California Probate - Law Offices of Janet Brewer Blog

Should I Create My Own Estate Plan?

“The ongoing coronavirus pandemic has pushed many people to make long-delayed decisions about estate planning. Many people will try the do-it-yourself route via various websites or books. Internet DIY websites make it easy to download forms, but there are mistakes people make when they try do-it-yourself estate planning.”

US News & World Report’s recent article entitled “Do-It-Yourself Estate Planning Mistakes” provides some issues that do-it-yourself estate planners might encounter and why it is best to consult an experienced estate planning attorney.

What are the Right Questions to Ask? Completing a simple and straightforward form—like a beneficiary designation for your IRA— is one thing, but what about tax consequences, probate law, new legislation and court procedures? Are you ready to take these on? The trick is that you may not know what you don’t know. That’s why it’s money well-spent to employ the services of an experienced estate planning attorney.

Is My Situation Complex? Likewise, you may have property and assets all over the country (or world) that require expert advice. You must be certain that your planning, tax planning and financial planning all work together because they’re all interrelated. If you only work on one of these areas at a time, you may create complications in another area and unintentionally increase your expenses or taxes. It can also create headaches and expense for your heirs. If you have a child with special needs, a blended family, or want to control how and where a beneficiary spends your money, a cookie cutter approach won’t do. Instead, you should see an experienced estate planning attorney.

What are the Probate Laws in My State? Estate planning laws and taxes are different in each state.  Your state will have different rules and legal procedures for creating and administering an estate. There are many different state laws that govern inheritance taxes. There are 17 states plus DC that tax your estate, inheritance or both, and the tax laws can affect your situation when planning. Eleven states plus DC have only an inheritance tax. One state taxes both inheritances and estates.

If you mess up your estate planning documents, if could cause significant problems for your family. You best bet is to work with an experienced estate planning attorney in your state. Contact our office today to schedule your consultation.

Reference: US News & World Report (Dec. 18, 2020) “Do-It-Yourself Estate Planning Mistakes”

What Do I Need to Know About Creating a Will?

“Creating a will is one of the most basic elements of estate planning. There are different types of wills you can choose from, including a simple will.”

A simple or basic will allows you to specifically say the way in which you want your assets to be distributed among your beneficiaries after your death. This can be a good starting point for creating a comprehensive estate plan because you may need more than just a basic will.

KAKE’s recent article entitled “What Is a Simple Will and How Do You Make One?” explains that a last will and testament is a legal document that states what you want to happen to your property and “worldly goods” when you die. A simple will can be used to designate an executor for the will and a legal guardian for minor children and specify who (or which organizations) should inherit your assets when you die.

A will must be approved in the probate process when you pass away. After the probate court reviews the will to make sure it’s valid, your executor will take care of the collection and distribution of assets listed in the will. Your executor would also be responsible for paying any debts owed by your estate.

Whether you need a basic will or something more complex, usually depends on a few factors, including your age, the size of your estate and if you have children (and their ages).

Having a will in place can be a good starting point for estate planning. However, deciding if it should be simple or complex can depend on a number of factors, such as:

• The size of your estate
• The amount of estate tax you expect to owe
• The type of assets and property you own
• Whether you own a business
• The number of beneficiaries you want to name
• Whether the beneficiaries are individuals or organizations (like charities)
• Any significant life changes you anticipate, like marriages, divorces, or having more children; and
• Whether any of your children or beneficiaries have special needs.

With these situations, you may need a more detailed will to plan how you want your assets to be distributed. In any event, work with an experienced estate planning attorney. With life or financial changes, you may need to create a more complex will or consider a trust. It is smart to speak with an estate planning attorney, who can help you determine which components to include in your plan and help you keep it updated.

If you have any questions about your current estate plan, please call or email us today.

Reference: KAKE (Nov. 23, 2020) “What Is a Simple Will and How Do You Make One?”

Should I Add that to My Will?

“A last will and testament is the foundation of an estate plan, which lets you plan for your estate after you’re gone. However, there are certain things that you might not want to put in your will.”

