California Tax Attorney Blog

There is an IRS publication which discusses who can represent you before the IRS and what forms or documents - like powers of attorney - are used to authorize a person to do that. Usually, attorneys, certified public accountants (CPAs), enrolled agents, and enrolled actuaries can represent taxpayers before the IRS. Under special circumstances, other individuals, including unenrolled return preparers, can represent you. To learn more, read Publication 947 on the IRS website. To speak with a qualified tax lawyer about this and other tax problems and tax solutions, call Mitchell A. Port at (310) 559-5259.

Funding your California living trust with your property is an important step to avoiding probate. Listing all of your assets on a schedule attached to your living trust – and updating that list whenever you acquire another asset – is also important especially if the listed assets have not been transferred into and owned by your living trust. Your property in counties of Los Angeles, Orange, Santa Barbara and Ventura (to name a few) which is not owned by your California living trust may be subject to the probate proceedings which are costly and long.

For property that is not owned by your living trust but which you listed on a schedule attached to your living trust, you may be able to avoid probate. It may be possible to get a court order which determines that property held in the decedent's individual name is actually trust property. Filing with the court a Heggstad Petition (named after a 1993 California case Estate of Heggstad, 16 CA4th 943, 20 CR2d 433), a successor trustee may claim that property was intended to be owned by the trust simply because it was listed on the schedule of assets intended to be a part of the trust. If the California probate court grants the petition, the Court issues an order declaring that the property is in fact trust property.

The Heggstad Petition avoids a full probate of the assets that were not transferred to the trust and is therefore more cost-efficient. However the best way to avoid probate is to clearly transfer the property to the trust and to list it in the property schedule.

Speak with a California probate attorney about this. Call Mitchell A. Port at (310) 559-5259.

When someone in California dies, the California Health and Safety Code imposes on certain people the obligation to dispose of the remains of a deceased person, to determine the location and conditions of interment and to make arrangements for funeral goods and services to be provided. Those same people also have the obligation to pay for the reasonable cost to dispose of the remains. Here’s a list in descending order of priority of those who have the responsibility to attend to the dead:

1. An agent under a power of attorney for health care.

2. The competent surviving spouse.

3. The sole surviving competent adult child of the decedent, or if there is more than one competent adult child of the decedent, the majority of the surviving competent adult children.

4. The surviving competent parent or parents of the decedent. If one of the surviving competent parents is absent, the remaining competent parent shall be vested with the rights and duties.

5. The sole surviving competent adult sibling of the decedent, or if there is more than one surviving competent adult sibling of the decedent, the majority of the surviving competent adult siblings.

6. The surviving competent adult person or persons respectively in the next degrees of kinship, or if there is more than one surviving competent adult person of the same degree of kinship, the majority of those persons.

7. The public administrator when the deceased has sufficient assets.

In a related blog post, read "What To Do When Someone Dies".

If you become ill or disabled unexpectedly, or when you die, the important details of your online (internet) life can be made available to those who really need it. It is important to consider having a safe, secure repository for your vital digital property that lets you grant access to online assets for friends and loved ones. It is important to have the ability to update your information in a timely manner rather than keeping everything in a safe deposit box or hidden away in a desk drawer. Keep your usernames, passwords, final messages and so on in a virtual safe-deposit box.

After you’re gone, there are companies that carry out last wishes, alert friends, give account access to various designated beneficiaries, and generally parse out and pass on your online assets. Digital remains should be properly bequeathed to an inheritor.

Three such companies include: AssetLock, Legacy Locker and Deathswitch.

I do not endorse any one of these companies and I provide links to them as examples of what is available to you. There are other such services available elsewhere too.

The IRS has a website built to help the small business owner with a multitude of resources. Check out the IRS website used by small businesses and the self-employed. Here is what it looks like:

A-Z Business Topics
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Business Types

Corporations
Limited Liability Corporation/Partnership (LLC/LLP)
Partnerships
S Corporations
Sole Proprietors

By Subject

Closing a Business
e-file
EINs
Employees
Expenses
Filing/Paying Taxes
Forms/Publications
Industries/Professions
International Taxpayer
Online Learning
Operating a Business
Retirement Plans
Self-Employed
Starting a Business

Mitchell A. Port is a business attorney who can assist you and your business with any one or more of the topics listed above.

