Arizona Elder Lawyer

Annual Federal Gift Tax Exclusion During 2010 – Update

The Internal Revenue Service just announced “Guidance For Persons Making Transfers In Trust After December 31, 2009” in Notice 2010-19. 

 

The Notice states that the Internal Revenue Service intends to issue guidance under Section 2511(c) of the Internal Revenue Code.  The Code Section was enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and amended by the Job Creation and Worker Assistance Act of 2002.  Section 2511(c) is effective for transfers made after December 31, 2009, and before January 1, 2011.

 

“Section 2511(a) generally provides that the gift tax shall apply to transfers in trust or otherwise, whether direct or indirect. Under § 25.2511-2(b) of the Gift Tax Regulations, a gift is complete when the donor parts with sufficient dominion and control as to leave in the donor no power to change its disposition.

 

"Section 2511(c) provides that, notwithstanding any other provision of section 2511 and except as provided in regulations, a transfer in trust shall be treated as a transfer of property by gift unless the trust is treated as wholly owned by the donor or the donor’s spouse under subpart E of part I of subchapter J of chapter 1.

 

"The Joint Committee on Taxation’s explanation of 2 section 2511(c) provides that certain transfers in trust are treated as transfers of property by gift even though such transfers would have been regarded as incomplete gifts, or would not have been treated as transfers under the gift tax provisions in effect prior to 2010. Joint Committee on Taxation, Technical Explanation of the “Job Creation and Worker Assistance Act of 2002” (JCX-12-02), March 6, 2002.”

 

The Notice provides the following Interim Provisions:

 

“Some taxpayers may have inaccurately interpreted section 2511(c) as excluding from the gift tax transfers to a trust treated as wholly owned by the donor or the donor’s spouse under subpart E of part I of subchapter J of chapter 1, even though those transfers would otherwise be taxable under Chapter 12. The provisions of Chapter 12 regarding the substantive law applicable to the gift tax were not amended by EGTRRA, and those provisions continue to apply to all transfers made by donors during 2010.

 

“Section 2511(c) is an addition to those substantive law provisions and is applicable to transfers made in 2010. Section 2511(c) broadens the types of transfers subject to the transfer tax under Chapter 12 to include certain transfers to trusts that, before 2010, would have been considered incomplete and, thus, not subject to the gift tax.

 

“Accordingly, each transfer made in 2010 to a trust that is not treated as wholly owned by the donor or the donor’s spouse under subpart E of part I of subchapter J of chapter 1 is considered to be a transfer by gift of the entire interest in the property under section 2511(c). The provisions of Chapter 12 as in effect on December 31, 2009, continue to apply (both before and during 2010) to all transfers made to any other trust to determine whether the transfer is subject to gift tax.”

 

Regulations are expected to be forthcoming which confirm the conclusions set forth in the Notice.

Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act (UAGPPJA) – Arizona Transfer Issue – Example Four

The American Bar Association Commission on Law and Aging compiled and published in June 2009 a list of stories it purports to support the need for national passage of the UAGPPJA.  See my post from January 25, 2010 for an introduction of the Act.

An issue which arises often is when siblings litigate over custody of a parent.  Sometimes, a sister and a brother will have protracted litigation in one state over who is to be appointed conservator over their mother or father.  Then, sometime after the sister wins, she wants to move both her mother or her father and herself to another state.  Will the sister have to be put through protracted litigation by her brother all over again in the second state?

The Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act purports to provide transfer procedures which would allow the sister to transfer the conservatorship from the first state to the second state without the need to re-litigate the case.  Proper Notice would be given to the brother and he could participate in the transfer proceedings.  The American Bar Association Commission on Law and Aging purports that there would be a preservation of resources by both the family and the court.  Because these are legal issues which are not unusual, residents in Arizona will be exposed to issues such as the one herein and adoption of the Act in whole or in part by the State of Arizona may be prudent.

Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act (UAGPPJA) – Arizona Jurisdiction / Transfer Issue - Example Three

The American Bar Association Commission on Law and Aging compiled and published in June 2009 a list of stories it purports to support the need for national passage of the UAGPPJA.  See my post from January 25, 2010 for an introduction of the Act.

An issue which will arise more frequently as the Baby Boomer population ages is one where both parents have dementia and are living in a nursing home in one state and there are no family members that are close by who are either willing or able to check in on the parents.  In this case, an adult child and her family may want to move her parents from the first nursing home in her parent’s home state to a nursing home in the state where the daughter lives that is close to her.  What happens if the daughter cannot get her parents to voluntarily agree to move?