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

How to Plan for a ‘Black Sheep’ Kid in Will

“There are several myths about how estates must be distributed that can lead to lots of worry about what will happen to a “wild child” in the future and stress about family dynamics.”

Every family has unique circumstances as far as wealth, financial planning, and plans for the future. Therefore, it is critical that you consider your individual beneficiaries’ circumstances when it comes to estate planning.

Kiplinger’s recent article entitled “Estate Planning for ‘Black Sheep’ Beneficiaries” explains that this may take the shape of a child with a substance abuse issue, a lack of financial acumen and responsibility, or a mental illness. You also may want to reward certain behaviors in the future. All these situations can be addressed thoughtfully and effectively in your estate planning documents with the help of an experienced estate planning attorney. Let’s dispel some of the common myths surrounding these issues:

Myth #1: You are required to split your estate evenly among your children. Disinheriting a beneficiary happens a lot. It can occur for a variety of reasons that have nothing to do with the disapproval of a potential beneficiary’s lifestyle choices. Regardless of the reason for disinheriting completely or making unequal distributions, it’s best to discuss this in your estate documents or in a separate letter. Give the reasons for your decision to head off any possible claim against the estate or even just hard feelings among family members.

Myth #2: Once you’ve disinherited your black sheep, it’s irreversible. Not so. You should review your estate planning choices regularly because situations change (hopefully for the better), and you can revise your estate plan to provide incentives for your beneficiary to continue making progress.

Myth #3: You have no control of the issue after you pass away. While there’s no direct control after you die, you can, however, make specific instructions in your trust to reward and motivate your black sheep to behave in a certain fashion. You can also treat the share of inheritance for one beneficiary differently than others. Therefore, a financially responsible child may be allowed to access such a share of the estate in one lump sum; but you create a trust for the second child who has issues.

Myth #4: Trusts are a huge hassle. Certain trusts permit you to name a person to help your beneficiary manage their inheritance. This can be a family member or friend, as well as a professional trustee who will assume the administrative responsibilities of a trust.

Don’t avoid the subject of estate planning. Work with an experienced estate planning attorney and discuss the options available. You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Kiplinger (Dec. 8, 2020) “Estate Planning for ‘Black Sheep’ Beneficiaries”

Is a Tax Change a Good Time to Check My Will?

A last will and testament can make certain that your goals for legacy and asset disposition are satisfied and carried out. However, what most people fail to grasp is that a will needs regular review—especially if the document was written or involved the creation of a trust prior to passage of tax reform, the Tax Cuts and Jobs Act (TCJA), in 2017, says Financial Advisor’s recent article entitled “Tax Changes Make This A Good Time To Revise A Will.”

Wills can pass on assets, but taxes have come to greatly impact how much money is passed on. People usually understand the primary components, including the tax implications, of their wills.

These include:

• The unlimited marital deduction
• Applying current rules to make non-taxable gifts of up to $15,000 per person
• The current estate tax exemption of $11.58 million
• Health care directives
• Naming trustees and executors; and
• Creating long-term trusts with non-taxable asset transfers.

Wills and trusts were created prior to the passage of the TCJA may not consider that reform changed the amount which can be exempted from estate taxes.

The law more than doubled the amount that can be exempted from estate taxes. The potential tax changes could cause many more Americans to have a taxable estate, and it’s important to have a full understanding of your assets and carefully decide who you want to receive them. You must also decide if you want them passed outright or through a trust.

Privacy is a good reason why some people often prefer trusts. They also like the quick processing and avoiding probate.

Estate plans should be reviewed every few years, and wills should be reviewed more frequently because life changes are the biggest reason for trouble in revising wills.

Divorce, separation or marriage; the birth or adoption of children, as well as a child reaching adulthood; and changes to finances, location, and health all can play important roles.

Reference: Financial Advisor (Nov. 9, 2020) “Tax Changes Make This A Good Time To Revise A Will”

What are the Biggest Estate Planning Mistakes?

