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Category Archives for Probate

Are Handwritten Wills Enforceable? Princess Diana Thought So…

Princess Diana was one of the world’s most loved celebrities – and one of the richest.  Her tragic death in 1997 was world news. The majority of her estate, reportedly worth $40 million at the time of her death, was divided between Prince William and Prince Harry in her estate plan. However, she also prepared a handwritten will that directed her executors to give a number of personal effects to her godchildren. Those executors, her mother and her sister, went to court and had it ruled unenforceable.

However, she also prepared a handwritten will that directed her executors to give a number of personal effects to her godchildren. Those executors, her mother and her sister, went to court and had it ruled unenforceable.

Sorrell Law Firm, PLC 7575 E Redfield Rd Suite # 217, Scottsdale, Arizona 85260 (480) 776-6055

Holographic (Handwritten) Wills – Sometimes Enforceable, Sometimes Not

Princess Diana’s letter of wishes is similar to what’s known as a “holographic” will in the United States. In its most simple terms, it is a handwritten document which may or may not have to be signed.

State laws vary on whether holographic wills can be enforced and how they must be prepared.  Approximately half of U.S. states allow them and those require the matter to be probated. Some of the issues which frequently arise concerning handwritten wills include:

  • Validity: Did the decedent write the will? In contested cases, handwriting experts are often used to determine validity.
  • Undue Influence: Was the decedent unduly influenced to create the will? That’s difficult to prove – or disprove – as they do not have to be witnessed.
  • Intentions: Does the will accurately describe the decedent’s intentions? Again, without witnesses (creating an actual last will and testament generally requires two), that becomes difficult to answer.

The question becomes – if you believe that no one will contest your holographic will (and it is legal in your state), should you skip the lawyers altogether? The answer is NO.

Don’t Subject Your Wishes to Scrutiny

The whole purpose of creating an estate plan that spells out your intentions upon death is to make it enforceable. Although last will and testaments still go through probate, they provide the court with a signed and witnessed document which is likely to reflect your intentions. Want to avoid probate altogether? Then you may want to consider a “Living Trust” based Estate Plan. Handwritten wills are less likely to hold up in court and will be subject to a great deal more scrutiny.

The bottom line is that creating a will, a trust, or any other type of estate planning document is easy – when handled by an estate planning attorney. In effect, the process is simple and consists of having a conversation about your intentions, listing assets, and creating a legal document which will carry those intentions out. Sadly, Princess Diana’s godchildren got nothing. Don’t let someone else decide what you did, or did not, intend.

Call our office at 480-776-6055 now and we’ll help you determine which type of Estate Plan is best for you and your goals.

3 Simple Ways to Avoid Probate Costs

The bad news:  probated estates are subject to a variety of costs from attorneys, executors, appraisers, accountants, courts, and state law. Depending on the probate’s complexity, fees can run into tens of thousands of dollars.

The good news:  probate costs can be reduced by avoiding probate. It’s really that simple.

Here are three simple ways to avoid probate costs by avoiding probate:

  1. Name a Beneficiary. The probate process determines who gets what when there is no beneficiary designation. So, naming a beneficiary is the easiest way to avoid probate. Common beneficiary designation assets include:
  • Life insurance
  • Annuities
  • Retirement plans
  1. Create and Fund a Revocable Living Trust. A revocable living trust owns your property, yet you remain in charge of all legal decisions until your death.  After your death, your named trustee manages your assets – according to your  A trust works well if properly created and funded by an experienced estate planning attorney.
  1. Own Property Jointly. Probate can be avoided if the property you own is held jointly with a right of survivorship. There are several ways that you can establish joint ownership of property such as:
  • Joint tenancy with right of survivorship – ownership simply transfers to other tenants upon your death;
  • Tenancy by its entirety – is a form of joint tenancy with right of survivorship, but only for married couples in some states;
  • Community property – property obtained during a marriage in some states;

State laws play an important role here.  We can help you determine which form of joint ownership, if any, is a good fit for you.

We Have the Tools to Help You

Contact our office today.  We’ll help you decide whether it makes sense to avoid probate in your particular case and, if so, the best way to do so.

What the Recently Released 2016 IRS Inflation Adjustments Mean for You

The Internal Revenue Service has released the official inflation adjustments that will affect 2016 federal reporting for estate taxes, gift taxes, generation-skipping transfer taxes, and estate and trust income taxes. These changes will affect the way your accountant and your attorney help you plan as 2015 comes to an end.

