The Best Time to do estate planning

I generally say “let me know about two weeks before you need it” when people tell me they are thinking about getting their will or trust done.  Yes, I smile and sometimes wink after saying that. The fact is we don’t know when our two week timer has started… and when it’s going to BUZZ!  Thus, you should get your estate plan done NOW while you still can.

While certainly more people do estate planning as they get older there is nothing wrong with planning when you are younger.  In fact, you often can set things up which can have an incredible impact later in life… or after death.

For example, people with young children should definitely get their estate plan set up because if, in the unlikely event, there is a joint death you can leave a mess with your kids and family.  There can be fights over who should be guardian followed, the day your kids turn 18, by the enrichment of a salesmen at the local luxury car dealership. Get your affairs set up now while you can still make all the choices and avoid these problems!

Another great example of estate planning that can be incredible at a young age is life insurance planning with an irrevocable life insurance trust. The creation of a life insurance trust, at a younger age, can create an incredible financial legacy for your family for generations and/or the charity of your choice. This is because the lower cost of life insurance (due to low mortality rates) coupled with the time value of money make it so you can crate a huge pot of money… and if it set up correctly, with the irrevocable trust, can be 100% tax free, and creditor protected, to your spouse and children! The life insurance lobbiests have set something pretty amazing up so utilize it to your benefit!

Lastly, it’s simply more pleasant to do your estate plan when you don’t know how long you have left on this great earth. I have met with countless people who are cleaning up their affairs at the end of life and it’s not fun for either of us! Also, it can be tough to get some assets properly into the trust if you only days or weeks to do it.

In short, get your estate plan done now so there is no rush!

Having said all that, it’s rarely “too late” to get your estate plan done as long as you can call me from your hospital bed we can probably get it done! I have put documents together, and been to the hospital for a signing, within hours of talking to the client on the phone.  However, I prefer to get it done before I feel like an “ambulance chaser” walking down the hospital corridor in my finest suit.

Call me and let’s talk about setting up your estate plan now!

Estate Planning for Pets

I recently met with “Mabel,” an 85 year old client with a dog named “Buddy” who she loves very much. When Mabel dies who will take care of Buddy?  She believes her neighbor will take Buddy but will he?  Can Mabel do something to provide more security for Buddy?  Herein lies a problem when the pet owner dies without having made plans for their beloved little friends. It is quite possible for a beloved pet to become homeless or forgotten. In either instance, the premature death of the animal is possible. For most pet lovers, like myself, this is not an acceptable outcome.

The first step in the planning process is to find friends or relatives who are willing to care for your pets, and provide them with a good home. You then need to find a qualified estate planning lawyer. You need a lawyer to draft, at a minimum, a durable power of attorney and a will. Both documents should clearly state who you desire to care for your pets if you become unable to do so yourself. You may also choose to leave some money to the caretaker with the intention that it be used to provide for the pet.

Contrary to what we see in the movies, most states do not allow a person to leave money directly to their pets.  However, in 1991, California established Probate Code Section 15212, which gives a pet owner the ability to set up trusts which can last for the lifetime of the pet. This is an important change over prior laws, particularly for people with animals who are likely to live a long time.

Trusts CAN be set up to take care of your pets at least in California!  I have personally drafted some pretty intricate trust provisions for pets. It can be as personal and specific as you desire!

Above all else make sure your attorney knows what provisions to put into your estate planning documents in regards to your pets. There are many attorneys with thirty years experience who have never provided in a will for a pet, so make sure your attorney knows what they are doing so that your little Buddy will be protected!

Real Estate Sales After Death

At least once a week I get a call from a perspective client that goes something like this:

ME: “Good morning this is John Palley….”

CLIENT: “I need your help fast… we are trying to sell mom’s house… it might be in foreclosure… and the mortgage company won’t talk to me since we haven’t started the probate yet….”

ME: “How long ago did mom die?”

CLIENT: “Well… she died 3 years ago but I have been busy, and my brother isn’t helping out, and then I got divorced, and my dog is sick, and….”

ME: “I want to help you out… and I CAN help you out….”

However, in most of these cases the only way I can help is by filing for probate.  The probate process, though not the end of the world, is slow. If the client above contacted me on May 18th I would most likely get “Letters” issued to them by the probate Court around July 1st. In some cases, if it’s an emergency, we can get Letters issued earlier via an “ex parte” petition to the Court.

Ok, so once Letters are issued by the probate Court then what happens?  Well, Letters allows you to stand in the decedent’s shoes. That is, you make all decisions for them as if you were them… but there are some extra rules involved.

So we file the probate May 18th, you are appointed Administrator on July 1st and then what….  Well, generally we want to get the house sold as quick as possible… especially in this down real estate market. I encourage my clients to prepare the house for sale, interview Realtors, look at market analysis reports from the Realtors, and do whatever else they reasonably can so that the listing agreement can be signed on July 1st.

Once the listing agreement is signed you can start accepting offers!  Well, maybe the offers don’t roll in like they did back in 2004 or 2005 but if a house is priced right it will sell!

