35% Gift Tax Rate?

Pass Along Real Estate Now

Right now, for gift tax purposes, there is a maximum gift tax rate of 35% and an exemption of $1 million. Take advantage of your $1 million gift tax exemption by gifting property — like real estate — that has the potential to appreciate in value. Give it to your heirs now rather than at your death. Regardless of how much that property appreciates after you give it away, only the value on the date you give it away is used to determine your estate tax when you die.

If you give property to someone who is a “skip person,” you are not subject to GST tax – but you still will be subject to gift tax. In 2010, the top gift tax rate of 35% is a relative bargain, considering the gift tax rate is set to surge to 55% in 2011. And even if Congress changes that, most experts don’t see lawmakers making the gift tax rate lower than it is is now.

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Business Sucession Planning

Family Business Succession Planning
Part 1: Succession Planning Issues For Family Businesses

Business succession planning should be a priority for every family business.

Sooner or later, everyone wants to retire. But if you own a family business, retirement isn’t just a matter of deciding not to go into the office any more. Besides ensuring that you have enough money to retire on, the whole question of what happens to the business becomes paramount. Who’s going to manage the business when you no longer work the business? How will ownership be transferred? Will your business even carry on or will you sell it?

Business succession planning seeks to manage these issues, setting up a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved – and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs.

Perhaps this is why more than 70 percent of family-owned businesses do not survive the transition from founder to second generation. In most cases, the “killer” is taxes or family discord, both issues that a good family business succession plan will cover.

Think of business succession planning as broken into three main issues; management, ownership, and taxes.

It’s important to realize that management and ownership are not necessarily one and the same. You may decide, for instance, to transfer management of your business to just one of your children but transfer equal shares of business ownership to all your children, whether they’re actively involved in operating the business or not.

The taxes component of succession planning looks at the minimization of taxes upon death. There are asset transfer tax strategies that will help you do this, such as freezing the value of your interest in the company while you transfer ownership to your children.

By reorganizing your corporation to exchange your common shares in the business for preferred shares with a fixed value equal to the common-share value, you can pass all future capital appreciation and income tax liability on that future appreciation to your children while you retain control, and access to the current value of the business, in effect freezing the corporation.

Accountants and lawyers who specialize in business succession planning can provide invaluable advice about these tax strategies.

For many family businesses, family is the primary emphasis of succession planning. Whether you’re thinking about the future management of your business, how ownership is going to be passed along, or taxes, you won’t be able to help thinking about how your decisions will affect your family.

The next page of this article presents six tips to make succession planning less painful and more successful for your family business.

Have you been putting off succession planning? Use these tips for family business succession planning to get the succession planning process underway and ensure a smoother transition from one generation to another.

1) Start business succession planning early.

Five years in advance is good. Ten years in advance is better. Many business advisors tell budding entrepreneurs to build an exit strategy right into their business plan. The point is, the longer you get to spend on family business succession planning, the smoother the transition process is likely to be.

2) Involve your family in business succession planning discussions.

Making your own succession plan and then announcing it is the surest way to sow family discord. “Opening a dialogue among family members is the best way to begin the process of a successful succession plan — one where close attention is paid to the personal feelings, ambitions and goals of everyone concerned” (Grant Thornton, LLP).

3) Look at your family realistically and plan accordingly.

You may want your first-born son to run the business, but does he have the business skills or even the interest to do it? Perhaps there’s another family member who is more capable. It may even be that there are no family members capable of or interested in continuing the business and that it would be best to sell it. Examine the strengths of all possible successors as objectively as possible and think about what’s best for the business.

4) Get over the idea that everyone has to have an equal share.

While this is a nice idea in theory, it may not be in the best interests of your business. Remember that management and ownership are separate business succession planning issues. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business. Or it may be best to transfer both management and ownership to your chosen successor and make other financial arrangements to benefit your other children.

5) Train your successor(s) and work with them.

How can you expect your successor to take over and run your business successfully if you haven’t spent any time training him or her? Your family business succession plan will have a much better chance of success if you work with your successor(s) for a year or two before you hand over the reins. For solo entrepreneurs, sharing decision making and teaching business skills to someone else can be difficult, but it’s definitely an effort that will pay big dividends for the business.

6) Get outside help with your business succession planning.
Lawyers, accountants, financial advisors – there are many professionals that can help you put together a successful succession plan. There are even companies that specialize in family business succession planning, who will facilitate the process of working through both family and succession plan issues.

