GENERAL QUESTIONS

Q. Why do I need to plan my estate? I don’t even have an estate.
A. An estate plan makes it easier for the ones you love after you pass on. It provides for the private and efficient disposition of you estate. It empowers you to name your beneficiaries. It avoids the delay, expense, and grief of a court proceeding. A plan also provides incapacity planning in case of a serious condition such as a stroke or heart attack.

There’s a misconception that only rich people have “estates.” But a person’s estate is whatever he or she owns, whether it be a car, bank account, retirement accounts, a home, or antiques. Estate planning is timely after any of life’s milestones, such as marriage, divorce, death of a spouse, the arrival of children and grandchildren, the purchase of a home, or the accumulation of wealth. Clients may call upon us before departing on a vacation or extended business travel, when they are concerned about their long-term health, after getting married or having a child, or when they are trying to organize their affairs for their families and friends.

Q. What should be done when my spouse passes?
A. You should seek the advice of an attorney to determine whether a probate is required or whether any administration under your living trust is required.

Often, relatively simple procedural steps are sufficient to distribute property to the surviving spouse, claim relevant property tax exemptions, and clear title to real property and joint accounts.

Q. What are the key documents of an estate plan?
A. They’re five: (1) living trust, (2) pourover will, (3) powers of attorney, (4) advance healthcare directive and (5) transfer deed. There are other related documents (such as assignments) that we prepare, but these five are the key ones.

Q. How long does it take to prepare my estate plan?
A. Not long. Typically, we complete your estate documents within four weeks after the initial client meeting. If you face time constraints, be it an upcoming trip or medical procedure, we can work with you to accelerate the preparation.

Q. Do you make house calls?
A. We can. When necessary, we have visited the homes of clients who are unable to leave their homes and under hospice care.

 

QUESTIONS REGARDING WILLS

Q. What happens if I die without a Will?
A. A court will determine who gets your estate. A court will choose your children’s guardian. This judicial proceeding is known as probate.

Q. Why should I have a will?
A. Control. You choose to whom to leave your property. You select the executor. You nominate your children’s guardian.

Q. What’s the difference between a Will & Living Trust?
A. A living trust is better.
– A trust avoids probate. Wills are probated.
– A trust avoids a court conservatorship proceeding. If you become incapacitated, the successor trustee will manage trust property for your benefit.
– A trust is private.
– A trust saves money at the time of administration.

Q. Is a Will a public document?
A. Not during the testator’s life. But, when a will is probated, it becomes a public record.

Q. Do I need a lawyer to prepare my will?
A. Not necessarily. You may satisfactorily prepare your will if you have a small estate and a very simple distribution. For example, “all to wife.” See California’s statutory will, which can be found at California Probate Code § 6240.

However, it has been my experience that homemade wills are often defective and end up causing confusion and court intervention.

Q. Does a will avoid probate?
A. No.

 

QUESTIONS REGARDING PROBATE

We answer a bunch of questions on our Probate FAQ Page. Click here.

 

QUESTIONS REGARDING ESTATE PLANNING

Q. Why do I need to plan my estate?
A. Estate planning is a way to take care of yourself and those you love. A good, basic plan works during life and after death. During life, it deals with incapacity, names medical and financial agents, and expresses your end-of-life values. At death, it provides for the orderly transfer of your assets, saves money, and avoids probate. More advanced planning addresses taxes and asset protection.

Q. I don’t even have an estate.
A. There’s a misconception that only rich people have “estates.” But a person’s estate is whatever he or she owns, whether it be a car, bank account, jewelry, family photos, etc.

Q. When should I plan my estate?
A. Estate planning is timely after any of life’s milestones, such as marriage, divorce, death of a spouse, the arrival of children and grandchildren, the purchase of a home, or the accumulation of wealth.

 

QUESTIONS REGARDING JOINT TENANCY

Q. What is joint tenancy?
A. It is a method of owning property (often, real property) that has automatic right of survivorship. When one joint tenant dies, his or her interest is transferred to surviving tenants.

Q. Does joint tenancy property pass under a will?
A. No.

Q. Is joint tenancy property probated?
A. No

Q. What are the tax implications of making my child a joint tenant of my residence?
A. The IRS presumes you intend to make a gift. Federal gift tax may be assessed on the transfer.

Q. Are there disadvantages to joint tenancy?
A. Yes. These include tax basis issues, the power of either joint tenant to unilaterally break the tenancy, and disconnection from the owner’s planned distribution provisions. Joint tenants must own equal shares (e.g., 50/50). Joint tenancy may spawn family disputes after the first death. Probate is not avoided when the last owner dies.

Another issue with joint tenancy is liability.  When a joint tenant is added (say, an adult child), that other joint tenant is now a co-owner.  If the child is in a divorce, bankruptcy, or suffers a judgment, the ex-spouse or creditors can attach the property.  

