California Probate - Law Offices of Janet Brewer Blog

Choosing the Right Estate Planning Lawyer for Your Family

There are a lot of estate planning lawyers out there, but not all may be right for your family. When choosing an attorney, ask yourself a few key questions along the way.

What Are Your Goals in Estate Planning?

Think about the goals you want to achieve by making an estate plan. For example, would you rather get a basic plan done very quickly, or spend a bit more time tailoring the plan? You may think that you need only a will or only a trust, but after talking to a couple of attorneys it could become clear that you need more planning done. You also may have the goals of peace of mind that your plan is done, and comfort in working with a lawyer who understands you.

What Are Your Expectations for Your Lawyer?

Also think about your expectations for a lawyer, and talk to potential lawyers about those expectations when you meet them. You might prefer communication via email only, or you might want to meet in person several times. You might want to review all documents in advance before you sit down to sign them. Or you might want the lawyer to show you where each of your wishes are listed in your estate plan. Different lawyers have different styles of working and communicating, so thinking about what you prefer can help you decide whether someone is a good fit. But also be aware that most lawyers are very busy and may not respond to your emails or calls right away, though they should get back to you within a few days.

Do You Have Any Special Circumstances?

One big reason that you might want one lawyer over another is special expertise in a certain area. Your family might have circumstances that require a lawyer with related knowledge to make a proper estate plan. For instance, you might need a particular lawyer if you:

• Are not a U.S. citizen or have relatives who are not citizens
• Own a small business
• Have a child with special needs
• Are wealthy or earn a high salary
• Own a lot of real estate

Some estate planning lawyers focus on clients who need international estate planning or who have tax and business planning needs. Others have special knowledge of disability planning, high net worth estate options, or real estate management. Your needs can help you narrow down the pool of estate planning attorneys to find a good fit.

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

Problems with Dual Ownership of Real Estate

When someone who owns real estate leaves it to two or more people, many problems can result. Even siblings or close relatives may disagree about what to do with the inheritance. Some simply may not want the hassle of owning real estate – especially with an unexpected co-owner. What should you do?

First Option: A Buyout

If you and a relative inherit a house, you probably each own half unless the giver stated otherwise in the will. The giver could specify ownership as a joint tenancy with right of survivorship or as tenants in common. When one co-owner does not want to keep the house, the other co-owner can choose to buy him or her out. This involves obtaining financing on only half the house’s value, getting an appraisal, transferring title, and paying any closing costs.

Second Option: Sale or Rental

If neither co-owner really wants to keep the house, you should consider sale or rental. Rental also could be an option if one co-owner wants to use it in the future (such as for a child’s housing when he or she gets older). Take into consideration the realtor costs if you are selling, and the property management costs if you are renting. Also consider the costs of future maintenance problems and regular upkeep. In either case, make a written agreement with the other co-owner specifying who receives what money and which tasks each person must perform.

Third Option: Private Dealings

If only one of you wants to sell but cannot afford financing, consider a private loan arrangement. Instead of an official bank loan, the co-owner who is keeping the house could make a loan to the other co-owner. If taking this route, write up a promissory note and consider including interest payments as well as a principal payment schedule.

Final Option: Partition

If you and the other co-owner truly cannot agree what to do with the house, you could file a request that the court partition the property. Partitioning means that the court orders sale of the house with proceeds divided among the co-owners. This process can be expensive and time-consuming – often far more than if co-owners simply agree to sell the house in the first place.

As you can see, many problems might arise if you and a relative inherit a piece of real estate. For more solutions, talk to an experienced estate planning attorney.

When a non-U.S. citizen co-owns real estate with a U.S. citizen – especially if the co-owners are spouses – many problems may result. For example, the non-citizen could end up owing a lot of money in estate taxes. Also, distribution of the non-citizen’s estate could be very complicated.

Estate Taxes and Real Estate with a Non-Citizen Co-Owner

Besides the difficulty of obtaining a mortgage, non-U.S. citizens usually have few problems owning United States real estate during their lifetimes. One big problem, though, can occur when the real estate is co-owned with a citizen and the citizen dies. If the non-citizen and citizen were married, the non-citizen likely will inherit the entire property. This could result in very expensive gift tax and/or estate tax liability due to the limited tax exclusions available for non-U.S. citizens.

