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Irvine, CA Estate Planning Blog

Monday, June 30, 2014

Veterans’ Non-Service Connected Pension Benefits

The Veterans’ Administration’s non-service connected pension program can help supplement the income of elderly or disabled veterans. The VA deems any veteran age 65 or older to be permanently and totally disabled. This “disabled” classification entitles senior citizens who are veterans, or their widows, to tax-free pension payments regardless of their actual physical condition, provided they meet the needs-based criteria.

One significant advantage of this program is that, unlike a traditional service-connected pension, there is no requirement that your injury or disability be tied to your time in service. On the other hand, this is a needs-based assistance program, so many veterans may not qualify for benefits.

To qualify for benefits under the program, you must have served on active duty for at least 90 days, and at least one of those days must have been during a time of war. Additionally, you must not have had a dishonorable discharge from the military.

Periods of war time are determined by the U.S. Congress as follows:

  • Mexican Border Period: May 9, 1916 through April 5, 1917, only if you served in Mexico, on its borders or in adjacent waters
  • World War I: April 6th, 1917 through November 11, 1918, or through April 1, 1920 if you served in Russia
  • World War II: December 7, 1941 through December 31, 1946    
  • Korean Conflict: June 27, 1950 through January 31, 1955
  • Vietnam Era: August 5, 1964 through May 7, 1965, or beginning February 28, 1961 you served in Vietnam
  • Persian Gulf War: August 2, 1990 through the present

Once qualifying military service is established, you must also pass the income and asset tests. The VA must determine that your net worth is not enough to adequately support you during your lifetime. Your vehicle and primary residence are not counted when determining your net worth.  The VA generally caps net worth, exclusive of your car and primary residence, at $80,000 for a married veteran, or $40,000 for a single person.

Additionally, your countable income must be lower than the available pension amount. Fortunately, countable income is offset by your unreimbursed, recurring health care costs, including prescriptions, insurance premiums or assisted living expenses.
 


Friday, June 20, 2014

Paying for Your Grandchildren’s Education

The bond between a grandparent and grandchild is a very special one based on respect, trust and unconditional love. When preparing one’s estate plan, it’s not at all uncommon to find grandparents who want to leave much or all of their fortune to their grandchildren. With college tuition costs on the rise, many seniors are looking to ways to help their grandchildren with these costs long before they pass away. Fortunately, there are ways to “gift” an education with minimal consequences for your estate and your loved ones.

The options for your financial support of your heirs’ education may vary depending upon the age of the grandchild and how close they are to actually entering college. If your grandchild is still quite young, one of the best methods to save for college may be to make a gift into a 529 college savings plan. This type of plan was approved by the IRS in Section 529 of the Internal Revenue Code. It functions much like an IRA in that the appreciation of the investments grows tax deferred within the 529 account. In fact, it is likely to be "tax free" if the money is eventually used to pay for the college expenses. Another possible bonus is that you may get a tax deduction or tax credit on your state income tax return for making such an investment. You should consult your own tax advisor and your state's rules and restrictions.

If your granddaughter or grandson is already in college, the best way to cover their expenses would be to make a payment directly to the college or university that your grandchild attends. Such a "gift" would not be subject to the annual gift tax exemption limits of $14,000 which would otherwise apply if you gave the money directly to the grandchild. Thus, as long as the gift is for education expenses such as tuition, and if the payment is made directly to the college or university, the annual gift tax limits will not apply.

As with all financial gifts, it’s important to consult with your estate planning attorney who can help you look at the big picture and identify strategies which will best serve your loved ones now and well into the future.


Tuesday, June 10, 2014

Removal of a Trustee

In creating a trust, the trustmaker must name a trustee who has the legal obligation to administer it in accordance with the trustmaker’s wishes and intentions. In some cases, after the passing of the trustmaker, loved ones or beneficiaries may want to remove the designated trustee.

The process to remove a trustee largely depends on two factors: 1) language contained with the trust and 2) state law. When determining your options, there are a number of issues and key considerations to keep in mind.