1. Many of these letters can be dealt with simply and painlessly. Do not panic.

2. It’s important that you keep copies of any correspondence with your records.

3. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

4. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

5. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

6. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

7. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

8. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

9. Call a tax attorney for help. Call Mitchell A. Port at (310) 559-5259.

The Los Angeles Times ran an article on March 7, 2010 by Kathy M. Kristof in the personal finance section discussing the need to either amend your existing living trust or have one prepared along with a will, durable power of attorney for property management and an advance health care directive. Here is what the Times said:

If you're rich, the best estate planning advice would be to die quickly. If you're not, the best advice is to either review or rewrite your estate planning documents to make sure your heirs aren't left high and dry if you die.

That's because estate taxes that could allow Uncle Sam to nab up to 45% of your bequeathed assets are currently -- and very temporarily -- kaput.

A decadelong phase-out of the estate tax eliminated the tax completely as of January. The catch: If nothing's done, estate taxes will boomerang back to historic levels in 2011. That means any bequest of more than $1 million would be hit with a heavy levy on any amount above that limit after December.

But estate planning isn't just about taxes, and it's not just for the rich.

The legal vacuum that was created by the temporary elimination of the estate tax has created potential pitfalls even for people with modest estates.

For example, if you were to die this year and had an old "by-pass" trust, the elimination of the estate tax could cause you to accidentally disinherit your spouse, said Clay Stevens, director of strategic planning for Aspiriant, a wealth management firm in Los Angeles.

These trusts, aimed at reducing estate taxes, often have boilerplate provisions for bequeathing children an amount equivalent to the estate tax "exclusion." This year, that exclusion is unlimited, so everything goes to your kids and unintentionally there would be nothing left for a spouse, he said.

Then, too, as long as the estate tax is phased out, so is something called the "step-up" that reduced capital gains taxes on your appreciated assets after you died.

You can still get that break if you make a few strategic fixes to your estate plan this year, Stevens said. But, if you do nothing, your heirs could face capital gains taxes on all but a pittance of your appreciated property.

"This is the one year when you can't procrastinate," said Herbert E. Nass, a New York lawyer and author of "101 Biggest Estate Planning Mistakes." "Absolutely everyone should review their documents."

What if you have no documents? Then get cracking.

Studies indicate that the vast majority of Americans don't have wills, trusts or powers of attorney. That can leave heirs in a rough spot, said Danielle Mayoras, coauthor with her husband, Andy, of "Trial & Errors: Famous Fortune Fights."

Act now, avoid trouble later

Ignoring your estate plan can land your children with ill-suited guardians or give them a pile of cash that they're too young to handle, she said.

If you become incapacitated before you die, it can mean that your care could be dictated by a stranger -- or even an enemy. And, doing nothing can cause your heirs to bicker and battle in court -- sometimes for decades.

"People never think their family is going to end up fighting," Andy Mayoras said. "But, especially in this economy, families are fighting over money more and more."

Nass contends that neglect of an estate plan may have cost one wealthy New Yorker his life. Wall Street titan Ted Ammon, in the throes of an acrimonious 2001 divorce, was killed by his estranged wife's boyfriend, Nass said. The boyfriend went to prison, but the estranged wife got the estate because Ammon hadn't yet changed his will.

"That was big news out here for a long time," he said.

What do you need? First and foremost you need a will, which distributes your assets at death. Wills can be simple -- a matter of a few paragraphs -- or very complex. It depends on your wishes and whether you expect to draw up additional documents, such as a trust.

If you don't want a trust, your will should name personal guardians for any minor children, economic guardians who can distribute assets to your children and other heirs, and an executor who will make sure the terms of the will are carried out. Finally, it should include a simple statement about what you own and who should get it.

If you're leaving assets through a will, it's wise to also execute powers of attorney for both financial and healthcare matters, Stevens adds. That will give somebody you trust the ability to pay your bills and make medical decisions for you if you become incapacitated before you die.

But if you want your heirs to be able to avoid probate -- a time-consuming and costly legal process that involves a court reviewing the distribution of assets bequeathed through a will -- you'd be better off to also create a trust. If you have a trust, your will essentially can be a one-liner: "I want all my nonretirement assets to go into my trust."

(Retirement accounts such as IRAs should be left directly to people, not trusts. That gives your heirs the ability to withdraw those assets, and pay taxes on them, over a longer period of time.)

A trust would then distribute the assets based on the formula you'd drawn up. Trusts can accommodate difficult issues, such as whether you want to attach a few strings to your bequests as you might if you're leaving assets to heirs who are not financially or personally responsible.

Divide and conquer . . . the IRS

Trusts also typically contain clauses that dictate who would handle your financial affairs should you become unable to handle them yourself. And many include a "by-pass" or a "two-step" provision that essentially splits the trust in two.

Splitting the trust is aimed at saving estate taxes. That's because husbands and wives can leave each other all their assets without tax consequences, but if they want to leave money to anyone else, any amount over a set threshold is subject to tax.

