California Probate - Law Offices of Janet Brewer Blog

Serving as an Estate Administrator Can Be a Challenge

Administrating an estate? Let’s take a look at just how hard it can be.

People often name a family member or close friend as a trustee. However, sometimes it is wise to think it through and consider the possibility of a professional administrator as a trustee, according to Kiplinger in “Why You May Need a Pro Trustee: Trust Administration is Not Just Common Sense.”

The article details some of the problems that can arise despite good intentions.

Let’s call our client Linda. She wants to identify a successor trustee. Linda’s parents had identical estate plans with trusts that were set up for Linda and her two siblings Jack and Diane. Linda was the family’s responsible one, so she received her share in each estate outright and served as the trustee for the other separate trusts, two for Jack and, two for Diane, since the second of her parents died some 10 years ago. This is not unusual—parents will often give the responsible person in the family, the role of trustee, when their siblings are seen as less likely to perform the necessary tasks.

These four trusts were close in value, with about $440,000 in each. They were identical in other ways: the trustee had the power to pay from income and principal each year for the beneficiary’s health, maintenance and support, but there was no requirement to distribute anything. Linda had done a great job, in keeping with her reputation. For 10 years she recorded every transaction. Because she knew her siblings resented her serving as trustee, she never paid herself a fee.

Linda was tired, and she wanted to let someone else be in charge of the trusts.

When the trusts were presented to an institutional trust officer, it was clear why the trusts had never been merged. Linda’s mom had executed an amendment to the estate plan, after Linda’s dad died that ensured that when these siblings passed (that would be Jack and Diane), the trusts would pass to their descendants. Linda’s mom executed this amendment, so that when Jack and Diane passed away, the trust from the mother would be divided among her surviving children. This meant that Linda would get another share, and Jack and Diane’s children would get less benefit from that trust.

Linda’s mom thought she was doing a good thing. However, her decision put Linda in a bad position. She became an “interested” trustee, with the power to make decisions that would eventually put more funds into her pockets or diminish her share. Of course, that would only happen, if she outlived her siblings.

Linda had been diligent and responsible, insuring that the trusts had the exact same asset allocation and investments, paying out income from the trust and when one called asking for money, giving both the same additional amount from the mother’s trust and the father’s trust, even though any distributions made from the mother’s trust make her less likely to receive a larger share in the future. She also made the same distribution for the other sibling, to keep things even.

However, Linda’s actions, while seemingly very prudent and fair, could be interpreted as a breach of trust that leaves her open to a lawsuit judgment against her.

Her sister Diane had few or no other income sources. Each year, she spent every penny she got, just to get by. Diane requested additional distributions every year. When Diane dies, Jack will receive an additional share of Diane’s trusts, if he survives her.

Jack had plenty of income and assets. If Diane survived him, she’d receive a share of one of his trusts. But wait—Jack’s been receiving funds from the trust that was to have benefited his spouse and dependents, not Diane. Therefore, while Linda has been trying to keep everything fair, she has actually been undermining the trusts that may pass to Jack’s descendants, by distributing funds Jack didn’t even need. Linda could have made distributions from her mother’s trusts to increase the chances that Jack’s and Diane’s descendants would receive a greater share at their parent’s death.

Linda didn’t see the larger picture, and as a result has made 10 years of decisions that could create a serious financial problem for herself, if one of her siblings is litigious.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Kiplinger (Jan. 14, 2019) “Why You May Need a Pro Trustee: Trust Administration is Not Just Common Sense”

The Impact of Addiction on Estate Planning

Families struggle with the damages created by drug habits.

The leading cause of death of Americans under the age of 50 is now from opioid addiction and this is having an impact on estate planning, according to MarketWatch in “How to leave money to a family member with an addiction.”

Addiction has been known to drive even good people to steal and lie to get money to support their habits. Parents of children are wracked by guilt and anger. The stories of families spending hundreds of thousands of dollars in an effort to help their children are growing in number—as are the number of families who exhaust their retirement savings paying for rehabilitation and related services.

Trusted family advisors, including estate planning attorneys and financial advisors, find themselves working with families to protect the family finances and the well-being of their addicted family members. The fallout from addiction creates many secondary problems for families. Estate planning for a family grappling with addiction addresses many different issues, not just inheritance. 

