May 10, 2014

Using Joint Tenancy with Real Property as a Probate Avoidance Device, Part 2

Although, joint tenancy will avoid probate, holding property as joint tenants may also have adverse and unexpected consequences. First, a little primer on basis to understand what is meant when we speak about your basis in property.

Generally, your basis in property is what you paid for it when you acquired the property. For purposes of this discussion and to keep things simple, we will not address the adjusted basis which is determined when you consider gain or loss such as capital improvements or depreciation, respectively, to the property.

If you paid $100,000.00 for real property, your basis in that property would be $100,000.00. If you later sold it for $250,000.00, you would realize a gain of $150,000 that, ignoring any exclusions or exemptions that may be available, would be subject to taxation. Similarly, If someone gifted you that same property during their lifetime, your basis in the property would be the same as the person gifting it to you. If they paid $100,000.00 for the property and gave it to you when it's fair market value was $250,000.00, your basis would be $100,000.00 and if you sold it for $250,000.00, you would have a taxable gain of $150,000.00. Again, for demonstration purposes we are not taking into account any state or federal exemptions or exclusions available such as those under IRC section 121.

Let's say someone paid $100,000.00 for real property and when they died, the fair market value of the property was $250,000.00. Further, let's say that person named you as the beneficiary of that property in their Will, Trust or you received it by intestate succession. Your basis in the property would be the fair market value at the time of the decedent's death. In other words, you would benefit from a "step up" in basis to $250,000.00. This means if you turned around and sold the property for $250,000.00 there would be no gain that you would be responsible to pay tax on.

In short, if you inherit property from a decedent, your basis would be the fair market value of the property at the time of the decedent's death.

If you hold property with another person as joint tenants, only 1/2 of the property, the decedent's 1/2, gets a step up in basis at the death of one of the two joint tenants unless the surviving joint tenant can prove the decedent contributed most, if not all of the purchase price.

This is of particular importance if you are married. If you and your spouse have your property in a trust which describes the character of the property as community, or if your vesting document states the property is held as husband and wife as community property, the entire property gets a step up in basis at the death of the first spouse, not just the decedent's one-half. Conversely, if you and your spouse instead own the property as joint tenants, only 1/2 of the property gets stepped up, regardless of who contributed to the property. Further, the surviving spouse's basis in the remaining property is 1/2 of the original purchase price. This is easily avoided and makes me wonder why married couples hold title to real estate as joint tenants unless it is for the purpose of having only 1/2 of the property included in the decedent's gross estate for federal estate tax purposes.

Another item that could become problematic is when you own property and want to add someone to your property as a joint tenant. There are things you may want to consider before doing so. For example, the addition may be deemed a gift to that person which may be subject to gift taxation. Secondly, even though you can add a joint tenant to your property without requiring that person's signature or approval, you cannot remove the joint tenant from the title without the their signature. If the added joint tenant doesn't want to be removed from title and doesn't want to live with or own property with you, they could possibly bring an action in court wherein the court could order the property actually divided into equal parts for each of you (you and the added joint tenant) or order the property sold and distribute the proceeds equally to each of you.

Third, you may want to consider a potential joint tenant's financial situation prior to adding them to the title as a joint tenant. If the added joint tenant has creditor issues and a creditor successfully brings an action against that person and obtains a judgement, the creditor can file a lien that would attach against the entire property.

Subject to certain 'original transferor' and 'change in ownership' rules promulgated by the Board of Equalization, there are potential property reassessment tax issues to be consider before adding or removing a joint tenant.

April 19, 2014

Using Joint Tenancy with Real Property as a Probate Avoidance Device, Part 1

Many couples in California, married or not, hold title of their real property as joint tenants. I find this is mainly the result of not consulting a legal professional when purchasing the property. The property sales paperwork they receive from escrow has a question which asks how the buyers would like their property to vest or how they would like to take title. And not completely understanding the question or repercussions, they often ask and take the advice of someone from the escrow company, title company or their real estate agent, many of whom are not familiar with issues that may arise by holding title in such a manner. Other times, for those currently owning real property, the manner of title is changed because the owner has heard horror stories about the probate process and have been informed that holding property as joint tenants will avoid probate. Which it will, barring any other unusual issues.

