California Estate Planning Practice Blog

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Turkey Talk.

Don't you think that estate planning, financial planning and other sorts of financial preparation like saving for college, retirement or purchasing life insurance would be less taboo in general  if people discussed these matters with their family routinely? 

I mean everyone already knows that Brit is divorcing Kevin. Shouldn't everyone know that you've got a great college savings account opened up for your child? You don't have to share specifics, but just general sentiments.

Thanksgiving is just around the corner.

Imagine sitting at the family table at Thanksgiving and announcing that you figured out your gross estate is $1.6 million if you died today and that you are starting to think about tax planning as part of your estate planning. What would everyone think? In reality, who cares as these issues are so important that talking about them is really the best thing.

Talk about planning for the future, talk about what would happen if Mom or Dad died, talk about saving money for college in a 529 plan. Just talk. When you talk, you share ideas, compassion and a sense of motivation that taking care of your estate planning and financial affairs is truly an important thing to do.

Just The Basics.

Estate planning is one of those phrases that tend to confuse most people. Many people really don't know what documents consists of estate planning documents. I don't blame them as the term estate planning somehow confers a meaning that someone must have an estate. And people think of estates as those lovely homes off of Newport Coast or a spread in the Hamptons.

Generally whenever someone dies, whatever they leave behind is called their estate whether it be assets or debts. So, estate planning is really planning for handling your affairs after you die.

In some instances, estate planning is also incapacity planning. As if who would manage your affairs if you were alive but deemed unable to manage your affairs. You got into a car accident. You developed dementia.

I wish there was a better phrase for estate planning. Anyone have any ideas?

Without reviewing your personal situation, the basic estate planning documents suitable for most Americans who are worth less than $2 million are generally the following documents:

1. Will
2. Living Trust
3. Durable Power of Attorney
4. Advance Health Care Directive

The Will names a guardian for your minor children.

The Living Trust holds title to your property, spells out who should get what and names a successor trustee to manage your trust property either if you died or became incapacitated without going to court.

The Durable Power of Attorney nominates someone to manage your financial affairs while alive, but unable to do so.

The Advance Health Care Directive names someone to make medical decisions for you in the event you are unable to do so and where you can indicate your wishes for end of life choices.

Are Your Children Just Turning 18?

When your child turns 18 years of age, he or she is a bona-fide adult.  This means that Mom or Dad cannot step in and make medical decisions for their newly minted adult children.

I've written about this before, but your children who are just turning 18 really need to have an Advance Health Care Directive in place.  This is reinforced by Jane Bryant Quinn's latest essay on "As Kids Grow, So Do Risks" in this week's issue of Newsweek magazine.

Jane Bryant Quinn writes:

"Did you know that you lose control over your child's medical decisions when he reaches 18? He's entirely in charge. If he can't choose (say, he's in a coma), the doctors will stabilize him. After that, it all depends. ... But what if the parents are separated and disagree? ... To clear the path, your 18-year-old should put two decisions in writing. First, how he wants to be treated if he's in a permanent vegetative state or terminally ill. ... And second, who should make health-care decisions if he's unable to speak for himself ... Ideally, these documents will be drawn up by a lawyer..."

In California, only one document is needed for medical decision making: an Advance Health Care Directive.

This document allows you to nominate who should make medical decisions for you in the event you are unable to do so and you can also state your wishes for end of life decisions including life support, organ donation, authorizing an autopsy and making your choice known for disposition of your remains.

Kind of a gruesome topic to talk to your 18 year old about, but a necessary one especially if your child still wants Mom or Dad to handle his or her affairs until they get a bit older or get married.

A Real Estate Proposition.

A client just called me with a contemporary real estate dilemma – now that she’s sold her place, when should she get back into the real estate market? She sold for good reasons: the neighborhood was changing for the worse, so her equity/investment was in jeopardy, and her new neighbors were not people she cared to share a county with. Given the slide in home prices, she rented an apartment to sit on the sidelines for a while.

But this is not just a tale about the real estate market – it’s also about the cost of property taxes. That’s because now that my client is 55 she can take her old property tax basis with her to her new place – but the clock is ticking on this deal.

It’s called Proposition 60, and it says that if she sells her primary residence and within two years buy another of the same or lesser value, she may take her property tax base with her. Proposition 60 applies when you do this within your own county, and Proposition 90 is when you move to another county that allows reciprocity (those counties are Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura).

