The BOE keeps records on transfers and the IRS was seeking the information on transfers from January 1, 2005 through December 31, 2010.
In 2011, the district court denied an ex parte petition by the IRS for transfer records. Now, in 2012, the district court granted the IRS’s motion for the documentation.
The effect on our clients: records on parent-child and other transfers will be available to the IRS. The IRS can then cross-reference whether or not gift tax returns were filed consistent with Primary Change of Ownership Reports.
2. Retirement and IRA Beneficiaries.
In order to maximize the stretch-out of funds to be paid-out of an IRA, it is not enough to name a trust as beneficiary and the trust have beneficiaries. Each beneficiary will have to use the oldest beneficiary’s life expectancy for payout.
To maximize the stretch-out under the “separate account” “rule,” you must name each of the separate sub-trusts for the individual beneficiaries, as a beneficiary on the beneficiary designation form. IT IS NOT SUFFICIENT TO JUST NAME THE SINGLE TRUST ITSELF!
A named beneficiary must create a separate account by December 31st of the year of death of the IRA owner in order to use his or her life expectancy for mandatory distributions; if not, the individual beneficiary will have to use the life expectancy of the oldest beneficiary for required distributions.
3. Who inherits your iTunes library? See Quentin Fottrell, Who Inherits Your iTunes Library? Why Your Digital Books and Music May Go to the Grave, Wall St. J. (Aug. 23, 2012). (Article | Video)
A person who had 10,000 hardcover books and the same number of vinyl records could bequeath them to another person, but passing on iTunes and Kindle libraries would be much more complicated.
4. Research Tips: Google Scholar—www.scholar.google.com. Good for finding cases. Click on “Legal Documents” and search by party name and volume number or . . . . For cases related to particular statutes, try searching by something like “Probate 2013.” It will also find unpublished decisions citing the case or statute.
5. California Probate Code section 15401 contains provisions for a settlor to revoke a trust.
A NEW SUBSECTION (effective January 1, 2013)- California Probate Code section 15401, subsection (b)(2), will provide that the settlor may grant to another person, including the settlor’s spouse, a power to revoke all or part of the trust contributed by the settlor whether separate or community property and regardless of whether the power is exercisable during the lifetime of the settlor, or continued after the death of the settlor.
The existing California Probate Code section 15410 contains provisions for disposition upon revocation. Effective January 1, 2013, subsection (a) has been amended as to revocation during life, and subsection (b) has been added to set forth distribution if revocation is after the settlor’s death.
6. California Probate Code section 2134 is amended (effective January 1, 2013) to apply to a trust to avoid ademption (extinction of a gift) when specifically bequeathed property is sold by a successor Trustee and the Settlor is incapacitated. The beneficiary will get a general pecuniary gift in an equal amount to the extent trust assets exist.
7. There are gift and estate tax issues that occur January 1, 2013 due to language of the law that reinstates the pre-2001 law as if the 2001 Act “had never been enacted.” What does that mean? No one knows for certain.
Is there the potential “clawback” or “recapture” as estate tax of the gift tax avoided on large gifts in 2011 and 2012?
It will take an act of Congress or court decisions to clarify this. Most experts do not believe the “clawback” or “recapture” will occur, but what other effects are there of the language as if it “had never been enacted” might there be?
What if the beneficiaries of the lifetime gifts are different from the deathtime beneficiaries? The additional tax from the lifetime gifts might be collected from the estate going to people who did not receive the lifetime gifts. To the extent that donees of lifetime gifts are also beneficiaries of deathtime bequests, a trust provision that requires that taxes related to the “clawback” or “recapture” are to be paid from the distributable share of these individuals might be appropriate.
What will be the effect on 26 U.S.C. § 6166 installment payment agreements? If payments are still due, will the balance now be due immediately?
8. Healthcare Directives, regardless of the format you use, should be made effective immediately so that the named agent can have access, under the HIPAA provisions, to records determining incapacity. Otherwise you might face the nightmare of attempting to prove incapacity without access to medical records.
A doctor may refuse to give you a letter declaring incapacity.
9. Unless an order appointing a conservator SPECIFICALLY suspends or revokes a Power of Attorney for Finances or Assets or a Durable Power of Attorney for Healthcare (which means the petition must contain a request to do this AND, probably, the agent must be given notice of the hearing) those documents remain in effect!
These are some things for you to consider for January 1, 2013.
John T. Anderson, Section Chair
LB Bar Assoc. Estate Planning, Trust, and Probate Law Section
Certified Specialist in Estate Planning, Trust, and Probate Law by the
State Bar of California Board of Legal Specialization