First, it is possible that the trust language grants you the specific right to remove the named trustee. If it does, it likely will also outline how you must do so and whether you must provide a reason you want to remove them. Second, if the trust does not grant you the right to remove the trustee, it may grant another person the right to remove. Sometimes that other person may serve in the role of what is known as a "trust protector" or "trust advisor." If that is in the trust document you should speak to that person and let them know why you want the trustee removed. They would need to decide if they should do so or not. Finally, if neither of those is an option, your state law may have provisions that permit you to remove a trustee. However, it may be that you will have to file a petition with a court and seek a court order. You should hire an attorney to research this for you and advise you of the likelihood of success.

Another option may be to simply ask the named trustee to resign. They may do so voluntarily.

Assuming the trustee is removed, whether by you, a trust protector, or by court order, or if the trustee resigns, the next issue is who is to serve as the successor trustee. Again, looking at the terms of the trust should answer that question. Perhaps a successor is specifically named or perhaps the trust provides the procedure to appoint the successor. Before proceeding, you will want to make certain you know who will step-in as the new trustee.


Friday, May 30, 2014

How Much of Your Estate Will Be Left Out of Your Will? (It’s Probably More Than You Think)

You’ve hired an attorney to draft your will, inventoried all of your assets, and have given copies of important documents to your loved ones. But your estate planning shouldn’t stop there. Regardless of how well your will is drafted, if you do not take certain steps regarding your non-probate assets, you run the risk of unintentionally disinheriting your chosen beneficiaries from a significant portion of your estate.

A will has no effect on the distribution of certain types of property after your death. Such assets, known as “non-probate” assets are typically transferred upon your death either as a beneficiary designation or automatically, by operation of law.

For example, if your 401(k) plan indicates your spouse as a designated beneficiary, he or she automatically inherits the account upon you passing.  In fact, by law, your spouse is entitled to inherit the funds in your 401(k) account.  If you wish to leave your 401(k) retirement account to someone other than a surviving spouse, you must obtain a signed waiver from your spouse indicating her agreement to waive her rights to the assets in that account.

Other types of retirement accounts also transfer to your beneficiaries outside of a probate proceeding, and therefore are not subject to the provisions of your will.  An Individual Retirement Account (IRA) does not automatically transfer to your spouse by operation of law as is the case with 401(k) plans, so you  must complete the IRA’s beneficiary designation form, naming the heirs you want to inherit the account upon your death. Your will has no effect on who inherits your IRA; the beneficiary designation on file with the financial institution controls who will receive your property.

Similarly, you must name a beneficiary on your life insurance policy. Upon your death, the insurance proceeds are not subject to the terms of a will and will be paid directly to your named beneficiary.

Probate avoidance is a noble goal, saving your loved ones both time and money as they close your estate. In addition to the assets listed above, which must be handled through beneficiary designations, there are other types of assets that may be disposed of using a similar procedure.   These include assets such as bank accounts and brokerage accounts, including stocks and bonds, in which you have named a pay-on-death (POD) or transfer-on-death (TOD) beneficiary; upon your passing, the asset will be transferred directly to the named beneficiary, regardless of what provisions are in your will. Depending on the state, vehicles may also be titled with a TOD beneficiary.

To make these arrangements, submit a beneficiary designation form to the applicable financial institution or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to your executor listing which assets are to be transferred in this manner.  Most such designations also allow for listing of alternate beneficiaries in case they predecease you.

Another common non-probate asset is real estate that is co-owned with someone else where the deed has a survivorship provision in it.  For example, many deeds to real property owned by married couples are owned jointly by both husband and wife, with right of survivorship.  Upon the passing of either spouse, the interest of the passing spouse immediately passes to the surviving spouse by operation of law, irrespective of any conflicting instructions in your will.  Keep in mind that you need not be married for such a provision to be in effect; joint ownership of real property with right of survivorship can exist among any group of co-owners.  If you want your will to be controlling with regard to disposition of such property, you need to have a new deed prepared (and recorded) that does not have a right of survivorship provision among the co-owners.

