New Tax Laws and YOU

Unless you live under a rock, deep in a cave, you have heard about the new tax act that Congress is putting together. This is not a political commentary on that act. More importantly a few things to remember:

– With regards to estate tax very few people reading this need to worry about that element of the new tax act as it is set to bump the estate tax exemption from $5.45m to $10.9m. That is per person. So if you are a married couple with over $21.8m then your loved ones would still pay estate tax after your death. Also, it should be noted that the law sunsets so could go back to $5.45m per person or whatever else Congress feels like. However, for all practical concerns the estate tax is dead.
– However, there are still income tax concerns after death as relates to the step-up in basis. It is possible that people with funded A/B or “bypass” trusts should talk to an attorney about getting a probate court order to revoke that irrevocable trust!?
– Likewise, the same applies for Qualified Personal Residence Trusts (QPRTs) that might not be needed anymore. Again, they can be revoked in probate court.
– Lastly, plain old living trusts are still necessary to avoid probate after death in California as full probate kicks in at $150,000 of gross assets.

So, the apparent death of the estate tax does not mean you should ignore your estate plan as you could leave your loved ones a bad tax surprise and could leave them in probate court. Call your estate planning attorney your estate reviewed in light of the new tax act coming down the pipe from Washington DC.

My best wishes to you and yours this holiday season.


Bad deeds

I have had multiple cases recently where title companies have refused to honor deeds recorded around the time of death. That is, the person just before death signed a deed to transfer the property to another. In each case the facts are slightly different.

Before I explain more let me tell you that, in my personal opinion, title companies can be above the law. What I mean is that the laws may say a certain deed meets the legal requirements to transfer title but that doesn’t mean a title company will honor that.

Sometimes maybe the title company is actually technically correct and other times I am not so sure. In my opinion title companies are more suspicious when a deed is recorded just before or just after death. I think they look at them more critically. Also, the homemade and often handwritten deeds draw critical review.

You need to be careful in preparing deeds. A deed is not to be taken lightly as it’s a major and significant legal document.

Things to look out for:

– Double check your legal description and then triple check it for accuracy. That’s what we do.
– I would list the address and APN number to make it easy for people.
– Do not try and sign a deed by way of a general power of attorney. “Specific” POAs are required.
– When possible record deeds as soon as possible and preferably before death.

Failure to get the deeds right can end up in a visit to the probate court!

Good luck! -John

Estate planning lessons from other’s mistakes

On March 11, 2016 I got the call of a lifetime… and I do not mean that in a good way. I got the call from the police, in Logan, Utah, that my mother had been shot to death by her husband. This is not a post about domestic abuse, gun control or mental health awareness. That’s not the point of my webpage. This is an estate planning and probate website so let’s talk about those aspects of this horrible situation. First of all I have posted before, since my mom’s death, about some of things I learned. I want to take those posts and go a step further here. I want you to be able to learn from other’s mistakes.

Just last week I paid off her mortgage. You would think that would be easy to do, right? That is, I have my mom’s money, my mom owed the bank some money, and therefore 2 + 2 should equal four. I have dealt with this before so it wasn’t a shock… though parts of it are a little surprising. If a person owes a bank money you would think the bank would make it really easy to pay, right? Let me tell you they do not! I have seen this before with clients and it can be horrible. My situation was better than many I have seen. Without online access if you call the mortgage company they won’t talk to you. They will not share any information generally. In my mom’s situation I was able to access her online account which enabled me to find out the payoff amount. The online account was already linked to her bank account. Thus it made it pretty easy. However, there was extra money in the mortgage impound account. Some call it an escrow account. Since the mortgage was in the name of Mary Palley and not the Mary Palley Trust they sent me a check made payable to Mary Palley. So what do you do with a check made payable to a dead person?

This is certainly not the first time this has come up for me in the last year. There was a small insurance refund, a magazine refund, a cable tv refund, a credit card refund and several other checks of small amounts of money. They were all made payable to my mom individually and not her trust. I have heard of people leaving a bank account open in the name of the deceased person. I can not say if that’s technically correct but I would err on the side of saying it’s probably not technically correct. I thus can’t endorse that plan. Instead, the proper thing to do, when there is no probate, is to send the check back to the issuer along with a small estate affidavit. In California, anytime the probate assets are under $150,000 a full probate is not required and small estate affidavits may be used to clear assets. In Utah that amount is $100,000. Luckily my mom’s estate qualifies so I have used the small estate affidavits for several small checks. It does feel wrong to mail back checks but it is the technically right thing to do. They usually get re-issued and returned within 2-3 weeks in my experience.

Then the question is who should the checks be made payable to when you do a small estate affidavit? I think an argument could be made to pay them to the decedent’s trust and an argument could be made to pay them directly to the beneficiary or beneficiaries of the trust. I do think technically speaking payment to the trust is probably the most accurate. Thus the small estate would be signed by the trustee of the trust asking for payment to be made to the trust. You would then deposit the money into the trust account, in this case the Mary Palley Trust, and then you can distribute from there.

So if you have a mortgage and a living trust I encourage you to connect that mortgage to the living trust. We advise clients to do this but didn’t do our own that way. What’s that saying about a cobbler’s child….

Also, if you do a re-finance try to do the re-finance in the name of the trust.

Lastly, a new mortgage should be taken out in the name of the trust if it’s allowed and doesn’t have any extra cost.

What else besides connecting mortgages to trusts? Other lessons learned?

I think consolidation into a trust account continues to be my biggest issue. I spent countless hours gathering a small value of stocks… though very well diversified. It would be much easier if people, before dying, are able to organize all their stocks into one or more brokerage accounts. Make sure those brokerage accounts are opened in the name of your trust! It’s not hard to do and saves a ton of work by your loved ones after death.

The same is true of cash accounts, CD’s, money markets, checking, savings, and just about any other financial account. Other than IRA, 401k and retirement accounts just about all accounts should be owned by your trust.

Consolidate, consolidate, consolidate!


The less accounts the better. You need to be mindful of FDIC limits (currently $250k per bank) but otherwise consolidate!

Bonds are another one we see. Get those federal bonds put into a federal bond account in the name of your trust.

Think ahead by doing stuff while you are mentally capable. Your loved ones will thank you!

Also, if you are thinking about updating your trust just do it! Do not delay. Stuff happens! I hate to say that but it’s true. You aren’t promised tomorrow so if you have changes to make then make them!

I have posted on this general topic several times but I shouldn’t make it sound like I am just a complainer. My mom was nice enough to have a living trust, have most of her assets owned by the living trust, and generally left pretty decent financial records. I feel loved that she took the time to set things up as well as she did.

Much more importantly she taught me well! I can never thank her enough for all she did for me.

With much love, RIP Mary Flynn Palley, 1942-2016.


P.S. Here’s a picture of my mom at her UCLA School of Law graduation about 1979

New Years Resolutions

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

Stuff happens… so finish your estate plan

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!


P.S. Here’s a link to a page on our website with some estate planning articles.

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!


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

Ratings and Reviews

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