We at Julia Burt Law are happy to share the news that Julia E. Burt was named "Top Lawyer" by Palm Springs Life Magazine for 2013. Julia is a certified specialist in Estate Planning, Trust and Probate Law as well as a California Certified Public Accountant. You can read all about this year's Top Lawyers in the current issue of Palm Springs Life Magazine.
As La Quinta probate attorneys, we have many clients with children in high school or college. In the wake of graduation season, it is important to note that even 18 year olds needs some type of estate planning. We recommend the unconventional graduation gift this year: a durable power of attorney and an advance health care directive.
The minute your child turns 18 he is considered an adult in the eyes of the laws of California. The problem for parents is that this means they no longer have unfettered access to financial and health records. Most parents are surprised by this realization and often shocked at the legal barriers imposed once their child reaches the magical age of majority.
What happens if your child has a medical emergency during his first semester at college 2,000 miles away? Without a signed Advance Health Care Directive you will not have any access to information regarding your child's medical condition and have no legal authority to make any health care decisions. This can be devastating for any parent but especially so for the parent of a child with a medical emergency.
Another important document is the Durable Power of Attorney. This allows a parent to act on a child's behalf regarding financial decisions and any contracts. During your child's semester studying abroad, who will deal with issues on the car he left behind? Or signing a lease for a new apartment when he gets back home? The Durable Power of Attorney gives the parent, as the nominated agent, the power to act the child's behalf.
Our Palm Springs Estate Planning attorneys have clients who frequently ask about putting their children's name on their real property deed. The assumption is that this will avoid probate and will also avoid the necessity for a living trust or other complicated estate planning documents. However, this technique is usually a bad idea.
Except under very limited circumstances, minor children should not own real property. A minor cannot execute legal contracts and thus it becomes extremely problematic when you want to mortgage, sale or rent real property that is jointly owned with a minor.
When you own property with your children then the property becomes part of their estate. This means that any creditor of your children's estate can attach liens and judgments against this property. Although your child may not have any known creditors beware of the unknown creditors. What happens if your child is at fault in a car accident? The creditor in this scenario can attempt to attach a lien or judgment against the property.
You may have transferred part of the property to your child just to avoid more complicated estate planning documents. However, now your child actually owns a piece of the property. This means that you will need their written consent to sale, mortgage or rent the property.
No one wants to contemplate that their child may predecease them. Unfortunately, this does occur. Also, many families travel together. If you and your children die simultaneously now the property must be probated but it will be a mess. The child's ownership interest and your ownership interest must go through separate probate cases.
The minute you put your child's name on your deed it is as though you just gifted to them a portion of the property. If the value of the gift is over $14,000 you will be required to file a Gift Tax Return. Although you probably will not owe any taxes on this gift transfer, you are still required to file the return.
The Supreme Court heard arguments last week regarding the constitutionality of the Defense of Marriage Act (DOMA). The legal arguments focused primarily on the 10th amendment and the freedom of individual states to choose how to define marriage. Ending DOMA would mean that the federal government would recognize any union that an individual state recognizes. For instance, a same-sex married couple from Massachusetts would be treated as a "married couple" under federal law. As the law stands now, that same-sex married couple from Massachusetts is not recognized as married under federal law.
The impact of DOMA on same-sex married couples is vast. DOMA prevents these couples from enjoying federal pension benefits, immigration benefits, gift and estate tax benefits, income tax benefits and many other things that opposite-sex married persons enjoy. Another important impact of DOMA is the effect on estate planning for same-sex married couples.
An opposite-sex married couple's estate plan is usually pretty straightforward. They create a joint trust, execute some Power of Attorneys and Advance Health Care directives and reciprocal wills. However, estate planning for a same-sex couple is much more complicated. If a same-sex married couple creates a joint trust there are various legal and tax hurdles to overcome. Since the federal government does not recognize the couple as "married" any gifts made between the couple will be subject to federal gift taxes. When the couple funds the joint trust with assets they must trace the genesis of the assets. If one partner contributes more than the other, then there may be some gift tax complications. Furthermore, the Trust would require its own Taxpayer Identification Number since a same-sex couple could not use one of their Social Security Numbers as the identifier for joint assets.
