San Diego Estate Planning Lawyer Blog

Published on: July 24, 2010

Powers of Attorney for Finances

A power of attorney is a legal document that allows you to choose a person you trust to take certain actions on your behalf if you become incapable of managing your financial affairs. It is an extremely important document to have because if you suddenly become incapacitated and you don’t have such a document, the probate court may have to step in.

A “durable” power of attorney means that the power of attorney remains valid even if you become incapacitated and unable to make decisions for yourself. There are several types of powers of attorney.

A limited power of attorney for finances is one that authorizes your agent to act only for a specific transaction. Suppose you are going out of the country and need someone to act for you in closing an escrow. You can execute a limited power of attorney which authorizes your agent only to act with respect to the escrow.

Published on: July 19, 2010

Revisiting the Importance of Business Succession Planning

by Scott C. Soady

We are always learning from celebrities what not to do in estate planning. Business succession planning is so important for individuals who own a business and want that business to continue to operate after their death. Business succession planning can involve important issues such as who will have control of your business when you retire or die? Who will have ownership? It can also involve tax planning to minimize the taxes. Planning in advance can make the transition much easier.

Dale Earnhardt Sr,, famous race car driver who died in a crash at the 2001 Daytona is an example of how poor planning can have disastrous results.

Dale Earnhardt Sr. started Dale Earnhardt Inc., the company that ran his racing team. When Dale Sr. died, he left his business DEI to this third wife Theresa, not the mother of his children. Theresa became the owner of the racing team in which Dale Jr. was the principal driver. An interesting issue developed when Dale Jr. found himself not only not in control of the company but also not even having the rights to his own name. Apparently his father Dale Sr. had filed a trademark for his son’s name and Dale Jr. signed a consent to it. When Dale Sr, died, the rights to Dale Jr.’s name went to his estate and then to Theresa. Dale Jr. tried to negotiate with his step mother to gain some control of the company but nothing came of it and in 2007 Dale Jr. resigned to drive for another racing team.

Published on: July 15, 2010

Inheriting an IRA From a Spouse

by Scott C. Soady

IRAs can be a substantial asset when someone dies. Inheriting an IRA from a spouse can be a great opportunity to continue tax-deferred investing. Surviving spouses have a unique opportunity that that don’t apply if you inherit an IRA from someone else. A surviving spouse has the ability to roll over an IRA inherited from a spouse into their own new or existing IRA and treat the assets as if they were theirs. The 4 basic options for a surviving spouse are:

1. Roll the inherited IRA over into your own IRA. Rolling the inherited IRA into your own IRA gives you the benefit of having the amount and timing of the required distributions based on your age as the surviving spouse. If for example, your spouse was over the age of 70 ½ but you are not, this option allows you to stretch out the tax deferred benefits until you reach 70 ½. Beneficiaries who are not spouses cannot roll over an inherited IRA or contribute to it.

2. Remain a beneficiary. As a spouse you can choose to keep your name on the IRA. If you transfer the inherited IRA into your own name, the amount of the required distributions will be based on your age as the surviving spouse. This can be a good option if the surviving spouse is younger than 59 ½ but wants to take out funds from the IRA without incurring early withdrawal penalties.

Published on: July 11, 2010

New Developments in the Federal Estate Tax

by Scott C. Soady

For those following the federal estate tax controversy, last month three senators introduced the Responsible Estate Tax Act which if passed will return the federal estate tax exemption to the 2009 $3.5 million level. The current state of the law is that during this year, there is no estate tax at all which means multi million and multi billion dollar estates pass to the beneficiaries free of any federal tax. Without some legislation before the end of the year, the federal estate tax exemption will return to $1 million.

The new bill, if passed, will restore the 2009 exemption of $3.5 million. Estates over $3.5 million will pay federal estate tax. Estates over $3.5 million and under $9 million will be taxed at a 45% rate. Estates between $10 million and $49 million would be taxed at the rate of 50%. Estates over 50 million would pay estate taxes at a rate of 55%. The bill also imposes a 10% surtax on billionaires. (There are approximately 400 billionaires in the United States) It is estimated that passage of the bill would bring at least $264 billion into the economy.

If the federal estate tax issue is not addressed, returning to the $1 million level next year will affect many of our estate planning clients so it is important to keep informed as to the status of this bill. Many clients’ estates fall within the $1 million to $3.5 million range. If the tax reverts to $1 million in 2011, additional estate planning may be necessary to avoid estate tax liability. Different types of trusts and other tax saving techniques may become necessary. We will follow the status of legislation and post any developments here.

Published on: July 7, 2010

Estate Planning Concerns for Disabled Beneficiaries

by Scott C. Soady

There are millions of people in this country who have mental or physical disabilities. In many cases individuals with disabilities are receiving government benefits and assistance such as supplemental security income (SSI) or Medi-Cal (which is the California version of Medicaid). If such an individual is receiving such benefits and receives money from another source such as from an inheritance, those government benefits may be in jeopardy. In all cases, the goal is to protect the beneficiary’s continued access to need-based government benefits.

