Each year I am told of clients who had a new years resolution to “Get our estate plan done this year….” Each year they tell me they failed to do it until finally they came to see me. Often they tell me “the estate planning process was much easier than we thought it would be….” Maybe YOU have been procrastinating about getting your estate plan done!? Maybe you have young children… or not so young anymore as you are busy. Maybe you have assets that you are concerned about taxes, probate, and even just kids WASTING the money. GET YOUR ESTATE PLAN DONE! I strongly believe that DONE IS BETTER THAN PERFECT! You may never have your thoughts organized 100%. You may never agree with your spouse on everything. There may always be one more change about to happen. DONE IS BETTER THAN PERFECT! Protect yourselves, protect your family, protect your loved ones, avoid attorney fees, avoid taxes, and GET YOUR ESTATE PLAN DONE NOW! New years is the best time to do it! Here’s to a great 2017 to you and yours! -John
Every year it happens. Every year I get to the end of the year and am amazed that some people I met with months ago have not finished their estate plans yet. People who have had rough drafts mailed to them long ago. People who have been reminded that they should get it done. People who might be causing probate, family fights, estate taxes, or other problems by not getting their estate planning documents done. Please remember that STUFF HAPPENS!
I am blogging today with a reminder to people to finish your estate planning documents. If you haven’t met with an attorney then go do that. As you likely know mere discussion, and even unsigned documents, provide no protection. That is, the reasons that people do an estate plan to provide value to you and your loved ones is not in place until the documents are properly executed. The sad reality is that stuff happens. You can not plan when you will need an estate plan.
I was reminded of this in March when my mom passed away quite unexpectedly. She had been in the process of updating her estate plan but was in no rush to do so since she was just in her early 70’s and healthy. Not only am I, her only child, an estate planning attorney but she, herself, was a retired estate planning attorney. We thus both know you can not delay. Stuff happens!
My rule of thumb for people who are having trouble finishing their estate plan is to remind you that a plan which is 95% right is probably better than not having a signed estate plan at all. We can work toward 100% right after that but you need to get something in place when you can! To quote a friend of mine, “done is generally better than perfect.”
Should you want to get your estate plan done contact us to make an appointment. We have a team of experienced estate planning attorneys ready to help. In fact, we have three attorneys who are Certified Specialists in Estate Planning, Trust and Probate law. We can assist clients throughout California.
As 2016 comes to an end I wish you a happy new year and my best wishes for a great 2017!
I had a really interesting fact pattern today that I wanted to share. I got the perspective client’s permission to share but, of course, names are changed for privacy. Sadly Gina’s mom, Molly, died in December of 2015 and her dad, Donald, died in December of 2016. A crappy 12 months for Gina we can all agree. They owned a house in Sacramento county.
A very common scenario we see is where the decedent’s home ends up in one spouse’s name alone. This is often done for financing purposes where one spouse has great credit, one spouse has bad credit, one spouse is employed, one spouse is self employed, etc…. Several of those factors were present here. So there is a house in Molly’s name as her “sole and separate property.” That is, Donald actually deeded his interest in the house to Molly as her sole and separate property.
Our goal is to get the house into Gina’s name in the most efficient and cost effective manner possible. Oh ya, I forgot to mention, Gina is an only child. For simple math let’s say the house is worth $500k with a $250k mortgage. Let’s assume no other assets of significance to keep this simple. Gina has options. Let’s discuss them.
Gina could treat the house as her mom’s separate property. That is what the deed says so that is a very reasonable approach. By doing that there would be a probate for a $500,000 house. At the conclusion of probate, due to the laws of intestacy, Gina would get 1/2 of the property and the other 1/2 would go to dad’s estate. The cost would be roughly $13,000 in attorney fees and roughly $2,000 in court costs for a total of $15,000.
That’s not all though. Then dad’s 1/2 has to be probated. Let’s assume $250k value so about $8,000 in attorney fees and just under $2,000 in court costs.
Yikes up to $25,000 in probate fees and costs… but that’s not all. Let’s assume the house appreciated $50,000 from Molly’s death until Donald’s death. Based on the Sacramento real estate market in recent years that is a reasonable guess. That would slightly reduce the cost of the probate by $1,000 (that is the cost of probating a $450,000 house rather than a $500,000 house) but still all in at $24,000.
