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Irvine, CA Estate Planning Blog

Thursday, October 1, 2015

The Most Important Love Letters You’ll Ever Write?

Many Americans have the misperception that estate planning is simply preparing for one’s death and is only necessary for the affluent. To the contrary, estate planning is as much about passing values to loved ones as it is about passing material possessions.

Thus it should come as no surprise that a recent Forbes article describes estate planning as “the most important love letters you’ll ever write,” encouraging readers to “find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.”

The Forbes article correctly concludes that estate planning is for every American (other than minors), and that everyone should successfully complete “thoughtfully prepared estate planning documents.” The complexity of those documents may change for more affluent Americans, but the need to care for loved ones and causes exists for everyone. And working with a qualified estate planner helps enlighten people as to all they can accomplish through the estate planning process.


Monday, September 28, 2015

Avoiding Common Mistakes in Estate Planning

Estate planning is designed to fulfill the wishes of a person after his or her death. Problems can easily arise, however, if the estate plan contains unanswered questions that can no longer be resolved after the person's demise. This can, and frequently does, lead to costly litigation counter-productive to the goals of the estate. It is important that will be written in language that is clear and that the document has been well proofread because something as simple as a misplaced comma can significantly alter its meaning.

Planning for every possible contingency is a significant part of estate planning. Tragic scenarios in which an estate planner’s loved ones predecease him or her, though uncomfortable, must be considered during the preparation of a will to avoid otherwise unforeseen conflicts. 

Even trained professionals can make significant mistakes if they are not well versed in estate planning. An attorney who practices general law, while perfectly capable of preparing simple wills, may not understand the intricacies of trusts and guardianships. A great many attorneys, not aware of the tax consequences of bequests involving IRAs, may leave heirs with unnecessary financial obligations. If an attorney is not knowledgeable enough to ask the proper questions, he or she will be unable to prepare an estate plan that functions efficiently and ensures the proper distribution of the estate's assets.

In spite of the wealth of an individual, the estate may be cash deficient if that wealth is tied up in assets at the time of the individual's death. Problems can also result if an estate planner has distributed assets into joint bank accounts or accounts with pay on death provisions. If the executor of the estate does not have access to funds to pay the estate's bills or taxes, the heirs of the estate may run into trouble.

Even if estate planning is handled well from a logistical point of view, lack of communication with loved ones can interfere with a will's desired execution. A tragedy that incapacitates the testator can occur suddenly, so it is imperative that a savvy estate planner confers with loved ones as soon as possible, making them aware of any future obligations, such as life insurance premiums that must be paid and informing them of the location of any probate documents and inventories of assets. Such conversations ensure that the individual's wishes will be carried out without complications or delay in the event of an unexpected incapacity.

In addition to communicating logistical information, it is also essential to schedule a personal conversation with loved ones that makes clear any sentimental bequests or large gifts that require explanation. This avoids the shock or discomfort that may arise after one's death during which a well-thought-out decision is questioned as impulsive or irrational. Such direct communication of one's plans avoids unnecessary envy, arguments or rivalry among family and friends.

Consulting with attorneys who specialize in estate planning is the cornerstone of creating a plan to ensure that one's desires are carried out and that all the bases are covered. Estate planning attorneys serve as invaluable repositories of all information necessary to strategizing a plan that not only meets one's personal needs and desires, but is legally binding.


Monday, September 14, 2015

Glossary of Estate Planning Terms

Will - a written document specifying a person’s wishes concerning his or her property distribution upon his or her death.

In order to be enforced by a court of law, a will must be signed in accordance with the applicable wills act.

Testator/Testatrix - the person who signs the will.

Heirs - beneficiaries of an estate.

Executor/Executrix - the individual given authority by the testator to make decisions to put the testator’s written directions into effect.

Once the will is entered into probate, the executor’s signature is equivalent to the testator’s. The executor has a legal duty to the heirs of the estate to act in the best interest of the estate, and may collect a fee for performing such service.

Administrator/Administratrix - the person who assumes the role of the executor when a person dies without a will (intestate).

The Administrator must apply with the local probate office and may be required to provide a bond to be held in escrow as collateral for control over the assets of the estate.

Codicil - an amendment to a will.

In order to be valid, a codicil must comply with all the requirements of the applicable wills act.

Holographic Will- a handwritten will. 

Holographic wills are often exempt from requirements of the applicable wills act.

Bequest - a gift given by the testator to his or her heirs through a will.

Residual Estate - the balance of a testator’s belongings after debts have been paid and specific bequests have been distributed. 

Intestate - not having signed a will before one dies; a person who dies without having signed a will.

Life Estate - a bequest that gives an heir the right to have exclusive use of a property for the remainder of his or her life, but without the power to transfer such property upon the death of that heir.