Joint tenancy with the right of survivorship is the full proper name, however many jurisdictions allow the forgoing of the phrase "with right of survivorship" in the vesting document. Joint tenants own an undivided equal interest in the property and when one of the joint tenants dies, their interest in that property will pass to the surviving joint tenant or joint tenants, outside of probate by "operation of law." Typically, the only document necessary to reflect the remaining owners of the property, is an Affidavit of Death of Joint Tenant which is filed with the County Recorder's Office. This will show the chain of title and indicate the remaining joint tenants as owners of the property. While owning property as joint tenants or adding a joint tenant to your deed, will avoid probate, it may have unintended consequences.

One such consequence is that a joint tenant cannot leave their interest in the jointly held property by Will or Trust to anyone such as their heirs. This is because your interest in the property will pass to the remaining joint tenants. This is of particular importance in blended family situations. Let's say Husband and Wife meet, both had previous marriages and both have 2 children from those previous marriages. Wife and her two children move into Husband's home and and Husband adds Wife to the title of that home as a joint tenant. Some years later, Husband dies and the property automatically passes to Wife. Husband has a Will that states his children shall receive all of his estate in equal shares. Husband wanted his children to receive the home, or at least his interest in it, however, it now, in its entirety, belongs to Wife, who, in her Will has provided that her 2 children receive all of her assets. Husband probably didn't expect this result and to provide for his own 2 children at his death.

The law pertaining to ownership interests in property can be found in CA Civil Code Section 678-703.

Look for Part II for more consequences of holding title as joint tenants.

April 7, 2014

Are you Expecting an Inheritance? Are You Depending on an Inheritance?

I was out to dinner the other night and overheard a brother and sister discussing their father and his new young bride and her pregnancy. The conversation started in muted whispers however, it didn't take long until their voices got louder as the discussion went on. Soon the entire restaurant was paying attention to these siblings who seemed to be quite put out by their soon to be born half brother or sister, and the other two children their stepmother brought into the family. All the while oblivious to the audience they had around them. The comment that stuck in my mind most was when the sister, almost screamed "That woman and her three kids are cutting into our piece of the pie."

Evidently, these siblings were not only counting on and expecting a certain inheritance from their father, but they were depending on it. And that reminded me of an article posted in the Wall Street Journal one or two years ago written by Anne Tergesen that addresses issues when baby boomers are counting on an inheritance they may be in for quite a shock.

Although the article is a couple of years old, it is still relevant in today's economy. People are living longer, asset values have decreased and often it is the children that are the ones supporting their parents. On the other hand, the article cites The Center on Wealth and Philanthropy at Boston College where the Center estimated that baby boomers and their children could, over the next 4 decades, inherit $27 trillion dollars. However, that money is going from the wealthiest families to their wealthy children.

Most interesting in the article were the statistics indicating that families are not real excited about discussing any of these issues with each other. I understand these feelings and logistics. Many people know that they should speak to an attorney about doing some advanced estate planning, or a financial adviser to crunch some numbers and see what they might need to live out their retirement to the fullest given any number of subjective contingencies.

I am surprised at the amount of people who don't take the advantage available across the state for a free initial consultation offered by estate planning professionals to assess the potential client's assets, teach pros and cons about probates and how to avoid them if desired, and limit any exposure to taxation that would otherwise take place at certain events such as lifetime gifting or death. But then again, making an appointment with an estate planning attorney can be a grim prospect for you as often, in addition to protecting your assets at the time of your death, it brings up the idea of your own incapacity or mortality. There are not many people who relish the idea of thinking about these things so the appointment keeps getting pushed to the back burner.

However, there is so much more to estate planning, depending on your assets, how they are held, the knowledge of your legal professional and your family makeup. You can protect your assets during life, give larger gifts during your lifetime and limit taxation, leave your assets to your heirs in such a manner that they are protected from creditors, judgements, spouses, just to name a few considerations.

In short, give your estate planning professional a call. Plan ahead and always be prepared.

May 16, 2012

Did Amy Winehouse have a Will?

I recently read two articles regarding the rumors about Amy Winehouse updating her Will to ensure that her ex-husband Blake Fielder-Civil would not inherit any of her estate. One article was in Forbes and the other in Elder Law Answers. Was the troubled singer really that organized? It turns out she wasn't. Winehouse died intestate, in other words without having executed a will.

Like many other celebrities, Winehouse procrastinated with her estate planning, leaving it up to the courts to distribute her millions.

The moral of the story: It's never too early to plan your estate. If you have accumulated some assets (it doesn't have to be Winehouse's millions) or if you have young children that will need a guardian, then it is time to start thinking about an estate plan. Planning your estate with a will or trust is the best way to ensure your estate is distributed in the manner and to whom you want.