You’ve spent a lifetime of hard work to accumulate your assets and it’s important that you take all necessary steps to ensure that your wishes regarding who will get your assets will be honored as you intend. Carve a few hours out of your busy schedule, several times a year, to review all of your deeds and beneficiary designations to make certain that they remain consistent with your objectives.
 


Thursday, May 22, 2014

Avoid Family Feuds through Proper Estate Planning

A family feud over an inheritance is not a game and there is no prize package at the end of the show. Rather, disputes over who gets your property after your death can drag on for years and deplete your entire estate. When most people are preparing their estate plans, they execute wills and living trusts that focus on minimizing taxes or avoiding probate. However, this process should also involve laying the groundwork for your estate to be settled amicably and according to your wishes. Communication with your loved ones is key to accomplishing this goal.

Feuds can erupt when parents fail to plan, or make assumptions that prove to be untrue. Such disputes may evolve out of a long-standing sibling rivalry; however, even the most agreeable family members can turn into green-eyed monsters when it comes time to divide up the family china or decide who gets the vacation home at the lake.

Avoid assumptions. Do not presume that any of your children will look out for the interests of your other children. To ensure your property is distributed to the heirs you select, and to protect the integrity of the family unit, you must establish a clear estate plan and communicate that plan – and the rationale behind certain decisions – to your loved ones.

In formulating your estate plan, you should have a conversation with your children to discuss who will be the executor of your estate, or who wants to inherit a specific personal item. Ask them who wants to be the executor, or consider the abilities of each child in selecting who will settle your estate, rather than just defaulting to the eldest child. This discussion should also include provisions for your potential incapacity, and address who has the power of attorney.

Do not assume any of your children want to inherit specific items. Many heirs fight as much over sentimental value as they do monetary items. Cash and investments are easily divided, but how do you split up Mom’s engagement ring or the table Dad built in his woodshop? By establishing a will or trust that clearly states who is to receive such special items, you avoid the risk that your estate will be depleted through costly legal proceedings as your children fight over who is entitled to such items.

Take the following steps to ensure your wishes are carried out:

  • Discuss your estate planning with your family. Ask for their input and explain anything “unusual,” such as special gifts of property or if the heirs are not inheriting an equal amount.
     
  • Name guardians for your minor children.
     
  • Write a letter, outside of your will or trust, that shares your thoughts, values, stories, love, dreams and hopes for your loved ones.
     
  • Select a special, tangible gift for each heir that is meaningful to the recipient.
     
  • Explain to your children why you have appointed a particular person to serve as your trustee, executor, agent or guardian of your children.
     
  • If you are in a second marriage, make sure your children from a prior marriage and your current spouse know that you have established an estate plan that protects their interests.
     

Saturday, May 10, 2014

Umbrella Insurance: What It Is and Why You Need It

Lawsuits are everywhere. What happens when you are found to be at fault in an accident, and a significant judgment is entered against you? A child dives head-first into the shallow end of your swimming pool, becomes paralyzed, and needs in-home medical care for the rest of his or her lifetime. Or, you accidentally rear-end a high-income executive, whose injuries prevent him or her from returning to work. Either of these situations could easily result in judgments or settlements that far exceed the limits of your primary home or auto insurance policies. Without additional coverage, your life savings could be wiped out with the stroke of a judge’s pen.

Typical liability insurance coverage is included as part of your home or auto policy to cover an injured person’s medical expenses, rehabilitation or lost wages due to negligence on your part. The liability coverage contained in your policy also cover expenses associated with your legal defense, should you find yourself on the receiving end of a lawsuit. Once all of these expenses are added together, the total may exceed the liability limits on the home or auto insurance policy. Once insurance coverage is exhausted, your personal assets could be seized to satisfy the judgment.

