San Diego Estate Planning Lawyer Blog

Published on: April 15, 2011

Appraisals in Estate Planning

An appraisal is a professional’s estimate of the value of one’s property. The item to be appraised can be a small item like a piece of jewelry or something larger, like a residence or office building. Appraisals play a role in various aspects of estate plannng.

When someone dies with a will, the person designated as the executor will petition the Probate Court to administer the estate. When someone dies without a will, there is also a Probate opened and a family member or friend of the decedent is appointed the administrator of the estate. In both cases, the personal representative (executor or administrator) must file and Inventory and Appraisal describing all the assets and placing a value on them. Then a probate referee appraises all of the assets as of the date of death. Real property is appraised, personal property is appraised, and other assets are valued. Different types of assets may require appraisers with different expertise. For example, if the estate contains valuable artwork, an appraiser experienced in that type of art will be used to do the appraisal. Antiques also require a special appraiser as do coin collections, stamp collections, and other collectibles.

When a person dies with a trust, their trustee will be administering the trust and distributing the assets to the beneficiaries. Appraisals may also be necessary. The Trustor’s real property has to be appraised as of the date of death and similar to probate administration, jewelry, artwork, collections, and personal property and household furnishings have to be valued and sometimes requires appraisers of various types. Assets such as checking accounts, savings accounts, stocks, mutual funds, and other investments are valued at whatever their value was as of the date of death.

Published on: April 11, 2011

Taxes in Probate and Trust Administration

by Scott C. Soady

As the successor trustee of a trust, executor of a will, or the administrator of an intestate estate (ie. no will or trust), one of your duties will be to pay all taxes due the federal government and the state of California.

Personal Income Tax Returns Once someone has died, a personal income tax return will have to be prepared and filed for the year of the decedent’s death. Income received by the decedent from January 1 until the date of death will have to be reported. If the estate receives income however, after the date of death, that will be reported on the estate tax return. Deductions for medical expenses of the decedent can be taken for one year after the date of death, to take into consideration expenses of a last illness. All other deductions, such as for mortgage interest, property taxes, etc. must have been expenses incurred prior to the date of death.

Fiduciary Tax Return The estate income tax return, call a fiduciary tax return, is filed annually as long as the estate is open. Dividends, interest, capital gains, and rents are all reported on this return. Deductions can be taken for mortgage interest the estate pays on real property and legal and administrative fees. This return, unlike the personal return, can be filed on a fiscal year basis. The duty to file a fiduciary return exists as long as the trustee, executor, or administrator is administering the estate. The final fiduciary return can be filed when the estate is in a position to be closed and final distributions made to beneficiaries.

Published on: April 8, 2011

What is a Spousal Property Petition?

by Scott C. Soady

A simplified probate procedure may be possible with a spousal property petition. Such a petition can be used to transfer assets from the deceased spouse to the surviving spouse or domestic partner without the time and cost of a formal probate.

The spousal property petition can be used if the decedent had a will and the only beneficiary was the surviving spouse or domestic partner. If other beneficiaries are named in the will, however, this procedure cannot be used and a formal probate will be necessary to transfer the assets to all the beneficiaries. If the decedent died without a will, leaving only a surviving spouse or domestic partner, the procedure can also be used. The property is distributed in accordance with the laws of intestate succession. Community property will be transferred to the surviving spouse or domestic partner through the spousal petition. Separate property, if there is any, will have to be distributed through formal probate. If there is property in joint tenancy, that will be distributed to the joint tenant without any probate.

The surviving spouse or domestic partner files a petition with the Probate Court setting forth the facts as to why he or she is entitled to the community property, listing the property to be distributed, the decedent’s date of death, date of marriage, etc. A court hearing is set in the probate court after notice is given to everyone mentioned in the will and the heirs of the decedent. If the court grants the petition, the order is then recorded with the County Recorder in each county where there is real property. Copies of the order may be used to show financial institutions and investment companies to complete the transfer.

Published on: April 4, 2011

Summary Probate for Small Estates

by Scott C. Soady

If the value of an estate is less than $100,000, California law provides a way to transfer the assets of the decedent without formal probate. The procedure is outlined in Probate Code section 13100, a process sometimes called a “small estate affidavit.” This method can be used to distribute assets such as cash accounts, stock, bonds, personal property, or even real property if valued below the limit.

How do you calculate whether the estate is valued at less than $100,000? The assets of the decedent that must be counted are bank accounts, brokerage accounts, stocks, bonds, mutual funds, real property, other investments, and personal property. Assets that you don’t have to count are property in joint tenancy, assets held in trust, IRAs, 401(k)s, and other pension plans, life insurance proceeds, automobiles, and payable on death (POD) accounts.

What is required to transfer assets? The process requires an affidavit with information about the gross value of the decedent’s real and personal property, the allegation that the decedent’s assets do not exceed $100,000, and that 40 days have passed since the decedent’s death. The person completing the affidavit, the “affiant” must also allege that there has not been a probate administration, must describe the property to be transferred and allege that the affiant(s) are the persons entitled to the property as the beneficiaries under a will or because they are heirs of the decedent who had no will. The affidavit must be signed under penalty of perjury and notarized. Sometimes banks or companies which hold stock will also require that the beneficiaries or heirs get their signatures guaranteed by a medallion. The affidavit and other paperwork is sent to the institution that holds the assets who then transfer the assets into the names of the beneficiaries or heirs.

