Blogs and More Blogs

Occasionally, I provide some information – sometimes just an opinion – about things “legal.”  I try to make these posts as meaningful as possible without being overly technical.

I also invite you to visit my personal blog page (bearister.me) where I discuss lofty topics (or, maybe not-so-lofty) about things that cross my mind.  Sometimes these things involve some legal topic but probably more often, some other topic that has no relationship to anything.  I also like to comment about some book I’ve read (often fiction, sometimes more esoteric) or something that’s been reported in the news.  Mostly these posts are simply for entertainment (mostly mine since I don’t believe this blog is actively followed by a drove of figures in the world of blogs).  Anyway, if you do visit that blog, just enjoy it and take it for what it’s worth (or not worth).  Cheers!

Welcome!

 

 

ELA1

Hello, I appreciate the fact that you decided to take a look at my website.  I know many people think of lawyers is rather stiff and stodgy but I wanted you to feel comfortable and browsing through my site so I thought a little bit of personal information might make you feel a bit more comfortable.

I’ve lived in the St. Louis, Missouri area for a long time now – I was born in Chicago and grew up in one of the suburbs of that city as did the other members of my family including my parents and my three sisters.  When my dad took a new job in St. Louis the whole family moved from the Chicago area here.  While my parents are both gone my three sisters still live close by with their families.

I’ve been married to my wife, Kathleen, for almost 45 years.  We have two daughters, Emily who is the older one and Allison.  Emily lives in Connecticut with her son, Quillen who is almost 12 and her daughter Rosie who is nine.  My other daughter, Allison, lives in St. Louis with her son, Luca who is almost 20 months old now.

I’ve been in the law business for 43 years now and over those years the predominant part of my practice has been in the estate tax and probate areas as well as helping small business owners with legal issues that small business owners sometimes must deal with.  In addition I have handled a broad range of legal work but for the last 10 years or so I’ve pretty much limited my practice estate planning, probate, tax and business areas of the law.

Please enjoy the website, review the material that’s here and by all means if you have questions, give me a call at the number shown above or send me an email and I’ll be happy to provide a response  to your questions.

 

Thanks again for visiting the site.

 

Ed Armstrong

Types of Joint Ownership

There are four types of jointly owned property:  Joint Tenancy with Right of Survivorship, Tenancy by the Entirety, Tenancy in Common and Community Property.  I will give a short description of each along with some positive features and some negative considerations.

 

  1.  Joint Tenancy With Right of Survivorship.  This type of co-ownership can

exist between two or more people regardless of whether they are related by blood or marriage.  On the death of one of the joint owners, the other co-owners immediately own the entire asset.  The deceased joint owner owns nothing and nothing passes through his or her estate.  As long as there are surviving joint owners the asset will automatically be owned by the surviving joint owners on the death of one of them.  For this reason, property that is jointly owned with right of survivorship is not subject to probate administration except on the death of the last joint owner that was living.  This result can also be avoided.  This type of ownership is popular because of its apparent simplicity and because it can be used to avoid probate.  Joint ownership with right of survivorship does qualify for the Federal Estate and Gift Tax Marital Deductions.  Joint Tenancy does have some “pitfalls.”  It can create estate tax problems in very large estates.  It can also give rise to disputes between family members who own property jointly.  A joint owner cannot sell property he or she owns as long as the other tenants are alive (without their consent) and this also is true if a joint owner tries to use his or her interest as collateral for a loan.

 

  1.  Tenancy by the Entirety.  In some ways this form of co-ownership is similar to

joint tenancy with right of survivorship.  The first difference is that it is a form of ownership that can exist only between husband and wife.  Since Missouri does not, at present time, recognize same-sex marriages, this form of ownership can exist only between traditional, opposite sex couples.  When the first co-owner dies the surviving spouse owns the property outright.  While both are alive, each spouse is deemed to own the entire property.  This fact affords a good deal of protection against the creditors of only one of the spouses.  This could happen in the case where, for example, one spouse is a physician who is sued for malpractice.  Any assets co-owned by the physician spouse are not available to the creditors of the physician spouse to satisfy the judgment (unless, of course, those assets were placed in a tenancy by the entirety in fraud of creditors – assets transferred into tenancy within a one year period after the entry of judgment would be suspect in this regard).  As mentioned, this form of ownership qualifies for the Federal Estate and Gift Tax marital deductions.