However, that’s not all… bigger still is 1/2 of that $50,000 gain would not step-up in basis at Donald’s death thus leaving Gina with a tax basis in 1/2 of the property $25,000 less than current value. If we assume 25% between federal and state capital gains tax that’s about $5,000 or $6,000 more.
In summation I think option A would cost Gina about $30,000.
My preferred plan is option B. Let me explain. Yes, the deed says “sole and separate property” but does it always mean that? We have, many times, successfully used a spousal property petition even when the title says that it is separate property. Again, remember, this deed is only in Molly’s name alone due to financing reasons. The reality is it was community property. Title is just a presumption and that presumption would be easily knocked down.
So we would prepare a spousal property petition (SPP) to transfer the property, 100%, from mom to dad. Different attorneys charge different amounts for preparing an SPP but let’s just call it $5,000 between attorney fees and court costs as an estimate.
The SPP would move the property 100% to dad’s estate. We would then probate dad’s $500,000 house. The cost would be about $15,000 for that probate
The total of attorney fees and court costs with option B is thus $20,000.
PLUS Gina gets a FULL STEP UP IN TAX BASIS so will not have a gain on sale and thus avoids about $5,000 or $6,000 in capital gains tax. Gina is the big winner here!
There are always other facts to consider. In this case I asked about creditors and confirmed that Donald was not on Medi-Cal. That is, I don’t want to create a large estate for dad and then have dad’s estate go to creditors.
Please remember that each case can have other unique factors so talk to an attorney before trying this on your own.
I feel thankful that NBI and other organizations consistently ask me to come talk about estate and probate law. Yesterday I had the pleasure of speaking for almost two hours on probate law to a group of attorneys and paralegals. My topic outline is below. I get a real charge out of talking to a group and sharing my knowledge. Should your organization need a speaker please do not hesitate to reach out to us! -John
I. HOW TO FILE AN ESTATE IN PROBATE COURT
9:00 – 9:50, John B. Palley
A. Distinctions Between the Modest and Larger Estate
B. The Estate Timetable and What Needs to Be Done
C. Steps for Proving the Will
D. Steps for Challenging the Will
E. How to Prepare and File the Inventory
II. WORKING WITH EXECUTORS AND ADMINISTRATORS
9:50 – 10:40, John B. Palley
A. Duties of Executors or Administrators During the Probate Process
B. Paralegal Contact With Executors or Administrators
C. How Misconduct and/or Removal of Executors or Administrators is Handled
E. Special Administration
F. Duties of the Attorney for the Executor – Who is the Client?
As my avid readers know I was excited to release a book about the California probate process a couple months back. In all honesty sales have been better than expected. It took a while to get the Kindle format working but it should be up and running now. Go to Amazon and check it out.
Here is the table of contents which gives you an idea of the topics covered:
Here is the terminology list from the book as a sneak peek:
- Administrator – Person named to administer the probate if not named in will
- Court Reporter – The person who types notes of what is said in Court and does not exist in all probate court rooms
- Decedent – The person who died
- Executor – Person named to administer the probate in the will
- File Examiner – Is typically an attorney, but sometimes a non-attorney, who works at the court and advises the Judge on each case
- Judge – The probate Judge is a Superior Court Judge who is in charge of the process
- Lawyer – Typically the Personal Representative is represented by their own legal counsel
- Personal Representative – Includes Executor, Administrator and Special Administrator
- Probate Referee – State appointed official who appraises probate assets
- Special Administrator – Person named to act on behalf of the estate on an emergency or temporary basis
I have posted a few times on the importance of funding your trust. I have also posted about my inclination toward consolidation of assets. As stated you have to consider FDIC insurance, other insurance, taxes, etc… but in general I am a big proponent of consolidation. I also have mentioned that I feel holding stocks with transfer agents is a huge mistake. I have more information to share related to my mom’s passing related to all that and the difficulty of obtaining a Medallion Guarantee.
