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 Happens If Trust Not Funded

“Revocable trusts are a very popular and effective estate-planning tool. However, the trust will be ineffective, if you do not actually place your assets in the trust.”

Revocable trusts can be an effective way to avoid probate and provide for asset management, in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible and can achieve many other goals.

Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan.

Transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust.

If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” An experienced estate planning attorney should be consulted.

Depending on the institution, you might be able to change the name on an existing account. If not, you’ll need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees.

Provided you’re serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you’re not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax.

If you’re placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly.

You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes.

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

Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”

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”

How Does the Court Choose an Executor if a Will Isn’t Available?

“An essential part of estate planning is selecting someone to represent you after your death in the management of your estate. This personal representative is also known as an executor, or executrix, if you choose a woman as your personal representative.”

An executor is the person who’ll manage your estate by protecting your assets, paying your debts and distributing the remaining property according to the terms in the will. But Programming Insider’s recent article, “Role of the Court When There is No Will For an Estate, asks “what would happen if someone dies without a will and, therefore, without appointing a personal representative?”

This is known as dying “intestate.” When it happens, the probate court must decide who will act as the estate’s administrator or personal representative. The judge’s decision will be based on state law, which will say how to prioritize potential fiduciaries in an administrator’s appointment. Every state has a prioritized list of preferred executors, and some states offer detailed guidance, like Oklahoma, which has a prioritized list. If more than one person is equally entitled to be appointed, a court has the option to appoint one or more executors.

The probate court has the final decision as to who will serve as the estate’s administrator or personal representative, even including a person who is named as executor in a will or is entitled to be chosen as a valid executor. The court will award authority to an administrator and will issue letters of administration or letters of testamentary. This authorizes the person to serve as an estate’s personal representative. Some people who might otherwise be entitled to serve as an executor may be disqualified based on state law. Here are some of the factors that a judge may consider when disqualifying a potential executor:

• Age. An executor must be an adult, who is at least 18 years old. However, some states require the minimum age of 21.
• Criminal History. Some states don’t permit someone who’s been convicted of a serious crime to serve as the fiduciary representative of a decedent’s estate. Other states only require a potential executor to notify the court of any felony convictions.
• Residency. This may be a factor in a person’s ability to serve as a personal representative. Some states let nonresidents serve in some circumstances. Some let nonresidents serve, if it’s a close relative. Finally, some other states require a nonresident executor to post a bond or use an agent within the state to process services and the court’s communication.
• Business Relationship. There may be state laws as to who may be an executor if the decedent was an active member of a partnership; and
• Citizenship. It also may be difficult for a noncitizen to serve as an estate’s personal representative.

Generally, probate judges have a lot of latitude and discretion on this selection.

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

Reference: Programming Insider (Nov. 9, 2020) “Role of the Court When There is No Will For an Estate

What Kind of Estate Planning Do I Need During the Pandemic?

“The COVID-19 pandemic has made 2020 a nightmare for many people, and inadequate estate planning can exacerbate the pain.”

Having a valid will and a complete estate plan is important for everyone, but it’s crucial as you approach retirement.

Richmond Times-Dispatch’s recent article entitled “Estate planning during the pandemic” says that it’s because you’ll probably have more assets at this stage of your life, and it’s important to consider whom you’d like to inherit.

It is critical that you plan to be sure your spouse and family will be cared for financially, in the event that something happens to you. This can be accomplished with proper estate planning with the help of an experienced estate planning attorney.

If you die without a will or estate plan, state probate laws of succession may direct the way in which your assets are distributed. This can be an expensive process, but it can also be a significant burden on your family during a time of grieving and sadness.

Even with a will, going through the court-supervised probate process of passing assets through a will can be time consuming and expensive.

One way to avoid probate is to ask an experienced estate planning attorney to help you set up a trust. A frequently used trust is a revocable living trust, which lets you modify the terms if you like.

Individuals with children or real estate can particularly benefit from setting up a trust. A trust allows you to avoid probate and makes certain that your assets are transferred to the intended people. It also lets you control exactly how the money can be used. You can also name someone to take control when you’re not available, known as a secondary trustee.

The executor of a will is really an administrator who transfers assets from one person to another. In contrast, a trustee is more of a decision-maker who will take your place and make decisions you would want to make, if you were still around to make them.

After you set up your estate plan, you should review it every few years.

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: Richmond Times-Dispatch (Nov. 19, 2020) “Estate planning during the pandemic”

Did Zappos Founder Tony Hsieh Have a Will?

“Advisors were likely powerless to push for an $800 million estate plan, as Zappos founder started to drift into unhealthy habits. The family now has to sort it out.”

Zappos founder Tony Hsieh did not quite make “billionaire” status. However, he was close, selling several companies for a $800 million personal payday.

Wealth Advisor’s recent article entitled “Even Mega-Millionaires Die With No Will: Tony Hsieh Family Steps Up” explains that when leaving that much cash behind, heirs need only invest in Treasury Bonds to be set for life.

However, when you die on a reported girlfriend’s property at age 46, far from home and without a will, the estate becomes much more complicated than it needs to be.

Hsieh sold his first startup company in 1998 and moved into the world of top-tier technology incubators, eventually starting the shoe retailer Zappos, which he sold to Amazon in 2009. He continued to manage Zappos, until he stepped down this summer. While Hsieh had no need to work financially, he liked the structure.

However, he also enjoyed pushing his health to the limit, experimenting with extreme diets, holding his breath, and literally playing with fire. Hsieh was asphyxiated in a Connecticut shed when it caught fire. He was rushed to the hospital, where he died.

Hsieh seemed untethered, but it was his life and his money.

However, now that he’s gone, his fortune is an issue.

He did not have a wife or children, so his scattered assets need to be accounted for and then dispersed.