Under the Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act, the daughter could file for guardianship in the Probate Court of the home state.  The parents would have the opportunity to object to the petitioned for guardianship and have access to evidence and contacts in the home state.  If the daughter has success with her petition to be appointed guardian, the Act provides procedures for the second state to recognize the legal authority granted to her while continuing to give the parents the right to object to the move into the second state.  In this scenario, there would be order to the process which everyone could agree to.

The Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act purports to give both order to the legal procedures and cost-saving measures for both the family and the courts.  Arizona should give thoughtful consideration to adopting this Act either in whole or in part as it is being adopted throughout the country.  Arizona’s population is made up of people who have generally moved to Arizona from elsewhere.  It does not hold true that the entire family moved to the State of Arizona altogether, therefore, this set of facts can be anticipated to occur fairly often with Arizona being either the home state of the second state.

Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act (UAGPPJA) – Arizona Jurisdiction Issue - Example Two

The American Bar Association Commission on Law and Aging compiled and published in June 2009 a list of stories it purports to support the need for national passage of the UAGPPJA.  See my post from January 25, 2010 for an introduction of the Act.

A very common issue that comes up is that while an adult is living in a nursing home in one state, she may have no relatives in that state and want to move to another nursing home in a state where she does have family.  What happens if the nursing home in the first state refuses to release her to her family living in the second state?  This does happen.

Generally, in this situation, a Probate Case would be filed either by the adult living in the nursing home or her family in the first state which is considered the home state.  The Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act purports to give clear guidance regarding which state to file a Probate Case in given these factors, which would preserve both the family’s resources and judicial resources.  Because this scenario is common and Arizona could either be the home state or the second state, it would be prudent for the Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act to be considered for adoption, either in whole or in part, in Arizona.

Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act (UAGPPJA) – Arizona Jurisdiction Issue - Example One

The American Bar Association Commission on Law and Aging compiled and published in June 2009 a list of stories it purports to support the need for national passage of the UAGPPJA.  See my post from January 25, 2010 for an introduction of the Act.

Jurisdiction issues pertain to which state has the right or duty to hear a matter or issue a court order which affects the rights of an individual. 

An example of an issue which might arise related to which state should a Probate Case be filed in when an incapacitated adult who has traveled across state lines into Arizona to visit his adult child, then wants to go back home to Alabama and boards a flight.  During a layover in Georgia the incapacitated adult gets lost both in and out of the airport and ends up in a psychiatric ward in Georgia.  What state should the adult child file a Probate Petition in order to establish either a guardianship or conservatorship over the incapacitated adult?

The Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act purports to provide clear guidance to lawyers and judges for circumstances such as this.  With clear guidance, both financial and court resources could be preserved.  In this circumstance, the Act would provide that Alabama would be the “home state” in which a Probate Petition could be filed, unless there was an emergency.  In the case of an emergency, if the incapacitated parent ended up back in Arizona with the adult child, the Probate Case could be filed in Arizona.  Apparently the Act provides for many differing circumstances and possible outcomes.  At any rate, this scenario could easily play out and this Act should be given consideration in Arizona.   

Uniform Adult Guardianship and Protective Proceeding Jurisdiction Act (UAGPPJA) – An Introduction

The name says a lot.  This Act was approved by the American Bar Association in December 2007 and is supported by the Alzheimer’s Association, the Conference of Chief Justices, the National Association of Elder Law Attorneys, the National College of Probate Attorneys, and the National Guardianship Association. In other words, there are a great many smart people across the United States who embrace and support this Act in an effort to make these issues more streamlined.

The State of Arizona has neither adopted the UAGPPJA, nor is a bill expected to be introduced for passage in Arizona at this time.  The States that have adopted this Act include Alaska, Colorado, Delaware, the District of Columbia, Illinois, Minnesota, Montana, Nevada, North Dakota, Oregon, Utah, Washington and West Virginia.  The States giving the Act consideration include Arkansas, Connecticut, Florida, Indiana, Iowa, Kentucky, Maryland, New Mexico, Tennessee and Texas. 

The Act is an attempt to provide an effective mechanism for resolving multi-state jurisdictional disputes.  The objective is that only one state will have jurisdiction at any given time for matters of adult guardianships, conservatorships, and other protective proceedings.

Over the next few days, I will post specific examples of issues presented by the American Bar Association Commission on Law and Aging compiled and published in June 2009.  The Act is one which the Arizona Legislative Branch might want to consider studying and either adopting in full or in part after substantial input from attorneys and others who have expertise in the field.

Arizona Probate Non-Appearance Hearings

Petitions in Arizona Probate Cases may be scheduled by the Court as Non-Appearance Hearings.  This is allowed if testimony is support of the Petition is not required.  However, Arizona Probate Non-Appearance Hearings are scheduled for a specific time on a specific date in the event that an interested party wishes to appear for some reason.

