New Bill Provides Temporary Relief for the Estate Tax

Author: Dustin Wetton

On December 17, 2010, President Obama signed into law H.R. 4853, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This important tax extenders bill includes federal tax changes for individuals, businesses, and estates at all levels of income. One of the most important facets of the bill is the part concerning the estate and gift tax.

The deadline for revamping the estate and gift tax was the first of January, 2011. Thus, if no action was taken by Congress, the estate and gift tax laws would be restored to their 2001 levels. If that would occur, the amount that is exempt from estate taxes would be $1 million, and the tax on the rest would be 55 percent. Thankfully though, Congress took action. In this recent legislation signed into law only 13 days before the deadline, congress provided temporary estate tax relief and a modification of the gift and generation-skipping transfer taxes.

To sum up the recent changes that affect the estate tax, the new law has a higher exemption and a lower tax rate. The new legislation sets the estate tax exemption at $5 million per person and $10 million per couple. Thus, if you are an individual, you will not be taxed on up to $5 million of your assets upon your death. Therefore you are able to actually give out to others the inheritance that you had planned for them. Also, there is a top tax rate of 35 percent for the estate, gift, and generation-skipping transfer taxes for two years, through 2012. Thus, if you are an individual with more than $5 million in assets at your death, then anything over the exemption amount will be taxed at a top rate of 35%. Lastly, the proposal sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.

A new tool is granted for estates of decedents dying after December 31, 2010. Under current law, couples have to do complicated estate planning to claim their entire exemption. Yet now, under this new legislation, a couple is allowed to transfer any unused exemption to the surviving spouse without any need for a planning instrument to dictate otherwise. Thus, the first spouse to die can use an estate plan that takes little to no taxes out of their estate, while also protecting the surviving spouse from heavy taxes upon their death.

Lastly, the new bill once again reunifies the estate and gift taxes. Prior to the 2001 Bush tax cuts, the estate and gift taxes were unified, creating a single rate schedule for both. This was subject to repeal if Congress took no action. Luckily though, the recent bill unifies the estate and gift tax once again. The bill is effective for gifts made after December 31, 2010.

With all of the new changes taking place, it is a good idea to use the inspiration of Congress’ action to take action yourself. Check your estate plans to ensure that you are in line with recent changes and that the language in your will or trust allows you to take advantage of the beneficial changes that have just come into affect.

If you have any questions or comments regarding this blog email us at blog@lauruslaw.com

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Income Taxes and Bankruptcy

Author: Dustin Wetton

Ben Franklin once said that “the only things certain in life are death and taxes.” This quote can have many innuendos, one of which is that there is no way of getting out of paying for your taxes. However, during Mr. Franklin’s life, the United States had not yet setup a bankruptcy court or bankruptcy code. Thus, he was unaware of the ability to discharge federal and state income taxes through the bankruptcy process.

The bankruptcy code was initiated to help ease the burden of over-encompassing debt on debtors and to help create and protect the flow of credit. While most creditors are often credit-card companies, health industries, and lawsuits, in many cases, the federal and state governments are also creditors. In these situations, for whatever reason, the debtor owes their respected governments taxes, and thus is established a creditor-debtor relationship between the taxpayer and the government.

This situation is very common in bankruptcy. Yet because the creditor is the government, they have a very high priority of distribution and a more difficult burden of discharging their debt than most unsecured debtors. Thus, if you owe money on taxes from previous years, you can have your debt discharged, that is “wiped clean”, however the following six steps must be fulfilled in order to do so:

1)The due date of filing the return is at least 3 years ago
2)The tax return was filed at least 2 years ago
3)A tax assessment occurred at least 240 days ago
4)The returns are not fraudulent
5)The debtor is not guilty of tax evasion, and
6)The debtor must prove the past four years of filings had been filed.

These six steps must be followed to a tee in order to get the past years taxes discharged. If there are problems in qualifying for any of the steps, an attorney, the trustee, and the IRS are all very helpful in figuring if the debts can be discharged or not. Also, it may be a good idea to get a tax transcript from the IRS and the State for the tax years that you are going to try to discharge to make sure that your numbers are correct.

Issues with Short Sales

October 31, 2010
Author: Eric Townsend

Short sales are more prevalent than ever and many Americans are using them as an alternative to foreclosure. Negative equity home owners see a short sale as a way of limiting their liability. Unfortunately, this is a mistaken belief and acceptance of the short sale by the lenders does not necessarily mean all future litigation of the remaining debt is barred. In some circumstances not only can the lender go after the short seller after the short sale, but, depending on the circumstances, the judgment could be non-dischargeable through bankruptcy.