2016 Federal Estate Tax Exemption

In 2016 the estate tax exemption will be $5,450,000.  This is an increase of $20,000 over the 2015 exemption and a total increase of $1,950,000 since 2009. The maximum federal estate tax rate remains unchanged at 40%.

What this means is that a person can die in 2016 with up to $5,450,000 of assets before his or her estate will need to file an estate tax return. Of course, there are certain circumstances where an estate tax return will still be necessary – such as to elect “portability” or if a person made substantial gifts during their life. The exact deadline to file an estate tax return varies depending on a person’s date of death, because an estate tax return is due within nine months of the deceased person’s date of death.

 Although the estate tax exemption has been increasing and now generally means that most people don’t need to worry about estate taxes, almost everyone still needs a will or a trust to ensure that their assets pass to their intended beneficiaries.

 2016 Federal Lifetime Gift Tax Exemption

 In 2016 the lifetime gift tax exemption will also be $5,450,000.  This is an increase of $20,000 over the 2015 exemption and a total increase of $1,950,000 since 2009. The maximum federal gift tax rate remains unchanged at 40%.

What this means is that if a person makes any taxable gifts in 2016 (in general a taxable gift is one that exceeds the annual gift tax exclusion – see more on that below), then they will need to file a federal gift tax return. For taxable gifts made in 2016, the gift tax return is due on or before April 17, 2017 (the same day as your 2016 income taxes).

 2016 Federal Generation-Skipping Transfer Tax Exemption

 In 2015 the exemption from generation-skipping transfer taxes (GSTT) will also be $5,450,000.  This is an increase of $20,000 over the 2015 exemption and a total increase of $1,950,000 since 2009. The maximum federal GSTT rate remains unchanged at 40%.

What this means is that if a person makes any transfers that are subject to the GSTT in 2016, then they will need to file a federal gift tax return.  For generation-skipping transfers made during 2016, the gift tax return is due on or before April 17, 2017 (the same date as your income taxes for 2016). If the generation-skipping transfer does not exceed $5,450,000, then no GSTT will be due; instead, the transferor’s GSTT exemption will be reduced by the amount of the transfer.

 For example, if Bob has not made any prior generation-skipping transfers and makes one of $500,000 in 2016, then his GSTT exemption will be reduced to $4,950,000 ($5,450,000 GSTT exemption – $500,000 generation-skipping transfer = $4,950,000 GSTT exemption remaining). The generation-skipping transfer tax is a complex tax, so you’ll definitely want to check with your accountant and attorney before making any large gifts during 2016 (or 2015 for that matter).

 2016 Annual Gift Tax Exclusion

 In 2016, the annual gift tax exclusion will remain at $14,000. However, one adjustment is happening next year – the first $148,000 of gifts to a spouse who is not a U.S. citizen are not included in the total amount of taxable gifts.  This is an increase of $1,000 above the 2015 exclusion.

Here’s how the annual gift tax exclusion works. If you make gifts to the same person that are $14,000 or less, then no gift tax return will probably be necessary. However, if the gifts to one person exceed $14,000 in 2016, then you’ll need to file a federal gift tax return.  For taxable gifts made in 2016, the gift tax return is due on or before April 17, 2017 (the same day as 2016 income tax returns).

 If the taxable gift does not exceed $5,450,000, then no gift tax will be due; instead, the lifetime gift tax exemption of the person who made the gift will be reduced by the amount of the taxable gift.

 For example, if Bob has not made any taxable gifts in prior years and makes a gift of $500,000 to his daughter in 2016, then Bob’s lifetime gift tax exemption will be reduced to $4,964,000 ($500,000 gift – $14,000 annual exclusion = $486,000 taxable gift; $5,450,000 lifetime gift tax exemption – $486,000 taxable gift = $4,964,000 lifetime gift tax exemption remaining). As you can see, the interplay between the annual gift tax exclusion and the gift tax exemption can become complex once you add multiple gifts and recipients, so you’ll want to check with your accountant or attorney before making any substantial gifts.

