Valuing the Decedent’s Assets – by Julie Garber and Steve Beede

Once you’ve met with an estate and trust attorney and determined whether their services are needed, the next step in settling a trust is to establish date of death values for all of the decedent’s assets.

All financial institutions where the decedent’s assets are located must be contacted to obtain the date of death values. For assets including real estate, personal effects including jewelry, art work and collectibles, and closely held businesses, they’ll need to be appraised by a professional appraiser.

Note that the value of all of the decedent’s assets will need to be established, including those passing outside of the trust, in order to determine if any estate taxes and/or inheritance taxes will be owed. Assets that can pass outside of the trust may include those that were owned as tenants by the entirety or joint tenants with right of survivorship, payable on death or transfer on death accounts, and life insurance, IRAs, 401(k)s and annuities with named beneficiaries.

Some non-Trust assets avoid Probate:
Determine if there are any, non probate assets the decedent owned. Non probate assets are simply assets that won’t need to be probated after you die. Here are some examples:

1.  Assets you own jointly with your spouse or others with rights of survivorship (JTWROS).
2.  Assets you own jointly with your spouse as tenants by the entirety (TBE).

3.  Assets owned by your Revocable Living Trust.
4.  Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself.
5.  Assets owned by you and payable to a designated beneficiary, including:

a.  Payable on death (POD) accounts, transfer on death (TOD) accounts, in trust for (ITF) accounts and Totten trusts
b.  Life insurance policies
c.  Retirement accounts, including IRAs, 401(k)s and annuities

d.  Health savings accounts (HSAs)or medical savings accounts (MSAs)

Note that if all of the designated beneficiaries of any of the assets listed in (5) above predecease the account owner, then the account will need to be probated.

Will Non Probate Assets be Included in Your Gross Estate?
Yes…Non probate assets must be included in the value of your gross estate in order to determine your estate tax liability. However, the more important question is: What value of the non probate asset will be included in your gross estate for estate tax purposes?
1.  If the asset is titled in your sole name without any other owners or has a POD, TOD or ITF designation, then 100% of the value will be included in your taxable estate.
2.  If you own a life estate in the asset and the remainder passes to a non-charitable beneficiary other than yourself, then 100% of the value will be included in your taxable estate.
3.  If the asset is titled as JTWROS with your spouse or as TBE, then only 50% of the value will be included in your taxable estate.
4.  If the asset is titled as JTWROS with someone other than your spouse, then 100% of the value will be included in your taxable estate unless it can be proven that the other owner(s) actually made contributions to the account or toward the purchase of the property.
5.  If the asset is titled in the sole name of your Revocable Living Trust, then 100% of the value will be included in your taxable estate, but if the asset is titled in the name of your Revocable Living Trust as a tenant in common, then only the proportionate share owned by your trust will be included in your taxable estate.
6.  The entire death benefit of life insurance policies that you own on your own life at the time of your death will be included in your taxable estate, but only the cash value of life insurance policies that you own on someone else’s life will be included.
7.  Finally, 100% of the value of your retirement accounts, including IRAs, 401(k)s, and annuities will be included in your taxable estate.

Once the date of death values have been determined for the decedent’s assets, the next step is to pay the decedent’s final bills and ongoing expenses of administering the trust.  That’s what we’ll cover in Step 4 of Trust Settlement – Pay the Decedent’s Final Bills and Trust Expenses

BPE Law has been assisting our clients with their real estate, business, and estate planning needs ever since we started doing business. We’re active in the communities in which we live and in protecting and assisting our clients legal interests.  If you have legal questions, give us a call at (916) 966-2260 or e-mail me at  sjbeede@bpelaw.com.  Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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Deciding whether to use an Estate or Trust Attorney by Julie Garber with Steve Beede

Once the decedent’s legal documents and other important papers have been located and sorted through, the next step in settling a Revocable Living Trust is to meet with an estate and trust attorney to determine if Probate will be required and if the attorney’s assistance will be needed to help with settling the trust.

Since Trusts are most often established to avoid Probate, it may be frustrating to discover that a probate process might still be required. Often this may occur because the decedent owned assets in their own name, not in the name of the Trust. This typically may require a Probate Judge’s Order to transfer the assets into the Trust so they can be distributed according to the Trust’s distribution provisions… assuming that it was the decedent’s intent that they be distributed through the Trust. Other times, some ambiguity in the Trust language or, more commonly, a fight amongst Beneficiaries over who gets which assets will require the Probate court’s intervention.  At such times, an Attorney’s help will most likely be needed.

Many people believe that if they have a revocable living trust, then the process of settling their final affairs will be simple and won’t require the assistance of an estates and trust attorney. In my experience this is true for only a limited number of trusts. Here you will find a list of things to consider when determining if you will need to hire an attorney to assist you with settling your loved one’s revocable living trust.?

