California Estate Planning Attorney Blog

According to an Article on Forbes.com (see here) a recent survey showed alarming numbers when it comes to estate planning.

Roughly 65 % of 1,022 Adults asked do not have a will, that directs who inherits their assets in the worst case. 71 % lack an advance health care directive (living will), a legal instrument that is designed to direct critical health decisions if someone looses the mental capacity to decide on his own. No numbers were mentioned regarding the existence of a durable power of attorney but it can easily be assumed, that the results would have been similar terrifying.

Conductors of the survey also asked for the reasons, why people would not plan. Many individuals mentioned that estate planning were not their prime focus, especially in midst of recession. And 19 % thought, that estate planning was only important to the rich. These reasons are popular misconceptions of estate planning, which I have already highlighted (among others) in a post last year (see here).

I cannot stress enough that nearly all aspects of estate planning are of paramount importance to most people, even to those who struggle to cope with daily life. Information about estate planning are available for free, e.g. in our firm's learning center. If you're reading this post and you have not yet started your estate plan, it is time to do it now.

Continue reading "65 % of Americans Do Not Have a Will" »

A recent article in the Wallstreet Journal Blog Section covered the possibilities to plan for the future of a pet that outlives its owner (see here).

If you'd like to ensure that your pet receives the proper care after you die you should follow these important steps:

• Appoint a "Pet Guardian" and leave instructions for the caregiver (This is simply a non-enforceable nomination of a trusted person, that you believe will take loving care of your pet). You can use your will or any other document for this.


• Make sure the financial needs of your pets a covered. A already existing living trust may be used for that purpose but need to be adjusted to set aside the necessary funds for your pet. In average a dog costs $1,400 pa and a cat $1,000 pa. Depending on the age of your pet, the trust might require funding for up to 20 years pet care. You should also implement a clause into your trust that governs the use of the pet funds for the case that not all funded money is used. Such a clause should name an alternative beneficiary.


• Make sure that the appropriate legal instruments are also implemented for the case that you become incapacitated. You should draft your durable power of attorney in a way that enables your agent to financially cover the needs of your pet. The agent does not necessarily have to be the nominated caregiver.

If you'd like to learn more about living trusts, which can be used to cover the financial needs of your pet, you will find further information on Rinne Legal's website (see here).

Continue reading "Estate Planning for Pets" »

New research shows that communication with patients who have fallen into 'vegetative state' has become possible. Researchers have used brain scans on patients with devastating brain damage to watch the reactions of the brain when they were asked questions. The scientists were able to distinguish a 'yes' from a 'no' on the picture of an MRI-machine. Those are the basics. If you are interested in the details, I recommend this article in the British Telegraph.

But does this medical breakthrough make living wills (aka advance health care directives) and durable powers of attorneys dispensable? The answer is clear-cut. The new science cannot substitute these very basic elements of estate planning. Both, living will (see here for further information) and durable power of attorney (see here for further information) are legal instruments that are set up for the sad moment a person becomes mentally incapacitated. It allows an agent to act on behalf of the principal or make medical decisions for him because he is no longer able to act or express himself. Despite the breakthrough, it is not clear yet, whether a person in vegetative state can make sound decisions. Furthermore the new technology doesn't enable the patient to look after his financial duties. Therefore the new technology does not substitute the aforementioned legal instruments.

It is thus still highly recommendable to have a durable power of attorney and a living will for the event that you become suddenly and unexpectedly incapacitated. If your estate plan contains the required documents, there is no need to worry, but if not it is time prepare the necessary documents. If you don' t like doing this yourself, ask your local estate planning attorney.

Continue reading "Communication With Coma-Patients - Are Living Wills Now Dispensable?" »

Besides the weird effect on capital gains tax which the unintended estate tax repeal for 2010 had (see my referral to a NYT-article) the estate tax repeal has some other unexpected implications on living trusts.

Some living trusts are set up as a so called "bypass-trusts". Those trusts generally have multiple beneficiaries: the spouse, children and sometimes others which are supposed to inherit the trust property. One essential clause usually states in legalese: I want the amount that will not create any federal estate tax to go to my kids. I want everything else to go to my spouse. Such a clause formerly avoided a maximum in estate tax.

Now without a federal estate tax the basis for such a clause falls apart if one spouse dies in 2010. If read literally, the clause now states that every single asset of the trust will go to the kids (because there is no federal estate tax at all). The spouse would not receive anything!

Naturally if the couple was very wealthy the spouses would have intended otherwise. Before 2010 with such a clause in place, the surviving spouse would have got a significant share of the estate that ensured his or hers financial independency. Now the surviving spouse has every reason to challenge the trust on the basis that it did not reflect the true will of the grantors. In the end (after a long battle in court) a judge would have to decide. Havoc!