 

  1.  Tenancy in Common. This type of co-ownership can exist between several

Several individuals with varying interests.  In other words, the fractional interests in each co-owner do not have to be identical as in the case of joint tenancy with right of survivorship.  So you can have three co-tenants in common with one of them owning  a 50% interest and each of the others owning, for example, a 25% interest.  The fractional interests of the co-owners simply must add up to 1 or 100%.  When a tenant in common dies his or her portion does not go to the other co-tenants because there is no right of survivorship.  The interest of the deceased co-owner passes to his or her heirs at law (if there is no will or trust) or to the person or persons designated in the deceased person’s will.  A tenant in common cannot really sell his or her interest because the interest wouldn’t be very marketable.  A tenant in common may be able to force “partition” of the various shares so that each share could be disposed of as the owner of that share wished.  Tenancy in common is not a very “wieldy” way to own an asset, real or personal.

 

  1.  Community Property.  There are nine community property states.  Missouri is

not a community property state.  The community property states are:  Louisiana, Texas, New Mexico, Arizona, Nevada, California, Idaho, Washington, and Wisconsin.  There may be a right under Alaska law to elect community property.   In community property states, each spouse owns half of the “community” which is comprised of everything acquired during the marriage including wages (but usually excluding inherited property from a non-community property state and not including assets previously owned by one of the partners in a non-community property state).  On death of a community property owner, his or her share would be taxed (if large enough)under the estate tax laws but the share of the other partner would not.  A spouse may dispose of his or her community property share as he or she wishes.

A Tax Case of Interest – Credit for First Time Home Buyer

Edward R. Zampella v. Commissioner of Internal Revenue,  No. 13-1672 This case involves the Federal Tax Credit for first time home buyers.  A woman (Maria Zampella) died in September of 2008.  She had two surviving sons to whom she left her entire estate which included her home which was appraised, at the time of her death, at $430,000.  One of her sons wanted to own this home outright so he paid his brother one-half of the appraised value ($215,000) for his half ownership interest.  This was “purchasing” son’s first time home purchase so he claimed the $8,000 Federal Tax Credit for first-time home buyers on his federal income tax return.  The Commissioner denied the credit and after suit in the Tax Court, that court agreed that the credit is not allowed when property is acquired from a related party.  The interesting point is that, under the law, a sibling is not a related party for this purpose, but the personal representative of the estate (i.e., the executor) and another estate beneficiary are related parties for that purpose.  The deed evidencing this transaction read:  “[brothers], individually and as co-executors of the estate of Maria Zampella . . .”  The Tax Court held that “the substance was in accord with the form . . .”  The United States Court of Appeals for the Third Circuit has appealed this decision of the Tax Court.

Missouri Updates Its Criminal Code

  Missouri’s legislature has revamped Missouri’s criminal code – this is the first major revision in that Code since 1979.  There was some talk in past weeks about a possible veto of the measure by Governor Jay Nixon but the deadline for such a veto was last Tuesday and the date passed without any action on the governor’s part as far as formal disapproval of the measure. The new law goes into effect without being signed by the Governor. The new criminal code will be effective on January 1, 2017.  This revision was the culmination of a four year effort of the Missouri Bar Criminal Code Revision Subcommittee.  This subcommittee was made up  of prosecutors, criminal defense attorneys and representatives from the judiciary and the legislature.

     This bill was quite long (600 pages) and reorganizes the existing criminal laws and creates new classes of felonies and misdemeanors.  Among the changes, the law creates a new felony punishment range that carries three to ten year prison terms for certain crimes.  This closes a “gap” between existing classes of felonies that provide an authorized prison term  between five and 15 years and another provision that stipulates a maximum four year prison sentence.  Other provisions reduce potential prison sentences for drug crimes that are considered non-violent and an increase in penalties for things such as sexual assault and driving while intoxicated.  Drunk drivers who kill a person could receive longer prison sentences.

     Another part of the law creates a new class of misdemeanors which will not be punishable by jail time.  Generally, fines will be increase to take into consideration the effects of inflation.

     When this new criminal code revision takes effect January 1, 2017, a conviction for a first time offender possessing less than 10 grams of marijuana will not result in incarceration.  Right now, if a person is convicted of possessing up to 35 grams of pot, he or she may be sentenced up to a year in prison.