If a member of your family or someone you contemplate leaving assets to when you die is disabled, you should consider what is called a Special Needs Trust. A special needs trust is one that is set up for the benefit of a beneficiary so that if that beneficiary is, or at some point might be, receiving public assistance such as SSI or Medi Cal, they can receive the assets in trust and not be disqualified from receiving benefits. The provisions of the special needs trust allow a trustee to make distributions to the beneficiary for special or supplemental needs such as medical care and dental care not covered by their benefits, plastic surgery or alternative type medical treatment, physical therapy, massages, etc. It also can be used to pay for computers, books, recreation, travel, and handicapped-equipped vehicles. It is important that the trustee adhere to certain standards for maintaining the trust and investing the trust assets. The trustee needs to be aware that the assets of the trust can only be used to purchase supplemental items or services which are not covered by public benefits.

A special needs trust may be set up as a “stand-alone trust” or as a subtrust in another trust. If you have children who are disabled, you can provide in either manner that their inheritance not be given to them outright but pass into the special needs trust. Once the trust is set up, grandparents or other relatives can provide in their own trust that such a beneficiary’s inheritance goes to that special needs trust. Other blogs and articles have emphasized how important it is to create an estate plan. It is just as important that you have a properly drafted special needs trust if you have disabled beneficiaries. Scott C. Soady, A Professional Corporation can help you with an estate plan that will include a special needs trust. Our initial consultation is complimentary.

Published on: July 3, 2010

What is a Disclaimer in Estate Planning?

by Scott C. Soady

A disclaimer is a technique in estate planning whereby a beneficiary refuses to accept an asset that has been given to him. If someone makes a gift or leaves certain assets or even their entire estate to a beneficiary and the beneficiary “disclaims” it (refuses to accept it), the assets pass to someone else.

There are a number of reasons why someone would want to “disclaim” property. One reason to “disclaim” is that the beneficiary already has a taxable estate and by disclaiming the assets, their tax liability is reduced or eliminated. Another reason for disclaiming an inheritance may be to avoid losing one’s eligibility for public benefits. In estate planning for couples, a trust called a “disclaimer trust” uses the technique of disclaiming to specify that after the first spouse dies, the disclaimed property passes to a special trust designed to protect the property from estate taxes when the second spouse dies.

When someone disclaims property, the property passes as if that person were deceased. As an example, assume a situation where the beneficiary of a trust is a parent and the parent’s children are the alternate beneficiaries. The parent already has significant wealth so decides to disclaim the property. His children would then receive the property without a gift tax.

Published on: June 30, 2010

Why You Need a Lawyer to Create Your Estate Plan

by Scott C. Soady

In past blogs we have discussed the need to have an experienced estate planning lawyer draft your trust. In California, a case has recently been filed against Legal Zoom, an online site that markets wills and trusts without the need to meet with an attorney. The case involves a man with a terminal condition who used Legal Zoom to draft a trust and pour over will. The documents were signed but the trust was never funded because financial institutions that held the man’s money refused to recognize the validity of the documents. The man died without getting the trust funded.

It remains to be seen what the outcome of the case will be but it does highlight the importance of getting a lawyer to draft your revocable trust and companion documents. In most cases, a face to face meeting will elicit important facts so that your trust and other documents accurately reflect what you want to happen after your death.

Some circumstances that dictate hiring an attorney to create an estate plan are the following:

Published on: June 27, 2010

Donating a Car to Charity

by Scott C. Soady

Donating used cars has become an extremely popular way to reduce your taxes and benefit a charity. There is a lot of competition among charities to receive your donation of vehicles. Here are some tips to donating your car to charity:

First make sure the charity you are considering is a recognized non-profit charity, also known as a 501 (c)(3) organization. Some charities ask for donations of cars but do not have the 501 (c)(3)status which means your donation will not be tax deductible. You can find out if an organization is a qualified charity by looking on the IRS website.

Next make sure that the charity has a program to handle donation of vehicles. To maximize the amount of benefit to the charity, the charity should be able to handle the transaction without a “middle man.” If there is a “middle man” or intermediary, then find out what percentage of the donation the charity will receive.

Published on: June 23, 2010

True or False Quiz About Probate

by Scott C. Soady

Probate as you probably know is the court supervised process for transferring an estate to the beneficiaries of a will or transferring an estate to the heirs of someone who died without a will or a trust. Take the following quiz to see how much you know about wills and probate:

1. Probate only applies if you have a will. Answer: FALSE If you die with a will, there will be a probate. If you die without a will and don’t have a trust either, there will be a probate.

2. Probate applies to your entire estate. Answer: FALSE Probate is necessary for your probate assets. Some assets are not considered probate assets. Examples are assets which have a named beneficiary like life insurance, payable on death accounts, and property you own in joint tenancy with a right of survivorship.

Published on: June 19, 2010

Do I Need to Nominate a Guardian if I am Divorced?

by Scott C. Soady

Whether you are married or divorced, one of the most important decisions you have to make in estate planning is the choice of a guardian for your minor children. Some clients who are divorced ask whether they still need to nominate a guardian if they are divorced. Won’t the other parent automatically get custody?

It is true that absent a compelling reason not to, a judge will grant custody of minor children to their other parent, however there are some situations where your nomination would be helpful to the court. Judges consider a number of factors in determining who should be a guardian such as:

1. The child’s preference 2. Which individual seeking custody will best meet the needs of the child.