Month: December 2015

Retirement Benefits Feature

The Good and the Bad of Gillmore Elections

Counseling a client on whether to elect Gillmore rights can be complicated, but using a framework in the form of “pros and cons” can help simplify the issue.

In re Marriage of Gillmore is a 1981 California Supreme Court decision which provides an additional “right” to a nonemployee spouse that is otherwise thwarted by a retirement plan from receiving their community property retirement benefits immediately. (In re Marriage of Gillmore (1981) 29 Cal.3d 418.) The fact pattern in Gillmore is surprisingly common. Gillmore is applicable when: (1) an employee is eligible to retire and commence retirement benefits from a defined benefit plan, (2) the employee is choosing to not retire, and (3) the retirement plan is refusing to pay any benefits to the nonemployee spouse pursuant to a qualified domestic relations order (“QDRO”) until the employee actually retires.

In the above situation, Gillmore allows the nonemployee spouse to collect the retirement benefits directly from the employee.

Many family law attorneys have the mistaken belief that a successful Gillmore motion must be accompanied by proof of “ill will” on the part of the employee spouse by showing that the employee is intentionally not retiring for the purpose of preventing the nonemployee spouse from receiving any portion of the community retirement benefits. However, there is nothing in the Gillmore decision that discusses motivation or intent, rather, it is a mathematical determination.

The Court in Gillmore explained, “It is a ‘settled principle that one spouse cannot, but invoking a condition wholly within his control, defeat the community interest of the other spouse.’” (Gillmore, citing to (1978) 21 Cal.3d 779, 786.)

Therefore, if the employee is making the decision to not retire, then the employee should be required to pay the nonemployee spouse the amount of retirement benefits that the nonemployee spouse would have received under the QDRO if employee spouse had elected to commence benefits.

This payment is made directly from the employee spouse by check every month; the payment is not made from the retirement plan.

Tips for Counseling a Client

With this framework in mind, the following practice tips can assist with counseling a client whether to move the court for an order for the employee to make payments to nonemployee spouse under Gillmore.

  1. Review the Marital Settlement Agreement (“MSA”) and QDRO for any reference to Gillmore Sometimes the parties have anticipated this issue and the MSA or QDRO already contains a waiver of Gillmore rights, an award of Gillmore rights, or an expedited procedure for enforcing or determining the amount of Gillmore rights.
  2. Explore whether the employee spouse will stipulate to make payments under Gillmore which would allow the parties to avoid the cost of a motion on the issue.
  3. Perform a mathematical analysis of the trade-off for the nonemployee spouse if the non employee spouse elects Gillmore. Answer these questions:
    1. What is the monthly dollar amount of the Gillmore payments (apply the time rule to the amount of payments the employee would receive if they retired immediately)? If the nonemployee spouse commences payments until Gillmore immediately, their monthly benefit amount for life is frozen (with the exception of cost of living adjustments) which means nonemployee spouse would miss out on any salary increases or overall benefit increases as a result of additional years of service. This is the complexity of the Gillmore election: the nonemployee spouse will receive benefits immediately but that monthly benefit amount is less than what the nonemployee spouse would receive if the nonemployee spouse waits for the employee to actually retire.
    2. What is the monthly dollar amount that the nonemployee would receive if they waited until the employee actually retired and commenced benefits? As discussed above, compare this figure to what the Gillmore payment would be and consider that payments are starting earlier under Gillmore, but the monthly payment is likely less.
    3. Consider the effect of receiving Gillmore payments on the nonemployee spouse’s eligibility and the amount of spousal support. If the nonemployee spouse is receiving spousal support and then commences receiving Gillmore payments from the employee, is the employee going to then reduce spousal support so that the nonemployee spouse is not any better off when receiving the Gillmore payments and the lowered spousal support.
    4. Finally, consider the cost of filing the Gillmore motion when deciding whether to move for Gillmore In many circumstances, Gillmore rights are not automatically awarded in the Marital Settlement Agreement and thus the employee is not breaching the Judgment by requiring the nonemployee spouse to file a formal motion for the court to award Gillmore payments.

In re Marriage of Gillmore provides a powerful tool for allowing a nonemployee spouse to receive their fair share of retirement benefits upon the employee becoming eligible to retire, but the nonemployee spouse must consider the mathematical tradeoffs in order to make the best decision.

 

Estate Tax Form Pencil

A Look at History:  The Estate Tax Exemption Really Has Increased

In a post earlier this year, we discussed that Americans can now transfer more than $5 million dollars in assets through the estate tax system without incurring a tax, while at the same time permitting their beneficiaries to receive those assets with a new and usually higher “stepped-up” basis.

Addressing the concept gave rise to the question:  Given inflation over the years, is the estate tax exemption really higher than it has been historically?  In order to answer that, we created a table showing the estate tax exemption over time, comparing it to the current buying power of the exemption amount in 2015 dollars.

While the comparisons are not perfect because the tax laws have changed over the years, the chart illustrates that the current exemptions are, indeed, historically high.

Throughout most of the twentieth century, the buying power of the exemption amount hovered at around $500,000 measured in 2015 dollars. The exemption’s 2015 equivalent started creeping up in 1990, but did not reach the $5,000,000 range until 2011. (The basic outline of the gift and estate tax laws has been consistent since the early 1980s.)

As noted in the earlier post, the exemption amount has been historically-high for several years.  There are no signs that it will be reduced in the near future.  It is clearly time to consider free basis when making estate planning decisions.

Tax Year                               Estate Tax Exemption                          2015 Equivalent

1920                                          $50,000                                                     $585,805

1930                                          $100,000                                                  $1,406,000

1940                                          $40,000                                                     $562,000

1950                                          $60,000                                                     $584,000

1960                                          $60,000                                                     $476,000

1970                                          $60,000                                                     $363,000

1980                                          $161,000                                                  $459,000

1990                                          $600,000                                                $1,078,000

2000                                          $675,000                                                  $920,000

2001                                          $675,000                                                  $895,000

2002                                          $1,000,000                                             $1,305,000

2003                                          $1,000,000                                             $1,276,000

2004                                          $1,500,000                                             $1,864,000

2005                                          $1,500,000                                             $1,803,000

2006                                          $2,000,000                                             $2,329,000

2007                                          $2,000,000                                             $2,264,000

2008                                          $2,000,000                                             $2,180,000

2009                                          $3,500,000                                             $3,829,000

2010                                          Unlimited

2011                                          $5,000,000                                             $5,217,000

2012                                          $5,120,000                                             $5,234,000

2013                                          $5,250,000                                             $5,290,000

2014                                          $5,340,000                                             $5,295,000

2015                                          $5,430,000                                             $5,430,000