“Taking a few simple steps now can potentially help save your beneficiaries thousands in legal fees and taxes.”

One of the largest wealth transfers our nation has ever seen is about to occur, since in the next 25 years, roughly $68 trillion of wealth will be passed to succeeding generations. This event has unique planning opportunities for those who are prepared, and also big challenges due to the ever-changing legal and tax world of estate planning.

Fox Business’ article “5 estate planning disasters you'll want to avoid,” discusses the biggest estate planning errors to avoid.

Failing to properly name beneficiaries. This common estate planning mistake is easily overlooked, when setting up a retirement plan for the first time or when switching investment companies. A big advantage of adding a beneficiary to your account, is that the account will avoid probate and pass directly to your beneficiaries.

Any account with a properly listed beneficiary designation will override what is written in your will or revocable living trust. Therefore, you should review your investment and bank accounts to make certain that your beneficiaries are accurate and match your intentions.

Naming a minor as a beneficiary. This can be a problem, if they are still minors when you die. A minor won’t have the legal authority to take control of inheritance or investment accounts until they reach the age of 18 or 21 (depending on state law). When a minor receives an asset as a beneficiary, a court-appointed guardianship will be created to supervise and manage the assets on behalf of the minor. To avoid this mistake, you can name a guardian for the minor child in your will.

Forgetting to fund a trust. Creating a trust is the first step, but many people don’t properly fund their trust after it’s established.

Making a tax mess for your heirs. A significant advantages of passing on real estate or other highly appreciated investments or property, is that your beneficiaries receive what is known as a “step-up” in basis, so that they aren’t responsible for any income taxes on the appreciated assets when they are received. The exception is when inheriting retirement accounts, such as 401k’s and traditional IRAs. Except for a surviving spouse, inheriting a traditional IRA or 401k means that you are now responsible for the taxes owed. With the recent passage of the SECURE Act, most non-spouse beneficiaries must totally withdraw a 401k or IRA within 10 years. It is deemed to be ordinary income for beneficiaries, which could result in a huge tax bill for your heirs. To avoid this, you can convert some or all of your retirement account assets to a Roth IRA during your lifetime, which lets you to pay the conversion taxes at your current income tax rate—a rate that may be much lower than your children or grandchildren’s tax rate. When you pass away, any money that is passed inside a Roth IRA goes tax-free to your heirs.

Failing to create a comprehensive estate plan. Properly establishing your estate plan now, will care for your loved ones financially, and can also save them a lot of emotional stress after you’re gone.

Talk to an experienced estate planning attorney about planning now. It can really affect your family for generations. It is one of the best gifts that you can leave your family.

Reference: Fox Business (Nov. 12, 2020) “5 estate planning disasters you'll want to avoid”

What Happens If You Fail to Submit a Change of Beneficiary Form?

“The financial institution is obligated to distribute the CD to the person or entities that otherwise would be entitled to receive it.”

Wealth Advisor’s recent article entitled “I’m being denied an inheritance. Can they do that?” explains the situation where an individual, Peter, was given a CD/IRA by a friend named Paul.

Paul told Peter that he wanted him to have it, in case anything happened to him. Paul was married and didn’t tell his wife about this. Paul’s wife was the beneficiary of several other accounts.

Paul told Peter to sign a document before he died, and they got it notarized.

Paul died somewhat unexpectedly, and Peter took the signed and notarized beneficiary designation form to the bank to see about collecting the money.

However, the bank told Peter that there was no beneficiary designation given to them prior to Pauls’ death.

Is there anything that Peter can do?

The article explains that it’s a matter of timing, and it’s probably too late. That’s because it looks like Paul failed to submit a written beneficiary change form to the financial institution prior to his death.

As a result, the financial institution must distribute the CD to the person or entities that otherwise would be entitled to receive it.

In most states, you can choose any IRA beneficiary you want. However, in nine community property states, you are required to name your spouse as your heir. If you want to name anyone else, your spouse must give written permission. The same laws apply, if you want to change your beneficiary designation.

