Articles Posted in ESTATE PLANNING

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Living in southern California gets more expensive every year. For many elderly San Diego residents on a fixed income, just paying monthly bills can be a struggle. This is one reason “reverse mortgages” have become popular in recent years.

How Reverse Mortgages Work

Most of us have taken out a home mortgage loan at some point in our lives. The typical mortgage is a 30-year loan secured by the property being purchased. Each month the borrower must make fixed payments towards the mortgage’s principal and interest.

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Estate planning is a process that affects your entire family. The decisions you make today regarding your will and trust can affect your spouse, children, and other relatives years down the line. This is why it is important to make sure your family is aware of your estate planning intentions.

52% of Americans Have No Will

BMO Wealth Management, an international bank based in Montreal, recently released the results of a survey it conducted of 1,008 American adults about their attitudes towards estate planning issues. The report, called “Estate Planning for Complex Family Dynamics,” offers some interesting insights into how the average American views the estate planning process, in particular how they responded to their own experience with inheritances.

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If you are married or in a long-term relationship, your estate plan will likely name your partner as the principal beneficiary under your will or trust. But what if you both die in a common accident? The law in this area can get a little complicated.

California’s 120-Hour Rule

When a California resident dies without a will, the state’s intestacy law dictates the distribution of property. If you have a surviving spouse but no children, the spouse automatically inherits everything. If you have children, your spouse inherits all of your community property and splits any separate property with the children.

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There are many kinds of trusts used in estate planning. One you may not have heard about before is a special needs trust. This is a trust designed to provide for a person who is receiving certain types of government benefits, such as Medi-Cal or Supplemental Security Income.

Because these programs are means-tested, a beneficiary can lose his or her eligibility if he or she suddenly receives a large amount of cash, say from an inheritance or a lawsuit judgment. But by creating a special needs trust, that money can be placed in the hands of a trustee, who retains legal ownership. The trustee can then use trust funds to purchase goods and services for the beneficiary without compromising government benefits.

Trustee Removed After Questionable Property Deal

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Many people do not bother to plan for their own funerals. They just assume their family will take care of the arrangements when the time comes. If there is disagreement among family members, however, a funeral can quickly turn into a financial and legal battleground. This is why it is a good idea to consider who should plan your funeral as part of your overall estate planning.

Disinheritance Does Not Apply to Funeral Arrangements

Recently, a court in New Jersey had to deal with the fallout from a contested funeral plan. A woman with three adult children passed away. Her will left nothing to the children. The will further stated her estate should pay any “just debts and funeral expenses,” but made no other provision regarding the planning of the funeral itself.

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One of the main benefits of a living trust is that it can make it easier to administer property you own in multiple states. Probate is handled at the state level, so if you own a house in California and a rental property in Arizona, your probate estate would need to open a separate proceeding in each state after your death. However, if you have a properly funded trust, your successor trustee can administer both properties without having to go through probate at all.

New Hampshire Defers to California in Trust Dispute

Even if you have a trust, you still need a will. Typically you sign what is known as a “pour-over will,” a document that basically transfers any remaining probate property at death to the successor trustee of your trust. This is important because it confirms your intent to distribute all of your property through the trust.

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Many Californians are self-employed or own their own small business. If you are among this group, it is important to make appropriate provisions in your estate planning, especially if you have partners, employees, or family members who need to continue the business after your death. The type of planning required will depend on the specific legal structure of your business.

Sole Proprietorships

A sole proprietor is anyone who is self-employed and does not incorporate his or her business. This can include anything from a work-at-home consultant to someone who operates a retail store with multiple employees. Basically, if you file a Schedule C with your federal tax return and you do not have any partners, you are a sole proprietor.

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Following a divorce there are a number of collateral issues you need to deal with. Among other matters, you may need to reconsider your estate planning situation. For example, if you and your former spouse created a living trust, you will probably want to revoke that trust and create a new separate trust.

Ex-Wife May Seek Removal of Ex-Husband From Children’s Trust

Of course, unwinding an estate plan is not always so simple, as a recent case from Los Angeles illustrates. This case involves a divorced couple who created an irrevocable trust during their marriage. While most estate planning trusts are revocable, irrevocable trusts are frequently used for legal and tax planning reasons.

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As any estate planning lawyer can tell you, a living trust can help you avoid probate, as assets in a trust do not pass under your will, which can save your heirs time and money. However, an improperly executed trust can lead to unnecessary confusion and even litigation.

Courts Sort Out Conflicting Trusts

Trusts do not fund themselves. Once you create a trust you must legally transfer title of your assets to the trustee (which is usually yourself). If you later decide to revoke the trust, you must similarly transfer title from the trustee back to yourself as an individual.

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California is a community-property state. This means that assets acquired during the course of a marriage are considered the equal property of both spouses. For estate planning purposes, one spouse may only dispose of his or her 50% share of community property by will or trust; the other 50% remains with the surviving spouse. Of course, one spouse may always leave his or her share of community property to the other.

Drafting Mistake Leads to Dispute Over Status of Marital Home

It is important when making your estate plan to clearly delineate between community and separate property. This is not always a simple matter, especially if one or both spouses have remarried and retain separate property from prior relationships. While California law allows couples to freely decide whether to convert property’s status from separate to community and vice-versa, a process known as “transmutation,”it is important that a will or trust is consistent on this point.

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