California Probate - Law Offices of Janet Brewer Blog

When Exactly Do I Need to Update My Will?

“It is also important to realize that it isn’t merely “why” you are updating your will, but “when” you are updating that can make all the difference. Acting too late (or too early) may mean your changes are no longer appropriate or even immediately invalidated.”

Many people say that they’ve been meaning to update their last will and testament for years but never got around to doing it.

Kiplinger’s article entitled “12 Different Times When You Should Update Your Will” gives us a dozen times you should think about changing your last will:

1. You’re expecting your first child. The birth or adoption of a first child is typically when many people draft their first last will. Designate a guardian for your child and who will be the trustee for any trust created for that child by the last will.

2. You may divorce. Update your last will before you file for divorce, because once you file for divorce, you may not be permitted to modify your last will until the divorce is finalized. Doing this before you file for divorce ensures that your spouse won’t get all of your money, if you die before the divorce is final.

3. You just divorced. After your divorce, your ex no longer has any rights to your estate (unless it’s part of the terms of the divorce). However, even if you don’t change your last will, most states have laws that invalidate any distributive provisions to your ex-spouse in that old last will. Nonetheless, update your last will as soon as you can, so your new beneficiaries are clearly identified. 

4. Your child gets married. Your current last will may speak to issues that applied when your child was a minor, so it may not address your child’s possible divorce. You may be able to ease the lack of a prenuptial agreement, by creating a trust in your last will and including post-nuptial requirements before you child can receive any estate assets.

5. A beneficiary has issues. Last wills frequently leave money directly to a beneficiary. However, if that person has an addiction or credit issues, update your last will to include a trust that allows a trustee to only distribute funds under specific circumstances.

6. Your executor or a beneficiary die. If your estate plan named individuals to manage your estate or receive any remaining funds, but they’re no longer alive, you should update your last will.

7. Your child turns 18. Your current last will may designate your spouse or a parent as your executor, but years later, these people may be gone. Consider naming a younger family member to handle your estate affairs.

8. A new tax or probate law is enacted. Congress may pass a bill that wrecks your estate plan. Review your plan with an experienced estate planning attorney every few years to see if there have been any new laws relevant to your estate planning.

9. You come into a chunk of change. If you finally get a big lottery win or inherit money from a relative, update your last will so you can address the right tax planning. You also may want to change when and the amount of money you leave for certain individuals or charities.

10. You can’t find your original last will. If you can’t locate your last will, be sure that you replace the last will with a new, original one that explicitly states it invalidated all prior last wills.

11. You purchase property in another country or move overseas. Many countries have treaties with the U.S. that permit reciprocity of last wills. However, transferring property in one country may be delayed, if the last will must be probated in the other country first. Ask your estate planning attorney about having a different last will for each country in which you own property.

12. Your feelings change for a family member. If there’s animosity between people named in your last will, you may want to disinherit someone. You might ask your estate planning attorney about a No Contest Clause that will disinherit the aggressive family member, if he or she attempts to question your intentions in the last will.

If you have any questions about your current will or any other estate planning documents, please call or email us today.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”

Did You Just Renounce Your Citizenship? Next Estate Planning Steps

If you renounced your citizenship in the United States or another country, you may need to make changes to your estate plan. Depending on your net worth and other factors, your renunciation may lead to taxes now or taxes later.

How Does Renunciation Affect Taxes Now?

People who renounce their United States citizenship may owe taxes now if they are covered expatriates. Covered expatriates have:

• A net worth of more than $2 million on the date of expatriation;
• Average annual U.S. income tax liability of more than $165,000 for the five years before the year of expatriation; or
• Incorrectly filed U.S. tax returns for the five years before the year expatriation.

If you fall in any of these categories, the IRS may assess very expensive taxes against all of your property. Fortunately, some estate planning before renunciation can help. You potentially can reduce your taxable estate by strategies such as making lifetime gifts or starting a trust. Also, you can work with your accountant to potentially reduce income tax liability.

How Does Renunciation Affect Taxes Later?

When you become an expat from the United States, you lose tax benefits such as the $11.18 million estate tax exemption, the unlimited marital deduction, and estate tax portability. Instead, you will have only a $60,000 estate tax exemption. This can lead to expensive estate taxes after your death unless you plan ahead.

