San Diego Estate Planning Lawyer Blog
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Many people pledge money to charity as part of their estate planning. In California, charitable pledges are generally not enforceable in court unless the donor receives some consideration, thereby creating a binding contract. For example, if a college offers to name a building after you in exchange for your gift, that would be consideration for your pledge. If you pledge money contingent on other people making similar donations, that would constitute mutual consideration among all of the donors.

If you do make a binding pledge as part of your estate plan, however, make sure you consider the wishes of your spouse. Under California law, any community property held by a married couple is owned one-half by each spouse. This means you may not make a gift of your spouse’s share of such property without his or her consent.

Ex-Husband Cannot Pay for Pledges With Ex-Wife’s Share of Community Property

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For many of us the “paperless office” is a reality. Our personal and professional lives reside online through our laptops, smart phones, and cloud storage. But what does this mean for our estate planning?

Recently, an article on CNBC.com discussed the growing popularity of “digital document archives,” which offer specialized cloud storage for estate planning materials including wills, powers of attorney, and health care directives. The idea behind such services is to make it easier for family members or other fiduciaries to locate important estate planning documents. For example, if a person dies, his or her executor could go to a digital archive and promptly download a copy of the will.

Are “Digital Wills” Admissible in California?

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When making a last will and testament, you may assume that the beneficiaries you name will outlive you. Of course, that is not always the case. So what happens, for example, if you leave your brother $10,000 in your will and he dies before you?

The Anti-Lapse Statute

Like many states, California has what is known as an “anti-lapse” statute. Under California’s version, if a named beneficiary is dead at the time a will is probated, the “issue of the deceased transferee” may inherit the gift in his place. So, to apply the anti-lapse statute to the above hypothetical, your brother’s children would receive the $10,000 gift you left him in your will.

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Estate planning can seem like an unnecessarily complicated process. But there are ways to simplify matters. After all, the whole point of estate planning is to facilitate the transfer of assets from the deceased person to the chosen beneficiaries—and this does not always require a will or formal trust document.

Totten Trust vs. Payable-on-Death Account

In the early 20th century, courts began to recognize something known as a “Totten trust.” Also called a “bank account trust” or sometimes a “poor man’s trust,” a Totten trust is nothing more than a bank account opened by a depositor in his or her own name as trustee for a beneficiary. The depositor is free to withdraw funds or even close the account during his or her lifetime. Any funds remaining in the account at the time of the depositor’s death are then paid over to the beneficiary.

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One issue that comes up when making a will is whether to require your designated personal representative (a/k/a executor) to post a bond. California law requires any personal representative to post bond as a condition of his or her appointment. The purpose of the bond is to protect the interested persons in your estate, i.e. the beneficiaries named in your will. The personal representative’s job, after all, is to ensure your beneficiaries receive their inheritance. The bond helps insure against an unscrupulous personal representative who misappropriates estate property for some other purpose.

Of course, you can choose to waive the state’s bond requirement in your will. In fact, many people do just that given that their chosen executor is usually someone they trust, such as a spouse or child. In cases where the deceased did not leave a will, the beneficiaries of the estate may also choose to waive the bond requirement by written notice to the probate court.

Requiring a Bond After Administrator Fails to Account for Funds

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When you create a trust as part of your estate plan, the trustee is obligated by California law to be “impartial” with any beneficiaries you name. In other words, if you specify the trust assets should be divided equally among your children after your death, your trustee cannot favor one child over another. This requirement of impartiality is especially important if your trustee is also a beneficiary. You do not want the beneficiary-trustee misusing trust assets to benefit themselves at the expense of the other beneficiaries.

One consequence of this impartiality rule is that when someone challenges or contests your trust, the trustee may normally not use trust assets to defend against such a challenge unless it touches upon the validity or assets of the trust itself. So if someone files a lawsuit claiming they are a rightful beneficiary of the trust—or someone else is not a rightful beneficiary—the trustee should not get involved. Of course, California law only establishes a default position. In making a trust, you are free to instruct the trustee to defend against any and all lawsuits at the trust’s expense.

Daughter Contests No-Contest Clause in Mother’s Trust

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An often overlooked aspect of estate planning is taxes. After all, death does not extinguish any tax debt that you may owe to the Internal Revenue Service or the State of California. It is possible your estate will owe tax for income earned on your assets even after your death.

Federal Government Collects on Unpaid Estate Tax Bill

For example, the estate of some wealthy Californians may be liable for the federal estate tax. The estate tax is technically a “tax on your right to transfer property at your death.” But most estates will never owe this tax because the law contains a sizable exemption before tax is assessed. For individuals who die in 2016, the exemption is $5.45 million. There is also an unlimited “marital deduction” for transfers from a deceased spouse to a surviving spouse.

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One of the most important reasons to make an estate plan is to provide for your family after you are gone, but family can be a legally complicated concept. For instance, if you voluntarily make child support payments for a minor who does not live with you, do those payments automatically end upon your death? Alternatively, can an ex-spouse enforce a child support order contained in a divorce decree against your estate?

Child Support Can Be Enforced as a Creditor’s Claim

A recent New Jersey case illustrates how these questions can play out in court. The case involves the estate of a New Jersey man who had a son with a woman who lives in New York. In 2008, the parents entered into a voluntary child support agreement whereby the father agreed to pay the mother $3,000 per month in child support until the son reached the age of 21. The father also agreed to separately pay the child’s medical and educational expenses. A New York State court subsequently entered a child support order based on the parents’ agreement.

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Estate planning is not just about taking care of your family. It is also about taking care of your creditors. Your death does not magically make your debts disappear. The personal representative of your estate has a legal obligation to pay your valid debts from the assets in your probate estate before distributing the remainder to your heirs or the beneficiaries named in your will.

Death of NBA Team Co-Owner Raises Creditor Concerns Over Potential Sale

Creditor claims can significantly complicate the administration of a probate estate. An ongoing high-profile probate case in Oklahoma offers a useful illustration. In March of this year, Aubrey McLendon, a well-known natural gas company executive, died in a single-car crash. Among his many assets, McLendon owned approximately 20% of the NBA’s Oklahoma City Thunder franchise. McLendon was part of a group that purchased and relocated the former Seattle Sonics to Oklahoma City in 2008.

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Selecting a personal representative or executor for your estate is often the most important estate planning decision you will make. In most cases a spouse or family member is named as executor. But there may be situations in which you may wish to consider someone from outside the family, such as a professional fiduciary, to oversee the distribution of your assets after your death.

Daughter Ordered to Return Funds Illegally Diverted from Father’s Estate

For example, there may be times when you do not trust a family member to deal honestly and equitably with other family members. A recent case from here in California offers a useful illustration. This case involves an estate asset that was located nearly 20 years after the estate was opened. The deceased was a man with three children. He did not name any of the children as executor, but rather appointed an outside person to the role.