As I have posted before my mom loved her dividend reinvestment accounts (DRIPs). She threw in small contributions, when she could, and ended up with a large number of different holdings. They were held with the transfer agents: Computershare, American Stock Transfer, and Wells Fargo Shareowner Services. The dollar values were not huge but it was a wide variety of blue chip companies.
Over the years I was able to get my mom to transfer her DRIPs into a brokerage account at the brokerage house of her choice. Unfortunately she didn’t get every single one in. For the most part the ones that were left out were extremely small holdings. Often just a fractional share. As I posted recently, in my experiences with her Chase stock, the amount of the stock may literally be pennies or less in value.
In recent months my mom received several pieces of mail from Wells Fargo Shareowner Services. They had different account numbers but no mention of a particular stock or number of shares. I dutifully wrote to Wells Fargo Shareowner Services and asked them if it was Wells Fargo Bank stock or a different stock, how many shares were owned (expecting the answer to be zero or close to zero) and if they change the address since my mom was deceased.
Of course I included a copy of my mom’s death certificate and the certification of trust for her trust. I included those papers with each mailing.
I received several written communications back that they had made the address change. In fact, they sent that letter to the old address and the new address so I got each one twice. So let’s say I received two envelopes for each of 6 accounts from Wells Fargo Shareowner Services so 50 cents each in postage we are at $6.00 right there.
I wrote back and again asked for information on if it’s Wells Fargo Bank stock or some other company and how many shares. They wrote back indicating that I need to have a form completed by my bank with the Medallion Guarantee. I wrote back and explained I didn’t really want to go to the bank and wait for the person to apply the Medallion Guarantee if the stocks were worth nothing. I added that they could send the information to my mom’s address if they didn’t want to send to me.
SIDE NOTE: So basically they were willing to change the mailing address away from my mom’s house with a photo copy of a death certificate but won’t give me any other information. I find that odd.
Anyway, they reply yet again that I have to have the Medallion Guarantee from my bank before they will give me any information.
So, finally yesterday I went to my bank. It’s actually a credit union. I like them so wont totally throw them under the bus but yesterday I felt the service I received was not as great as usual. It was a bit crisp and formal for my liking. I prefer more smiles. The exchange went like this:
Me (after a short wait): Hi, I need to have this form Medallion Guaranteed.
Them: Sure we can do that. What is the value of the stock?
Me: I don’t know. That’s what I am trying to find out.
Them: Well, the Medallion Guarantee is only good for a certain dollar amount so I need to know how much.
Me: That’s the problem. They won’t tell me how much is there without getting the Medallion Guarantee on this form but I am sure it’s less than whatever limit your Medallion Guarantee is good for.
Them: Well, we can not apply the Medallion Guarantee without you verbally telling us the value.
Me (totally flustered by the ludicrousness of the situation): Ok, fine it’s $1,000. (Honestly, I wish it was $1,000 as I am expecting it’s zero but whatever…wishful thinking and happy thoughts).
Them: Ok, now do you have an account in the name of this trust here?
Me: Actually I don’t. We have our personal trust here but not my mom’s trust.
Them: I am sorry we can’t Medallion Guarantee without you having the trust here or proof that you are the trustee. Wells Fargo may do it since they are the transfer agent!?
SIDE NOTE: I kept my humor and said “I don’t have an account there… actually based on the news this week maybe I do have an account there!?” She didn’t laugh.
Me: You just did the Medallion Guarantee a few weeks ago on other forms for me.
Them: I know I did but you had proof that you were the trustee then.
Me (feeling like I should close all my accounts at their credit union but I managed to stammer out a semi-friendly reply): Ok, I’ll come back with the proof that I am the trustee.
Sooooooo, I am going to go back today with the proof that I am the trustee. With any luck I will get my darn Medallion Guarantee affixed to the form. I will then mail it to Wells Fargo Shareowner Services. They will then reply and probably tell me all 6 accounts have zero shares of stock. However, at least I can button that issue up and move on with life.
What’s my point?
Heck, I don’t know. I just needed to vent a little. Seriously though, close your darn DRIP accounts and move your assets to brokerage accounts. I don’t care what broker. You can do the online research to find the place you want. There are “full service” brokers, there are “discount” brokers and some that are sort of a hybrid. The point is get your stocks into an account where you can easily sell them when you need to. ALSO, totally close your old DRIP accounts so your kids don’t get the run-around trying to figure out if there is any value in them.
