California Probate - Law Offices of Janet Brewer Blog

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”

No Time Like the Present Pandemic to Get the Estate Plan Going

There’s nothing like a once-in-a-lifetime global pandemic to focus one’s thinking. 2020 has been one for the books.

The pandemic has made many people focus on depressing things, like death. Many of us are worth more dead than alive.

Federal News Network’s recent article entitled “It’s your estate, but who gets it?” says that lack of control is one of the frustrating things about this already terrifying pandemic. We can wear masks, keep our distance and avoid crowds, but then what?

There are some very important and valuable things that are still under your control. One of these is estate planning.

Any number of things could have occurred in 2020 that are off your radar because you’re still adjusting to the many changes the pandemic has brought to our everyday lives.

Many people see their estate plan as one of life’s necessary chores. Once it’s signed, they simply file it away and forget about it. However, an estate plan should be reviewed regularly to be certain that it continues to meet your needs. Here are just a few of the life events that make it essential for you to review and possibly revise your estate plan with an experienced estate planning attorney:

• The birth or adoption of a child
• You are contemplating divorce
• You have recently divorced
• Your child gets married
• Your child develops substance abuse problems or has issues with managing finances
• Those you’ve named as executor, trustee, or agents under a power of attorney have died, moved away, or are no longer able to fulfill these obligations
• Your child faces financial challenges
• Your minor children reach the age of majority
• There has been a change in the law that impacts your estate plan
• You get a sizeable inheritance or another windfall.
• You have an estate plan but can’t locate it
• You acquire property; or
• You move to another state.

If any of these events occur, talk to your estate planning attorney to see if it is necessary to revise your estate plan to address these issues.

Reference: Federal News Network (Nov. 4, 2020) “It’s your estate, but who gets it?”

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.   

 

Does an Ex-Wife Get Her Former Husband’s Inheritance Because He Died of COVID-19?

“My big brother died of COVID-19 and he didn’t have a will. He divorced 20 years ago and has no children, but his ex is telling me she should get an inheritance. Who has the right to his money?”

Nj.com’s recent article entitled “My brother died of COVID-19. Should his ex-wife get an inheritance?” says that it’s unlikely that an ex-wife is entitled to any of her former husband’s assets.

There are three main ways property can transfer at death. They each have different rules.

Joint assets. When property is held as Joint Tenants with Rights of Survivorship (JTWROS), the surviving joint owner (if there are two owners) automatically becomes the sole owner of the property. Usually, jointly owned property is retitled into individually owned property after the divorce. If this was never done, some states (such as New Jersey) automatically change JTWROS property to a different form of joint ownership, called tenancy in common when a divorce is finalized. As a result, with tenants in common property, when one owner dies, his or her 50% ownership interest becomes a probate asset and passes pursuant to his or her will (or the state’s intestacy laws, if they didn’t have a will).

This means that even if the husband in this scenario still owned JTWROS property with his ex-wife when he passed away, she wouldn’t automatically inherit his share. She still has her own 50% share that she owned all along.

Property can also pass by beneficiary designation, like with life insurance or retirement accounts.

Beneficiary designations are typically updated after a divorce. However, again, ask an experienced estate planning attorney about your state laws. For example, New Jersey law revokes a divorced spouse as beneficiary, even if the beneficiary designation was never updated.

In this situation, even the husband named his wife as a beneficiary on an insurance policy or retirement accounts and never changed it, she wouldn’t be able to collect.

Finally, the third way that property can pass, is through the probate process. This means there’s a will.  If there was no will, it would be pursuant to the state’s intestacy laws.

An ex-spouse is never entitled to inherit property under state intestate statutes.

There are two important caveats for these rules. One is that they can be superseded by a divorce decree. Therefore, review the divorce decree to see whether it has any relevant language. The rules also apply to ownership, beneficiary designations or wills that arose during the marriage. Anything that happened after the marriage would not be affected by the divorce.

Contact our office today to schedule your consultation and make sure you know what will happen with your assets.

Reference: nj.com (Aug. 4, 2020) “My brother died of COVID-19. Should his ex-wife get an inheritance?”

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”

What Does My Estate Plan Look Like after Divorce?

“Some marriages end in noise and pain. Other marriages drift away quietly with the signing of documents and only a hint of acrimony.”

Planning an estate after a divorce involves adopting a different type of arithmetic. Without a spouse to anchor an estate plan, the executors, trustees, guardians or agents under a power of attorney and health care proxies will have to be chosen from a more diverse pool of those that are connected to you.

Wealth Advisor’s recent article entitled “How to Revise Your Estate Plan After Divorce” explains that beneficiary forms tied to an IRA, 401(k), 403(b) and life insurance will need to be updated to show the dissolution of the marriage.

