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March 2014

Jack Friedell
In Estate Planning, Stepped up basis, Uncategorized

Stepped Up Basis in California

California Stepped Up Basis

One of the greatest tools in the estate planning toolbox is stepped up basis. Basically, stepped up basis refers to an assets basis that is “stepped up” to the assets current fair market value (FMV) at the time that the decedent passed.

For example, a decedent who died today and had a purchase of Google stock at $106 back in 2004 would be given a step up in basis to today’s FMV of Google at $1,158. If the beneficiary of the stock were to sell the Google stock tomorrow, the entire gain from $106 to $1,158 would be tax free.

Another area where we see huge gains for stepped up basis in California is in the real estate market. Many baby boomers bought homes in California back when home prices were about forty thousand dollars for a nice home by the beach. Today, the FMV of the same home is over one million dollars.  The entire nine hundred and sixty thousand dollar gain would pass to the beneficiary income tax free.

Now let’s say the beneficiary holds onto the property for another ten years (or at least two years) and the property increases in value to over one and a half million dollars. The beneficiary then would own a property with a FMV of $1,500,000. If the beneficiary is single, he/she could sell the property and the tax basis would only be $250,000. If the beneficiary is married and he/she co-mingles the property with his/her spouse, the tax basis would be zero.

The reason that it is important to understand stepped up basis in California is because the beneficiary of the real estate or stock would be best served inheriting the property rather than receiving the property as a gift while the original owner of the property is still living. If the beneficiary received the property as a gift, the tax basis of the above property would be $40,000. If the beneficiary of the property sells the property for the current FMV of $1,000,000, the beneficiary would have a taxable gain of $960,000!!!

For questions on this article or for any other estate planning or business law questions, please contact an experienced estate planning and business law attorney in California today!

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.

Jack Friedell
In Estate Planning, Power of Attorney, Trust, Uncategorized

Don’t forget to fund your Living Trust!

Funding Your Living Trust in California

Creating a Living Trust in California is great but there is one additional step that needs to be taken in order to make sure your assets are protected from the dreaded Probate Court.: you need to fund the Trust!

Imagine your Living Trust as a large box. Everything in the box is protected from probate. However, everything left out of the box is vulnerable to a potential probate. Therefore, in order to protect your assets you need to place them in your Trust. Placing your assets in your Trust is termed, “funding the Trust”.

But who controls the Trust assets?

Once your assets are placed into your Trust, the Trustee of the Trust will have all the powers that you had when the assets were in your name. That is why the Trustee of your Trust is typically you, the Trustor or Settlor of the Trust.

Funding the Trust

Funding a Living Trust in California is an easy enough process, although it can be time consuming. What is needed is for the title of your assets to be changed from your name to the name of the Trust. We normally will transfer your Real Estate into your trust. We also provide you with an Assignment of Personal Property which will place your personal property that you currently own and will own in the future into your Trust. You will also receive a worksheet to make specific personal property gifts. Lastly, we will also provide you with a detailed guide on how to place your remaining assets into your Trust.

Note: not all assets should be placed in the Trust. It is important to know which assets to place in the Trust and which assets to leave out.

Assets to leave out of your Living Trust

Some assets, such as life insurance, retirement accounts and IRAs, may have adverse tax consequences if placed in your Trust. Therefore, it is important to discuss with an experienced California Living Trust attorney what assets to place in your Trust and what assets to leave out. At the Law Offices of Jack B. Friedell, we take the time to explain the advantages and disadvantages of placing specific assets into your trust. We offer you California estate planning legal advice to ensure your specific goals are being met.

Note: since not all of your assets should be placed into your Living Trust, it is imperative that we also create a Durable Power of Attorney for you. A California Durable Power of Attorney will allow your agent to access all of your assets outside of your Living Trust.

A couple “safety nets”

If you have a Living Trust but fail to properly fund the Trust, we also provide you with a “pour over will” and a Declaration of Trust to make sure that all your assets end up in the Trust.

A “pour over will” is simply a Last Will and Testament that can grab up to $150,000 of assets not in your Trust and “pour” those assets into your Trust. Then, once the assets are part of your Trust, the provisions in your Trust will dictate how the assets are distributed.

