ESTATE PLANNING AND PROBATE
Proper Estate Planning will allow you to plan for the future. It is a way for you to make decisions about yourself and your assets instead of leaving those decisions to someone else. A proper estate plan should ensure that (1) you make your own decisions concerning your future; (2) you make the decision as to how your property is to be distributed and (3) you minimize or eliminate estate taxes, court interference and costs and expenses of probate. A proper estate plan will:
- Ensure that you are the one who will provide instructions for your care in the event you become incapacitated or disabled;
- Ensure that you provide security and protection for your loved ones;
- Enable you to control and manage your assets during your lifetime;
- Enable you to provide explicit instructions as to how your assets are to be utilized and distributed after your death;
- Enable you to maintain your financial affairs private and confidential after your death;
- Enable you to avoid probate and its associated costs;
- Enable you to take advantage of minimizing any estate tax liability that you may have;
- Become effective even if you move to or own property in another state.
“I would highly recommend Daneshvar Law to anyone needing Estate Planning services. Ms. Daneshvar was extremely patient as my husband and I had numerous questions during the process and Mr. Daneshvar promptly and patiently answered each one. She made sure that we understood the intent of each provision and the importance of each decision. The best part of all was that she also worked with our busy schedule.” -Sharon S.
Many people are mistaken that estate planning is only applicable to wealthy individuals. If you do not properly plan your estate, you will be allowing future decisions to be made on your behalf by a court nominated individual if you become incapacitated or disabled. This would include health care decisions and decisions concerning the management of your assets. Moreover, California law will determine how and to whom your property and assets will be distributed. This process is known as “intestate succession”. These are all decisions that should and easily could be made by you.
A proper estate plan will allow you to maintain the affairs and settlement of your estate privately and confidentially. The death of a loved one leaves family grieving and distressed. Family should not have to undergo the added burden of having to go through probate. Probate will diminish your estate and tie your assets up. Your loved ones will have the misfortune of seeing a lifetime of accumulated assets diminished by the costs and expenses of probate.
For individuals with larger estates, proper estate planning also allows for the minimization of estate tax liability and wealth preservation. This can be accomplished by an experienced and qualified estate planning attorney knowledgeable about estate taxes.
By having a properly drafted estate plan, you should be able to maintain control of your assets, plan for the possibility of your own disability, determine whom you want to receive your assets, how you want them to receive it and when, avoid the agonizing experience of probate together with the associated costs, determine who you want to manage your assets and make important health care decisions on your behalf, settle and distribute your assets privately, efficiently and quickly and minimize your estate tax liability. The relevant cost of having an estate plan is small when compared to the alternative. Although death or disability is not something that we like to think about, the grief experienced by family members when a loved one passes makes it tough enough, but often family must deal with other changes. Relationships often change, such as when a surviving spouse has less interaction and contact with the deceased spouse’s children from a prior marriage. Confusion may result between family members, such as how to handle the deceased’s assets and final wishes. This can also strain once solid relationships.
The difficulties experienced by family members are not limited to death. When a loved one becomes incapacitated or disabled, family members are often left making difficult decisions. Such situations leave family members searching for answers to these decisions without guidance from the disabled or incapacitated loved one. These decisions are made more easily when the incapacitated person has left instructions as to how these decisions ought to be made.
Where both parents die leaving minor children and no estate plan, the children’s future, care and custody are left to the courts. The courts can appoint a legal guardian, who may not be in the best interests of the children or which would have been favored by the parents. This could be easily rectified with a proper estate plan whereby the parents nominate a guardian to care for and maintain custody over the children. The death of both parents is a traumatic experience for minor children, making it preferable that the person nominated to act as a guardian be one acceptable by the parents.
Children of divorced parents require further consideration. Usually, when one parent dies, the surviving spouse has full custody and control of the assets. A deceased parent desiring to assure that his or her children from a prior marriage are adequately provided for may wish to consider utilizing the benefits of a qualified terminable interest property (QTIP) trust to accomplish this. For outright gifts to a minor child, the deceased spouse may wish to consider nominating someone other than the surviving spouse to manage and control the gift if the spouses do not agree on financial matters. Also, if the deceased parent desires that the custody of a child from a prior marriage should be with someone other than the surviving spouse, a proper estate plan is essential.
The Federal Estate Tax is a transfer tax that an estate may have to pay before it can be distributed to its heirs or beneficiaries. The Estate Tax must be paid within nine months from the date of death of a deceased person. In June 2001, Congress enacted the Economic Growth and Tax Reconciliation Act of 2001, which amended much of the prior law governing Estate Taxes. With the changes, the current maximum estate tax rate is 50%. The taxes must be paid in cash before the estate can be distributed to heirs or beneficiaries. Many estates have been forced to liquidate assets in order to raise the cash needed to pay estate taxes.
