Newman Law Group

Tustin Estate Planning Law Blog

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Typically, taxes are paid on an IRA when the funds are withdrawn and if the proposed law passes the tax bill of the recipient could increase.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.

Multiple wills can complicate asset distribution

People in California who die without an estate plan in place may not have their final wishes carried out as they intended. Aretha Franklin passed away almost a year ago from complications related to pancreatic cancer. At the time of her death in Detroit, it was believed that she had died without leaving a will. That situation would have made asset distribution of her Michigan estate, estimated at over $80 million, very difficult.

Three wills that were purportedly written by the singer were recently found in her home. The wills, known as holographic wills, were found by a representative of the estate. Aretha Franklin had four sons and they have not been able to agree on the validity of the wills. Two of the documents are dated 2010 and the third 2014.

Beneficiary designations are important to transfer assets

As people age they may realize the need for estate planning and the creation of a will in California. Having a will helps one to transfer assets, establish guardianship for minor children and facilitate the passing of one's belongings on to one's heirs after death. While a will is a help, there are other factors that may need to be considered when establishing one's estate plan.

How something is titled can have a significant impact on how it can be transferred. This is particularly true where real estate and financial accounts are concerned. A will does not change the beneficiary on a financial account or insurance policy, nor can it change a title on real estate.

Family dynamics and estate planning

Families are made up of people. People come in all shapes, sizes and personalities, and this can add to family drama and contribute to challenges when it comes to estate planning in California. Most people understand the importance of having a plan in place in this day and age, but they may be reluctant to engage in planning because of the conflicts that may arise. This can be particularly true when sizeable estates are involved.

As with so many family issues, communication is key. Communicating final wishes to one's family members can reduce conflict and hurt feelings that could arise following a person's passing. The right plan may include a will, trust and charitable bequest, among other items. Formulating a plan and explaining the reasoning behind the plan can help allay squabbles that may occur after one's passing.

Need to update wills cannot be overstated

Another high-profile death has occurred and may serve as an alert to the public for not only the need for an estate plan in California, but also the need to keep such a plan current. Failure to update wills and other documents can have unintended consequences. John Singleton, a film director best known for directing the movie "Boyz n the Hood" died recently due to complications following a stroke. He was only 51.

Mr. Singleton had created a will in 1993. At the time, he had one child, a daughter named Justice. The will specified that his entire estate go to Justice in the event of his death. Since 1993, he had fathered six additional children but failed to update his will to include them.

Estate planning is an ongoing task

For a variety of reasons, most people in California and elsewhere do not have a will. Estate planning is a personal and challenging task, so once a will is in place, it may seem like a victory. The testator -- the person who writes the will -- may be surprised to know that a will is a document that requires frequent reviews and revisions. In fact, there are specific times when updating one's will is critical.

No one's life remains stagnant. After writing a will, it is likely that things will change and the terms of the will may no longer be relevant. For example, a testator may name an heir who passes away after the will is signed. A testator who remarries after a spouse dies but fails to update the will may leave the new spouse with a frustrating and expensive legal battle to claim his or her fair share of the estate.

Estate planning is not just about money

Contemplating one's death is not a pastime most people wish to engage in. But failing to contemplate and plan on what happens to the property and people a person cares about in California can have serious unintended consequences. These can be avoided by taking some time to determine one's final wishes through estate planning.

Creating an estate plan should not be limited to financial and tax considerations. A person should determine if a will alone can meet one's needs. Medical directives may need to be considered in the event that one is not able to speak or communicate one's wishes, and this could apply to financial decisions as well. A will by itself is only applicable after a person's death. Other instruments of an estate plan can include trusts set up for charitable contributions or care of minor children.