Estate Planning

Estate Planning

Estate planning is the process of making a plan in advance and naming whom you want to control your estate and who is to receive the things you own after you die.  Estate planning should be done to ensure that your wishes regarding your estate are carried out and to minimize any tax or court costs.

Wills

Estate planning often begins when you create a will.  This allows you to control who is to benefit from your estate and what assets they are to receive.  It gives you the power to determine who will receive money and the amount they are to receive.  You can also designate a person to receive a personal memento, an entity to take possession of property which is will be presently held in another’s name, or conditions which must be met for a bequest is delivere

Trusts

Creating a trust is very beneficial to estate planning in that is not only allows you to control the distribution of your assets much in the same way as a will but, you gain the additional advantage of avoiding probate and fees associated with the probate process.  The probate petition that is filed with the court for the deceased is avoided if the majority of that person’s estate is held in a trust.  Real property held in trust will require a filing with the county recorder’s office where the property is located to remove the deceased person’s name from the title.

Intestacy

Estate planning should be done to avoid probate and intestate succession.  Intestate succession is a legal procedure used by a probate court to decide who is entitled to share in a person’s estate when they have passed-away but did not leave a valid will or trust to distribute the assets of their estate.  Under intestate succession, distributions are made considering those family members who are still living and their relation to the deceased person, the decedent.

• If the decedent leaves behind a only a spouse and no children, then the spouse will receive all of the decedent’s community property interest and all of the decedent’s separate property interest.
• If the decedent leaves behind a child or grandchild in addition to a spouse, the spouse receives all the decedent’s community property interest but only one-half of decedent’s separate property interest.
• If the decedent leaves behind a parent or sibling in addition to a spouse, the spouse receives all of the decedent’s community property interest but only one-half of decedent’s separate property interest.
• If the decedent leaves behind two or more children, two or more grandchildren, or any combination thereof, in addition to a spouse, the spouse receives all of the decedent’s community property interest but only one-third of the decedent’s separate property interest.

Probate

Probate is the process used by a court to distribute the assets in the estate of a deceased individual.  The probate process is a alternative to estate planning when the decedent does not establish how their estate will be distributed.  In the state of California, the court will probate the estate of anyone who passes-away unless the deceased individual created a trust.  If the person dies without a will, or a trust, they are said to die intestate;  if a person dies after having formed a will, but did not create a trust, they are said to die testate.

In California, the probate courts have the responsibility to determine how an estate will be administered.  Part of the administration process includes determining what assets belong to the deceased person’s estate and how those assets will be distributed.  When an estate is probated, all the assets of the deceased person’s estate are distributed to beneficiaries after the estate makes payments for taxes, administration, and court fees.

Avoiding Probate

A surviving spouse who gains an entire interest in real property may file a spousal petition to cause a transfer of the title to that property into their name alone.  The petition must assert and prove that the surviving spouse has gained the entire ownership interest.  Proof can be any of the following:

• A valid will, executed by the deceased spouse, leaving their entire interest to the property to the surviving spouse;
• Title to the property held in joint tenancy with the right of survivorship;  or,
• Establishing the property as community property with a right of survivorship.

Caregivers

We often we hear of people who have passed-on leaving large sums of money or valuable assets to a caregiver who was attending to seriously- ill individual.  These gifts to caregivers has been hashed-out in court many times in suits brought by disgruntled family members who received little or nothing from their relative’s estate.  In response to the many cases that were filed, the California legislature passed into law a requirement that there be completed a “Certificate of Review” when a dying person leaves a substantial gift to a person who is not related.  The Certificate of review is an interview done by an attorney who is not involved with the deceased person’s estate and who has not represented an party involved in a suit pertaining to the estate.  This attorney certifies that the dying person is aware of what they are doing, is knowledgeable about their estate, and realizes that they are making a gift to a non-relative which will affect distributions to family members.

This “caregiver’s bequest law has recently changed creating new issues which the courts have yet to address.  Of particular importance is the effect this new law will have on trusts.  Under the old law, the caregiver’s bequest required a Certificate of Review.  However, now that there is a new law, it is speculated that any bequest made in a revocable trust, when the old law was in effect, will now require a new Certificate of Review.

Your estate planning should include addressing any gifts you intend to give to others.

Statutory Probate Fees

Statutory fees are established by the California legislature and are paid to the court, the trustee, and administrators by the decedent’s estate as compensation for handling the probate of the decedent’s estate.  These fees are deducted from the estate before any distributions are made to beneficiaries.  Both the personal representative (administrator) and the attorney who handles the estate are entitled to a fee which is based on the gross value of the estate.  Each one is entitled to the following amounts:

• 4% on the first $100,000
• 3% on the next $100,000
• 2% percent on the next $800,000
• 1% on the next $9,000,000
• ½ of 1% on the next$15,000,000
• A reasonable amount determined by a court for all amounts above $25,000,000.
• Additional fees for extraordinary services.