1. Is the revocable living trust fully funded?
The key to a revocable living trust working as expected is to make sure that it is completely funded with the Trustmaker’s assets before the Trustmaker dies. If anything of even limited value is left out of the trust and remains in the Trustmaker’s individual name, including as a tenant in common, at the time of the Trustmaker’s death, then a probate administration may be required. The only way to insure that probate of the Trustmaker’s estate will be avoided is for the Trustmaker to fully fund the revocable living trust and update all beneficiary designations before the Trustmaker dies.

2. Was the Trustmaker married?
If your loved one’s revocable living trust contains AB or ABC trust planning, then when the first spouse dies the successor trustee and surviving spouse will need to meet with an estate and trust attorney to insure that the A, B, and/or C trusts are properly funded and any necessary estates tax returns at the federal and/or state level are prepared and filed. (Note: Even if no tax will be due, a return may need to be prepared and filed anyway in order to make certain tax elections.) Then, when the surviving spouse later dies, the successor trustee will need to meet with an estates and trust attorney to unravel the A, B, and/or C trusts as well as settle the surviving spouse’s final affairs and revocable living trust.

3. Will the beneficiaries receive their inheritance outright or in trust?
If the beneficiaries will receive their inheritance outright and no other specific issues need to be addressed by an estates and trust attorney, such as paying estate taxes, obtaining tax releases, dealing with the Trustmaker’s debt, or deciding what to do with retirement accounts, then the successor trustee and beneficiaries may be able to work together to settle the trust without the assistance of an attorney. If, however, one or more of the beneficiaries will receive their inheritance in trust, then the successor trustee will need to work with an estates and trust attorney to insure that each beneficiary’s trust is properly funded as well as to discuss trust income tax returns and how each trust should be handled on a day-to-day basis.

4. Will the estate owe federal or state estate taxes or inheritance taxes?
If the Trustmaker lived in, and/or owned real estate in, one of the multiple jurisdictions that collects state estate taxes or in one of the seven state that collects state inheritance taxes, then before the trust assets can be distributed to the beneficiaries the successor trustee will need to work with an estates and trust attorney to insure that all necessary estate and/or inheritance tax returns are filed and all taxes due are paid. Otherwise, if the successor trustee makes distributions to the beneficiaries before the taxes are paid in full, then the successor trustee could be stuck with paying the taxes out of his or her own personal assets.

5. Did the Trustmaker own a business?
If the Trustmaker owned a business and made an exit plan for what happens to the business after the Trustmaker dies, then the successor trustee will need to work with an estates and trust attorney to implement the exit plan. If on the other hand the Trustmaker owned a business but didn’t make an exit plan, then the successor trustee will need to meet with an estates and trust attorney to deal with the legal aspects of continuing, selling, or shutting down the Trustmaker’s business.

6. Are the beneficiaries going to fight?
Even a carefully planned and fully funded revocable living trust can’t overcome deep-seated family discord. If the beneficiaries of a revocable living trust don’t agree with how the successor trustee is handling the distribution of the trust assets, then the successor trustee will need to hire an estates and trust attorney to assist with settling the beneficiaries’ disputes. In addition, the trust beneficiaries may need to hire their own attorney(s) to insure that their interests in the trust administration are being represented and properly protected.

7. Is a trust named as a beneficiary of a retirement account?
If one or more trusts for the benefit of the Trustmaker’s surviving spouse or other beneficiaries are named as the primary beneficiary(ies) of a retirement account, such as the Trustmaker’s IRA or 401(k), then the successor trustee will need the assistance of an estates and trust attorney to insure that the assets held by the IRA or 401(k) are properly handled with regard to funding them into the applicable trust(s) and how to handle required minimum distributions and minimize any estate tax and income tax consequences.

8. Is an individual named as a beneficiary of a retirement account?
Even if a trust isn’t named as the primary beneficiary of an IRA or 401(k) account, the beneficiaries may still need the assistance of an estates and trust attorney to insure that the retirement assets are properly handled with regard to required minimum distributions and estate and income tax consequences.

What should you do?
Don’t be lulled into thinking that your loved one’s revocable living trust will only take a few days or weeks to settle after your loved one has died. Hopefully your loved one has done everything in his or her power to insure that their trust will function properly after their death so that the trust can be settled with relative ease and outside of the public spectacle and scrutiny of a probate court.

Next, in Part 3, we’ll cover how to value the Decedent’s assets.

BPE Law has been assisting our clients with their real estate, business, and estate planning needs ever since we started doing business. We’re active in the communities in which we live and in protecting and assisting our clients legal interests.  If you have legal questions, give us a call at (916) 966-2260 or e-mail me at  sjbeede@bpelaw.com.  Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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INVENTORY DECEDENT’S DOCUMENTS AND ASSETS  by Julie Garber & Steve Beede

Most people have little experience dealing with what happens after their loved one dies and they have been designated as the Successor Trustee who will be in charge of settling their loved one’s Revocable Living Trust. The purpose of this guide is to provide a general overview of the six steps required to settle a Revocable Living Trust after the Trustmaker dies.

