Newman Law Group

Tustin Estate Planning Law Blog

Providing for heirs in a blended marriage

Family structures in California have changed over the years. Blended families have become the norm, and this can present challenges where estate planning is concerned. With the addition of second spouses, stepchildren and former spouses, the complexity of formulating a plan for passing on one's estate to one's heirs can seem overwhelming.

One factor to keep in mind when compiling a plan is that the document is not written in stone. Documents such as wills, trusts and other related documents are meant to be reviewed and modified every few years or as one's life situation changes. Putting together a plan that works for now is a good strategy.

Trust preparation can be complex but very worthwhile

Estate planning has its own vocabulary that consists of words like wills, living wills, medical directives, probate and trusts, just to name a few. Trusts allow one to keep the details of an estate private and can simplify the process of transferring assets in California. Understanding trust preparation and probate and the impact on the transfer of one's estate can be key to successful estate planning.  

Probate is done in the courts and, as such, becomes a matter of public record. It is a process involving the validation of a will, a possible search for additional beneficiaries, the payment of taxes and other issues to resolve the estate. It can be particularly onerous if there is no will. A trust allows one to be very specific about who will receive what and can eliminate the need for probate. Depending on how it is done, it can also reduce the estate's tax liability.

Definition of terms can impact one's heirs

In this day and age, it is not unusual for people to marry multiple times and/or to have children out of wedlock. These situations can complicate inheritance and estate planning for the families involved. A recent case in California illustrated the potential complexity of this issue. How terms are defined in one's estate plan can have significant bearing on the identity of one's heirs.

Elizabeth Hurley, the actress, has a son with businessman Steve Bing, but they are not married. Mr. Bing's father, millionaire Peter Bing, recently passed away and left a portion of his estate to his grandchildren. The trust had been created to benefit future grandchildren so the heirs were not specifically identified.

Peace of mind is a priceless gift to bequeath to one's heirs

As young people in California reach adulthood, marry and begin families, the issue of an estate plan may cross their minds. But as with so many things at that age, death seems far away and the overwhelming task of facing one's own mortality can become something to be handled tomorrow. The idea of having heirs and an estate to pass on may be a foreign one, as the idea of estate planning often conjures up images of transferring vast sums of money to one's heirs. The majority of people do not have significant sums of money, but that is not necessarily the principal reason for having a plan.

A plan allows one to prepare for unforeseen circumstances, such as an incapacitating accident or an early death. Things to be considered are who will care for children in the event of both parents passing? Will there be financial provision for children in the form of a life insurance policy or other financial instrument?

Designating a power of attorney can prove comforting as one ages

The California population is aging and many seniors live alone. A sad medical statistic reveals that many of these people may be in danger of having their financial affairs taken over by a stranger. People over 50 are at an increased risk of falls that can result in broken hips. One in three of those people will become incapacitated and die within 12 months of the fall. Failure to designate a power of attorney or create a health care directive can result in someone unknown to the individual making medical and financial decisions.

This is such a prevalent problem that there is a term for the planning that should be done in order to prevent it. It's called comfort planning and a recent case illustrates what can happen in the absence of such planning. A couple had saved what they felt was a modest but adequate sum for their retirement. The woman fell and broke her hip and her health went into decline. Once the Medicare benefits were maxed out, a social service agency deemed the husband's care inadequate and insisted she be placed in an expensive facility that quickly depleted their funds, leaving the husband with insufficient funds to cover even the basics.

Trusts as a tool for reducing estate taxes

Estate taxes in California can be on the high side, amounting to as much as 13%. Reducing estate taxes is a goal of many people, and they will go to extraordinary lengths to accomplish it. This includes even moving out of state prior to an expected increase in income from an event, such as the sale of a company. A recent Supreme Court decision may provide another way.

A Supreme Court decision involving another state could have implications for reducing estate taxes in California. A woman in another state was the designated beneficiary of a trust known as an Incomplete Gift Non-Grantor trust. The trust, once established, is administered by an independent trustee, and the grantor can remain involved with the trust but is not the owner. The state in question attempted to tax a beneficiary, a daughter, who had received no distributions; she also had no control over the trust and did not know when or if she would receive distribution. The court ruled the state could not tax her based solely on her location.

Asset protection and virtual currency

Bitcoin and cryptocurrency are terms that have entered the vernacular in recent years and are becoming recognized as forms of legitimate assets. The currency can be traded between owners or converted to legal tender. There are elements of it one might want to be aware of when it comes to asset protection and estate planning in California.

The value of bitcoin has experienced an extremely volatile period in recent years. In 2017, the value climbed as high as $14,156 for a single bitcoin from a low of $998. In 2018, the value sank to $3,200 and is climbing in 2019. For tax purposes, the IRS does not consider bitcoin as currency but as property and taxes it accordingly.

DNRs and living wills are examples of health care directives

A term that is bandied about in the estate planning community refers to medical directives. They have become a popular component of comprehensive estate plans in California but there are different types of documents that address different issues. Two examples of health care directives are a living will and a DNR, a "do-not-resuscitate" order.

The two documents accomplish different things and are not mutually exclusive. A living will allows one to leave instructions for one's care should a person become physically or mentally incapacitated and therefore unable to speak for oneself. The document can contain very specific instructions regarding the type of care one wants to allow and what one does not. It can specify directives regarding feeding, dialysis, blood transfusions, use of a ventilator and instructions regarding other life and death decisions.

New legislation's impact on estate assets in retirement accounts

Families in California with considerable assets have multiple options when creating an estate plan. One of these is how Individual Retirement accounts (IRA) allow one to distribute the asset to one's heirs after one's death. The heirs are required to take a minimum distribution from the asset that is based on their life expectancy. A new law being considered, known as the Secure Act, would require that the estate assets held in the retirement account be distributed over 10 years.

Typically, taxes are paid on an IRA when the funds are withdrawn and if the proposed law passes the tax bill of the recipient could increase. Under current law, a 22-year-old who inherited a $1 million account would be required to take a minimum disbursement (RMD) of $164,000, or 1.64% of the value, in the first year. Taxes would be due on the disbursed value. At 40 years of age, the recipient would be required to take an RMD of only 2.32%. If the new law passes, the account will need to be fully disbursed by the time the recipient is 32 and this will have a far more significant impact on the tax liability of the recipient.

Protecting assets in view of current tax law

People concerned with passing on their assets and belongings after their death, and people who are concerned that the appropriate asset goes to the appropriate heir, tend to be very conscientious when it comes to estate planning in California. In addition to assuring the desired transfer of assets, a plan can also be key in protecting assets to be passed on. A successful strategy for this requires that plans be reviewed once a year or so.

There are many factors that can lead to a change or an update in estate plans. These include births of children, changes in jobs and also changes in tax law. There are two areas of an estate plan that can provide some protection for tax purposes. Two of these are family limited partnerships (FLPs) and limited liability companies (LLCs). Trusts can be set up in an order to avoid probate and maintain privacy around an estate but offer other advantages, many tax-related, as well.