San Diego Estate Planning Lawyer Blog

A Power of Attorney is a document that lets you appoint someone to either handle a specific task or act with general powers to handle your finances if you become incapacitated. Here are the answers to some frequently asked questions about the second type of power of attorney:

1. What things can my agent do under a power of attorney? Some of the things your agent can do acting under a power of attorney are make deposits and withdrawals from your bank accounts, pay your bills, buy or sell property, enter into contracts on your behalf, file your tax returns, and re-arrange your assets. If you want to limit the kinds of tasks your agent can do, you can place such limitations in the document.

2. How do I choose an agent under a power of attorney? The primary trait your agent should have is trustworthiness. An agent has broad powers so you want to be sure the individual you choose will act with the utmost of honesty and integrity. Choose a trusted family member or friend or in some cases, perhaps a private professional fiduciary may be your choice.

3. Can my agent under a power of attorney make health care decisions for me? An agent under a power of attorney for finances cannot make medical decisions for you. To have an agent make medical decisions and consult with your doctors, you need to execute an Advance Health Care Directive which will appoint an agent to make medical decisions and carry out your wishes about medical treatment and life-sustaining procedures.

4. What is a “springing” power of attorney? A springing power of attorney is one which can be used only when you become incapacitated. Most springing powers of attorney provide that before it can be used by your agent, one or two physicians must certify that you are unable to take care of your own finances. Powers of attorney can also be drafted to be effective immediately.

5. Is my agent subject to any scrutiny in using the power of attorney? There is no official or governmental monitoring of agents under a power of attorney. A power of attorney can be abused and dishonest agents have been able to misuse a power of attorney to steal a principal’s assets. That is why it is so important to appoint an agent who is trustworthy. You may also want to require your agent to keep accurate records of their activity and provide you or another family member with periodic accountings.

If you want to create a power of attorney, it must be in writing and notarized. For assistance with such a document, contact us for a complimentary consultation.

The new federal estate tax system signed into law by President Obama last December has an interesting and advantageous break for married couples. Starting this year, widows and widowers can add to their own estate tax exemption the unused exemption of their spouse. This "portability"provision together with an increase in the exemption to $5 million per person allows married couples together to transfer as much as $10 million tax free to their children or other heirs either through gifts or their estate plan.

As an example, suppose a couple named Ann and John have an estate worth $6 million with all of their assets titled jointly in their name, with right of survivorship. When John dies first, Ann owns the entire estate of $6 million. Under the old tax law, John's exemption is wasted, since the outright bequest to Ann is not taxed regardless of what the federal estate tax is. With the new tax law, Ann can use her husband's entire exemption if her executor makes the appropriate election and unless her assets exceed $10 million, there will be no federal estate tax due. In essence the "portability" aspect of the estate tax exemption between spouses allows a couple to do what an A/B trust will do, without the trust.

Interestingly, there are some states that continue to impose state estate taxes. New York and New Jersey are two states which have the estate tax. California and Florida do not.

The new federal estate tax law is scheduled to "sunset" after 2012. Thus unless Congress acts again within the next two years, the pre-2001 estate tax and gift tax will return. So stay tuned to see what happens in the future. In the meantime, you may want to take advantage of the estate planning opportunities available. The estate planning attorneys at Scott C. Soady, A Professional Corporation can assist you with an estate plan that will meet your needs.

The new Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed by President Obama on December 17, 2010. Part of this new law sets the federal estate exemption amount at $5 million. This change is set to stay in effect until the end of 2012 unless an extension is enacted by Congress to continue such changes.

What are some of the estate planning issues we face under this new Act? The new law imposes a federal estate, gift, and generation skipping tax at a rate of 35% with a $5 million exemption ($10 million for a married couple under the “portability rule” which we will discuss in Part II of this blog. It also increases the exemption for lifetime gifts from, $1 million to $5 million. This increases the ability to pass substantial assets, its income and appreciation, to others free of federal estate and gift taxes. If you are considering making non-charitable gifts this year, consult us about how to structure your gifts to maximize tax savings.

The new law may also affect the type of trust that married couples need. In the past, A/B trusts, also called marital deduction trusts, or bypass trusts were estate planning tools that were necessary in order to maximize a federal estate tax exemption for each spouse. For couples with estates under $10 million, this may no longer be necessary. The new law is only in effect for two years however, so that may be a reason to still utilize these trusts. In addition there may be other reasons to use these types of trusts, depending on your net worth, family structure, and investment outlook.

