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The Implication of Income Tax Charge on Estate Planning by Janine Byrne

Overview
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In the Pre-Budget Report of December 2003 the Chancellor Gordon Brown announced proposals to levy an Income Tax charge from 6th April 2005 in those circumstances where the transferor of an asset retains and interest or continues to benefit from that asset. In the instance of real property, the ‘benefit’ envisaged is the transferor continuing to reside in the property he/she has allegedly given away.

How the Charge Applies
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The Government refer to such assets as ‘pre-owned assets’ and, broadly speaking, its intention is to tax the ‘annual value’ of such assets as a benefit-in-kind on the former owner still enjoying the use of the asset. The annual value on which the charge is based will be the open-market rental for a property or a fixed percentage of the capital value of most other assets to which the new charge applies. Any amounts which the transferor pays for the use of the asset - rent for example - will be deducted from the annual value in arriving at the taxable benefit.
The charge will also apply if a person provides the funds to purchase an asset which they go on to enjoy the benefit of after 5th April 2005.

Rationale Behind the Charge
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The charge is intended to counter many Inheritance Tax planning schemes, but unfortunately, it will also impact many innocent and unintended victims. Thankfully, the legislation has included some exceptions to the application of the charge. The charge will not apply if;

The asset was gifted before 8th March 1986

The asset is owned by the transferor’s spouse

The asset is, in fact, still caught by the ‘Gifts with Reservation’ rules and as such Inheritance Tax applies instead (hence, the Income Tax charge will not be levied on top).

The asset was sold at an arm’s length price for cash (even if to a connected party).

The transferor of the asset had themselves inherited it and their ownership had ceased as a result of a Deed of Variation affecting that inheritance.

The transferor’s continued enjoyment of the asset is merely incidental or has arisen only as a result of an unforeseen change in family circumstances.

The annual taxable benefit (after deducting any contributions by the transferor, where necessary) does not exceed £2,500.

The Inland Revenue have also confirmed that the charge will not apply in most cases where a taxpayer has funded life insurance policies held on trust. Finally, there is also an ‘Opt Out’ option whereby the transferor can opt not to pay the charge provided the asset is included back into their estate and therefore consequently being subject to Inheritance Tax.

The Implications of the Charge
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Most of the Inheritance Tax Planning techniques usually involve a widow or widower having continued enjoyment of their former spouse’s share of the property and thus it would appear on first inspection that in the majority of cases the charge would not apply as the transferor themselves would not be around to continue to enjoy or benefit from the property.

However, a problem seems to arise where a couple own their property as joint tenants prior to commencing their tax planning strategy and subsequently changing their ownership title to tenants in common. Where the widow or widower formerly owned the property as joint tenants they had a share in ownership of the whole property. This means that the new Income Tax charge could conceivably apply to their continued occupation of the property after their spouse’s death.

A possible consequence of this for the future might mean that instead of acquiring property as joint tenants which has been the general rule, the wise policy would be to own the property as tenants in common instead. But how many people are aware of this distinction? Will legal advisors be prepared to explain the tax implications of acquiring property with the different legal titles?

Conclusion
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How far will the new charge impact on current Inheritance Tax Planning schemes? As yet, it is too soon to tell, as the rules have not been fully fleshed out and as yet, it is too soon to say with any certainty what will happen and which schemes will be affected.

But it seem fair to argue that the current Labour Government is doing its utmost to tax its citizens at every possible turn. Inheritance Tax avoidance schemes - indeed any tax avoidance scheme -are not unlawful. Planning for the future does not mean that people are engaging in tax evasion - which IS unlawful. But the policies being employed leave an uncomfortable impression of an angry parent chastising their child simply for being astute and planning for the future!

Needless to say, the whole approach leaves a somewhat bitter taste in one’s mouth.

JsByrne
LLB (Hons) LPc.
www.Draft-Your-Will.com

About the Author

Miss JsByrne holds a Bachelor of Law degree with Honours & a post-graduate diploma in Legal Practice. Also gained qualification in Wills Writing & is the owner/author of www.Draft-Your-Will.com and DYW Wills & Estate Planning Newsletter.

What’s New With Your Living Trust? by Jeffrey Broobin

Some time ago, Congress made certain changes to the estate taxes. As a result of the changes, effective January, 2004, the tax free amount increased to $1,500,000. (Back in 1997 it was $600,000.) This allows a married couple to leave a minimum of $3,000,000 tax free.