Because of the all-too-common problems that arise when a non-citizen spouse inherits real estate, U.S. citizen spouses should consider forming QDOTs in their spouses’ favors. A qualified domestic trust maintains some of the tax benefits that a non-citizen spouse would enjoy if he or she was a citizen. The U.S. citizen spouse could even place his or her interest in the real estate into the QDOT trust.

Estate Disposition and Real Estate with a Non-Citizen Co-Owner

When a non-citizen co-owns real estate with citizens, the death of the non-citizen could cause a real estate headache for the other co-owners. In theory, the non-citizen would have made a will passing on his or her interest in the property to a specific person, making the transfer simple. But in practice, matters can be far from simple. The non-citizen may have citizenship in a country that requires expensive estate taxes even on U.S. real estate, or may have citizenship in a “forced heirship” country like France. Several different foreign heirs could now have co-ownership of the property along with U.S. co-owners. The new set of owners may disagree about what to do with the property.

This host of potential problems can be avoided if the non-citizen takes the time to do estate planning in the United States. Specifically, he or she should talk to an estate planning lawyer located in the state where the real estate stands and who is familiar with international issues.

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.

Consequences of a Trust Being Reclassified as Foreign

One of the most important reasons to carefully draft a trust centers around the risk that it will be reclassified as “foreign”. Unlike a United States trust, a foreign trust has different reporting requirements, and the trust creator may have to pay more taxes.

What Is a Domestic Trust? What Is a Foreign Trust?

It is easier to understand the IRS’s definition of a foreign trust by learning what it is not. A domestic trust meets two requirements: (1) a U.S. court can exercise “primary supervision” over the trust’s administration, and (2) one or more U.S. people can control all substantial trust decisions.

If a trust does not meet those two requirements, it is a foreign trust. Note that California has different requirements for what makes a trust foreign, so if your trust is established under California law you will need to understand those laws too.

Why Would a Domestic Trust Be Reclassified as a Foreign Trust?

The IRS will consider a trust to be foreign if it no longer meets the two requirements described above. In other words, its status changes if another country has primary supervision over administration, or if someone who is not a U.S. person can control trust decisions. Usually, the second requirement is the one that a trust no longer meets. A trustee may change citizenship status, or a non-U.S. citizen may take over as a successor trustee.

What Happens If a Trust Is Reclassified as Foreign?

If a trust is reclassified from a domestic trust to a foreign trust, its creator may suddenly owe more taxes. The IRS assesses taxes on the U.S. owner of a foreign trust, based on the income of the trust.

Further, the U.S. owner must comply with reporting requirements designed to keep people from hiding assets in foreign trusts. Beneficiaries must report any income they receive from a foreign trust that was not reported by the U.S. owner. If the trust is a special type called non-grantor (the trust creator gives up control over the assets), then taxes may be due based on recognition of gain when assets are transferred into a foreign trust.

Foreign trusts can create many complications with estate planning as well. For example, trust creators could have trouble finding a trustee or beneficiaries who will stay in the United States to avoid their trusts’ reclassification as foreign. If the U.S. trustee retains control of the trust at his or her death, the estate could owe taxes in the U.S., in another country, or both. As a result, it is often better to keep a trust domestic if the creator is a U.S. citizen and the property in the trust is in the U.S.

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.

Multiple Wills in Different Countries: Do You Need Them?

If you own property in multiple countries, you may need multiple wills. While not everyone needs more than one will, your situation and the countries where you have ties could require it. Here are a few tips for people who are starting their estate plans.

You May Need More than One Lawyer

First, if an estate planning lawyer decides that you need a will in another country, you will most likely need a second lawyer. You need one lawyer licensed in the United States, preferably in the state where you own the most property or spend the most time. You also need one lawyer located in the foreign country or licensed to practice law there. The United States lawyer should prepare or at minimum review the will under U.S. state law. The foreign lawyer should prepare or at least review the will under foreign law.