There are usually estate planning terms that are included in agreements created during the separation and divorce. These may call for the removal of both spouses from each other’s estate planning documents and retirement accounts. For example, in New York, bequests to an ex-spouse in a will prepared during the marriage are voided after the divorce. Even though the old will is still valid, a new will has the benefit of realigning the estate assets with the intended recipients.

However, any trust created while married is treated differently. Revocable trusts can be revoked, and the assets held by those trusts can be part of the divorce. Irrevocable trusts involving marital property are less likely to be dissolved, and after the death of the grantor, distributions may be made to an ex-spouse as directed by the trust.

A big task in the post-divorce estate planning process is changing beneficiaries. Ask for a change of beneficiary forms for all retirement accounts. Without a stipulation in the divorce decree ending their interest, an ex-spouse still listed as beneficiary of an IRA or life insurance policy may still receive the proceeds at your death.   

Divorce makes children assume responsibility at an earlier age. Adult children in their 20s or early 30s typically assume the place of the ex-spouse as fiduciaries and health care proxies, as well as agents under powers of attorney, executors and trustees.

If the divorcing parents have minor children, they must choose a guardian in their wills to care for the children, in the event that both parents pass away.

Ask an experienced estate planning attorney to help you with the issues that are involved in estate planning after a divorce. If you have any questions about your current estate plan, please call or email us today.

Reference: Wealth Advisor (July 7, 2020) “How to Revise Your Estate Plan After Divorce”

What Is a Community Property Agreement and How Will It Affect Your Estate Plan?

If you have signed or plan to sign a community property agreement, you may wonder how it will affect your estate plan. Depending on the specific language of the agreement, it could have a major effect on which assets become part of your estate.

What Is a Community Property Agreement?

Community property laws apply in only a few states, including California. Couples who are living in California or other community property states may be interested in signing community property agreements to affect disposition of property on divorce or death.

Without a community property agreement, any property acquired by either spouse during the marriage would be considered community property under the law. There are a few exceptions, such as property acquired by inheritance, gift, or exchange for other separate property.

Upon divorce, the couple’s community property would be divided between the spouses. Upon the death of one spouse, the other spouse would automatically inherit all community property without regard for what the will says. The deceased spouse’s separate property would pass to those designated in the will. If there was no will, then the surviving spouse would receive some or all of the separate property (depending on which other relatives the deceased spouse had).

In contrast, spouses who sign a community property agreement concur that all property acquired during the marriage will not be considered community property. Rather, the property will remain the separate property of whichever spouse acquired it.

Aligning Your Estate Planning With Your Community Property Agreement

As long as the agreement as a whole is legally valid, a community property waiver in a prenup or a postnup is valid. Some couples might sign separate community property agreements instead. If you have signed a separate agreement, a prenup, or a postnup, you should make sure that your estate planning is aligned with it.

For example, you may want to leave a larger proportion of your separate property to your spouse because you have waived your community property rights. Even if you started a business during the marriage, bought a house, or saved money, your spouse will not necessarily inherit it if you signed such an agreement. If your spouse also waived the statutory share of your estate, then he or she could be left with few resources after your death. As a result, consult an estate planning lawyer to determine how your estate plan should coordinate with your community property agreement to accomplish your wishes.

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’s the Problem with Actor Jeremy Renner’s Trust for His Daughter?

“The in-court fights between Hawkeye actor Jeremy Renner and his ex-wife Sonni Pacheco have not slowed, despite current world events.”

As regulations change, some court cases are moving forward. Actor Jeremy Renner recently filed documents claiming that his ex-wife has been stealing money from their daughter’s trust fund.

Renner’s ex-wife Sonni Pacheco has already confessed to transferring money from the couple’s daughter’s trust fund more than once. An email from April 2019, which was revealed in the court documents, says that she admitted to taking money out of daughter Ava’s account to purchase gifts and keep herself afloat, after spending her own savings on legal fees.

Pacheco wrote: “The money transfers to my bank were to keep me afloat/provide [the minor] Christmas presents/birthday gift bags and essentials for her bday party - after all my savings were spent on lawyers/child custody evaluator.”

Court pleadings show that Pacheco withdrew an additional $10,701.40 to pay her property taxes when she didn’t have the money available eight months later. In addition, the document said that she took out $20,000 on another occasion in 2019 to pay attorney fees. Another $12,000 was also said to have been withdrawn from the trust into her personal checking account.

In total, the court documents say that Pacheco reportedly withdrew roughly $50,000 from her daughter’s trust fund.

The trust fund is set up so that Renner deposits the money intended for educational or medical expenses, as well as extracurricular activities for his seven-year-old daughter. Any amount in child support that is leftover is supposed to go into the trust fund, which Ava will be able to access in 20 years when she turns 27.

