Estate Planning Archives - Page 16 of 21 - Lonich Patton Ehrlich Policastri

When it Might be Appropriate to Have Your Parent Conserved

February 13, 2012/in Estate Planning, Probate /by Michael Lonich

Your parents have always been put together and independent. However, as time passes and you notice them becoming forgetful or unable to handle their day-to-day affairs, you are unsure of how to proceed as their mental states begin to deteriorate. Should they be conserved?

Generally, the legal definition of capacity is the mental ability to adequately function. In California, the Probate Code allows a court to appoint a conservator of the person for a person who is unable to provide properly for his or her personal needs for physical health, food, clothing, or shelter; a conservator of the estate for a person who is substantially unable to manage his or her own financial resources or resist fraud or undue influence; or a conservator of the person and estate for a person described in both of the previous categories.

If a conservator is appointed, he will be responsible for managing your parent’s affairs. The conservator does not have to be a family member, although it often is. Once appointed, the conservator will owe a duty of care to your parent and will be held accountable by the court.

There are other options, however, if conservatorship is too extreme. Sometimes, elderly parents realize they need assistance and ask for it. In this scenario, families can avoid the expense and emotional turmoil of having a parent conserved and family members can assist parents with their finances or hire a professional. Other options include creating a durable power of attorney for property or a living trust. These documents generally appoint an agent or trustee to manage your parent’s financial affairs.

If you are interested in learning more about ensuring your parents are able to manage their day-to-day lives as they grow older, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Partnering Your Prenups and Estate Plans

February 9, 2012/in Estate Planning, Family Law /by Michael Lonich

Premarital, or prenuptial, agreements are usually associated with pre-marriage planning and divorce. However, they also provide several benefits for estate planning. Premarital agreements can protect one spouse from liability for the other spouse’s separate debts and help to implement other estate planning strategies. When premarital agreements and estate plans are considered in concert, couples can maximize financial planning and estate planning goals and avoid potentially triggering unintended tax consequences or inconsistent estate planning.

In California, a community property state, a surviving spouse has a 50% interest in all community property. This right supersedes the terms of a will but may be waived in a premarital agreement, which does not necessarily equate with disinheritance. Waiving community property rights allows spouses to specify the manner in which their assets will be distributed and helps to ensure that estate plans will be carried out as intended. This may be helpful, for example, in a family business setting. If one spouse runs a family business with his or her children, a waiver of community property rights will allow the business to pass more easily to the children without the other spouse acquiring an interest in the business, through divorce or inheritance.

There are several other scenarios in which a premarital agreement may affect an estate plan. Premarital transfers may trigger income and gift taxes; estate tax exemption opportunities for surviving spouses may be missed; and premarital agreements may not comport with estate plans for a family home. Premarital agreements often provide for the disposition of the family home or give the surviving spouse a right to continue living there. However, these provisions in a premarital agreement should be drafted such that they will not impede an estate plan’s ability to execute home-related strategies such as transferring the home to a qualified personal residence trust.

If you are interested in learning more about premarital agreements and estate plans, please contact the experienced family law and estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Maximizing Retirement: Where a Divorce Might Benefit You

January 30, 2012/in Estate Planning, Family Law /by Michael Lonich

If you’re elderly and divorced, you might be getting shorted on Social Security payments by collecting lower benefits than you might be eligible for, based on the earnings history of a former spouse. (See Wall Street Journal Article) A person can collect SS benefits based on (1) his or her own earnings, (2) fifty-percent of her spouse or former spouse’s benefit, if it greater than his or her own, or (3) one-hundred-percent if he is deceased. Divorced spouses must have been married ten years or longer and the person seeking a former spouse’s higher benefit must currently be unmarried, unless she remarried after age 60, in order to receive larger monthly benefits.

The Wall Street Journal provided this example:

Let’s say your mother was married in the 1950s or 1960s for at least a decade. Perhaps she was out of the work force raising children and subsequently worked at low-paying jobs, so her benefit might be, say, $800 a month.

By contrast, her former husband—with more years in the work force and higher wages—might be eligible for a monthly benefit of $2,000. (Social Security benefits currently max out at $2,366 a month.)

Your mother might not realize she can collect a total of $1,000 a month if her former spouse is alive, and $2,000 a month if he isn’t. If the Social Security Administration determines she is eligible for higher benefits, she also will receive retroactive amounts going back six months. For the woman in the example above, that would be a lump sum of either $1,200 (six times $200) or $7,200 (six times $1,200).