Contents of the Wills

The two lawyers should ensure that the two wills are consistent and do not overlap. For example, the United States will should specifically exclude all assets distributed by the foreign will, and vice versa. The U.S. will should specify the state law that applies. Also, you may want a provision mentioning that there is a second, foreign will so that your relatives know to look for it.

If the will leaves any assets to a trust, some special considerations arise. For example, it is often important that a United States citizen leave assets only to a U.S. trust because of expensive taxes on foreign trusts.  The trust should include language about migration of beneficiaries or trustees if any might relocate in the future. Further, the will should make very clear where the trust documents are kept and which part of the estate goes into the trust.

Drawbacks to Multiples Wills

Obviously, having to employ two different lawyers in different locations adds to the cost of preparing your estate plan. But in some jurisdictions, you may need to pay a notary to prepare a will instead of a lawyer. Often notaries charge a percentage of the foreign property’s value in exchange for making the will. This can increase cost above what you would pay for a lawyer.

Further, if you make any changes to one of the wills or the rest of your estate plan, your attorneys will need to consult each other. If you do not change one of the wills, it could conflict with your other will, your trust, or other documents. Talk to an estate planning lawyer locally to learn 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.

Can Foreign Tax Credits Lower Estate Taxes in the U.S.?

The interaction of foreign tax laws and United States estate tax laws can create unfair treatment for people who have to pay taxes in both countries. Fortunately, in some cases foreign tax credits may apply to reduce tax liability for estates.

What Is a Foreign Tax Credit?

A foreign tax credit is a credit applied against United States federal taxes, reducing the total amount of tax due. Foreign tax credits are only available if you paid taxes to a foreign country (or U.S. possession).

In the alternative, the United States offers possible deductions for foreign taxes you paid. The deductions reduce your total taxable income. But the IRS says that it may be more beneficial to take a tax credit rather than a deduction.

How Can Foreign Tax Credits Affect U.S. Estate Taxes?

When an estate pays estate taxes, it may need to make payments both to a foreign country and to the United States. Both the U.S. and some other countries assess estate taxes on citizens’ worldwide estates. If someone is not a citizen but owns property in a country, he or she may owe estate taxes there too.

As a result, an estate could pay taxes to two different countries on the value of the same assets. This is called double taxation. Further, some countries (including the United States) treat people who are not citizens differently for purposes of assessing estate taxes.

Foreign tax credits can lower the tax bill in the United States by eliminating or reducing double taxation or discriminatory tax treatment of non-citizens. By giving estates a break on taxes, the credits increase the possible inheritance to relatives of people with property in multiple countries. Estate tax treaties make these credits available.

The United States has estate tax treaties with many countries worldwide. In the treaties, the countries agree that citizens or people who own property in the countries will receive certain credits, deductions, or other tax treatment. They aim to reduce double taxation and redundancy when people are taxed in multiple countries. To learn more about estate tax treaties and foreign tax credits, talk to an estate planning attorney.

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 Succession and Forced Heirship Affect U.S. Estate Planning?

Some countries have succession or forced heirship regimes that can substantially affect U.S. estate planning for people with ties to both countries. First, you will need to understand how forced heirship works, and then understand how it can impact estate planning in the United States.

What Is Forced Heirship or Succession?

Forced heirship or succession refer to laws in some countries that require certain inheritances for children or spouses. In other words, your wishes about who receives which amount of property may be disregarded in favor of these laws. The inheritances passed to child or spouse cannot be conveyed to anyone else.

In France, forced heirship favors children. If you have one child, he or she must receive 50 percent of your assets after your death by law. If you have two children, they receive 66 percent of your assets (or 33 percent each). If you have three or more children, then they receive 75 percent of your assets shared equally among them.

There is no French requirement that your spouse receive part of the estate unless you have no children or grandchildren, in which case the spouse receives 25 percent of your assets. You can give the remainder of your assets after distribution to children, grandchildren, or spouse to anyone you choose.

How Does Forced Heirship Impact U.S. Estate Planning?

People with ties to countries with forced heirship laws must take care to understand the consequences for their estate planning. For example, people living in France may not realize that their United States real estate will not necessarily go to their children equally.