The property will transfer to the heirs of the residual estate after the death of the beneficiary of the life estate.

Per stirpes - a Latin phrase precisely translated as “by the branch” meaning that, if an heir named in the will dies before the testator, that heir’s share will be divided equally among that beneficiary’s own heirs.

 An alternative to per capita, described below.

Per capita - a Latin phrase precisely translated as “by the head” meaning that, if an heir named in the will dies before the testator, that heir’s share will be divided among the testator’s remaining heirs.

 An alternative to per stirpes, described above.

While it is a good idea to have a basic understanding of fundamental estate planning vocabulary, this cannot serve as a substitute for the services of an experienced attorney.


Monday, September 7, 2015

Controlling Estate Planning Through Trusts

How can I control my assets after death?

The practice of estate planning is dedicated to preserving an individual’s control over his or her assets after death. A simple will can control which individuals receive what assets, but a more thorough plan has the potential to do much more. Establishing a trust is the most common method used to exercise this kind of control. 

A trust can issue a bequest restricted by a condition; for example, a trust might be established to pay out $10,000.00 to a specific grandchild only once he or she has reached 18 years of age. Multiple payments can be made to the beneficiaries as long as the trust is funded. The trust can stipulate that the grandchild may have to graduate from college to receive the money, or even that he or she must graduate from a specific school with a minimum grade-point average or membership in a particular fraternity or sorority.

A trust can make the condition of payment as specific or as broad as the creator of the trust wishes. It may, for instance, bequeath benefits to a humanitarian organization on condition that the organization continues to provide food and shelter to the homeless. There is no limit to the number of conditions permissible in a trust document. Even when the conditions go against public policy and general norms and mores established by society, as long as the conditions may be met legally, they will be upheld by the court.

In order to create a trust, there must be a capital investment to fund it and a trustee must be named. The trustee is responsible for protecting the assets of the trust, investing them to the best of his or her ability, managing real estate and other long-term assets, interpreting the trust document, communicating regularly with the beneficiaries of the trust and performing all of these actions with a high level of integrity. Trust assets may be used to pay for expenses of managing the trust as well as to provide a stipend for the trustee if so provided for in the trust document.

If a trust document is not well written, it may be the target of a lawsuit seeking to dissolve the trust and disburse the assets held therein. Even if the trust is defended successfully, the costs of this challenge may deplete its coffers and frustrate the very reason for its creation. In order to avoid these possible pitfalls, it is imperative that a trust document be drafted by an attorney with a high degree of experience in estate planning law.


Tuesday, September 1, 2015

Paying for College . . . and accomplishing estate planning too

With higher education costs outpacing inflation by 5-6% per year, and the average cost of a four-year public school at nearly $20,000 per year (double that for private schools) it’s no surprise that many parents and grandparents are deeply concerned about how they will pay for higher education. Many of these clients are similarly concerned about estate planning.

One tool that can accomplish both is a college savings plan commonly known as a 529 plan (named after the Internal Revenue Code section that creates them). Contributions to 529 plans are generally not subject to gift, estate or GST tax, gains are not subject to income tax if used for qualified higher education expenses (QHEEs), and these assets are not owned by the student for financial aid purposes, making them an excellent tool for saving for college.

Furthermore, you can “front-load” a 529 plan by contributing five years’ worth of gift tax annual exclusions (currently $14,000 per year, or $70,000 per person) free of gift and estate tax as long as the contributor lives at least five years. Thus, a married couple can contribute up to $140,000 per child or grandchild!

The downsides to 529 plans are gains are subject to tax if not used for QHEEs and there are generally limited investment options, similar to mutual funds. There are also high fees with some state’s 529 plans, so it’s worth some research. An excellent resource in this area is the website savingforcollege.com.

One key consideration is the particular 529 plan’s impact on state income tax: is the client eligible for a state income tax deduction for investing in his or her state’s 529 plan?


Wednesday, August 26, 2015

Pooled Income Trusts and Public Assistance Benefits

A Pooled Income Trust is a special kind of trust that is established by a non-profit organization. This trust allows individuals of any age (typically over 65) to become financially eligible for public assistance benefits (such as Medi-Cal home care and Supplemental Security Income), while preserving their monthly income in trust for living expenses and supplemental needs. All income received by the beneficiary must be deposited into the Pooled Income Trust.

In order to be eligible to deposit your income into a Pooled Income Trust, you must be disabled as defined by law. For purposes of the Trust, "disabled" typically includes age-related infirmities. The Trust may only be established by a parent, a grandparent, a legal guardian, the individual beneficiary (you), or by a court order. 

Typical individuals who use a Pool Income Trust are: (1) elderly persons living at home who would like to protect their income while accessing Medi-Cal home care; (2) recipients of public benefit programs such as Supplemental Security Income (SSI) and Medi-Cal; (3) persons living in an Assisted Living Community under a Medi-Cal program who would like to protect their income while receiving Medi-Cal coverage.