Ending DOMA would simplify estate planning for same-sex couples. There would be less ambiguity about the types and consequences of various estate planning instruments. The same-sex married couple would be treated identical to the opposite-sex married couple.
Many parents fail to complete a will because they struggle with the decision of who to nominate as a guardian. However, failing to put your wishes in writing is detrimental to your whole family. The following are some of the most common concerns and possible solutions when naming a guardian for minor children.
Guardian is Too Old
Grandparents are increasingly popular guardian nominations. But, some parents worry that if they pass away in 10-15 years their parents (the children's grandparents) will be too old. Do not worry about the age of the guardian in 10-15 years. By that time, you may have a different person to nominate. Also, your children's' needs will be significantly different in 10-15 years so an older guardian may be perfectly fine.
Your Family Won't like Your Choice
Try to disregard the opinions of your family members when nominating a guardian. You understand and appreciate the needs of your children better than anyone else. Explain your choices in your will and don't get hung up on whether your sister or mother-in-law will agree with your choice.
Your Children Won't Like Your Choice
If your children are old enough to understand, have a discussion with them about your choice. Teens can nominate their own guardian and judges are generally receptive to their choices. If your kids understand your choice this may help them better decide for themselves.
The Guardian is Bad with Money
A court will appoint a guardian of your children's person and estate. However, these positions can be filled by different individuals. If you have a trust the trustee can be appointed guardian of your children's estate and he or she will manage the money for the children's benefit. However, if you want to name a different individual for the person and estate your wishes should be clear in your will.
All parents want to make sure their young children are provided for financially in the event of their death. Grandparents may also wish to leave assets to grandchildren in a will or trust. However, leaving assets outright to minor children is usually not a good idea. Additionally, naming minor children as beneficiaries on life insurance policies or retirement accounts is also troublesome.
If you name a minor child as a beneficiary on a life insurance policy, retirement account or bank account the child has the right to 100% of the proceeds upon their 18th birthday. Equally scary is that the guardian of the child can't access any of the money while they are raising the child. Some parents have overcome this by naming the guardian as the beneficiary with the agreement that all proceeds will be used for the child. This is not foolproof since technically the guardian has no legal obligation to use the funds for the child. Also, once the funds are transferred to the guardian they become assets of the guardian and can be used to satisfy personal debts of the guardian.
Overcoming these hurdles is simple. Establish a revocable trust and name the trust as the beneficiary for all of the accounts. We still recommend that if you have a spouse you name your spouse first, but as a contingent beneficiary you can name your trust. This way, all the financial institutions will pay out the proceeds to the trust and the trust provisions will dictate when and how the money is used.
We didn't fall off the fiscal cliff. In the wee hours of January 1, 2013 Congress finally reached a deal on taxes. The American Taxpayer Relief Act (ATRA) outlines the changes to taxes in 2013. The new laws are similar to those in existence in 2012 with some slight modifications.
Ordinary Income Taxes
Tax rates are 10%, 15%, 25%, 28%, 33%, 35% and an additional 39.6% was added in 2013. This new tax bracket will be assessed for incomes >$400,000 for single filers and $450,000 if married filing jointly.
Qualified Dividends/Long-Term Capital Gains
0%, 15% and a new 20% bracket was added for incomes >$400,000 for single filers and $450,000 if married filing jointly.
Medicare Tax on Net Investment Income
This is a brand new tax of 3.8% for modified adjusted gross incomes >$200,000 for single filers and $250,000 if married filing jointly.
Social Security Payroll Reduction
The 2% reduction enjoyed for the past two years expired January 1, 2013.
40% for Estates/Gift/Generation Skipping Transfers over $5,000,000 adjusted for inflation. (Adjusted amount for 2013 is $5,250,000).