If you want to pass your family business along to the next generation, putting off business succession planning is the worst thing you can do. A good succession plan can ensure that you have the funds you need to retire and that the business you have built continues to thrive in the hands of the next generation.

By Susan Ward, About.com

CONTACT San Diego Trusts Attorney (619) 630-7766

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Components of an Estate Plan

Living Trust
Components Of A Living Trust

This is a list of important documents that should be included in a living trust, and should be included in your estate planning folder alongside a living trust.

There are many components of a living trust that should be included and covered in the trust. This includes an assets list, as well as a variety of other documents. While not all of these are actual components of a living trust, they should be included right along side the living trust, therefore they are just as important.

Below is a checklist that you can go through with your attorney to make sure that he will provide these documents. This includes components of a living trust, as well as additional documents that might be necessary. Even though every attorney will have his own method and his own thoughts as to what the most important components of a living trust are, the below list includes important documents that everyone should include in their estate planning folder.

• Revocable living trust

• Trust Amendments

• Certificate (Declaration) of revocable living trust

• Community Property Agreement

• Last Will and Testament (Pour-Over Will)

• Financial Durable Power of Attorney

• Health Care Durable Power of Attorney

• Directive to Physicians (Living Will)

• Funding Instructions to transfer assets into your trust:

This includes all of the following:

• Jointly-Owned Property

• Personal Property

• Jointly-Owned Assets

• Separate Property of Husband and/or Wife

• Assets with Named Beneficiaries

If you include all of the above components with your living trust, as well as any additional documents that your attorney recommends, your estate will be properly planned. This also makes it possible for that plan to be properly executed.

CONTACT San Diego Trusts Attorney (619) 630-7766

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Federal Estate Tax

  • Both the estate tax and the generation-skipping transfer tax (on assets given to grandchildren) were repealed at the end of 2009.
  • Both taxes are scheduled to return in 2011 at the unfavorable rates that applied 10 years earlier. The amount that is exempt from each of these taxes will then be $1 million, and the tax on the rest will be 55 percent.
  • There is still a gift tax if you give away more than $1 million during your lifetime, but the tax rate has been reduced from 45 percent to 35 percent.

CONTACT San Diego Trusts Attorney (619) 630-7766

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Assets in Excess of 100K


If something happens to you in the state of California and you do not have a living trust, and you have accumulated assets in excess of $100,000, and you have sole title to these assets (meaning that you don’t hold them in joint tenancy and there is not a pay-on-death designation), you are an open book. Every single asset will be laid out and brought before all of your relatives, in open court. The probate court is left to decide how your assets are to be distributed. A living trust avoids probate.

CONTACT San Diego Trusts Attorney (619) 630-7766

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Business Succession Plan

Business Succession Plan – what to do?

The death of a principal owner of a closely held business can create serious financial problems for the estate, the business, and the survivors of the decedent. Often, the decedent’s interest in the business is a major portion of his or her total estate. Upon his or her death, the survivors may be faced with significant problems concerning the continuation of the business and its orderly transfer, such as:

  • The estate tax generated by the closely held business can place a substantial burden on the estate, which may necessitate a forced liquidation.
  • If the corporate stock is sold to an outsider, the surviving owners’ interests may be jeopardized and their control diluted.
  • The decedent’s heirs can be left in a disadvantaged position to negotiate a fair purchase price for their shares.
  • Should the heirs desire to remain in the business, they may not be able to take part in management—which would limit their ability to determine business policy or compensation to business owners.

Buy-Sell Agreements Can Provide an Orderly Transition

Most business continuation problems can be avoided with planning that includes a buy-sell agreement. These agreements provide for the orderly transfer of the decedent’s business interest to key employees, business partners, co-shareholders, loved ones, or the company itself at a fair value, determined in advance of the business owner’s death.

Under the terms of a buy-sell agreement, the parties agree in advance to purchase the interest of an owner upon his or her death or, in some cases, disability. Generally this means that either the remaining partners, key employees, family members, or the company agree to buy out the shares of the deceased’s successors, and the successors agree to sell. Prices and terms of the buyout are established prior to the event and apply to all parties subject to the terms of the agreement.

CONTACT San Diego Trusts Attorney (619) 630-7766

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FAQ on Contesting a Will or Trust

What does it mean to contest a will?

