Estate Planning Archives - Page 17 of 22 - Lonich Patton Ehrlich Policastri

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.

Executing an Estate: A Blessing or a Curse?

October 5, 2011/in Estate Planning /by Michael Lonich

Friends or family come into the role as the executor of an estate in different ways. Some are asked by a friend or family member and are honored to have been considered. Some find out they were designated as the executor only after that person’s passing. Some step up to the plate amidst grief and sorrow while other surviving relatives mourn their painful loss. Regardless, executing an estate is not an easy task; there are legal, and often times personal, repercussions if something goes wrong.

According to a recent Wall Street Journal article, “executorships gone bad” are rising. There are a number of possible reasons for this increase but tough economic times may be the driving force. As families struggle economically, disagreements over shares of inheritances or interpretations of wills are occurring more often. This adds to the heavy burden already placed on executors of an estate.

An executor administers a will through the probate court process which can take years (if the decedent created a trust during their lifetime, this significantly simplifies the process for an executor). The probate process includes accounting for assets, paying outstanding bills, and distributing property as indicated by the decedent’s will. Depending on a number of factors, the probate process can take as long as three years for larger, more complex or contested estates. While not impossible for a nonprofessional to handle, it is generally worthwhile for complex wills to be handled by a professional to avoid mistakes and contentious dealings between the executor and other family members.

If you are interested in learning more about the probate process or creating a plan to ensure your family members are well-prepared to handle your estate, 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

Despite Mandated Reporting Laws, Financial Institutions are not Subject to Civil Liability

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

The elderly population in the United States has steadily been on the rise. Between 1900 and 1996, the population of elders grew from 3 million to 34 million. As the “baby boomer” generation begins to retire, our society will need to make several adjustments. While the first thing that comes to mind when discussing the elderly may be programs such as social security or healthcare, the laws applicable to elders deserve some attention as well.

The California Welfare Code includes sections on who is required to report signs of physical or financial elder abuse to Adult Protective Services or the local law enforcement agency. Included in that law are nursing home workers, healthcare practitioners, ombudsmen, and members of the clergy. The law also deems all officers and employees of financial institutions mandated reporters of suspected financial elder abuse. Recently, a California Appellate Court decided whether the mandated reporting requirement for financial institutions could serve as a legal basis for civil liability.

In Das v. Bank of America, N.A., 186 Cal. App. 4th 727 (2010), Mr. Das’ (the deceased) daughter filed several suits against Bank of America for allowing her father—who suffered from strokes, brain tumors, and dementia—to make a series of transfers overseas totaling over $300,000. She claimed her father’s lack of capacity was readily apparent to casual observers and that bank employees even “wondered” about his state of mind, but did not report Mr. Das’ strange behavior despite the suspicious nature of his transactions. The Second Appellate District, however, found that the legislative intent of the section on mandated reporting for financial institutions was explicitly limited to the government and negates any intent to enlarge the legal basis for a private civil action. Accordingly, they were unable to expand the application of the law despite the egregious circumstances.

There are many ways to protected loved ones from financial elder abuse including conservatorships and financial powers of attorney. If you are interested in learning about how you might be able to protect a loved one from financial abuse, 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.

Testamentary versus Inter Vivos Trusts

September 23, 2011/1 Comment/in Estate Planning /by Michael Lonich

A trust is an arrangement where property is transferred with the intent that it be held and administered by the person to whom the benefit is for. There is a large assortment of trust types, however, the two main types of trusts are (1) the inter vivos trust and (2) the testamentary trust. The inter vivos trust, often referred to as a living trust, refers to a trust transfer made during one’s lifetime. The testamentary trust, on the other hand, only arises upon one’s death—typically specified in one’s will.

An inter vivos trust is created by a settlor and signed by the settlor and any named trustees. It is created and funded during one’s life time and may be revocable or irrevocable. A testamentary trust is usually created in the will of a settlor and must be probated. Testamentary trusts are irrevocable as they are created after one’s death and, therefore, cannot be amended or revoked. Inter vivos trusts generally do not have to go through probate and are created primarily to provide an economic benefit to specific people or institutions. Payments to the beneficiaries can begin immediately during one’s lifetime or upon death as specified.

Whether an inter vivos trust or a testamentary trust is the better plan depends on the settlors’ objectives. Inter vivos trusts are an effective way to reduce the value of an estate and the subsequent effect of federal and state estate taxes. Testamentary trusts can provide for the care of beneficiaries without the need for a public trustee/guardian upon death.

If you are interested in discussing your estate, creating a trust, or creating a comprehensive estate plan, 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.

Spendthrift Clauses: Protecting Your Loved Ones’ Inheritances

September 19, 2011/in Estate Planning /by Michael Lonich

Most people consider the protection of their assets from their own creditors when beginning to plan for their estate. However, few consider the prospect of their heirs’ creditors. Adding spendthrift language to a trust may help safeguard their heirs’ assets.

A variety of trusts can be spendthrift trusts as long as a spendthrift clause is included. Despite its name, a spendthrift trust does not simply protect heirs from being recklessly extravagant or wasteful in their use of funds. Spendthrift clauses restrict a beneficiary’s ability to assign or transfer his or her interest in the trust and restrict the rights of creditors to reach the trust assets. If your child gets divorced, it can prevent your child’s spouse from claiming a share of the trust property. If your child predeceases his or her spouse, it can ensure that your children or grandchildren receive their inheritance rather than your spouse. A properly designed spendthrift trust can even protect your heirs’ assets from being attacked by frivolous lawsuits, dishonest business partners, or unscrupulous creditors.

There are, however, some limitations. Government agencies may be able to reach the trust assets, regardless of spendthrift language, to satisfy something like a tax obligation. Further, ex-spouses may be able to reach the trust assets to satisfy child support arrearages. Generally, the more discretion granted to the trustee the greater the protection against creditors’ claims.

If you are interested in learning more about spendthrift trusts or creating an estate plan, 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.