Blog

Heggstad petition v. full probate after death of first spouse

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:

  1. A Heggstad petition pursuant to California probate code 850; or
  2. 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

FREE CALIFORNIA PROBATE BOOK

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.

front

 

Table Of Contents

Author Introduction. 8

Experience of Meissner, Joseph & Palley Law Firm
In Probate. 10

Types Of Probate. 14

Common Issues Faced By Practitioners In
Probate Process. 18

Is Probate Necessary?. 22

The People Involved In The Probate Process. 26

Timeline For The Probate Process. 30

Common Issues In The Probate Process. 34

Technical Terms Used In The Probate Process. 39

Common Terms Used In Probate. 42

Basic Facts About The Probate Process. 46

Letters In Probate And Filing Claims. 50

Probate, Taxes And W-9 Forms. 53

Selling Probate Property And Assets. 57

The Final Petition In The Probate Process. 62

The Role Of An Attorney In The Probate Process. 65

Costs In Probate Cases. 70

CONSOLIDATE YOUR ASSETS INTO YOUR TRUST

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.

Computershare Statement

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?

  1. Ignore it.
  2. 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.

-John

Lessons from mom on estate planning

It’s only been three weeks, to the day, since my mom died and I have a few thoughts on what I have learned in regard to her estate planning matters. Some things done right and things not done right.

VICTORY: My mom named me as co-trustee on her trust almost 10 years ago when she was in her mid-60’s. At the time she traveled a lot so it was convenient to have me on her bank accounts if she was out of the country. However, merely being co-owner is not enough it should be in the trust and as co-trustees. Upon her death I was already on her account so was able to keep on writing checks as needed.

VICTORY: My mom was an estate planning attorney and was pretty careful to acquire assets in the name of her trust. I believe we will avoid a trip to the probate court. Might be a few small refund checks, and the like, that come in to her name but those can be dealt with by small estate affidavit.

VICTORY: My mom had some cash in her checking account. It is amazing how much it costs to die in this country. Yes, a lot of things are optional but if given the option, when it’s your mom or dad, don’t you want to say YES?  Having cash available makes it so you can say yes to every upgrade, every reasonable option, and help send your loved one out in proper style! Plus, you may need to pack up a house, hire people, hire movers, etc….  Cash on hand comes in handy!

SET BACK: My mom owned a few, low value, items not in her trust. Most notably factional shares of stock. I can not tell you how important it is to get all your stocks and investments into your trust and please consider holding it all at a stock brokerage company rather than in paper form or in direct investment accounts with each company. The amount of paperwork is tremendous… even when the dollar values are low.

SET BACK: My mom liked to have her assets spread out at a few different financial institutions. With the Patriot Act every bank transaction is a major fiasco. In my opinion less is more when it comes to financial institutions. Assuming there are not FDIC insurance issues (over $250k for cash deposits) I encourage consolidation. In particular I like to have stocks consolidated to one institution. It makes it MUCH easier when someone dies.

At the moment that’s what I have. I am sure there will be more, good and bad, that I learn. In closing I want to reiterate the above set back though. Please get ALL your assets in your trust and please consider putting all stock into ONE stock brokerage to make transfer easier after death!

-John

Losing a loved one

We have all lost a loved one… or will eventually lose a loved one. Losing a loved one is hard there is no question. It is a sad reality of life though.  I lost my dad when I was 14. I remember it well of course.  My mom was a regular on the grief group circuit around west Los Angeles. We talked about the good times we had had with my dad and we moved on. We never forgot him, of course, but life does go on.  As an estate planning attorney, since 1994, I have talked to countless families about losing their loved ones.  In fact, sometimes it’s the loved one talking to me before they die but they know their day is coming very soon due to illness.

My world was rocked on March 11, 2016 when I received a call that my mom and step-father were dead.  Sadly it was a murder-suicide. My step-father, was a great man, who had seemingly benign paranoia issues. Obviously it was much worse than we realized. Ask questions! Do not ignore! Does the picture below look like someone who is unhappy?

