Arizona Estate Planning

Suggestions, Not Demands - Rethinking Living Wills

2010-10-01T14:36:00.000-07:00

I wanted to take a moment and bring to the attention of my readers an article that was published in the October, 2004 issue of Arizona Attorney, but still relevant today. The article, titled “Suggestions, Not Demands – Rethinking Living Wills,” was written by Kenney Hegland, who feels one of the inherent problems with living wills is the attempt to make decisions today that may not be implemented for a number of years. That is, deciding now what one will want then.

He states studies show that living wills have little impact on the medical treatment one actually receives at the end of their life, and that doctors usually do what family members want, despite what the patient may have indicated in their living will. However, he doesn’t see this as a problem as he feels living wills are too casual, vague, and speculative to be taken seriously, mainly due to the fact that many living wills are of the “check the box” type.

He brings up a number of excellent points; a worthwhile read.

Suggestions, Not Demands - Rethinking Living Wills

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-10-01T14:32:00.000-07:00

On October 5, 2010, the topic for Lawyers On Call will be Estate Planning. See the State Bar of Arizona website for more information.

State Bar of Arizona

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-08-13T13:54:00.000-07:00

On September 7, 2010, the topic for Lawyers On Call will be Divorce and Child Support. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-07-21T11:19:00.000-07:00

On August 3, 2010, the topic for Lawyers On Call will be Employment Law and Wrongful Termination. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

The Availability of Summary Administration for Small Estates in Arizona

2010-06-19T17:11:00.000-07:00

Temporarily removed for editing.

Lawyers On Call - Free Legal Advice For Arizonans

2010-06-05T12:39:00.000-07:00

On July 6, 2010, the topic for Lawyers on Call will be foreclosures and evictions. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Serving as a Personal Representative in Arizona - Duties and Responsibilities

2010-04-22T09:37:00.000-07:00

A good amount of thought and care should go into the decision of who to name as one’s personal representative, and a number of factors should be considered. The position is one of trust, and the person who serves as personal representative will shoulder a number of responsibilities as he or she is the person who will take care of a person’s affairs once they die. The person named as personal representative should be competent, responsible, and possess the ability to be objective and fair-mined. In cases where a person has already named someone as their agent in a General Durable Power of Attorney, it’s a good idea to name the same person as personal representative of their estate.

The personal representative will be named in the decedent’s Will. If the decedent died intestate (meaning he or she left no Will), then his or her spouse has the right to be named personal representative. If the decedent was not married at the time of his or her death, then any of his or her heirs is entitled to be appointed personal representative, provided that all the other heirs renounce or waive their right to be appointed personal representative.

The general duties of a personal representative are set forth in A.R.S. 14-3703. It’s important to note that a personal representative is a fiduciary who shall observe the standards of care applicable to trustees, which are set forth in the Arizona Trust Code, and include the duty to administer the trust in good faith, the duty of loyalty to the beneficiaries, the duty of impartiality, and the duty to minimize costs and expenses to be borne by the estate. A personal representative owes duties of undivided loyalty, fairness, and impartiality to the creditors and beneficiaries of the decedent’s estate. He or she must be cautious and prudent in dealing with estate assets.

Arizona law allows for both Supervised Administration and Unsupervised Administration probate procedures. During a Supervised Administration, the personal representative is not only responsible to all interested parties, but also to the Court. (Athough not responsible to the Court during an Unsupervised Administration, the personal representative has the same basic duties and responsibilities as during a Supervised Administration.)