In short, if you still own any property in the United States that exceeds a $60,000 value, your estate may owe taxes on it after your death. Further, gifts to relatives who are U.S. citizens or to a citizen spouse could lead to taxes later too. Careful estate planning takes into account future taxes and potentially helps you reduce tax liability through structures such as qualified domestic trusts or holding companies.

The same tax consequences are true if you renounced citizenship in another country but are not yet a U.S. citizen or permanent resident. It’s a good idea to do some estate planning in the U.S. to protect yourself and your spouse from the expensive taxes that non-citizens often owe.

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.

Did You Just Become a Citizen? Next Estate Planning Steps

Becoming a citizen can have many useful benefits, including little-known advantages in estate planning for U.S. citizens. If you just became a United States citizen, now is a great time to update your estate plan. If you just became a citizen of another country, you may have estate planning needs in the U.S. as well.

Estate Planning for New United States Citizens

Congratulations on receiving your United States citizenship. You now have the estate planning advantages of the unlimited marital deduction and an increased estate and gift tax exemption. If you had a green card before receiving citizenship, then you already had these advantages. However, your estate plan may not have reflected it, so it’s a good time for an update.

Before you became a citizen, you could not make unlimited transfers of property to your spouse without paying taxes. Now, you can make as many transfers as you like – including in your will or the rest of your estate plan. Your estate tax exemption amount goes up to $11.18 million for both you and your spouse if he or she is a citizen. In addition, you and your spouse can use estate tax portability. It allows either you or your spouse to use the remaining amount of estate tax exemption left over after one of you passes away.

If your spouse is not a citizen or permanent resident, then you may need to update your estate plan too. Your current plan may not take into account the very low estate tax exemption that non-citizens receive – only $60,000 – or the lack of a marital deduction for gifts to spouses. If not, you or your spouse could end up owing significant taxes due to transfers of property to each other and relatives.

Estate Planning for New Citizens of Other Countries

People who just became citizens of other countries may need to estate plan in the United States too. If you own any property located in the United States, you may owe income taxes now and estate taxes in the future. An estate plan can help you set aside money, or even move your property to a holding company that could affect tax liability.

Further, you may need to make a will in your new country – and possibly one in the United States as well. Sometimes, more than one will is appropriate for dual citizens or people with ties in several countries. Other times, just one will or other estate planning structures are best. Talk to estate planning lawyers in both countries to find out more.

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.

U.S. Permanent Resident? What You Need to Know about Estate Planning

If you are a United States permanent resident, then you should keep in mind a few key considerations about your estate planning. Permanent residents have many of the same rights as U.S. citizens, and estate planning is no exception. They may have some different estate planning concerns, though, especially when it comes to connections to other countries.

What Is a Permanent Resident?

A permanent resident of the United States has been granted the right to live here indefinitely. Permanent residents receive “green cards” (not actually green colored) to signify their immigration status.

For estate planning and taxation purposes, permanent residents are treated very similarly to U.S. citizens. In contrast, people in the United States on visas, who are seeking asylum, or who are refugees often have very different estate planning and tax laws that apply to them.

Estate Planning as a Permanent Resident of the United States

Permanent residents usually plan to stay in the United States for a long time. They may, however, still have connections to other countries that affect their estate planning. For example, some permanent residents:

• Own property in another country
• Send money to relatives living abroad
• Have a non-citizen or non-resident spouse
• Have non-citizen or non-resident children
• Run businesses or work across an international border

All of these common situations can give rise to a need for estate planning in the United States, and perhaps in another country too. For example, having a non-citizen, non-resident spouse can give rise to significant taxes and other difficulties if advance planning is not done. The estate and gift tax exemption as well as other inheritance rules are not the same if your spouse is not a citizen or permanent resident.

Further, the U.S. government is very strict on rules for maintaining your permanent residency. If you have any plans to leave the country for more than a short time, you may need to speak to lawyers about your rights – not only for immigration purposes, but for estate planning as well.

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.

What Is Situs for U.S. Estate Planning Purposes?

When working on your United States estate planning, you may run across the term situs and wonder what it means. Situs of property affects whether the U.S. government assesses estate taxes on it.

What Is Situs?

