California Estate Planning Practice Blog

Ready for 2013? How About Updating Your Estate Plan?

Thinking about updating your estate plan? Here are some key numbers that were finalized from the American Taxpayer Relief Act passed into law January 2, 2013:

Estate and Gift Tax Lifetime Exemption set a 5 million indexed for inflation: 2013 Gift and Estate Exemption is $5,250,000.

The annual gift tax exclusion indexed for inflation is $14,000 for 2013.

Estate plans can last forever, but they are not always quite timeless. If you have changes in your family -- let's review and update your estate plan.

*Did you have a marriage, divorce or birth in your immediate family?

*Do you have a current Advance Healthcare Directive that has standard waivers and releases to ensure that your loved ones can access your medical information?

*Is your power of attorney comprehensive enough to cover all the what ifs?

The best time to update your estate plan is when you are too busy to think about it. It means you are alive and well. We need our estate planning clients to be alive and well at the time of execution.

Contact your local estate planning attorney today and schedule a review.

What Happens To Your Pet When Something Happens to You?

This is a confidential memo to you as an animal lover and pet owner: we know that you love your pet more than anything and would do anything to keep them happy, comfortable and part of your family forever.  But what happens when something happens to you?

Please consider addressing your pet in your will or trust and be sure that those documents are in conformance with the appropriate state laws.  Generally you should plan to have your estate plan prepared for and according to the laws of the state in which you plan to die.

There are multiple ways to ensure your pet will be cared for if something happens to you.  For example, you can make an informal promise with a family member, friend or neighbor to take in your pet and hope that he or she will follow through.  This method is not binding and may leave you with a false sense of security in the event something happens to you.

A Will Can Work

If you are not going to set up a revocable trust, you can provide for your pet in your will with brief instructions and a monetary gift.  But realize that in general, under California law, you cannot give a straight devise (a gift) in your will to an animal.  See In re Estate of Russell (1968) 69 Cal.2d 200, 70 Cal.Rptr. 561, 444 P.2d 353.  See also California Probate Code section 6102 where permitted devisees (gift recipients) include individuals, corporations, governments and organizations, but do not include animals.

A sample devise could be done as follows:

                "I give to my friend, Jennifer Sawday, my beloved German Shepherd named Butch or any other pet I may have at the time of my passing.  I also give to Jennifer Sawday the sum of $1,000 dollars.  I request that Jennifer Sawday use these funds for the care of my pet, but I do not require that the funds be so used."

This devise gives instructions as to whom should receive your pet and provides a sum of money to that person.  You cannot require that the person use the money for the care of the pet nor can you give your pet money directly.

A Trust Is Recommended

If you desire to give your pet money ostensibly to be used for his or her care, a trust is recommended.

Since 2008, the California Probate Code allows a trust to be set up for the care of an animal.

California Probate Code section 15212 states, in summary, a trust may be created for the care of an animal or animals that are living at the lifetime of the person who created the trust.  In general, such a trust would terminate upon the death of the animal, if only one animal is being provided for, or upon the death of the last surviving animal being provided for in the trust.

For those of you familiar with the rule against perpetuities, such a trust for the term of the life of an animal is not voidable under the rule against perpetuities.  The rule against perpetuities states that a trust cannot last longer than 90 years under California law (think of a young tortoise or parrot who may live longer than 90 years after your passing). California has enacted the Uniform Statutory Rule Against Perpetuities (USRAP) (see California Probate Code sections 21200-21231), which provides that a trust may last at least 90 years before the common law rule is applied.  See California Probate Code section 21205.

Thus, under California Probate Code section 15212, you can set up or include in an existing revocable trust, a provision for your pet.  You can provide who shall receive custody of the pet and designate funds for the care of your pet.  You can provide as much detail as you desire regarding the use of those funds.  You can segregate a dollar amount, or a percentage of your estate for the care of your pet.  You could also state that the entirety of your estate is to be used for the care of your pet and then when your pet dies, the remaining funds will be distributed to your family, friends or organizations as you desire.  In your trust, you can also specify who would be the trustee to oversee the care and the funds for your pet.  The trustee does not need to be the same person who would receive custody of the animal.

You can also include specific information concerning your pet such as your pet's habits, personality, veterinarian and medical history.

Consider Animal Care Organizations

As you consider drafting provisions in your will or trust for your pet, you may find yourself challenged as to finding the appropriate person to care for your pet.  In such circumstances, you may wish to designate a local animal care organization to shelter and rehome your pet along with a specific devise for doing so.  For example, I have a German Shepherd so in my trust I provide a gift to the local German Shepherd rescue organization to take in my dog, along with a sum of money.

If you decide to provide for your pet in your will or trust, be sure to consult with a qualified estate planning attorney in your area for specific legal advice.