February 16, 2012

Problems With Drafting Your Own Will

A Will, a Trust, Powers of Attorney, Advance Health Care Directives, HIPAA Authorizations, Personal Property Assignments and any thing else attendant to your estate plan are legal documents. We don't advocate drafting your own estate planning documents, but if you do, make sure your intent is clear. The smallest mistake can completely disrupt your plans, goals and desires with respect to your estate assets.

For example, a man, Duke, who passed away in 2007 had handwritten (holographic) his own Will in 1984 which purportedly provided that his $5 million estate was to be distributed to his wife and then 1/2 to the City of Hope and the remaining 1/2 to the Jewish National Fund. The Will disinherited anyone not mentioned in the document. Duke had two surviving heirs, his nephews, Robert and Seymour Radin who were estranged from Duke.

The language in the Will specifically provided that if Duke and his wife died "at the same moment", then the estate was to be equally divided to the above named charities. Duke's wife died in 2002.

Duke's Will was admitted to probate and the Radins filed a Petition for Determination of Entitlement to Estate Distributions. Their argument was that the charities would only receive the inheritance if Duke and his wife died "at the same moment" as stated in the Will. Further, there wasn't a provision in the Will that provided for disposition of Duke's estate after his death.

Los Angeles Superior Court Judge Mitchell L. Beckloff found for the Radins by ruling that the Will was not ambiguous in that Duke and his wife did not die at the same moment, nor did Duke's Will offer any disposition of his property if he survived his wife. The result was that Duke's estate was to be distributed as if there were no Will at all, through the laws of intestate succession, specifically, to his 2 surviving heirs.

The charities appealed but the Court of Appeal affirmed and ruled in favor of Radins.

You can read more about this case in an article by Sherrie M. Okamoto in the Metropolitan News.

November 18, 2011

Estate Planning is Not Only For the Wealthy

An article posted at written by James L. Watts, outlines many reasons why it is not just the wealthy that benefit from an estate plan. Excluding possible federal estate tax exposure, Mr. Watts offers motivation in the article to those whose wealth is well under the current exemption amount to prepare an estate plan.

Additionally, in California, a comprehensive estate plan can provide for incapacity of the individual, liquidity of assets at death and avoidance of probate.

June 3, 2011


For the next two years, 2011 and 2012, married couples have a unique estate planning opportunity available to them that has never existed. The fact that this opportunity may not exist at the beginning of 2013, makes planning decisions revolving around this opportunity even more complex. For the next two years, a spouse can inherit their deceased spouse's estate and gift tax exemptions to the extent those exemptions are unused. This is called portability of the deceased spouse's exemption.

Traditionally, spouses would include exemption planning in their estate plan to preserve the first-to-die unified credit by creating a separate exemption trust funded with assets valued up to the exemption amount for the year that their spouse passed away.

For 2011 and 2012, that type of planning is not necessary as portability allows the living spouse to inherit the deceased spouse's exemption. This will make estate plans more simplified for the two years portability is in existence, but it is not without certain concerns.

One concern is that if an estate plan omits exemption planning and a spouse passes away in 2013, the deceased spouse's exemption will be lost leaving the surviving spouse's estate vulnerable to greater estate tax liability. Another is that the surviving spouse, to preserve the decedent's exemption, must file a federal estate tax return in a timely fashion even if the assets are not greater than the exemption amount for those two years (currently $5 million). Additionally, the asset protection of the exemption trust for the surviving spouse is lost.

May 30, 2011

Who Will Get Your Property?

People usually do not grasp the unintended consequences of who their property will be distributed to upon their death without an estate plan of some sort.

I had a client who had dated a man for 30 years before finally giving in to his multiple proposals. Unfortunately, the man passed away within the year of their marriage. The man had an estranged daughter from a previous relationship and had not had contact with her for decades. The man owned multiple assets, including the home he lived in with my client, but because the couple was recently married, all the property was the decedent's separate property and my client did not have a community property interest in any his assets.

The man did not have an estate plan. Under the laws of intestate succession, all of his property would pass to his wife and his estranged daughter equally. Additionally, a probate would be necessary to effectuate the transfer of the assets which included multiple bank accounts and real properties to the wife and estranged daughter.

