Estate Planning Especially Important for Unmarried Couples

July 31, 2010

Many couples who have opted not to get married may believe that estate planning or lack thereof is the same for them as for married couples. Unfortunately, it is not, which is why unmarried couples really need an estate plan.

Whether gay, lesbian, or heterosexual, unmarried couples do not have the same rights as married couples. If you die without a will or a trust, your assets will not be distributed to your partner, no matter how long the relationship. Your estate will go to your family. If you are unmarried and your partner is in an accident and needs someone to make health care decisions, you cannot make those for him or her. Similarly you have no right to access your partner’s medical records or information. If financial decisions need to be made during a period of incapacity, you don’t have the right to do that either without a power of attorney signed by your partner naming you as an agent to handle those type of matters. Also unlike married couples, unmarried couples do not have the benefit of the marital deduction so you could have tax issues by not being married.

With a living trust and all the companion documents such as an Advance Health Care Directive, Durable Power of Attorney for Finances, and a Nomination of Guardians for your minor children, you will be able to insure that your partner inherits your estate and if you have children, they will be taken care of if something should happen to both of you.

Other ways you can provide for disposition of assets upon your death is to name your partner the beneficiary of a life insurance policy. Employee benefits and IRA's can be tricky as some employers will not allow you to designate a partner. You may have to name your trust the beneficiary and make your partner the beneficiary of your trust. Unlike married beneficiaries, unmarried beneficiaries of IRAs do not qualify to roll over an IRA. You can also leave payable on death accounts such as bank accounts or investment accounts to your partner.

With appropriate estate planning, unmarried couples can protect each other and provide for any children they have together. The experienced estate planning attorneys at Scott C. Soady, A Professional Corporation can help you determine how best to implement your wishes and goals for the future.

Faces of Our Estate Planning Clients

July 28, 2010

At Scott C. Soady, A Professional Corporation, we assist families and individuals with a variety of legal needs. We do family law, civil law, and estate planning. In the estate planning area, we have many different types of estate planning clients.

Some clients come to us because a loved one has passed away and they need help with probate if the loved one had a will. If the loved one had a trust, then they have questions about how to administer a trust. If someone dies without a will or a trust, then there will be a probate also. We can walk you through the probate or trust administration process

Many clients consult with us about a revocable living trust. Maybe they are a young couple just starting out, having their first child and want to create a trust to provide for their minor children should something happen to them Others want to be sure that their children do not receive an inheritance outright at age 18 and want to plan for incremental distributions should both parents die. Other trust clients want a trust to avoid probate for their beneficiaries. Some want to include charitable giving in their estate plan. Estate planning is the process of creating a legal plan that will protect you, your family, and your assets while you are alive, incapacitated, or when you pass away.

Some young adults who are turning 18 want to execute advance health care directives and HIPAA authorizations so that their parents can make health care decisions if necessary and have access to medical information.

We also see clients that want to establish a guardianship for a minor or a conservatorship over an adult who is unable to take care of their personal needs or finances.

There are also some clients who want help with business succession planning. They might want to create a plan to leave their ongoing business to a family member or a partner or draft a buy and sell agreements.

Lastly we also handle probate and trust litigation when problems arise in any of the above situations.
To set up a complimentary consultation about your estate planning needs, contact us by phone or email.

Powers of Attorney for Finances

July 24, 2010

A power of attorney is a legal document that allows you to choose a person you trust to take certain actions on your behalf if you become incapable of managing your financial affairs. It is an extremely important document to have because if you suddenly become incapacitated and you don't have such a document, the probate court may have to step in.

A “durable” power of attorney means that the power of attorney remains valid even if you become incapacitated and unable to make decisions for yourself. There are several types of powers of attorney.

A limited power of attorney for finances is one that authorizes your agent to act only for a specific transaction. Suppose you are going out of the country and need someone to act for you in closing an escrow. You can execute a limited power of attorney which authorizes your agent only to act with respect to the escrow.

A general durable power of attorney is one that covers a variety of actions authorized for the agent to do: Powers such as making bank deposits, paying bills, buying or selling property, filing income taxes, making investments, operating a business, and collecting or applying for social security or Medi-Cal.

These general durable powers of attorney come in two types: springing and those that are effective immediately. A springing power of attorney typically becomes effective upon one or two doctors certifying that you lack capacity to handle your financial affairs. A power of attorney which is effective immediately upon execution means that the agent you name can act without further authorization. Often this type of power of attorney is used by spouses so that each can act immediately if their spouse becomes incapacitated.

