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San Fernando Valley Probate & Estate Administration Law Blog

Estate tax minimization still an important goal in estate planning

Historically, estate tax minimization is an important aspect of estate planning. Not that it isn’t still important nowadays, but as many of our readers know, the federal estate tax exemption is at an historic high of $5.34 million. That means that many Americans have little or no need of worrying about estate tax liability at the federal level.

At the state level, estate tax liability depends on where you live. States have different laws regarding death taxes and it is important for folks to work with a local attorney. That being said, there has been somewhat of a trend in recent years of states rolling back their estate taxes or increasing exemption amounts. Some states have even chosen to completely abolish death taxes. Maryland is the most recent state to make its estate taxes less burdensome. California, of course, no longer imposes estate or inheritance taxes. 

Late actor’s family fights over his remains

American film actor and entertainer Mickey Rooney, as our readers may know, died on Sunday at the age of 93, leaving behind quite an impressive career but not a whole lot to show for it financially speaking. On Tuesday, it was revealed that the extent of the actor’s estate was $18,000. Rooney, though a will signed on March 11, left all of that to his caretaker stepson and his stepson’s wife.

In doing so, he disinherited not only his eight biological children, but also his latest wife, Janice. According to his attorney, Rooney intentionally left his wife out of the will because he felt that he had sufficiently provided for her in a 2012 marital separation agreement. And he simply felt that his children were better off financially than him. It isn’t known whether his last will and testament will become the subject of dispute, but his remains already have. 

Reduce inheritance disputes by good communication

When Whitney Houston died a couple years ago, it was predicted by estate planning professionals that her will would be the source of strife in her family. That is because the will contained a provision that put a significant amount of money in trust for her daughter Bobbi Kristina, who was thought by some of Houston’s family to be too young to handle so much money. Not to mention the fact that whenever there is a lot of money at stake, people tend to fight.

Now, a couple years later, Bobbi Kristina has turned 21 and is set to receive her first distribution—this time it is a 10 percent distribution—under the trust.  Not only that, but she is now married and the family is speculated to be concerned about her husband’s interest in her inheritance. It is possible that there are battles to come for Houston’s family over her estate. 

Estate planning is different for different people

At the risk of sounding trite, we’d just like to comment that estate planning is something everybody should do at some point. We can say this because it doesn’t take a special type of person to qualify for estate planning. This is an important process that can be adapted to everybody’s needs.

So, what is involved in estate planning? The answer depends on who is asking. The process will be different for young people just moving out of their parents’ home and older folks looking at retiring soon. 

Navigating changed tax environment a goal of estate planners

In the world of estate planning, the strategies and techniques advisors recommend and use with their clients are always changing depending on various factors. One important factor, of course, is tax law. Nowadays, with increased income tax rates and higher taxes on investment income funding the Affordable Care Act, estate planning advisors are busy trying to help their clients reduce their tax liabilities.

Among the means estate planners are using to help their clients avoid taxes is to put more assets placed in trust into securities that are tax-exempt. An example would be municipal bonds. Another possibility, at least for some types of trusts, would be to make bigger distributions to beneficiaries with lower income tax liabilities. These are just a couple possibilities. 

Learn about estate planning from the rich and famous

In estate planning, the possibilities for making mistakes are many. One thing that estate planning attorney enjoy doing is reviewing the mistakes made  in estate planning so as to better avoid those mistakes in the future. As with divorce cases, us regular people can learn a lot by looking at the mistakes of famous celebrities. As well, one can learn from what they did well.

While there are many possible examples to point to in celebrity estate planning, one of the more recent ones is that of Phillip Seymour Hoffman, who—despite the many mistakes in his estate plan—did include an element of creativity in his estate planning with respect to where his son was to be raised. The important lesson in this is that estate planning is only good when it meets your needs and desires. 

Avoid leaving behind a mess by making an estate plan

Putting together an estate plan might not seem very important at first thought. Some people even have the “if I’m dead, I won’t care” mentality. While you might not care about what happens to the stuff you leave behind, you should care about how it affects others. In the end, do you want to be remembered for all the good things you did or for the mess you left behind?

When you’re convinced, it’s time to consider preparing a variety of documents. To start, a will is a good idea. It will outline things like who gets all your stuff and money, and who will take care of your pets and minor children if you pass.

Philip Seymour Hoffman's will and unmarried partner-beneficiaries

When actor Philip Seymour Hoffman died suddenly on Feb. 2 at age 46, he left behind his life partner Marianne and their three children. His net worth was estimated at $35 million and, in 2004, around the time their first child was born, he executed a will leaving everything to Marianne.

Because the couple wasn't married, however, the question of state and federal estate taxes was of particular concern. California doesn't currently collect an estate tax, but Hoffman lived in New York, which does. Also, both New York and federal law treat legally-married spouses much more favorably than unmarried partners.

To address that issue, Hoffman included a provision in his will that was meant to give Marianne an option, should the estate tax burden prove too high. Specifically, she can renounce some or all of the inheritance in favor of a trust set up in the name of the couple's son, reducing the estate and the amount in taxes she would owe.

Keeping beneficiaries updated is a key part of estate planning

Having a life insurance policy and a named beneficiary is an important step in estate planning, but surprises may still come after a person's death if the proper precautions are not taken beforehand. It may surprise some California readers to find out that a spouse is not always an automatic beneficiary on a life insurance policy.

Normally, who the beneficiaries are on a life insurance policy is whomever the policyholder designates. This could be a spouse, or it could also be a business partner, friend or adult child. The insurance company does not have a part in who the beneficiary is and simply pays out to whomever is listed on the policy.

What can I do to protect my digital assets after I die?

With digital assets becoming more and more present in our society, there has been a corresponding increase in concern for digital fraud. Because of this, financial and business planning has made protection of digital assets one of its most important goals. For those in business, the challenge is to provide adequate protection and privacy for digital assets while maintaining ease of access and control.  

For estate planning purposes, attention to digital assets is also important. Without including digital assets in your estate plan, you risk delaying your family’s access to these assets when you die. Because so many business and financial matters are tied up in online accounts, this is a particularly important issue from a planning perspective. 

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