You can imagine my client's surprise and chagrin when I explained that not only would her husband's estate be subject to probate, but that his estranged daughter would need to be noticed and she would be entitled to 50% of all the assets, including the home my client had resided in with this man.

On another occasion, I met with a successful single man who was interested in estate planning. He asked me where his assets would go if he passed away without directing distribution of his property by a Will or Trust. He didn't have children and both his mother and father were living. I explained that under the succession laws of CA, his property would go to his parents in equal shares, subject to a probate proceeding.

He was mortified. It turned out that his parents were divorced and he did not have a relationship with his father in any respect whatsoever. And he explained, he would not want anything he owned passing to his father under any circumstances.

May 25, 2011

Creditors Claim Procedure for Trust Administrations

I was standing in line at the market the other day and I noticed a storyline on the first page of a weekly fan magazine that stated "Elizabeth Taylor's Estate Begins Probate." I was puzzled, and always am, when people of means, who are presumably surrounded by business people and lawyers, don't have an estate plan in effect which would, at the very least, avoid probate.

So, I did a little research. It turns out that the estate is not being probated. Ms. Taylor had a revocable trust at the time of her death. However, the attorneys for the trust opted for a court proceeding which is commonly referred to as a Creditor's Claim process for trust administrations.

The probate court has jurisdiction over trust matters. The Creditors Claim process brought in a trust administration is voluntarily filed in the probate court. The Creditors Claim process in a probate is mandatory.

After receiving notice, if a creditor does not file a timely claim against the trust (within 4 months of published notice or 60 days from date notice is mailed or from date of personal service, whichever is later) the creditor's claim would be barred.

There are numerous benefits for opting to initiating the Creditors Claim process in court for a trust administration. The procedure limits the 1 year limitations period in which creditors would otherwise have to file claims, it will force noticed creditors to pursue their claims, or not, allowing the administration of the trust to move ahead without fear of a lurking outstanding claim, if a claim is questionable it can be addressed in a limited period and distributees don't need to worry about a properly noticed creditor pursuing the claim against the beneficiary's inheritance from the decedent's trust .

May 22, 2011

Choosing Taxation Plans for Decedents Who Died in 2010

There is an interesting article in the Wall Street Journal discussing which taxation system to choose for those taxpayers who passed away in 2010. The choice is between the estate tax system or the modified carry-over basis rules initially in place in 2010 when the estate tax was phased out.

Previous law gradually reduced federal estate tax over the years and eliminated it altogether for decedent's dying in 2010 subject to carry-over basis rules which could result in income/capital gains taxation. In 2011, the estate tax was to be applied to assets in a decedent's estate over $1 million at a rate of 55%.

New law, the 2010 Tax Relief Act increases the exemption amount to $5 million for 2011 and 2012 and is retroactive to January 1, 2010. Representatives for estates of decedent's dying in 2010 can choose between the estate tax scheme or no estate tax subject to the modified carry-over basis laws.

If the estate tax option is applied, the estate will be subject to the $5 million applicable exclusion amount at the top tax rate of 35% with a stepped-up basis. If the no estate tax regimen is applied the modified carryover basis rules with be in effect.

May 2, 2011

Who Would Receive Your Property if Your Testamentary Transfer is to a Disqualified Transferee Under California's Care Custodian Statute?: Part IV

In August 2010, SB 105 was passed by the legislature. There is a new Probate Code Section (21362) updating the previous definition of "care custodian." This Section addresses gifts that become irrevocable after January 1, 2011.

This Code states that a care custodian will no longer include "a person who provided services without remuneration if the person had a personal relationship with the dependent adult (1) at least 90 days before providing those services, (2) at least 6 months before the dependent adult's death, and (3) before the dependent adult was admitted to hospice care, if the dependent adult was admitted to hospice care."

And if all this is too confusing, or you are not certain if a gift will be disqualified under the statute, an independent attorney can provide a Certificate of Independent Review.

A Certificate of Independent Review mandates an attorney that is, well, obviously independent from the situation to counsel the client regarding the "nature and consequences of the intended transfer." Under California Probate Code 21370, the independent attorney is described as an attorney who "has no legal, business, financial, professional, or personal relationship with the beneficiary of a donative transfer at issue under this part, and who would not be appointed as a fiduciary or receive any pecuniary benefit as a result of the operation of the instrument containing the donative transfer at issue under this part."

October 19, 2009


As 2010 looms near, our law office has received multiple inquiries about the status of the federal estate tax exemption for the upcoming years. Generally, federal estate taxation pertains to the amount of tax your estate will be liable for at your death.