The fact that the ex-husband might have remarried does not affect what his current spouse will receive nor does it require any involvement with the former spouse. The Social Security Administration should have former spouse earnings history, whether alive or not, and make it determination based on those records.

If you are interested in learning more about divorce or preparing for your retirement, please contact the experienced family law and estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Navigating Long-Term Care Insurance Policies

January 20, 2012/1 Comment/in Estate Planning /by Michael Lonich

Long-term care (LTC) services assist an adult with day-to-day living to help them remain as independent as possible. These services may become necessary at any age: an older adult may need LTC services as daily life becomes increasingly difficult; a younger person might need assistance following a disabling event or accident; and anyone may need LTC services as a chronic illness progresses or during a period of rehabilitation. Most people, however, do not start thinking about long-term care until the services are needed.

LTC service costs are not covered by medical insurance or Medi-Care (designed primarily to provide access to a basic level of healthcare) and, without proper planning, can be debilitating for a family’s funds and estate plans. LTC insurance, for those who can afford it, provides a method of payment or reimbursement for services. Depending on the policy and coverage selected, LTC insurance can cover LTC in your own home, adult day care centers, residential care facilities, and nursing homes. However, navigating the plans and options available can be a challenge for most people.

There are several online resources that can assist in the consideration of long-term care insurance. The Wall Street Journal created a checklist to assist in the evaluation of a policy’s features. This tool can be used to compare policies before making a final decision on different options. MetLife, whose LTC insurance is not currently available in California, created an educational guide that defines terminology generally used in the industry, presents basic issues, and provides answers to some frequently asked questions.

Without LTC insurance, self-insurance (setting aside enough money to pay privately for potential future LTC services) becomes exponentially more important. If you are interested in learning more about creating a comprehensive plan to ensure that you or your family members are well-prepared to handle your needs and estate near the end of life, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

General Assignments Effectively Transfer Shares of Stock to a Trust

January 17, 2012/in Estate Planning /by Michael Lonich

Recall that in order to ensure the creation of a valid trust, there must be trust property. See Ensuring the Creation of a Valid Trust blog. Written declarations and general assignments generally are not the best ways to create trust property; however, they can be sufficient to transfer shares of stock, but not real property, to a trust, according to a recent California Appellate case.

In Kucker v. Kucker, 192 Cal. App. 4th 90 (2011), Trustor signed a declaration creating a revocable inter vivos trust, a general property assignment, and a pour-over will. Later, Trustor signed an amendment to the general property assignment transferring all of her shares of stock in eleven specified corporations and funds. However, Trustor did not include her 3,017 shares of stock in Medco Health Solutions, Inc. At the time the amendment was signed, the Medco stock certificate was lost and the issue before the court became whether the Trustor intended to include all the stock she owned when she amended the general assignment.

The lower court denied the petition to attach the Medco stock for failing to meet the writing requirement under the California Civil Code (which required a writing for contracts that granted credit for over $100,000). The Second District California Court of Appeal reversed and held that a general assignment of assets was sufficient to transfer shares of stock to a trust, even if the assignment failed to specifically identify the stock. The court further elucidated that, “There is no California authority invalidating a transfer of shares of stock to a trust because a general assignment of personal property did not identify the shares. Nor should there be.” The Civil Code section used by the lower court applied to agreements to loan money or extends credit made by persons in the business of loaning money, not to transfers of shares of stock to a trust.

There are many intricacies involved in the creations of trusts, and estate planning in general. To ensure your affairs are in order, or if you are interested in learning more about how to ensure the validity of your trust, please contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Estate Planning Considerations for Family Business Owners

January 12, 2012/in Estate Planning /by Michael Lonich

Family business owners should take extra care to ensure that their interests are protected. Most business owners’ shares represent a large part of their estate’s value. However, few take the time to lock in valuable estate planning benefits that come in the form of a buy-sell agreement.

A buy-sell agreement can help protect an owner’s business interest by ensuring they do not lose control of their ventures and protect their heirs by restricting shareholders, partners, or members of a business from unilaterally transferring an ownership interest to anyone outside the group. Further, since the death of a co-owner could have a disastrous effect on the finances of a business, life insurance policies covering the lives of co-owners generally form the financial backbone of any buy-sell agreement. A buy-sell agreement that is not covered by life insurance death benefits should specify that a buyout should be made under a multi-year installment payment arrangement, which provides remaining co-owners with the flexibility to fund the buyout.