However, there is an affordable option that provides you with added liability protection. Umbrella insurance is a type of liability insurance policy that provides coverage above and beyond the standard limits of your primary home, auto or other liability insurance policies. The term “umbrella” refers to the manner in which these insurance policies shield your assets more broadly than the primary insurance coverage, by covering liability claims from all policies “underneath” it, such as your primary home or auto coverage.

With an umbrella insurance policy, you can add an addition $1 million to $5 million – or more – in liability coverage to defend you in negligence actions. The umbrella coverage kicks in when the liability limits on your primary policies has been exhausted. This additional liability insurance is often relatively inexpensive in comparison to the cost of the primary insurance policies and potential for loss if the unthinkable happens.

Generally, umbrella insurance is pure liability coverage over and above your regular policies. It is typically sold in million-dollar increments. These types of policies are also broader than traditional auto or home policies, affording coverage for claims typically excluded by primary insurance policies, such as claims for defamation, false arrest or invasion of privacy.
 


Wednesday, April 30, 2014

You’ve Finally Done Your Healthcare Directives – Now What?

Healthcare directives can be vitally important, as recent cases, like that of Terry Schiavo, clearly brought to light. These important documents can mean the difference between your health care wishes being carried out or family members fighting over whether a loved one should be placed in a nursing home or removed from life support. Healthcare directives usually include both a healthcare power of attorney and a living will, or a form which is a combination of the two. In a healthcare power of attorney, an individual authorizes another individual to make healthcare decisions for him or her if the individual becomes unable to do so. A living will expresses an individual’s preferences about life support.

Once you have executed your healthcare directives, you may be uncertain as to what to do with them. First, you should make copies of the documents and inform others of their existence. In addition to your health care agent, persons you should consider notifying of the directives include family members and your health care providers.  Ideally, the originals should be kept in a place that is both safe and easily accessible.

You may wish to consider using a secure registry service to store your healthcare directives. Such services allow you to access healthcare directives any time and in any location with access to the Internet.  Some also allow the documents to be accessed via an automated fax-back service. In addition to providing the healthcare directives, many registries also allow caregivers to access information like emergency contacts, allergies, and other pertinent medical information.

You should review your healthcare directives regularly.  As individuals get older, their preferences about health care and life support change, and it’s important that your directives reflect your current health care wishes.   Of course, life changing events such as marriage, divorce, or the death of a loved one typically require changes in those documents to ensure that the people named in them are still those you wish to make decisions on your behalf.  

Moving to another state? Many states provide that healthcare directives prepared in another state are valid, but you should consult an attorney to make sure your wishes will be carried out in the manner you desire.

Establishing your healthcare directives can spare your family a great deal of anguish if they need to make decisions at a time that is already very emotionally-charged. By keeping the documents in a secure place, providing copies to loved ones, and reviewing them regularly, you can be more certain that your healthcare wishes will be carried out.
 


Sunday, April 20, 2014

Living Trusts & Probate Avoidance

You want your money and property to go to your loved ones when you die, not to the courts, lawyers or the government. Unfortunately, unless you’ve taken proper estate planning, procedures, your heirs could lose a sizable portion of their inheritance to probate court fees and expenses. A properly-crafted and “funded” living trust is the ideal probate-avoidance tool which can save thousands in legal costs, enhance family privacy and avoid lengthy delays in distributing your property to your loved ones

What is probate, and why should you avoid it? Probate is a court proceeding during which the will is reviewed, executors are approved, heirs, beneficiaries, debtors and creditors are notified, assets are appraised, your debts and taxes are paid, and the remaining estate is distributed according to your will (or according to state law if you don’t have a will). Probate is costly, time-consuming and very public.

A living trust, on the other hand, allows your property to be transferred to your beneficiaries, quickly and privately, with little to no court intervention, maximizing the amount your loved ones end up with.

