Estate Planning

The loss of a loved one is a difficult time, often made more stressful when one has to handle the affairs of the deceased. This may be a great undertaking or rather minimal work, depending upon the level of estate planning done prior to death.

Tasks that have to be performed after the passing of a loved one will vary based on whether the departed individual had a will or not. In determining whether probate (a court-managed process where the assets of the deceased are managed and distributed) is needed, the assets owned by the individual, and whether these assets were titled, must be considered. It’s important to understand that assets titled jointly with another person are not probate assets and will normally pass to the surviving joint owner. Also, assets such as life insurance and retirement assets that name a beneficiary will pass to the named beneficiaries outside of the court probate process. If the deceased relative had formed a trust and during his life retitled his assets into that trust, those trust assets will also not pass through the probate process.

Each state’s rules may be slightly different so it is important to seek proper legal advice if you are charged with handling the affairs of a deceased family member or friend. Assuming probate is required, there will be a process that you must follow to either file the will and ask to be appointed as the executor (assuming you were named executor in the will) or file for probate of the estate without a will (this is referred to as dying "intestate" which simply means dying without a will). Also, there will be a process to publish notice to creditors and you may be required to send each creditor specific notice of the death. Those creditors will have a certain amount of time to file a claim against the estate assets. If a legitimate creditor files a claim, the claim can be paid out of the estate assets. Depending on your state's laws, there may also be state death taxes (sometimes referred to as "inheritance taxes") that have to be paid and, if the estate is large enough, a federal estate tax return may also have to be filed along with any taxes which may be due.

Only after the estate is fully administered, creditors paid, and tax returns filed and taxes paid, can the estate be fully distributed to the named beneficiaries or heirs. Given the many steps, and complexities of probate, you should seek legal counsel to help you through the process.

We’ve been talking about a “perfect storm” for quite a while now– low asset values combined with historically low interest rates and the $5.43 million gift tax exemption make this an unusually good time to implement certain estate planning strategies. And some in the investment advisor community apparently agree.

In “A 'perfect storm' for estate planning” Investment News hails this as the time to take advantage of this confluence of factors, encouraging advisors to determine clients’ planning objectives and then “stick with the basics” and make annual exclusion ($14,000 per person gifts).

Beyond the basics, this article suggests that investment advisors and their clients consider:

Grantor Retained Annuity Trusts – for transfers of highly appreciating assets

Generation-Skipping Transfer Trusts – to avoid the generation-skipping transfer tax for potentially multiple generations

Qualified Personal Residence Trusts – for transfers of personal residences

We continue to encourage investment advisors to consider these and other estate planning options for their clients. While we can’t say with certainty what the future holds, asset values will eventually rebound, interest rates can’t remain at historic lows forever, and the 2015 Treasury Greenbook recommends that the estate tax exemption will be lowered in 2018 to $3.5 million dollars. Now is the time to take advantage of the perfect storm for estate planning.

There are certain considerations that should be kept in mind for those with chronic illnesses.   Before addressing this issue, there should be some clarification as to the definition of "chronically ill." There are at least two definitions of chronically ill. The first is likely the most common meaning, which is an illness that a person may live with for many years. Diseases such as diabetes, cardiovascular disease, lupus, multiple sclerosis, hepatitis C and asthma are some of the more familiar chronic illnesses. Contrast that with a legal definition of chronic illness which usually means that the person is unable to perform at least two activities of daily living such as eating, toileting, transferring, bathing and dressing, or requires considerable supervision to protect from crisis relating to health and safety due to severe impairment concerning mind, or having a level of disability similar to that determined by the Social Security Administration for disability benefits. Having said all of that, the estate planning such a person may undertake will likely be similar to that of a healthy person, but there will likely be a higher sense of urgency and it will be much more "real" and less "hypothetical."

Most healthy individuals view the estate planning they establish as not having any applicability for years, perhaps even decades. Whereas a chronically ill person more acutely appreciates that the planning he or she does will have real consequences in his or her life and the life of loved ones. Some of the most important planning will center around who the person appoints as his or her health care decision maker and also who is appointed to handle financial affairs. a will and/or revocable living trust will play a central role in the person's planning as well.  Care should also be taken to address possible Medi-Cal planning benefits.  A consultation with an estate planning and elder law attorney is critical to ensuring all necessary planning steps are contemplated and eventually implemented. 

This question presents a fairly common issue posed to estate planning attorneys. The solution is also pretty easy to address in your will, trust and other estate planning documents, including any guardianship appointment for your minor children.

First, its important to note that you should not delay establishing an estate plan pending the birth of a new child.  In fact, if your planning is done right you most likely will not need to modify your estate plan after a new child is born.  The problem with waiting is that you cannot know what tomorrow will bring and you could die, or become incapacitated and not having any type of plan is a bad idea. 

In terms of how an estate plan can provide for “after-born” children, there are a few drafting techniques that can address this issue.  For example, in your will, it would refer to your current children typically by name and their date of birth. Then, your will would provide that any reference to the term "your children" would include any children born to you, or adopted by you, after the date you sign your will.

