Irvine, CA Estate Planning Blog

Studies have shown that 70% of family wealth is lost by the end of the second generation and 90% by the end of the third. 

Help your loved ones avoid becoming one of these statistics. You need to educate and update your heirs about your wealth transfer goals and the plan you have put in place to achieve these goals.

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Don’t let the chaos of the holiday season prevent you from avoiding federal gift tax by making “annual exclusion” gifts, medical payments gifts, and educational gifts.

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Under federal income tax laws, irrevocable, non-grantor trusts (such as Bypass Trusts and Dynasty Trusts) are subject to highly compressed income tax brackets. In 2019, the top 37% tax rate kicks in at only $12,500 of trust income. In addition, trusts in the top tax bracket are subject to the 20% long term capital gains rate, a 9.3% California state tax and a 3.8% surtax on the lesser of undistributed net investment income or adjusted gross income over $12,500.

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If you are married and you die without a Last Will and Testament, you may mistakenly believe that your spouse will still inherit your entire estate.  Not so fast.  Who will inherit your estate depends on several different factors:

1.   How is your property titled?  Is your property titled in your name alone, in joint names with your spouse, in joint names with a child or other relative, or does it have a beneficiary designated?  Knowing how all of your property is titled is the real key to understanding who will inherit it after you die.  For example, if your home is titled in joint names with rights of survivorship with your spouse, then your spouse will inherit the home.

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A common misconception is that only wealthy families and people in high risk professions need to put together an asset protection plan.  But in reality, anyone can be sued.  A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances.  Below are three tips that you can use right now to protect your assets from creditors, predators and lawsuits.

What Exactly is Asset Protection Planning?

Before getting to the tips, you need to understand what asset protection planning is all about.
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With such similar sounding names, many Americans mistake Medicare and Med-Cal programs for one another, or presume the programs are as similar as their names. While both are government-run programs, there are many important differences. Medicare provides senior citizens, the disabled and the blind with medical benefits. Medi-Cal, on the other hand, provides healthcare benefits for those with little to no income.

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Married couples will often have legal estate documents prepared together.  Such documents may include a will, leaving all property to the surviving spouse and/or the couple’s children, and a heath care proxy (sometimes known as a living will) to direct the spouse how to handle medical issues if one spouse becomes incapacitated.   However, another estate document may be beneficial for spouses -- a durable power of attorney.  

What is a durable power of attorney?

A durable power of attorney (POA) is a power of attorney given in the event of disability (whether mental or physical) by one spouse and directs the other spouse how to handle certain business or monetary activities detailed in the agreement.  Some instances of disability could include mental illness, physical illness, advanced age, drug use, alcoholism, confinement or disappearance.  

While state law may grant spouses certain rights to act for the other spouse, some activities may or may not be covered.  A power of attorney also helps spouses who may have separate ownership of property by giving the spouse the right to act on behalf of the incapacitated spouse. 

Some examples of business decisions in real estate matters where the well spouse is not a co-owner (perhaps because the real estate was a premarital asset or for other tax reasons) and can act for the incapacitated spouse are:

• If the incapacitated spouse owns rental property, the other spouse can collect rent
• To pay real estate taxes for properties that may not in both spouses ownership
• To handle issues related to any mortgages
• To take out property insurance

Some other general business related functions a durable power of attorney can include: 

• To sue on the collect of a debt
• To file for bankruptcy
• To write checks and do banking transactions
• To sell stock or other securities
• To file tax returns
• To manage retirement accounts
• To borrow money
• To make loans
• To make charitable donations
• To hire attorneys, accountants or other professionals

In the event state law did not allow a spouse to do any of the functions described above for its incapacitated spouse, a durable power of attorney signed by the incapacitated spouse before the disability (and notarized for validity) can come in handy in a family emergency. 

The majority of businesses in the United States are small businesses. To understand the impact that small business has, consider the fact that small business generates nearly 60% of all new jobs within the United States. Amazon, Walmart, and other big companies often stand out with their massive revenues and employment numbers, but at the end of the day, the primary drivers behind the economy are small business.

If you have a family business or personal business that you’ve built up, you are likely one of these economic drivers. For many families and individuals, the business becomes an identity. Family businesses in particular are susceptible to acting as an identity for that family. Thus, for many small business owners planning for retirement, the question of what to do with the small business is a major stressor. For a family business, the transfer of control and ownership from one generation to the next can be incredibly complicated and strenuous. If it’s not a family business, then the question is primarily how to effectuate the sale and estate planning repercussions. The following sections will give an overview of general considerations for family-owned businesses and then general concerns relating to the sale of a business.

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Today, it is impossible to put together even a simple estate plan without the assistance of an experienced estate planning attorney. Why? Because estate planning laws vary greatly from state to state and these laws are extremely convoluted and constantly changing.  

One wrong word, one missing signature, or one procedure not followed to the letter of the law can partially or completely invalidate a Last Will and Testament, Revocable Living Trust, Advance Health Care Directive, , or Durable Power of Attorney.  

Though attorney fees may feel expensive, they’re actually not when viewed in light of the service and protections provided.  In fact, estate planning fees are best viewed as an investment, not an expense.
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So, you have a will, but is it valid?  A will can be contested for a multitude of reasons after it is presented to a probate court.  It is in your best interest to have an attorney draft the will to prevent any ambiguity in the provisions of the document that others could dispute later. 

A will may be targeted on grounds of fraud, mental incapacity, validity, duress, or undue influence.  These objections can draw out the probate process and make it very time consuming and expensive.  More importantly, an attorney can help ensure that your property is put into the right hands, rather than distributed to unfamiliar people or organizations that you did not intend to provide for. 

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The decision to place a family member into a nursing home is a dilemma for an ever-increasing number of Americans. In addition to the emotional difficulties inherent in making such a decision, if a family decides to place a member into a nursing home, there is a mountain of paperwork awaiting them. While nursing homes will often argue that their contacts are standard and cannot be changed, this is rarely the case. To ensure that your contract doesn’t have any hidden or illegal clauses, it’s essential to consult with an experienced elder law attorney before you sign it.

When you receive the nursing home contract, make sure to actually read the contract in detail to understand the provisions. Make sure that the following provisions are included:

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