California Courts Are Severely Impacted

Yesterday I attended a presentation by the Trusts and Estates section of the Orange County Bar Association. As customary for beginning of the year presentations, it was an overview of the new rules, laws and other items of note to begin the new year.

One of the presenters was the presiding judge that oversees the entire Orange County court system. His presentation was very dire and alarming about the state of the courts in California.

The sad thing is that most parties are in probate court because people fail to plan.

That's typically why probate gets opened. That's typically why conservatorships are sought. That's also why people seek guardianship of the estate to manage funds for minor children.

Many of these court proceedings could be avoided if people plan properly. First you have to plan properly.

Second to ensure that your proper planning will work, it is often advised to plan early! Most of the challenges to an otherwise proper plan is that the planning was done so close to when someone dies or becomes incapacitated that the objecting person thinks that you were under the undue influence or coercion of another especially where the plan confers an undue benefit to another person. Planning early while you are in good health can go a long way.

The presenter noted that the courts are under severe delays in setting matters to be heard, in processing orders and otherwise giving the parties speedy justice for the relief they seek. This may sound like hyperbole, but as an attorney that routinely practices before the probate courts, the delays are causing frustration to clients and families alike. When people pass away or become incapacitated -- the emotional turmoil during these times is already through the roof -- add in having to seek court orders, it becomes a very trying time in people's lives. If you care enough about what's best for you and your loved ones, get the proper plan in place.  At least for most people, with proper planning in place, making decisions concerning your affairs while you are alive (but not well) or have passed becomes more routine and can be conducted without seeking court orders.

The Importance of Your Schedule A

Have you set up a living trust? Yes? Great! Now does your living trust have a Schedule A? Yes? Even better!

Next question -- does the Schedule A provide an up-to-date listing of all assets that are titled or vested in your living trust?

Does it include all real estate (real property) you own? Does it include all bank accounts that your attorney advised you to vest into your living trust? Does it list all corporations or other business interests that you may own? Does it include all manner of other financial products that you may own including bonds, stocks and annuities for which the living trust is to own?

Your Schedule A plays two very important roles in your estate plan.

First, it provides written evidence of your intent to vest the listed assets into your living trust. If, for some reason, an asset is not actually vested in your living trust, there are provisions within California law where an attorney can obtain a court order absent probate to have that wayward asset vested in your trust by court order. It is called an Heggstad Petition named after the case law that provides the legal authority.

Second, it provides a map of where the successor trustee is to go to locate your assets if you become incapacitated or pass away.  If you have additional assets beyond what should be in your living trust, you will want to include this information in your estate planning materials to again assist the successor trustee.

If this all sounds like legal mumbo jumbo, be sure to consult with your own attorney about these things and ensure that your Schedule A is up-to-date along with the rest of your estate plan.

Insurance Policies and Your Living Trust

One of things that you should do when you have executed a living trust is to talk to your insurance agent or carrier. Have a conversation with your agent or carrier about whether your state requires that your insurance agent or carrier name your living trust as an additional insured on your insurance policies affecting your home and other real property that is vested in your living trust.

When I set up my own living trust, I had a conversation with my State Farm agent. She wanted the name of the trust, the names of the trustees and the date the trust was created. She updated my homeowner's, earthquake and umbrella liability policies to name the trust as an additional insured.

In addition to the home and other real property, if, for some reason, you are vesting vehicles into the living trust, please double check with your insurance agent about any requirements concerning vehicles and your existing insurance policies covering those vehicles.

While this is not legal advice, see disclaimer on the side bar, you should talk to your own attorney and your insurance agent to confirm what may or may not be applicable in your situation involving your own living trust.

Happy Chinese New Year!

Welcome back after a long hiatus! It is the year of the dragon.  According to Chinese lore, it is the luckiest of the 12 years in the cycle. Given that my new year's resolution is to educate my readers through my blog and start blogging again on a regular basis -- I thought it was appropriate to begin this during the Chinese New Year! May we all be lucky this year.

And to keep that luck flowing, be sure to protect yourself and your loved ones with a well drafted estate plan. Have those wills in place to name guardians for those minor children. Have that living trust in place to hold your major assets to avoid probate. Have a power of attorney drafted to avoid a conservatorship. And also have an advance health care directive so that your loved ones can make medical decisions for you without the hassles of seeking court authority.

I promise you'll start to read regular posts from me again.

Turkey Talk.

Don't you think that estate planning, financial planning and other sorts of financial preparation like saving for college, retirement or purchasing life insurance would be less taboo in general  if people discussed these matters with their family routinely? 