Without a buy-sell agreement, the result on the deceased co-owner’s estate could be drastic. First, there may be no market for the remaining business ownership interest left by the deceased co-owner—the proceeds of which might be necessary to pay estate taxes. Second, heirs of the deceased co-owner will be left to work with the IRS to value the deceased’s share of the business for estate tax purposes, an expensive and time-consuming affair. With a buy-sell agreement, however, a business ownership interest can be sold under pre-approved financial terms and the price set also establishes the (realistic) value of the business ownership interest for estate tax purposes.

If not drafted carefully, the IRS can disregard the buy-sell agreement. To ensure that your buy-sell agreement will withstand IRS scrutiny, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information on these types of transactions. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Update: Gifts to Caregivers Prohibited

November 18, 2011/in Estate Planning /by Michael Lonich

Recall that gifts to caregivers are generally prohibited by law under California Probate Code section 21350. (See blog: Gifts to Caregivers Prohibited noting what activities constitute “caregiving”). However, section 21351, enumerates several exceptions to this general rule. One of the exceptions—found in Section 21351(a)—provides that section 21350 does not apply if the transferor is related by blood or marriage to, is a cohabitant with, or is registered as a domestic partner of the transferee. Cal. Prob. Code § 21351(a) (West). The issue in a recent California case was whether this provision applied to a stepdaughter by marriage.

In Hernandez v. Kieferle (October 31, 2011), the Second Appellate District of California reviewed a probate court decision which invalidated an amendment to a trust designating stepdaughter Claudine Kieferle as the trustee and sole beneficiary of her stepmother Gertrude’s estate. The designated beneficiary of a prior amendment, Gertrude’s next-door neighbor Florentina Hernandez, challenged the validity of the second amendment removing her as the trustee and principal beneficiary of the estate. The probate court found for Florentina noting that section 21350 established a presumption that transfers to care custodians are the product of fraud, duress, menace, or undue influence and, since Claudine lived with Gertrude and cared for her in the evenings, Claudine was disqualified from taking under the trust.

In reviewing the lower court ruling, however, the Appellate Court reversed this decision and concluded that it was an error not to apply the exception found in section 21351(a). The Court rejected the argument that the exception did not apply to Claudine because she was not an “heir”—where her stepmother’s estate did not actually contain property attributable to her father (who passed away eleven years prior)—and found that a person is the transferor’s heir if some intestate rule identifies the person as the transferor’s successor, regardless of whether the transferor’s estate includes the type of property distributed under the rule. Therefore, the section 21351 exception applied and the second amendment was deemed valid allowing Claudine to remain as the trustee and sole beneficiary of Gertrude’s estate.

If you are interested in learning more about making amendments to a trust or creating an estate plan, please contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

2011 Tax Laws Affecting the Inheritance of Real Property

November 11, 2011/in Estate Planning /by Michael Lonich

In 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (Tax Relief Act) of 2010 extended the sunset of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) for two years through 2012. For those who may be inheriting real property in 2011, it is important to note that the “step up in basis” rules will remain through 2012.

In order to adequately explain what this concept entails, here is an example from the Wall Street Journal:

Suppose your Uncle Joe died earlier this year and left you some valuable stocks, bonds and other items. Those assets have risen in value over the years. You’re thinking of selling them to buy a new home or to invest in something else. How would you figure out your tax cost for capital-gains tax purposes?

Typically, your tax cost is the fair market value of the assets on the date your uncle died — or, in certain cases, their value six months later. That means you don’t have to worry about figuring out what Uncle Joe originally paid for them. You don’t have to rummage through his old records or search the Web.

All that should matter is their fair market value on the date he died (or, in certain cases, six months later). This is known as “step up in basis” because your tax basis on those appreciated assets typically gets stepped up to the date-of-death value.

The General Basis Increase (the sum of the aggregate basis increases) is the maximum allotted amount the Tax Code will allow to be “stepped up.” The EGTRRA of 2001 preserved the step up in basis for up to $1.3 million dollars (plus an additional $3 million for assets given to a spouse) through 2010. Then the Tax Relief Act of 2010 extended the EGTRRA to 2012. Thus, the General Basis Increase for 2011 will remain at $1.3 million, and if assets are given to a spouse, up to $4.3 million. Therefore, if the value of assets inherited totals more than $1.3 million, assets beyond that sum will not be “stepped up.”