The first step in settling a Revocable Living Trust is to locate all of the decedent’s original estate planning documents and other important papers. Often these will be assembled in a single binder containing all Estate Plan documents including the Revocable Trust, amendments, Pour-Over Will, Powers of Attorney, Health Care Directives, and other related documents. In addition, the decedent may have left written funeral, cremation, burial or memorial instructions and a personal property memorandum. All original documents should be stored in a safe place until they can be given to the trust and estate attorney.

Beyond these “Planning” documents, you will want to locate any documents identifying and both assets owned by the Trust as well as assets still in the decedent’s personal name. These documents will include information about the decedent’s assets such as bank and brokerage statements, stock and bond certificates, life insurance policies, corporate records, car and boat titles, and deeds for real estate; and information about the decedent’s debts, including utility bills, credit card bills, mortgages, personal loans, medical bills and the funeral bill.

Once all of the important documents have been located, read the Revocable Living Trust to determine its specific provisions. When reviewing the Trust, make notes about the following:

Inventory Checklist

( ) 1. Who is named as Successor Trustee? Are co-Trustees designated?

( ) 2. Are there additional Trusts to be set-up? Are the Trustees the same?

( ) 3. Has the Trust been amended? How many times?

( ) 4. Who are the designated Beneficiaries? Are decedent’s children (if any) named?

( ) 5. Is there a List of Assets that were put into the Trust?

( ) 6. Are there instructions on who gets the decedent’s personal effects?

( ) 7. Are there special instructions regarding the decedent’s funeral, cremation or burial?

In addition to reading the Revocable Living Trust and summarizing its terms, review the decedent’s financial documents and make a list of what the decedent owned and owed, how each asset is titled, and, for assets and debts that have a statement, the value of the asset or debt as listed on the statement and the date of the statement. In addition, the decedent’s prior three years of income tax returns should be located and set aside.

Once the decedent’s important documents have been sorted through, the next is to meet with an estate and trust lawyer to determine if any Probate will be required and if the attorney’s assistance will be needed to settle the trust. One of the key reasons that most people get Trusts is to avoid

Probate yet sometimes a limited Probate process is required. Other times disputes concerning the Trust language or who gets what assets will require Probate court guidance.

But for now, your 1st Step is to inventory the documents, the assets and liabilities, and look for the decedent’s instructions.

Next, in Part 2, we’ll cover whether to meet with an Estate and Trust Attorney to determine if their services will be required or whether you can do this on your own.

BPE Law has been assisting our clients with their real estate, business, and estate planning needs ever since we started doing business. We’re active in the communities in which we live and in protecting and assisting our clients legal interests. If you have legal questions, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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When selling a home in California, all Seller as well as their agents must make certain disclosures to prospective Buyers. The best known of these is the Transfer Disclosure Statement and the Seller Property Questionnaire. It is on these forms that Sellers disclose any adverse conditions on the property that might “materially affect it’s value” to a Buyer. Often, Sellers are hesitant about disclosing defects because they fear – often with good cause – that it may make their home unsellable unless the make expensive repairs. However, failure to disclose defects is a sure way to get sued by the Buyer after the sale closes. That’s when Sellers not only get to pay for repairs but also get to pay the Buyer’s legal fees. But how do you handle the issue you can’t fix… the obnoxious neighbor?

First, understand what we’re talking about legally…a Nuisance. California law defines two forms of Nuisance: (1) a Private Nuisance – when some one prevents or disturbs your use or enjoyment of your property such as the shouting or fighting neighbors or barking dog; or (2) a Public Nuisance – when the disturbance affects others as well such as operating a crack house, or the rock band practicing, or the retail home business with lots of traffic…. even Justin Bieber speeding down the street in his Ferrari. The obnoxious neighbor can be both… and if it is a nuisance, then you are required to disclose.

But like so many legal issues, this can be a gray area: Ask yourself these questions:

(1) Is the neighbor’s conduct personal to you? Maybe he thinks you’re the jerk and the problem is a personal one between the two of you. If so, then this might not materially affect the value of the Property for a Buyer and disclosure might not be required.

(2) Does he have the same problems with other people in the neighborhood? If so, then it’s probably not personal to you and it is likely that the Buyer would encounter the same issue. This should be disclosed and explained.

(3) Is this the reason you’re moving? Whether the neighbor problem is a private nuisance or a public nuisance or just a personal battle, if it is substantial enough that it is driving you from the neighborhood, this should be disclosed and explained.

As with all disclosure issues, the general rule remains: Disclose, Disclose, Disclose. The penalty for failing to disclose a nuisance which materially affects the value of your home to a Buyer can be very severe. In the 1998 California case of Shapiro v Sutherland (70 Cal.Rptr.2d 548) the Seller failed to disclose the disputes that he had with a neighbor over several years which had at times caused the Seller to call the police. After the sale, the Buyer had similar experiences, and learned about the Seller’s prior problems. Buyer sued Seller for rescission of the sale (give me my money back) plus attorney fees, court costs, and other damages… and Buyer won everything.

