The Most Practical Estate Planning Blog Post EVER

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

“A good plan today is better than a great plan tomorrow”

“A good plan today is better than a great plan tomorrow”

I am told that George Patton gets credit for this quote but it applies to estate planning as well.  Please get your estate plan done and then improve it later. No estate plan means no protection!

I often meet with people who can’t decide the third back-up guardian or trustee. Rather than sign the estate plan that is 99% what they want they do nothing and wait. What if something happened while they are debating? There could be a probate, there could be estate taxes, and there could be a guardianship fight.

SIGN YOUR ESTATE PLANS! Do not procrastinate.  One offer I make to clients is no charge for changes during the first year after you sign. So you have no excuse for not signing!

Call us to help get your estate plan DONE!  -John

Reverse Estate Planning to get a step up in basis

I heard a great presentation recently by a CPA. He was talking about, what he calls, “reverse estate planning.” Say what? Well, we all know that the focus in estate planning has changed from estate taxes (death taxes) to capital gains tax (income taxes). This CPA had a great idea to improve people’s basis. As he explained we can each give away $5.43m right now. Most of us will never get close to that much in assets. Thus, using our federal gift tax exemption is not as taboo as it used to be. That is, assuming we believe Washington D.C. when they say these laws are “permanent.”

Let’s back up a little bit. Under current laws when a person dies the assets they own receive a step up in tax basis for capital gains purposes. So, if you own a property worth $500,000 but purchased for $100,000 you have a $400,000 gain on sale when you sell it. However, if you die, owning that property, your basis (actually your heir’s basis) steps up to the date of death value; i.e. $500,000. They can then sell it for $500,000 and pay ZERO TAX.

This expert’s idea is to look at your dying parent’s, grandparents, or other loved ones a bit differently. Yes it’s sad but you know those loved ones love two things: 1) YOU and 2) helping family avoid taxes! That’s universal, right!?

The plan is you have this property with $100,000 basis. It can be stock, real estate, or anything else. At least one year before death you gift it to grandma, mom, dad, whoever it is. Obviously, you have to trust that they will give it back to you when they die via their will or trust.

As long as they live that year, so it’s not deemed a “death bed gift,” you will get a full step up in basis. That’s right! You just saved yourself $100,000 in taxes approximately! WOW!

Obviously, this is a very technical procedure with pitfalls. It’s not to taken lightly. Talk to your tax adviser and your estate planning attorney.

Good luck with your estate planning… and REVERSE ESTATE PLANNING!

-John

Top 10 Estate Planning Mistakes

As a California estate planning and probate attorney I see both sides.  I see the planning process and I see what happens, after death, when the planning wasn’t done right.  Here is a top 10 list of estate planning mistakes:

10. Name your estate the beneficiary on your IRA, 401k, and other retirement plans. This is a great way of creating unnecessary tax and probate fees and costs. It also will delay the time when your family will have access to the money.  Attorneys and the tax man will love you for it! Your family won’t be so happy with you though!

9. Name your estate the beneficiary on life insurance.  Similar to above it creates unnecessary delay in access to the money and causes costs and fees.  Your family won’t love you for this.

8. Name no beneficiary on your 401k and other retirement plan.  In some cases the money will flow to your estate and create taxes, fees and costs as indicated at #10 above. However, some plans have a written list of heirs if no beneficiary is named and that list might be different than who you want to give the assets to!

7. Leave money to minor children or to your estate.  By doing this your kids will get your money when they turn 18. They will love you!  Also, the new car salesmen, car stereo salesmen, many other salesmen and also all of their friends will love you!  Plus, your kids will love you for the 6 months it takes them to burn through your money.

6. Outsmart the tax man and add your kids onto your house as a joint tenant.  Sure you might avoid attorney fees for a living trust but you might create a capital gains tax at death due to losing the full step up in basis. The IRS will love you for paying unnecessary tax.