Over the years, the federal estate tax exemption amount has been subject to a graduation system that provided for the federal exemption to increase while decreasing the estate tax rate.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, for this year (2009) each individual enjoys a 3.5 million dollar exemption as to federal estate tax. Assets over $3.5 will be taxed at 45% (compared to 55% in past years). Basically, this means that the first $3.5 million of your assets will escape estate taxation at the federal level.

Further, as the law currently stands now, in 2010, federal estate taxation will disappear only to find it reappearing in 2011 at a rate of 55% on estates with assets over $1 million.

It is thought that President Obama and Congress will act prior to 2010 to prevent the federal estate tax from being repealed and there are a several options for Congress currently being considered.

Here is a summary of some of those options:

a) The exemption of $3.5 million from 2009 is made permanent as is the 45% tax rate.
b) The exemption is indexed for inflation
c) Gift and estate tax is unified
d) If a decedent doesn't use their exemption, the transfer of the unused part to the spouse will be allowed.

a) An exemption of $2 million will be permanent
b) For estates between $2 and $5 million the tax rate will be 45% and for estates $5 to $1 million the tax rate will be 50% and the tax rate will be 55% on estates more than $10 million.
c) same as (c) above
d) same as (d) above

a) An exemption of $5 million will be permanent
b) The tax rate will equal the top rate for capital gains

Of course this discussion is simplified in an attempt to illustrate the basics of federal estate taxation and the pending changes in the law. If you would like more information consider consulting "The Green Book", published by the Treasury Department providing general information about the pending proposals. If you have questions or are interested in estate planning, contact our office.

September 9, 2009

The Benefits of Naming a Trust as the Beneficiary of Your IRA

Recently, the Wall Street Journal contained an article about the benefits of naming a trust as the beneficiary of an IRA.

When drafted and implemented correctly, beneficiaries could be recipients of more wealth as the IRA will be 'stretched' and the beneficiaries will also benefit from the protection provided by the trust from creditor's, divorces, lawsuit judgments, etc.

July 21, 2009

Guardianship of Your Minor Children

Recent events regarding the custody and guardianship of Michael Jackson's children have garnered increased interest from parents with minor children.

The most common manner in which a guardian is nominated is the inclusion of such a provision in one's Will. However, California recognizes other methods of accomplishing nominations of guardians.

Not nominating a guardian may have unwanted or intended circumstances. Who a parent chooses as potential guardian is of tantamount importance and can present numerous challenges. Some considerations a parent might take into account while choosing a guardian would be a person who possesses similar values, shares religious or spiritual practices, has room in their home and their lives for your children and in some instances, has sufficient resources to provide for you children.

Let's assume a couple with a minor son suffer an untimely fate and neither had included a nomination of guardianship as part of their respective estate plans.

Say both the mother and father each have sisters, and both sisters attempt to gain custody of the children through the probate court.

The mother's sister is single, lives locally, has a good job and shares similar values and ideals as the deceased couple. She often visits with her nephew, spends a considerable amount of time with him and they have a great relationship.

Now let's assume the father's sister is married, has significant assets, but does not and never has shared the same values, principals, ethics or political ideologies as her brother or his wife. She lives in another state and has had limited connection with her nephew.

Presumptively, both the mother and father might have nominated the mother's sister as guardian. However, absent a nomination, the court may look at a two parent household and that household's finances in making their decision of where to place the minor child.

Be assured that nominating a guardian is not binding on a court, but the court will usually acquiesce to a parent's choice of guardian absent extenuating circumstances.

July 15, 2009

Estate Planning Article

David Colker wrote an interesting article this week in the Los Angeles Times. The article addresses the benefits of advance planning but warns against some of the pitfalls an unwary consumer may experienced when creating a do-it-yourself Will or when utilizing the services of an online document preparation company to draft Wills.

When using form driven services, most problems may arise when the estate is not simple and straightforward or where the estate contains taxable aspects not considered by the client or where there the possibility exists of someone contesting the Will.

Even though a consumer might shy away from paying for the expertise of a qualified estate planning attorney, often the old adage rings true - "you get what you pay for," and after all is said and done, a comprehensive solid plan in most cases should very well save you money.

Notwithstanding the above, if your estate is worth more than $100,000 in the State of California, a Will cannot save your estate from a time-consuming, public and costly probate proceeding