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.

QTIP Trust or QDOT Trust? What Is the Difference?

If you have a spouse and are doing some estate planning, you may wonder about the difference between a QTIP and a QDOT. The two have a few things in common: both are trusts leaving assets to the surviving spouse, and both help preserve availability of the marital deduction.

What Is a QTIP?

A QTIP (qualified terminable interest property) is a special kind of trust that allows married people to control distribution of assets to their spouses while still taking advantage of the marital deduction. A QDOT allows the same, but is usually used by couples that have one U.S. citizen and one non-citizen spouse. Any married couple can use a QTIP.

In a QTIP, one spouse decides when the other spouse can receive trust distributions, and in what amount. Those decisions are memorialized in a trust document. If the first spouse passes away first, then the second spouse can receive distributions from the trust.

Usually, the IRS does not assess taxes on money passed directly to a surviving U.S. citizen spouse. The spouse must have full, unrestricted ownership of the money. But a special law allows QTIP creators to take advantage of the marital deduction and still pay no taxes. The QTIP benefit is available as long as the surviving spouse has a lifetime interest in income from the trust.

What Is a QDOT?

A QDOT (qualified domestic trust) is a special kind of trust often used when one spouse is not a United States citizen. Because that spouse is not a citizen, he or she cannot take advantage of the marital deduction. The marital deduction is a tax provision that allows spouses to make unlimited transfers of property to one another without paying gift, estate, or transfer taxes, both during their lifetimes and afterwards.

Without the marital deduction, non-citizen spouses who inherit property from citizens could pay very expensive estate taxes – not to mention gift taxes on lifetime transfers. The QDOT can solve part of the problem.

When a U.S. citizen places property in a QDOT, he or she should name the non-citizen spouse as beneficiary. The IRS allows non-citizen beneficiaries of QDOTs to receive the benefit of the marital deduction – meaning fewer expensive estate taxes if the U.S. citizen passes away first. If the non-citizen spouse receives distributions from the QDOT at some point after the citizen’s death, he or she may owe taxes on those amounts. But the QDOT leaves the spouse in a better position than if he or she had inherited the trust assets outright.

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 Get a Green Card? Next Estate Planning Steps

If you just received your green card, you are now considered to be a permanent resident of the United States. With this change comes a great opportunity for estate planning that can give you peace of mind in the future. While estate planning may not be your first thought, you can take advantage of the tax benefits afforded to permanent residents to hopefully better your family’s future.

Increased Estate Tax Exemption

One major benefit of permanent resident status is the increased estate and gift tax exemption. As a non-citizen and non-resident, you previously had an exemption of only $60,000, which could have resulted in expensive taxes imposed on your estate in the future. Now, you have an exemption of $11.18 million. If you are married to a citizen or permanent resident, he or she has an $11.18 million exemption too. This means that your estate is much less likely to owe taxes later on.

Marital Deduction Still Not Available

Unfortunately, permanent resident status does not grant you the ability to use the marital deduction. This deduction allows for unlimited transfers between citizen spouses. You still have limitations on the amount you can transfer to your spouse without paying taxes. However, if your spouse is a citizen, you might consider setting up a qualified domestic trust (QDOT). The trust could defer your estate tax liability should your spouse leave you substantial assets. You would not be taxed until you received distributions from the trust.

Ties to Other Countries

Many people who attain green card status still have ties to other countries, whether through business dealings or with family. Sometimes these ties can lead to double taxation or complicated estate distribution issues. Tax treaties between the United States and other countries may help, but it is a good idea to speak with an experienced U.S. estate planning lawyer about your situation. You may need more help with your estate plan than you think.

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.

Reducing Your Taxable Estate by Passing Wealth to Your Spouse

When you begin estate planning, transferring wealth to your spouse may top your list of priorities. Many people who are making estate plans want to protect their spouses and provide for them in the future. Further, you can accomplish even more with your plan by reducing your taxable estate.

Marital Deduction

Spouses who are U.S citizens can take advantage of the marital deduction, which allows them to transfer assets tax-free to one another. The transfers can take place at any time, even after the death of one spouse through estate planning structures such as a will.

While making a transfer to your spouse will reduce the size of your own taxable estate, it might have unforeseen consequences too. The transfer will increase the size of your spouse’s estate, which could result in estate taxes owed later. However, this usually does not occur unless you and your spouse exceed the joint estate tax exemption ($22.36 for married U.S. citizen couples in 2018).