5. If you have a safe deposit box don’t tell anybody about it. Just leave the key.  The family will love the treasure hunt going bank to bank throughout town looking for it. Of course, if you move to a new town before dying that treasure hunt is totally fruitless and they probably won’t be so happy with you.

4. Don’t fully fund your trust.  So many people go to the trouble and expense of creating a living trust but then they fail to put all the assets into their trust.  This creates unnecessary probate fees and costs.  Your attorney will love you!

3. If you re-finance your house do not put your house back into your trust. As above it creates an unnecessary probate and thus your family or loved ones will have to deal with the cost and delay of that. Again, your attorney will be appreciative!

2. Don’t use a certified specialist for your estate plan. It’s a great way of getting an inadequate estate plan. Sure you might, or might not, save a few bucks but….

1. Don’t have any written estate plan. It’s a sure way to cause problems and unnecessary money to be spent after death. If you want to really upset your family do nothing!

Really if you love your family avoid these 10 and hire a Certified Specialist in Estate Planning, Trust and Probate law as determined by the State Bar of California Board of Legal Specialization.  Contact me with your questions.  -John

IRS Gift and Estate Tax Exemptions for 2015

The IRS released their gift and estate tax exemption numbers for 2015 a few months back. In case you missed it they are:

GIFT TAX: It remains at $14,000 per donor per donee.  So a husband and wife can do a “split gift” and give $28,000 to any indivudual (family or otherwise).

ESTATE and GIFT TAX: This exemption bumps up to $5,430,000 in 2015. That is, each person can give away this amount during life, or at death, or in combination. If your net worth might exceed this at death plan ahead with estate planning. There are many ways to maximize the value of each “dollar” given so that $5,430,000 can be much more!

Talk to a qualified estate planning attorney so that your estate gets planned correctly.

Happy new year!  -John

Dying on your terms and POLST

My grandma is 98 years old…. or should I say 98 years YOUNG!?  She called last week to tell me about a great article in the LA Times.  It’s about dying on YOUR TERMS. In fact, the headline in the paper was “Dying on your Own Terms” and the headline online is “How to Help Ensure you Die on your Own Terms.”  You get the point though. Here’s a link to that article.  LINK.

Though very healthy at 98 she is a realist. She’s 98 for gosh sakes! Stuff happens and she is aware of it. She has been saying for 20 years that all her friends are dying. So, at her request, I am sending her a few extra copies of the article to share around her care home.

Also, at her request, I am sending the latest POLST form. The POLST form or “pink sheet” is a document for you to go over with your physician. It’s not for the lawyer.  However, I will provide you a link. The state has a bunch of great information on the POLST form. Here’s a link to the page. LINK.

The key with all of this type of stuff is to talk to your loved ones and talk to your doctors. Do not assume and do not ignore. TALK it out!

Best of luck to you and your loved ones.

-John

Ask your parents some tough questions to help everybody

Back in 2012 I posted a blog about talking to your parents about their estate plan. I called it “5 Questions to ask YOUR parents about their estate plan.”  I encourage you to read it before reading on….

The key here is that it’s a sensitive thing and, often, when dealing with your parents it can be tough. Heck, they are your elders, your respect them, you don’t want to look like a gold-digger. The 5 questions I posted back in 2012 are:

1) What estate planning documents do you have in place?

2) Can I have a copy of your trust?

3) Who are the financial decision makers in your estate plan?

4) At what age are the assets distributed to the kids?

5) Are all of your assets actually titled in the trust?

Let’s ask five MORE questions. That is, here are 5 more questions to help you help them help you!

1) So, the first question can be asked another way which is “have you done any estate planning?” or “What estate planning have you done?” The key is getting the conversation started. I think this is a good way to break the ice.

2) Do you have health care documents in place and do they have the latest HIPPA language?  Ya, I talk about financial stuff a lot on my blog but don’t forget the medical. Hippa can be a killa’ so make sure your parent’s documents are current!

