San Jose Estate Planning Attorney Blog

I am often asked why we have recommended making a different state the location for a client's Dynasty Trust, Family Limited Partnership, or LLC.  Since setting a trust or entity up in another jurisdiction is

There are many different reasons for doing so.

Some states allow a trust to last forever.  California, on the other hand, severely limits the length of time the trust may exist.  This can have real negative tax consequences to my clients.

Some states allow for great restrictions on the Limited Partners or LLC Members.  California, on the other hand, is fairly loose.  This means that those entities do not get the best valuation discounts nor the asset protections afforded by other states.

Recently, Tamara Pow of the Structure Law Group, posted on the San Jose Business Lawyers Blog an article on Choice of State for a New Corporation.  In it, she compares California, Nevada, Delaware as places to form your new corporation.  She discusses the pros and cons of each.  I commend her post for your perusal. 

Obviously, these are complex issues that require time and an understanding of the client's goals and objectives.  It is not uncommon, in my practice, for clients to decide to do the more convenient thing rather than the most “tax efficient” thing.  They may a business decision.  Or they make a family decision.

But it is very important that clients be given options… so they can make a decision.  In my experience, most Santa Clara County Estate Planning Lawyers only advise and recommend California trusts and entities.  They often don't know better. 

Make sure you client's get options.  Fill out our Contact Form or call the office to comment or ask questions.  A reminder… our office is in San Jose near the airport with convenient freeway access and free parking.

Bert Torres, a Palo Alto CPA, recently asked about the estate tax results for people who died in 2010.  If the decedent's estate is less then $3,000,000, does an estate tax return or the 8939 (Carry-Over Basis Form) need to be filed?

Answer:  When Congress changed the law on December 17, 2010, they modified the default rules that apply for decedents who died in 2010.

First, the traditional rules applying to estates prior to 2010 are the rules that will apply in 2010 itself. However, the estate tax exemption is $5,000,000 for 2010.  This means that all assets in the decedents estate (with the exception of IRD) qualify for a Step-Up in Basis.  No estate tax return needs to be filed for estates less than $5,000,000.

If the estate is greater than $5,000,000, you will need to file the estate tax return, pay tax on the taxable estate at the rate of 35%, and get your step-up in basis.

Second, Decedent's estates may “Opt Out” of the traditional rules on Form 8939.  Instead of paying estate tax, you may have an unlimited estate tax exemption.  However, you only get a limited amount of basis to allocate among the assets.

All estates may increase basis a maximum of $1,300,000.  An additional $3,000,000 in basis may be increased for property that is passing to the spouse.

The deadline is fast approaching to make decisions regarding 2010 estates.  Call the Sheffield Law Office if you have any questions or we can help in any way.  Our number is (408) 920–2500.

San Jose Estate Planning Attorney Responds: It is not uncommon for financial planners to believe that their conversations and records regarding the information they learn from a client is confidential. In fact, the CFP Board Code of Ethics requires planners to keep client information confidential.

However, there are many areas where a financial planner’s documents or testimony regarding conversations may be discoverable by a court of law or the IRS. This is particularly true in the advanced estate tax planning area.

There is no legal privilege for financial planners. Conversations with your clients regarding tax planning and strategies may be subject to discovery. Papers detailing and explaining these strategies in your possession may also be discoverable.

You do not want to fall into the trap this financial planner did. As his clients decided to go aggressive in some of their estate tax planning strategies, the planner was involved in every aspect of the planning along the way. He sat in meetings with the attorney involved. He helped the client understand the strategies and what they involved. No one told him that there was a problem. No one told him that there was no privilege.

Later, after an estate tax audit, the IRS subpoenaed records from the financial advisor. You can guess the rest of the story.

A good financial planner is invaluable to the planning team. In fact, for many of our clients, it is the financial planner who quarterbacks the team and leads the process. However, it is important to remember where the limits of the financial planner's involvement may need to end. There are times when a good attorney will want everyone to leave the room except for the client. The attorney is trying to bypass the other advisors. They are asking you to leave so they can have a private, attorney-client privileged conversation with the client. If any one else is there, whether it is the client's children or advisors, there is no attorney-client privilege. And therefore, no protection.

Never Forget: your work papers, correspondence, and recollections or notes of client conversations are all discoverable in court or by the IRS.