There is also a court probate referee who is also compensated with a commission of one-tenth of 1% of the total value of the appraised assets.  The probate referee will receive a minimum fee of $75 and a maximum fee of $10,000.  This referee may petition the court for a higher fees if the reasonable value of the services they provide is more.

The final result is, these are fees deducted from a deceased person’s estate before any family member or beneficiary receives their share.  This is money that your spouse or children could have received and money that they will not receive because you did not create a trust.  And you thought bank fees were outrageous or that credit card interest rates were high?  Do the math on the estimated value of your estate or call our office and we will do it for you.

Remember, all of these expenses can be avoided by taking the time to contact our office and having us create for you a valid trust.  Call us today and we will begin creating a trust which will protect all of your assets from probate and these fees.

Conservatorship

A conservatorship is a court action which appoints one person to handle the personal and/or financial matters of another person who is no longer capable of taking care of themselves.  The person who is appointed is called the “conservator,” while the individual who is no longer capable of caring for themselves is called the “conservatee.”  There are two types of conservatorships;   a conservatorship of the person and a conservatorship of the estate.  Often one conservator will fill both roles.

Conservatorship of a Person

The conservator is given the authority and responsibility to makes sure that the conservatee receives food, clothing, shelter, and other benefits or enjoyments such as healthcare or social contact.

Conservatorship of an Estate

The conservator is given the authority and responsibility of handling the finances of the conservatee’s estate.  The conservator will use the conservatee’s money and other assets for the support, education, and care of the conservatee and any conservatee dependents.  A court may order the conservator to handle not only the conservatee’s personal finances but any business matters they have as well.

Conservatorship Process

Documents are filed with the Probate Court which sends copies to the proposed conservatee and their close relatives.  The court will also assign the matter to an investigator who will contact the proposed conservatee and others who may know something about the situation.

After the proposed conservatee is interviewed and a preliminary decision is made that the individual may need care, a court date is set to hear the matter.  At the hearing, a judge will hear evidence regarding conservatorship and will question the conservatee.  Others, such as family members, may attend and object to the proceeding or propose a different conservator.  At the conclusion of the hearing, the judge will decide whether a conservator will be appointed and, if so, who that person will be.

Within 90 days of the date the Judge signs the Order Appointing Probate Conservator, the conservator must prepare an Inventory and Appraisal form file a report with the Court listing the conservatee’s assets and debts.  If there are assets other than cash, the conservator must forward the Inventory and Appraisal to the court-appointed probate referee. The probate referee will appraise the non-cash items, complete the Inventory and Appraisal by inserting the value of those items, and return it to the conservator, who must file it with the Court.  The estate is charged a fee for the appraisal, which is generally 1/10th of 1% of the total value of the conservatee’s estate, with a maximum fee of $10,000.  The probate referee may also be able to recover expenses, such as mileage, in addition.

Once a conservatorship is in place, the Court conducts periodic investigations to confirm that a conservatorship is still needed and that the conservatee is being treated appropriately.

Conservator’s Duties and Responsibilities

If the conservator is handling the conservatee’s finances, the conservator must post a bond and must provide detailed accounts periodically to the Court that list all income and expenditures.

The amount of the bond depends on the assets that the conservatee has and their annual income, as well as whether a professional bonding company (versus family members or friends) is providing the bond.

The conservator is allowed to hire others to help them with the conservatorship as long as any expenses are reasonable in comparison with the size of the conservatee’s estate.

Often the conservator must prepare periodic status reports which are filed with the court stating how the conservatee is faring and what duties the conservator is or has preformed.

Conservator’s Fees

Usually the cost of the conservatorship comes out of the conservatee’s income or other assets.  Generally, the conservator is entitled to reimbursement for reasonable expenses incurred on behalf of the conservatee, including expenses to establish the conservatorship and sometimes money spent supporting the conservatee prior to the conservatorship.

With the exception of Court filing fees and premiums on the bond, the conservator must obtain Court approval before receiving reimbursements from the conservatee’s estate.

A detailed written record must be submitted to the court should a conservator want to receive compensation for the time they spend handling the conservatorship.  A court will usually allow a family member to recovery only for time spent on managing the finances of the estate, and not for any time spent acting as a family member or for acting as a conservator of the person.  Some courts have schedules that set out the compensation that a conservator may receive for their time, often a percentage of the conservatee’s estate.

The conservator may petition the Court for compensation for time only if 90 days has passed since the Letters of Conservatorship were issued and they have filed the Inventory and Appraisal form.  The courts may not allow compensation for time if little time has been spent on financial matters or if the conservator has not followed court procedures, including filing an accounting on time.

Power of Attorney

The process of obtaining and maintaining a conservatorship is expensive and time-consuming.  As an alternative to a conservatorship, the proposed conservatee can designate another person to handle their affairs by signing a power of attorney.  There are two types of powers of attorney:

• Durable Power of Attorney for Finances:  The proposed conservatee, grantor, designates an agent to handle the grantor’s financial affairs should the grantor becomes incapacitated.
• Advance Health Care Directive:  The grantor designated an agent to make health-care decisions if the grantor is incapacitated.