A basic living trust consists of a declaration of trust, a document that is similar to a will in its form and content, but very different in its legal effect. In the declaration, you name yourself as trustee, the person in charge of your property. If you are married, you and your spouse are co-trustees. Because you are trustee, you retain total control of the property you transfer into the trust. In the declaration, you must also name successor trustees to take over in the event of your death or incapacity.

Once the trust is established, you must transfer ownership of your property to yourself, as trustee of the living trust. This step is critical; the trust has no effect over any of your property unless you formally transfer ownership into the trust. The trust also enables you to name the beneficiaries you want to inherit your property when you die, including providing for alternate or conditional beneficiaries. You can amend your trust at any time, and can even revoke it entirely.

Even if you create a living trust and transfer all of your property into it, you should also create a back-up will, known as a “pour-over will”. This will ensure that any property you own – or may acquire in the future – will be distributed to whomever you want to receive it. Without a will, any property not included in your trust will be distributed according to state law.

After you die, the successor trustee you named in your living trust is immediately empowered to transfer ownership of the trust property according to your wishes. Generally, the successor trustee can efficiently settle your entire estate within a few weeks by filing relatively simple paperwork without court intervention and its associated expenses. The successor trustee can solicit the assistance of an attorney to help with the trust settlement process, though such legal fees are typically a fraction of those incurred during probate.
 


Thursday, April 10, 2014

Do Heirs Have to Pay Off Their Loved One’s Debts?

The recent economic recession, and staggering increases in health care costs have left millions of Americans facing incredible losses and mounting debt in their final years. Are you concerned that, rather than inheriting wealth from your parents, you will instead inherit bills? The good news is, you probably won’t have to pay them.

As you are dealing with the emotional loss, while also wrapping up your loved one’s affairs and closing the estate, the last thing you need to worry about is whether you will be on the hook for the debts your parents leave behind. Generally, heirs are not responsible for their parents’ outstanding bills. Creditors can go after the assets within the estate in an effort to satisfy the debt, but they cannot come after you personally. Nevertheless, assets within the estate may have to be sold to cover the decedent’s debts, or to provide for the living expenses of a surviving spouse or other dependents.

Heirs are not responsible for a decedent’s unsecured debts, such as credit cards, medical bills or personal loans, and many of these go unpaid or are settled for pennies on the dollar. However, there are some circumstances in which you may share liability for an unsecured debt, and therefore are fully responsible for future payments. For example, if you were a co-signer on a loan with the decedent, or if you were a joint account holder, you will bear ultimate financial responsibility for the debt.

Unsecured debts which were solely held by the deceased parent do not require you to reach into your own pocket to satisfy the outstanding obligation. Regardless, many aggressive collection agencies continue to pursue collection even after death, often implying that you are ultimately responsible to repay your loved one’s debts, or that you are morally obligated to do so. Both of these assertions are entirely untrue.

Secured debts, on the other hand, must be repaid or the lender can repossess the underlying asset. Common secured debts include home mortgages and vehicle loans. If your parents had any equity in their house or car, you should consider doing whatever is necessary to keep the payments current, so the equity is preserved until the property can be sold or transferred. But this must be weighed within the context of the overall estate.

Executors and estate administrators have a duty to locate and inventory all of the decedent’s assets and debts, and must notify creditors and financial institutions of the death. Avoid making the mistake of automatically paying off all of your loved one’s bills right away. If you rush to pay off debts, without a clear picture of your parents’ overall financial situation, you run the risk of coming up short on cash, within the estate, to cover higher priority bills, such as medical expenses, funeral costs or legal fees required to settle the estate.


Sunday, March 30, 2014

What’s Involved in Serving as an Executor?

An executor is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the executor’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries. The executor may also be a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.


Read more . . .


Thursday, March 20, 2014

8 Things to Consider When Selecting a Caregiver for Your Senior Parent

As a child of a senior citizen, you are faced with many choices in helping to care for your parent. You want the very best care for your mother or father, but you also have to take into consideration your personal needs, family obligations and finances.

When choosing a caregiver for a loved one, there are a number of things to take into consideration.


Read more . . .


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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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