Estate Planning Practice Blog

Does a Will Cover Every Asset?

A Will does not control distribution of all of your assets.

First, any assets placed in a Trust will be controlled by that Trust.

Second, a Will usually does not control the distribution of life insurance proceeds, retirement plan assets, jointly owned accounts or other assets that have a valid transfer on death (TOD) or payable on death (TOD) provisions.

So, be sure to have at least a Will, consider if you need a Trust and update your beneficiary designations for your life insurance policies, retirement accounts and all other financial accounts to reflect your wishes.

Will My Loved Ones Have to Pay Taxes When I Pass Away?

Maybe.

To begin, property or inheritance left to your spouse or a charity will not be subject to federal estate taxes. California has no inheritance tax.

For property passing to others, it depends on what year you pass away. If you pass away in...

• In 2006, 2007 and 2008, the portion of your estate that is left to your children or other loved ones will be taxed if your estate was greater than $2 million.
• In 2009, your estate can pass to loved ones tax free if it less than $3.5 million.
  
• In 2010, the estate tax will disappear altogether.  Yes, for one whole stinkin' year.
• In 2011, the estate tax exemption will revert back to $1 million.  So if you pass away in 2011 with more than $1 million in assets, your estate will be taxed on those dollars exceeding $1 million.

Chances are that Congress will pass an extension or change the law somehow.

If you are confused or want a more detailed explanation, please consult with an attorney or tax accountant.

Over 55 and Moving to a Smaller Home?

If you or your spouse are over age 55 (or severely or permanently disabled) and you sell your home to buy another home of equal or lesser value in the same county, you may be eligible to keep your existing property tax basis of your old home to your new home. 

This means that whatever property tax you pay on your existing home, you can transfer that property tax basis to your new home saving you [literally] thousands.

This is a one time benefit. Despite being able to use it only once, it can garner a significant savings in your property tax basis if you decide to downsize. 

You have to make a claim though to get this tax break -- it doesn't happen automatically. There are lots of conditions to follow, but if you or your spouse are over age 55, it is worth reading up on and see if you can qualify.

This property tax relief is available under Propositions 60 and 90.

Proposition 60 relates to transfers within the same county (intra-county).  Proposition 90 relates to transfers of base value from one county to another county in California (inter-county).

What is really interesting is that downsizing is based on the value of your home. You could buy a larger home so long as it cost less than your current home. Interesting, eh?

For more information,  you can start with the Los Angeles County Assessor's Office Guide to Proposition 60 and 90.

Disinherit Your Kids?

Do you have a bad egg among your brood? Are you serious about disinheriting one of your children?

A few of my clients feel this way. They have their reasons. They usually tell me. Sometimes I understand and other times I am shocked. It makes me think about my almost-two-year-old and whether I will feel that way in 30 years.

One way to disinherit a child is to first name that child in your Will and Living Trust documents. And then include a provision in your Will and Living Trust documents stating that you disinherit them. You will want to state that this child is to get nothing and include a no-contest clause. You could write a letter explaining your reason and include it with your Will and Living Trust.

It's easy: you write, "I give nothing to my first born son named Biffy Mouthington and by this statement, I am completely disheriting him" ... or something along those lines. Each lawyer has their favorite phrase.

Personally, I prefer suggesting that the parent make a gift to the child that they wish to disinherit. A small bequest of, say, $1,000.00 or even a $100.00 if your estate is modest. This almost always means that at the time you drafted your Will or Living Trust you had capacity because you knowingly named your bad egg and even bequeathed your bad egg a gift upon your demise.

Another tactic is to send your bad egg child a check dated and mailed the same day that you signed your Will. If your child wanted to declare that you had no capacity when you prepared your Will (the easiest way to contest a Will) then what is that child doing cashing a $500.00 (for example) check from Mom or Dad? If your child truly doubted your capacity, he or she would have to explain why they cashed this check if they proceeded with a contest.

Your child may still decide to file a contest, but if you plan a proper strategy with your attorney there's a chance you will prevail even in death. Your attorney may have other tricks up her sleeve, too.

That Barrel of Rum Had a Special Taste...

I guess anything involving dead bodies is fodder for this blog. How about this piece from Reuters?

Hungary workers get shock at bottom of rum barrel

BUDAPEST (Reuters) - Hungarian builders who drank their way to the bottom of a huge barrel of rum while renovating a house got a nasty surprise when a pickled corpse tumbled out of the empty barrel, a police magazine website reported.

According to online magazine www.zsaru.hu, workers in Szeged in the south of Hungary tried to move the barrel after they had drained it, only to find it was surprisingly heavy and were shocked when the body of a naked man fell out.

The website said that the body of the man had been shipped back from Jamaica 20 years ago by his wife in the barrel of rum in order to avoid the cost and paperwork of an official return.

According to the website, workers said the rum in the 300-liter barrel had a "special taste" so they even decanted a few bottles of the liquor to take home.

The wife has since died and the man was buried in a proper grave.

Transferring Savings Bonds to Your Trust.

If you own United States savings bonds (also called bearer bonds), please be sure they are registered either with a Transfer on Death designation listed on the bond itself or transfer ownership of the bond to your Living Trust.

Here's how:

You will need to complete and submit a Request to Reissue United States Savings Bonds to a Personal Trust. You can download this form, called PDF 1851, directly from the Bureau of Public Debt website.

The form is easy to fill out, but you must itemize each bond you want reissued.

Let's say your trust is called the "John and Jane Smith Revocable Trust dated January 1, 2006." You will want to title your bearer bonds using this language. The date the trust was created is a part of the name of the trust.

Consult with your attorney or financial advisor for more information.

Mixed Families Are The Norm.

I am continually meeting with new clients to help them with estate planning.

What I have found is that most people, whether married or single, have mixed families.

Either they have stepparents or they have children outside their current relationship. If this is you, don't be afraid to consult with an attorney regarding your estate plan. Chances are your attorney dealt with your particular family circumstance before and is prepared to deal with it again.

In fact, mixed families are even a greater reason to have your estate plan in place. You get to pick who makes decisions for you while you are still living and to handle your affairs when you pass away.

I say that's a good deal all the way around.