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December 2011 Archives

NJ surrogacy case troubling for would-be parents

A New Jersey case could be troubling for people seeking to become parents with the help of gestational surrogates.  To read a published article, about the case, click here.  Sean Hollingsworth and Donald Robinson Hollingsworth are a same-sex couple who were married in California (before Prop 8) and who live in New Jersey.  Sean and Donald wanted to have a child.  They made an agreement with Donald's sister, Angela Robinson.  Under the agreement, embryos conceived in vitro with Donald's sperm and an egg from a third-party donor were implanted in Angela's womb.  Angela gave birth to twin girls.  Despite not being the girls' genetic mother, Angela challenged the agreement and sought custody of the girls.

Estate planning still needed despite new 2010 tax law

With great fanfare, Congress in its 2010 lame duck session passed lots of legislation that had been pending including a bill to extend the Bush-era tax cuts enacted in 2001 that would have expired at the end of 2010.  For a good summary of the bill, click here for one published by CCH.  On the estate tax front, in 2010, the estate tax was fully repealed and had Congress not acted earlier this month, the estate tax would have reverted to that in 2001 with estate taxation starting at $1 million with a 55 percent tax rate.  Under the 2010 legislation, starting in 2011, estate taxation has a threshold of $5 million with a tax rate of 35 percent.  In comparison, in 2009, the threshold was $3.5 million with a 45 percent rate.  There is an interesting feature to the 2010 bill in that for estates of persons who died in 2010, there is a choice. One option is to have zero estate tax but then have to calculate capital gain tax with modified carry-over basis rules after the first $1.3 million ($3 million to surviving spouse).  The gains under that amount can be calculated using the favorable "step-up" date-death basis valuation.  The other option is to apply the 2011 estate tax rates and have the benefit of the step-up valuation for all assets.  Some accountants will have a lot of numbers to crunch.  Even with this bill, a lot of legal uncertain remains due to the highly volatile political situation in Washington. Now as is noted in a New York Times article, only a tiny percentage of estates of persons dying in 2011 will have to pay estate tax - 0.5 percent - as compared to 10.5 percent which had to pay the estate tax in 1977.  I am not here to say what is the proper percentage of estates that should be subject to the estate tax - it was probably too high back in 1977 given that the tax was originally intended to impact only the wealthiest estates. One very interesting feature of the 2010 bill is is exemption portability which it makes it possible for the unused portion of one spouse's estate tax exemption to be added to the exemption of the second spouse later when he or she dies.  Until now, to accomplish this required using planning techniques such as a estate tax exemption bypass trust. The more important point for many families is that this 2010 tax bill DOES NOT remove the need for proper estate tax planning.   Why?  Because as was the case in 2001, Congress wanted to provide the economic stimulus of tax relief but has failed so far to address the long-term budget deficit and debt problems.  Instead, the entire 2010 tax bill with all of its tax cut extensions and related provisions expires at the end of 2012.   Unless Congress acts again within the next 2 years, we will again face reverting back to the law as it was in 2001 which, for estate taxation means an exemption that drops to $1 million, a tax rate of 55 percent and no provision allowing for unused exemptions to be transferred from one spouse to the other.  As many pundits have described it, this is the proverbial "kicking the can down the road."  Many political observers believe passing another bill in 2012 will be even more difficult because control of Congress will be divided and there will be a Presidential election campaign in that year. Looking past the end of 2012, if a person or a couple have significant equity in their home, savings in a 401(k) or IRA and life insurance on which they control who is the beneficiary (most people who have life insurance have such control), it is easier than one might first realize for individuals and couples to get into a situation where they may be subject to federal estate tax.  It is therefore essential to continue to plan estates on the assumption that the 2010 tax breaks will expire.  Because of the uncertain nature of future tax laws with these expiration dates and changes in control of Congress and the White House, I and many attorneys have adjusted how documents are prepared to provide flexibility to survivors and beneficiaries as to whether they actually make use of estate tax savings provisions.  In the current political environment, there are proposals ranging from outright abolition of estate taxation to keeping it with the exemption dropped back down to $1 million.  This is, to put it mildly, an uncertain legal environment.  As much as possible, I try to structure wills and trusts in such a manner that families have the ability put off deciding whether to use a particular tax device until the person who has created the will or trust actually passes away rather than being locked in at the time the document is signed. Bottom line:  Don't assume that just because for now that exemption is up to $5 million that you may not be subject to that tax later.  Better to plan and not need than to need and not plan. Readers should not solely rely on this note but should consult with a competent attorney licensed in their state. You can also find more information in my firm's websites on Family Law and Wills and Estate Planning and Administration.