Your Living Trust does not need to be changed to incorporate these changes.

However, there are other developments which might be appropriate to consider.

1) You might want to consider a Dynasty Living Trust. The advantage of using the generation skipping tax exemption is greater during the grantor’s lifetime. Once property is transferred to a dynasty Living Trust, all appreciation and accumulated income generated by the property until the grantor’s death will be exempt from estate tax as long as it remains in the Living Trust. Basically, this is a grown-up Minor’s Living Trust.

2) Another more recent development is worth considering. Since after one spouse dies, the Survivor has full control of the Surviving Spouse’s Living Trust, including the right to change the beneficiary (through the General Power of Appointment), it is important to insure that the children from the first marriage inherit their deserved portion.

This is what could happen. You die. Your Living Trust divides into two or three shares. Your wife, who has control of the Living Trust, spends your half of the estate, remarries, and leaves her half to the new spouse (not your intention). You may discuss this now with your spouse and decide that the assets you have acquired during your lifetime together belong to both of you. While you still want your spouse to be happy and maybe even remarry, you want your joint assets to be inherited by your children, not the new spouse.

It is possible with the standard A - B - C Living Trust held by most married couples, which allows the Survivor’s half (the A Living Trust) to be changed, to incorporate an instruction that the A Living Trust (the Survivor’s half) will be locked. With this feature, the surviving spouse may spend everything, but whatever is not spent must be left to your family rather than the new spouse.

3) Because time has passed since your Living Trust was first written, formerly young children are not so young anymore, and the successors you selected to make your decisions may no longer be appropriate because they are too old. Please review these designations listed in your Living Trust and Powers of Attorney (financial and Health Care).
Furthermore, the inheritance age threshold designated for minor children at the time you made your Living Trust may no longer be appropriate. At the time, you were guessing about what these minors would be like, say, when they became 25 years old. Maybe you now think it is necessary to adjust that age restriction.

4) Be certain that the people you appointed still have their copies of your Health Care Power of Attorney. They should have a copy handy because in an emergency they may need to make medical decisions quickly.

5) Make it easy for the people you Living Trusted to deal with your financial matters.

1.Make sure they know where to find your advisors.
2.If you have your own business, make a plan to deal with your death, beginning with the first day after your death.
3.Make a list of investments (name of institution, account numbers) so your assets can be found. (Bank / stock accounts, retirement plans, life insurance, safe deposit box, etc.)
4.If all the information is in your computer, make sure that an appropriate Living Trustworthy person has access to the password.

6) Make sure that your assets which have any form of registration are properly titled in your Living Trust. These assets include bank accounts, stock, and real estate. Now is a good time to verify that all such assets are held properly.
You also will receive Forms 1099 showing interest or dividends received during the past year, and K-1s for Partnerships. Check each real property tax bill, Form 1099, and K-1 to ensure that it reads something along the lines of:
John and Mary Doe, Trustees of the Living Trust of John and Mary Doe, dated January 1, 2004.

There may be other property which should also be in the Living Trust but may not provide annual reporting, such as stock which does not pay dividends and, therefore, no 1099 is provided. You should also verify that Pension Plans, IRAs, and Life Insurance beneficiaries are properly designated.

Creditors (such as your mortgage holder and credit cards) do not need to know about the Living Trust. Only those holding your property should have notice.

If you inherited any property or received a substantial gift since formation of the Living Trust, you should consider its status and your plans for it. Likewise, the ramifications of a change in your marital status since formation of the Living Trust should be considered.

If you refinanced your property since doing the Living Trust, bought new property, or opened new investment accounts, you should verify that the property is back in the Living Trust. As a good idea to remove all uncertainty with regard to the current and up-to-date nature of the information in your Living Trust, you might want to sign a statement each year informing that all personal property is listed in the Living Trust.

Also, review your estate plan yearly to make sure that you still trust the people you have chosen to act on your behalf after your death.

Note that Legal Helper Corp. provides an easy-to-use, quick, and economical online method for creating completed revocable living trust. - http://www.legalhelpmate.com/living-trust-online.aspx

About the Author

Jeffrey Broobin is a free-lance writer on family and finance issues; his main goal is to help people during their complicated period of life.