A durable power of attorney ends at your death. At that point, the trustee of your trust takes over or your executor if you have made a will. At Scott C. Soady, A Professional Corporation, a durable power of attorney is included in your revocable living trust package so that you have the necessary documents for incapacity as well as for distribution of your estate after your death. Call us if you have any questions about powers of attorney or any other estate planning issues.

Revisiting the Importance of Business Succession Planning

July 19, 2010

We are always learning from celebrities what not to do in estate planning. Business succession planning is so important for individuals who own a business and want that business to continue to operate after their death. Business succession planning can involve important issues such as who will have control of your business when you retire or die? Who will have ownership? It can also involve tax planning to minimize the taxes. Planning in advance can make the transition much easier.

Dale Earnhardt Sr,, famous race car driver who died in a crash at the 2001 Daytona is an example of how poor planning can have disastrous results.

Dale Earnhardt Sr. started Dale Earnhardt Inc., the company that ran his racing team. When Dale Sr. died, he left his business DEI to this third wife Theresa, not the mother of his children. Theresa became the owner of the racing team in which Dale Jr. was the principal driver. An interesting issue developed when Dale Jr. found himself not only not in control of the company but also not even having the rights to his own name. Apparently his father Dale Sr. had filed a trademark for his son's name and Dale Jr. signed a consent to it. When Dale Sr, died, the rights to Dale Jr.'s name went to his estate and then to Theresa. Dale Jr. tried to negotiate with his step mother to gain some control of the company but nothing came of it and in 2007 Dale Jr. resigned to drive for another racing team.

It is hard to imagine that Dale Sr. would have wanted his son, who followed in his footsteps as a race car driver, to be shut out of DEI. Had Dale Sr. planned properly, a plan could have been created to give control of DEI to his son and still left plenty of resources for his wife.

Scott C. Soady, A Professional Corporation can help with planning for the succession of your business as part of an overall estate plan. Read about some of the points to consider in our article on Business Succession Planning and contact us to schedule a free in-office consultation.

Inheriting an IRA From a Spouse

July 15, 2010

IRAs can be a substantial asset when someone dies. Inheriting an IRA from a spouse can be a great opportunity to continue tax-deferred investing. Surviving spouses have a unique opportunity that that don’t apply if you inherit an IRA from someone else. A surviving spouse has the ability to roll over an IRA inherited from a spouse into their own new or existing IRA and treat the assets as if they were theirs. The 4 basic options for a surviving spouse are:

1. Roll the inherited IRA over into your own IRA. Rolling the inherited IRA into your own IRA gives you the benefit of having the amount and timing of the required distributions based on your age as the surviving spouse. If for example, your spouse was over the age of 70 ½ but you are not, this option allows you to stretch out the tax deferred benefits until you reach 70 ½. Beneficiaries who are not spouses cannot roll over an inherited IRA or contribute to it.

2. Remain a beneficiary. As a spouse you can choose to keep your name on the IRA. If you transfer the inherited IRA into your own name, the amount of the required distributions will be based on your age as the surviving spouse. This can be a good option if the surviving spouse is younger than 59 ½ but wants to take out funds from the IRA without incurring early withdrawal penalties.

3. Disclaim the IRA assets. Another option is to disclaim the assets. If you do not need the inherited assets, you can refuse to accept them i.e. disclaim them, in which case the IRA would go to the next named beneficiary. If this beneficiary is younger than you, such as a child, the required distributions will be based on his or her life expectancy. If you want to take advantage of this option, the disclaimer must be made within 9 months of the IRA owner's death.

4. Cash out the IRA. It may be tempting to cash out the IRA but don’t do this without first checking with your financial advisor or tax accountant.

It is important that you handle the inheritance of an IRA correctly to avoid paying subsequent penalties and taxes. As part of trust administration after the death of the first spouse, the estate planning lawyers at Law Office of Scott C. Soady, A Professional Corporation can work with CPAs and financial consultants to assist you not only with the distribution of trust assets but also with how to handle inherited IRAs.

New Developments in the Federal Estate Tax

July 11, 2010

For those following the federal estate tax controversy, last month three senators introduced the Responsible Estate Tax Act which if passed will return the federal estate tax exemption to the 2009 $3.5 million level. The current state of the law is that during this year, there is no estate tax at all which means multi million and multi billion dollar estates pass to the beneficiaries free of any federal tax. Without some legislation before the end of the year, the federal estate tax exemption will return to $1 million.