Q. What is the legal effect of joint tenancy during life?
A. All joint tenants have an equal interest entitling them to have and hold undivided possession simultaneously.

Q. What happens if a joint tenant conveys his interest?
A. If any joint tenant conveys his interest, the JT relationship is severed and the parties become tenants-in-common.

QUESTIONS REGARDING QPRTs

Q. What’s a QPRT?
A. A Qualified Personal Residence Trust is an irrevocable trust that holds title to your residence or guest home. It allows you to live in the home. At the end of the term, the home passes to your children outright or to a trust for their benefit.

Q. What’s the benefit of a QPRT?
A. It cuts your transfer taxes and provides creditor protection.

Q. How does a QPRT reduce taxes?
A. By reducing the value of the gift.

Q. How long does a QPRT last?
A. From 2 to 50 years. The term is up to the property owner to decide based on his or her age and estate planning goals.

Q. Can a QPRT hold stocks and bonds?
A. No, a QPRT can only hold a residence.

Q. How many QPRTs can a person establish?
A. There is no limit.

Q. How many residences can a person have in QPRTs?
A. Up to two residences at any one time.

Q. What qualifies a property as a residence?
A. Generally speaking, the home must be the donor’s residence for at least 14 days a year. Technically, the “dwelling” must be used by the taxpayer for personal use each year for the greater of 14 days or 10 percent of the number of days during which the dwelling rented. Condos, mobile homes, and duplexes qualify. Triplexes and apartment buildings do not.

Q. Who is the beneficiary of the QPRT?
A. Usually, the owner’s children.

Q. Can grandchildren be named as QPRT beneficiaries?
A. Sure, but the owner must be careful. The presence of a grandchild with a living parent may result in a reassessment of the grantor’s entire interest in the residence.

Q. Can the residence be sold during the QPRT term?
A. Yes, the residence may be sold during the term.

Q. What happens if the property is sold?
A. Different things can happen. A replacement property may be purchased within two years. If the QPRT residence is sold during the term and the donor does not use the proceeds to buy a new residence, the trust may be converted to a GRAT (Grantor Retained Annuity Trust).

Q. Must the owner survive the term?
A. Yes.

Q. Does a QPRT avoid probate?
A. Yes.

Q. Can the owner be too old to establish a QPRT?
A. No. The older the settlor is, the shorter the term should be. You’re never too old for a QPRT.

Q. How should a married couple establish a QPRT?
A. They should transfer the residence into their separate property, and then transfer their respective shares into two (or more) separate QPRTs.

Q. Are QPRTs recorded?
A. No, but the transfer deeds into the trust are recorded.

Q. Does the recorded deed to the QPRT trustee trigger higher property taxes?
A. No. The initial transfer to the trust is a transfer for the grantor’s benefit that is not a change in ownership that triggers a reassessment. However, it’s important to timely file applicable property tax exclusion applications.

Q. What happens at the end of the QPRT?
A. As a rule of thumb, the donor should pay rent if she wants to stay in the home beyond the term.

For more, please see our QPRT page.

 

QUESTIONS REGARDING GRATs

Q. What is a GRAT?
A. Grantor retained annuity trust. A GRAT is an irrevocable trust that holds appreciating assets and pays the grantor annual payments for the life of the trust. The annuity is based on a rate set each by the U.S. Treasury called the Section 7520 rate.

Q. What’s the point of a GRAT?
A. The point is to remove the appreciation of an asset from your estate without incurring liability for estate or gift taxes.

Q. What assets are suited for GRAT treatment?
A. GRATs are used to capture price spikes. The best use of them is where a big liquidity event is happening soon. Thus, shares in closely held companies prior to a sale or IPO are ideal assets.

 

QUESTIONS REGARDING ESTATE TAXES

Q. Does California have either an estate or inheritance tax?
A. It does not.

Q. What is the federal estate tax rate in 2018?
A. 40 percent.

Q. What is the federal estate tax lifetime exemption in 2018?
A. $11.18 million per individual; $22.36 million for a married couple.

Q. Is the estate tax tied to the gift tax?
A. Yes. The lifetime estate tax exclusion is unified with gift tax and may be used at death or during lifetime.

Q. Does portability remain in the new law?
A. Yes.

Q. What are estate tax exemptions?
A. The most important are:
1) The personal lifetime exemption,
2) The marital deduction,
3) The charitable deduction.

 

QUESTIONS REGARDING PROPERTY TAXES

Q. Does transferring my California property into a living trust trigger a reassessment?
A. No. The law does not consider this transfer to be a “change in ownership.”

Q. Does transfer incur a documentary transfer tax?
A. It depends. There is an exception for transfers to and from a living trust. California Revenue and Taxation Code § 11930. But, there is a new $75 fee on most recorded instruments. SB 2. An exception exists under SB 2 for owner occupied residences. 

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