While creating an estate plan, it is always important to consider tax consequences on the estate, any named beneficiaries, and the planner himself. Any named beneficiaries who have an interest in real property should also be aware of the taxes they will be responsible for after inheriting real property. The Tax Code is intimidating and daunting; however, the Estate Planning Attorneys at Lonich Patton Erlich Policastri can help clarify the process. If you are interested in learning more about taxes on your estate plan or how you may be affected by receiving an inheritance, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

Gifts to Caregivers Prohibited

October 31, 2011/in Estate Planning /by Michael Lonich

An estate plan may be created to do almost anything a person desires. For example, a will can distribute the decedent’s personal and/or real property; passing on specific items to a relative, friend, or organization. A trust can hold specific property or funds for a designated beneficiary; any and all terms of which may be determined by the trustor. While drafting these estate planning documents, it’s important to keep in mind restrictions that state laws impose on to whom transfers can be made. In California, an important restriction is outlined in Probate Code section 21350.

Section 21350 outlines California’s limitations on transfers to “drafters, care custodians, and others.” Specifically, provisions that make donative transfers (i.e. gifts) to (1) the person who drafted the instrument, (2) any person who has a fiduciary relationship with the transferor, or (3) a care custodian, among others, are strictly prohibited. Despite the statute’s clear restrictions, there have been issues relating to who exactly qualifies under these categories. In Estate of Austin, 188 Cal. App. 4th 512 (2010), the Fifth District California Court of Appeal needed to decide whether a former stepdaughter should be considered a “care custodian” under the statute and thus disqualified from receiving gifts. The former stepdaughter took her former stepfather to his doctor appointments, prepared meals for him, and helped out whenever she could after he broke his hip and while he recovered from triple bypass surgery. Decedent’s daughter filed a lawsuit seeking to disqualify her former stepsister from receiving gift transfers totaling about $185,000.

Earlier in the case, the Fresno County Superior Court ruled that the gifts to the former stepdaughter were valid. The Appellate Court affirmed. A care custodian is defined by California case law as someone who provides care or services to elders or dependent adults, whether paid or as a result of preexisting personal friendship. Health or social services were defined as including cooking, gardening, running errands, assisting with banking, and driving to doctor’s appointments. The Appellate Court found that the former stepdaughter’s “services” could not be reasonably characterized as providing substantial, ongoing health or social services and she was thus not a care custodian. Further, the decedent made the gift transfers to the former stepdaughter while he was residing in a nursing home, when the former stepdaughter was not providing any services to him. Therefore, the gift transfers were valid and the former stepdaughter was not disqualified from receiving them.

Statutes do not always clearly define who falls into certain categories, the courts are able to make decisions based on specific factual scenarios. If you care for an elder relative and think you may be considered a care custodian, an attorney can help clarify what, if any, impact this may have on your ability to inherit from that relative. If you are interested in learning more about individual gift transfers or estate planning, please contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.

No-Contest Clauses in Trusts

October 28, 2011/in Estate Planning /by Michael Lonich

Trusts are incredibly useful estate planning instruments (see Testamentary versus Inter Vivos Trusts blog). They can be drafted and administered in almost any way you want; they can even protect your heirs’ inheritance from creditors (see Spendthrift Clauses blog). Another useful way to ensure that your estate is administered in a particular way is to include a “no-contest” clause in your estate planning documents.

A no-contest clause is a “provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.” California Probate Code sections 21310-23315 govern these provisions and define a contest as a “pleading filed with the court by a beneficiary that would result in a penalty under a no-contest clause, if the no contest clause is enforced.” The Probate Code also defines a “direct” contest, which, if brought with probable cause (as defined by statute) does not violate the no-contest clause.

Direct contests allege the invalidity of a protected instrument or one or more of its terms based on forgery; lack of due execution; lack of capacity; menace, duress, fraud, or undue influence; revocation of a will by statute; and/or disqualification of a beneficiary by statute. However, it is important to note that a no-contest clause will only protect the instrument containing the no-contest clause and other instruments only if they were already in existence and expressly identified in the no-contest clause. Accordingly, it is important to consult an experienced estate planning attorney to ensure your estate is protected from contests.

If you are interested in learning more about estate planning and protecting the administration of your estate, contact the San Jose estate planning attorneys at Lonich Patton Erlich Policastri, LLP. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results. While this post may include legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.