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!

 

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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

How to properly witness a legalzoom will

I met with a client this week who proudly showed me her old will. It was a fine legal document. It left her assets to her husband and then her kids. It set up a guardian for the kids. It named an executor. It was a fine will. As she pointed out there was a major typo in that one of her kids wasn’t included in part of the disposition paragraph but she believed that may have been her fault in setting it up. She acknowledged that she set it up on legalzoom.com

She also proudly showed me the notary page.  What? The notary page? For a will? In California wills are not notarized. The other documents, like powers of attorney, are to be notarized but not the wills.  The notary should have known better but they didn’t.  I am a California notary and it seems to be that every time I have studied for the notary exam I have been reminded that we can not notarize a will.

The law is set forth in California Probate Code 6110(c) which reads:

(c) (1) Except as provided in paragraph (2), the will shall be
witnessed by being signed, during the testator’s lifetime, by at
least two persons each of whom (A) being present at the same time,
witnessed either the signing of the will or the testator’s
acknowledgment of the signature or of the will and (B) understand
that the instrument they sign is the testator’s will.”

Notice it says the will shall be witnessed by two persons.  In fact, a notary can be one witness but they wouldn’t notarize the will. Instead they would sign the witness block.

Again, as stated before, Legal Zoom may create perfectly fine legal documents. However, if you don’t execute it properly all you have is a pile of paper! I am confident that Legal Zoom probably sends detailed instructions for signing the will. However, if it’s done right it’s as if it’s not done!

Get your will done right! Hire an estate planning attorney and make sure the will is signed and witnessed properly!

-John

New Year’s Resolutions 2014

If you are making new year’s resolutions for 2014 does it include any of the following:

1) Get a living trust; or

2) Update our current estate plan; or

3) Add a life insurance trust (ILIT); or

4) Look into a qualified personal residence trust (QPRT); or

5) Have a qualified estate planning attorney review my estate plan….

If you have any of these thoughts please call me TODAY.  Call now!  Make an appointment and let’s get it started.  Ok, well go to the gym first as that’s always on the list too but after that call me and get your estate planning done!

Happy new years!  -John

Estate tax exclusion 2014

The IRS has released their inflation adjusted numbers for 2014. The estate tax exclusion has gone up to $5.34m for 2014.  The annual gift exclusion remains at $14,000. Below is the text straight from the IRS website:

2014 Inflation Adjustments

IR-2013-87, Oct. 31, 2013

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

  • The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
  • The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
  • The annual exclusion for gifts remains at $14,000 for 2014.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
  • The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
  • The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

Protecting your digital assets

INTRODUCTION

Protecting your digital assets isn’t talk about by most attorneys. However, it should be!  In some cases your digital assets are of extreme value; either monetarily or for sentimental reasons. Make sure your estate planning attorney discusses this with you!

THE PROBLEM

The most common problems with digital assets is ACCESS. You are alive and incapacitated or you are deceased.  How does your family, loved ones, or trusted professional get access to these digital assets?

WHAT ARE DIGITAL ASSETS

What exactly are “digital assets?”  Does this include computers, tables, and smartphones?  Yes, probably. What about access to Facebook, Youtube, and other social networking sites? Yes, I would say so.  How about domain names and blogs owned by the decedent? Yes, I think so.  How about frequent flyer accounts?  Yes, maybe those too!  Plus, so much more!  Digital assets are the future and that future is just being defined right now! The definition will change but the problem is there and it needs to be addressed!

THE SOLUTION

Proper estate planning is the solution!  Your power of attorney, will, trust and general transfer should all make reference to your digital assets. Plus, maybe you should get on-line vault such as assetlock.net or docubank.com. If nothing else tell your trusted person, or people, about where they can get access to your digital afterlife!

CONCLUSION

Your estate planning attorney should talk to you about your digital assets. If not, ask them why!

 

National Estate Planning Awareness Week is coming

INTRODUCTION

Each year the Financial Awareness Foundation promotes National Estate Planning Awareness Week.  The Financial Awareness Foundation is currently under organization to become a 501(c)(3) nonprofit organization. From their website, “it was established to significantly improve financial awareness and financial literacy. The Foundation’s vision as an educational public benefit corporation is to teach, promote, motivate, and disseminate educational materials to the public, professionals, and nonprofits that will help the public achieve and maintain their financial stability, security, and freedom throughout their lives.”  Their core purpose is listed as “the Financial Awareness Foundations serves to benefit the public by significantly improving financial awareness and financial literacy.”