Perhaps my message is more of a public service announcement… DO NOT IGNORE MENTAL HEALTH red flags with your loved ones. Even very small red flags could be something worse. Encourage your family and friends to seek medical advice. Help them get to the doctor. I do not believe there was a single member of our families that was not shocked and surprised by the actions he took.  Let’s avoid more surprises like this and deal with mental health head on!

Of course this is an estate planning and probate law blog so let’s talk about that. My mom’s estate plan was pretty well thought out and planned. However, even we didn’t have it 100% organized. There are still a few small assets not in her trust. Not a big deal but more paperwork for me to deal with. Get your trust set up, get ALL your assets correctly tied to your trust, eliminate the unnecessary assets, and simplify what you can! Your loved ones will be grateful to you!

Both my parents were attorneys. I know, I know, that’s really scary. Let me assure you that dinner time conversation, in our house, was horrible growing up.  My mom actually went back to law school when I was about 7 or 8 so our dinner times, for 3 years, was dominated by law school talk.  How funny that 15 years later I would go to law school!  My mom even did estate planning, like me, so we would go to estate planning conferences together.  What a great way to spend time with your mom!

There are several articles about my mom on the web but I thought this one, from the Logan Herald Journal, was the best so I share the link for you here. Please get your estate plan done as it can minimize the confusion and problems if a loved one dies suddenly.

RIP, Mary Flynn Palley, 1942-2016.

-John

mary.dell

 

 

 

Billable Hours – be careful!

I was talking to one of my probate clients yesterday and he told me a story about a bill he received from the attorney who drafted his mom’s will and trust which include some scary billable hours.  My client, who we will call Bob called the drafting attorney who we will call Tom.  Bob called Tom and they spoke for 20 minutes.  It was a couple of days after Bob’s mom died and he said that Tom was very respectful on the phone and the call was primarily personal in nature and not about probate or trust administration “business.”  Bob told me how much Tom charged him and I was in such shock I wanted to share.

Before I go on let me state the purpose of this blog post.  BE VERY CLEAR WHEN YOU SPEAK TO AN ATTORNEY TO DETERMINE IF YOU HAVE HIRED THEM OR NOT.  Unfortunately some attorneys feel that every phone call is an opportunity to turn the clock on and start billing.  I pride myself on NOT following such horrifying practices but, sadly, there are still attorneys that operate like this.  So, when you call the attorney that drafted your mom’s will or trust ask them “Am I being charged for this call?”  Also you can tell them, “I am not hiring you at this point I am just gathering some information….”

It’s not always clear if you have hired them or not so try to make it clear. There is nothing to be embarrassed about. It’s important for both you and the attorney to avoid miscommunications and misunderstandings.

In this case, as mentioned, Bob called Tom a couple days after his mom died. He was still in shock and, obviously, in grief.  To me that’s a great opportunity to make sure my billable hour clock is NOT on.  It’s a great opportunity to talk for 10 or 15 minutes and set the stage for how I can help that person get through the trust or probate process.  If they hire me I will bill for my subsequent time but I try to make it very clear if I have been hired or not before I start charging.  Also, I often operate on a flat fee basis to avoid this type of billable hour shock. What does your attorney do?

Some of the highlights (I am not taking word for word from the bill):

Review will, trust, file and have phone call with Bob 2.3 (yes, that’s over 2 hours for a 20 minute phone call)

Plus a .2 charge by the office paralegal for her work in prepping Tom for the big phone call.

Draft fee agreement, email client, etc…  .9 (yes, that’s one hour to fill out a form fee agreement – NO we do not charge you for preparing a fee agreement)

On a Monday, above, Tom billed 2.3 hours (let me repeat HOURS) reviewing a trust and will that he himself wrote a few years earlier.  On Wednesday he billed 2.9 additional hours for reviewing the documents. I imagine after 5 hours of review he had them down to memory, right!?

A few other misc charges by Tom and also his paralegal including a lot of back and forth stuff between them.

I won’t bore you with every detail but it totaled over EIGHT HOURS and over $1,900 for a 20 minute phone call. I call this billable hour shock!  Bob doesn’t feel like he hired Tom but Tom, apparently, thought he was hired.  Bob seems pretty astute to me and thus I tend to believe him that he had no clue he had hired Tom. In fact, he mentioned when he got the proposed fee agreement in the mail he just threw it away because he didn’t intend to hire Tom.