The higher exemption of $5 million may also offer the opportunity to change or undo some prior estate plans that were formed in the past in order to pay estate taxes. Also business succession planning that was done under the prior tax law may no longer be necessary. We would be happy to help you sort out if and how the new tax law affects your estate planning documents. Call us for a complimentary consultaion.

At Scott C. Soady, A Professional Corporation, we frequently see clients who have made estate planning mistakes. Sometimes we are able to correct those and sometimes, unfortunately, it is too late. Here are some of the most common estate planning mistakes:

1. Not having an estate plan at all. Probably the biggest mistake you can make is not creating either a will or a trust. Not having a will, or preferably a trust, causes your heirs to have to probate your estate and distribute your assets according to the laws of intestacy set forth in the California Probate Code. This means that if you were intending to leave something to someone not your heir such as a friend, charity, or domestic partner, that will not occur. Also the process of probate is time consuming and can be expensive as attorneys fees are statutory.

2. Creating a revocable living trust but failing to put all your assets in the name of the trust. Another common mistake is not titling all your trust assets in the name of the trust. People go to the trouble to create a trust but then open a new bank account, buy a new property, acquire a timeshare, or another new asset and fail to title that asset in the name of the trust.

3. Not including provisions for guardianship for minor children. If you have minor children you should nominate guardian for them in your will or in a nomination of guardians that goes with your trust. Without a nomination, if something happens to you, the Court will not know what your preference is for a guardian. Also if you have minor children, you should consider putting provisions in your trust so that if the children do receive an inheritance before they are eighteen, it can be held in trust for them and even distributed over time intervals, rather than receiving it all at once.

4. Not including provisions for special needs beneficiaries. If you have potential beneficiaries that are on public assistance, receiving an inheritance can cause them to lose their benefits. You can, however, create a special needs trust which will allow the funds inherited to be placed in a trust for their use without affecting their eligibility for public benefits.

5. Not including business planning for your business. If you have a business or a medical or law practice, you need to plan for what will happen to your business after your death or upon your incapacity. Will it be sold or distributed to a family member who will continue to operate it? This aspect of estate planning is just as important as your personal estate plan.

6. Not updating beneficiaries on life insurance policies or retirement assets. If you become divorced, you need to remember to update the beneficiaries of life insurance policies and retirement assets if you don’t want your ex-spouse to receive those proceeds upon your death. Also if an existing beneficiary predeceases you, you want to make sure you have other beneficiaries named.

7. Doing your estate plan yourself. Estate planning is an important and complex task that only in the rarest of cases should be done by a layman. Estate law and tax law are constantly changing. An experienced estate planning attorney can call your attention to aspects of estate planning you never thought of. It is not an area that lends itself to “do it yourself.”

We've posted blogs in the past about the importance of executing an advance health care directive. The Advance Health Care Directive can name an agent to make health care decisions for you if you become unable to do that for yourself. Other information that can be included in your AHCD is whether you want organ donation and if so, for what purposes. Common purposes are transplant, therapy, research, and education. If you are interested in being an organ donor, you can also specify on your drivers license that you are a donor.

You also may have heard of Altruistic Organ Donation. This type of organ donation is made while you can still alive. Living donors now comprise 42% of kidney donations. This is the most common type of donation by a living person because we have two kidneys and one can experience a full and normal life with just one kidney. This type of organ donation, when given to a stranger is called "altruistic." Other organs that can be donated by a living donor are the pancreas, intestine, liver, and lungs.

Scripps Hospital here in San Diego has an altruistic organ donation program as does UCLA. With an estimated 63,000 patients in this country on the waiting list for a kidney and an estimated wait time of over 3 years, altruistic organ donation is on the rise.

An Advance Health Care Directive is just one document included in the revocable living trust package at Scott C. Soady, A Professional Corporation. We can include information about organ donation as will as what your want in the way of health care if you have a terminal or irreversible condition, your preferences for burial or cremation, and who can have access to your medical information. Other documents included are a revocable living trust, pour over will, durable power of attorney for assets, certificate of trust, and assignments of your personal effects in to the trust, and transfer of real property into the trust. A complimentary consultation is available and check the internet for special rates.