The Court will issue an “Order to Personal Representative and Acknowledgement and Information to Heirs” setting forth the duties and responsibilities of serving as a personal representative, which include, but are not limited to, the duty to gather and control all assets that belonged to the decedent at the time of his her death and, after any valid debts and expenses are paid, the duty to distribute any remaining assets to the beneficiaries; within thirty days after appointment, the personal representative must mail notice of said appointment to the heirs and devisees whose addresses are reasonably available to him or her; within thirty days of the admission of the Will to informal probate, the personal representative must give written notice to all heirs and devisees of the admission of the Will to probate, together with a copy of the Will; heirs must be given notification that they have four months to contest the probate (by commencing a formal testacy proceeding); within ten days of appointment, mail a copy of the “Order to Personal Representative and Acknowledgement and Information to Heirs” to all the heirs and devisees of the estate, along with any other persons who have filed a demand for notice; file proof of compliance with the court; publish a notice once a week for three consecutive weeks in a newspaper of general circulation announcing the appointment as personal representative and informing creditors that their claims must be filed within a certain time period; immediately find, identify, and take possession of the estate assets and make proper arrangements to protect them; determine statutory allowances; prepare an inventory of the decedent’s probate assets and their values as of the date of death; keep detailed records of all receipts and expenses of the estate; pay valid debts and expenses; pay taxes; distribute the remaining assets; notify the court of changes of address; determine what is a reasonable compensation for serving as personal representative; and close the estate.

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-04-21T11:05:00.000-07:00

On May 4, 2010, the topic for Lawyers on Call will be immigration law. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Arizona Health Care Power of Attorney

2010-03-07T15:47:00.000-08:00

A type of health care directive, a Health Care Power of Attorney is a written designation of an agent to make health care decisions when the person executing the power of attorney is unable to do so. In many cases, a spouse is the natural choice for selection as a health care agent. A son or daughter may also be a wise choice in some situations. It’s wise to name a back-up agent should your first choice be unable to serve for any reason. A Health Care Power of Attorney goes beyond the provisions of a Living Will and provides for health care decisions that are not addressed by a Living Will, which basically covers “end of life” decisions. The appointment of a person to act as an agent is effective until that authority is revoked by the principal or by court order. The document must contain language that clearly indicates the principal’s intent to create a Health Care Power of Attorney, be dated and signed by the principal, and notarized or witnessed in writing by at least one adult who affirms that the notary or witness was present at the time of execution of the Health Care Power of Attorney, and that the principal was of sound mind and free of duress at the time of execution of the Health Care Power of Attorney. A notary or witness shall not be a person designated to make medical decisions on the principal’s behalf, or a person directly involved with the provision of health care to the principal at the time the health care power of attorney is executed. If the Health Care Power of Attorney is witnessed by only one person, that person may not be related to the principal by blood, marriage, or adoption, and may not be entitled to any part of the principal's estate by will or operation of law at the time the Health Care Power of Attorney is executed.

An Agent’s Authorities, Responsibilities, and Immunity

Pursuant to Arizona law, the person appointed as the agent is not responsible for paying the principal’s health care costs unless the agent is otherwise required to do so. The agent must make health care decisions in accordance with the principal’s wishes, and if the Health Care Power of Attorney does not provide sufficient information to determine what the principal would want in any given circumstance, the agent is required to make decisions based on the principal’s values. If named as a health care agent, it’s important to have a conversation with the person executing the Health Care Power of Attorney to gain a good understanding of how they would make their own health care decisions if they were able to do so. An agent who makes good faith health care decisions for a patient is not subject to civil or criminal liability for those decisions.

Responsibilities of Health Care Providers

A person’s health care provider is required to comply with the health care decisions made by that person’s agent unless the health care provider knows that those decisions are inconsistent with the patient’s health care directive, or the health care provider has transferred care to another health care provider. A health care provider who makes good faith health care decisions in reliance on the provisions of an apparently genuine Health Care Power of Attorney or the direction of their patient’s agent is immune from criminal and civil liability. A health care provider who refuses to comply with a decision or a directive must promptly make known their unwillingness and promptly transfer the responsibility for the patient’s care to a health care provider who is willing to act in accordance with the agent’s direction.

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-03-05T18:38:00.000-08:00

On April 6, 2010, the topic for Lawyers On Call will be personal injury. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Transferring a Motor Vehicle by Non-Probate Affidavit in Arizona

2010-02-23T12:52:00.000-08:00

Pursuant to Arizona Revised Statute 14-3971(D), the Motor Vehicle Division shall transfer title of a motor vehicle from the decedent to the successor or successors on presentation of an affidavit stating that thirty days has passed since the decedent’s death, and either (1) an application or petition for the appointment of a personal representative is not pending and a personal representative has not been appointed in any jurisdiction and the value of all personal property in the decedent’s estate is less than $50,000 as valued as of the date of death or (2) the personal representative has been discharged or more than one year has passed since a closing statement has been filed and the value of all personal property in the decedent’s estate is less than $50,000 as valued as of the date of the affidavit. In addition, the claiming successor must be entitled to the vehicle.