The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

The only way for Peter to see the money, is if he can show that Paul intended for him to receive the asset. That bank doesn’t want to be sued by another person, who claims they’re entitled to the CD.

In this situation, it’s best to speak with an experienced estate planning attorney who can examine the specifics of this type of issue. If you have any questions about your current estate plan, please call or email us today.

Reference: Wealth Advisor (Nov. 24, 2020) “I’m being denied an inheritance. Can they do that?”

What Key Estate Planning Terms Should I Know?

“Estate planning is an incredibly important tool, not just for the uber-wealthy or those thinking about retirement. On the contrary, estate planning is something every adult should do.”

Estate planning can help you accomplish several objectives, including naming guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can give more wealth to your heirs, and saying how and to whom you would like to pass your estate at death.

Emmett Messenger Index’s recent article entitled “13 Estate Planning Terms You Need to Know” provides some important terms to understand as you consider your own estate plan.

Assets: This is anything a person owns. It can include a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, collectibles, art, and clothing.

Beneficiary: This is an individual or entity (like a charity) that gets a beneficial interest in an asset, such as an estate, trust, account, or insurance policy.

Distribution: A payment in cash or asset(s) to the beneficiary who’s designated to receive it.

Estate: All of the assets and debts left by a person at death.

Fiduciary: An individual with a legal obligation or duty to act primarily for another person’s benefit, such as a trustee or agent under a power of attorney.

Funding: The process of transferring or retitling assets to a trust. Note that a living trust will only avoid probate at the trustmaker’s death if it’s fully funded. A trustmaker also may be known as a grantor, settlor, or trustor.

Incapacitated or Incompetent: The situation when a person is unable to manage her own affairs, either temporarily or permanently, and often involves a lack of mental capacity.

Inheritance: These are assets received from someone who has died.

Probate: This is the orderly court-supervised process of distributing the assets of a person who has died.

Trust: This is a fiduciary relationship where a trustmaker gives a trustee the right to hold property or assets for the benefit of another party, known as the beneficiary. The trust is a written trust agreement that directs how the trust assets will be distributed to the beneficiary.

Will: A written document with directions for disposing of a person’s assets after their death. A will is enforced by a probate court. A will can provide for the nomination of a guardian for minor children.

We can help walk you through creating and fully understanding every element of your estate plan; call or email us today to schedule a consultation.

Reference: Emmett Messenger Index (Oct. 28, 2020) “13 Estate Planning Terms You Need to Know”

How Do I Know If Mom Left Me Her IRA?

“My mother and father had retirement funds. My father passed and it went to my mother. My mother got remarried and she had a will when she died. My stepfather is to get what they agreed upon. She never made him the beneficiary of that retirement fund that was between my mother and father.,  However, when I asked to see the amount of this fund, the executor would not produce it. How can we find out the amount?”

Nj.com’s recent article entitled “I think my mother left a retirement account to me. How can I find out?” explains that retirement accounts typically are “non-probate” assets—they pass by beneficiary designation, rather than under the account owner’s will.

Each designated beneficiary can contact the financial institution where the account is held directly and request his or her share of the death benefit. The financial institution will need a copy of the account owner’s death certificate to move forward with the claim.

If the account owner doesn’t name a beneficiary, the agreement or contract governing the account may say who gets the death benefit. In many cases, the governing document says that the death benefit is payable to the account owner’s estate. However, some do have a breakdown of beneficiaries that may be close to the succession of heirs under intestacy.

If the mother didn’t name a beneficiary on her retirement account and, as a result, it’s payable to her estate, then it becomes a “probate” asset. Therefore, her will governs who receives it.

If her will doesn’t specifically bequeath that account to specified individuals, it will be a part of her residuary estate. The clause typically says, “I give the rest, residue and remainder of my estate to...”

Residuary beneficiaries are entitled to information about the estate—including the value of estate assets. In addition, there are laws that spell out their rights and remedies to make sure the executor is doing his or her fiduciary duty.