A Declaration of Trust is a final line of defense that we create for you in the event that the assets outside of the Trust exceed $150,000. The Declaration of Trust simply acknowledges to the Probate Court that you intended all your assets to be placed in your Trust.

We are here to help

There really is no better time to get your estate plan in order. Please contact an experienced trust and estate lawyer in California today!

Stop by our estate planning 101 section to learn more about why you need an estate plan.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.

Jack Friedell
In Estate Planning, Probate, Uncategorized, Will

San Diego Probate: the Ins and Outs

What happens to someone’s assets when they die? Often, the assets will need to pass through probate. A California estate with assets of $150,000 or real property worth more than $20,000 will most likely need to go through the probate system.

If the decedent had a Will, then the executor of the Will files a probate with the court. However, if the decedent died intestate, (without a Will), the court will usually appoint an administrator who takes on the role of the executor. The main point is that a San Diego probate occurs with or without a Will.

The probate of an estate in San Diego takes place at the Central Division Probate Court located at 1409 Fourth Avenue, San Diego CA 92101. Even if you have a North County San Diego Probate, the probate will still take place downtown.

The actual probate process entails proving the validity of a Will (if there is a Will), appointing an executor or administrator, inventorying the estate property, appraising the estate property, alerting and paying creditors, paying taxes, and distributing the remaining property as put forth in the decedent’s will or in accordance with state law if the decedent died intestate.

Probate is a long, drawn out process that takes between nine and eighteen months. Some more complicated estates can take years, especially when there is a probate litigation involved. In order to move the probate process along as quick as possible, it is important that you seek out the counsel of an experienced San Diego probate lawyer, such as at the Law Offices of Jack B. Friedell.

Probate is public. Notice of the petition for probate is sent to all named beneficiaries of the Will and to anyone who would have received had the decedent died without a Will. In addition to virtually every family member receiving notice, the court documents are open to the public—meaning anyone can see what the assets are and where the assets are going.

If the decedent died without a Will in San Diego, the assets in the estate pass according to California’s intestate succession rules, governed by Probate Code § 6400. Essentially, when there is no Will in California, the deceased’s assets pass to any children, then parents, and on and on down the family tree.

Some ways to avoid probate in San Diego: 1. Prepare and fund a living trust. 2. Joint tenancy 3. Payable on death accounts. 4. Beneficiary designations on accounts such as life insurance, retirement accounts and IRAs.

There is also a more streamlined court supervised process for spouses and domestic partners in San Diego called a Spousal Property Petition.

Probate can be very expensive. Attorney fees are set by statute (CPC §10800) and are determined based on the value of the probate estate: 4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9,000,000; ½% of the next $15,000,000; the court will assign a reasonable amount on estates valued above $25,000,000. There are often additional fees from appraisers and CPAs. All told, a San Diego probate can run around five to six percent of the total value of the estate.

To consult with an experienced San Diego Probate attorney who can advise and guide you through the probate of an estate in California, or for any other questions regarding estate planning in San Diego, please contact the Law Offices of Jack B. Friedell today.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.

 

Jack Friedell
In Estate Planning, Trust, Uncategorized

Will, Trust and Estate Planning in Carlsbad, California

The Need for a Living Trust in Carlsbad, California

According to the U.S. Census Bureau, as of 2012, Carlsbad boasts a total population of over 109,000. And just looking at the amount of growth occurring right now and Carlsbad probably has a current population of over 120,000 in 2014.

A 2010 Lawyers.com national survey noted that only 18 percent of the population had a Trust (living trust or other trust agreement)— that is down from 31 percent in 2007. And only 35 percent of the population had a Will in 2009. That leaves some 65 percent of the population without either a Will or a Trust.

We assume, with the more sophisticated and knowledgeable families in Carlsbad, California, that a higher percentage of Carlsbad residents have a Living Trust or Will in place. But even if we take more conservative numbers and use 2007’s 31 percent, that still leaves a large percentage of Carlsbad residents exposed to a potential costly and time consuming California probate.

In Carlsbad, the median home value is $659,000. In California, an estate will have to go through the probate process, even if you have a Will, if the value of the estate exceeds $150,000. That means if your home is valued above $150,000 F.M.V. (not net value) your estate will go through probate, with or without a Will. And probate is costly, with most probates ranging from five to six percent of the total value of the estate when factoring in attorney fees, CPA fees, appraisal fees, etc…

The majority of residents need to consider Will, Trust and Estate Planning in Carlsbad, California. And without a doubt, virtually every homeowner in Carlsbad needs a Living Trust, because property in a Trust avoids probate.