Now the State Bar of California has ethics rules for lawyers. Yes, really and yes I am sure there is a funny lawyer joke that should be inserted here.  One ethics rule specifies that if the legal bill (fees and costs) is reasonably expected to exceed $1,000 we are to obtain a written fee agreement for the work.  In my office we try to do this for every matter, even if under $1,000, to avoid confusion and misunderstandings.  A written fee agreement takes a lot of the guess work out of it!

Some things you can do to protect yourself from this problem that Bob has:

  • Clearly state you are not hiring the attorney yet – just gathering information;
  • Ask if you are being charged for the call;
  • Perhaps send a follow up email “Thank you for the time today if I decide to hire your firm I will notify you by email”;

If you do decide to hire them you might then ask some further questions:

  • Ask what their hourly rate is;
  • Ask if they charge for paralegal time;
  • Ask if they add on an administrative fee;
  • Ask if they charge you for every call and every email;
  • Ask if their paralegal or other attorneys in the office also bill on your file;
  • Ask the attorney for an estimate of his fees for the work that is needed;
  • Ask the attorney if they offer flat fee or contingency fee arrangements;

Oh ya, I did gave Bob some suggestions for clearing this bill up. I know Tom. He has a good reputation and I think it was just a mistake on his part. Although as I type that it’s hard to not think just a little bit lower of Tom.  Honestly, it’s hard for me to think it’s just a mistake.   Whatever the case, I am hopeful he will agree to write off that bill in total.  Bob told me he doesn’t like to be in debt but he really feels it’s unfair. Hopefully Bob can resolve it quickly. If Tom is half as smart as I think he is it will take one email from Bob to resolve this and close the matter.

Also, I think this cemented things for Bob that he was smart to hire me and not Tom. Hey, just being honest here!

You should be very comfortable with the attorney BEFORE you hire them. If you aren’t then I would keep looking!   -John

The dog isn't qualified so we'll only bill you his hours at half the usual rate...

The dog isn’t qualified so we’ll only bill you his hours at half the usual rate…

Forgotten Assets Commonly Omitted from Trust funding

Having been an estate planning attorney for over 20 years I have come up with a short list of the forgotten assets that are most commonly omitted from trust funding.  That is, these assets are frequently found after death titled in individual name rather than the trust. In some cases they can be cleared up  by small estate affidavit, under $150,000 probate successions, Heggstad petitions and in some cases full probates.  However, it’s important to realize that in any of the above examples there are unnecessary attorney fees being spent. Our job is to help you avoid that unnecessary fees!  So, without further adieu, here are some assets we commonly find after death having been omitted (accidentally for the most part) from trusts.

LOANS – By far the most commonly omitted from trusts are loans. Even when secured by a deed of trust. People loan money and do not seem to put them into their trust. To clarify I am talking about when you loan money to someone else so it’s an asset and not an obligation. The promissory note and deed of trust should be payable to the trust and not to you as an individual. I bet 50% of people with notes have them in their name and not their trust name.

BONDS – People have EE, HH, and other governmental bonds sitting in their safes or safe deposit boxes. A large percentage are in their names rather than their trust names.  Before I go on, let me say that if they are small in value maybe it’s easier to cash them out. However, if larger value then get them changed into your trust name. You will need to fill out governmental forms to make that happen but I would say it’s worth it!

STOCK CERTIFICATES – People still have stock certificates in their safes or safe deposit boxes. Sometimes large numbers of shares but more often small numbers.  Stocks they received as gifts, as an employee bonus, or they liked holding the paper. In any event, I often see these in individual names rather than owned by a trust. If they are commonly traded securities you might put them into your brokerage account for simplicity!

BUSINESS INTERESTS –  Many people own a percentage of a small business. Maybe an LLC, a corporation, an “S-Corp,” a partnership or even a sole proprietorship. You should have the business records updated to reflect your trust ownership. At a bare minimum you should sign an assignment of the business interests to your trust. If the value is low it’s not a big deal but if the value exceeds $150,000 it will require a full probate to legally transfer the assets to a trust.