Happy Friday. -John
After over 20 years as an estate planning attorney I feel pretty well qualified in giving people advice on estate planning matters. I have helped plan for death and I have helped clean up after death; hundreds and hundreds and hundreds of times. Also, this year, I have dealt with the clean up after my mom’s death and serving as her trustee. The combination of significant professional experience and the untimely death of my mom give me the ability to speak with authority here. Please consider each point I make here to help you and your loved ones get the most out of your estate plan. I present my most practical estate planning blog post EVER!
PRACTICAL POINT #1: Keep it simple if you can. I see it all the time. People want to control from the grave and come up with difficult to administer provisions. Or provisions that are hard to enforce due to changed situations and circumstances. Keeping it simple can avoid a lot of problems. Of course there are some situations where simplicity doesn’t work but consider the simple options first.
PRACTICAL POINT #2: Living trusts are pretty great. I have seen articles about whether wills are good enough for some people. Or if probate can be avoided without using a trust through joint tenancy and beneficiary designations. The point of this post is not to get into the details about why that’s often wrong. The key is trusts, if set up right, are really pretty great! They avoid probate court which should save your loved ones a lot of time and money. A proper trust takes care of you at death AND at incapacity.
PRACTICAL POINT #3: Fund your trust. I remind every client to fund their trust. I send letters, I tell them in meetings, I send emails, I tell them on the phone. Not sure what else I can do. People, and this means you, GET YOUR ASSETS PROPERLY TIED TO YOUR TRUST. There are some exceptions (retirement assets) but most assets should be tied to your trust. Your house should be deeded to your trust. Your banks and investment accounts should actually be held in the name of the trust in the financial institution’s records.
PRACTICAL POINT #4: Do a restatement of trust not amendments. I had a new client the other day who came in with 4 or 5 amendments to an old trust. They had a huge pile of paper. It was a mess. In most cases a restatement of trust can give you one clean trust document. This will make it much easier for your trustee to carry out your wishes after your death. If your attorney tries to do an amendment, rather than a restatement, ask them about the latter as an option.
PRACTICAL POINT #5: Consider adding a co-trustee while you are alive. Some people don’t like the idea of having their child (even if they are 60 years old) or other trusted person on their bank account. However, adding your trustee as a co-trustee while you are alive can make things so much easier. By doing that they are already on your accounts when you go in for surgery or go into a nursing home. Likewise, they are already on your accounts at death. This way there is no delay in them having access to your funds for paying your bills.
PRACTICAL POINT #6: Consolidation. While being aware of FDIC insurance is important and advised you should look into consolidating assets where you can. The less accounts you have when you die the easier it will be for your successor trustee. Less is more! There are just no other ways of saying it. Again, be aware of FDIC and other insurance coverage issues but for most people they can consolidate their accounts without concern.
PRACTICAL POINT #7: Clean up. Semi-related to consolidation I encourage you to get rid of the little stuff. If you have a $100 savings bond cash it out! Even $500 cash it out! Maybe even bigger. Weigh the interest rate and the tax benefits against whatever headache you may be leaving for your loved ones. Likewise for mineral rights in another state, small partnership interests, timeshares you don’t use, and other small assets. When in doubt throw it out!
I could go on but I’ll stop there. If you have questions about how have a practical estate plan let me know. -John
I spoke to a potential new client recently who has a very common scenario. For this blog we will call them Mr. and Mrs. Smith. He and his wife have a trust from the early 1980’s. It appears to be a fairly standard trust. Along with it they also have “pour over” wills as most people have. Mrs. Smith died recently with an asset out of their trust.
In about the year 2000 they bought a home together in the Sacramento area. They bought the home “as community property.” That is the deed says “John Smith and Jane Smith, husband and wife as community property.” Unfortunately the CP with right of survivorship law had not come into effect in that year. Thus California did not yet have an automatic community property ownership option yet.