     As far a sex related crime go, incest will be added as an “aggravating” factor for all sex crimes.  This will allow people to be charged with a higher crime classification that could result in longer prison sentences.
     While my office does not handle criminal matters, this criminal code revision is something all Missourians would be interested in.

What is Probate Anyway?

Probate is a process that the law has created with a view towards the orderly distribution of the estate of a person who has died.  When I say “orderly” I mean that there is a progression of events that takes place after a person has died that involves “collecting” the persons assets whether they ber personal assets, investments, bank accounts, real estate, etc.  Of course you can’t actually “collect” real estate but the collection process does allow for accounting for the things that a person owned during his or  her life.  As assets are being accounted for by the personal representative (we used to call this person the “executor”), family members, friends, charities, anyone who might have been mentioned in the decedent’s Last Will and Testament, will be notified that an estate has been opened.  Often, the deceased person has not left a will so how the person’s property will ultimately be distributed will be determined by an artificial establishment of one’s “heirs at law.”  More about this concept later.  


At the same time potential estate beneficiaries are being notified, those who may be owed money by the decedent will also be notified that they have six (6) months within which to file claims against the estate.  In addition to “actual notification” of known creditors, a notice will be published for several weeks in a local newspaper that has a general circulation in the area.  Usually this will be a “legal” newspaper which specializes in publishing official “legal” notices of various types including notices that a person has died and estate has been established in the Probate Division of the local circuit court.  Creditors who don’t file their claims within the six month period will be “out of luck” in collecting what they claim is owed them.  The law has established a system of classifying “debts” and the personal representative must pay these debts according to this priority that has been established by state law.  Such items as expenses of estate administration and funeral expenses, medical expenses and taxes are high on the list, as you might imagine.


Once bills and taxes are paid, theorhetically, assets can be distributed to the people named in the will (legatees and devisees – the legal terms for thise folks – a “legatee” is someone receiving personal property and a “devisee” is a person designated to receive real property, i.e., land).  If there is no will then the estate will be distributed to “heirs at law.”  More about heirs at law in a moment.  While the “process” seems simple, it’s not always fast – to the contrary.  The Probate Code envisions a minimum period of time that the estate must remain “open.”  This “minimum” period would be six months – the time within which creditors must file claims against the estate.  In addition to that period of time there is the issue of taxes – while returns may have been filed and taxes paid, Uncle Sam may not think enough has been paid.  What I’m saying is, since the personal representative (executor) is personally liable for taxes under the Internal Revenue Code, he or she will most likely await for written approval from the IRS on tax returns already filed.  Income tax returns are one thing but estate tax returns are another.  Estate tax returns don’t have to be filed for nine (9) months after date of death and this period can be extended for a number of reasons.  It generally takes the IRS quite awhile to review these returns and approve them.  The good news is that few estates will need to file this type of return (Form 706).  


So, the estate “process” seems good – I mean its purpose is to make sure bills and taxes get paid and people who are supposed to inherit do inherit.  Why does probate have such a poor “reputation?”  I can think of two reasons right off.  First, the time it takes to open and close an estate can often take more than a year after a person dies. Second, it can be expensive.  Missouri law, like the laws of most states, allows the attorney for the estate as well as the personal representative to take a fee from the assets that have been administered.  That fee can be steep.  It’s based on asset values (other than real estate unless that property is sold during the probate process).  Each of the attorney and personal represenative is entitled to a fee based on these percentages:  5% on the first $5,000; 4% on the next $20,000; 3% on the next $75,000; 2.75% on the next 300,000; 2.5% on the next $600,000 and 2% on anything over $1 Million.  These percentages can add up quickly.


By the way, you ask, who ARE these “heirs at law.”  The heirs at law, in Missouri, are entitled to a portion of the estate (divided among them).  There could be nine (9) tiers of relatives that are “heirs.”  I’ll only mention the first tier since it encompasses most estates:


If the decedent was married and had a surviving spouse and children, the surviving spouse is entitled to the first $20,000 in value and one-half (1/2) of the balance; the half that does not go to the surviving spouse is divided equally between the children of the deceased person or, if one of the children has died, then to the deceased child’s children, in equal shares, per stirpes.  [The “per stirpes’ term simply means those children of the deceased child share equally the share their parent would have been entitled to if he or she had survived.]  If there is no surviving spouse, the estate is divided equally between children of the decedent (or those children and the children of a child who has died).