 Medi-Cal recipients who deposit their income into a Pooled Income Trust will not be subject to the rules that normally apply to "excess income," meaning that the Trust income will not be considered as available income to be spent down each month. Supplemental payments for the benefit of the Medi-Cal recipient include: living expenses, including food and clothing; homeowner expenses including real estate taxes, utilities and insurance, rental expenses, supplemental home care services, geriatric care services, entertainment and travel expenses, medical procedures not provided through government assistance, attorney and guardian fees, and any other expense not provided by government assistance programs.


Wednesday, August 12, 2015

Protecting Your Legacy with Estate Tax Planning

You spend your whole life building your legacy but sadly, that is not always enough. Without careful estate tax planning, much of it could be lost to taxes or misdirected. While a will or living trust is essential for dividing your estate as you wish, an estate tax plan ensures you pass on as much of your legacy as possible.

Understanding estate tax laws

For the past decade, estate tax laws have been a sort of political football with significant changes occurring every few years.  The good news is that the 2013 tax act made the basic $5 million estate tax exemption “permanent,” but at a higher rate of 40%, though the law continues to adjust the exemption level for inflation. With this adjustment the 2015 exclusion $5.43 million ($10.86 million per married couple). The law also retained exclusion “portability” which means that if one spouse dies in 2014 or 2015, the surviving spouse may pass on the unused portion of the deceased spouse’s exclusion. This portability is not automatic, however. The unused portion needs to be transferred by the executor to the surviving spouse, and a special tax return must be filed within nine months. The surviving spouse does not have to pay estate taxes at this time, they only become due after both spouses have died.

Optimizing your estate plan

One way to maximize the amount you can pass on is through annual gifting while you are alive. An individual is allowed to give $14,000 each year to another individual, tax-free. If you give more than that, it will reduce your basic lifetime exclusion. So, if you give a child $50,000 this year, your basic $5.43 million exclusion will be reduced by $36,000 at the time of your death. You can gift as much as your full $5.43 million exclusion before incurring taxes, although doing so would “exhaust” your estate tax exemption at death. Gift taxes are paid by the giver, not the recipient.

An experienced estate tax planning attorney can help minimize potential gift and estate taxes by:

  • Identifying taxable assets
  • Transforming your wishes into a will or living trust
  • Keeping you apprised of federal and state tax law changes
  • Establishing an annual gifting plan
  • Creating family and charitable trusts
  • Setting up IRA charitable rollovers
  • Setting up 529 education savings plans
  • Helping you create a succession plan for your family business

It’s never pleasant to consider the end of your life, but planning for it will help ensure that the things you care about are cared for. It is one of the greatest gifts you can give your loved ones.


Thursday, August 6, 2015

Don't Disinherit with a Dollar

There are a lot of myths and misconceptions surrounding estate planning. Many people think that a last will and testament is the only estate planning document you really need. This of course is false. Others assume that you only need to have an estate plan in place if you’re a millionaire. This too is false. Another popular myth in the world of estate planning is that the best way to disinherit a relative (particularly a child) is to leave him or her a single dollar in your will. You probably guessed it- this too is entirely false.

The truth of the matter is that you must be very careful with leaving someone you really want to disinherit a token gift of $1 or some other small amount. By doing so, you have now made that person a beneficiary of your estate. It is possible, if not likely, that state law will require your executor to provide all beneficiaries with copies of all pleadings, an accounting, and notice of various administration activities. This may make it easier for this "beneficiary" to now complain about things and may cause problems for your executor which could cost your estate money.

Instead of leaving a token amount, you might consider mentioning the person by name so it is clear that you have not simply overlooked them. Then, you would specifically state you are intentionally disinheriting them from your estate. Also, consider if you wish to disinherit that person's children or more remote descendants and if so specifically state that as well in your will. You should consult with an estate planning lawyer to assist you in the proper wording as you will want to make sure there is as little likelihood of a will contest as possible.


Monday, August 3, 2015

Create Successful Wealth Transfers With Open and Honest Communication

A Forbes article claims that "70% of intergenerational wealth transfers fail," discussing a new Williams Group study examining the long-term effects of wealth transfers in 3,250 families. "Failure," according to the study, means situations where the heirs dissipated wealth, often with the family assets becoming a source of friction and dispute.

The researchers were quick to note that poor professional advice was not the cause; to the contrary, the researchers noted that "[estate planning attorneys, financial advisers, and tax experts] usually did well for their clients."

According to the study, poor family transition planning usually caused these failures. In other words, "no one in the unsuccessful transferring families was preparing their heirs for the multiple kinds of responsibilities they would face when having to take over the reins."