Situs means that an item of property is either physically located in the United States or has a connection to the United States such that the U.S. considers it to be located here. For example:

• All real property (real estate) located in the U.S. – including condos, land, buildings, and houses – has a situs in the U.S.
• All tangible personal property, such as cash, jewelry, art, and furniture, located in the U.S. has a situs in the U.S.
• Both shares of stock in U.S. companies and shares in a U.S. registered investment fund (“RIC”), including mutual funds, have a situs in the U.S. It does not matter whether stocks are publicly traded or privately held or where the stock certificates are located.
• Cash accounts with U.S. brokerage firms have a situs in the U.S.

In contrast, property located outside the United States probably does not have a U.S. situs. If you have money in an account with a foreign bank, own property in another country, or invest in foreign companies directly (not through U.S. mutual funds), then you may own property with a situs in another country.

Why Does Situs Matter for Estate Planning?

The Internal Revenue Service assesses estate taxes on people’s estates that contain U.S. situs assets over a certain value. For example, someone who lives in another country and is not a U.S. citizen or permanent resident may owe estate taxes if his assets with a situs in the United States exceed a $60,000 value on his death. With an up to 40 percent tax on these assets assessed on the estate, heirs could receive much less than expected.

For U.S. citizens and permanent residents, the exemption amount is much more than $60,000. Your assets could be more valuable than you realize, though, so your estate plan may need to take the estate tax into account. Various estate planning tools can help you accomplish your goals without unexpected taxes due later.

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.

How Do You Estate Plan If You Own Property in Two Different States?

If you own property in two different states, your estate plan needs to account for the property’s locations. Estate planning is affected primarily because your estate may need to open a probate proceeding in more than one state, which can be time-consuming and expensive.

Why Does It Matter If You Own Property in More than One State?

In general, the state and local areas where real property is located oversee property ownership – including recording and transfers, tax collection, and resolving property disputes. If you pass away in California while owning real estate in both California and Oregon, a California probate court most likely cannot oversee the Oregon property’s distribution to your heirs. Instead, an Oregon probate court would have jurisdiction. As a result, you might need two different probate proceedings in California and Oregon.

Please note that the probate court jurisdiction rules refer mostly to real estate, such as land, houses, and commercial buildings. Often, a probate court in one state can oversee distribution of personal property, cash, or investments located in another state because these items are not fixed in its location. Personal property includes jewelry, furniture, keepsakes, and more. (One exception may arise if you keep valuables in a local bank that has no branches outside the state.)

How Can Estate Planning Help You?

Many people who own property in multiple places take advantage of estate planning tools. These tools may help them reduce the number of needed probate proceedings, save money and time, and potentially lower taxes. For example, you could consider placing your property in a trust or holding company.

A trust allows a trustee (yourself or a trusted advisor) to manage and control property for the benefit of chosen beneficiaries. As long as you cede all control over the trust and the property in it upon your death, the property most likely will not have to go through probate. Your beneficiaries can receive the property right away, or the trust can continue to manage it for them. Talk to an estate planning attorney about whether a trust is right for you and how to set it up.

Another option to consider is forming a real estate holding company. A business entity such as a corporation or limited liability company that legally owns the property can shield you from personal liability for it while providing probate and tax advantages. Forming an entity also can protect you if you have partners or if you do not wish certain family members to inherit the property. Again, speak to an estate planning attorney about your options.

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.

Expats and U.S. Estate Planning: The Basics

If you are an expat, you should think about your United States estate planning for a variety of reasons. Not only are U.S. estate taxes complicated and potentially expensive, but you may need U.S. estate planning in place so that your wishes are carried out.

Why Do Expats Have to Pay U.S. Estate Taxes?

The U.S. government taxes U.S. citizens, as well as foreign citizens who own property in the United States. Expats often fall into one of those two categories. Usually, expats live in the U.S. and then choose to relocate to a different country, often leaving relatives and assets behind. They may renounce their citizenship or residency status, or retain U.S. citizenship after moving.

When expats pass away and leave assets behind in the U.S. or keep their citizenship, the U.S. laws may require their estates to pay estate taxes. U.S. citizens’ estates must pay estate taxes if the total value of their estates exceed $11.18 million. Non-citizen and non-U.S. residents’ estates must pay estate taxes if the total value of their U.S. property exceeds $60,000.