The key here is Disclosure. The Buyer may be so in love with your home and the neighborhood that they might not really care about problems you had. As with every disclosure item, it’s not just checking a box on the TDS stating there is a nuisance, it’s that plus providing an explanation as to why the box was checked. By meeting your Disclosure obligations, the Buyer will have the opportunity to determine whether to check this out more or not… it does not mean that your sale will die.

Lastly, be sure to tell your real estate agent about any such issues and get their input on how to handle this as a disclosure item.

BPE Law has been assisting our clients with their real estate, business, and other legal needs ever since we started doing business. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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As our economy struggles its way through a recovery, real estate is bouncing around in search of stability. Meanwhile, we have been busier than ever and growing to meet increasing demand for our legal services. Today’s Blog will cover where we are at nearly one quarter through 2014.

Anyone watching the real estate market knows that we are in recovery mode. Prices are up, foreclosures are down, and even Washington seems to have stopped fighting over the Budget. But behind these signs, there is still a lot of uncertainty:

1. Home Prices: Six years ago, the market was glutted with foreclosed properties and short sellers trying to unload their upside down homes. According to MDA Dataquick, in 2007, the Sacramento median home price was nearly $400,000. By 2009, that had fallen nearly 50% and by mid-2012 it was down to nearly $175,000.But an emerging investor market fueled by hedge funds such as Blackstone started gobbling up all the low cost properties and this fierce competition kept for sale inventory low. This imbalance between too little inventory and too much demand started driving up-prices and encouraging more owners to put their homes on the market. By mid-2013, the investor priced houses were gone and momentum brought more homes to the market while higher prices and rising interest rates on loans thinned the number of qualified buyers. Today, according to the Sacramento Assn. of Realtors (SAR), active listings are up 87% from 1 year ago and the median sales price is $203,000 – up 62%! On the other hand, closed sales are down 17%, closed short sales are down 65%, and days on the market from listing to sale have increased over 100%. These statistics suggest that the Spring real estate market should be active but pricing may flatten to meet demand.

2. Foreclosures: Without question, the rate of foreclosures have steadily fallen here and nationally as economic recovery and new laws pushing lenders to be more open to short sales and modifications have eased the pressure. However, while the number of homes in the foreclosure process (default through sale) are down 27% from this time last year, new foreclosure starts are up 57%. It is now clear that the courts will not stop lenders from foreclosing and laws cannot compel them to either modify or accept a short sale. So it appears that lenders are now moving to clear out delinquent properties and get what they can from the increased pricing.

3. Short Sales: Here’s the wild card. Short sale inventory is up 62% from this time last year while completed short sales are down 65% from the same period… nearly a 130% shift! It’s not clear why this is happening but here’s three factors I am aware of: 1) Buyers want the certainty of an active sale rather than the uncertainty and long time lines of a short sale; 2) Buyers are frustrated with some Lenders forcing their deal to go trough a price verification process such as auction.com; 3) rising prices are making short sales less attractive to Buyers…and to Lenders.

We’ll have a clearer picture as the 2014 Spring real estate market unfolds. There’s nothing dramatic expected that would change the above trends so more likely than not we’ll be continuing the market recovery as the inventory of upside down properties slowly is resolved. We’ve been saying for years that recovery should take until about 2015-16. That still appears accurate.

BPE Law has been assisting our clients with their real estate, business, and other legal needs ever since we started doing business. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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Originally Published December 2013

At this time every year, reports start coming out about the many new laws taking effect next year.  Here in California, nearly 1,000 new laws will start up in 2014 many of which will directly affect property owners and real estate professionals.

Here are highlights of some of the most important measures and significant changes of which you should be aware.

1.   IRS AND CA EXTEND DEBT FORGIVENESS TAX RELIEF
Since neither Congress nor the CA Legislature passed any extension of Debt Forgiveness Tax Relief beyond its 12/31/13 ending, everyone thought that tax relief was dead. If so, the financial damage from a short sale or foreclosure would become much greater.  But now the IRS and California tax officials have ruled that any short sale of a 1-4 unit residential property in California will be exempt from tax on the unpaid debt. Now, if they would extend this to foreclosures as well, the entire upside-down market could clean up faster.

2.  LENDERS & BORROWERS FACE MAJOR CHANGES WITH NEW LENDING RULES
On January 10, 2014, several new lending Rules will take effect as a result of the Dodd-Frank Wall Street Reform and Protection Act. Here are the key ones to watch:
(1)  Qualified Mortgage (QM) Rule – purpose is to reduce risk in the lending industry by imposing limits on risky loan terms such as interest-only and negative amortization as well as tightening underwriting standards.
(2)   Ability to Repay (ATR) Rule – purpose is to protect consumers from obtaining loans that they cannot afford by requiring documentation and proof of income and assets. While you would think that lenders would do this anyway, the housing bubble and market crash were the result of lenders dropping verifications in order to make more loans.
(3)  Qualified Residential Mortgage (QRM) Rule – Similar to the QM Rule, the purpose of QRM is to improve the quality of loans being sold on the secondary mortgage market.
For a good analysis of these changes, see Brandon Cornett’s article for the Home Buying Institute: New Mortgage Rules and Other Changes Coming in 2014.
 