Continue reading "Estate Tax Repeal Causes Havoc in Bypass-Trusts" »

Any estate plan should be reassessed and if necessary updated at least once a year. Usually the arrival of the new year is a good time to tackle this little task. If you don't plan a full overhaul of your estate plan, there is generally not very much to do.

1. You should look for your estate planning documents and see if they are still in the place where you left them. There is nothing more painful for your heirs if they know that you have an estate plan but they cannot find the according documents if they need to.

2. Think about the year that passed. Have you acquired any substantial assets? If yes, you should make sure that those assets are transferred to your living trust. If not, those assets could trigger probate even though you have a living trust in place which is supposed to avoid this. For assets of daily use (e.g. an expensive TV, Art, Furniture) it might be necessary to draft a new declaration of assignment to move those newly acquired assets to your living trust. Within the firm's learning center we have outlined the basics how you move different kind of assets into your living trust.

3. Check your insurances. Does a live insurance still cover the amount that would be necessary to support your family or did the requirements raise in the past year? If you need more live insurance contact your insurance provider.

4. Think about your asset distribution in your living trust. Does your living trust still reflect your wishes of how you would like to distribute your wealth when you die? If not, your will or your living trust may have to be amended.

5. What about your chosen trustee? Is he or she still willing to take over the duty of a successor trustee? If you have any doubt about it, you should talk to the nominated trustee and if necessary choose a new one.

6. Are there any other concerns regarding your estate plan? You will have more peace of mind during the year if you find a solution for your concerns early on. If you don't know the answer to your special situation, speak to a lawyer. He or she will be able to solve your problems and make sure that your loved ones are save if something bad happens to you.

Continue reading "A New Year - Time to Update Your Estate Plan" »

On January 8th the reputable New York Times featured an article of Paul Sullivan about the 2010 repeal of the federal estate tax (see the article here).

I have already discussed the issue within another blog entry (see here), but Mr. Sullivan's article provides some additional detail to the matter. The article especially sheds some light on the estate tax repeal's impact on capital gains tax. Mr. Sullivan is concerned that changed property evaluation standards could finally lead to some tax dues despite the repeal. If you think, that you inherit a property in 2010, which was held for a long time and increased in value over time, the article is well worth reading.

Continue reading "New York Times Coverage of Estate Tax Dilemma" »

Some may wonder if it is possible to direct their own Interment. The answer is yes, legally binding arrangements regarding the choice in between burial and cremation and the kind of ceremony that is to be conducted can be made either in a last will, in an advance health care directive or within any other document as long as it is in writing.

While many leave some last instructions to their survivors only a few know, that those instructions are only legally binding under the California Health and Safety Code if two conditions are met:

• First the directions must clearly, unambiguously and completely state the final wishes of the decedent in sufficient detail and


• second the decedent must have provided the financial means to cover the selected disposition of his or hers remains and the ceremony. The finances can be provided by either trusts, insurance, commitments by others or by any other effective and binding means. (California Health and Safety Code Sec. 7100.1.)

Especially the second condition requires that the whole estate plan takes the interment instructions into account. It is not enough to simply state that the final ceremony is to be held in a certain way as long as the costs are not covered. There are some options to cover the costs. One could include respective arrangements within his living trust. Alternatively there are special trusts that cover funerals - be warned: the costs for those trusts may be very high (see the respective blog entry from last year).

However the costs are taken care of, it is important that you do take care of it, if you want your final instructions to be binding.

Continue reading "Binding Funeral Instructions in California" »

Finally the new year has arrived and despite several predictions that congress would provide some clarity on the issue of federal estate taxes, it didn't revise the law. Also congress has passed a bill to reinstate the estate tax in 2010, it failed to pass the senate. The lawgiver's inactiveness has produced a situation of uncertainty in the estate planning community.

Due to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) there are no more estate taxes for estates that are bequeathed in 2010 under current law. However many analysts predict a retroactive action of the lawgiver. With a retroactive bill the legislative could enact a law which has an effective date that precedes the actual passage date.

The exact contents of such a bill and it's implications on taxation of estates can't be foreseen at this time. Nevertheless it is very likely that the current structure of estate taxation would not be changed. If the version proposed by the House of Representatives prevails, 2010 might bring a 45 % estate tax rate and a $3.5 million personal exclusion. If the lawgiver remains inactive through 2010 estate taxes will return to the year 2000 level in 2011. Back then estate taxes were due for all estates over $1 million and taxed up to 55 %.