The Estate Tax is computed on almost everything owned by an individual at death. This includes one’s home, business interests, bank accounts, investments, personal property, IRAs, retirement plans and death benefits from life insurance policies payable to or owned by the estate. These items are reduced by one’s debts at death, expenses of administration of the estate (such as executor, legal, and accounting fees), certain medical expenses, funeral expenses, marital and charitable deductions and certain losses. The value of the estate after deductions is subject to the Estate Tax to the extent it exceeds the exemption amount established by Congress at the time of death. A lifetime exemption against estate taxes is allowed to each individual. This means that there is no Estate Tax on the first $1,000,000 in assets owned at death. In 2002, the exemption amount is $1,000,000 per person. The amount gradually increases to a peak of $3,500,000 per person in 2009. In 2010, the Estate Tax is repealed. There is uncertainty as to what will transpire beyond 2010, because Congress has the authority to reenact the Estate Tax at that time. The uncertainty has created a challenge for estate planning attorneys nationwide, which must now plan for the possibility that the Estate Tax will be reenacted. What is certain is that individuals with previously prepared living trusts should now have their trusts reviewed by an experienced estate planning attorney to consider the impact of the Economic Growth and Tax Reconciliation Act of 2001. Contrary to what most had proclaimed, the Act has not eliminated consideration of Estate Taxes in planning for wealth preservation.
When considering whether you would be subjected to Estate Taxes, keep in mind that assets appreciate over time, inflation lessens the impact of the lifetime exemption and assets accumulate over a lifetime. The lifetime exemption represents the value of all assets owned as of the date of death. Many people are surprised to find the total value of their estate easily exceeds the $1,000,000 exemption.
The Estate Tax is a separate expense from income taxes and probate expenses, which also reduce the value of the estate passing to loved ones. A married couple can reduce or eliminate Estate Taxes through use of a Revocable Living Trust. The Revocable Living Trust, discussed below, allows a married couple to take full advantage of the lifetime exemptions for both husband and wife. In 2002, a Revocable Living Trust can shield $2,000,000 in assets from the Estate Tax. For larger estates, planning with use of more sophisticated estate-planning tools can allow individuals to reduce the size of their estates to further reduce or eliminate the Estate Tax.
A Will allows you to name the individuals, trusts or charitable organizations to receive your assets when you pass away, to nominate an executor to administer your estate in probate, to determine if such executor is to be bonded or not, to nominate a guardian for your minor children, and (in the case of a living will) to furnish instructions concerning extended medical treatment that should or should not be withheld or provided if you are unable to communicate. Having a Will alone will not allow you to avoid probate. In fact, having a Will alone will assure that your assets pass through probate and your financial affairs and estate made public. In addition, if you move to another state and die or if you own property in another state, a Will may not be effective. A Will is also easier to contest than a revocable living trust. Therefore, having a Will alone is not good and proper estate planning. On the other hand, a properly drafted Will that works in conjunction with other instruments could allow you to achieve the objectives of a good estate plan, as outlined above.
A revocable living trust is a legal document that allows you to direct how you want your assets to be distributed when you die while allowing you to maintain control of those assets during your lifetime. You can avoid probate, settle your estate privately and more quickly, reduce or eliminate estate taxes, allow assets to remain in trust until you want beneficiaries to inherit them, allow management of gifts to minors without the need for court intervention, protect dependents with special needs, and can easily be changed anytime before your death. In addition, a revocable living trust is more difficult to contest.
A revocable living trust works by having you transfer the title of all of your assets from yourself as an individual, to yourself as trustee of the trust. As the trustee, you manage the assets of the trust during your lifetime for the benefit of the beneficiary, which is you. This allows you to maintain complete control over your assets. Upon your death, a successor trustee that you appoint takes over the management of the assets for the benefit of the beneficiaries that you named in your trust. Your assets avoid Probate because they are no longer titled in your name as an individual, but are titled in the name of the trust. Upon your death, the successor trustee that you named simply transfers your assets directly to your beneficiaries without the need for court or attorney's fees or costs. Thus, a revocable living trust lets you maintain control over your assets and ensures that your assets are distributed to whom you designate without delay or unnecessary costs.
Besides the revocable living trust, many other types of trusts are in use: living irrevocable trusts, family trusts, charitable remainder trusts, a-b trusts, a-b-c trusts, investment trusts, qualified personal residence trusts, life insurance trusts, special needs trusts, etc. Each of these trusts can be used in wealth preservation in order to accomplish the goals of a properly drafted estate plan. The revocable living trust is one of the most popular and important estate planning documents in use today.
Special Needs Trusts
One particular service that we offer that not many estate planning attorneys offer is that of drafting Special Needs Trusts. The primary purpose of a third party special needs trust is to preserve government benefits for disabled beneficiaries. Usually the benefits involved are from government programs that have eligibility requirements. Receipt of an inheritance will disqualify the beneficiary for future government benefits.