To make the transfer, you will need to turn in the certificate of title to the Motor Vehicle Division along with a certified copy of the decedent’s death certificate, Title and Registration Application form, and the Non-Probate Affidavit for Obtaining Title to the Vehicle of an Arizona Decedent which can be found here

A.R.S. 14-3971

Disclaimer

Estate Planning Attorney Francis X. Morrissey, Jr. Has Been Disbarred

2010-02-20T17:09:00.000-08:00

Photo Credit: daylife

On January 6, 2010, I wrote about Anthony D. Marshall, son of Brooke Astor, and his sentence of 1 - 3 years in prison for defrauding his mother as she suffered from Alzheimers. A co-defendant, Francis X. Morrissey, Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will. That blog entry can be read in its entirety here

By operation of law, Francis X. Morrissey, Jr. (pictured above) has now been disbarred.

Matter of Morrissey

Disclaimer

Types of Wills Recognized by the State of Arizona

2010-02-11T16:53:00.000-08:00

The Arizona Code recognizes holographic wills, attested wills, and self-proved wills. To be valid, a will must comply with the execution formalities of either a holographic will or an attested will. A holographic will does not require witnessing, but it must be signed by the testator, and the material provisions (which would include the identity of the testator's property and the beneficiaries chosen to receive that property) must be in the testator's handwriting.

An attested will must be in writing and signed by the testator and at least two witnesses. The will does not have to be signed by the testator in the presence of the witnesses, and the witnesses do not have to sign in the presence of the testator or each other. However, the testator must then tell the witnesses that the signature on the document is, indeed, the testator's or that the document constitutes the testator's will.

Most attorneys continue to execute an attested will with greater formality by having the testator sign in the presence of two witnesses, who then sign the will in the testator's presence at his or her request, and in the presence of each other. This helps prevent any question about the validity of the will if it must be probated in another state.

The advantage of a self-proved will is most evident in the event of a will contest. Formalities of execution are conclusively presumed if a self-proved will is contested in a formal testacy proceeding. An attested will may be self-proved either at the time of the original execution or later. Regardless of when an attested will is made self-proved, the process involves an acknowledgment by the testator and affidavit of the witnesses before a notary public. There are statutory requirements regarding the content of the language that must be included at the end of the will if it is to be self-proved.

Disclaimer

Arizona Homestead Allowance, Exempt Property Allowance, and Family Allowance

2010-02-11T16:30:00.000-08:00

Under Arizona law, if the decedent was domiciled in Arizona, the surviving spouse can claim a Homestead Allowance in the amount of $18,000. If there is no surviving spouse, each minor child and each dependent child is entitled to an equal share of the $18,000. The surviving spouse is also entitled to an Exempt Property Allowance in the amount of $7,000. If there is no surviving spouse, each minor child and each dependent child are entitled jointly to the $7,000. Finally, a surviving spouse, as well as minor and dependent children, are entitled to a Family Allowance, which is a "reasonable allowance" for maintenance during the period of administration. Similar to owning a share in community property, this protects against disinheritance by the testator since they are rights conferred by statute. In addition, because these allowances take precedence over creditors' claims except expenses of administration, they can protect the family of the deceased against creditors.

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-02-08T10:42:00.000-08:00

On March 2, 2010, the topic for Lawyers On Call will be tax law. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Does Arizona Impose a State Estate Tax?

2010-01-29T17:38:00.000-08:00

The quick answer to this question is no, the State of Arizona does not impose a state estate tax.

Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), every state in the United States imposed a state estate tax that, at a minimum, collected the amount of tax allowed as a credit for state death taxes by the federal government. EGTRRA radically changed the state estate tax regimes by eliminating the credit for estates of decedents dying after January 1, 2005.