Qualified Terminable Interest Property Trust (QTIP)

A qualified terminable interest property trust (QTIP) allows you to control distribution of assets to your spouse after your death, while still taking advantage of the marital deduction. To use the marital deduction, the IRS requires that the recipient spouse have full ownership of the property he or she receives from the other spouse. A QTIP is an exception to this rule. You can place property in a QTIP, also place restrictions on its distribution to your spouse, and still receive the marital deduction as long as your spouse has a lifetime income interest in the property.

Qualified Domestic Trust (QDOT)

If you or your spouse is not a U.S. citizen or permanent resident, you may want to consider a qualified domestic trust (QDOT). Non-citizen non-residents cannot receive the same estate tax exemption amount as citizens; instead, they receive a total exemption of just $60,000. To protect a non-citizen spouse from expensive taxes, you can transfer property into a QDOT. Like a QTIP, a QDOT allows you to receive the marital deduction despite the property being held by a trust.

In short, you have many options to consider when trying to pass wealth to your spouse and reduce your taxable estate at the same time. Speak to a local, experienced estate planning lawyer 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.

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.

Joint Tenancy Basics for Non-U.S. Citizens and Their Spouses

When a non-United States citizen spouse and a citizen spouse own real estate together, the legal concept of joint tenancy may affect their estate planning. Spouses often take title to property as joint tenants with a right of survivorship. This means that if one spouse passes away, the other spouse will own the property outright – without the need for the property to go through probate.

Estate Planning Consequences of Joint Tenancy

For estate tax purposes, the fact that property is held in joint tenancy by a citizen and non-citizen non-resident of the U.S. matters. The IRS applies a special rule called the contribution rule to figure out how much of the property’s value will be included in the citizen’s estate. The contribution rule requires that the entire value of the property to be included in the citizen’s estate, except for:

• Any portion contributed by the non-citizen non-resident spouse; and
• Any portion contributed on the spouse’s behalf as a gift, for example by inheritance.

(Internal Revenue Code § 2040(a); § 2056(d)(1)(B).) More frequently, the citizen spouse ends up with a large portion of the property’s value in his or her estate. If the citizen dies first, then his or her estate may owe expensive estate taxes on all or most of the value. Further, there is no marital deduction available for the couple. As a result, the non-citizen non-resident spouse will have full ownership of the property for the remainder of his or her life. But without the marital deduction, his or her estate could owe estate taxes on the entire value of the property. In effect, the couple is taxed twice.

Alternatives to the Joint Tenancy Problem

In California spouses often take title to property as community property of the marriage. Both spouses are considered to have contributed half of the purchase price if the property is purchased during the marriage. The community property rule supercedes the contribution rule for many spousal property purchases in California. However, the couple still runs into the problem that a non-citizen non-resident and citizen couple have no marital deduction available.

Instead of relying on the imperfect joint tenancy or community property systems, couples should consider setting up a qualified domestic trust. Property that changes hands by right of survivorship can fall under the marital deduction if moved to a QDOT. To make this happen, the surviving spouse must transfer the property to a qualified domestic trust before the deadline to file the deceased spouse’s federal estate tax return.

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.

What Is a Qualified Domestic Trust in California?

For spouses with international backgrounds, qualified domestic trusts (QDOTs) may help with estate and tax planning for their futures. QDOTs are a great tool for a United States citizen to protect assets for a spouse who is not a U.S. citizen.

A qualified domestic trust is a special kind of trust with special rules about trustees and distributions. In exchange for following these rules, spouses get protection from paying estate and gift taxes that the government would otherwise require.

Special Rules for QDOTs

QDOTs work like traditional trusts in that they have one or more trustees, property that is transferred by an individual into trust, and a beneficiary (who is often the non-citizen spouse). Unlike a traditional trust, a qualified domestic trust must have at least one trustee that is a U.S. citizen, a U.S.-based bank, or a trust company formed in the U.S. If the QDOT holds more than $2 million in assets, it must have a domestic bank as one of its trustees.

The trustee(s) of a QDOT must approve all principal distributions, meaning distributions to the beneficiary of assets that were originally contributed by the U.S. citizen spouse who formed the trust. If a principal distribution is made, it will be subject to federal estate taxes. The only exception is in cases of exceptional hardship when the non-citizen spouse needs money in an emergency. However, if a distribution of interest is made from a QDOT, the non-citizen spouse only has to pay regular income taxes on it.

Protections Offered by QDOTs

QDOTs can protect non-citizen spouses from paying large amounts of estate taxes when their U.S. citizen spouses pass away. They are useful primarily for international couples who have assets exceeding $11.18 million, because that is the current estate tax exemption for an individual citizen.

