California Estate Planning Attorney Blog

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" »

Sandra Block has published an article on USA Today, regarding five common misconceptions about last wills. She rebuts the following myths:

• Estate planning is only for rich people
• If I die without a will, my spouse will inherit everything
• Having a simple will avoids probate
• After I create my will or living trust, I'm all set
• I could be held responsible for a deceased parent's debts

If you would agree to one of the aforementioned statements, it is probably a good idea to read her article. Anyway, if you're interested in estate planning in general you may also consult our firm's learning center.

I've stumbled over a funny cartoon on comics.com that is related to this blog's topic. An old lady shows up at the notary, announcing that she is willing to change her last will. The clerk asks for the reason and the lady replies "my cat died". In her old will she had left all of her estate to her cat and not to her husband.

Technically pets can not be specified as proper beneficiary of a last will or a living trust. This is because all pets are legally treated as personal property and not as a legal person. However the right estate plan can ensure that somebody you would like to look after your pet when you die will do it.

Instead of leaving instructions in a will, most people provide for their pet in their living trust (more information about living trusts can be found within the firm's learning centre). This avoids lengthy probate proceedings and ensures that somebody can immediately look after your pet.

A pet's trust specifies the details concerning care and control of your pet, as well as making the necessary funds available to the caretaker. Usually ownership of the pet is transferred to trust along with the necessary funds. The designated caretaker becomes trustee of the trust. Usually such a trust also names a beneficiary, who will inherit the principal of the trust once the animal has died. The California Probate Courts governs the details of a pet's trust in its section 15212.

Continue reading "Leaving Assets to Pets" »

Sue Farley has written a book about the "trust industry" titled "Trust - Are You Kidding? - Pitfalls of the Current Trust System Exposed". Her basic message is "Your money is not safe...if you have it in a trust." The book which is considered essential by some amateur critics on Amazon is a broad criticism of the U.S. trust industry. She addresses questions like "Do you know that no one oversees whether your trustee actually complies with the terms of your trust?" and outlines grievances within the trust business.

As an estate planning attorney in Sacramento I do not condemn this book, because it also criticises lawyers that help people to get their estate planning done. If there are serious cases of malpractice, it is good that somebody is speaking up against it. However, in my opinion there is no reason to generalise as much as Sue Farley does. Her criticism may apply to commercial "trust mills" but there is no reason to condemn the work of a diligent estate planning attorney.

Living trusts are an essential part of the U.S. legal system. Even though one may argue, the whole concept of having living trusts to pass assets to heirs is not the best system to have, it is fact that this system governs today's inheritance law to a large extent. Therefore there is no reason to generally condemn living trusts. The important thing is to navigate smoothly through the thick jungle of living trust's complex legal structure. This is where a diligent estate planning attorney can provide valuable assistance. If you would like to know more about living trusts, you can consult the firm's learning center on our website.

Continue reading "Book Review: Trust Are You Kidding? (Sue Farley)" »

In my last entry I have already outlined life insurance policies as important part of almost everyone's estate plan. Today I'd like to direct your attention to a less widely known impact, that a life insurance policy could have on your overall estate plan. If applied properly, life insurance policies can help to avoid estate taxes.

The life insurance policy is bought for a specially set up irrevocable trust, called Irrevocable Life Insurance Trust (ILIT). Money is regularly transferred to the trust to pay the insurance premiums and the trust also becomes the owner and beneficiary of the life insurance. If the trust and the policy is set up in the right way the insurance proceeds are not considered part of to the taxable estate of the deceased person for tax purposes.

Unlike revocable living trusts, which I already described within the firm's learning center, the ILIT needs a different person as a trustee, who is not "close" to the grantor. Also the individual payments to the trust must be kept below the yearly gift tax exemption in order to avoid tax-liability for the premium payments. Furthermore, in order to be recognized as a gift by the IRS, the beneficiary of the trust must have the choice in between withdrawing the payments or leaving them in the trust in order to pay the life insurance premiums.

The intended receiver of the life insurance proceeds is named as beneficiary of the ILIT. Therefore for example children of the ILIT's grantor can profit from the life insurance proceeds without triggering federal estate taxes. In addition the trust, which is then funded by the life insurance proceeds, can provide liquidity to the deceased's estate. The only thing to do for the trustee is to buy real assets of the estate for cash.

Continue reading "Life Insurance as a Tax Saving Instrument" »

Today I would like to discuss a very common estate planning instrument, known as life insurance. Those policies can constitute an essential part of your individual estate plan.

In contrary to legal instruments like a living trust (which avoids probate) or a durable power of attorney (which enables someone you trust to take care of your financial affairs) a life insurance policy is an instrument that you have to buy from the insurance industry. Principally the policy owner buys the right for a designated beneficiary to receive a payment if someone, specified in the insurance policy dies. In return, the policy owner agrees to pay a certain amount (premium) at regular intervals.

Life insurances are a perfect supplement for almost any family. They can be used to support minor children or a child raising spouse if the main earner of the family passes away unexpectedly. In most cases, especially within young families, there won't be enough cash to support its needs for a long time without income. Therefore only very rich families do not need life insurance.

There is a wide range of different insurance policies. Some stick to the basic concept of an insurance and only cover the death risk in return for a premium. However there are many policies on the marked that mix the risk taking part with financial investments. Then a part of the premium and interests are used for savings to build up a "cash value". The cash value is usually paid out upon the end of the insurance's term. Policies, that only insure the risk of death are generally much cheaper then investing policies.

The death benefit should be high enough to support your family for the time they need the financial support. Often it is flatly advised to buy life insurance that is worth six to ten times of the annual income. But this approach does not fit every individual situation. A good alternative is to look on the time of the prospected need and the current spending habits of the whole family. However if you can't afford the premiums for a respective life insurance you should buy at least as much as can be afforded. Some money is better than no money in a serious crisis.