Website: Legal Helper Corp.
Email: jeffreyb@legalhelper.ws

The Role of Your Wrongful Death Lawyer by Mart Gil Abareta

When a life is cut short by someone else’s negligence, the law in this country says that the only remedy available is monetary compensation. And, after a wrongful death accident, you may be thinking that it is inappropriate to contact a wrongful death lawyer too soon after the death, because of what other people might think or say. But I must say that it is your choice to determine when you are ready to contact a wrongful death lawyer to back you up in your case.

A wrongful death lawyer plays an important role in every wrongful accident case. He helps determine if you have a viable claim and make sure that no important deadlines for filing are missed. He deals with complex legal issues involving tort law, probate law, contract law, and insurance law. He ensures that the claim is moving forward at a time when you may need to focus on helping yourself and your family work through the emotional loss. He takes steps to preserve evidence and testimony which might be lost if too much time has passed.

However, you must also know that wrongful deaths are not always caused by individual members of the civilian populace. During these instances, the role of wrongful death lawyers on the prosecutor side is to prove that negligence was the reason for the death currently under discussion. Their role is to represent a defendant and prove that the client was not negligent and didn’t cause the death of the victims involved.

The legal process can truly be intimidating and confusing. A major part of a wrongful death lawyer’s role is to demystify the process for you. He takes the time to explain things in plain English for you to be able to make informed decisions that are in your best interest for the long term. He commits himself in representing and protecting the rights of individuals and families. Most of the wrongful death lawyers around do not represent insurance companies, hospitals or large corporations.

After all, in both cases, the roles of your wrongful death lawyer are still the same. That is, to help you win the wrongful death case that you’ve been a part of. For the people in the prosecution, the focus of your concern must be on getting better – protecting your right to compensation – and getting the compensation and justice you deserve as a survivor of someone who was wrongfully killed. And for those people in the defense, your main concern is to prove that the accused has not been negligent in his actions.

About the Author

Looking for tips and suggestions about legal matters, visit http://www.personalinjurylawyersinc.com

What is Probate? by David R. Baker

What is Probate?

Nobody voluntarily chooses probate. People are too busy or preoccupied with health or other issues to plan. They pass away without a living trust and their heirs—-usually their children—- find that they can’t sell Mom or Dad’s house without a court order or can’t transfer Mom or Dad’s bank account without court approval. Even with a will, they may be forced to file a probate proceeding.

Alternatives to Probate

Because probate is expensive and time consuming, a responsible attorney first tries to determine if there is an alternative to probate. In California, the most common alternatives to probate are a Spousal Property Petition (if there is a surviving spouse) or a small estate transfer (if the value of the estate is less than $100,000). If these and other alternatives to probate are unavailable, then the only recourse for the decedent’s heirs is to file a probate proceeding.

Cost of Probate

Attorney’s fees and costs are set by law in California and are based upon the value of the estate. Here is the statutory fee schedule in California:

4% of the first $100,000
3% of the next $100,000
2% of the next $800,000
1% of the next $9,000,000

What Is Probate?

Probate is the judge-supervised process of paying a decedent’s legitimate bills, inventorying and appraising a decedent’s assets, and distributing the assets to the decedent’s heirs or beneficiaries.

Length of Probate

Most probates take between 6 months and one year. We take pride in the fact that most of our probates are handled without a hearing: in the S.F. Bay Area, this is done through a system of “pre-granting,” i.e. the judge is willing to sign the proposed order without an attorney making a court appearance.

About the Author

David R. Baker graduated from Hastings College of the Law in San Francisco in 1979 and passed the California State Bar Exam the same year. The present focus of his practice is Probate, Decedents Estates, and Living Trusts. He can only advise on matters relating to California law and California legal proceedings. His website is: http://www.california-probate-attorney.com/

Taking Control; Safeguarding the Distribution of Your Assets by Making A Will by Miss Janine Byrne

The Importance of Making a Will

A valid will is one of the most important documents you could ever put your signature to, as the consequences of failing to make a will before you die can have far-reaching effects on the people you care about most.

Despite the importance of this legal document, it is still the case that only 3 out of every 10 people make a will mainly due to lack of awareness as to why a Will is needed.

The 3 most important reasons why a Will should be made are;

1.Simplifying Administration Process
2.Intestacy & Distribution of Assets
3.Inheritance Tax

1. Simplifying the Administration Process

Before a deceased person’s estate can be distributed to various individuals a grant of representation needs to be obtained from the Probate office. All assets which comprise the estate –including money in bank accounts - are frozen until this grant is confirmed. Where no will has been made the process of applying for the grant is drawn out, causing aggravated upset and anxiety for relatives and possibly acrimonious disputes and legal costs over who should deal with the estate.