Estate Planning in the U.S.

As a result of U.S. estate taxes, expats who have any property at all in the U.S. or who retain citizenship need to do some U.S.-based estate planning. For example, you may want a will in place that follows U.S. laws and disposes of all your U.S. property. The laws of your new country, however, may conflict with U.S. law and result in double estate taxation. Your U.S. estate planning must take into consideration the other country’s laws and the value of your U.S. property.

In the U.S., you may need a will, a trust, a holding company for real estate, or other estate planning structures. Be sure to inform your estate planning attorney of all your U.S. assets. This includes pensions, 401(k) retirement plans, IRAs, bank accounts, and investments such as mutual funds. Discuss with your attorney any plans to renounce your citizenship or return to the United States. You should also alert your family to the existence of your U.S. assets. An executor or other administrator will need to gather and distribute your estate after your death, and to do so, he or she needs to know where the assets are.

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.

Non-Resident Alien (NRA) Homeowners and Related Tax Issues

Non-resident aliens (those individuals who are not US citizens and do not reside in the US) and visa card holders (non-US citizens who do not have a green card but who do reside in the US) may at times still have assets in the US. In these circumstances, they often do not receive favorable estate and gift tax treatment that many US citizens and green card holders are allowed. Without adequate planning, NRAs will pay far more when a property is gifted or inherited by another individual.

The 2018 Tax Cuts and Jobs Act increased the estate tax exemption for US citizens to $11.2 million for an individual and $22.4 for a married couple – yet any NRA that holds more than $60,000 in USD assets may be subject to estate taxes, which range from 18% to 40% of the total assets (range unchanged since 2013). This means that if an NRA were to pass away with a property valued at $1 million in the US, the estate taxes levied would be over $345,000. Under similar circumstances, a US citizen would be exempt from these taxes altogether.

In addition to these federal estate and gift taxes, the assets may also be subject to state estate and gift taxes, which can increase the tax liability further. If the property is valued at more than $5.45 million and is bequeathed or gifted to an unrelated individual who is more than 37.5 years younger than the owner, or if it skips more than one generation (such as a grandchild), then it may also be subject to the Generation-Skipping Transfer Tax. There is an annual gift exclusion to a non-US citizen spouse of $152,000 annually (unlimited between citizen spouses), and to a non-spouse, $15,000. Anything else is subject to taxation.

Source: Deloitte

In January 2016, the US entered into estate and gift tax treaties with 16 other countries in order to resolve issues of dual-domicile and to reduce or eliminate double taxation. These treaties may also provide additional deductions or other tax relief. The countries with which the US has an existing treaty with include: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland and the United Kingdom.

Planning Ahead

Since it is obvious that the estate and gift taxes can be incredibly high, it is important that non-resident aliens have a clear understanding of the potential implications of the US estate and gift tax rules – and how to create a strategy that can minimize this tax burden. By structuring investments in an appropriate way, estate and gift taxes can often be removed or eliminated. This usually requires that the owner restructure the ownership of the assets.

Planning strategies can include some of the following actions, among others:

• Moving the assets to foreign corporate ownership (converting US situs property to non-US situs property): This strategy reclassifies property located in the US to a non-US classification since foreign corporate ownership interests are generally not considered the US situated. This process may involve creating both US-situs and non-US situs corporations or LLCs, or it may use techniques that remove equity from certain US assets, which can then be converted to non-US situs assets. Assets that can be considered personal, such as a primary residence or luxury goods, may not be suitable for foreign corporate ownership.
• Life insurance death benefits: These benefits, even when paid to a non-citizen who does not have a green card, are a non-US situated asset if the life insurance is owned by an NRA (rules for US citizens and green-card holders are different) . If planning activities structure these benefits properly, they would not be included in the estate of the non-US person.
• Qualified Domestic Trusts (QDOTs): When married to a US citizen, an NRA can use a QDOT to ensure access to the qualified unlimited lifetime marital deduction.
• Domicile Status: In certain circumstances, an individual may want to pursue domicile status. It is important to note that domicile status is determined differently for estate tax purposes than for income tax purposes.