Lump sum distributions or full bequests to an adult struggling with addiction can be deadly, if the person uses the funds to purchase large quantities of drugs. At the same time, writing someone out of the will completely and withdrawing all support, can be devastating to the addicted adult and the family.

Creating a trust can help to protect assets and ensure that there is some degree of accountability in how the distributions are made. Incentive trusts, where a certain behavior or accomplishment markers are determined, can be used to encourage behaviors.

This may mean that the addicted adult does not receive funds, until after passing a drug test, attending a certain number of treatment sessions or entering a residential rehabilitation program.

Incentive trusts are part of a special area of estate planning. Therefore, it is necessary to work with an attorney who has experience with trusts and with incentive trusts. Ideally, the attorney who helps your family, will be one who is also familiar with the impact of addiction on families.

Creating incentives for positive outcomes includes having consequences when the person fails to meet the terms of the trust.

In this situation, a trustee who is extremely trustworthy and not prone to being manipulated is necessary. They will need to make sure the person adheres to the requirements and while they may be given certain levels of discretion, this person needs to be strong-willed enough to withstand an addict.

This kind of trust may require the beneficiary to submit to specific terms and provide access to their health records, which itself requires a HIPAA waiver for the trustee.

Creating an estate plan with an incentive trust presents many challenges for the family and the trustee. It may well become a highly charged, emotional process. Regardless of how complicated your trust will be, you can contact us and we can help and work with you. 

Reference: MarketWatch (Jan. 14, 2019) “How to leave money to a family member with an addiction”

No Will? You’re Giving Up Control

Are you willing to have someone else decide where your assets go?

You may think that you don’t need a will if you don’t have a lot of property or assets. However, you need a will, unless you’re willing to have the laws of your state of residence be the deciding factor, according to Press Republican’s article “The Law and You: Important to make a will.”

Do you really want other people making those decisions on your behalf? Would you want the laws of your state making these decisions? Your family will do better, if you have a will and an estate plan.

For example, in New York State, if you don’t have a will, your surviving spouse will receive the first $50,000 plus one half of remaining property. Your children, whether they are minors or adults, will get an equal share of the other half.

If you have a spouse but no children, your spouse will inherit everything. If you have children and no spouse, then the children get everything, divided equally.

If you have no spouse, no children and living parents, then your parents will inherit everything you own.

If your parents are not alive, your siblings will get it all.

Adopted children are treated by the courts the same as biological children, when there is no will. Stepchildren and foster children do not inherit, unless they are specifically named in the will.

If you have been in a long-term relationship with someone and never married, even if they qualify for health care benefits from your employer under the “domestic partner” provision, they are not considered a spouse when it comes to inheritance. At the same time, if you are not legally married and your partner dies, you have no legal right to inherit from your partner’s estate. No matter how long you have been together, how many children you have together, if you are not legally married, you have no inheritance rights.

Check your state’s laws for the rights of “common law marriages;” New York State does not recognize these as a legal union. In very limited cases, New York State has been known to recognize common law marriages from other states where they are legal, but that is the exception and not the rule. There are limits here as well: both parties will have to agree to be married, must represent to others that they are married and may not be married to anyone else.

If you want someone who is not your legal spouse to receive your assets, you need to meet with an estate planning attorney and have a will drawn up that meets the requirements of the laws of your state. An estate planning attorney will be able to explain how your state laws work and what provisions are and are not acceptable in your estate.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances. If you have any questions about your current estate plan, please call or email us today.

Reference: Press Republican (Dec. 18, 2018) “The Law and You: Important to make a will”

Don’t Let an Inherited IRA End Up Being Handled Poorly

The IRA may be liquidated quickly.

An inherited IRA can provide a lot of security. However, it can also become a problem, if it is not handled correctly, according to CNBC in “Leaving an IRA to a loved one? How to avoid a tax bomb.” You can structure the distribution, so your children or grandchildren receive the best benefits.

Naming a trust as an IRA beneficiary is a good way to protect large IRAs, since it provides some means of control. By naming a trust, you can protect heirs who are minors, vulnerable to creditors, not able to handle large sums of money or disabled. Trusts only need $12,750 of taxable income in 2019 to be subject to the top tax rate of 37%.

