California Estate Planning Attorney Blog

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" »