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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.

November 18, 2011

Estate Planning is Not Only For the Wealthy

An article posted at Coloradoan.com 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

Portability

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 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 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."