The amount that's "excluded" from estate taxes has been a moving target for the last 10 years, but is unlimited today and likely to amount to $1 million in 2011.

As a result, savvy couples with estates in excess of $1 million (in any year but 2010) would each execute a by-pass trust, leaving the amount of the estate tax exclusion to their kids or other heirs and the rest to their spouse.

That would preserve the estate tax exemption for the spouse who is the first to die. In the case of someone with $2 million in assets, that could save heirs a tidy $550,000 -- or 55% of the second $1 million.

But the most important thing may be to simply make your wishes known so your heirs know that you've thought about them and how you'd like to provide for them when you're gone. That alone could eliminate a lot of family bickering.

Both Nass and the Mayorases wrote books about what celebrities have done wrong with estate planning. They say they did so to give parents and their children a way of bringing up the topic to explore how they could do it better.

"It's a way to get the dialogue started," Andy Mayoras said.

Danielle Mayoras adds that entertainer Ray Charles' estate plan provides a blueprint of how to do it right. He got his 12 children and their nine respective mothers in a room to talk about what he was planning, which was to give most of his money to charity. But everyone was provided for in some way, she said.

"The beauty of doing that is that everything is out in the open," she said. "It gives the family some comfort and the ability to talk about it."

Call Mitchell A. Port, an experienced estate planning attorney, for a consultation now. Call (310) 559-5259.

LIABILITIES AND DUTIES OF PERSONAL REPRESENTATIVE

When the California probate court appoints you as personal representative of an estate, you become an officer of the court and assume certain duties and obligations. An attorney is best qualified to advise you about these matters. You should understand the following:

1. INVENTORY OF ESTATE PROPERTY
Locate the estate's property

Determine the value of the property

You must arrange to have a court-appointed referee determine the value of the property unless the appointment is waived by the court. You, rather than the referee, must determine the value of certain "cash items." An attorney can advise you about how to do this.

File an inventory and appraisal
Within four months after Letters are first issued to you as personal representative, you must file with the court an inventory and appraisal of all the assets in the estate.

File a change of ownership
At the time you file the inventory and appraisal, you must also file a change of ownership statement with the county recorder or assessor in each county where the decedent owned real property at the time of death, as provided in section 480 of the California Revenue and Taxation Code.

2. MANAGING THE ESTATE'S ASSETS

Prudent investments
You must manage the estate assets with the care of a prudent person dealing with someone else's property. This means that you must be cautious and may not make any speculative investments.

Keep estate assets separate
You must keep the money and property in this estate separate from anyone else's, including your own. When you open a bank account for the estate, the account name must indicate that it is an estate account and not your personal account. Never deposit estate funds in your personal account or otherwise mix them with your or anyone else's property. Securities in the estate must also be held in a name that shows they are estate property and not your personal property.

Interest-bearing accounts and other investments
Except for checking accounts intended for ordinary administration expenses, estate accounts must earn interest. You may deposit estate funds in insured accounts in financial institutions, but you should consult with an attorney before making other kinds of investments.

Other restrictions
There are many other restrictions on your authority to deal with estate property. You should not spend any of the estate's money unless you have received permission from the court or have been advised to do so by an attorney. You may reimburse yourself for official court costs paid by you to the county clerk and for the premium on your bond. Without prior order of the court, you may not pay fees to yourself or to your attorney, if you have one. If you do not obtain the court's permission when it is required, you may be removed as personal representative or you may be required to reimburse the estate from your own personal funds, or both. You should consult with an attorney concerning the legal requirements affecting sales, leases, mortgages, and investments of estate property.

3. Record Keeping
Keep accounts
You must keep complete and accurate records of each financial transaction affecting the estate. You will have to prepare an account of all money and property you have received, what you have spent, and the date of each transaction. You must describe in detail what you have left after the payment of expenses.

Court review
Your account will be reviewed by the court. Save your receipts because the court may ask to review them. If you do not file your accounts as required, the court will order you to do so. You may be removed as personal representative if you fail to comply.

4. INSURANCE
You should determine that there is appropriate and adequate insurance covering the assets and risks of the estate. Maintain the insurance in force during the entire period of the administration.

5. NOTICE TO CREDITORS
You must mail a notice of administration to each known creditor of the decedent within four months after your appointment as personal representative. If the decedent received Medi-Cal assistance, you must notify the State Director of Health Services within 90 days after appointment.

6. CONSULTING AN ATTORNEY
If you have an attorney, you should cooperate with the attorney at all times. You and your attorney are responsible for completing the estate administration as promptly as possible.