Our Palm Desert Estate Planning lawyers see too many clients fail to timely update their estate plan. Since Congress has not given us any idea if they will address the tax laws before January 1, 2013, our lawyers are planning for Estate Tax Armageddon. As we have previously posted, the laws for gift and estate taxes are changing at 12:01 A.M. on January 1, 2013 unless Congress passes new legislation. Unfortunately, this means there is only eight more weeks to schedule an appointment with your estate planning attorney to revise your documents.
Engaging in last-minute estate planning can be sloppy and dangerous. Numerous issues can arise having very costly consequences if you don't timely review and revise your plan. If you're interested in taking advantage of the life-time gift exemption of $5.1 million, make sure your gift is completed before January 1, 2013. This doesn't mean you can hand a check to your child and hope that he or she cashes it before New Year's Day. A safer method is to do a wire transfer that ensures the funds are deposited fully before January 1st. If you're gifting real property, make sure the deed is signed AND recorded before January 1, 2013.
Don't miss out on these valuable opportunities by waiting until the last minute to address your estate planning problems. Schedule an appointment with your attorney early so that you have enough time to review, revise and execute new documents before New Year's Eve.
There are some common estate planning mistakes that our Palm Desert estate attorneys frequently see in our practice. Avoid these mistakes to ensure your estate plan is valid and accurately reflects your wishes.
Check your beneficiary designations on life insurance and retirement accounts. These assets generally pass outside of a living trust through a beneficiary designation. However, if you neglect to designate a beneficiary court action may be required to transfer these assets.
Not planning for Incapacity
All estate plans have provisions outlining the administration of your estate upon your death. However, they should also contain provisions allowing for a smooth administration in the event of your incapacity. Allowing successor trustees to act when a physician makes an incapacity declaration, as well as nominating a potential conservator, are two important ways to prepare for a disability.
Your estate plan should reflect your current wishes, not your wishes from 25 years ago. Review your documents often.
Picking the wrong person as Trustee/Executor
The successor trustee of your trust (or executor if you don't have a trust) should be financially savvy and honest. Choose this person wisely and do not be swayed by emotions alone when nominating this individual. Furthermore, have at least three persons (or entities) listed. A very unfortunate plan is one in which only one person is listed as successor trustee and this person is unable or unwilling to act when the time comes.
We had a very great summer here at Julia Burt Law. Palm Springs Life named Julia Burt as a Top Lawyer in the field of Estate Planning again this year in their June 2011 issue. Julia also recently received her specialist designation in Estate Planning, Trust & Probate Law by the State Bar of California on June 30, 2012.
Our Palm Desert estate planning attorneys continually see clients who have not updated their Will or Trust since it was first established....20 or more years ago. Although out-of-date documents are better than no document at all, current and updated documents are best. Estate tax laws change regularly and so do changes in state laws regarding estates and trusts. We recommend clients review their estate planning documents at least every five years. However, there are some circumstances which necessitate reviews and revisions sooner than the five year mark.
MAJOR FAMILY LIFE CHANGES
If your immediate family experiences a major event such as a marriage, death or birth, you should review your current documents.
SIGNIFICANT CHANGES IN ESTATE TAX LAWS
Current estate tax rates and exemption levels are set to end on December 31, 2012 absent an act from Congress. The new law effective January 1, 2013 is dramatically different than our current laws.
CHANGES IN REAL PROPERTY
When you buy or sell a home you need to revisit your estate plan and make sure you update your documents to reflect this change. If you have a trust, make sure that all new pieces of real estate are vested properly.
FINANCIAL SUCCESSES AND SETBACKS
Whether you sold a business and are expecting significant financial gains or realized considerable losses, you need to review your plan. Some estate planning mechanisms may no longer work for your changed financial status.
The current estate tax laws are likely to revert to pre-EXTRA levels beginning on January 1, 2013. This means that the estate taxes will be levied at estates over $1,000,000 with a tax rate of up to 55%. Considering the value of real property, life insurance and retirement accounts many individuals may find themselves included in the estate tax bracket. However, 2012 has historically low tax rates and historically high exemptions which allows for creative and unique planning before January 1, 2013.