3. NATIONSTAR AND AUCTION.COM RULES CLARIFIED
One of the most frustrating changes in the real estate market has been the requirement by Nationstar that all short sales seeking its consent must be posted on auction.com  for 3 weeks “to verify that the loan investor has received the best price”. While this practice would appear to violate the contract rights of buyers, sellers, and their real estate agents, California Bureau of Real Estate (BRE) which regulates real estate activities in CA has ruled that this practice does not violate any laws. If a higher bid is received in the auction, the original buyer has an opportunity to top that bid. Otherwise the auction bidder gets the property. California Assn. of Realtors has advised its members to contact Nationstar immediately upon listing a property with a Nationstar loan.

4.  HOME IMPROVEMENTS BECOME MORE COSTLY

Starting January 1st, any improvement or alteration to a single-family home more than 20 years old will trigger a 2009 state law mandating the installation of water-saving toilets, shower heads and faucets. The upcoming rule is the the latest government attempt to improve water conservation. Since the 1990s, new homes have had to include various water-saving features. Over subsequent years, the Legislature has approved laws setting low-flow standards for toilets, faucets and other products. Officials said the upcoming rule will, at relatively low cost, make a huge dent in the states urban water consumption and help the state meet a goal to reduce water use by 20 percent by 2020.

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UNDERSTANDING ADVANCED HEALTH CARE DIRECTIVES

(Originally Published October 2013)

WHAT IS AN ADVANCED HEALTH CARE DIRECTIVE? An Advanced Health Care Directive (AHCD), also called a “Living Will”,  is a document in which you can specify now who you want to make health care decisions for you in the future in the event that you are unable to make these decisions yourself, generally when you’ve become incapacitated. As you may have guessed, this sounds a lot like the Durable Power of Attorney I discussed in last week’s Article and in fact until fairly recently this was called a Durable Power of Attorney for Health Care.  The name was changed because legally powers of attorney die when you do. Yet  the  AHCD also includes post-death instructions such as organ donation, autopsy, and funeral and memorial wishes.

SO WHAT ARE YOU DIRECTING?   Your AHCD directs your designated Agent as well as your medical care providers as to your specific desires when facing a medical decision which you are unable to make for yourself. Although these decisions are very personal, over time many people have reached a common desire that when facing a life-ending medical condition, they do not want to be kept alive only because medical technology can keep the body going even when you are effectively gone. Many people remember the case of Karen Ann Quinlan who has kept alive in a hospital for nearly 10 years even though she was in what is called a “persistive vegitative state”.  Most say they don’t want to live like that.  Yet none of us wants the plug to be pulled before we’re ready to go so with your AHCD you designate your choices of treatment if you every fall into such a condition.

WHAT ARE THE DECISIONS TO BE MADE?   The decisions generally fall into two categories: 1) Pre-death; and 2) Post-death.

1.  Pre-Death Decisions – although the State of California has a basic form for AHCD’s, our forms seek to better clarify the choices to be made. Here’s the typical language:

“I recognize that modern medical technology has made possible the artificial prolongation of my life beyond natural limits. I do not wish to artificially prolong the process of my dying if continued health care will not improve my prognosis for recovery or otherwise enable me to live a productive and/or enjoyable life. Therefore, I do not want efforts made to prolong my life and I do not want life-sustaining treatment to be provided or continued:  (1) if I am in an irreversible coma or persistent vegetative state; or (2) if I am terminally ill and the use of life-sustaining procedures would serve only to artificially delay the moment of my death; or (3) under any other circumstances in which the burdens of the treatment outweigh the expected benefits. In making decisions about life-sustaining treatment under provision (3) above, I want my agent to consider the relief of suffering and quality of remaining life as well as the extent of the possible prolongation of my life. I understand that if there is a conflict between my agent’s decision and this statement, this statement shall take precedence.”

“For purposes of this statement:
A)  “Life-sustaining treatment” means any medical procedure, treatment, intervention, or other measure including artificially or technologically supplied nutrition and hydration that, when administered, will serve principally to prolong the process of dying.
B) “An irreversible coma”, means a coma from which the treating physicians have reasonably concluded I will never regain consciousness.
C) “Persistent vegetative state” means a state of permanent unconsciousness that, to a reasonable degree of medical certainty as determined in accordance with reasonable medical standards by my attending physician and one other physician who has examined me, is characterized by both of the following:
(i)    I am irreversibly unaware of myself and my environment, and
(ii)    There is a total loss of cerebral cortical functioning, resulting in my having no capacity to experience pain or suffering.
D) “Terminal condition” means an irreversible, incurable, and untreatable condition caused by disease, illness, or injury from which, to a reasonable degree of medical certainty as determined in accordance with reasonable medical standards by my attending physician and one other physician who has examined me, both of the following apply:
(i)    There can be no recovery; and
(ii)    Death is likely to occur within a relatively short time if life sustaining treatment is not administered.”