THE PROBLEM

The statistics are staggering regarding the lack of estate planning. It’s not just people of lesser financial means that don’t do estate planning; many “wealthy” families have failed to do proper estate planning.   However, from my professional experience, 19 years as a probate and estate planning attorney, I can tell you the costs to the families of lesser wealth can be even more staggering.  That is, the costs are usually proportionally much higher on a “small” estate than a large estate. That is the costs of attorney fees, court costs, executor fees, and the like are generally a much higher percentage on modest estates. This can be devastating.

A recent Forbes.com article provided:

survey from 2010 by Lawyers.com found that “[o]nly 35% of Americans now report having a will and only 21% have a trust arranged.” A more recent survey by EZLaw affirmed these numbers. It found that “only 44% of Americans report that they currently have any estate planning documents.”

THE SOLUTION

Proper estate planning is the solution!  Beit a will, a trust, powers of attorney or more advanced options like irrevocable trusts or family partnerships… estate planning is the solution to the problem!

CONCLUSION

Get your estate planning done. Get it done now, before National Estate Planning Awareness Week so you can check it off the list and “celebrate” that week knowing you have already taken care of business!

CalPers Special Power of Attorney

Approval, confirmation and affirmation!  We all like these things, right?  For years I have encouraged clients to get “bank” or “special” powers of attorney for assets that are not a part of their trust. This includes Calpers which has benefits not a part of the living trust. I recently received notice from a large law firm referral company of the importance of recommending to California state workers to get special powers of attorney. I agree!  This should be a part of your estate plan! Here’s a LINK.

Does a life insurance beneficiary change by divorce?

How would you feel if your evil ex-husband or witch of an ex-wife received your life insurance after you die?  Talk about rolling over in your grave!?

Upon filing for divorce, in California, there are automatic restraining orders. Among them, you are not allowed to make changes to non-probate transfers without the consent of your soon to be ex-spouse. This means you can make a new will (since that’s a probate transfer) but you can not change your trust, IRA, 401k or life insurance beneficiary.

Yes, some people die during extended divorce proceedings and their not quite ex-spouse gets the asset. This is not the outcome many want but it’s often unavoidable. However, after the divorce is complete it is avoidable but you might have to take action!

Some beneficiary designations are automatically revoked, if they pay to the ex, by divorce.  Some are covered by federal ERISA law which is beyond the scope of this post and the rest are covered by California state law.  Many of these are governed by California probate code 5600 which provides as follows for nonprobate transfers after divorce (with my added emphasis):

5600. (a) Except as provided in subdivision (b), a nonprobate transfer to the transferor’s former spouse, in an instrument executed by the transferor before or during the marriage, fails if, at the time of the transferor’s death, the former spouse is not the transferor’s surviving spouse as defined in Section 78, as a result of the dissolution or annulment of the marriage. A judgment of legal separation that does not terminate the status of husband and wife is not a dissolution for purposes of this section.
(b) Subdivision (a) does not cause a nonprobate transfer to fail in any of the following cases:
(1) The nonprobate transfer is not subject to revocation by the transferor at the time of the transferor’s death.
(2) There is clear and convincing evidence that the transferor intended to preserve the nonprobate transfer to the former spouse.
(3) A court order that the nonprobate transfer be maintained on behalf of the former spouse is in effect at the time of the transferor’s death.
(c) Where a nonprobate transfer fails by operation of this section, the instrument making the nonprobate transfer shall be treated as it would if the former spouse failed to survive the transferor.
(d) Nothing in this section affects the rights of a subsequent purchaser or encumbrancer for value in good faith who relies on the apparent failure of a nonprobate transfer under this section or who lacks knowledge of the failure of a nonprobate transfer under this section.
(e) As used in this section, “nonprobate transfer” means a provision, other than a provision of a life insurance policy, of either of the following types:
(1) A provision of a type described in Section 5000.
(2) A provision in an instrument that operates on death, other than a will, conferring a power of appointment or naming a trustee.

At first blush PC 5600 seems pretty clear, right? It says nonprobate transfers, executed during marriage, are invalid after divorce. What could be more plain, right?  I mean I know life insurance is a nonprobate transfer so it’s covered I think….  However, then you get all the way down to subpart (e) and that’s a game changer for life insurance because it says, and I do paraphrase, “oh ya, never mind what we said above because this section does NOT apply to life insurance.”

So… hey, I am not done yet! I know a few of you are now contacting your life insurance agent just to make sure and that’s probably the right thing to do but let me finish!

Seriously though, take this as an opportunity to check ALL your payable on death beneficiary designations. Life insurance, annuities, 401ks, IRAs, last pay checks, bank accounts and any other assets that allow for a POA or payable on death. Many are changed, automatically, by divorce by many are not. Plus, even the ones that are automatically revoked could create a fight after death. Thus better to get it straight now while you are alive!

- John Palley