If you don’t structure the trust right, you could accelerate the liquidation of the IRA at warp speed.

Most people think of their spouse, when it comes to naming a beneficiary for an IRA. Unless your spouse needs the funds, it’s best to name the next generation. What are the pitfalls? Not all IRA custodians allow you to list a trust on the beneficiary form. The tax code has very specific conditions, when trusts are the beneficiaries of retirement accounts. If you fail to follow the rules, your heirs could face huge tax bills. For a trust to be viable as a designated beneficiary, it must meet a four-step test:

It must be valid under your state’s laws.

It must be an irrevocable trust, or one that will become irrevocable upon your death.

Beneficiaries must be identifiable from the trust document.

The IRA custodian or trust administrator must have received a copy of the trust by October 31 of the year after the death of the IRA’s owner.

The beneficiaries must be people, not charities and not your estate. If your beneficiaries are not people, then your IRA may not have a designated beneficiary. In that case, your heirs can’t stretch the IRA by taking required minimum distributions based on the longer life expectancy of a child or a grandchild.

Worse—if your trust fails to meet the test, it is subject to the same rules as if there was no designated beneficiary at all. That means it’ll be depleted faster than you may have wished. If you die before you start taking RMDs (70½) then the IRA must be distributed within five years after death. If you die after you start taking RMDs, then distributions pay out over what would have been your life expectancy.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can include a trust that works best for you. Contact our office today to schedule your consultation.

Reference: CNBC (Dec. 9, 2018) “Leaving an IRA to a loved one? How to avoid a tax bomb”

Which Assets Are Part of Your Estate in California?

If you are in the process of estate planning, you may have heard that certain assets become part of your probate estate while others do not. To minimize the likelihood that the probate court will have to oversee the distribution of your estate, you should be aware of which types of assets are part of the estate.

What Is “Wrong” with Going to Probate Court?

First and most important, probate court proceedings are extremely expensive for estates. The larger the estate, the more expensive probate will be. The money spent on going to court reduces the total estate value that is distributed among your heirs. In addition, creditors may be able to collect a portion or all of the estate value to satisfy debts, leaving heirs with little or nothing.

Second, going to probate court takes time – time during which your heirs may need the money from their inheritances. Once you find the will and determine who is the executor, the executor has to file a petition in probate court. Then the court orders that the executor gather all the assets, pay off creditors, and disburse the remaining money.

Which Assets Are Part of the Probate Estate?

In California, certain assets are part of the probate estate, including:

• Real estate
• Personal property such as jewelry, clothes, and furniture
• Life insurance to be paid to the estate
• Retirement benefits to be paid to the estate

Other assets are not considered part of the estate, including:

• Real estate or other property owned by joint tenancy
• Life insurance that passes to designated beneficiaries
• Retirement or death benefits that pass to designated beneficiaries
• Pay on death bank accounts
• Any property held by a trust, corporation, or some other types of entities
• Community property of you and your spouse or domestic partner

If you have questions about which assets are part of a probate estate, consult a trusts and estates lawyer for assistance.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Large Inheritance Can Bring Some Unexpected Problems

Receiving a large amount of money, such as an inheritance, can solve many problems in your life, as well as bring you many new opportunities. It can also bring some problems, such as attempted contact from many, many sources willing to step up and help you with the money, according to Edmonds Beacon in “Take your time, plan wisely when you inherit.”

Because a will in this situation often goes through probate, the heir and the amount of money is public knowledge. The tension begins when people you don’t know—and some that you do—start calling with propositions. Sales calls come from shady operators, unknown and known financial advisors and long-lost cousins. The first thing you need is the financial and legal equivalent of a 10-foot-tall fence, complete with sentries.

Most big lottery winners are flat broke, several years after their big wins. Without the right help, it’s easy to go through this kind of money. Don’t rush and don’t be rushed into anything.

If you have children or grandchildren, they could benefit from this inheritance. Start by meeting with an experienced estate planning attorney. Your attorney will talk with you about the many tools, including trusts, that can be used to safeguard the inheritance for coming generations. You’ll also want to make sure your estate plan is up to date and that it includes having powers of attorney for financial and health matters.