I mean everyone already knows that Brit is divorcing Kevin. Shouldn't everyone know that you've got a great college savings account opened up for your child? You don't have to share specifics, but just general sentiments.

Thanksgiving is just around the corner.

Imagine sitting at the family table at Thanksgiving and announcing that you figured out your gross estate is $1.6 million if you died today and that you are starting to think about tax planning as part of your estate planning. What would everyone think? In reality, who cares as these issues are so important that talking about them is really the best thing.

Talk about planning for the future, talk about what would happen if Mom or Dad died, talk about saving money for college in a 529 plan. Just talk. When you talk, you share ideas, compassion and a sense of motivation that taking care of your estate planning and financial affairs is truly an important thing to do.

Just The Basics.

Estate planning is one of those phrases that tend to confuse most people. Many people really don't know what documents consists of estate planning documents. I don't blame them as the term estate planning somehow confers a meaning that someone must have an estate. And people think of estates as those lovely homes off of Newport Coast or a spread in the Hamptons.

Generally whenever someone dies, whatever they leave behind is called their estate whether it be assets or debts. So, estate planning is really planning for handling your affairs after you die.

In some instances, estate planning is also incapacity planning. As if who would manage your affairs if you were alive but deemed unable to manage your affairs. You got into a car accident. You developed dementia.

I wish there was a better phrase for estate planning. Anyone have any ideas?

Without reviewing your personal situation, the basic estate planning documents suitable for most Americans who are worth less than $2 million are generally the following documents:

1. Will
2. Living Trust
3. Durable Power of Attorney
4. Advance Health Care Directive

The Will names a guardian for your minor children.

The Living Trust holds title to your property, spells out who should get what and names a successor trustee to manage your trust property either if you died or became incapacitated without going to court.

The Durable Power of Attorney nominates someone to manage your financial affairs while alive, but unable to do so.

The Advance Health Care Directive names someone to make medical decisions for you in the event you are unable to do so and where you can indicate your wishes for end of life choices.

Are Your Children Just Turning 18?

When your child turns 18 years of age, he or she is a bona-fide adult.  This means that Mom or Dad cannot step in and make medical decisions for their newly minted adult children.

I've written about this before, but your children who are just turning 18 really need to have an Advance Health Care Directive in place.  This is reinforced by Jane Bryant Quinn's latest essay on "As Kids Grow, So Do Risks" in this week's issue of Newsweek magazine.

Jane Bryant Quinn writes:

"Did you know that you lose control over your child's medical decisions when he reaches 18? He's entirely in charge. If he can't choose (say, he's in a coma), the doctors will stabilize him. After that, it all depends. ... But what if the parents are separated and disagree? ... To clear the path, your 18-year-old should put two decisions in writing. First, how he wants to be treated if he's in a permanent vegetative state or terminally ill. ... And second, who should make health-care decisions if he's unable to speak for himself ... Ideally, these documents will be drawn up by a lawyer..."

In California, only one document is needed for medical decision making: an Advance Health Care Directive.

This document allows you to nominate who should make medical decisions for you in the event you are unable to do so and you can also state your wishes for end of life decisions including life support, organ donation, authorizing an autopsy and making your choice known for disposition of your remains.

Kind of a gruesome topic to talk to your 18 year old about, but a necessary one especially if your child still wants Mom or Dad to handle his or her affairs until they get a bit older or get married.

A Real Estate Proposition.

A client just called me with a contemporary real estate dilemma – now that she’s sold her place, when should she get back into the real estate market? She sold for good reasons: the neighborhood was changing for the worse, so her equity/investment was in jeopardy, and her new neighbors were not people she cared to share a county with. Given the slide in home prices, she rented an apartment to sit on the sidelines for a while.

But this is not just a tale about the real estate market – it’s also about the cost of property taxes. That’s because now that my client is 55 she can take her old property tax basis with her to her new place – but the clock is ticking on this deal.

It’s called Proposition 60, and it says that if she sells her primary residence and within two years buy another of the same or lesser value, she may take her property tax base with her. Proposition 60 applies when you do this within your own county, and Proposition 90 is when you move to another county that allows reciprocity (those counties are Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura).

[By the way, if a couple divorces, the first person to take advantage of this deal gets it. The other one loses out].

So should the client wait until real estate prices really fall, but lose out on Prop 60? Probably not. She’s going to look for a new place. Sure, she could rent and live off the equity from the sale of her home, but then she may never be able to afford to buy again. I’ve had other clients lose their Prop 60 opportunity for one reason or another, and now they can’t stand the thought of buying again – the mortgage is doable, but it’s tough to justify the cost of higher property taxes.

The moral of the story: Be sure you know the true cost of buying and selling real estate, especially when it comes to your primary residence.

Delia Fernandez, MBA, PFP