With a myriad of state and federal laws protecting home owners most residential short sales approved by lenders will result in no future liability, but will remain in several circumstances. Some of these liabilities are created by the lenders and are strictly unenforceable under California state law. Others liabilities were created at the time the short seller created the loan for the subject property. In these circumstances it is very important to understand when there are legitimate and illegitimate liabilities places on the short seller. Once the short seller understands the legal ramifications of completing a short sale only then should action be taken.

Without understanding the liabilities a short seller may be subject to, or to assume an illegitimate liability, it is easy to place a short seller in a position of liability that could have been mitigated with adequate legal advice. In some, but not all, cases lawyers can use simple strategies to help prevent the future liability of these short sellers.

A short sale done properly should operate as a settlement because in fact the short seller is helping the lender to procure the highest proceeds through a non-distressed sale. These actions are valuable to the lenders, and should be used for bargaining the removal of the short seller’s liability, but only a licensed attorney can explain and guide these short sellers to that result.

If you have any questions or comments regarding this blog, email us at blog@lauruslaw.com.

Laurus Law Group Project: Black’s Law Dictionary, "A - Abalienation"

Laurus Law Group Project: Black’s Law Dictionary
This is a notification. Laurus Law Group, in pursuit of spicing things up, has decided to engage its blog in a new direction: Black’s Law Dictionary. The goal is to accomplish the whole dictionary, and write about it. This idea was rooted in the book The Know-it-All by A.J. Jacobs and by a recent movie titled “Julie & Julia”, with the theme in both situations being the conquering of lengthy and informative books such as Black’s Law Dictionary.

Now to the details. The exact book that will be used is Black’s Law Dictionary 7th Edition, edited by Garner of West Group. This book is huge. Not including the appendixes or prefixes, the total page count totals up to over 1600 pages. Not only that, but each page has anywhere from 1 to 20 listings of words or topics. Thus, to fulfill my due diligence in this project, Laurus Law will not report on every single subject in the book, but instead will write about the five top listings, ranked according to our lawyers. The top five listings will be written of hopefully each day, so readers try and keep up.

Why are we doing this??? Well, Black’s Law Dictionary is a corner-stone of cement in the legal community. Law students, judges, lawyers, and professors have relied upon this book since 1891 when it was first published by Henry Black. There are thousands of versions and languages that this book has been transcribed into and there are even on-line versions and pocket versions of this same book. With so much of the world depending upon this book for their legal definitions, Laurus Law believes that the lay people of the world should have their crack at understanding its terms. Thus, our project.

Therefore, with no further ado, let’s start with the five top listings of the day.

A - Abalienation August 2, 2010
author: Dustin Wetton

1) A – There are many definitions for this word, and while it may seem ultra-common and obvious, what better place to start the dictionary but with the letter “a”. One great start to defining it is how it is practically used in the legal world with the reference to “a hypothetical person.” For instance, when talking about a real estate transaction, the legal community would say “a transfer Blackacre to b.” Thus, in those situations, facts of who the people could be are of little importance, and the focus should be on the other facts of the situation.

Another definition used in the Book is “a grade as ranked by Standard & Poor’s.” With this definition, the rankings of the S&P are of AAA to C from high to low based on their opinion of a stock. Thus, to be sure not to miss anything, the Book has made sure that when A is in a document, it could be in reference to its ranking system, which is somewhere between AAA and C, but who knows what “A” ranking really stands for.

My favorite and last definition for “a” is “a scarlet letter worn as punishment by a person convicted of adultery.” Yes, this was used in The Scarlet Letter, but it was also a common practice in the colonies during the founding of America. This is a great reference to legal history and how not only adultery used to be a crime, but how the punishment matched the act committed. The secrecy of adultery was punished with the constant announcement of its action. How grand of an idea. Oh “a”, how we will miss you.

2) abacinate – “to blind a person by placing a red-hot iron or metal plate in front of the eyes.” Ouch. With my wild guess, I would have to assume that this was a type of punishment used and not a crime, yet I could be wrong. What is even more interesting to me is that the item of metal was not placed into the eye of the person, but instead was placed “in front” of their eyes to blind. It was as if they were trying to be mean, but not too mean. Also, this is the name of a modern band, with very peculiar artwork.