Sixty five percent of Carlsbad residents own their own home.  A large majority of homeowners do not have a Living Trust or a Family Trust. Therefore, using the high number above of thirty one percent of residents having a trust, there is still a huge need for another thirty four percent of residents to create a Living Trust or Family Trust in Carlsbad.

A large majority of our clients list the lack of discretionary income as the main reason for delaying on the creation of a trust in Carlsbad. However, at the Law Offices of Jack B. Friedell, our team of experienced Carlsbad Will and Trust Attorneys work together with our clients in creating an affordable estate plan. We also offer a monthly installment plan so we can work with you to create your estate plan and you can pay for it over a period of twelve months.

There really is no better time to get your estate plan in order. Please contact an experienced trust and estate lawyer in Carlsbad today!

Stop by our estate planning 101 section to learn more about why you need an estate plan.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.

Jack Friedell
In Estate Planning, Probate, Trust, Uncategorized, Will

Six reasons a Living Trust is superior to a Will in California.

Estate Planning 101: Living Trust versus a Will in California

Most people believe that a Will is all that is needed in order to pass on the assets in their estate. However, what most people fail to realize is that a Will is not going to be a sufficient California Estate Planning tool. That is because a Will comes up short in several key respects when compared to a Living Trust (also known as a Revocable Trust or Inter Vivos Trust).

Six reasons a Living Trust is superior to a Will in California.

1. A Trust avoids probate whereas a Will still goes through probate court.

A Will is simply a road map for the Probate Court to follow. A Will does not avoid probate; it simply directs the Probate Court judge on how you want your assets distributed upon your death. The judge will follow your wishes in your Will but your estate will still be on the hook for all probate related fees (such as attorney fees, CPA fees, appraisal fees, etc…). The total fees for the probate of an estate in California can be as high as 5-6% of the total value of the estate.

However, a Living Trust, set up by an experienced California Trust Attorney, avoids the entire probate process. That means the bulk of the assets will pass without any fees to the intended beneficiaries. It also means that there is no court involvement. Therefore, the value of a Living Trust is that it avoids probate fees and probate court. The small cost involved in setting up a properly funded Living Trust compared to the total savings a Trust provides by avoiding Probate is substantial.

2. A Trust can hold beneficiary assets whereas assets pass at age 18 with a Will

A Trust can be designed so that the assets pass to beneficiaries at a desired age. For example, a Trust can have language in it that gives 25% to a child upon completion of college, another 25% upon reaching age 25, with the remaining 50% at age 30. This allows a beneficiary to receive their inheritance in small chunks instead of in a bulk sum. Perhaps the beneficiary will have blown through the initial 25% and will be more disciplined in how they spend the next 25%.

However, with a Will, the beneficiary receives everything at age 18. That means a financially inexperienced teenager will receive their entire portion of the estate at 18. This can cause a lot of problems, including the beneficiary blowing through their entire inheritance.

3. California Trust Administration vs. California Probate

A typical California Trust Administration can take around three to nine months. That is assuming the Trust was created by an experienced California Trust Lawyer (some trust administrations can take a lot longer depending on the quality of the trust).

A typical California Probate can take anywhere from nine to eighteen months. Some more complicated probates can take years.

The bottom line is that the beneficiaries will receive their assets much quicker via a Trust than a Will.

4. A Living Trust is private whereas a Will is public

A Will is open to the public. In fact, notice of the decedent’s passing must be given to every beneficiary named in the Will and to every beneficiary who would have received had the deceased died intestate (without a Will). Further, anyone can access the probate court documents. There is absolutely no privacy with a California Probate.

A Trust is completely private. Notice of the decedent’s passing is given only to the heirs of the Living Trust. There is no court supervision, no court interaction and no public disclosure.

5. A Living Trust is harder to contest than a Will

Since a Will is open to the public and since notice is given to all named beneficiaries and to every beneficiary who would have received had the deceased died intestate, there is a much greater chance for a Contest by any potential heir who was left out of the Will.