You’ll also need a professional tax advisor, which is likely to be a CPA, and a financial advisor. Take your time in researching and checking references for these individuals and their firms. They should be working with your estate planning attorney as part of an integrated team. Having three advisors sounds like a lot. However, it actually works well: all three have knowledge in their fields and can serve as checks and balances on your behalf.

Draw up a roadmap for your life and action plan. Now that you don’t have to work for a living, do you want to continue working for other reasons, like satisfaction or service? Have you always dreamed of traveling? Is there a cause that matters to you?

And, don’t forget to deal with the tax side of this situation. Will there be earnings from the investments you make with the inheritance, and what will your tax liability be now? Should you pay off your existing mortgage or buy a new home?

There will be many questions, so proceed slowly.

Reference: Edmonds Beacon (Oct. 10, 2018) “Take your time, plan wisely when you inherit”

How Professionals Can Help Run Your Trust

When you set up a trust, know that your trustee may need the help of professionals to run it successfully. While professionals cost money, they can provide expertise in areas that your trust needs for its assets to grow.

Why Would the Trustee Need Professionals?

If you choose a family member trustee to run your test, he or she may have to seek out professionals for advice. If you are the trustee, the same is true. Why? You may need the following skills to manage a trust:

• Accounting
• Tax
• Financial planning
• Investing
• Real estate management
• Art or jewelry appraisals

Most non-professional trustees simply do not have all of this knowledge and expertise. Your trustee should seek out help when he or she needs it. For instance, your trust may need an accountant to handle end of year tax returns, and it might need to hire an appraiser to do a valuation of a piece of art so it can be put up for auction. If the trustee does not seek professional advice, he or she might mismanage trust assets and cause them to lose value.

Don’t Professionals Cost Money?

Yes, professionals charge for their time, and they can be expensive. If your trust has a significant need for professionals, you may discover that thousands of dollars you thought would go to beneficiaries is going to professionals instead.

If your trust will have significant assets – especially non-cash assets – you may want to rethink having a family member be your trustee. It may cost the trust less to have a professional trustee who can handle accounting, taxes, and financial planning in-house. To keep professional trustee costs down, consider using a local attorney or accountant rather than a large bank or investment house.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

It's already February! The New Year Is a Good Time for Estate Plan Review

Don’t limit your attention to your investment portfolio. Include a fresh look at your estate plan.

Your estate plan is really important and that is why you did it in the first place. Don’t let it get out of date, so take a fresh look at any changes in your life that have taken place over the previous year, according to Wealth Management in “Eight Simple Estate Planning Review Items for 2019.”

Here are the eight items that need your attention:

Beneficiary designations. When was the last time you checked these? Beneficiary designations are usually looked at when an account is opened, and often that’s the last time people see them. Look at beneficiary designations for tangible assets, like homes, cars or collectibles. Check legal documents including bank accounts and insurance policies.

Digital asset designations. This is a relatively new area, but very important. Even if you don’t own any cryptocurrency, chances are good you have assets like photos, reward points, websites and more. Each social media platform has a different policy for how accounts are treated on the death of the owner.

Trust funding. This is where many estate plans fall apart. Funding trusts often requires changing titles on bank accounts, homes and other assets into the name of the trust. Major purchases, like a boat or second home, also need to have their titling corrected, so they correspond to trusts.

Documents for adult children. When your children turn 18, they are legally adults and you do not have the legal right to get information or make decisions on their behalf. If you don’t have HIPAA releases, Power of Attorney, and other documents, you may find yourself unable to help in an emergency.

Keep up with life changes. Review your estate plan with an eye to changes in your life: births, deaths, marriages, divorces, big purchases, etc. If you haven’t met with your estate planning attorney or had a phone conversation in a few years, make an appointment now for a review.

Secure photos and memories. How many times have we watched dramatic images of fires, floods, and earthquakes in 2018? Videos, photos, family heirlooms, and artifacts and other irreplaceable items should be stored in some digital format, or in the cloud. If the family includes artists, take photos of paintings or sculptures so at least you have an image of the item should it be destroyed.