When in doubt, contact your attorney. Call lawyer Mitchell A. Port at (310) 559-5259. This statement of duties and liabilities is a summary and is not a complete statement of the law. Your conduct as a personal representative is governed by the law itself and not by this summary.

The “National Taxpayer Advocate” 2009 Annual Report to Congress in part discusses the notice of federal tax lien (NFTL). The Report said that on average, a lien filing reduces a taxpayer’s credit score by 100 points. Unpaid tax liens may remain on a taxpayer’s credit history, leaving a derogatory mark on the credit history indefinitely. Released liens, including those paid off by the taxpayer, are not generally removed from the credit history until seven years from the date of release. Thus, an NFTL has a significant long-term impact on a taxpayer’s credit record. As a result, some lenders decline to extend credit to a taxpayer if the IRS has filed an NFTL against the taxpayer’s property. Others will charge substantially higher rates, even if the lien is subordinated. Impaired credit history can also affect a taxpayer’s ability to obtain insurance or rent an apartment on reasonable terms. Moreover, some licensing boards require members to maintain a clean credit history and some employers require employees to do so as a condition of employment. Thus, a lien filing can mean that employees lose their jobs and self-employed individuals cannot maintain the licensing necessary to remain in business. It can also hamper the taxpayer’s ability to stay compliant and obtain credit needed to pay preexisting tax debts.

Properly applied, the notice of federal tax lien (NFTL) can be an effective tool in tax collection. It gives the IRS a priority interest in the taxpayer’s property, such as a home or a car, and may enable the IRS to collect all or a portion of the tax debt if the taxpayer sells or refinances the property.

If improperly applied, however, tax liens have the potential to cause needless harm to taxpayers and undermine long-term tax collection.

If improperly applied, however, tax liens have the potential to cause needless harm to taxpayers and undermine long-term tax collection. Assume, for example, that a taxpayer loses his job during a recession and becomes unable to pay his tax bill. The filing of a tax lien can significantly harm the taxpayer’s credit and thus negatively affect his or her ability to obtain financing, find or retain a job, secure affordable housing or insurance, and ultimately pay the outstanding tax debt. Moreover, the government must consider that its role as a creditor is different from that of a private entity creditor. If the filing of a tax lien drives up the taxpayer’s costs and renders him or her unemployed or underemployed, the government may be forced to make outlays in the form of unemployment benefits, food stamps, and the like. Thus, the imprudent filing of a tax lien has the potential to badly damage the taxpayer and the taxpayer’s family and simultaneously reduce federal revenue – a lose-lose proposition.

For this reason, the decision whether to impose a tax lien should be made on a case-by-case
basis. Yet, the IRS files many liens systemically….

The results of research done by the Taxpayer Advocate suggest that the IRS’s use of liens may not be furthering the agency’s revenue collection objective and, equally significant, that the IRS has shown very little interest in evaluating the effectiveness of liens for itself.

A federal tax lien (FTL) arises when the IRS assesses a tax liability, sends the taxpayer notice and demand for payment, and the taxpayer does not fully pay the debt within ten days. An FTL is effective as of the date of assessment and attaches to all of the taxpayer’s property and rights to property, whether real or personal, including those acquired by the taxpayer after that date. This lien continues against the taxpayer’s property until the liability either has been fully paid or is legally unenforceable.

It is IRS policy not to use the NFTL as a negotiating tool. The IRS is required to release a lien not later than 30 days after the underlying liability either is fully satisfied through full payment of tax or is legally unenforceable (typically, by expiration of the statutory period for collecting the tax).

If you have tax problems, call a qualified tax attorney. Call Mitchell A. Port at (310) 559-5259.

Ever thought of providing in your California will or living trust for unequal distributions to your children, disinheriting a child or leaving gifts to charity or to friends, then this posting is important. Some parents believe that unequal distributions may be necessary because they have already helped to support or educate one of their children or feel that one of their children has a spendthrift issue. There may also be times when a parent has remarried and wants to leave assets to his or her current spouse and is concerned that the children of the first marriage will not understand.

A recent article in the New York Times discusses having a conversation with your children about your plans before you die in order to decrease the chance that they will challenge your estate plan after you die. The article quotes a wealth mediator who says that the children and grandchildren may not like what you have chosen to do, but at least they can feel like they were informed and hopefully will respect your wishes. The kids may get angry at the situation but their anger will be directed at you, not at the favored beneficiaries after your death. Communication can also help relieve the tension between the adult children of a first marriage and the children and/or spouse of the second marriage. The article is worth reading.

If you want to discuss how to distribute your property to your beneficiaries with a qualified California tax lawyer, call Mitchell A. Port at (310) 559-5259.