3) ab actis – Latin is found throughout the Book. This is because much of our legal codes have derived from Roman law and thus we have adopted many of their sayings. The word “ab” means “by” or “of.” Here, this word “ab actics” is “an officer responsible for public records, registers, journals, or minutes.” This is in reference not to a modern day clerk, but instead to an officer under Roman law. Yes, even back in the day of the empire, there were individuals recording, registering, and journaling everything in the legal system. This is a hard job, and one with a long history, thus, the next time you go into the court house, pay a little respect to these individuals.

4) ab agendo – there is that ab again. Here though, this word is relating to the inability to act, or more properly, “unable to act or incapacitated for business or transactions of any kind.” I wonder when this word was first used. It could be those with the inability to act in battle, or those who tried to sell their chicken, but were unable to act in a transaction of that kind for their spouse would not let them get rid of the family chicken. Any of which would be completely ab agendoed out.

5) abamita – “a great-great-great aunt.” Or in other words, the sister of one of your great-great-grandparents. Thank God they have a term for this. It is so much easier to say this word rather than the repetitive and confusing “great’s.” Yet, my curiosity is aroused as to whether there are many living abamita’s. The number must be small, but it is very possible to have one living. If any of you readers have a living abamita, I would love to hear all about it.

If you have any questions or comments regarding this blog, email us at blog@lauruslaw.com

To The Moon

author: Dustin Wetton

After a nice relaxing weekend, its good to be back to work. This week is planned with networking events at local entrepreneur and business owner network groups throughout the county, as well as meetings between our lawyers with other lawyers in the community to build upon our marketing techniques. Things are still changing here at Laurus Law Group, but its nice to see it all coming together nicely.

This blog is centered on the moon. I was listening to NPR radio on my way home one night and heard on their program “Things You Should Know” the interesting effects of the moon. The so-called "moon illusion" or "moon effect" has been discussed by many people over since our beginnings. Even Aristotle mentions it in 350 BCE. The illusion or effect is the change in the moon size when it is near the horizon compared to when it is high in the sky. There are many memories that I have looking at the full moon rising over a lake or between mountain passes and being amazed by its immensity, as I am sure you all have many similar memories. According to the radio program, some people judge the moon to be as much as twice as large, but the average estimate is 50% to 75% larger. The best part of this change in size of the moon is that no one knows why it happens. Scientists have agreed, to my great disappointment, that the moon is not changing in size every night as it passes from horizon to zenith. But they really cannot explain why our perception of the moon changes.

This illusion is very amusing to me. The moon is the moon, by definition. Its size is constant, at least mostly constant, but to our eyes it fluctuates on a daily basis. It makes me think of philosophical topics such as relativism and absolutes. It also makes me think of the myths and beliefs of perceptions. While the public at large may believe one thing to be true based on perception, the truth of a situation may be hiding behind this perceived belief. And thus, I segue into the Alter-Ego theory.

The alter-ego theory is a theory based upon a business entity being created in order to hide the owners from liability, yet its only purpose is to serve as the “alter-ego” of the owners. Therefore, to tie it to the moon, the perception of a business and holding itself out to be a business is only a façade, and the truth is that the business is just a mask for the owner to try and hide behind. When an alter-ego is found, the protections afforded to certain entities are vanished and the owners can be attacked personally for any liabilities of their business. Of course the alter-ego can be found when owners are caught to purposefully be hiding behind their business as a fraud, but there are even simpler, more innocent, ways of being found as an alter-ego business. When a business is not operating as a business, courts have found that the business is not truly a business, but is instead an alter-ego. Acting like a business is ensuring that all letterheads match, that monthly board meetings are met and minutes are taken, that correct voting at all meetings are conducted properly, that papers are recorded and organized properly. While each of these, and many other tasks, may seem minute on an annual basis, these tasks are what courts look to and litigators try to find when the alter-ego theory is being used as a weapon. Thus, governing your business properly on a daily basis is a necessity. To be sure that your business is run properly, it is often a good idea to hire an attorney to check annually, semi-annually, or quarterly that all of your business is being run properly.

In sum, the moon may look like its wavering between sizes and a business may seem to be operating as a business, yet the truth of both cases is that their perceptions do not always hold up to the truths operating behind the myths.

If you have any questions or comments regarding this blog, email us at blog@lauruslaw.com