A will contest is a challenge to a will, usually initiated by a family member or a beneficiary who feels slighted by the testator’s choice of property distribution. Valid grounds for a will contest include claims that it was improperly executed (e.g., the testator did not sign it), the testator lacked testamentary capacity (e.g., he did not understand what he was doing), it contains a mistake, or it is the result of fraud, undue influence, duress, or insane delusion.

What happens if a challenge to a will is successful?

It depends on the reason for the will contest. If the will is found to be invalid because it does not conform to the state’s requirements or because the testator was not mentally competent when it was made, then the property will pass under intestacy as if the will never existed. But sometimes only part of the will is found to be invalid. For example, if a beneficiary is found to have coerced the testator into leaving her part of his estate, then only the gift to that beneficiary is invalid and the property falls into the residuary estate (if there is one) or under intestacy; the rest of the will remains valid.

I don’t want my family to fight over my will. Can I insert something in my will that causes anyone who challenges the will to lose his gift?

Yes. This is called a “no-contest clause,” and has the effect of causing the beneficiary to forfeit his gift if he challenges the will. But beware – many states will allow the beneficiary to challenge the will and still keep his gift as long as his challenge is based on probable cause (i.e., an allegation of fraud or mistake).

I left my will on my desk and my family saw it. They are not happy with how I divided my belongings and want to formally contest the will in court. Can they do that?

No. Your will has no effect until you die; therefore, your family (and any other named beneficiaries) has no interest in it until then. They will have to wait until the will is probated on your death before they can contest any of the provisions. And they may have problems contesting it on your death if they have no valid grounds to do so – they cannot contest it merely because they are unhappy with the distribution.

I’m not happy with the way my mother distributed her estate. Can I contest the will?

Not if your mere dissatisfaction is the sole ground for contesting it. A court will not entertain a will contest unless it is based on an assertion of improper execution, lack of testamentary capacity or insane delusion, lack of knowledge of the will’s contents by the testator, mistake, or some type of wrongdoing by a third party, such as fraud or undue influence.

My friend’s will left her diamond ring to her “good friend, Mary.” I believe that she meant me, but she has another friend Mary who claims that she is entitled to the ring. If I contest the will, who will win?

It depends on how persuasive you are in proving to the court that your friend intended that the ring belong to you. The will is ambiguous in that it doesn’t specify which Mary your friend meant, so the court will consider any evidence as to whom she meant, including anything she may have said to you or anyone else regarding the ring.

My daughter suspects that her children unduly influence her husband to leave his entire estate to them, attempting to disinherit her. She is too upset to take the matter to court. Can I do it for her?

No. Only a person who has a financial interest in the estate can file a will contest. This usually means only the persons named in the will and anyone who would have inherited if the person had died without a will. Since you do not qualify under either scenario (you are not named in the will and would not have been an intestate heir), you cannot file the contest for her; she will have to do it herself. Note that if she chooses not to file the contest she can still renounce the will and claim her elective share.

There is a time limit for filing a will contest, which varies by state law. If she is uncertain as to whether she wants to take action, she should at least research the state’s specific law to find out how long she has to make up her mind.

Donating Your Organs

Family Disputes About Donating Organs.

Donating organs and tissues is popular because of the great demand.  Medical technology has made transplanting organs and tissue safer, easier, and less expensive.  Common transplants include:

  • SKIN

Tissues, like corneas can be taken from almost anyone.  Some donated organs are used only for research. Sometimes in donating major organs such as hearts, livers, or kidneys, it is difficult to find a matching recipient. For example, while there are tens of thousands of people now on waiting lists to receive a donated liver, but only about 1% of all people who die are suitable donors.

If you wish to donate your organs, it is important you have the correct authorizing documents in place.

First, to properly authorize organ donation, you should obtain a donor card and carry it with you at all times. In California, you can use your driver’s license for this purpose because the DMV will send you a sticker to place on the front of your license.

In addition, using an advanced health care directive or living will you can state your wishes regarding organ donation.  This will allow you to specify not only the organs, tissues, or body parts that you want to donate but also the limited purposes for which your donation may be used.  For example, you may specify: transplant, therapy, research, or education.

Donations generally must be carried out immediately after death, so if you want to be a donor, you should make arrangements in advance and discuss your plans and wishes with those closest to you.   You should assign and authorize a health care agent in your trust or living will.  We can help you with this process.

Family members could object to your will to donate your organs.  Even if you have already expressed a desire to donate your organs, it might not be enough to overcome a legal challenge after you die.  An objection from close family members could defeat your intentions. The best safeguard is to have an attorney put your wishes in writing.