Complicated?  It can be.  Something to keep in mind is that not all estates are subjectd to probate administration.  These types of assets are “probate free” in Missouri:  Property owned as joint tenants with right of survivorship with someone else – (or as tenants by the entirety if we are talking about two married people); property held in trust at the time of death; assets which have a beneficiary designated such as an insurance policy or and IRA account or an automobile (this can be a joint type ownership or a “transfer on death” type of ownership.  Each of those types of ownership has “risks” associated with it, but more on those types of ownership at a later date.

Federal Estate Tax, Gift Tax and Generation Skipping Transfer Tax Changes

Federal Estate Tax, Gift Tax and Generation Skipping Transfer Tax Changes:  These three taxes form what is sometimes referred to as the “federal transfer tax system.”  

  • The top tax rate was INCREASED from 35% to 40%
  • All other aspects of the transfer tax system put in effect in December of 2010 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 have been extended and made “permanent.”  [The mentioned legislation picked up the slack created by “sundowning” created by the Economic Growth and Tax Relief Reconciliation Act of 2001.  This legislation was supposed to have led to the permanent repeal of the Federal Estate Tax and the Federal Generation Skipping Transfer Tax but the repeal was only for the year 2010 and Congress did nothing to extend this until enactment of the 2010 legislation cited above.] So, the $5,120,000 exemption for all three taxes, indexed for inflation, remains in effect as the three taxes remain “unified.”  “Portability” of the estate tax exemption (but not the Generation Skipping Transfer Tax exemption) for use by a surviving spouse, where it has not been used by the first decednt spouse, also has been made permanent.
  • In addition (and this is NOT part of the 2012 Act), the Annual Gift Tax Exclusion for 2013 has been increased to $14,000 from $13,000.
  • The “inflation adjusted” exemption for 2013

Some Tax Law Changes

The American Taxpayer Relief Act of 2012  (the “2012 Act” was recently passed by Congress and signed by Obama to resolve the so-called “fiscal cliff.”  What follows is a breif summary of some of those provisions.

Income Tax and Capital Gains Rates:  Individuals with taxable income exceeding $400,000 and married couples with taxable income over $450,000 will be taxed at a top rate of 39.6% – this is UP from 35% under the Bush Era Tax Cuts.  The top tax rate on long-term capital gains and dividends for those same “high income” persons is now 20% – UP from 15%.

New Taxes Imposed Because of the Affordable Care Act (“Obamacare”):  The Affordable Care Act does contain some tax provisions that are going to take effect this year (2013) – these were NOT part of the 2012 Act but rather were added as part of the Affordable Care Act.  A new Medicare Tax of 3.8% applies to interest (but NOT to tax exempt interest from municipal bonds), dividends, rents, royalties and capital gains earned by taxpayers to the extent an individual’s adjusted gross income exceeds $200,000 ($250,000 for married individuals filing jointly).  Income from an active trade or business not primarily engaged in investment trading is excluded from this tax.   This tax will also have an effect on estates and trusts to the extent that estate or trust income is above $11,950.  In addition, the Medicare Tax will increase from 2.9% to 3.8% on wages and self-employment income in excess of $200,000 for individuals or $250,000 for married individuals filing jointly. [At the present time, the differential for married persons filing jointly does not apply to individuals of the same sex married pursuant to state laws permitting such marriages.]
Itemized Deductions:  Itemized deductions (excluding investment interest, medical expenses, and casualty and theft losses) will be reduced for individuals with adjusted gross income above $250,000  and for married couples with adjusted gross income above $300,000.  These itemized deductions will be reduced by 3% of the amount by which the adjusted gross income exceeds these levels, and the personal exemption will be reduced by $50 for each $2,500 that the taxpayer’s adjusted gross income  exceeds the levels shown above.

Alternative Minimum Tax:  An automatic inflation adjustment will occur annually (rather than being changed each year, as it has been for the last several years.   The  2012 automatic adjustment  increased from $33,750 to $50,000 for single taxpayers and from $45,000 to $78,750 for married couples.