As a probate attorney when I see husband and wife as community property, but without the words “with right of survivorship” I immediately think of doing a spousal property petition. That is an abbreviated petition in the probate court to transfer the property from one spouse to another. It is a pretty quick petition and fairly routine when the property is titled in community property. However, a spousal property petition does not work when there is a pour over will. In this case Mr. and Mrs. Smith have the standard pour over will to their trust. Spousal property petitions only work between a husband and a wife; not a trust. So the SPP will not work. What other options does Mr. Smith have?
I believe his only two options are:
- A Heggstad petition pursuant to California probate code 850; or
- A full probate.
I have blogged other times about the Heggstad petition so I’ll keep it brief here. A Heggstad petition is a way of transferring property to a trust by showing that the decedent intended for the property to be in a trust. With real estate the intent should be shown by a specific writing. The most common writings are: 1) a specific listing of real estate on a schedule of assets, 2) a specific mention of the property in the trust document (i.e. “I give the property located at 1234 Main Street to my son Bob….”), 3) a signed but unrecorded deed, or 4) other written statements such as a letter to an attorney asking for a deed to be prepared. If successful a Heggstad petition should be done in about 8 weeks. The result will be a court order that is recorded in the county recorder’s office.
In this case there is none of the above written intent. I thus think the odds of a Heggstad petition working are probably 50%, at best. In fact, 50% is really the most generous I can be and that’s hoping the Judge is feeling generous. To increase our chances of success I would have Mr. and Mrs. Smith’s children sign consents to the petition and file those with the court.
The other option is a full probate. While the above only supplies about a 50% chance of success a full probate is a 100% chance of success. Unfortunately it costs more money and takes longer. In this case it would probably cost Mr. Smith about double the money that a Heggstad petition would. Also a full probate is 7 months MINIMUM in time. However, the property can be sold during probate so upon the appointment of Mr. Smith as Executor, in about 6-8 weeks, he can close escrow. That is, 1/2 of the house would be owned by the estate and 1/2 would be owned by him as an individual.
Other options for Mr. Smith to consider? One option I offered was to file the Heggstad petition and a full probate simultaneously. The advantage is that if the Heggstad petition is not successful the probate is already filed and ready to be approved. The added cost is probably $1,000, or so, for the initial probate costs (filing fee with the court and publication in the newspaper). If the heggstad petition is successful then the full probate would be dropped. On the other hand if the Heggstad is not successful then we move forward with the full probate.
It is unfortunate that Mr. and Mrs. Smith did not deed the property into their trust while Mrs. Smith was still alive. However, they didn’t so, at this point, it is what it is. We need to clean it up so that Mr. Smith can get the house sold.
If you have a situation, like Mr. Smith, contact us to discuss YOUR best option! -John
It’s not on Amazon yet, there has been no official press release, but my book HOW TO LIVE AND DIE WITH CALIFORNIA PROBATE (A Layman’s Guide to Understanding Probate in California) has been printed and is in my hot little hands! If you are in a position of being an administrator or executor of a California probate please contact me for a free copy of this book. I can mail you a hard copy or email you a PDF.
As you likely know, in the email world, to use ALL CAPS means that you are “yelling.” Or, should I say, “YELLING!?” So the title to this post could be construed as my YELLING and I am ok with that.
For the entirety of my career I have encouraged clients to consolidate assets, put individual stocks into a brokerage account, make sure all assets are in your trust, and sell small assets. It is easier to do all of these things while you are alive rather than after death. It’s a huge gift to your loved ones to organize your affairs so do it for them if not yourself.
As many of my readers know I lost my mom in March of this year. A traumatic event which we are dealing with. As I mentioned previously my mom gave me the “gift” of keeping me busy cleaning up loose ends. For years I encouraged her to get all her stocks into her trust and into her brokerage account. For years she worked on this but never quite finished. Her death was unexpected as it typically is so you can’t wait to organize and consolidate your assets. Do it now!
My mom LOVED her stocks. The investments were not huge dollar amounts but she loved feeling like she had ownership in so many companies. In many cases it was just a few hundred dollars but she liked it so she kept on sending $20 a month, or $50 a month, or whatever she could spare to various companies over the years. She took great pride in her stocks.