At the time of the report in March, Renner was estimated to be paying $30,000 a month to Pacheco in child support before taxes. Pacheco said at the time that she wasn’t getting that much money from Renner and that a large portion of it was going to court bills. She now says she is being "bullied" in this situation.

The couple was first married in 2014, but they separated later that year. That split has become more contentious over time and led to additional court filings and court appearances concerning the well-being of their daughter.

Reference: Wealth Advisor (May 26, 2020) “Jeremy Renner Alleges Ex-Wife Misused Daughter's Trust Fund In New Filing”

What Is a Postnuptial Agreement and How Will It Affect Your Estate Plan?

At some point after you get married, you and your spouse may agree to sign a postnuptial agreement. While you may think that a postnup will only affect your assets in case of divorce, it can affect distribution of your or your spouse’s estate too.

What Is a Postnuptial Agreement?

A postnuptial agreement is a legal contract entered into by married spouses after their marriage is finalized. The contract specifies how each spouse’s property will be treated in case of the couple’s divorce or one spouse’s death. For example, a postnup might state that each spouse agrees to give up the statutory share of the other’s estate that he or she would otherwise automatically inherit. Spouses decide to sign postnuptial agreements (commonly called “postnups”) for several reasons, including asset protection, unequal earning power or wealth among the spouses, and even to save on taxes.

Estate Planning Around a Postnup

Because postnups often contain broad waivers of each spouse’s right to receive property from the other, these agreements can substantially affect estate planning. Even if you sign a will that does leave part of your estate to your spouse, a court might still find that your postnuptial agreement is binding on your estate. As a result, your spouse might not receive any of the assets in your estate at all. Or the postnup might provide him or her only a modest stipend from the assets.

It is very important that people who have postnuptial agreements build their estate plans with the postnup language in mind. For example, your postnup could say that your husband will give up his statutory share and that he agrees that all property you acquired during the marriage will be separate (not community) property. You may still want your husband to inherit part of your assets. In that case, your will needs to reflect the existence of the postnup, and you may even want a trust that benefits your husband. There are many ways to plan around such an agreement, depending on your situation.

Changing Your Postnup

If you re-read your postnup while estate planning and realize that you no longer agree with its terms, you may want to change it. Just like for any other contract, you can make changes to the postnup as long as your spouse agrees and signs the revised contract. Once you make the changes, review your estate plan to ensure that it still matches up with the postnup terms and that it will achieve your wishes for leaving assets to your spouse.

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 a Prenuptial Agreement and How Will It Affect Your Estate Plan?

If you have signed or plan to sign a prenuptial agreement, you may wonder how it will affect your estate plan. Depending on the specific language of your agreement, it could have a major effect on how your estate is distributed.

What Is a Prenuptial Agreement?

“Prenuptial” simply means before marriage. A prenuptial agreement (often called a “prenup”) is a contract between prospective spouses concerning their property and rights relating to the property. Many wealthier people and celebrities sign prenups before marriage because they want to protect their personal assets should the couple divorce or separate. Since about half of all marriages end in divorce, you do not need to be wealthy or famous to want this kind of an agreement. But prenups also can affect estate plans.

Waivers: The Most Important Parts of a Prenup

For estate planning purposes, the most important parts of a prenuptial agreement are the waivers. Waivers indicate the rights that the prospective spouses give up by signing the agreement. In California, two significant waivers are the waiver of community property rights and the waiver of the spouse’s statutory share.

The waiver of community property rights, included in many prenups, states that the spouses will not create any community property when they acquire property during the marriage. Usually, most items that either spouse earns or purchases during the marriage become community property (property of both spouses jointly). When one spouse dies, the other spouse automatically – without the need for probate – inherits all the community property (and also may inherit part or all of the separate property). With a prenup, you can waive the creation of any community property. The surviving spouse subject to a prenup with this waiver would only receive a portion of the separate property automatically if there was no will.

The waiver of the spouse’s statutory share also prevents a surviving spouse from inheriting. A statutory share is the amount that the surviving spouse receives if the deceased spouse disinherits the surviving spouse (intentionally or unintentionally). Depending on the number of children and other relatives, a spouse’s statutory share could be substantial. A waiver in a prenup nullifies the surviving spouse’s ability to receive this inheritance.

Estate Planning Around a Prenup

As a result of the waivers, a prenup can essentially disinherit a spouse or ensure that he or she only receives a small inheritance. A contradictory will or estate plan could cause problems when a spouse’s estate is being distributed – and the prenup might be honored rather than the will. As a result, it is very important to make sure that your prenup and your will (and other estate planning structures) correspond with each other. You may even need to change your prenup with your spouse’s consent.

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.