Published on: March 31, 2011

More Information About Special Needs Trusts

by Scott C. Soady

In our last blog, we discussed how a special needs trust may be a necessary part of your estate plan if you want to provide for an individual with a disability. A special needs trust, sometimes called a supplemental needs trust is one that must contain specific language and must be tailored to fit the needs of the special needs beneficiary. Since the special needs trust is designed to manage inheritances and other resources of a disabled person while maintaining the individual’s eligibility for public assistance, it should be drafted by an estate planning attorney familiar with special needs trusts.

A third party special needs trust is the type of trust set up by parents, grandparents, or other individuals for the benefit of the disabled beneficiary. The beneficiary must be under the age of 65 and disabled. The persons setting up the trust are the grantors of the trust. The trust is funded with resources other than those of the beneficiary such as a cash inheritance after the death of the grantors or insurance proceeds. The person who will manage the third party special needs trust is the trustee, but cannot be the beneficiary.

The trust gives the trustee or the successor trustee the absolute discretion to make distributions for “special needs” the beneficiary may have such as supplemental medical care, transportaton, education, computers, and other items which may enhance the quality of life of the disabled person. The trust is to supplement, not replace what the public assistance covers. The trustees may be the parents, grandparents, or siblings of the special needs beneficiary or a private professional fiduciary with experience in special needs trust administration.

Published on: March 27, 2011

April 2 is National Autism Day

by Scott C. Soady

Coming up next week is National Autism Day which was established to raise awareness about autism. Wear blue to show your support.

The incidence of autism is on the rise with approximately 1 in 110 children in the United States being diagnosed with the disease, according to the Center for Disease Control and Prevention. Autism is a developmental disorder which affects social and communication skills and sometimes motor and language skills.

From an estate planning perspective, here are come things to consider if you have a child with autism. Many people with autism receive government benefits. Failure to have a will or trust that incorporates a special needs trust or a stand alone special needs trust can jeopardize your child’s ability to receive government benefits when you die.

Published on: March 23, 2011

New Tax Relief Act Benefits Charities

by Scott C. Soady

The new tax relief act signed by President Obama in December (Tax Relief, Umemployment Insurance Reauthorization, and Job Creation Act of 2010) restores a provision that expired in 2009 which allows donors who are at least 70 ½ years old to make a tax free gift to charities from their IRAs. Before this provision was restored, money transferred from a traditional IRA to a charity would be included in the donor’s taxable income for the year. Here is how it works:

1. You must be at least 70 1/2 years old.

2. Your gifts must be made outright from a traditional IRA or a Roth IRA.

Published on: March 19, 2011

A GRAT Can Help Children Pass Money to Their Parents

by Scott C. Soady

In estate planning, we are usually talking about how an individual can create an estate plan that will pass on their assets to their beneficiaries, usually their children. With seniors living longer, many parents may need help from their children to pay for medical bills, caregivers, mortgage payments, etc. There are ways for a financially secure adult child to give financial aid to a parent free of gift taxes.

A GRAT, or grantor retained annuity trust, allows children to pass investment gains to their parents or grandparents without using their $ 5 million lifetime gift tax exemption. Under current law a child can set up a GRAT with a 2 year term. The trust pays the interest back to the child as if it were an annuity, based on an interest rate set by the IRS. The trust is usually set up with stock or other investment. Any appreciation in the underlying investment above the IRS interest rate passes to the GRAT beneficiary without being considered a gift. If the investment does not do well and returns less than the interest rate set by the IRS for GRATs, the beneficiaries get nothing.

President Obama is recommending imposing a 10 year minimum term on GRATs which would make them less attractive. If that happens, children, even without a GRAT, can still benefit their parents or grandparents in other ways, such as giving them a gift of cash. For example, in 2011, a gift up to $13,000 to any one individual is not taxed and will not dip into an individual’s lifetime gift exemption. Children can also pay their parents’ medical expenses if they pay the health care providers directly.

Published on: March 15, 2011

Tips for the Tax Season

by Scott C. Soady

Tax time can be a stressful and frustrating time, gathering all the information, doing your taxes yourself or making an appointment with your tax preparer. MSN Money recently had a great article about the tax breaks and credits for the 2010 tax year that can save you money. Here are some highlights:

1. Check on the first time homebuyer’s credit. If you bought a home in 2010 as a first-time home buyer, you may be entitled to $8,000 tax credit. Also, people who lived in their home for 5 years and sold in 2010 may qualify for a credit of $6,500.

2. If you are single, the standard deduction went up for last year to $5,700.

Published on: March 11, 2011

Where Do You Open a Probate Estate or Administer a Trust?

by Scott C. Soady

A family member has died and you have to open a probate estate (if he died with a will or with no estate plan) or administer the decedent’s trust (if he had created a revocable living trust). In what county do you open the estate?

The county where an estate is handled is the county where the decedent was domiciled. Domicile is the permanent residence of an individual. In most cases, it is clear where the decedent was domiciled but in a few instances it may not be so clear.

If a decedent died in a hospital while on vacation, from accident, surgery, or illness, his domicile is still where he lived permanently, so if that is San Diego county, then the San Diego Probate Court would be where the will is admitted to probate or San Diego would be where the trust is administered. On the other hand, what if the decedent decided to move to another county to live with relatives or to live in an assisted living facility? Then domicile has to be determined by looking at such factors as where the decedent owned property; where was the residence of the decedent; where did the decedent receive mail, where was the decedent registered to vote; in what state was the decedent’s driver’s license issued. These factors may lead a court to conclude that the intent of the decedent was to change his domicile to another county.