For each of these decisions,  you can either accept the language, reject the language, or modify the language to say something else.  Furthermore, additional provisions in the AHCD allow you to designate that irregardless of what directions you give to the above conditions, pain relief is more important and your Agent and medical providers are to allow you to die as naturally and as painlessly as possible.

2.  Post Death Decisions – deal with the normal decisions that have to be made after anyone passes away.  These typically include:
- Anatomical Gifts
- Autopsy
- Disposition of Remains, ie: cremation or burial
- Arrangements for Funeral or Memorial Service

WHEN DOES THE AHCD TAKE EFFECT?  Like powers of attorney, the AHCD takes effect as soon as the document is signed although the right of the Agent to exercise the powers does not take effect until the occurrence of some event, usually the incapacity of the Principal.

HOW LONG DOES THE AHCD POWERS LAST?  The powers under the AHCD exist as long as necessary to carry-out your wishes both before and after death… or until you revoke the powers.

CONCLUSION
In planning your Estate now, you are demonstrating the foresight and concern that will save your family and survivors time, trouble, money and grief. Our easy-to-follow Estate Planning Worksheet will guide you in assembling all the information you need to get your personal Estate Plan started. We look forward to assisting you and your family in this most important concern. Also please feel free to refer our services to other family members or friends who may not have begun their own estate planning.  If you are ready to get started now, call our office at (916) 966-2260 and schedule an Estate Planning Consultation.

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UNDERSTANDING POWERS OF ATTORNEY

(Originally Published October 2013)

WHAT IS A POWER OF ATTORNEY?
Some times in life, we want to give another person the legal authority to make decisions for us when we cannot make the decision ourselves. The document that is used to do this is called a “Power of Attorney”… essentially authorizing someone to act as our “Agent”.  The person granting this power is called the “Principal”.

WHAT POWERS DOES THIS AGENT HAVE?
Your Agent under a Power of Attorney has as much or as little power as you choose to give them and that generally is determined by why the power is being given. Some forms are called: “Limited or Special Powers of Attorney”.  For example, if you are buying a home and the escrow signing is scheduled but you suddenly have to leave the Country on business, you can designate someone to sign those documents on your behalf.  Other times, the power may be broader and longer lasting. An example of this is a real estate property management agreement where you designate someone to make most of the decisions concerning the property including the handling of your related money. The power of attorney used in Estate planning is very similar and is called a Power of Attorney for Estate Management. This however is typically considered a “General Power of Attorney” and is intended to last as long as the Principal is alive or until it is revoked. This grants the Agent the authority to make all decisions concerning the Principal’s property and financial affairs.

In all such documents you are granting your Agent the power to act as your Fiduciary.  A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. Generally this involves the handing of money or assets of value. A fiduciary is required to exercise the highest duty of care and loyalty and to not put his own personal interests ahead of this of the Principal.

WHEN DOES THE POWER OF ATTORNEY TAKE EFFECT?
Generally powers of attorney take effect as soon as they are signed since they are addressing an immediate need.  However, in Estate Planning, the right of the Agent to exercise the powers generally does not take effect until the occurrence of some event, usually the incapacity of the Principal.   Two forms of this are typical and are often used to accomplish the same purpose: 1) the Durable Power of Attorney which takes effect immediately and continues even if the Principal becomes incapacitated; and 2) the Springing Power of Attorney which takes effect only when the Principal becomes incapacitated.

HOW LONG DO POWERS OF ATTORNEY LAST?
The duration of the powers exist as long as the document creating them provides… or until the Principal dies, whichever comes first.  Generally, this is as long as the powers are needed.  For example, the person traveling would not need the Power of Attorney to continue after the home has been purchased and the property manager would not need the Power of Attorney to continue after the management contract has ended.  In Estate Plans the powers generally last until the Principal either dies or revokes the Powers.

IF I HAVE A TRUST, WHY WOULD I NEED A POWER OF ATTORNEY IN MY ESTATE PLAN?
The Successor Trustee in a Trust has all of the same powers and obligations as the Agent under a Power of attorney, including the fiduciary duty.  The reason for the Power of Attorney is the Estate Plan is the same reason why we have a Pour-Over Will… it fixes a problem the arises if the Trustor forgets to put all of their assets into the Trust.  The Successor Trustee can only control Trust assets; the Agent under the Power of Attorney can only control non-Trust assets.  More importantly, if the Agent under the Power of Attorney discovers there are non-Trust assets, they can transfer those assets into the Trust which is most likely what the Principal would have done.

CONCLUSION
In planning your Estate now, you are demonstrating the foresight and concern that will save your family and survivors time, trouble, money and grief. Our easy-to-follow Estate Planning Worksheet will guide you in assembling all the information you need to get your personal Estate Plan started. We look forward to assisting you and your family in this most important concern. Also please feel free to refer our services to other family members or friends who may not have begun their own estate planning.  If you are ready to get started now, call our office at (916) 966-2260 and schedule an Estate Planning Consultation.