The new bill, if passed, will restore the 2009 exemption of $3.5 million. Estates over $3.5 million will pay federal estate tax. Estates over $3.5 million and under $9 million will be taxed at a 45% rate. Estates between $10 million and $49 million would be taxed at the rate of 50%. Estates over 50 million would pay estate taxes at a rate of 55%. The bill also imposes a 10% surtax on billionaires. (There are approximately 400 billionaires in the United States) It is estimated that passage of the bill would bring at least $264 billion into the economy.

If the federal estate tax issue is not addressed, returning to the $1 million level next year will affect many of our estate planning clients so it is important to keep informed as to the status of this bill. Many clients' estates fall within the $1 million to $3.5 million range. If the tax reverts to $1 million in 2011, additional estate planning may be necessary to avoid estate tax liability. Different types of trusts and other tax saving techniques may become necessary. We will follow the status of legislation and post any developments here.

Estate Planning Concerns for Disabled Beneficiaries

July 7, 2010

There are millions of people in this country who have mental or physical disabilities. In many cases individuals with disabilities are receiving government benefits and assistance such as supplemental security income (SSI) or Medi-Cal (which is the California version of Medicaid). If such an individual is receiving such benefits and receives money from another source such as from an inheritance, those government benefits may be in jeopardy. In all cases, the goal is to protect the beneficiary’s continued access to need-based government benefits.

If a member of your family or someone you contemplate leaving assets to when you die is disabled, you should consider what is called a Special Needs Trust. A special needs trust is one that is set up for the benefit of a beneficiary so that if that beneficiary is, or at some point might be, receiving public assistance such as SSI or Medi Cal, they can receive the assets in trust and not be disqualified from receiving benefits. The provisions of the special needs trust allow a trustee to make distributions to the beneficiary for special or supplemental needs such as medical care and dental care not covered by their benefits, plastic surgery or alternative type medical treatment, physical therapy, massages, etc. It also can be used to pay for computers, books, recreation, travel, and handicapped-equipped vehicles. It is important that the trustee adhere to certain standards for maintaining the trust and investing the trust assets. The trustee needs to be aware that the assets of the trust can only be used to purchase supplemental items or services which are not covered by public benefits.

A special needs trust may be set up as a “stand-alone trust” or as a subtrust in another trust. If you have children who are disabled, you can provide in either manner that their inheritance not be given to them outright but pass into the special needs trust. Once the trust is set up, grandparents or other relatives can provide in their own trust that such a beneficiary's inheritance goes to that special needs trust. Other blogs and articles have emphasized how important it is to create an estate plan. It is just as important that you have a properly drafted special needs trust if you have disabled beneficiaries. Scott C. Soady, A Professional Corporation can help you with an estate plan that will include a special needs trust. Our initial consultation is complimentary.

What is a Disclaimer in Estate Planning?

July 3, 2010

A disclaimer is a technique in estate planning whereby a beneficiary refuses to accept an asset that has been given to him. If someone makes a gift or leaves certain assets or even their entire estate to a beneficiary and the beneficiary “disclaims” it (refuses to accept it), the assets pass to someone else.

There are a number of reasons why someone would want to “disclaim” property. One reason to “disclaim” is that the beneficiary already has a taxable estate and by disclaiming the assets, their tax liability is reduced or eliminated. Another reason for disclaiming an inheritance may be to avoid losing one’s eligibility for public benefits. In estate planning for couples, a trust called a “disclaimer trust” uses the technique of disclaiming to specify that after the first spouse dies, the disclaimed property passes to a special trust designed to protect the property from estate taxes when the second spouse dies.

When someone disclaims property, the property passes as if that person were deceased. As an example, assume a situation where the beneficiary of a trust is a parent and the parent’s children are the alternate beneficiaries. The parent already has significant wealth so decides to disclaim the property. His children would then receive the property without a gift tax.

There are some specific requirements for a disclaimer. A disclaimer must be made within 9 months of the gift becoming effective which with a will or a trust is the date of death. Another limitation is that the person making the disclaimer must not have accepted the property or any of its benefits before making the disclaimer. For example a person could not accept a check from a life insurance policy, put it in their account, and then decide to disclaim it.

Disclaimers can be tricky. It is easy to forget about the 9 month period when going through the grieving process but disclaimers can be a valuable tool that should be taken advantage of by some individuals. To avoid missing the deadline or for advice on whether to do a disclaimer, an experienced estate planning lawyer should be consulted. We would be happy to help you with disclaimers or any other aspect of trust administration.