Generally, if a Petition in Arizona Probate is set for a Non-Appearance Hearing, no-one needs to appear at the hearing.  However, many Arizona Probate Attorneys will still appear, either telephonically or in-person.  If a problem arises at the Hearing, the Arizona Probate Attorney may be able to fully address the issue.  Moreover, the Probate Attorney may be able to receive a Certified Copy of the Court Order immediately upon the Hearing ending.

A person or other interested party who has received Notice of a Non-Appearance Probate Case Hearing may appear at a Non-Appearance hearing for the purpose of objecting to the relief requested within the Petition.  The interested person must notify the court of his presence and objection and must pay an appearance fee at that time if that objecting person has not done so already.  The appearance fee may be a few hundred dollars.

If an interested party objects to the relief requested within the Petition, the Court may then set the matter over as a contested Probate matter.  The objecting person would be required to know, follow and apply Arizona statutes, case law, Arizona Rules of Probate Procedure, Arizona Rules of Civil Procedure, and any Local Court Rules in order to proceed.  If the objecting party fails to do so, that interested party may be subject to penalties.  Generally, it is best to consult with an Arizona Probate Attorney prior to the first Non-Appearance Probate Case Hearing, or the objector may be subjecting himself to more problems than it is worth to him.

Service of Court Papers in Arizona Probate Cases

Occasionally the Arizona Rules of Probate Procedure require that Notice of a Hearing or other document be served personally.  However, in many circumstances documents related to an Arizona Probate Case only need to be served by mail. 

Generally, a Notice for any Probate Hearing shall state the title of the matter to be heard, the date, time and place of the Hearing, the name of the judicial officer before whom the matter is set for hearing, and whether the hearing is set as an appearance hearing or non-appearance hearing.

Unless the court has ordered otherwise, a Notice of Hearing for a Probate Case is generally accompanied by the petition or motion that is the subject of the hearing.  The Arizona requirement for Notice accompanied by the underlying document is to ensure that interested persons are afforded the opportunity to protect their due process rights.

If you have received a Notice of Hearing for a Probate Case, either with or without the underlying document related to the Hearing, and you are unsure what to do or if your rights might be affected, it is best to immediately consult with an Arizona Probate Attorney.  If you wait, you may permanently waive some of your rights.

Arizona Definition of Probate Case

The Arizona Legislature enacted Rules of Probate Procedure effective January 1, 2009.  The Arizona definition of a Probate Case is stated within these Rules.  Specifically, Rule 2.O includes nine categories. 

An Arizona Probate Case is a court case originally commenced for one or more of the following purposes: 1) to administer a decedent’s estate, 2) to appoint a guardian for an incapacitated person or minor, 3) to appoint a conservator or request some other protective order, 4) to designate a successor custodian, 5) to designate a custodial trustee, 6) to request a judicial order relating to the internal affairs of a trust, 7) to challenge or enforce the decision of one authorized to make health care decisions for another person, 8) to obtain a declaratory judgment with respect to the construction or interpretation of a will, trust, or power of attorney, or 9) to obtain a declaratory judgment under A.R.S. Section 12-1834.   

While a Probate Case is limited in definition, it can be broad in scope.  However, an Arizona Probate Case does not include matters which are within the jurisdiction of civil actions, juvenile proceedings or family law proceedings, even if the civil action, juvenile proceeding or family law proceeding has been filed with, within or consolidated with a Probate Case.

If you suspect that you have a legal issue which may fall under the scope of a Probate Case in Arizona, it is best to consult an attorney who handles Probate Cases in the county where the issue has arisen. It is generally wiser and can be less expensive to consult with your Arizona probate attorney prior to making any decisions that may affect the matters which would be subject to Probate.

An Arizona Guardian Must Handle Her Ward’s Assets Properly

When a person agrees to become someone else’s legal Guardian in Arizona, she agrees to abide by certain known standards.  She is specifically bound to care for and protect her ward’s personal effects.  A Guardian must apply any monies she receives to her ward’s current support, care and educational needs while conserving any excess funds not so spent for the future needs of her ward.

An Arizona Guardian may never commingle her ward’s funds with her own.  A Guardian must maintain her ward’s funds in a separate account which is apart from her own account and identified as belonging to her ward.  Additionally, a Guardian must maintain records of all of the ward’s property received and expended during the period of the Guardianship.

An Arizona Guardian should regularly seek the advice of her knowledgeable probate attorney in order to ensure that she is handling the financial aspects of being a Guardian properly.