From an estate planning perspective it would be unwise to change an existing estate plan to match a still uncertain tax situation. It is rather advisable to stick with the existing plan. If there won't be any estate taxes in 2010 and an estate is passed to the heirs the heirs can only profit from the repeal of the tax. One should keep an eye open (or read this blog) for upcoming changes in law. If the lawgiver has taken action it may be time to revise your estate plan.

Continue reading "Welcome to 2010 - Still No News on Estate Taxes" »

I found a very interesting statement on a website that is targeting sales agents. The website http://insurancenewsnet.com is promoting a webinar, teaching sales agents how to double their income by selling funeral trusts. The stunning fact in the article is that sales agents get as much as up to 16% commission for the "sale" of "Irrevocable Funeral Trusts". In my opinion, that is a lot of money for an agent who has nothing else to do but to sell a ready-made-legal-document combined with a life insurance.

Funeral Trusts are an legal instrument designed to shield your final expenses from nursing home-claims. In 2007 Chuck Jaffe of Marketwatch has criticized the sale of those funeral trusts in an detailed article that also explains what funeral trusts are and why they can be useful in some cases. He also stresses that from the viewpoint of a financial planner those trusts are commonly underperforming. I don't want to repeat Chuck here. So if you need further information on the issue of funeral trusts read the article.

Irrevocable Funeral Trusts can also be set up by your trusted estate planning attorney. That way you could choose the trustee yourself and you wouldn't have to trust an insurance company (that actually pays up to 16% commission out of your last expenses!) to administer your trust. A lawyer would also perform a legal check and explain other options to you. Therefore sales-persons, who are truly experts in making their product seem perfect for you should be treated with care. Think twice and if in doubt, consult a lawyer, who is the professional with regard to legal instruments like Funeral Trusts.

In a tough economy it may become necessary for some parents to lend money to their children. Liza Horvath has recently published an article on http://www.montereyherald.com that deals with family loans and estate planning. With this article, I would like to add some thoughts from an estate planner's point of view regarding the intertwined issues of estate planning and family loans.

First of all it is highly recommended to keep loan agreements in between family members in writing. That is especially important - even though you trust each other - because if something happens to one of the parties a third party "professional" might have to figure out, what exactly the parties agreed on. Even more important, if you use a promissory note, both parties will know what they've agreed on (memory tends to fade over time). The written document will also allow to formally write off the loan for tax purpose if it is not repaid as initially intended.

The document should outline all the details of the loan, starting with the loan value and the repayment details (repayment schedule). The document should also contain a clause, the deals with the solution of problems between the parties that might arise in the future (arbitration clause). The document should be written clearly and unambiguously in order to avoid later disputes. If you don't feel comfortable with perfectly drafting such a document it is often a good idea to ask a lawyer to draft or at least to revise your document.

From an estate planning perspective it is also important to consider the loan with respect to your general estate plan. If you have for example a living trust that leaves all off the parent's estate to more than one child in equal shares, the prior loan to one child should be mentioned in the trust document to avoid later disputes that might end up court. You could for example regard the loan as irrelevant or alternatively deduct it from the debtor's share as far as it is not repaid upon the death of the grantor. The decision is up to the grantor. Either way, the living trust document should be updated. If you don't feel comfortable to update your living trust document yourself (see our learning center for living trust amendments), you should ask an estate planning attorney to do so.

Continue reading "Estate Planning and Family Loans" »

Today's entry completes the article about legal guardianship that I have begun last Thursday (see here).

The guardian is only loosely supervised by the probate court, so the guardian should be chosen wisely. The wish for a specific guardian can be contained within the last will or within a separate letter. The legal appointment of a guardian is done by a judge of the probate court. Technically the judge is not bound by the written choice of the parents, but in almost all cases a written choice of the deceased parents is honored. Judges give people who are expressly nominated priority over anyone else.

The ideal guardian for your kids should be the person who has the most advantages compared to everyone else. Most people have to compromise though, because perfect guardians are very rare. A perfect guardian should have good parenting skills like patience and a sense for humor. Money is also an issue if you want your children to be raised in a stable environment. Another major advantage is if the virtual guardian lives nearby. That way your children don't have to move far from their friends if the guardianship should ever become real. Finally it is usually good if a prospective guardian lives a healthy lifestyle and values education. If a guardian a is chosen who fulfills some of these criteria, a judge shouldn't object the nomination of the guardian.

When the nominated guardian is needed, the nomination procedure at the probate court needs to be filed. You do not generally have to have a lawyer. But, it takes quite a bit of time and energy to fill out the court forms, because the forms and rules for notice are complicated. Most people make mistakes that can lengthen the procedure. A family or estate planning lawyer can help you to present your case to the court, especially if one or both parents object to the guardianship. It is also a good idea to consult a attorney if the child has property with a lot of value, you live out-of-state or the child has special needs.