United States situs property (items physically located there or with other connections to the U.S.) may pass to relatives in accordance with U.S. laws. French property may pass to relatives in accordance with French laws. As a result, someone’s estate could be distributed in an unexpected way.

Further, a will or trust may not have the same effect in a forced heirship country as it might in the United States. French law disregards the contents of a will if it would violate forced heirship laws. Even if you think you have done estate planning, it simply may not work as you expected. Talking to an estate planning attorney with experience helping international clients can put you on the right path.

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.

How Does Your Visa Status Affect Your Estate Planning?

The United States offers many different types of visas for people from other countries to spend time here, and your visa status can affect your estate planning. For tax purposes, the Internal Revenue Service distinguishes among people with citizenship or residency status and people without it.

Why Does Citizenship Status Matter for Estate Planning?

In the United States, people who are citizens or who are lawful permanent residents (meaning they have green cards) receive more beneficial estate tax exemptions. If you are here on any kind of visa, have a visa waiver, are an alien visitor, have been granted or are seeking asylum, or are a refugee, you unfortunately do not receive the beneficial exemption.

Having a larger estate tax exemption in the United States matters if you own any property here and then pass away. For example, many visa holders or refugees get married in the U.S. and purchase a home or car here. Gaining a green card or citizenship may take a very long time, so they do not want to put their lives on hold while waiting.

If someone who is not a U.S. citizen or green card holder passes away while owning property in the United States, his or her estate may (1) owe estate taxes to the IRS and (2) need to begin a probate proceeding in the U.S. state where the property is located. Whether this is necessary depends on:

• What kind of property the deceased person owned
• How much the property was worth
• Their country of origin and any treaties it has with the U.S.
• Marital status and citizenship of their spouse
• Any estate planning they did before their death

How Can an Estate Plan Help?

Making an estate plan in the United States can not only reduce the likelihood that your estate will owe U.S. taxes, but also potentially eliminate the need for a probate court proceeding in the U.S. Achieving these goals may require sophisticated estate planning structures such as a QDOT (qualified domestic trust) or other kinds of trusts.

If you are on a visa or do not have permanent resident status and you plan to purchase any kind of property in the U.S. (including securities), you should consider making a U.S. estate plan. Talk to a U.S. estate planning lawyer with international planning experience for advice.

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 the Difference Between U.S. and Foreign Trusts?

If you are interested in setting up a trust as part of your estate planning, you may wonder about the difference between a U.S. and a foreign trust. Foreign trusts are usually similar in structure to United States trusts, but the people involved in the trust and the property held in it have some key differences.

What Is a Trust?

Whether called U.S. or foreign by name, trusts have a few things in common. Trusts involve the relationship between a trustee and beneficiaries. The trustee manages and legally owns the trust property for the benefit of beneficiaries, who have the beneficial interest in the trust property. A trust creator or “settlor” creates the relationship and contributes property to the trust. (See IRS Treas. Reg. § 301.7701-4.)

When examining whether a foreign relationship or entity is a trust, the IRS looks at who holds property and why. Entities that exist to conduct business activities, not merely to hold onto assets, are usually not trusts for U.S. tax law purposes.

What Is a Foreign Trust?

All trusts are considered foreign by the IRS unless they meet two tests: the court test and the control test. The court test requires that a court in the United States has the ability to exercise “primary supervision over the administration of the trust”. (Treas. Reg. §301.7701-7.) The control test requires that one or more United States people have the authority to control “all substantial decisions of the trust”. No one else can have the power to veto any of the substantial decisions. (Treas. Reg. §301.7701-7.)

Again, any trust that does not meet these two tests is called a foreign trust. Many foreign trusts have non-U.S. citizens as trustees. If a trust has one U.S. citizen trustee and one non-U.S. citizen trustee, it is probably a foreign trust too.

What Is a U.S. Trust?

For IRS purposes, United States trusts meet both the court test and the control test. In addition, California and other states may have specific rules governing which trusts are considered to be in-state. These trusts are treated differently than foreign trusts for taxation.

Planning your estate and interested in trusts? 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.