A valid Will resolves these problems as persons will already have been appointed by the Will – executors – to deal with the estate and can obtain the grant and begin the distribution of the assets in a minimal period of time thus saving costs, time and unnecessary distress.

2. Intestacy & Distribution of Assets

Making a Will is the only way to ensure that the people you wish to inherit from your estate actually do so. Failing to make a Will will result in the law of Intestacy being applied, and the intestacy rules will dictate who will receive what, and often this will not accord with what you would have wanted. For example;

a) If you are single you may want to distribute your assets amongst selected friends and family. The rules of intestacy will not take into account any relationships based on friendship, and will distribute amongst relatives only, everything passing to the State if no relatives can be found.

b) If you are living as cohabitees (unmarried couple) you may want your partner to derive some benefit from your estate, perhaps to remain in the family home for example. The rules of intestacy would not take your partner into account; as far as the law is concerned, you would be treated as a single person and your partner would receive nothing.

c) If you are married with children you might assume that your spouse would receive everything. This is not always the case, as brothers and sisters and often your children will also have a claim.

d) If you are a parent, you might assume that if anything were to happen to you that your closest relatives would be responsible for the care of your children. However, the matter will need to be taken to the Courts for them decide who should have custody, a process which can be very drawn out and distressing to the parties involved. This particular consequence is of vital importance if you are a single parent or unmarried couple with children. Making a Will is invaluable by appointing Guardians to be responsible for the care of your children.

Failing to make a Will leaves control over the distribution of YOUR possessions and assets in the hands of the State. Making a Will puts the control back in YOUR hands.

3. Inheritance Tax

The family home is often the main asset and with the increase in property values more and more people have been caught in the Inheritance Tax net. Failing to make a Will will result in the rules of Intestacy being applied and these will only provide for the minimum Inheritance Tax avoidance.

The UK legislation provides that assets up to the value of £275,000 are exempt from Inheritance Tax and anything over this threshold will be taxed at 40%. When you add up everything you own – including personal items etc – you may find you are worth a substantial amount of money. In addition, you might be dismayed to discover that you also be liable to pay inheritance tax!

As an example, if your estate is worth £300,000, £25,000 of that will be taxable at the rate of 40% which will result in £10,000 worth of tax being payable!

Making a Will is one of the best tax avoidance tools you can employ – in addition to others and utilising the exemptions which are available.

Making a Will is probably one of the last – and most important – undertakings you can do for the benefit of your family and those you love…failure to make one can have far reaching and dire consequences.

JsByrne
LLB (Hons) LPc.
www.Draft-Your-Will.com

About the Author

Miss JsByrne holds a Bachelor of Law degree with Honours & a post-graduate diploma in Legal Practice. Also gained qualification in Wills Writing & is the owner/author of www.Draft-Your-Will.com and DYW Wills & Estate Planning Newsletter

WHY PAY YOUR SOCIAL SECURITY TAXES? by Jinky C. Mesias

Why pay your social security taxes? It is important to pay your social security taxes in order for you to earn your social security credits. These social security credits can help you and your family qualify for the various benefits provided by the social security like disability and survivors’ insurance coverage. These benefits will cover you whether you are working for an employer or whether you are self-employed. Aside from the disability and survivor benefits, there are also the retirement benefits as well as the Medicare protection that covers not only you but also your whole family. The Medicare protection is especially helpful during times when you or your family is in need of an operation or hospital confinement. Moreover, the Medicare protection is available up to your age 65.

In cases wherein you become disabled, the social security has disability benefits that will cover your expenses for up to one year or may be longer depending on the severity of your condition. Through social security you are given worry-free time to recuperate. However, you will be considered disabled if and only if you cannot do the work you are doing before because of your medical condition. The disability must also last for at least a year or to result in death. The disability benefit is usually paid on the sixth full month of your disability, this is done by the social security to ensure that you really are disabled and does not have the capabilities to work anymore. After which, your disability benefit will be sent to you for twenty-four consecutive months and aside from that you will also be allowed to make use of your Medicare benefits that is if ever you are confined in the hospital again. Moreover, for parents who are disabled their unmarried children are also entitled to get benefits too. The monthly checks are payable to either your biological or adopted children or dependent stepchildren or grandchildren who are under age eighteen, become disabled before the age of twenty-two and remain disabled or at ages eighteen to nineteen and attending elementary or secondary school full time.