In addition, in the section or article of your will that provides how your estate and assets will be divided, it could simply provide that your estate and assets will be divided into separate and equal shares, one each for "your children." That would mean that whatever children you have at the time of your death would receive a share and thus the will would work as you intend, even if you did not amend it after having a new child. 

On a side note, you should make certain that your plan does not give the children their share of your estate outright while they are still young.  Rather, your will or living trust should provide that the assets and money are held in a trust structure until they are reach a certain age or achieve certain milestones such as college graduation or marriage. Any good estate planning attorney should be able to advise you about this and help walk you through the various options you have available to you.

Opportunities created by our current historically low interest rates

A WSJ article highlights the opportunities created by our current historically low interest rates. In How Low Rates Can Cut Your Tax Bill, Tax Report columnist Laura Saunders points out that our current low interest rates create several unique planning opportunities:

• Loans to family members –The author gives an example of a $100,000 loan from parents to a child and his spouse to buy a home: the parents could either collect annual interest or they could forgive the loan (up to $52,000 of debt forgiveness per year) in whole or in part.

• Installment Sales — with interest rates low, more of the sale counts as capital gain than interest income (i.e., ordinary income);

• GRATs — noting that we have seen proposals to eliminate short-term GRATs, combined with low interest rates, the author urges consideration of a strategy “sanctioned by the tax code”;

• CLTs — Charitable lead trusts are more likely to pass tax-free assets to beneficiaries when interest rates and asset values are low.  Given historically low interest rates and low asset values, lifetime CLTs are also worthy of consideration, particularly for charitably inclined clients.

The full article is available online.

Individuals who are beginning the estate planning process may assume it's best to have their adult child(ren) join them in the initial meeting with an estate planning attorney, but this may cause more harm than good.

This issue comes up often in the estate planning and elder law field, and it's a matter of client confidentiality. The attorney must determine who their client is- the individual looking to draft an estate plan or their adult children- and they owe confidentiality to that particular client.

The client is the person whose interests are most at stake. In this case, it is the parent. The attorney must be certain that they understand your wishes, goals and objectives. Having your child in the meeting could cause a problem if your child is joining in on the conversation, which may make it difficult for the attorney to determine if the wishes are those of your child, or are really your wishes.

Especially when representing elderly clients, there may be concerns that the wishes and desires of a child may be in conflict with the best interests of the parent. For example, in a Medicaid and long-term care estate planning context, the attorney may explain various options and one of those may involve transferring, or gifting, assets to children. The child's interest (purely from a financial aspect) would be to receive this gift. However, that may not be what the parent wants, or feels comfortable with. The parent may be reluctant to express those concerns to the attorney if the child is sitting right next to the parent in the meeting.

Also, the attorney will need to make a determination concerning the client's competency. Attorneys are usually able to assess a client's ability to make decisions during the initial meeting. Having a child in the room may make it more difficult for the attorney to determine competency because the child may be "guiding" the parent and finishing the parents thoughts in an attempt to help. 

The American Bar Association has published a pamphlet on these issues titled "Why Am I Left in the Waiting Room?" that may be helpful for you and your child to read prior to meeting with an attorney. 

Many people purchase a life insurance policy as a way to ensure that their dependents are protected upon their passing. Generally speaking, there are two basic types of life insurance policies: term life and whole life insurance. With a term policy, the holder pays a monthly, or yearly, premium for the policy which will pay out a death benefit to the beneficiaries upon the holder’s death so long as the policy was in effect. A whole life policy is similar to a term, but also has an investment component which builds cash value over time. This cash value can benefit either the policy holder during his or her lifetime or the beneficiaries.

During the Medicaid planning process, many people are surprised to learn that the cash value of life insurance is a countable asset. In most cases, if you have a policy with a cash value, you are able to go to the insurance company and request to withdraw that cash value. Thus, for Medicaid purposes, that cash value will be treated just like a bank account in your name. There may be certain exceptions under your state law where Medicaid will not count the cash value. For example, if the face value (which is normally the death benefit) of the policy is a fairly small amount (such as $10,000 or less) and if your "estate" is named as a beneficiary, or if a "funeral home" is named as a beneficiary, the cash value may not be counted. However, if your estate is the beneficiary then Medicaid likely would have the ability to collect the death proceeds from your estate to reimburse Medicaid for the amounts they have paid out on your behalf while you are living (this is known as estate recovery). Generally, the face value ($10,000 in the example) is an aggregate amount of all life insurance policies you have. It is not a per policy amount.

Each state has different Medicaid laws so it’s absolutely essential that you seek out a good elder law or Medicaid planning attorney in determining whether your life insurance policy is a countable asset.

The world of estate planning can be complex. If you have just started your research or are in the process of setting up your estate plan, you’ve likely encountered discussions of wills and trusts. While most people have a very basic understanding of a last will and testament, trusts are often foreign concepts. Two of the most common types of trusts used in estate planning are testamentary trusts and inter vivos trusts.