The current lifetime gift exemption is $5,000,000. The annual exclusion amount is currently at $13,000 but an individual can give up to $5,000,000 during life tax free. This gift exemption is scheduled to go back to $1,000,000 as well in 2013. Therefore, 2012 is a great year for making lifetime gifts.
For Decedent's dying in 2011 and 2012 Executors can elect to "port" the decedent's unused estate tax exclusion to surviving spouses. This will be especially important if the exemption level returns to $1,000,000.
Now is the time to take advantage of these planning opportunities. The future is uncertain and these historically high exemption amounts may disappear forever on January 1, 2013.
A Successor Trustee must follow all the provisions in the actual Trust document. However, a California Trustee must also follow the rules and procedures mandated by the California Probate Code. The following are some of the most common pitfalls that get Trustees into Trouble.
Failing to serve the required Notice to Beneficiaries AND heirs-at-law
Whenever a Trust becomes irrevocable, or there is a change in Trustees of an irrevocable Trust, the Trustee must send out notice pursuant to Probate Code § 16061.7. Failure to give timely notice or no notice at all can open the Trustee up for personal liability as well as allow for any beneficiaries or heirs-at-law to contest the trust for a prolonged period.
Failing to Account
Some Trust documents waive all accounting and thus a Trustee may believe that he or she is not required to provide any accounting. However, under California law a Trustee must account at least annually and any waiver of such accounting is against public policy.
Failing to Act Impartially
Trustee must act impartially among all the beneficiaries of a Trust. Favoring one beneficiary over another may result in a breach of fiduciary duty.
Failing to Keep Trust Assets Separate
A Trustee must manage an estate completely separate from the Trustees own personal assets. Trust accounts have their own EINs and must be vested in the name of the Trust, not the Trustee individually.
A Conservatorship is a legal proceeding where a judge appoints an individual to care for another adult who is incapable of caring for themselves or managing his or her own finances. If you have a complete estate plan which includes a Durable Power of Attorney and an Advance Health Care Directive, then a conservatorship can usually be avoided. However, there are times when this proceeding is absolutely necessary and thus you should nominate a conservator while you are living. This can easily be accomplished by including nomination language in your Durable Power of Attorney or your trust instrument. If you do not nominate someone, then a judge will appoint someone over you and possibly your estate.
A recent article in the Los Angeles Times highlights the need to have your wishes clearly defined with respect to your potential conservator. The infamous Zsa Zsa Gabor is in poor health at the age of 94 and requires a conservator to manage her heath care and finances. Zsa Zsa's daughter petitioned the court for appointment as conservator but was denied in favor of Zsa Zsa's husband, Frederic von Anhalt, and a team of attorneys. Von Anhalt will serve as conservator of the person (making medical decisions for Zsa Zsa) while several attorneys will oversee Zsa Zsa's finances.
A Trust is a written document that directs where your assets go when you die. However, unlike a will, a trust is a private instrument that does not require court intervention. If you have a trust you will avoid the court directed probate process and your estate can be administered privately and promptly.
Traditionally, trusts are used as probate avoidance techniques. However, Trusts are also beneficial for individuals wanting to have more control in the distribution of assets. Assets are distributed outright when they are distributed through probate, beneficiary designation or pay-on-death. A trust can instead provide that assets remain in trust until a beneficiary reaches a certain age, accomplishes some goal or indefinitely.
Trusts are especially helpful, yet overlooked, in the case of parents with young children. Many parents with minor children may still be establishing a career and may not be as financially secure as other adults. They may believe they do not have assets that warrant establishing a trust. However, they usually have substantial life insurance policies. Naively, the beneficiary designations on these policies generally lists the spouse first and then the children. The problem with this beneficiary designation is what happens when both parents die while the children are still minors? In this scenario, the life insurance policy will retain the proceeds until the children reach the age of 18. During the child's minority, his or her guardian will not have access to these funds to care for the child. Additionally, the child will get the entire proceeds of the policy upon his or her 18th birthday. To avoid designating your minor children as the life insurance beneficiary, you can name your trust as the beneficiary after your spouse. This allows the trust provisions to designate when, where and how the proceeds are distributed.