LEGAL UPDATES

Federal Estate Tax Exemption and Capital Gains Tax
Effective January 1, 2010, the federal estate tax exemption has been repealed for one year, but this is likely subject to legislative change in the near future by Congress. In the unlikely event Congress does nothing, the exclusion will revert to $1 million in 2011. Moreover, as of January 1, 2010, those who inherit property and subsequently sell that property could possibly pay higher capital gains taxes because now the gain is based on the purchase price the decedent paid for the asset, not the value of the property at the time of inheritance, as under previous law.

FDIC Insurance Limits
The FDIC insurance limits will remain at $250,000 through the end of 2013; however, revocable trusts may qualify for up to $500,000 coverage (or $1,000,000 if two settlors) based on the number of trust beneficiaries.

No-Contest Clause
New no-contest clause legislation became effective January 1, 2010, greatly restricting the enforcement of such clauses. Under current law, such clauses only will be enforced against a “direct contest” brought without “probable cause” and under other very limited circumstances. Furthermore, contestants of a trust or a will can no longer file a “safe harbor” petition to determine if a particular action constitutes a “contest.”

Under current California case law, a no contest clause contained in a trust document does not apply to trust amendments. Those amendments should contain their own no contest clause. This same reasoning will apply to a codicil or to a will. You should check your estate planning documents to determine whether any of them need to be revised.

Medi-Cal Eligibility
Under the Deficit Reduction Act of 2005, several important changes are pending, which will affect Medi-Cal eligibility, including the extension of the previous 30-month "look back" period to 60 months, and the change of the ineligibility period from the application date, instead of from the transfer/gift date. The Department of Health Care Services, however, still has not finalized regulations to implement such changes, and if and when such regulations are implemented, they will not be retroactive.