The federal credit for state death taxes was a revenue-sharing arrangement between the federal government and the states. Because the amount of the credit was paid in tax (it was paid to the state to the extent the state imposed a state death tax equal to or in excess of the credit, or it was paid to the federal government as a part of the federal tax to the extent it was not paid to the state), the states enacted what is called a “pick-up” or “sponge” tax to pick up the portion of the estate tax that could be imposed on the state’s resident decedents without increasing the estate tax burden. The overall estate tax bill was neither increased nor decreased due to the pick-up tax; the tax bill was apportioned between the Internal Revenue Service and the state taxing authority. This was a popular approach as it required only a few sentences in the statute books, permitted the state revenue officials to rely on the federal audits of returns, and meant that the state death taxes were being taken out of monies that would have otherwise gone to the federal government.

In response to the changes in federal law (EGTRRA) that repealed the federal state death tax credit, some states have enacted laws that allow the state to continue to collect a state estate tax. Arizona, however, no longer imposes a state estate tax for decedents dying after January 1, 2005.

From Publication 900 - “Since the federal state death tax credit was the basis of the Arizona estate tax, Arizona effectively no longer had an estate tax after the federal repeal. Following the federal repeal, the Arizona legislature repealed the Arizona estate tax provisions (Laws 2006, Ch. 262, Section 3). Additionally, Arizona does not impose an inheritance or gift tax.”

Publication 900

Senate Bill 1170

Disclaimer

Fingerprinting Procedure for Non-Relative Seeking Appointment as Guardian of a Minor

2010-01-26T20:46:00.000-08:00

In my previous post, I wrote about the requirement of a background check for non-relatives seeking appointment of guardianship of a minor, which includes fingerprinting. In this entry, I offer practical advice on the fingerprinting procedure.

1. The proposed guardian is to report to one of the following offices to be fingerprinted.

Maricopa County Sheriff's Department in Phoenix at 101 W. Jefferson Avenue. (Enter the East Court Building. The Sheriff's Office is directly across from the cafeteria.) Fingerprinting at this location is done on Mondays, Tuesdays, and Thursdays, from 9:00 a.m. to 2:00 p.m. The fee is $8.00 per card, and the card is provided for guardianship's only.

Phoneix Police Department, 620 W. Washington. Fingerprinting at this location is done on Monday - Friday, from 7:30 a.m. to 4:30 p.m. The fee is $6.00 per card, and the card is provided.

Preferred Info Services, 54 S. Center Street, Mesa. Fingerprinting at this location is done on Monday - Friday, from 8:30 a.m. to 4:30 p.m. The fee is $10.00 per card, and the card is provided.

NOTE: Your fingerprints must be submitted on a BLUE fingerprinted card.

2. Tell the clerk taking your prints that you need to be fingerprinted to be appointed guardian of a minor.

3. The cost of processing each fingerprint card is $24.00 payable by certified check, money order, attorney's check, cash (exact amount required), or personal check with return address and picture identification. Make your check/money order payable to the Maricopa County Treasurer. After the prints are taken, deliver the fingerprint card, your $24.00 check /money order for each fingerprint card, and a copy of your Petition for Appointment and Affidavit to Probate Court Administration, located on the first floor of the Old Courthouse, 125 W. Washington, Phoenix, where you will be assisted in completing the necessary information on the card.

4. A calendar clerk will schedule a hearing date at least eight weeks away, due to the length of time needed for both the Arizona Department of Public Safety and the Federal Bureau of Investigation in Washington, D.C. to complete a background check on the prints and return them by mail.

5. Be sure to leave the "Employer and Address" and "Reason Fingerprinted" section blank. Court Administration will complete these areas.

Disclaimer

Background Check Required for Non-Relative Seeking Appointment as Guardian of a Minor

2010-01-26T18:51:00.001-08:00

Pursuant to A.R.S. 14-5206.B., "[b]efore the court may appoint as guardian a person unrelated to the minor, the court shall, in order to determine the applicant's suitability as a guardian, require the potential guardian to furnish a full set of fingerprints to the court to enable a criminal background investigation to be conducted."

