Articles Posted in ESTATE PLANNING

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Past blogs on our website have discussed California Probate Code section 21350. That section limits certain individuals from receiving assets under a will or a trust in some circumstances. Some of the suspect transfers are to the person who drafted the will or trust, a conservator of the transferor, or a care custodian of the transferor. A “care custodian” is defined as a person or agency which provides health or social services to an elder or a dependent adult. The section states that such individuals are presumed to have unduly influenced the transferor to provide for them in their will or trust. Once the disqualifying relationship is established, the transfer is presumptively invalid and it is then up to the objecting party to show by clear and convincing evidence that the transfer was not due to fraud, undue influence, duress, or menace,

Probate Code section 21351 sets forth certain exceptions to these rules. If the transferor and the care custodian are related by blood or marriage, there is an exception. If the document was reviewed by an independent attorney who counseled the transferor and determined that it was not the result of fraud, menace, duress, or undue influence, there is an exception.

In 2009 a California case Estate of Pryor held that a care custodian who later marries the transferor before his or her death, can invoke the spousal exception of Probate Code Section 21351. The case involved Richard Pryor, the comedian, who died in 2005. He and his wife Jennifer were married in the 80’s and then subsequently divorced. After the divorce, the ex-wife became Pryor’s care custodian in 1994. In 2001 they secretly remarried. Pryor in his will left substantial assets to his wife rather than his children. The children claimed that the remarriage was due to undue influence and fraud and sought to have the gifts declared invalid as a presumptively invalid transfer to a care custodian. The Court found in favor of the wife, stating that section 21351 created an exception for persons who are related by blood or marriage. The section doesn’t mention anything about showing that the marriage was not procured by fraud or undue influence. Since the Legislature had not indicated that the marriage could not be the result of fraud or undue influence, the Court felt it could not take it upon itself to make such a finding.

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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.

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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.

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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.

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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.

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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.

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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.

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In past blogs we have discussed the need to have an experienced estate planning lawyer draft your trust. In California, a case has recently been filed against Legal Zoom, an online site that markets wills and trusts without the need to meet with an attorney. The case involves a man with a terminal condition who used Legal Zoom to draft a trust and pour over will. The documents were signed but the trust was never funded because financial institutions that held the man’s money refused to recognize the validity of the documents. The man died without getting the trust funded.

It remains to be seen what the outcome of the case will be but it does highlight the importance of getting a lawyer to draft your revocable trust and companion documents. In most cases, a face to face meeting will elicit important facts so that your trust and other documents accurately reflect what you want to happen after your death.

Some circumstances that dictate hiring an attorney to create an estate plan are the following:

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Probate as you probably know is the court supervised process for transferring an estate to the beneficiaries of a will or transferring an estate to the heirs of someone who died without a will or a trust. Take the following quiz to see how much you know about wills and probate:

1. Probate only applies if you have a will. Answer: FALSE If you die with a will, there will be a probate. If you die without a will and don’t have a trust either, there will be a probate.

2. Probate applies to your entire estate. Answer: FALSE Probate is necessary for your probate assets. Some assets are not considered probate assets. Examples are assets which have a named beneficiary like life insurance, payable on death accounts, and property you own in joint tenancy with a right of survivorship.

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Whether you are married or divorced, one of the most important decisions you have to make in estate planning is the choice of a guardian for your minor children. Some clients who are divorced ask whether they still need to nominate a guardian if they are divorced. Won’t the other parent automatically get custody?

It is true that absent a compelling reason not to, a judge will grant custody of minor children to their other parent, however there are some situations where your nomination would be helpful to the court. Judges consider a number of factors in determining who should be a guardian such as:

1. The child’s preference 2. Which individual seeking custody will best meet the needs of the child.

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