Law Offices of Givner & Kaye Newsletter | June Issue 

Greetings!
         

          For many years it has been unclear whether an inherited IRA has the same protection (a $1,000,000 exclusion) as a regular IRA under Federal law.  In Clark v. Rameker, the Bankruptcy Court had determined that an inherited IRA does not share the same characteristics as a traditional IRA and disallowed the exemption.  The District Court reversed, explaining that the exemption covers any account in which the funds were originally accumulated for retirement purposes.  The Seventh Circuit disagreed and reversed the District Court, denying the exemption.  On June 12, 2014, the U.S. Supreme Court affirmed, in an opinion by Justice Sotomayor, the Appeals Court's decision denying the exemption.

 

          As a result, if this is a concern for you, please talk to us about leaving your IRA assets to your heirs in an IRA Trust.  The IRA Trust is completely revocable while you are alive.  It is especially useful in second marriage situations.  It is designed to provide your heirs protection from future ex-spouses, business creditors and their own problems with handling money.  Also, an IRA Trust is a way to allow the assets to accumulate in the most tax efficient fashion - the so-called stretch-out.  Consider this example:

 

          Father is 65, Son is 40, and Grandchild is 10.  Father has $500,000 in his IRA which he does not need.  He has also adequately provided for Son.  If Father is the IRA beneficiary his first required distribution is 2.29% of the IRA balance of $11,250 ($100 divided by his 43.6 year life expectancy = 2.29%).  If Grandchild is the beneficiary the required distribution is $6,850 (100 divided by 72.8 years).  As a result of that difference the cumulative distributions using Father's life expectancy compared to Grandchild's is $2,910,456 versus $9,224,336.

 

        Contact Us today to inquire whether an IRA Trust is right for you.

 

          Best regards.

 

                    Bruce Givner

                    Owen Kaye

                    Kathleen Givner

                    Neda Barkhordar

Featured Article: Should you Amend Your Family Trust - and any Irrevocable Trusts - To Minimize Or Eliminate Prop. 13 Reassessment?

          There are two parent-child exclusions from property tax reassessment.  First is the unlimited parent-child exclusion for the transfer of the principal residence.  Even if the parents' principal residence is worth $100,000,000, it can be transferred to the children and it will not be reassessed for property tax purposes.  Second is the $1,000,000 per parent exclusion for non-principal residence property.  In other words, mom and dad can pass investment property with $2,000,000 of assessed value to their children without having that property reassessed for property tax purposes.

 

          What happens if a trust, whether the family trust or an irrevocable trust, contains California real property and it is left, in part, to people who do not qualify for the exemption?  Then the property is reassessed, in whole or in part.  For example, what if the trust provides that the property is to be held for all of the parents heirs?  That includes children and grandchildren, and the grandchildren do not count for the exclusion (as long as their parents are alive).  The County Assessor is likely to read that trust distribution provision as requiring the reassessment of all California real property held by the trust.

 

          Is there a way to prevent that result?  One way is to make sure that any trust distribution of California real property only goes to (i) children; and (ii) grandchildren whose parents have predeceased them.  However, we cannot be certain, when drafting a trust, what assets the trust might end up having.  Also, the trust creator often wants to allow the trustee the power to "sprinkle" income and principal to a broad range of beneficiaries.

 

          Therefore, to avoid inadvertent reassessment you may wish to insert into your existing "family" (also known as "inter vivos" or "living" or "revocable") trust a paragraph designed to prevent a reassessment.  This type of blanket prevention might take one of at least two forms: a general prohibition against distributions to non-exempt persons; or a direction to the trustee to create two subtrusts, one for exempt persons which can contain California real property, and one for non-exempt persons which cannot contain California real property.  If you have an existing irrevocable trust, we may still be able to amend that trust to include this type of "fix."

 

       Contact Us today to discuss whether or not you should amend your family or other irrevocable trusts.

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Tax Tip of the Month

    If you have relatives outside the U.S. who want to buy real property in the U.S., there is more than one rational way to make that investment.  Of course it depends, in part, on whether the real property to be acquired is for personal use or for investment. 

 

          For example, sometimes the non-U.S. persons want to buy a condo for their child who is attending school in the U.S.  In that case income tax considerations are absent, so the preferred structure might be simply a foreign corporation so that the non-U.S. persons do not have a U.S. estate tax if they die.  On the other hand, if the property being acquired produces income, there are two choices.  One is to minimize estate tax; the other is to minimize adverse income tax consequences.  What is good for one is not good for the other.  Also, treaties between the U.S. and the other country may have to be considered.  In other words, there is no one-size-fits-all. 

 

          For each situation we ask to be retained to understand the facts and the client's goals and objectives and to determine if a treaty must be considered.  Then we help the clients understand the choices.  The amount of incoming investment in U.S. real property has been increasing year-by-year.  So these questions are increasing on a monthly basis. 

 

Bruce Givner & Owen Kaye
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Upcoming Thursday Insights Series Seminar: U.S. Treaties With Other Countries: Their Relationship to the Internal Revenue Code; How to Understand Them; How to Plan With Them
 
June 19th
 
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Attorney Spotlight: Bruce's Upcoming Engagements

Bruce Givner is speaking on July 9 to the Orange County Bar Association Trusts & Estates Section on "International Estate Planning." (Contact Us for more info)

 

Bruce was also featured on KTLA Channel 5's 10 p.m. news on June 9 on the lead news item involving Donald Sterling.  He was again featured on June 10 during Glen Walker's segment entitled "Can Donald Sterling Win His $1 Billion Lawsuit Against The NBA?"  You can view this on KTLA's web site here.

For over three decades, our experienced Los Angeles estate planning, asset protection and expert tax attorneys have met each client's unique planning needs by collaborating with our longtime partners - attorneys, accountants, business managers, financial planners, stockbrokers and insurance professionals. Contact Givner & Kaye today!

Givner & Kaye, A Professional Corporation | bruce@givnerkaye.com 
www.GivnerKaye.com
12100 Wilshire Blvd.
Suite 445
Los Angeles, CA 90025

June, 2014


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