The person who wishes to be named guardian must undergo a criminal background investigation before the hearing on the petition to appoint a guardian. The court or clerk will forward the background check application, fingerprint card, inventory sheet, and processing fee directly to the Arizona Department of Public Safety, which conducts criminal history records checks pursuant to A.R.S. 41-1750 and applicable federal law, and is authorized to submit fingerprint card information to the Federal Bureau of Investigation for a national criminal history records check.

Upon completion of the background check, the Department of Public Safety then forwards the results to the court before appointment of a non-relative as a guardian for a minor occurs. The background check may take six to eight weeks to complete once the Department of Public Safety has received the paperwork from the court or clerk.

In most counties, the clerk's office is charged with the responsibility of distributing the fingerprint cards and instructions for fingerprinting to applicants for appointment as guardian. In Maricopa County, the Probate Court Administrator's Office handles the fingerprinting process.

In my next entry, I'll offer some practical advice regarding the fingerprinting procedure.

Disclaimer

Arizona's Beneficiary Deed

2010-01-14T18:55:00.000-08:00

An ideal tool for those with a modest-sized estate in which the residence is the primary estate asset, the beneficiary deed is similar to payable on death accounts in that it allows for the transfer of real estate on the death of the owner to whomever the owner designates as beneficiary, thereby avoiding probate.

Pursuant to A.R.S. 33-405, a beneficiary deed is “[a] deed that conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner transfers the interest to the designated grantee beneficiary effective on the death of the owner subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges and other encumbrances made by the owner or to which the owner was subject during the owner's lifetime.”

In addition, the statute allows for multiple beneficiaries who may take title in any recognized form, and may designate a successor grantee beneficiary, which should be indicated in the event a beneficiary predeceases the owner of the property. A beneficiary deed may also be used to transfer an interest in real property to the trustee of a trust, even if the trust is revocable.

ADVANTAGES

A beneficiary deed allows for the avoidance of probate. Arizona allows for the transfer of real estate by affidavit, however, pursuant to statute the value of all the real property in the estate, less liens and encumbrances as of the date of the decedent’s death, cannot exceed $75,000. The use of a beneficiary deed to transfer real property will avoid the need for a probate proceeding in cases where the equity in the property is in excess of $75,000.

A beneficiary deed does not carry with it the disadvantages associated with adding someone as a joint tenant. Many aging parents are using the technique of adding their adult child or children as joint tenants to avoid a probate proceeding upon their death. However, this can result in unintended tax and other consequences. Should their child become involved in a lawsuit (divorce, tort action, or bankruptcy), the property on which that child’s name has been added is subject to those proceedings.

A beneficiary deed is easily revoked. A beneficiary deed is easily revoked by the owner, or if there is more than one owner by any of the owners who executed the beneficiary deed, by executing and recording the revocation as provided by law in the office of the county recorder in the county in which the property is located.

A beneficiary deed is an effective tool for transferring property in the case of unmarried couples. An unmarried couple does not enjoy the benefits a married couple does in the event the relationship ends, and it’s often difficult to determine the property rights of those involved. Particularly in cases where property has been purchased solely with the assets of one party, it might be more appropriate to place one’s partner on the deed as a beneficiary rather than a co-owner.

DISADVANTAGES

In the case of joint owners, the surviving owner can defeat the purpose of the beneficiary deed. In cases where there are joint owners of property, and they have executed and recorded a beneficiary deed, upon the death of the first joint owner to die, the surviving owner can revoke the beneficiary deed. It’s for this reason that the use of a beneficiary deed might be problematic for couples with prior marriages and children from those prior marriages, as there is no provision in the statue for an irrevocable beneficiary designation.

There is the possibility of conflict in the event multiple beneficiaries are named. In cases where multiple beneficiaries are named, there is the potential for disagreement as to how the property should be managed and whether the property should be kept in the first place or, alternatively, sold. The use of a revocable living trust might be the better alternative to manage these issues.