3) Do you have long term care insurance or other protections in place? In case you didn’t hear the rumor long term care can break the bank! Good insurance can protect them… which ends up protecting you.

4) How is stuff set up for my spouse and/or children?  I like to look at estate planning as a multi-generational, or communal, thing. What your parents do affects you and what you do affects your spouse and kids. Plan it all together!

5) How about I pay for it? Let’s face facts. A lot of elderly people, especially depression (or near depression) era people are a little tight with their money. There is nothing wrong with that but sometimes you have to spend money to make money. Get their estate planning done! You’ll save yourself money in the long run!

Ask these five, and my previous 5, or some combination thereof and you should get the family conversation started… or be uninvited to Thanksgiving dinner and disinherited. (Just kidding)

-John

Finish your parent’s probate and then….

Probate can be a long and drawn out process. These days it’s eight months and often longer.  Many probates drag on for a year or more. So when you finish your parent’s probate what should you  be thinking?

It seems to me that’s a great reminder that YOU need a living trust of your own!

You don’t want your kids or loved ones going through probate at your death, right?

You don’t have to wait for probate to be done but that seems as good a time as any.

Here’s the dirty little secret of probate and estate planning. Don’t tell anybody. Shhhhhh. Keep this between you and I….  you will die some day.

Plan ahead and get your revocable trust done and done right!

We fix $499 Trusts

I was reading the paper the other day and I saw an ad for a $499 trust. This blog post is not specifically saying that trust company is bad because I have no idea. That $499 trust may be the best trust of all time. However, seeing the ad reminded me that you really shouldn’t price shop for your estate planning documents. That can be VERY costly to your family in the long run.

Let me start by saying that our firm has been providing reasonable cost legal services since 1979. We pride ourselves on this. However, we aren’t the cheapest. We are far from the most expensive but also not the cheapest.

When you are searching for your attorney don’t shop solely on price. Yes, consider it but please don’t use that as your only factor. I have seen way too many trust mill trusts that are completely inadequate in one of different ways.

Some common problems:

1) Unfunded trusts;

2) Incorrect type of trust used;

3) Complete errors;

4) Failure to provide a pour over will;

and on the list goes.

Get your estate plan right by an experienced attorney!

-John

A/B Trust Options

The “A/B” trust is a very common set-up for married couples in the estate planning world.  I should say there are different names for these trusts. I call it an A/B Trust. Others may be call it a Bypass trust, a credit trust or even a 1/2 trust. Whatever you call it a split trust is a common estate planning vehicle. How does it work?

There are 4 main options for a standard husband and wife to consider in trust planning. That is, at the first death what happens to the trust.

1) Totally revocable: This is the simplest trust. I call it a “probate avoidance” trust. It’s the simplest and most straight forward trust. The downside though is that the surviving spouse can completely change the trust and disinherit the kids. However, assuming no estate tax issues this is a good option for many people with more modest estate sizes.

2) A/B Disclaimer Trust: This is a very common trust set up for married couples. It allows the surviving spouse to “disclaim” assets within 9 months of death of the first spouse’s death. This is typically if they are concerned about estate taxes or if they are very concerned about making a bad decision in the future as it limits their ability to change the trust to the A trust as the B trust is irrevocable after the first death.

3) Mandatory A/B Trust: This is common for second marriages or for people with inherited or other separate property assets. It mandates a split into two trusts at the first death. For a long time it was the predominant trust utilized by estate planning attorneys. However, with the great changes in estate tax exemptions the mandatory A/B is used less often now.

4) Totally irrevocable: This is only for elderly people in my opinion. That is, your basic husband/wife trust should not be totally irrevocable at the first death unless you are really confident you won’t get remarried or want to make any changes.  I say 85 years old and up for this. In fact, this trust is the least used of the four.

Whatever trust works for you works for me. There are many A/B trust options so pick what works for you!  Let me know if you questions about your trust set up!  -John