Discuss wishes with loved ones. One of the biggest challenges after someone passes, is knowing what they wanted to be done with personal possessions. If you have every Beatles album, unopened, what do you want to happen to your collection? Make inventories and then tell your family what you’d like to have happen with your possessions. You can create a “Legacy Letter” and put it down on paper.

Prepare for incapacity. This is not everyone’s favorite task, but necessary. If you were conscious but not able to speak, what information would your family need? Work with your estate planning attorney to create the necessary legal documents, including medical directives.

Reference: Wealth Management (Dec. 12, 2018) “Eight Simple Estate Planning Review Items for 2019”

Foreign and Alternative Currencies in California Estate Plans

When you make a California estate plan, consider that any foreign and alternative currencies you own may be part of your estate. The amount of these currencies matters for federal estate tax purposes and for California probate, if your estate goes through probate. In both cases, your executor, estate administrator, attorney, or accountant will have to locate the currencies and assess their value.

Is the Currency Part of Your Estate?

If you are an American citizen or permanent resident, all your worldwide assets are part of your estate upon your death for federal tax purposes. For probate, all or most of your estate may get administered through the California probate courts, or some assets may be administered through another state or country’s probate system.

If you are a non-citizen and non-permanent resident, only some of your assets are part of your U.S. estate for estate tax purposes. This would include currency physically located in the United States but could exclude currency kept in a foreign bank. The location of Bitcoin, which is electronically stored, could be the subject of estate tax legal cases in the future.

Estate Tax Valuation

To determine how much estate tax your estate pays, the administrator of an estate should look to the fair market value of a foreign or alternative currency on the death date. The U.S. exchange rate for the currency is used to convert the amount of foreign or alternative currency to a U.S. dollar value to report on the tax return. If the currency’s country of origin uses exchange controls, the conversion must take them into account.

Sometimes, the fair market value may be adjusted if the currency would have lost value and the estate tax due would be lower. For alternative currencies such as Bitcoin, determining the fair market value could be tricky because (1) the value fluctuates a large amount throughout each day, without a true “closing time” like the stock market, and (2) some sources may value it slightly differently than others.

California Probate Court

Similar to estate tax valuation, the probate court looks to the fair market value of currency on the date of death. The court requires the estate executor or administrator to locate all estate assets and list their value on a special form to file with the court. If valuation of the currency is tricky as described above, the executor may need to use the services of a probate referee who has experience determining foreign currency values.

Do you own foreign currency and need help with your estate plan? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Snowbirds May Want to Consider a Checklist

Heading to a warm climate is a good idea but perhaps it is best to consider legal issues before leaving.

If you are a retiree who heads south after the holidays, it might be wise to create a checklist of at least four personal legal business items, according to LimaOhio.com in “Extra checklist before heading south for the winter.”

First, make sure that your general/financial power of attorney and healthcare power of attorney documents have been updated. Does your family have copies of these documents? Or do they have 24/7 access through a portal from your estate planning law firm?

Some law firms provide laminated cards for clients to give to family and friends that gives the holders of the cards access to these powers, while clients are out of town. Others are starting to use encrypted thumb drives, so that clients have documents wherever they go. Make sure you have these documents and that the people who will need them, either have them or can get them in a moment’s notice.

Second, review your living will with your estate planning attorney. Update them if changes need to be made and get copies to your children and/or friends.

Third, make sure that your last will and testament is updated. Have you had any big changes in your life since the last time it was reviewed? Marriages, deaths, divorces, births and adoptions are the typical “trigger” events that signal a need for review. Who will have that document? If your estate planning attorney maintains original copies for clients, then make sure to have another original on your person or safely secured with a loved one.

Lastly, and this takes a little time but is well worth doing, create a list of all your assets. Make sure they are properly titled for your situation. Should you have all your bank accounts become Payable on Death to your spouse? When was the last time you checked your beneficiary designations? Chances are good there are beneficiary designations on your bank, investment, and retirement accounts and on your life insurance policies. Wherever you have a beneficiary designation, you should also have a contingency beneficiary.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a trip in a southerly direction. Please contact our office if you need any assistance with your estate plan today.

Reference: LimaOhio.com (Oct. 13, 2018) “Extra checklist before heading south for the winter”