Articles Posted in ESTATE PLANNING

Charitable giving is a common feature of many estate plans. In addition to providing for family, individuals may wish to support their favorite charitable organizations or causes by making specific bequests in their will or trust. In some cases, a person may create a charitable lead trust or charitable remainder trust to ensure his or her generosity continues to yield benefits for years, even decades, after death. But whatever form you adopt for charitable giving after you’re gone, it’s important to make your intentions known in writing. Ambiguity over promised donations can lead to significant litigation.

The Difficulty of Proving Oral Promises to Give

Consider the case of Roland Arnall. The son of Eastern European Jews who fled Europe during the Second World War, Arnall built a fortune as the owner of Ameriquest, at one time the largest holder of sub-prime mortgages in the United States. Arnall’s estimated fortune was $1.5 billion, and his generous donations to the Republican Party led President George W. Bush to name him ambassador to the Netherlands in 2005.

In 1976 the Supreme Court of California recognized that contracts arising from non-marital domestic relationships are enforceable even if they don’t fall within the community property laws governing traditional marriage. This principle extends to cases where one unmarried partner promises to provide for the other in his or her estate plan. A “contract to make a will” is valid under a 2000 amendment to the California Probate Code, even if the agreement is only made orally, provided there is clear and convincing evidence of the deceased person’s intentions.

Note that contracts to make a will are not limited to domestic partners. For instance, a father might promise to leave part of his estate to a daughter if she moves in with him. If she does so and the father later dies without making a will, the daughter could pursue a breach of contract claim against his estate.

In a case where one unmarried partner dies without fulfilling an oral contract to make a will for the benefit of the other, the survivor may face resistance from the deceased person’s family, which can lead to costly litigation. The laws governing these types of cases are complicated in California, as demonstrated by a recent decision by the state’s court of appeals.

Estate planning is more than just signing a last will and testament. It entails making provision for all of your assets through various legal instruments. In many cases, isolated estate planning events take place over a period several years, even decades, so that different laws may be applicable to the disposition of certain assets. Failure to regularly update your plans can prove costly after your death.

Divorce, Remarriage and the Meaning of “Net Assets”

Last year a state appeals court in San Diego had to sort out one such mess. The case was not officially published, and so it out cannot be relied upon as a statement of the law. However, the discussion in the opinion is a helpful way to understand the legal issues at play.

An important tool of California estate planning is the power of appointment. A person making a will (a testator) can name a donee–the person who will exercise the power of appointment–to dispose of the testator’s property at a future date. For example, John Smith can make a power of appointment designating his brother, Phil Smith, to dispose of his book collection after his death. John can leave it up to Phil to decide who should get the books, or he could restrict the power by saying, for instance, that the books should be divided among Phil’s children as Phil sees fit.

The power of appointment is governed under California law and federal tax regulations. According to IRS rules, if the testator makes a “general” power of appointment–John leaves his books to Phil for him to distribute as he wishes–then for federal estate tax purposes, the books are considered the property of Phil and not John’s estate. Thus, the value of the books would not be factored into any estate tax levied against John’s estate.

In order for a general power of appointment to be general, however, the person exercising the power must have the authority to use the property himself. In other words, if Phil can keep some or all of the books for himself (or his estate, or to pay off his creditors after his death), then John has executed a general power of appointment. It doesn’t matter whether Phil ultimately keeps or uses the books himself, only that he has the legal right to do so.

The end of 2012 was filled with legislative and fiscal uncertainty. Amid the fiscal cliff discussions loomed year end changes in federal tax laws and the lingering effects of those changes on estate planning for coming years. Specifically, many were concerned about the gift and estate tax exemption expiration, and this created a mad rush for many to quickly draft and execute wealth transfers. But, now that the dust has somewhat settled, should you go back and review those 2012 transfers? It may be a good idea.

What Happened at the End of 2012

The lifetime gift tax exemption of $5.12 million with a rate of 35% was in effect until the end of 2012 . However, many worried that starting in 2013 the lifetime gift tax exemption would go down to $1 million dollars with a rate increasing to 55%. As the change loomed at the end of 2012, many individuals in the last part of the year scrambled to take advantage of the higher gift tax exemption before its expiration. Many transferred wealth to children in order to avoid losing large chunks of it to Uncle Sam in later years.

One of the least appreciated benefits of having professional assistance with things like estate planning and long-term finances is having an extra set of eyes watching for irregularities. After all, the world is a busy place, and it is easy to get overwhelmed by confusing paperwork issues. Many people allow mail related to bank accounts, insurance, or retirement savings to pile up, assuming that most of the details are not time-sensitive.

But sometimes this casual neglect may lead to serious damage. That is especially true when outside support, like legal professionals, are not involved in these affairs to catch potential problems. The Retirement Blog recently shared one such story where a man lost thousands of dollars because of his failure to keep up-to-date on his retirement account transactions.

Bitter Divorce & Retirement

If you have gone to the gym this week, chances are it was busier than at any other point in the year. It’s the same every January, as the start to the new year comes with a rush of neighbors committed to starting things off right. Losing weight and getting in shape are just one of an endless list of resolutions that residents throughout San Diego make each and every year.

If you have yet to finalize your goals for 2013–and are looking for something a bit outside the box–then consider putting your long-term plans into place. In reality, conduct estate planning, letting family know your medical wishes, and preparing for possible long-term care are not only critical goals for yourself but also your loved ones. There are few things harder than grappling with uncertain legal and ethical concerns in the aftermath of a family member’s sudden illness or death. One of the greatest gifts one can give is taking the matter out of their hands and making decisions as straightforward as possible.

Along the same lines, an editorial from the LA Times recently tried to convince community members to make 2013 the year they finally took care of this often overlooked task. In particular, the editorial refers to the need to have advance directives so that family members are not put in the awful bind of making end-of-life decisions without a clear understanding of their loved one’s wishes.