 

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(Originally published Sept. 2013)

UNDERSTANDING WILLS AND TRUSTS

WHAT IS A WILL?
Most of us have heard the term “Will” or “Last Will and Testament” but many don’t know what that exactly means.  A Will is simply a document in which you designate who will get your real and personal property upon your death and who will administer your affairs during the process.  As such, it is a basic building block of estate planning.  If you should die without making such a designation (legally called “intestate”), the laws of the State of California will determine who gets your property regardless of what your unwritten intentions may have been (California does not recognize “oral wills”). All persons related to you through blood or marriage have a claim at law on your estate property including all of your children (natural, adopted, illegitimate, etc.) and their successors if predeceased. Furthermore, if you desire to intentionally omit providing for any child, you must state this intent. In a Will you also designate who should be the Guardian of your minor children.

ADVANTAGES OF A WILL
Creating a Will is a relatively easy matter. You state in writing and in the presence of several witnesses who you want as an administrator and who you want to get your assets when you die. Many low-cost programs and forms are available for this purpose or we can do this for you.

DISADVANTAGES OF A WILL
The biggest disadvantage is that all Wills must be confirmed by a Probate Court.  As I described in last week’s Article, this Probate process is generally expensive, time-consuming, and open to the public to see.  If your objective is to pass your assets on to your heirs and other beneficiaries as intact as possible, the Probate process will take a chunk out of what you are leaving them.

HOW CAN I AVOID THESE COSTS AND DELAYS?
The easiest way to avoid these costs is through the use of a Revocable Living Trust.

WHAT IS A REVOCABLE LIVING TRUST?
A Revocable Living Trust is a legal entity that you create on paper to hold your assets for you. In other words, the Trust owns your real estate, your personal property, and your investments. It is called “revocable” because you can change it or even terminate it at any time during your life. It is called “living” because it is created and operated while you are still alive. And it is called a “Trust” because it holds and manages all of your property for you and your beneficiaries.

DOESN’T THIS MEAN I LOSE CONTROL?   
NO! When you create your Living Trust, you designate yourself as the “Trustee” of the Trust and you have the sole right to manage the Trust’s assets. And, because you are also the beneficiary of the Trust, you continue to use and enjoy your Trust throughout your lifetime just as you did before. Since you own the Trust, you can set up the “rules” such as who will manage your property if you can’t (“Successor Trustees”), who will get those assets you put into the Trust, and when those assets will be distributed. You can in effect continue to control your property after your death. During your life, you can continue to add and remove assets from your Trust, receive any and all income, and you can change any provision. You NEVER lose control.

HOW DOES THIS SAVE ME TIME AND MONEY?
1. Probate Avoidance: Because a Trust is treated as a separate legal entity, when you die the Trust survives. As an individual, if you have properly transferred all your assets into the Trust while you are alive, you then have no estate when you die and therefore there is no need for Probate. The role of the Successor Trustee then is to step into your shoes to manage and distribute your estate just as you have designated… they can’t change your wishes. Once the estate is all distributed, the Trust comes to an end and, since there are no assets remaining in the Trust estate, no Probate is required.

 2. Minimizing Estate Taxes: Through a Trust, you can combine your Estate Tax exemption with that of your spouse to gain the full exemption available. This alone could protect your Estate from huge amounts in federal estate taxes.  Some people think they can avoid the Estate Tax by holding their assets in “Joint tenancy”.  But in reality, all this does is lose the tax exemption of the first spouse to die.

WHAT OTHER BENEFITS WILL A LIVING TRUST BRING ME?
1. Avoid a Conservatorship: If you become incapacitated and cannot manage your financial and health care affairs, someone will have to be authorized to step in and take control. Without proper planning, a Court supervised Conservator will have to be appointed at substantial cost and inconvenience. However, a properly drafted Trust can avoid this by authorizing your Successor Trustee to take control and providing the power for them to act during your incapacity.

2. Avoid Publicity: A Living Trust is a completely private affair and generally no-one can know its contents unless you let them.  In fact if there is an occasion when you have to prove that the Trust really exists – such as when buying or selling a home, getting a loan or insurance, etc. – we create a related document called a “Certification” which gives those third parties the information they need to know while preserving your privacy.

3. Flexibility: As the owner of your Trust, you have complete flexibility in relation to your estate and its distribution after you die. You can provide for all, or certain, of your children. You can provide for all, or certain, of your grandchildren. If you have heirs with “special needs”, you can provide distribution that could take place over many years. Your Trust can also provide for children of prior marriages. Your Trust can even regulate when and how your beneficiaries may be provided for and prevent their creditors and others from attaching their interest in the Trust. The point is, everyone’s needs are different and your Living Trust can meet those demands.

4. Revocable: You can change the terms of your Trust or revoke the entire trust any time you want. The Trust only becomes unchangeable when you die (the new “trust managers” cannot change the terms of your trust).

ARE THERE ANY DISADVANTAGES OF A LIVING TRUST?
The only disadvantage is that you may gain a false sense of security and fail to “fund” the trust, that is to make sure that you change the ownership of your assets from you as an individual to you as a Trustee of your Trust. We handle this for you when the Trust is first setup.