Two of the programs that are based on financial need are Supplemental Security Income (SSI) and Medi-Cal, which is the California version of the Medicaid program. Housing subsidies, also called the Section 8 program, In Home Support Services, food stamps, and utility payment assistance are also based on financial need. However, Social Security and Medicare are not based on financial need, but are instead based on the applicant's age and earnings record.
Suppose a couple has three adult children who will divide a $600,000 estate after both parents have died. One of the children is receiving SSI benefits due to a mental disability and has difficulties with money. Because the child is receiving SSI benefits, the child is also eligible for Medi-Cal benefits for his continuing medical and mental problems. This child is not given large amounts of money by his family because he is likely to waste anything he is given. If the couple sets up a traditional distribution plan in their wills or trust that gives everything to their children equally, their disabled child is likely to have major financial problems. If the child outlives his parents, he will inherit approximately $200,000, which will increase his assets far above the limits set by the SSI program and by the Medi-Cal program. The child will be disqualified from those programs and will receive no further benefits. After spending his inheritance, perhaps within just a few months, the child will have no assets, and great difficulty in returning to the SSI and Medi-Cal programs.
Rather than leaving assets directly to the disabled adult child, the parents could establish a Third Party Special Needs Trust in their living trust or wills. This trust would not be under the control of the child, and the child would not be able to revoke it and use the assets for his own purposes. The trust would have an independent trustee and would continue for the lifetime of the child. (This is known as a "Third Party Special Needs Trust").
A Third Party Special Needs Trust can own various assets that are used by the child, but due to the ownership by the trust, the assets are not counted as being owned by the child. The trust could also pay for services required by the beneficiary, such as telephone, education, car repairs, etc., without affecting the beneficiary's eligibility for the government programs. The trustee, however, would not make cash payments to the child because the payments would be counted as income for the beneficiary and could result in reduction or loss of benefits. The trust could also own a home for the child, thereby reducing the child's expenses for rent, although there may be some reduction in SSI benefits as a result.
The Third-Party Special Needs Trust has no obligation to notify the state or pay back Medi-Cal payments after the beneficiary's death because the beneficiary did not own the assets. This type of trust prevents the beneficiary from controlling the assets, but also maintains a means of helping the beneficiary with the assets held by the trust. (However, when a Litigation Special Needs Trust is used, the state must be notified when the beneficiary dies and Medi-Cal payments may have to be repaid to the state from the Litigation Special Needs Trust.)
Life Insurance Trusts
The purpose of a life insurance trust is to avoid federal estate taxes on life insurance proceeds owned or controlled by the decedent. Anyone who buys their own life insurance, or has it provided by their employer, will usually have the face value of the insurance included in their estate for federal estate tax purposes.
If the insurance is not owned by the decedent or by his or her spouse, the insurance will not be considered part of the estate for estate tax purposes. This can be accomplished by setting up an irrevocable life insurance trust whose trustee buys the insurance and pays the premiums for the insurance.
The trustor sets up the trust and names a trustee, who will buy the insurance for the trust, using funds contributed to the trust by the trustor. After the trustor's death, the proceeds of the insurance are paid to the life insurance trust, and then distributed to the beneficiaries of the trust, who often are the trustor's children. If the trust has been administered properly, the proceeds of the insurance will be distributed free of federal estate taxes to the beneficiaries.
California Pet Trusts
The purpose of a pet trust is to provide funds to pay for the pet's care after the death of the trustor.
The trust can provide that a trust will be established for the care of the pet, and a specified amount of money will be used by the trustee for the care, feeding, and health care of the pet for the remainder of its life. The trust for the pet can be provided either through a will or through a living trust. California Probate Code section 15212 was revised in 2009 and authorizes trusts for pets.
Another approach to lifetime care for pets would be to give the pet to a friend, and also give the friend a cash bequest. This would allow the trust to be closed prior to the death of the pet, but also has a risk because the friend would not be legally obligated to pay for the pet's care.
OTHER ESTATE PLANNING TOOLS
Qualified Terminal Interest Property
For clients looking to eliminate or minimize gift or estate taxes, we provide simple estate tax planning and asset protection strategies, utilizing credit shelter trusts and qualified terminal interest property (QTIP) trusts, to sophisticated estate and gift tax savings and asset protection planning, including the use of family limited liability companies, family limited partnerships, charitable lead and charitable remainder trusts, buy-sell agreements, irrevocable life insurance trusts, qualified personal residence trusts, grantor retained annuity trusts, qualified sub-S trusts and qualified domestic trusts (QDOT), among others.
Advanced Health Care Directive
The Advance Health Care Directive can be used to appoint a family member or friend to make health care decisions for you if you are physically or mentally unable to make those decisions yourself. Similar documents are also called Durable Powers of Attorney for Health Care. This document is more comprehensive than a living will or a directive to physicians.