Once you have an accepted offer you (or more likely your Realtor) will provide that contract to me.  In most cases Court approval is NOT needed. Instead I will send then out the Notice of Proposed Action to all interested parties.  That provides them 15 days to object if they do not think the sale is fair. People do not generally object but if they do it’s likely because they feel the house has been sold too cheaply.  If nobody objects the house can close escrow 15 days after the Notice of Proposed Action was sent out.

If a person objects then we revert to a Court auction.  Unfortunately this greatly delays the sales process as we have to publish in the paper, post at the Courthouse, and send notice to all interested parties. The Court hearing will look a lot like a cattle auction down at the county fairgrounds.

The Judge will generally have a number of probate matters on his calendar. Anywhere from 5 to 85 depending on what county. Let’s pretend this case is first. The Judge would call the case and then the Judge (or the attorney) would announce the sale as follows:

“Calling the estate of John Doe, case number p5319, this is a petition to confirm sale of the real property located at 1234 Main Street.”  The Judge would then say “the bid is $200,000 and if anybody here today wants to bid the first overbid will be $220,000. Does anybody want to buy the property at 1234 Main Street for $220,000?  Going once, going twice… hearing no offers the house at 1234 Main Street is confirmed to Bob Smith for $200,000….”

The Judge will likely sign the order right there and an organized and efficient attorney (like me) will pick up the order and get it to the title company that same day so that the sale can close escrow ASAP!

The above illustrates the two most common ways to sell a house in probate. The first is by Notice of Proposed Action and the second is by Court auction.  There are other situations that arise.  Here are a couple we deal with:

First is the situation where one family member wants to buy out the other family members.  This can be done but care needs to be taken with the transaction. There are many problems that could develop. A common problem is a child is buying the house but the attorney has not properly established a distribution agreement to maximize the chances of the parent to child property tax exemption form being accepted by the county assessor. This is crucial as a re-assessment of property taxes can create a huge, and very long term, tax impact for the person who is keeping the house.

In this type of family transaction it is also is crucial to get the house valued properly so all interested parties agree the price is fair.  This can be done by agreement, valuations by one appraiser, valuations by multiple appraisers, or some other means.  Though the probate referee has to appraise the house their appraisal is the date of death value which is not always relevant as so often it has been many months since the decedent’s death.

Another situation we have been seeing more and more is probating upside-down real estate. There are cases where we can get YOU money even if an upside-down house is the only asset in the probate case. Yes, really!  Call me to discuss!

If you have any real estate situations dealing with property after death please contact me!  Or, if you want to get a living trust in place, before death, and avoid much of the above drama… call me!


Qualified Personal Residence Trust

Estate planning attorneys love acronyms: Q-TIP, Q-DOT and Q-PRT are three relatively well known types of trusts.  Others include ILIT, CRT, GRAT, GRIT and A/B.  Though all of these initials are good estate planning tools to consider the QPRT, or QUALIFIED PERSONAL RESIDENCE TRUST is a vastly underutilized tool in this author’s opinion.

A QPRT is an irrevocable trust whereby the grantor gives away their house to their chosen beneficiaries.  This is quite often a parent (or parents) giving their home to their children. A QPRT is a great estate planning tool for many reasons but two jump out as being the biggest:

1) Reduced taxation;

2) Asset protection.

Well, in my 15+ years doing estate planning work I don’t think any client has refused the idea of lowering their taxes.  Likewise in that 15 years the concept of asset protection has become more and more important as our litigious society develops. Yes, you can insert rude comment about ambulance chasing lawyers here.

With a QPRT you deed your house to a trust but you retain the right to live in your home for life. At the end of a pre-determined term of years your house transfers, at the least ownership, to your chosen beneficiary.  The appreciation of that house during those years goes to your kids along with the house.

The moving of appreciation out of your estate along with a special way to calculate the gift make a QPRT a dynamite way to transfer a house. In simple terms the special calculation of the gift “value” factors in the home’s actual value but is reduced to the present value of a future interest. Was that 10thgrade economics when they talked about the idea that one dollar today is worth much more than one dollar in 15 or 20 years?  The same simple concept applies to a QPRT.

You say you don’t really have much of an estate tax issue so are not worried about the above tax savings. Ok, do you like the idea of protecting your house from potential creditors?  Most people, whether they like it or not, realize they will likely get sued one day.  Wouldn’t you sleep better, during that time, if your house were in a creditor protected trust?  You don’t need to answer because I KNOW the answer!

While nothing is impervious to creditors a QPRT provides a nice barrier to potential creditors.  All the general concepts of asset protection apply and you have to be careful not to commit a “fraudulent” transfer but your attorney can help you with that.  A QPRT is a perfect asset protection device because it is “just estate planning” that happens to have some inherent asset protection built in.

Oh ya, I forgot to mention the cost is very reasonable and there is no on-going issues as some other estate planning tools cause. You pay the attorney fee plus an appraisal for your home.

Call me so we can see if a QPRT is right for you!


Ratings and Reviews

10.0John Bernard Palley
Wealth Counsel Member
2015 Best of the Best Badge