When an executor won’t provide reasonable information to the beneficiaries on the estate and the status of the administration, the beneficiaries should speak with an experienced estate planning attorney. One option may be to initiate a lawsuit to compel the executor to file an accounting and/or an inventory and appraisement of the estate assets. If a beneficiary thinks the executor has acted improperly and/or refuses to disclose estate information, he or she should demand that the executor provide an accounting and file an action for an accounting if the executor refuses. Beneficiaries shouldn’t simply trust an executor, especially one who won’t give out basic information about the estate.

If you have any questions about your current estate plan, please call or email us today.

Reference: nj.com (Oct. 5, 2020) “I think my mother left a retirement account to me. How can I find out?”

What is Considered Community Property in California Inheritance Law?

California is a community property state. How will you know what is considered community property in California inheritance law? 

California's inheritance laws – and especially those related to community property – can get incredibly confusing quickly. When there is no valid will put into place by the deceased, or when the couple has high-value assets, the application of these laws can also become very intricate. A brief overview of how inheritance relates to both community property and separate property by California is below.

Community Property Defined

Most states follow what is called common law for determining asset division during a marriage. Under common law, a spouse or domestic partner is not automatically granted the right to 50% ownership of all assets acquired during the marriage. Instead, ownership is determined based upon whose name an asset is purchased and whose income paid for it.

California joins only eight other states to adhere to community property law. These states recognize a policy that any property acquired during a couple's marriage or domestic partnership is considered joint property. Furthermore, each party has the benefit of a 50% stake in ownership automatically, regardless of whose name may be on the asset's title or whose income was used to pay for the asset.  

Property that is considered community property includes bank accounts, stocks, bonds, cash, personal items, vehicles, household items, collectibles, and real estate holdings. These assets are split equally without regard to whose fault divorce may be or each spouse's financial situation. Even when one spouse brought in the entire income and assets of the marriage, they are still split equally. Likewise, any debt accumulated throughout the marriage becomes collective debt and is shared equally by both parties in the relationship.

Inheritance & Gifts in California

There is one exception to California's community property laws for assets received by either party in the relationship as a part of an inheritance or as a gift. These assets do not automatically go into the pool as community property. But the recipient should be wary that, under some circumstances, these assets can still be viewed as community property if they haven't implemented proper safeguards to protect the gift or inheritance.

Don't Comingle Assets

The best way to protect these assets is to prevent them from co-mingling with your other assets, those considered community properties. For instance, if you receive cash as part of an inheritance and deposit it into a shared account, it becomes impossible for the court to track what assets in the account are assigned to each party. All of it would be considered community property.

Whatever you receive as a part of inheritance should be treated separately and held in the recipient's name only to prevent it from being treated as community property.

Don't Use the Inheritance to Purchase Anything That Will Become Community Property

If you use inheritance to purchase something else while you are married, that asset will become community property. For instance, if you sell an inherited property and purchase a different property with the proceeds you receive from the sale, the new property will be considered community property. This legal treatment differs from the inherited property. If you keep the inherited property, it remains your asset alone and would not be considered community property during a divorce.

Consider a Legal Agreement

Prenuptial and postnuptial agreements are becoming increasingly common in marriages. These legal agreements can protect both spouses by clearly defining what both parties consider community property and individual property. Even in the absence of an agreement put into place before the marriage or domestic partnership, both parties may be open to considering it if there are substantial changes to their financial status as the relationship evolves.

Estate Planning and Inheritance

If there is a death in the family and no will to define beneficiaries, there are many different ways that a probate court may split assets. Further, if you do not have any surviving family, your estate may go to the state. There are many other scenarios in which California's inheritance laws can impact asset distribution in a way that the decedent may not have intended.

If you have questions about assigning, receiving, or protecting assets acquired through inheritance, it's best to speak with a reputable estate planning professional. These experts can walk you through all of the potential laws that may apply to your unique situation, including community property laws. They can also frequently provide a recommended course of action to achieve what you would like to achieve and provide peace of mind that your inheritance is protected.