 2016 Estate and Trust Income Tax Brackets

 Finally, estates and trusts will be subject to the following income tax brackets in 2016:

 If Taxable Income Is:                          The Tax Is:

 Not over $2,550                                  15% of the taxable income

 

Over $2,550 but                                  $382.50 plus 25% of

not over $5,950                                   the excess over $2,550

 

Over $5,950 but                                  $1,232.50 plus 28% of

not over $9,050                                   the excess over $5,950

 

Over $9,050 but                                  $2,100.50 plus 33% of

not over $12,400                                 the excess over $9,050

 

Over $12,400                                      $3,206 plus 39.6% of

                                                            the excess over $12,400

 The income tax rates for estates and trusts are very compressed. An estate or trust will hit the top 39.6% rate at only $12,400 of taxable income in 2016.  Estates and trusts are also potentially subject to the 3.8% net investment income tax (on top of the above rates), depending on their income level and source of income.

 Bottom line: if you’re a trustee or executor, you should talk to your accountant and attorney now to ensure that you’re making the most income tax efficient decisions possible given the circumstances of the estate or trust.

Which States Collect a State Death Tax?

Park Bench

In the United States, certain states collect a death tax based on the value of the deceased person’s estate and who inherits it.

Which States Collect a State Death Tax?

As of January 1, 2015, the following states collect a death tax:  Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee (but it will be repealed in 2016), Vermont, and Washington.

Each of these states has its own laws governing the amount of assets that are exempt from the death tax, what deductions can be taken, and the applicable death tax rate.  But regardless of these factors, for an estate to be potentially subject to a state death tax, the deceased person must have either lived in the state at the time of death or owned real estate or tangible personal property located in the state.

State Death Tax Examples

Some examples should help to illustrate when an estate may be potentially subject to a state death tax:

  1. Deceased Person was a New York resident. If you inherit your uncle’s estate and he lived in New York at the time of his death, will the estate potentially be subject to a state death tax?  The answer is yes, because your uncle lived in New York at the time of his death and New York collects a state death tax.  However, whether or not the estate will owe any New York death taxes will depend on the value of your uncle’s estate and what deductions can be taken.
  1. Deceased Person was a Florida resident. On the other hand, if your uncle lived in Florida at the time of his death and did not own any property located in New York, then his estate would not be subject to New York death taxes, nor would his estate owe any Florida death taxes since Florida does not collect a state death tax.
  1. Inheritor is a New York Resident. What if you inherit your uncle’s estate and he lived in Florida at the time of his death and he did not own any property located outside of Florida, and you live in New York, will your uncle’s estate be subject to the New York death tax?  The answer is no, because your uncle was a Florida resident who did not own property located in New York, and Florida does not collect a state death tax.  But what if your uncle, who was a Florida resident at the time of his death, owned a second home located in New York?  In this case your uncle’s estate will potentially be subject to New York death taxes even though he was a Florida resident at the time of his death because he owned a house that is physically located in New York which is a state that collects a state death tax.

As the above examples show, state death taxes are tricky and can apply even in unexpected situations.  Please contact our office if you have any questions about state death taxes.

Early Predictions About 2016 Estate Tax, Gift Tax, GST Tax and Annual Gift Tax Limits

Under current law the federal estate tax, gift tax, and generation-skipping transfer tax exemptions have become unified and are indexed for inflation on an annual basis.  Since 2011, the exemption and tax rate have changed as follows:

Year    Exemption       Tax Rate

2011    $5,000,000      35%

2012    $5,120,000      35%

2013    $5,250,000      40%

2014    $5,340,000      40%

2015    $5,430,000      40%

The annual exclusion from gift taxes is also indexed for inflation on an annual basis but only in $1,000 increments.  Since 2011, the annual gift tax exclusion has changed as follows:

Year    Exclusion

2011    $13,000

2012    $13,000

2013    $14,000

2014    $14,000

2015    $14,000

While the IRS will not officially release the 2016 inflation-indexed exemption and exclusion until later in October, Wolters Kluwer Tax & Accounting has released its 2016 predictions based on historical inflationary trends.  According to Wolters, the exemption should end up at $5,450,000 in 2016, or $10,900,000 for married couples.  While this is a mere $20,000 per individual / $40,000 per married couple increase over the 2015 exemption, it is a whopping $450,000 per individual / $900,000 per married couple increase since 2011. Unfortunately, Wolters anticipates that the annual gift exclusion will remain at $14,000 for 2016.

Wealthy individuals and couples should continue to monitor these inflation-indexed numbers and plan accordingly. We will update you on the official 2016 numbers once they are released by the IRS.