Estate planning is complex and even more complex for NRAs. It is also made more complicated by the unique circumstances of each individual, such as the country of origin, type and amount of assets, relation to beneficiaries, time spent in the US, and future intentions for residency. Basic planning services are often not sufficient to account for the estate and gift tax implications that are imposed on non-resident aliens. An international estate planning professional may be consulted to help you determine any potential impact and develop a personalized approach that will account for all of your unique factors.

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) 325-8276.

Can You Name a Non-Citizen as Beneficiary of a Retirement Account?

When you have internationally located family members or non-U.S. citizen relatives, you may want to make one a beneficiary of your U.S.-based retirement account. You probably already have an idea of the different tax issues faced by non-U.S. citizens, so making your beneficiary designation will raise questions about whether it is a good idea.

First, it is possible to name a non-U.S. citizen as a retirement account beneficiary. The retirement account could be an IRA, a 401(k), or a similar account. When you make the designation, the account administrator may need more information about whether the beneficiary is a “U.S. person” or a “foreign person” for United States tax purposes. U.S. persons include citizens, residents, estates of citizens, domestic trusts, and domestic business organizations. Foreign persons include nonresident aliens, foreign estates, foreign trusts, and foreign business organizations.

If the administrator determines that your beneficiary is a foreign person, it will withhold 30% of retirement plan distributions to that person to pay taxes. To show that a beneficiary is a resident rather than a foreign person, you may need to provide additional documentation to the administrator. Further, you may be able to avoid the 30% rate if the beneficiary is a citizen of a country that has a tax treaty with the United States.

That 30% withholding rate can substantially reduce what your beneficiary actually receives from your retirement plan. You and your beneficiary have a few options to work around it. Your beneficiary could decide to disclaim the distributions and allow them to pass to the contingent plan beneficiary (the backup person if the main beneficiary passes away or disclaims distributions). But this might frustrate your original intent in making the designation. Instead, if you want to give the plan distributions to your spouse, you could create a qualified domestic trust and make it the beneficiary.

There may be some other options for you if you want to benefit a non-spouse but do not want the 30% tax rate. An estate planning attorney who is experienced with international families can help you make an informed decision about your beneficiary designation on a retirement account.

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.

International Estate Planning & the Question of Domicile

Home is where the heart is, right? Unfortunately, the matter is not quite that simple when it comes to international estate planning. Establishing where you home – referred to officially as your domicile by attorneys and the government – is located can have important consequences when it comes to estate planning, taxation, divorce, and inheritance. This is the case whether you spend time in more than one state or more than one country.

Here’s one illustration of how domicile can affect your life if you spend significant amounts of time in more than one country: If you are a non-citizen who splits time between a flat in London and a house in California, you could either receive a $60,000 estate tax exemption or a $3.5 million estate tax exemption depending on whether you qualify for a “domicile” or “non-domicile” exemption.

Determining Your Domicile

So, how do you know where your domicile is located? It is not as easy as stating it in paperwork or checking a box when you fill out tax forms. It is also not an entirely back-and-white issue: your domicile can depend on a large number of factors, and often your domicile will be determined on an individual, case-by-case basis.

Legally, domicile is defined as the place that you reside permanently: the place that you intend to return to eventually (if you are currently living somewhere else) and the place that you wish to remain indefinitely once you are there. However, for many families who have multiple residences and split their time somewhat evenly between homes, establishing domicile can be difficult. The government may use the following factors to find an answer:

• What is your visa status?
• Where do you spend the most time out of the year?
• What is the value of your property in each location?
• Where do you do business?
• Where are you registered to vote?
• Where are your vehicles registered?
• Where are you active in the community?
• Where do you file your taxes?
• Where do your pets live?
• Where do you intend to be buried?

Since where your domicile is located can have a huge affect on how you are taxed, taking any extra precaution to establish your domicile is recommended. Start by making certain that your estate planning documents, such as your will, clearly state your domicile.

California Estate Planning for International Families

If you have property abroad, live abroad for a significant part of the year, or are married to an non-resident, you may wish to take extra care when planning your estate. At The Law Office of Janet Brewer, we have extensive experience working with international families and couples. Call us today to make certain your estate is protected and to minimize tax penalities: (650) 325-8276. Or, get started right here at this website.