TIMESHARES – I understand that you had a couple mai tais when you bought the timeshare so maybe you forgot about your trust. However, eventually you remember you have a trust, right!?  I almost have to fight some clients to put their timeshare into their trust. “It’s not worth enough to worry about” is what I always hear. Ya, it might not be worth anything but it will be a headache for your kids after you are incapacitated or dead. Put it in your trust now!

There are other assets omitted from trusts all the time but the above are ones people don’t think about for some reason. They forgot about their trust with these assets. Don’t be that guy! Get it done right and get everything into your trust.

-John

PATH – Protecting Americans From Tax Hikes Act of 2015

We in the tax and estate planning world love acronyms so no surprise the governments newest tax law is called “PATH” which stands for Protecting Americans from Tax Hikes act of 2015.   I like to blog about estate taxes primarily but as the focus in estate planning moves toward incomes taxes I like to mention them as well when I can.  Here’s a link to the government website:

Protecting Americans From Tax Hikes Act of 2015

Frankly a lot of the stuff in there doesn’t apply to most of my clients.  For example I saw that it gives permanent extension of certain provisions related to non-US shareholders in RICs. I had to look up what a RIC is!  It appears to be a “regulated investment company” so now I have learned something new for the day!

Other areas of importance to few of my clients include provisions that impact foreign controlled corporations, non-US investment in US based real estate, and a lot of provisions related to the tax treatment of sales in REITs and other technical aspects of REITs.

However, the one that several of my wealthier clients may like to hear is that the ability to make charitable contributions from your retirement account, and treat it as your distribution for the year, has been made permanent.  This has been an on-again off-again law in recent years but it’s now permanent. If you want to take advantage of this you need to do so immediately!  The gifts must be made by December 31, 2015 to take advantage of the law for this year.  However, now that it’s permanent you can use it toward your 2016 mandatory distributions next week!  Of course, I always wonder what “permanent” means to the people who make the laws in Washington DC!?

Happy new year!

-John

 

NEW IRS Form 8971 – BASIS reporting

HOT OFF THE PRESSES:  The Internal Revenue Service has released a draft of a new Form 8971 for reporting basis information in accordance with new IRC section 6035 for assets held by a decedent and reported on a federal estate tax return (Form 706) filed on or after August 1, 2015. The form says it is to be signed by the “executor” of the estate but I believe a “trustee” can sign also. In any event it is likely part of your fiduciary duty and you should talk to your accountant about this when you file a form 706 “estate tax return.”  Also, remember that estate tax returns are to be filed within 9 months of death but you can ask for a 6 month extension if you file for it within the first 9 months. The link above goes right to the sample form.

2016 Gift and Estate Tax Exemptions

The IRS recently released the tax adjustments for 2016. As our firm focuses on gift and estate tax planning I wanted to share the relevant numbers with you.

The annual gift exemption remains at $14,000. As a reminder that is the amount each person can give away, each year, to any individual, and all without tax.  This can be given to relatives or friends. So, for example, if grandma and grandpa are worried that they will have an estate subject to estate tax at death they can write $14,000 checks to every child, every grandchild, etc…. In fact, grandma and grandpa can EACH write those checks so it’s really $28,000 in total.  That is the total of all gifts for the year so it’s not a bad idea to write your checks for just under $14,000 to allow for birthday and holiday gifts!

The federal gift and estate exemption (that is what you can give away at death or during life in excess of the $14k gifts mentioned above) is up to $5,450,000. This is up from $5,430,000 in 2015. It’s important to note that this tax does not effect very many people but some people accidentally slip into it.  This is a tax on all assets you own at death. This includes IRAs, 401ks, and other retirement plans in addition to your home, banks, stocks, etc…. Also, it includes the death benefit in life insurance that you own at death.

There are more numbers on the IRS website for Rev Proc 2015-53 at this link.  On that page you can see the income tax adjustments as well.

Here’s to a happy holidays in 2015 and an even better 2016 to you and yours!  -John