There are issues with the use of a beneficiary deed when leaving property to minor children. Due to the numerous issues involved with leaving assets to minor children, a child’s trust (either testamentary or living) should be named as the beneficiary of the beneficiary deed.

There are possible estate tax issues when using a beneficiary deed to transfer property on one’s death. Using a beneficiary deed to transfer property on one’s death precludes the use of the property to fund a credit shelter trust, because the property does not pass into the trust until the death of the surviving spouse.

Although extremely popular and an effective estate planning tool in some situations, due to the drawbacks, the use of a beneficiary deed is not recommended for every estate plan, and the advantages and disadvantages of using a beneficiary deed should be considered carefully before executing and recording one as part of one’s estate plan.

A.R.S. 33-405

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2010-01-07T20:49:00.000-08:00

On February 2, 2010, the topic for Lawyers On Call will be credit resolution problems. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Brooke Astor’s Son Found Guilty – Sentenced to 1 – 3 Years in Prison

2010-01-06T19:40:00.000-08:00

Brooke Astor’s only son, Anthony D. Marshall, was sentenced on December 21, 2009, to one to three years in prison for defrauding his mother, stealing millions of dollars from her as she suffered from Alzheimers. (A co-defendant, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will.)

Credit: The New York Times

In addition to the legal issues involved, this story caught my attention due to my interest in the transatlantic liners of the early to mid-1900s. On April 14, 1912, the R.M.S. Titanic struck an iceberg in the middle of the North Atlantic and subsequently foundered on April 15, 1912 at approximately 2:20 a.m., sinking to the bottom of the ocean and taking over 1,500 souls with her.

One of the many people to die in the sinking was John Jacob Astor IV. After assisting his young, pregnant wife Madelaine into a lifeboat, Mr. Astor stood back with the other men while the other women and children entered the lifeboats, which was customary back then.

John Jacob Astor IV Credit: Picture History

Madelaine Astor Credit: Titanic-Titanic

It was Vincent Astor, son of John Jacob Astor IV, and married to Brooke Astor at the time of his somewhat sudden death of a heart attack on February 3, 1959, who brought his father's body back to New York (his body was recovered from the Atlantic after the sinking) and presided at his funeral after the sinking. In 1948, Vincent set up the Vincent Astor Foundation and, upon his death, half of his $130 million estate went to the Foundation which his widow, Brooke, was to administer.

Over the course of her life, Brooke Astor carried out her husband's wishes, donating over $200 million to various charities during her lifetime. Although, unfortunately, her good work might be overshadowed by the recent events involving her estate, this classy lady can rest in peace knowing she carried out her late husband's wishes.

Brooke Astor Credit: Fox News

On a bit of a side note, Vincent left his half-brother, Jack, nothing. The child with whom Madelaine Astor was pregnant while on the Titanic and, in my opinion, unintentionally disinherited, is, ironically, the one responsible (he left a son and grandson when he died in July of 1992) for carrying on the Astor name in the United States. I find it a bit interesting that Vincent left him nothing, as he had to have known that his father would have wanted to provide for him and, although it's my understanding that Vincent didn't like him (his half-brother) much and didn't respect his choices in life, it's interesting that he didn't do the right thing, so to say.

The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Capital Gains Tax

2009-12-29T18:42:00.000-08:00

Prior to December 31, 2009, the basis of inherited property (or property acquired by way of substitutes for testamentary transfers) was usually the fair market value of the property on the date of the decedent’s death (or, six months after the decedent’s death if the executor elects to value the assets included in the gross estate on the alternate valuation date of six months after the decedent’s death due to the aggregate value of the assets being less at that time). The decedent is not required to recognize gain on the transfer of property at death, so any appreciation that occurred during the decedent’s life is exempted from tax. This is what is referred to as a tax-free step-up in basis.

For many years prior to the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), tax reformers had been objecting to the tax-free step-up in basis, arguing that either the appreciation on property transferred at death be taxed, or that the survivors take the property with a carryover basis as under Title 26, Section 1015 of the United States Code, which covers the basis of property acquired by gifts and transfers in trust, and generally provides that the basis would be the same as it would be in the hands of the donor.