A testamentary trust refers to a trust that is established after your death from instructions set forth in your will. Because a will only has legal effect upon your death, such a trust has no existence until that time. In other words, at your death your will provides that the trusts be created for your loved ones whether that be a spouse, a child, a grandchild or someone else.

An inter vivos trust, also known as a revocable living trust, is created by you while you are living. It also may provide for ongoing trusts for your loved ones upon your death. One benefit of a revocable trust, versus simply using a will, is that the revocable trust plan may allow your estate to avoid a court-administered probate process upon your death. However, to take advantage this benefit you must "fund" your revocable trust with your assets while you are still living. To do so you would need to retitle most assets such as real estate, bank accounts, brokerage accounts, CDs, and other assets into the name of the trust.

Since one size doesn’t fit all in estate planning, you should contact a qualified estate planning attorney who can assess your goals and family situation, and work with you to devise a personalized strategy that helps to protect your loved ones, wealth and legacy.

Mediation is one form of alternative dispute resolution (ADR) that allows parties to seek a remedy for their conflict without a court trial. Parties work with a mediator, who is a neutral third party. Usually, mediators have received some training in negotiation or their professional background provides that practical experience.

Unlike a judge, a mediator does not decide who wins; rather, a mediator facilitates communication between the parties and helps identify issues and solutions. The goal is for parties to reach an acceptable agreement.

Mediation can be an appealing option because it is less adversarial. This might be important when the relationship between the parties has to continue in the future, such as between a divorcing couple with children. The process is also less formal than court proceedings.

Mediation often costs less than litigation, which is another benefit. Another advantage to using mediation is that it generally takes much less time than a traditional lawsuit. Litigation can drag on for years, but mediation can typically be completed within a few months. Court systems are embracing mediation and other forms of ADR in an effort to clear their clogged dockets. There are some programs that are voluntary, but in some jurisdictions, pursuing ADR is a mandatory step before a lawsuit can proceed.

Mediation can be used in a variety of cases, and it is sometimes required by a contract between the parties. Mediators can be found through referrals from courts or bar associations, and there are companies that specifically provide ADR services. Ideally, a mediator will have some training or background in the area of law related to your dispute.

Mediation is often a successful way to reach a settlement. If parties fail to resolve their conflict, information learned during mediation might be protected as confidential under state law.

Contact our law firm today to help determine if mediation would be a valuable tool to resolve your case.

If your estate plan and related documents are properly and carefully drafted, it is highly unlikely that the court will disregard your wishes and award the excluded child an inheritance.  As unlikely as it may be, there are certain situations where this child could end up receiving an inheritance depending upon a variety of factors.

To understand how a disinherited child could benefit, you must understand how assets pass after death.  How a particular asset passes at death depends upon the type of asset and how it is titled. For example, a jointly titled asset will pass to the surviving joint owner regardless of what a will or a trust says. So, in the unlikely event that the disinherited child was a joint owner, that child would still inherit the asset because of how it was titled.

Similarly, if you left that disinherited child as a named beneficiary on a life insurance policy or retirement plan asset, such as an IRA or 401k, that child would still receive some of the benefits as the named beneficiary even if your will stated they were to take nothing. Another way such a "disinherited" child might receive a benefit is if all other named beneficiaries died before you.

So, assume you have three children and you wish to disinherit one of them and you state you want all of your assets to go to the other two, and if they are not alive, then to their descendants.  If those other two children die before you and do not have any descendants, there may be a provision that in such a case your "heirs at law" are to take your entire estate and that would include the child you intended to disinherit.

If you wish to disinherit a child, all of these issues can be addressed with proper and careful drafting by a qualified estate planning lawyer.  

Many of us have been lucky enough to acquire timeshares for the purposes of vacationing on our time off.  Some of us would like to leave these assets to our loved ones.  If you have a time share, you might be able to leave it to your heirs in a number of different ways. 

One way of leaving your timeshare to a beneficiary after your death is to modify your will or revocable trust.  The modification should include a specific section in the document that describes the time share and makes a specific bequest to the designated heir or heirs. After your death, the executor or trustee will be the one that handles the documents needed to transfer title to your heir. If the time share is outside your state of residence and is an actual real estate interest, meaning that you have a deed giving you title to a certain number of weeks, a probate in the state where the time share is located, called ancillary probate, may be necessary. Whether ancillary probate is needed will depend upon the value of the time share and the state law.

Another way you could accomplish this goal is to execute what is called a "transfer on death" deed. However, not all states have legislation that permits this so it is imperative that you check state law or consult with an attorney in the state where the time share is located. A transfer on death deed is basically like a beneficiary designation for a piece of real estate. Your beneficiary would submit a survivorship affidavit after your death to prove that you have died. Once this document is recorded the beneficiary would become the title owner.

It is also important to investigate what documents the time share company requires in order to leave your interest to a third party. They may require that additional forms be completed so that they can bill the beneficiary for the annual maintenance fees or other charges once you have died.

If you want to do your best to ensure that your loved ones inherit your time share, you should consult with an experienced estate planning attorney today.