Articles Posted in Estate Planning

Image of adult son walking with his elderly father

Planning Can Still Be Done Where There is Lack of Mental Capacity

TYPICAL BASIC ESTATE PLAN GOALS THWARTED

People generally do a living trust and will to avoid probate proceedings and to have more flexibility about who will inherit their estate and when it will be inherited.  However, on occasion people wait too long to do their estate planning and get sick or incapacitated and then it is too late. This is where consideration of “Lack of Mental Capacity” enter the discussion.The alternative to not having an estate plan is that the person’s money and property has to go through expensive and lengthy probate proceedings and the person has no choice about how to divide up his or her estate. The mandatory attorneys fees in probate on a $1,500,000 estate are $28,000.  If probate can be avoided the fees to administer an estate are typically 1/3rd or less of what probate attorneys fees would be.  The law allows a person to divide up his or her  estate in any percentage that he or she feels like and there is no requirement that once estate be left to family members or relatives. However, without an estate plan, the surviving spouse and children and perhaps other relatives will be the ultimate recipients of the estate and the maker of the will or trust will have nothing to say about it.

Who Will Take Care of My Children and Their Inheritance if the Worst Happens?

Types of Guardianships For Children

Image of adult man and young boyGuardianships For Children – A guardianship is a legal status whereby an adult is given authority to take care of the person of a minor child and/or the estate of the minor child. A “guardianship of the estate” is where the Guardian has control and custody of assets, property and accounts belonging to a minor child. A “guardianship of the person” is where the Guardian is responsible for the care, protection, or custody and medical issues of a minor child. Guardianships typically arise in the unfortunate circumstance in which both parents have passed away. Guardianships may also arise where parents are unable or unwilling to care for their children.

Let’s Subtract the Money Johnny Got From His Share of the Estate

TYPICAL SITUATION

A father dies without a will leaving an estate of $100,000.  Under the laws of intestate succession which apply because there is no will, his 4 children are to receive equal shares of the estate which would be $25,000 each. However, during the 10 years leading up to his death, the father had transferred $20,000 cash in total to his son Johnny thus creating a pre-death transfer.   There was no documentation stating whether the $20,000 was a gift or a loan or an advancement against Johnny share of the father’s estate.

Can I give everything to the “love of my life” and keep it secret?

NO DISCLOSURE TO OMITTED HEIRS?

Up until 1997 a person could legally change his or her estate plan and the people previously benefited did not have any legal way to find out what the situation was. Before the law was changed to require disclosure as it is now, the state legislature committee reviewing the proposed legislation was presented with a case of a 90-year-old man who met the “love of his life” on a bar stool and married her three months later.

INCOME TAX & PROPERTY TAX TRAP FOR PREMATURE GIFT OF HOUSE

WAYS TO HANDLE THE FAMILY HOME TRANSFER

Retired couples typically have choices about how to pass on the family home. Might they make a mistake and give away the house too soon? They could sell the home and put the cash in the bank and rent. Another way people sometimes handle this is to draw up and record a deed transferring a home now to their children. The logic is that the children are going to get the house anyway so why not just given to them now. The third choice is to continue ownership of the house until both husband and wife have passed away and transfer the house to the children through their will or better yet through their living trust.

Define Who Will Take Over and Control the Trust After the Trust Creators are Gone

Large Extended Family

TRUST CONTINUES AFTER DEATH OF CREATORS

A trust that is typically established to plan for distribution of family assets to the next generation has provisions for successor trustees. Initially, the trust creators, who are known in trust law as “Trustors”, also serve as the trustees of the trust. The trustees are the ones who are legally charged with administering the assets of the trust, signing on checks and bank statements, and dealing with the trust assets as any owner would. Trusts which are typically established are also known as “living trusts” and are revocable and changeable while the Trustors are alive and competent.

Define WHO the Children are in the Trust or Face Expensive Uncertainty

The BASIC PURPOSE of a Trust in Estate Planning

Image of young girls in the 1950sA trust that is typically used to plan for asset transfer for the next generation is known as a “living trust” and is revocable and changeable during the lifetimes of the trust creators.  If the trust creators (known as “Trustors” under trust law) have children and/or grandchildren the trust document will explain which children or grandchildren gets which assets and when.

Can I Really Spend All My Inheritance Money, or Does Uncle Same Get a Portion?

DOESN’T MATTER IF IT COMES FROM AN ESTATE OR TRUST

taxableIs My Inheritance Taxable – Your inheritance of money or property may come from the estate of a deceased person or from a trust established previously.  These types of things are generally referred to as “bequests” or “gifts” as far as tax law is concerned.  People receiving bequests or gifts are referred to as “beneficiaries”.

How did that kid get so much money to blow!

18 is the age of majority

When a child turns 18 years he or she is considered to be an adult under California law. In legal terms, children under age 18 are called “minors” and when they reach age 18 they are called “adults”. Minors and adults are treated differently as far as inheritance rights are concerned. Minors still have rights to inherit but any inheritance which comes to them is subject to certain legal controls because the law presumes that minors are not capable of handling money or property as well as adults.

Image of family members who run a florist business

Partners pay tax on income earned even if it is not paid out to them

The taxation of Family Limited Partnerships should be carefully considered in advance of setting up and rolling out your new FLP.

FAMILY LIMITED PARTNERSHIP DEFINED

State laws have provisions allowing people to establish limited partnerships.  Limited partnerships provide limited liability protection for the limited partners similar to the liability protection afforded corporation shareholders.  The limited partnership is established by filing a form in the state in which it is being established and by the preparation of a limited partnership agreement which governs the ownership income and management of the partnership. The limited partnership agreement is custom prepared by the attorney forming the limited partnership and can have many variable aspects that need to be considered as part of the formation process.

A family limited partnership is legally no different from any other limited partnership except that it’s only members are family members. The term “family limited partnership” is something commonly used in the estate planning and asset protection field. A family limited partnership will have one or more general partners and one or more limited partners. Their respective roles are defined in the chart below:

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