Beware of"Self-help" remedies to child support or custody problems can make bad problems worse

Whether it is the holiday season, beginning or end of the school year or any other time, disputes over child custody and child support can flare up most unpleasantly.  Sometimes, one is tempted to use "self help" remedies when frustrated by one's former spouse or the other parent of the children. Beware! Attempting "self help" in these cases can make a bad situation worse.  Following are some hypothetical scenarios of what can go wrong with self help and what are alternatives in the legal system. (The names are randomly selected and are not from real cases.) Scenario 1 - Joe and Sue used to be married and have two children together.  The children live with Sue.  Joe has been paying child support under a court order but lately Sue has stopped allowing Joe to see the kids.  Joe feels that if Sue will not let him see the kids, then he should not have to pay child support.  Joe is thinking about stopping the child support payments until Sue lets him see the kids.  Is this a good idea?
NO WAY! The obligation to pay child support is enforceable whether or not Joe gets to see his kids.  If Joe stops paying support as per the court order, he could be subject to enforcement action - even being held in contempt of court and put in jail.    Joe can do something, however.  He can take Sue to court to ask the court to order that he get time with the kids.  If the court enters such an order and Sue fails to comply, then Joe could ask the court to hold Sue in contempt. In Pennsylvania, child support and child custody orders are entered separately by different divisions of the court.  Generally, the obligation to pay child support is a separate legal matter from the right to have time with the children.  If you are having trouble seeing your kids, be smart and file a child custody action in court.  Never try to use withholding child support as a weapon - it will backfire.  A competent attorney practicing family law can assist you. Scenario 2 - Bill and Lisa are the parents of a child and are no longer together.  The child primarily lives with Bill and Lisa is required to pay child support under a court order.  Lisa's hours at her job were cut and she can no longer afford her child support payments.  Can she just stop paying or pay less?
NO, bad idea!  The right way to handle this is that as soon as the loss of income happens, Lisa should file a petition to reduce the amount she is required to pay for support.  Child support is determined in Pennsylvania by a guidelines formula based upon the respective incomes of the parties and the number of children.  If Lisa can show that the loss of income was involuntary and that she is making reasonable efforts to replace the lost income, it is possible to lower that ordered payment.  Adjustments to support obligations, whether increased or deceased, are usually made retroactive to the date of the filing with the account credited or debited as required. What if you really cannot pay and you are waiting for a court date?  If you really cannot pay the full amount, at least pay as much as possible.  In support enforcement actions, there is a better chance to stave off harsher punishment if the record shows there is at least good faith effort to pay as much of the order as possible and also to follow proper procedures to seek a reduction.  Never just ignore the problem.  A competent family law attorney can help you. Scenario 3 - Rachel and George are the parents of two children.  Under a court order, the children mainly live with Rachel and they go to George two weekends a month and for vacations and various holidays.  Rachel is upset because she has noticed that often when the children come back from staying with George, their behavior is bad, they have not done their homework and they get to eat a lot of junk food.  Can Rachel just stop sending the kids to George until George shapes up as a dad?
NO!  A court order must be complied with.  The first thing Rachel should try is communication with George or even trying to get him to agree to counseling.  If that fails, Rachel must file a petition for a court order. But what if there is really bad stuff going on and the children are in danger?  Sometimes there are situations where there is a clear danger to going back to the other parent.  When something like that happens, it is important to quickly file a petition to modify the custody order.  There are procedures to have emergency cases handled on an expedited basis.  In my experience, judges will look more favorably on someone who makes use of legal procedures promptly rather than simply deciding to not comply with the existing order. The bottom line is that when your family situation has had court involvement and there is a problem, you need to work through legal channels to fix it.  Trying unilateral actions can make a bad problem worse. Readers should not solely rely on this note but should consult with a competent attorney licensed in their state. You can also find more information in my firm's websites on Family Law and Wills and Estate Planning and Administration.

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