AT THE WYNDHAM GARDENS HOTEL ON FEBRUARY 24, 2000
SPONSORED BY MAHER ACCOUNTANCY
DO YOU HAVE AN ESTATE PLAN?
Will definitionA Will is a written instrument in which the writer directs his or her Executor how to administer (pay post-death claims, debts, taxes) and distribute his or her estate upon the writer's death.
(a) The three types of valid Wills in California
(1) Formal Will - usually attorney drafted. Must satisfy technical formalities, such as being witnessed by two disinterested, competent adults.
(2) Statutory Will - also a "formal" Will which is set forth on form specifically provided for in California Probate Code.
(3) Holographic Will - Valid if in handwriting of writer of Will. No printing, typing. No witnessing.
(b) Will is effective only at death of writer.
(1) Circumstances often change between execution of Will and death of writer.
(2) Specifically bequested assets are no longer owned at death.
(3) Beneficiary named in Will has died.
(4) Writer of Will has divorced, or has married.
(5) Children or grandchildren of writer have been born.
(c) Will must be kept safely from theft, damage or misplacement after its execution.
(1) Bank safe deposit box or fireproof home safe is best receptacle for Will.
(2) Holographic Wills, especially, often turn up "missing" after death of writer when the plan of estate disposition is different from what the "intestate" plan would be.
(3) Missing or damaged Wills are presumed under California law to have been revoked, or partially revoked by writer.
What is a "Will-substitute"?
A Will-substitute is a method by which property is titled so that at the death of property's owner, such property will pass to designated taker without the requirement of a Will.
(a) Types of Will-substitutes.
(1) Revocable "Living" Trust, or Irrevocable Trust.
(2) Joint tenancy ownership, with right of survivorship.
(3) POD (payable on death) designated accounts.
(4) Certain contractual arrangements (such as IRAs, life insurance policies, etc.) which provide for a death beneficiary. These contracts are not subject to the terms of a Will unless the individual's "estate" is named the death beneficiary.
Wills vs. Revocable "Living" Trusts.
As estate planning vehicles, both can accomplish the identical result of how you wish to leave your estate.
(a) Pros and cons of the Living Trust.
(1) Finding a trustworthy Successor Trustee.
(2) No probate administration costs or fees.
(3) Trust administration fees not avoided on death of Trustor (creator) of Living Trust.
(4) Faster distribution of estate for smaller estate.
(b) Probate and the $100,000 rule.
(c) The California legislature has devised an estate plan for you if you decide not to execute a Will, Living Trust or not to have some type of Will-substitute. Without a Will, etc., you, and your desired beneficiaries, are stuck with this legislative devised estate plan. This plan is called the law of intestate succession.
(1) The horror story of Cousin Michelle, who "did not need a Will."
The two main kinds of taxes: income taxes and transfer taxes.
(a) Income taxes - personal and fiduciary.
(b) Transfer taxes: Gift, estate, & generation-skipping.
(1) The $675,000 applicable exclusion amount.
(2) No inheritance tax in California.
(b) The "gimmes" the tax code provides, and why you are foolish not to take advantage of them.
(1) Married couples should own real estate as their community property, not as joint tenants. Double stepped-up tax basis on death of first spouse. IRC §1014(b)(6)
(2) Married couples with an estate of $675,000 should employ a "Bypass Trust" as part of their estate plan.
(i) Savings of over $240,000 estate tax will be realized with a Bypass Trust on death of second spouse. The ultimate beneficiary of such savings is the child, or other loved beneficiary.
(ii) A Bypass Trust is a "sub-trust" that can be used in either a Will or Living Trust.
Other techniques for reducing the estate tax in large estates.
(a) GRIT, GRAT, GRUT (Grantor Retained Income Trust, etc.).
(b) QPRT (Qualified Personal Residence Trust).
(c) CRAT and CRUT (Two types of Charitable Remainder Trust).
(d) CLAT and CLUT (Two types of Charitable Lead Trust).
(e) Direct charitable giving, either while living or at death.
(f) Family limited partnership (or family limited liability company).
(g) Selling appreciated asset on installment basis to DGT (defective Grantor Trust).
(h) Reducing the personal estate, without reducing the $675,000 AEA, by means of giving $10,000 per year per beneficiary intervivos and/or paying medical or educational expenses of any amount for a beneficiary.
(i) Combinations of any of above plans.
The important role of life insurance in estate planning
(a) Replaces the earnings of the breadwinner/s.
(b) Provides for a fund to pay federal estate tax, so that the decedent's estate will not be diminished by this death tax.
(c) Policy must be owned by independent Trustee of an irrevocable life insurance trust, or by trusted friend or child, in order to not have death benefits included in decedent's estate.
(d) Types of policies: term, whole life, variable or universal.
(1) Purchase whole life, variable and universal policies from highly-rated companies, i.e. check Moody ratings, etc.
(2) Know the what rate of return the company guarantees, what rate of return it projects, and what historical rate of return for that company is.
(3) Careful with universal life policy - it can "disappear" if return on investment fund is too low.
(4) Timing of payoff on death of a spouse: first-to-die policy or second-to-die policy.
The Durable Power of Attorney for Property and Personal Management.
(a) Statutory and non-statutory forms.
(1) You choose who shall represent your wishes concerning managing your property, and dealing with institutions like Social Security, the IRS, etc., in the event of your incapacity or incompetency.
(2) Avoid the expense and public nature of a court administered conservatorship.
(3) Best type is the "Uniform Statutory Power of Attorney (Durable)" because it can be most easily enforced.
(a) Long term care insurance
(1) What is covered?
(i) skilled nursing facility
(ii) residential (intermediate) care facility
(iii) in-home care
(2) State partnership policies
(i) Preserve estate and still be eligible for Medi-Cal when benefits run out
(ii) Premiums are itemized deduction if a "qualified" LTC policy.
(b) Medi-Cal as payor - Medi-Cal requirements
(1) Eligibility rules - income is exempt or non-exempt
(2) Husband and wife
(3) Single individual.
(4) Strategies for gaining eligibility
(5) Recovery statutes - reimbursement after death
Planning for children and other young beneficiaries
(a) Irrevocable Trusts - flexibility.
(b) Special Needs Trust
(c) Guardianship of the minor's person
(d) UTMA accounts - compared to Irrevocable Trusts
(e) Planning for college
(1) New 529 accounts, educational IRAs and other techniques