With the passage of EGTRRA came carryover basis provisions. Title V, Subtitle E, Section 541 of EGTRRA terminates the step-up in basis at death for decedents dying after December 31, 2009. There are, however, some major credits and exemptions that will prevent a number of people from being affected by the provisions. The assets of every decedent’s estate will be eligible for a $1,300,000 increase in basis, and assets passing to the surviving spouse of a decedent will be eligible for an additional $3,000,000 increase in basis. H.R.4154. - Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, recently passed by the House of Representatives, would repeal the carryover provisions of EGTRRA. Although beneficiaries won’t be paying any federal estate taxes in 2010, some may be paying capital gains taxes instead.

Economic Growth and Tax Relief Reconciliation Act of 2001

Disclaimer

Congress and the Federal Estate Tax

2009-12-28T12:23:00.000-08:00

There has been much speculation in the past year as to whether Congress would act to provide some clarity on the federal estate tax. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) affected a number of areas dealing with tax, including estate, gift, and generation-skipping transfer taxes, among many others. Pursuant to EGTRRA, the tax exemption amount would increase from $675,000 in the year 2001, to $1,000,000 in the years 2002 and 2003, to $1,500,000 in the years 2004 and 2005, to $2,000,000 in the years 2006, 2007, and 2008, and $3,500,000 in the year 2009, until the year 2010, when the federal estate tax would be repealed for that year and reinstated with a tax exemption amount of $1,000,000 in the year 2011, unless Congress acted before then. It becomes difficult for some to engage in any long-term planning when the tax law changes every year.

As of this writing, in December of 2009, the unified tax credit exemption amount is $3,500,000 and taxes would have to be paid on anything over that amount if a person dies this year. If a person dies in 2010, their beneficiaries will not have to pay any taxes on the deceased’s estate. In 2011, the unified tax credit exemption amount goes back to $1,000,000, and estate taxes will be due on estates worth more than $1,000,000 dollars.

On December 3, 2009, the House of Representatives passed H.R.4154 – Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009. This Act repeals provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, eliminating the tax on estates and generation-skipping transfers and the step-up in basis provisions for property acquired from a decedent for estates of decedents dying after 2009. The estate and gift tax provisions in effect in 2009 would be retained. It also amends the Internal Revenue Code to establish a permanent exclusion amount of $3,500,000, and a maximum tax rate of 45% for decedents dying, and gifts made, after December 31, 2009. (The gift tax exemption amount would remain at $1,000,000.) Under H.R.4154, only a small percentage of Americans would need to be concerned with paying federal estate tax. Although the Senate has yet to vote, the passage of this bill by the House of Representatives is a step toward clearing up some of the uncertainty surrounding estate and gift taxes.

Mentioned earlier, an issue with which to be concerned is the elimination of the step-up basis at death under The Economic Growth and Tax Relief Reconciliation Act of 2001, which will be the subject of my next post.

Disclaimer

Lawyers On Call - Free Legal Advice for Arizonans

2009-12-28T11:20:00.000-08:00

On January 5, 2010, the topic for Lawyers On Call will be foreclosures and evictions. See the State Bar of Arizona web site for more information.

State Bar of Arizona

Disclaimer

Disclaimer

2009-12-28T11:16:00.000-08:00

The content on this blog is for informational purposes only, and is not intended to be, nor may it be interpreted as, legal advice. Although I will make every effort to provide the most current information possible, the law is always changing, and information may become dated. Information on this blog does not treat exhaustively the subjects covered, and you should not take any action based on the information on this blog. Please also be advised that any use of this blog or any response to this blog does not create an attorney-client relationship, and no attorney-client privilege exists. Do not send me any information you may have regarding any current or future legal issue(s) you may be facing unless you have a written engagement letter confirming my representation of you. I have, in a number of places on this blog, linked to other web pages and provided phone numbers to legal and non-legal organizations. However, I provide these as a convenience to the visitors of this blog, have no control over the information accessed, and am not responsible for the content on any web pages to which I have linked. Your access and use of any web pages to which I have linked is solely at your own risk.