Continue reading "About Guardianship (Part II)" »

Estate Planning is not only about financial matters. Sure, setting up a living trust to avoid costly probate proceedings is important and should not be neglected. I have already stressed that on our website. If you need advice in how to set up a living trust, you should read the firm's learning center first.

Estate planning is also about practical things of daily life. Especially young families with minor children will have to incorporate measures into their estate plan to ensure that one is taking care of the children if both parents die or become incapacitated. The legal instrument to fulfill this purpose is the nomination of a legal guardian.

Technically there are two types of legal Guardianship: First guardianship of the person which means the guardian has custody of the child and second guardianship of the estate which means the guardian manages the child's income, money or other property until the child turns 18. In most cases one guardian serves for both purposes.

A legal guardian has the same right and the obligation to care for a child as the child's parents. Until the child turns 18, the guardian is responsible to provide all the child's needs, like food, education or medical care. Also the legal guardian is responsible for any legal relevant misbehavior of the child after the parents have passed away.

The article will be continued on Saturday, Dec 5.

In the firm's learning center I have already outlined the importance of including all trust assets in an attached schedule to the living trust (here). But what is the legal consequence of not including certain assets in the trust schedule?

First there is no consequence for items that have a document of title, like e.g. a deed for real estate, which states that the property is held in the name of the trust. The trust "owns" the respective property and it will be distributed according to the terms of the trust upon the death of the grantor without probate.

Problems may arise though with property that is not expressly transferred to the living trust. Such an item may be subject to the ordinary probate proceedings which are long and costly.

However if an outside item (an item that is not formally transferred to the living trust) is included in the property schedule there might be another way out of the ordinary probate proceedings. Under some conditions, it may be possible to obtain a court judgment which determines that property held in the decedent's individual name is actually trust property. Under the so called Heggstad Petition (named after a 1993 California case Estate of Heggstad, 16 CA4th 943, 20 CR2d 433), a successor trustee may claim that property was intended to be transferred to the trust. The usual basis for such a petition is that the property was listed in an annex to the trust. If the petition is granted, the court issues an order declaring that the respective property is in fact trust property. The court order then transfers the respective property to the trustee.

The Heggstad Petition avoids a full probate of the assets that were not transferred to the trust by changing their titles and is therefore more cost-efficient. However the best way to avoid probate is to clearly transfer the property to the trust and naming it in the property schedule.

Continue reading "Heggstad Petition and Probate Proceedings" »

Gift taxes are an important thing to consider, when it comes to estate planning. This tax is as important as the infamous estate tax. In fact the gift tax was set up by the government in order to prevent workarounds regarding estate taxes. If there was no gift tax, but an estate tax, everybody would simply transfer her or his estate to their heirs or living trusts before they died. Then no estate tax would be due in the event of death.

Because there is gift tax which taxes gifts equally to bequests, the pre-death transfer does generally not help to save taxes. However the aforementioned loophole is still open to a certain extent, because there is the annual gift tax exemption. In 2009 the gift tax exemption threshold is $13,000, meaning that all gifts made to one person are not taxable if their combined value does not exceed $13,000. If there is more than one donee, the annual exclusion applies to gifts to each of them. Staying under this number means that no gift tax is due and no gift tax return has to be filed.

As Christmas comes closer, many will think about Christmas checks for their children and grandchildren. An important regulation of the IRS is that the check is considered to be a gift in the year in which the check was cashed. Therefore if you use checks to make gifts, you should make sure, the check is cashed within the year in which you intent to use the according gift tax exemption.

Further information can be found on the website of the Internal Revenue Service.

Generally speaking undue influence is a legal doctrine that involves one person taking advantage of a position of power over another person. The law usually tries to prevent undue influence and therefore often renders legal acts as invalid if made under undue influence.

This is especially important in probate proceedings. Undue Influence is one of the most common grounds to formally contest of a will in court. A good example can be seen in the case of Alfred Glassell's. The case and the according court proceedings has been described by Lou Ann Anderson on http://www.examiner.com. The last will of Alfred Glassell, in which he left large parts of his estate to the Museum of Fine Arts in Houston has been challenged by his daughter, Curry Glassell. She claimed that the museums law firm, Vinson & Elkins used undue influence to convince her father to change his last will in favor of the museum. In the end the will was uphold by the Jury.

This case shows, how complex and risky probate procedures can be. The outcome of a probate procedure can never be predicted hundred percent. Therefore it is usually a good idea to avoid probate procedures at all. The most common tool for this purpose is a living trust. Living trusts are generally harder to challenge under the doctrine of undue influence due to their persistent nature. You'll find a lot of information about living trusts on the firm's website.

Continue reading "Undue Influence in Probate Proceedings" »