When one spouse is not a citizen, the couple cannot take advantage of the marital deduction. This tax deduction allows spouses to transfer assets to each other tax-free. If the citizen spouse dies and the other spouse does not become a citizen by the time the deceased spouse’s estate tax return is filed, he or she cannot receive the marital deduction. This will mean an expensive tax bill, either on the deceased spouse’s estate or for the non-citizen who receives assets in the spouse’s will or during his or her lifetime. The QDOT works around this problem by holding all or a portion of the estate in trust for the non-citizen.

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

What You Need to Know about Probate Court in California

When you begin to think about planning your estate, you will start hearing about probate court. Many online sources recommend that you focus on “probate avoidance”. Those unfamiliar with probate court may jump at the chance to avoid it. But first, you should understand what this court does and how it relates to your estate plan.

In California, probate court is the division of the court system that supervises distribution of estates to heirs. If someone dies without making a will and owns property that needs to be transferred to relatives, then his or her relatives will need to go to probate court. If someone dies with a will and owns property that needs to be transferred, then relatives also need to go to probate court.

While an estate is being probated, the court will appoint an executor (if there is a will) or an administrator (if there is no will). The executor or administrator takes charge of finding and gathering the deceased person’s property, listing their value or getting valuations, and reporting to the court. After all the property has been gathered, the judge will order that the executor distribute the property to the heirs listed in the will. If there is no will, the judge will make an order about who receives the property.

Going to probate court can be very expensive for an estate, depending on how big the estate is. Costs can range anywhere from a few thousand to a few hundred thousand dollars by the time the entire estate gets distributed. These costs include court filing fees, appraisal fees, charges for a surety bond, legal fees, and accounting fees. Since the estate pays the costs, its value could decrease greatly because of the probate process, leaving less money for the heirs. If there is a dispute over how the estate will be distributed or how probate is being handled, the cost will be even higher.

If you or a relative have legal grounds for contesting the will or the distribution of property, you must seek relief in the probate court. Or if the will says you are the estate executor, you may need to make the initial application to probate court so that the will can be administered. Consult an attorney for advice on will contests, acting as an executor, and other probate court issues.

To avoid the high fees and time-consuming legal process, people planning their estates can take steps to keep some or all of their assets out of probate court. Not all assets go through probate, such as life insurance policies, money in IRAs or 401(k)s, pay-on-death bank accounts, and trusts. You can set up your will to “pour over” your assets directly into a trust upon your death, or you can place assets in trust during your lifetime. There are some special kinds of trusts such as Qualified Personal Residence Trusts and Qualified Domestic Trusts that do not go through probate and may lead to tax benefits.

Are you worried about probate costs or need help with a will dispute? 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-Citizens Spouses’ Community Property: Why It Matters for Estate Planning

Which assets are community property and which are separate property can become very important when a non-U.S. citizen and a citizen are making estate plans. The previous blog discussed the difference between these two types of property. Now we will delve into the reason why a non-citizen and citizen couple should try to own as much of their property as possible as community property.

A non-citizen and citizen married couple share their estate and gift tax exemption amounts as to community property only. U.S. citizens and permanent residents have much larger allowable exemptions than non-citizen, non-residents ($11.18 million compared to $60,000). With the ability to use the combined exemption on community property only, a non-citizen surviving spouse will pay lower taxes if more of the couple’s property belongs to the community. If the surviving spouse inherits the separate property, he or she could owe many thousands in taxes.

Often, these couples place some property in a qualified domestic trust (QDOT), either during their lifetime or upon the death of the U.S. citizen spouse. The estate of the deceased spouse does not have to pay estate taxes on property that goes to a QDOT on their death, because the property is no longer part of the estate. The QDOT also postpones the surviving non-citizen spouse’s need to pay taxes. Another option with a similar result is a “bypass trust”.

At the beginning of 2018, the estate and gift tax exemption for citizens doubled. This increase expires in 2026. While the increase makes running out of exemption dollars less of a problem for a non-citizen spouse, couples still may want to set up a QDOT or bypass trust. The increase could expire before one of them passes away. Further, couples should still maximize the amount of property considered community property, if possible.

In California, real estate can be owned as community property with rights of survivorship or joint tenancy. The two are very similar – in both cases, the spouses own the property jointly and one owns the entire property when the other passes away. While both of these ownership methods avoid probate (because the property automatically goes to the surviving spouse), they can trigger the requirement that the estate file an estate tax return if the citizen spouse dies first.

Depending on which kinds of property you own and if it is separate or community property, you may have different estate planning needs as a citizen and non-citizen couple. If you are interested in setting up a QDOT or learning more about any of the topics discussed here, reach out to an estate planning attorney experienced with non-citizen planning issues.

Are you a non-U.S. citizen 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.