As can be seen, estate planning can involve a number of issues which should be addressed while you have the time and the ability to make decisions.

Life Estate

A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, when it passes to the other owner.  Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it.

California Life Estate

You can establish a California Life Estate whereby you transfer your property to your children, while simultaneously retaining your right to use and live in the property.  Transferring property into a California Life Estate avoids some of the disadvantages of making an outright gift but, they still come with other advantages and disadvantages.

Interests Created

A California Life Estate establishes two interests in property:  the Life Tenant and the Remainder man.  The Life Tenant is entitled to the absolute and exclusive right to use the property during their lifetime.  The Life Tenant can be a sole owner or a Joint Life Tenants.  The Life Tenant is responsible for property taxes, insurance and maintenance of the property.  And, the Life Tenant can also lease the and is entitled to receive all rents on that lease.

The Remainder man automatically takes legal ownership of the property upon the passing of the last Life Tenant.  The Remainder man has no right to use the property or to collect rents generated by the property.  The Remainder man is not responsible for taxes, insurance or maintenance of the property.

Advantages for Estate Planning

• A California Life Estate can be easily established by drafting the appropriate document and then filing a new Deed.
• There is no probate.  The property automatically transfers from the Life Tenant to the Remainder man upon death of the Life Tenant.
• The Life Tenant right of use is protected and is not affected by any financial the Remainder man may have during the Life Tenant’s lifetime.
• Upon the death of a Life Tenant the Remainder man takes advantage of a stepped-up tax basis which reduced capital gains.
• Property established with a California Life Estate and in existence for 60 months (5 years) is protected from Medicaid claims;  liens to pay for end-of-life care.

Disadvantages for Estate Planning

• The Life Tenant is disqualified from receiving Medicaid for the 60 month waiting period;  which begins at the date of transfer.
• Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold if the sale occurs during the Life Tenant’s lifetime.
• Remainder man does receive an exemption which means that they will pay capital gains tax on their proportionate share from a sale during the lifetime of the Life Tenant.
• To sell property during the lifetime of the Life Tenant, all owners must agree and sign the Deed.  Once the property is sold, the Life Tenant no longer has the right of sole control over the property.
• Transferring property into a California Life Estate is irrevocable.  However, all owners, Life Tenants and Remainder man can agree to a transfer.  In doing so, there may be tax consequences and/or Medicaid concerns.

California Estate Tax

You avoid California estate tax if an assets is devised to either your spouse, who is a US citizen, or to charitable organization by your Will.  Assets passing to other individuals will be taxed if the net value of those assets exceed the current amount set by California statue.  Under current law, that amount will increase to $1,000,000 in 2006.  For estates which approach or exceed this value, significant California estate tax can be saved by proper estate planning.

Cost Basis

Cost basis is used to determine capital gains.  For many homeowners, the cost basis is the price they paid for their home, plus any capital improvements that have been made.  The cost basis is subtracted from the selling price to determine the capital gains.  When a married couple owns an appreciated asset as community property, the surviving spouse will get a step-up in the cost basis to the fair market value at the date of death of the other spouse.  In other words, if the surviving spouse has to sell the residence, he or she is unlikely to have to pay any capital gains.  But if the residence is held in joint tenancy, it is more likely that some capital gains tax may be due.  Federal law allows the surviving spouse a capital gains exclusion of $250,000, but for some California residents, even this amount may not be enough to prevent payment of capital gains tax when a residence is sold.

Appraising the Estate

The decedent’s estate is appraised by a probate referee, who is appointed by the State Controller to determine the fair market value of the asset.  The fair market value of an estate includes mortgages and other debts.  Probate referees receive a fee based on .1% of the assets that have been appraised.

Joint Tenancy

If an asset is owned by two or more people as joint tenants, it will usually not be probated.  These assets can often identified by the words “joint tenants,” or “in joint tenancy.”  When a joint tenant dies, the other joint tenant takes 100% ownership of the asset.  This occurs regardless of the provisions of the Will or Trust of the deceased joint tenant.  Most often couples title their house in joint tenancy which means that when one spouse passes-away, the other spouse will own the entire home – regardless of the provisions in the decedent’s spouse’s Will.  Joint tenancy is not recommended for assets that can increase in value, such as a residence, because the surviving joint tenant will not receive a “stepped up cost basis” to fair market value at the date of death of the other joint tenant.

Summary Probate

California Probate Code provides that probate estates of less than $150,000 do not need to be probated.  In some cases, the total estate may be considerably larger than $150,000, but the small estate law can still be used.  The reason is that many assets are not defined as probate assets, such as life insurance (unless it was payable to the estate), IRAs, 401Ks, assets held by a living trust, and joint tenancy assets.  The $150,000 amount is calculated by totaling all of the probate assets owned by the decedent.

CALL NOW TO MAKE AN APPOINTMENT

321-951-9164

For more information about wills, trusts, and estate planning, click on one of the following links:

Avoiding Probate – California Attorney – Lawyer Consultation