However, due to the private nature of a Trust, there are very few parties involved. Therefore, there is less likelihood that anyone will Contest the Living Trust.

It is highly beneficial to avoid a California Will or Trust Contest because of the high cost associated with a Contest. Often, the cost of defending the Will or Trust Contest comes straight out of the assets of the estate, depleting the estate’s assets.

6. A Trust avoids court involvement at incapacity

In California, if a person becomes incapacitated, typically a member of the family petitions the Probate Court for a Conservatorship. This applies whether the incapacitated person has a Will or not. Then the Court decides who the appropriate Conservator will be.

A properly created Living Trust will list a Successor Trustee (as well as one or two backups). The Successor Trustee will take over for the Trustor upon the Trustor’s incapacity. There is no court involvement and the Trustor gets to choose the person and not the court.

One final note: a Will is still necessary when creating an estate plan. The Trust will hold all of the assets in the estate. However, every good Trust needs a “Pour Over Will” to grab any assets outside of the Trust and “pour” the assets back into the Living Trust. An experienced California estate planning lawyer will almost always recommend a Will to compliment a Living Trust.

In summary, the small price involved in setting up a California Revocable Trust far outweighs the time and money saved by avoiding probate. For questions on the above content or for any other legal advice dealing with California Living Trusts, an experienced North County San Diego will and trust attorney can help. Please contact the Law Offices of Jack B. Friedell today.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation. 

Jack Friedell
In Spendthrift Provision, Uncategorized

The value of a Spendthrift Provision in your Living Trust

Using a Spendthrift Clause in a Living Trust

Brought to you by the Law Offices of Jack B. Friedell.

A common estate planning 101 question we receive from clients is how a Settlor (the person creating the trust) can protect a beneficiary’s inheritance from creditors. Typically, this question comes up because the Settlor of the trust is leaving monies to a beneficiary that he or she knows has problems when it comes to finances. The good news is a spendthrift trust can help protect a beneficiary’s inheritance and keep creditors at bay.

California Probate Code § 15300

To summarize California Probate Code § 15300 in part: if there is no language in the trust that makes for a voluntary or involuntary transfer of a beneficiary’s interest, then the beneficiary’s income interest does not have to be transferred and cannot be touched by a creditor for a money judgment until the income is actually paid to the beneficiary.

Basically, a creditor cannot attach a judgment to the assets of a trust due to a beneficiary until the assets have actually been distributed to the beneficiary.

The advantage to the beneficiary protected by the spendthrift provision is that he or she can protect their inheritance from creditors. Granted, the beneficiary must be careful on how he or she takes their distribution from the trust assets, but at least the creditor cannot get a lump sum judgment and deplete the beneficiary’s entire inheritance.

Why might someone consider providing a spendthrift provision in their trust?

The most common reasons for providing the provision are for the following type of beneficiary:

  • The Squanderer: The beneficiary has poor money management skills
  • The Addict: The beneficiary has an addiction to drugs or alcohol
  • The Gambler: The beneficiary has a gambling addiction
  • The Consumer: The beneficiary has a propensity to acquire large amounts of debt
  • The Used and Abused: The beneficiary has a history of being taken advantage of by friends and family

Each of these beneficiaries has one thing in common—they and money are soon parted. If you are having an attorney create a trust for you, it is in yours and your beneficiary’s best interest to include a spendthrift provision in your trust. Then the trustee can make distributions as the trustee deems prudent. This will protect your beneficiary in the short term and perhaps help buy your beneficiary some time to allow them to learn a valuable lesson about the importance of good money management.

Exceptions to spendthrift provisions

There are exceptions to the spendthrift clause in a trust document. The most common reasons a spendthrift provision in a living trust will not be followed is due to either:

  1. Creditors who provide the beneficiary with necessaries, such as food and shelter
  2. Children and ex-spouses for child support and spousal support payments

In Conclusion

The bottom line is, whether your beneficiaries fall into any of the above categories or not, it is prudent to include a spendthrift provision in your living trust. It will not detract from the value of your trust and it could very well protect a beneficiary down the road. Life is unpredictable. Therefore, it is better to be safe than sorry.

For questions on the above content or for any other legal advice dealing with spendthrift trusts, an experienced California trust attorney can help. Please contact the Law Offices of Jack B. Friedell today.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.

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