On the other hand, if you are married and your husband is age 62 or older, he may also qualify to receive your disability benefits if ever you become disabled. Moreover, aside from that, he may qualify at any age if he is found out to care for your child who is under age sixteen and is disabled. However, in cases wherein you died, both the widower and the dependent children may receive monthly survivor benefits. If there are no dependent children, the widower must be either age sixty or older or may be between the ages fifty and sixty as well as disabled to qualify for the benefits of the deceased partner.

About the Author

For additional information and comments about the article you may log on to http://www.socialsecuritylawattorney.com

SOCIAL SECURITY DISABILITY by Jinky C. Mesias

The supplemental security disability income programs are the largest of the federal programs that aid people during their disabilities. Moreover, only those individuals who have disability and meet the medical criteria may qualify for benefits under this program. Most of the people who qualify under this category are aged, blind as well as disabled people who have little or no income. The purpose of the supplemental disability programs is to provide cash to disabled individuals in order for them to meet their basic needs for food, clothing and shelter.

For people to qualify for the supplemental disability income programs, first they must have worked in jobs covered by social security. The second qualification is that their medical condition must meet the social security’s definition of disability. Furthermore, benefits usually continue until the disabled social security member is able to work again on a regular basis. There are also a number of special rules called work incentives, which provide continued benefits as well as health care coverage to help the disabled member in going back to work. However, for individuals who have been diagnosed to experience permanent disability, the disability benefits will automatically be converted to retirement benefits at the same amount.

Disability refers to the incapacity of an individual to engage in any gainful activity because of any medically determinable physical or mental injury, which is expected to last for continuous period of not less than twelve months. Therefore, people who cannot go to work because of disability are entitled to receive their supplemental security income until the days comes that they can go back to their own respective jobs.

In addition, the social security has a listing book wherein all the requirements and guidelines on how to get hold of the supplemental security income are listed. This social security listing book can provide its members with the needed information they need whenever they want to get hold of some of the social security services they are entitled to. However, for those individuals who want to take hold of their social security benefits, it is advisable to file for claim the soonest possible time since disability claims often times takes a long time to process. So many claimants have frustrating experience simply because they have failed to file their claims in the earliest time possible. The social security services aim to provide its members with worry-free benefits that would aid them during times that they are in need of it the most.

About the Author

For additional information and comments about the article you may log on to http://www.socialsecuritylawattorney.com

SOCIAL SECURITY SURVIVOR BENEFITS by Jinky C. Mesias

Two things in this world are sure and these are living and dying. The living part benefits of Social Security comprises of disability benefits, retirement benefits and Medicare Health Benefits. The death benefits of Social Security is embodied in its survivor insurance package wherein the family of the deceased Social Security member is given the deceased retirement benefits in order to help them continue with their lives. Aside from that, in most cases the survivors insurance is probably more than the value of the deceased life insurance. By now, you are probably thinking just how you may be able to earn social security survivors benefits. The first thing to do is of course to become a member of social security and then you have to work in order for you to earn enough Social Security credits. A social security member can earn up to four credits each year. These credits will be the basis for the survivor benefits that would be given to the family of the deceased social security member. In addition, the survivor benefits to be given to the family of the deceased social security member will also depend on the age of the member at the time he or she died. For social security members who died at a young age, fewer credits are allotted for the family and would therefore render them a much lower survivor benefits. The survivor benefits will also depend on the working years of the social security member. In addition, each member of the social security is allowed to have not more than forty credits which is also equivalent to ten working years.

However, the survivor benefits are also given to the children of the deceased social security member and benefits are also given to the remaining spouse who is going to be the one to take care of the children irregardless whether the deceased member of the social security has earned the required number of credits. The credits earned are then based on the years of work the deceased social security member has accomplished before hitting the bucket. Aside from that, the family of the deceased social security member is also entitled to receive the survivor benefit based on the earnings of the deceased social security member.

Lastly, it is an excellent idea to plan and to prepare for the inevitable. Aside from that, being a member of the social security can actually bring peace of mind since you know that whatever happens to you, your family will be receiving survivor benefits. These survivor benefits can help your family continue living even without you with them.

About the Author

For additional information and comments about the article you may log on to http://www.socialsecuritylawattorney.com