So my gift has been that I have been able to keep my idle time to a minimum by trying to clean up these loose ends. I probably found evidence of ownership in 40 or so stock companies. I sent letters to all of them. Many were quick to reply to say that she had successfully closed the account by moving the balance to a brokerage account. Many replied that there was a small amount of shares there and that paperwork could generate an even longer blog so I’ll save that for another day.
Today I want to focus on why I dislike holding stocks with transfer agents rather than with a brokerage account. Again, I want to remind you, to CONSOLIDATE YOUR ASSETS INTO YOUR TRUST!
Case in point is her holding in JP Morgan Chase & Co. Back in April I sent Computershare, the transfer agent for Chase, a letter indicating that I see my mom used to own shares of Chase and I would like to know if they still exist. Computershare replied that yes she did have a balance but wouldn’t tell me what that balance was. They did, however, send the normal paperwork for me to fill out as all of the transfer agents have required. That is, merely to change the account from my mom’s name as trustee to my name as trustee I have to fill out multiple forms… for each individual holding since she didn’t get them all into a brokerage account.
- One form, the affidavit of domicile, requires a notary.
- One form, the account transfer form, requires a medalion gaurantee which means I have to leave work, wait at the bank, to get a bank official to give a fancy stamp (really just like a notary stamp but more special apparently) to show it’s really me. Let me pause here and say that my bank did their due diligence and perused the form carefully and finally stamped it
- I also had to fill out an IRS W9 form with the tax id (or EIN or TIN) of the trust.
- I had to send a certified death certificate.
- I had to send a certification of trust.
So let’s say for most people the costs at this point, assuming they are not paying an attorney to help, would be:
- Notary of affidavit of domicile $10
- Medallion guarantee on transfer form $10
- Certified death certificate $20
- Postage to mail everything $1
- Paper, ink, gasoline, etc….
Lucky for me I have many notaries on staff so I saved that cost and our credit union agreed to waive the medallion fee so I saved those expenses. However, I am still out some money here and a lot of time.
Now, also, I should say that Computershare is spending money too. They are replying to my letter which requires employee time and postage. Let’s say that the time for an employee to review my first letter, reply to my letter, and postage is $5 in total expense. That’s a wild guess on my part.
So after I sent Computershare the huge package of completed forms they replied with another letter (shall we assume at least $5 more spent as it probably took an employee a little longer to review everything I sent) indicating they couldn’t liquidate the shares because the value would be less than the costs to sell. Ok, so at least I knew then it was a minor holding and I wouldn’t worry more about it.
A few days later I got two separate letters from Computershare. One showing that the account with my mom’s name as trustee had been closed and now had a zero balance. Shall we assume another $5 spent by Computershare!? Also, on that day I got a letter indicating the new account is set up in my name as trustee and finally showed me the extent of the trust’s holding in JP Morgan Chase & Co. Again, let’s assume Computershare spent yet another five bucks!
If you haven’t given up on me yet I am guessing you want to know what the trust owns right!?
Well, it is .000300 of a share of stock. The current value of a share of JP Morgan Chase & Co is $62.28 according to the Computershare letter. Thus my mom’s trust now holds .02 (or TWO CENTS) of JP Morgan chase & Co. Look at the far right column below in the picture.
How did this happen? At some point, in the past few years, my mom moved her shares of JP Morgan Chase & Co into her brokerage account. However, a dividend came in after the transfer. Since my mom loved the automatic dividend reinvestment plan Computershare apparently reinvested the small dividend into stock. My mom didn’t notice or perhaps didn’t get mail since it was a low value I don’t know. Thus the “account” sat with it’s minuscule holding.
What can I do about this?
- Ignore it.
- Spend another 48 cents to write back to them and ask them if there is some way to just close the account and make the two cents go away. Of course Computershare will likely reply, expending another $5 let’s say, to tell me they can’t do that.
Yes, I have mild OCD and I don’t like this stupid little account out there but probably nothing I can do.
So let my wasting of time be a lesson to you…
- CONSOLIDATE YOUR ASSETS,
- PUT YOUR STOCKS INTO A BROKERAGE ACCOUNT,
- GET RID OF SMALL ACCOUNTS,
- MAKE SURE EVERYTHING IS IN THE TRUST!
Have a nice day.