most common types of business are the sole proprietorship, partnership, corporation and S corporation.

2. The type of business you operate in California determines which tax form you have to file, what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Generally, businesses need an EIN. An Employer Identification Number is used to identify a business entity. You can also apply for an EIN online at IRS.gov.

4. Good records are necessary. Which recordkeeping system is suited to your business is up to you so long as it shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

5. As a business taxpayer, you must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. You must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

Want to incorporate? Create an LLC? Call a business attorney. Call Mitchell A. Port at (310) 559-5259.

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On July 7, 2009, the Franchise Tax Board (FTB) announced payment of current and past due personal and corporate taxes with California registered warrants (IOUs) is acceptable

By law, FTB cannot deposit the IOU until it is payable, but FTB will credit your account on the date the IOU is received to stop the accrual of interest. If the IOU is not sufficient to pay the outstanding balance, you should send an additional payment for the difference.

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As of June 30, 2009, the IRS has updated the information it makes available concerning subchapter S corporations. Much of what you may need to know about California and federal subchapter S corporations can be found by clicking here.

If you want more information or help forming your California corporation, call Mitchell A. Port at (310) 559-5259.

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It may be difficult for some to proceed in court without an attorney familiar with California Probate law when someone dies in Los Angeles or elsewhere in California and leaves property subject to probate.

In California, only a licensed attorney can give legal advice. If you don't understand any information in this blog or if you have trouble filling out any of the forms located here, see an attorney for help.

The Los Angeles Superior Court has a self-help website. The web site provides help with Probate matters in general and pays special attention to areas where people represent themselves without an attorney to help them. The self-help site is not supposed to be a do-it-yourself guide and is instead intended to help you help yourself through the court system and probate matters.

The Los Angeles Superiour Court site has information on the following:

Probate Guardianship/Conservatorship Information Sheet

Glossary of Probate Terms

Conservatorship

Guardianship

Creditor's Claims

Transfer Of Small Estates Without Probate

Estate Planning

Probate Forms Packets

Links To Other Probate Self-Help Web Sites

Still need help? Call a qualified probate attorney. In Los Angeles call Mitchell A. Port at (310) 559-5259.

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