Being a trustee of a trust is an important job and requires a high degree of honesty, trustworthiness, and ethics. Trustees are fiduciaries and have a number of duties under the California Probate Code. Trustees have the duty of loyalty (Probate Code 16002), the duty to deal impartially with the beneficiaries (Probate Code 16003), and the duty to avoid conflict of interest and not self deal (Probate Code 16004). Any breach of these duties is a breach of a trustee’s fiduciary duties. There are remedies in the Probate Court when there has been a wrongdoing by the trustee and there can also be criminal charges filed against a trustee who does not properly do his job.

For example, a man in northern California who embezzled more than $100,000 from his grandmother’s trust was recently charged withe first degree embezzlement. After becoming the trustee of his grandmother’s trust, he started taking cash from her CD’s and depositing the money in two of his business accounts. Between 2003 and 2006, he allegedly withdraw $108,000, leaving his grandmother with only $6,000 forcing her to move from her home because her grandson had not paid the mortgage. The grandson claimed that he had to withdraw the money to support his wife and 6 kids.

The choice of a trustee is so important. This individual may be handling your trust when you are still alive if you become incapacitated or decide you just want assistance at some point. When you consult with Scott C. Soady, A Professional Corporation about a trust, we can assist you in narrowing the choices for a successor trustee and put safeguards in your trust to reduce the risk of trustees helping themselves to the trust assets. We also handle trust litigation and elder abuse cases where a trustee has taken money from a trust and therefore needs to be removed from the position and compelled to repay the money to the trust. We are happy to help with any of these “trustee” issues.

A Grantor Retained Trust (“GRAT”) is an advanced estate planning technique used by the wealthy to gift rapidly appreciating assets to another individual or charity without having to pay estate or gift tax. It is a special type of irrevocable trust that allows the creator of the trust, the "Trustor", to put specific assets into the trust while retaining the right to receive an annual annuity payment for a certain number of years. When the term of the GRAT ends, the balance is distributed to the trust beneficiaries, usually children or other beneficiaries chosen by the Trustor. The Trustor is betting on the fact that the assets transferred into the GRAT will increase in value at a rate substantially higher than the interest rate used by the IRS (called the 7520 interest rate.

Recently Nike chairman Phil Knight contributed 2 million shares of Nike stock to the Phillip H. Knight 2010 Annuity Trust. This was the fourth trust that Knight has set up. The Securities and Exchange Commission said the filing by Knight on December 30, 2010 names Pat Kilkenny as trustee. Kilkenny served as the University of Oregon’s top athletic official when Knight donated $100 million to the University of Oregon. As a result of this transfer Knight, the co-founder of Nike, has 67.7 million Class B shares of stock in Nike. Obviously, Knight has faith that stock in the company he founded will continue to appreciate in value.

At Scott C. Soady, A Professional Corporation, we help families and individuals with a wide range of wealth and assets. Our estate planning is tailored to meet your needs. Contact us to schedule a complimentary appointment.

If you do not have a will, or better yet, a trust, your estate will be distributed according to the laws of “intestacy” set forth in the Probate Code. There may be a difference between how your estate is distributed according to your wishes and how it will be distributed pursuant to the Probate Code. Here are some disadvantages of intestacy you might want to consider:

1. The Court chooses the individual who will distribute your estate. The Court will appoint someone called the administrator to manage your assets and distribute them to your heirs at law. Maybe the person appointed is the person you would have chosen anyway but maybe not. Maybe two or more individuals will apply to the Court to be named administrator causing discord in the family.

2. The process of probate takes a long time. When you die without a will or a trust, the probate process here in San Diego typically can take a year or longer. The administration of a trust usually progresses much faster. If there are issues that need court intervention, the trustee can petition the Court for assistance, but most trust administrations are handled without going to court.

3. The Court may have to choose a guardian for your minor children. If you create a will or trust, you will name the person or persons you want to raise your children. Without an estate plan, the Court will determine who will be the guardian from those individuals who agree to be the guardian. Again more than one family member or friend may petition to be the guardian causing disharmony. The Court will have to make the determination without any input as to who you would have chosen.

4. With probate, rather than administration of a trust, it can be difficult to come up with money to pay debts, funeral expenses, or a family allowance. With a properly drafted revocable trust, these issues are spelled out clearly in the trust so that the individual distributing the trust (the trustee) can quickly take care of these issues.

At Scott C. Soady, A Professional Corporation, we handle both probate and trust administration as well as custom revocable living trusts to fit your needs. Call us for assistance with these or any other estate planning needs.