The common theme among the successful 30% was the identification and communication of long-term lessons and values that pass along with the assets:

“A key component was to identify a family mission as well as a strategy to attain it.  The heirs understood that the family’s identified mission was about the family wealth.  With that known they were given the opportunity to practice their roles for the future, in philanthropy, the family business and other ventures at a more minor level than they would have upon the passing of the patriarch or matriarch who headed the family at the time.”

Most importantly, the report suggests that at the center of all successful wealth transfers is open and honest communication between family members. 


Tuesday, July 28, 2015

Guardianships & Conservatorships and How to Avoid Them

If a person becomes mentally or physically handicapped to a point where they can no longer make rational decisions about their person or their finances, their loved ones may consider a guardianship or a conservatorship whereby a guardian would make decisions concerning the physical person of the disabled individual, and conservators make decisions about the finances.

Typically, a loved one who is seeking a guardianship or a conservatorship will petition the appropriate court to be appointed guardian and/or conservator. The court will most likely require a medical doctor to make an examination of the disabled individual, also referred to as the ward, and appoint an attorney to represent the ward’s interests. The court will then typically hold a hearing to determine whether a guardianship and/or conservatorship should be established. If so, the ward would no longer have the ability to make his or her own medical or financial decisions.  The guardian and/or conservator usually must file annual reports on the status of the ward and his finances.

Guardianships and conservatorships can be an expensive legal process, and in many cases they are not necessary or could be avoided with a little advance planning. One way is with a financial power of attorney, and advance directives for healthcare such as living wills and durable powers of attorney for healthcare. With those documents, a mentally competent adult can appoint one or more individuals to handle his or her finances and healthcare decisions in the event that he or she can no longer take care of those things. A living trust is also a good way to allow someone to handle your financial affairs – you can create the trust while you are alive, and if you become incompetent someone else can manage your property on your behalf.

In addition to establishing durable powers of attorney and advanced healthcare directives, it is often beneficial to apply for representative payee status for government benefits. If a person gets VA benefits, Social Security or Supplemental Security Income, the Social Security Administration or the Veterans’ Administration can appoint a representative payee for the benefits without requiring a conservatorship. This can be especially helpful in situations in which the ward owns no assets and the only income is from Social Security or the VA.

When a loved one becomes mentally or physically handicapped to the point of no longer being able to take care of his or her own affairs, it can be tough for loved ones to know what to do. Fortunately, the law provides many options for people in this situation.  


Thursday, July 16, 2015

Young and Ill, without Advance Directives

When you are a child, your parents serve as your decision makers. They have ultimate say in where you go to school, what extracurricular activities you partake in and where, and how, you should be treated in the event of a medical emergency. While most parents continue to play a huge role in their children’s lives long after they reach adulthood, they lose legal decision-making authority on that 18th birthday. Most young adults don't contemplate who can act on their behalf once this transfer of power occurs, and consequently they fail to prepare advance directives.

In the event of a medical emergency, if a young adult is conscious and competent to make decisions, the doctors will ask the patient about his or her preferred course of treatment. Even if the individual is unable to speak, he or she may still be able to communicate by using hand signals or even blinking one’s eyes in response to questions.

But what happens in instances where the young adult is incapacitated and unable to make decisions? Who will decide on the best course of treatment? Without advance directives, the answer to this question can be unclear, often causing the family of the incapacitated person emotional stress and financial hardship.

In instances of life threatening injury or an illness that requires immediate care, the doctors will likely do all they can to treat the patient as aggressively as possible, relying on the standards of care to decide on the best course of treatment. However, if there is no "urgent" need to treat they will look to someone else who has authority to make those decisions on behalf of the young individual. Most states have specific statutes that list who has priority to make decisions on behalf of an incapacitated individual, when there are no advance directives in place. Many states favor a spouse, adult children, and parents in a list of priority. Doctors will generally try to get in touch with the patient’s "next of kin" to provide the direction necessary for treatment.

A number of recent high-profile court cases remind us of the dangers of relying on state statues to determine who has the authority to make healthcare decisions on behalf of the ill. What happens if the parents of the incapacitated disagree on the best course of treatment? Or what happens if the patient is estranged from her spouse but technically still married- will he have ultimate say? For most, the thought is unsettling.

To avoid the unknown, it’s highly recommended that all adults, regardless of age, work with an estate planning attorney to prepare advance directives including a health care power of attorney (or health care proxy) as well as a living will which outline their wishes and ensure compliance with all applicable state statutes.


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Law Offices Of Michael J. Wittick, A Professional Law Corporation is located in Irvine, CA and serves clients with estate and wealth preservation matters throughout Irvine, Lake Forest, Laguna Woods, Laguna Hills, Foothill Ranch, Tustin, Aliso Viejo and the surrounding areas.



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