The directive appoints an agent (and backup agents) who will carry out your wishes for health care. The directive also describes how much, or how little, medical care you want. For example, the directive might include details about use of pain-relieving drugs, when treatment should be halted, and whether nutrition and hydration should be provided to the patient. The agent's authority to take action is triggered only by a determination that the patient lacks mental capacity. Lack of capacity is determined by the patient's primary physician and by the agent.
Usually the directive provides only general guidelines to an agent regarding the type of medical care that will be provided. However, the directive can also be very specific about "pulling the plug" and stopping life support, the type of medications and drugs that will be provided, and many other decisions. The directive can also specify whether food and water should be given to the patient, and whether pain relief should be provided.
Yes, and they do not need to be amended unless you would like to list new agents, or you want to change other details regarding the type of health care that will be provided. The intent of the new Health Care Decisions Law is not to invalidate these documents, but to clarify the law and expand the use of the directives.
A conservatorship is established after a judge determines that a person (called the “conservatee”) can no longer oversee their finances or are unable to take care of themselves. The judge will then appoint another person or an organization (called the “conservator”) to handle the conservatee’s care or finances, or both. There are two types of conservatorships: 1) of the person; and 2) of the estate.
A conservator of the person arranges for the conservatee’s care and protection, decides where the conservatee will live and make decisions regarding the conservatee’s health care, food, clothing, housekeeping, transportation and recreation. A conservator of the estate is in charge of handling the conservatee’s finances. The conservator of the estate takes an inventory of all of the conservatee’s assets, ensures that the conservatee’s bills are paid, taxes are filed and paid, makes a plan to make certain the conservatee’s financial needs are met, invests assets, and maintains financial records. It is permissible and often common for the conservator of the estate to be the same individual or organization as the conservator of the person.
Conservatorships can be limited or permanent. A temporary conservatorship may be appropriate for a limited period of time, usually 30 - 90 days to handle a temporary or emergency situation. As a example, an individual may develop a mental or physical condition which renders him unable to take care of himself at home and is in an unsafe environment. A temporary conservator may be appointed to make arrangements for caregivers, in home health care, or movement to a care facility. If the conservatee recovers sufficiently, the temporary conservatorship can be terminated or on the other hand, a permanent conservator may have to be appointed.
It is a common misconception that the conservatee loses all rights upon the court appointing a conservatorship over the conservatee. The conservatee actually retains the following rights:
- To make or change their will or estate plan (unless the judge grants this right to your conservator)
- Be represented by a lawyer
- Receive notice of all hearings related to the conservatorship and attend such hearings
- Get married
- Receive mail
- Control their own spending money (if the judge allows for an allowance)
- Ask the judge to change conservators
- Ask the judge to end the conservatorship
- Vote (unless the judge determines they are unable to do so)
- Make their own health-care decisions (unless the judge determines they are not able to do so)
The first step in establishing a conservatorship involves filing a Petition for Conservatorship. A Petition for Conservatorship can be filed by a friend or relative, professional conservator, nonprofit agency, or public official. The proposed Conservator must be bondable, meaning that this person or organization should be trustworthy such that a surety company is willing to vouch for their behavior. Throughout the entire process of conservatorship for an individual, the conservator needs to have an attorney represent them.
California Probate Code Section 1801(a) stipulates that it must be demonstrated that the individual who would be the conservatee is no longer able to care for themselves, specifically decision making that involves food, clothing, residence, and maintaining their own physical and mental health.
Furthermore, California Probate Code Section 1801(b) declares that it must be demonstrated that the proposed conservatee is no longer able to oversee her or his finances and is at risk of falling prey to those willing to defraud or otherwise negatively influence him or her.
The person or entity filing the petition for conservatorship must also state alternative methods for achieving the equivalent of a conservatorship and why these other methods do not measure up or are otherwise unsuitable. Alternate remedies include assistance of some sort accepted voluntarily by the individual, other legal remedies such as limited, special, or general power of attorney, creation of a trust, or drawing up of an advance health care directive.
Once the petition is filed with the court, the court will appoint a court investigator to interview the proposed conservatee and report the investigator’s findings back to the court. The court will then set a hearing on the petition where the judge will determine whether or not to grant the petition for conservatorship and if a conservatorship is warranted, what powers to grant to the conservator.
A conservator of the estate must file an Inventory and Appraisal within 90 days of becoming conservator and an annual accounting one year after becoming conservator, then every two years thereafter.
A conservatorship terminates on the death of the conservatee, when a judge terminates it because it is no longer needed, or if a judge appoints a different conservator. If the conservatorship is being terminated because of death, the conservator will pay any expenses of the conservatee’s last illness and is responsible for the preservation of the conservatee’s estate until it is delivered to the personal representative of the estate or otherwise lawfully distributed.