His father and brother have volunteered to sort everything out.

However, it is going to take time and money to find all the money and there are no guarantees. Things frequently fall through the cracks.

The tax situation is also a question, with an $800 million estate, the IRS will see a significant payday.

Hsieh didn’t have a will or a trust, so probate is a concern. With a Nevada base of operations, a Utah residence, and presumptive California executors - probate can get messy very quickly.

The lesson here is clear: we all need an estate plan.

That’s how we can add multigenerational value and keep family fortunes growing, instead of dwindling to nothing.

Ask an experienced estate planning attorney about a comprehensive estate plan.

Reference: Wealth Advisor (Dec. 7, 2020) “Even Mega-Millionaires Die With No Will: Tony Hsieh Family Steps Up”

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”

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.   

 

How Much Power Does an Executor Have?

“There are continuing misconceptions regarding what powers are held by a personal representative and when he can exercise them.”

The Pauls Valley Daily Democrat’s recent article entitled “It doesn't end with the will” explains that there’s constant confusion about wills. This misunderstanding involves the scope of power of those named in the will as the personal representative (or executor) of the decedent’s estate. Let’s try to straighten out some of these myths or pieces of bad information about wills and probate.

The Executor Doesn’t Need Court Permission. False. An estate executor or personal representative can’t distribute a decedent’s assets to themselves or to any heirs, until okayed by the court. Many people think that a will provides immediate authorization to distribute the assets of an estate.

If He had a Will, We Don’t need Probate. Another incorrect belief is that if a person dies with a will, probate isn’t needed or required. If a person has a will, the will and the distributions named in it can only be made valid by the probate court. There are ways to avoid the probate process. However, the fact that a person had a will doesn’t do it.

The Executor Can Start Giving Away Stuff ASAP. This is also false. Some people think that as soon as a person receives appointment as the personal representative or executor from the probate court, they can begin distributing assets from the decedent’s estate. Nope. If this were true, it would defeat the objectives of probate, which is court oversight and control.

The Court Doesn’t Monitor the Executor’s Actions. This statement is also incorrect. The entire probate process is structured to provide a court-monitored coordination of a decedent’s estate to make certain that his or her wishes are followed. This also helps to prevent unauthorized distributions or “raids” on a decedent’s assets by improper persons.

Remember, the executor’s Letters Testamentary authorize that person to act for the estate—they don’t permit any distributions before court approval or final probate court order.

What Does Probate Do?

Probate fulfills these purposes:

• At death, the deceased’s property is subject to control and monitoring by the court.
• The court then starts to see what the decedent’s wishes were for distribution and who was named to administer the estate.
• The court must also review the scope of the estate, define all assets in the estate, and determine all debts of the estate.
• Probate requires a notice to creditors, so the executor has a complete list of debts of the estate and to give each creditor the opportunity to be paid.
• The court watches any transfers, sales of assets, or payments during probate.
• The executor is authorized to receive money and manage the assets of the estate, but he can’t withdraw or transfer assets from the estate.
• At a final hearing and after notice to interested parties, the court determines who should get distributions.

Ask an experienced estate planning attorney about the probate process and how to devise a complete estate plan. 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: Pauls Valley Daily Democrat (Oct. 1, 2020) “It doesn't end with the will”

What’s Involved in the Probate Process?

“The probate process refers to court proceedings that you have to go through when a loved one passes on, and they have left an asset in their name.”

SWAAY’s recent article entitled “What is the Probate Process in Florida?” says that while every state has its own laws, the probate process can be fairly similar. Here are the basic steps in the probate process:

The family consults with an experienced probate attorney. Those mentioned in the decedent’s will should meet with a probate lawyer. During the meeting, all relevant documentation like the list of debts, life insurance policies, financial statements, real estate title deeds, and the will should be available.

Filing the petition. The process would be in initiated by the executor or personal representative named in the will. He or she is in charge of distributing the estate’s assets. If there’s no will, you can ask an estate planning attorney to petition a court to appoint an executor. When the court approves the estate representative, the Letters of Administration are issued as evidence of legal authority to act as the executor. The executor will pay state taxes, funeral costs, and creditor claims on behalf of the decedent. He or she will also notice creditors and beneficiaries, coordinate the asset distribution and then close the probate estate.

Noticing beneficiaries and creditors. The executor must notify all beneficiaries of trust estates, the surviving spouse and all parties that have the rights of inheritance. Creditors of the deceased will also want to be paid and will make a claim on the estate.

Obtaining the letters of administration (letters testamentary) obtained from the probate court. After the executor obtains the letter, he or she will open the estate account at a bank. Statements and assets that were in the deceased name will be liquidated and sold, if there’s a need. Proceeds obtained from the sale of property are kept in the estate account and are later distributed.

Settling all expenses, taxes, and estate debts. By law, the decedent's debts must typically be settled prior to any distributions to the heirs. The executor will also prepare a final income tax return for the estate. Note that life insurance policies and retirement savings are distributed to heirs despite the debts owed, as they transfer by beneficiary designation outside of the will and probate.

Conducting an inventory of the estate. The executor will have conducted a final account of the remaining estate. This accounting will include the fees paid to the executor, probate expenses, cost of assets and the charges incurred when settling debts.

Distributing the assets. After the creditor claims have been settled, the executor will ask the court to transfer all assets to successors in compliance with state law or the provisions of the will. The court will issue an order to move the assets. If there’s no will, the state probate succession laws will decide who is entitled to receive a share of the property.

Finalizing the probate estate. The last step is for the executor to formally close the estate. The includes payment to creditors and distribution of assets, preparing a final distribution document and a closing affidavit that states that the assets were adequately distributed to all heirs.

Reference: SWAAY (Aug. 24, 2020) “What is the Probate Process in Florida?”