[By the way, if a couple divorces, the first person to take advantage of this deal gets it. The other one loses out].

So should the client wait until real estate prices really fall, but lose out on Prop 60? Probably not. She’s going to look for a new place. Sure, she could rent and live off the equity from the sale of her home, but then she may never be able to afford to buy again. I’ve had other clients lose their Prop 60 opportunity for one reason or another, and now they can’t stand the thought of buying again – the mortgage is doable, but it’s tough to justify the cost of higher property taxes.

The moral of the story: Be sure you know the true cost of buying and selling real estate, especially when it comes to your primary residence.

Delia Fernandez, MBA, PFP

Commonalities in End of Life Situations.

I met with two gentlemen over the past week who were both recently diagnosed with end stage cancer. They were from completely different walks of life. One very wealthy and the other struggling to make ends meet.

They also needed legal services in different areas. One had a probate matter to be handled and another needed to complete his estate plan for his family.

They were both in a rush to resolve their legal matters before they succumb to their recent cancer diagnosis.

While I like being able to help clients in need and assist in resolving their legal issues on an emergency basis, it was hard to see them face the realities that their lives are ending sooner than later.

The other sad part was that, while the clients appreciated my assistance, they were very angry to be facing the end of their lives in a very frustrating way.  I can empathize. I watched my mother get frustrated too as she battled lung cancer for a few short weeks before succumbing.

New Cal Tax Law Gives Equal Treatment to Domestic Partners.

Here's a piece of useful information about registered domestic partners and their tax filing status:

[Remember that registered domestic partners in California can either be a committed same sex couple or a committed opposite sex couple where one partner is 62 years or older.]

California State Controller and Franchise Tax Board (FTB) Chair Steve Westly announced new changes in California tax law ( L. 2006, S1827 (c. 802), eff. 01/01/2007) that gives registered domestic partners the same tax filing status as married couples, starting with tax year 2007. Click here for the press release.

Under current state and federal law, domestic partners use the single or head of household filing status.  (California FTB News Release PR06:061, 10/24/2006.)

“California has recognized domestic partnerships since 2003, but State tax laws have not,” Controller Westly said. “This new law will ensure that domestic partners are given fair treatment by getting the same filing status as their married counterparts.” L. 2006, S1827 (c. 802), eff. 01/01/2007 allows registered domestic partners to file their state tax returns using either the “married filing jointly” status or “married filing separate.”

The new law takes effect for tax year 2007, which taxpayers will begin filing in January 2008, and does not impact federal tax law.

When Your Parents Die Broke.

Here's a very interesting article that addresses what happens if your parents die broke.  I think this is something that we all wonder from time to time how situations like these are handled when it comes to settling a loved one's estate.

The author writes: "[l]egally, you're probably not on the hook for their debts. But anything they owned could be. Here's what you need to pay, in what order."

Click here to read more.

Suze Orman Says Get a Living Trust.

In O Magazine (O for Oprah), Suze Orman gives excellent financial advice each month. This month she addressed Financial 'I Dos' and Don'ts and explained how a Living Trust can help blended families with their estate planning.

A reader wrote a question about being "remarried for two years ... how can I protect my children's right to inherit what's mine?"

Suze's answer was, "First, set up a revocable living trust that spells out how you want your property disbursed at your death. " She went on to explain how living trusts work and how it can be beneficial in a blended family.

Remember, whatever assets you bring into a marriage are considered your separate property assets so long as you keep them separate. These separate property assets can be devised to someone other than your spouse like your kids.

So set up a Living Trust for these separate property assets. And set up another Living Trust for your community property assets.

That said, if you have more wealth that you think a Living Trust isn't enough or suitable for you, talk to an estate planning attorney to explore advanced estate planning options.

Umbrella Insurance Policies.

With the news about Jeffrey K. Skilling's sentencing regarding Enron, it brought up an interesting discussion between me and Delia Fernandez. Delia posts often under Financial Advisories by Delia on this blog.  She's terrific, by the way.

We started talking about umbrella liability insurance policies and whether I knew that those policies paid for the legal defense of OJ Simpson and President Clinton. I've posted about umbrella insurance policies before. Read them here and here. I hate to use this word, but "clearly" these policies are a bargain.
 
Here are two links for interesting reading about umbrella liability insurance policies:  Businessweek and Court TV.

As Delia says, "what a hoot of a topic!"