WILL A LIVING TRUST MAXIMIZE MY ESTATE PROTECTION?
All things are not for all people. The same is true of a Living Trust. They are, however, for MOST people. By analyzing the size of your estate now and making reasonable projections as to how large your estate may become, as well as looking at what your specific desires are, we can determine what form of estate planning would best serve you and then custom design an Estate Plan to meet those needs. Additional Documents may be recommended to achieve specific results. These most typically will involve methods of reducing estate taxes. Examples of such documents would include:

- Special Needs Trusts for disabled persons
- Life Insurance Trusts for estate tax coverage
- Charitable Remainder Trusts for estate tax reduction
- Family Limited Partnerships for estate tax reduction
- Special Trusts for business interests

CONCLUSION
In planning your Estate now, you are demonstrating the foresight and concern that will save your family and survivors time, trouble, money and grief. Our easy-to-follow Estate Planning Worksheet will guide you in assembling all the information you need to get your personal Estate Plan started. We look forward to assisting you and your family in this most important concern. Also please feel free to refer our services to other family members or friends who may not have begun their own estate planning.  If you are ready to get started now, call our office at (916) 966-2260 and schedule an Estate Planning Consultation.

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(Originally published Sept. 2013)

What is Estate Planning?
Every one of us has an “Estate” of some kind… a home, maybe some investments, money in the bank, insurance, a business, etc. Estate Planning is simply the process of creating certain documents that will enable you to preserve your Estate and pass it on to your heirs and beneficiaries as intact as possible. Why is this important? Because if you don’t plan ahead, your Estate may get chopped up by the ravages of Probate costs, attorneys fees, estate Taxes, and other avoidable time delays in distributing your property to your heirs. Simply put, it is devising an effective method that will allow as much of your estate as possible to be preserved and passed on to your heirs and beneficiaries, without all of the costs and headaches. And the two biggest dangers are Probate and Estate Taxes.

What is Probate and Why Do You Want to Avoid It?
Probate is simply the legal process by which a Court decides who is going to control and receive your assets when you die.. or even if you are incapacitated. If you have no Estate Plan at all or even if you one have a Will, Probate will be required. The biggest problem with Probate is that it’s expensive, How expensive? Well, it’s virtually impossible to do Probate today without an attorney and those Probate Attorney fees are set by law. They are 4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; then a sliding scale after that. Most importantly, the Probate attorney fees are tied to the gross value of your Estate, not the net. So, if all you have is a home worth $400,000, the attorney fees alone would be $11,000 plus court costs and expenses of another $2,500. In contrast, an average estate plan will cost you just $1,500.

Beyond the expense, Probate is very time-consuming and it’s open to the public. The minimum time to Probate and Estate is six months… and often more than a year… time spend creating and signing various Court-required documents and appearing at Court hearings, waiting through the many other cases on the Court’s docket each day. And all of this is open to public viewing by everyone else in the Courtroom and, in many Counties, such as Sacramento, your estate information is available online. Forget about privacy.

Bottom-line, Probate is something you want to avoid.

Why You Should Worry About Estate Taxes?
Currently, there is no California Estate Tax. It’s the Federal Tax we need to worry about. Estate Taxes are charged based upon the size of your Estate after your exemptions. Each of us has a personal exemption from Estate Taxes… at this point in 2013, that exemption is $5 million each. While for most of us, this means we’ll have no tax, the concern is that this could change. Back in 2001, that exemption was only $600,000. Federal law then gradually increased the exemptions through 2009 when the exemption reached $3.5 million. The current exemption was set in 2010 and is already the subject of Congressional challenges. Reductions in the Federal exemption are anticipated in the 2014 Budget battles.

While the current law may provide estate tax-exemption for most people, it certainly does not protect all. I’ve had clients that own businesses or have worked hard all their lives building their investments. Often they have large insurance policies as well which also count as assets for tax purposes. Since Estate Taxes can be up to 55%, there is a significant amount of your estate that can be lost to taxes. And between spouses, it’s easy to waste a tax exemption by failing to do effective Estate Planning… a very costly mistake.

So How is Probate and Estate Taxes Avoided by Estate Planning? Properly drafted Estate Plan documents such as using a Living Trust instead of a Will can enable you to avoid the Probate process entirely and keep the administration of your Estate low cost, fast, and private… and can maximize your Estate Tax exemptions.

What are these Estate Plan documents?
Building an effective estate plan is like putting together a puzzle. There are several pieces to the estate plan puzzle. For most people, these are:
1. Revocable Living Trust
2. Pour-Over Will
3. Power of Attorney for Estate Management
4. Advanced Health Care Directive
What your puzzle should look like when completed will depend on the size of your estate and your specific desires. Just as a puzzle that is missing a piece is not complete, if you leave out pieces of your estate plan, your wishes may not be achieved.

If you are ready to get started now, call our office at 916-966-2260 and schedule an estate planning consultation.

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