2016 National Estate Planning Awareness Week

This week, October 17-23, 2016 is National Estate Planning Awareness Week, pursuant a 2008 Congressional resolution that was prompted by an estimate that over 120 million Americans were without up-to-date estate plans to protect themselves or their families in the events of sickness, accidents or untimely death.

If you are part of the majority of adult Americans who do not have an estate plan, I urge you to start the process immediately.

Even if you do have a plan, consider how up-to-date your plan is.  Have any of the following life events occurred to you after your estate plan was last updated?

  • Your net worth has changed significantly
  •  You have married, divorced or remarried (you don’t want an ex-spouse to unintentionally end up with a share of your inheritance)
  • You have a new child or child or grandchild (make sure you have named guardians for your children and that previously named guardians are still appropriate)
  • Your child has reached the age of majority (be sure he or she has signed a power of attorney and HIPAA notice so you can have access to their medical information since they are now adults for that purpose)
  • A child, grandchild, spouse or partner has become a person with special needs (you don’t want to unintentionally disqualify a love one from Medicaid by leaving them an inheritance directly)
  • You are part of an unmarried committed couple (without a Will or Trust, your partner may not receive any of your estate under state law).

If you do not have an estate plan or have had one of the life changes listed above since you last reviewed your estate plan, or if several years (which translates to multiple law changes) have passed since you last looked at your estate planning documents, please call me to schedule a meeting to discuss your estate.


529 Plans for Asset Protection and Tax Savings

Qualified State Tuition programs, also known as “529” plans, are a great way to save for the education of children, grandchildren and other loved ones. Earnings grow tax free and when withdrawals are made for qualified education expenses, like tuition, the distributions are income tax-free as well.

Normally, when an individual has control over an asset, that asset is included in his or her taxable estate for estate tax purposes.  However, there is a special exemption for 529 plans.   Under the rules governing the taxation of 529 plans, the grantor/donor may remove assets from his taxable estate by putting them in a 529 plan and yet retain complete control. In fact, the grantor/donor could even pull the money out for himself (subject to a penalty on the earnings if the funds are not used for qualified education expenses).   For high net worth individuals, 529 plans are superb estate minimization devices.

Also, 529 plans can be protected in bankruptcy under some circumstances. As long as the contribution is within the plan limits and is made at least two years before the filing in bankruptcy, the 529 plan is protected in bankruptcy.

So, a 529 plan can provide:

  • Income that is tax-free if used for education
  • Control for the donor
  • Ability to take the funds back
  • Protection in bankruptcy

Call me today if you would like more information about how you can pass wealth on to the next generation in the most tax-efficient manner.


The New Section 2706 Regulations Might Impact You

On August 4, 2016, the IRS recently proposed regulations that will, if adopted, will have the most sweeping change in the Estate Tax law in many years. Since 1993, we have relied on valuation discounts in corporations, limited partnerships, and LLCs to effectively reduce the estate tax and increase the inheritance you can leave to your family.  This new IRS regulation will effectively eliminate the commonly used valuation discount techniques routinely used by estate planning practitioners to help clients reduce their estate tax exposure.

If the IRS’s current timetable holds, these regulations may become final as early as January 1, 2017. Although that date isn’t set in stone, I expect that the regulations will be final around that time or shortly thereafter.

Unrelated to the new IRS regulation, I am also taking more seriously now the proposal that Hillary Clinton has made to take the Estate Tax exemption back to $3.5 Million or less. You can take steps now to protect your estate from the risk of this happening. I’m not making a political statement here.  I just don’t want to look back and realize that we failed to act when we could have.

We have a narrow window of time to implement “freezing” techniques under current, more favorable law, to save taxes and protect your family’s inheritance.

Please schedule an appointment with me as soon as possible. I’d like to get a time on the calendar so that we can take a look at the options that are available to you under current law between now and the end of this year.  Now’s a great time to review your plan anyway.  When we meet, I want to make sure that anything we do to help you protect your family’s inheritance from the IRS still achieves your overall planning goals-and not just the tax-saving goals.

Depending on your circumstances, some options are going to be a better fit than others, and I want to make sure you get the best outcome possible. And please keep in mind, if you did decide to take action to implement one of these strategies, it takes 2-3 months just to get the work done. So you can’t wait until November or December to get started.


Please call today, and let’s discuss the next steps.


Is Your Existing Estate Plan More Than Five Years Old?

If your existing estate plan was created in 2010 or before, chances are it was developed based upon rules that have since changed dramatically.

What You Need to Know About the Final Estate Tax Portability Rules

Recently the IRS issued the final rules governing the “portability election” as it relates to the federal estate tax exemption.  Married couples need to understand how these final rules may affect their existing estate plans, while recent widows and widowers need to understand how these finals rules may affect their deceased spouse’s estate.

What is the “Portability Election” and How is the Election Made?

The “portability election” refers to the right of a surviving spouse to claim the unused portion of the federal estate tax exemption of their deceased spouse and add it to the balance of their own exemption.  Since in 2015 the federal estate tax exemption is $5.43 million per person (the exemption changes every year since it is indexed for inflation), this means that a married couple can potentially pass on $10.68 million to their heirs free from federal estate taxes.

To properly make the portability election, the surviving spouse must timely file a federal estate tax return, known as the “United States Estate (and Generation-Skipping Transfer) Tax Return,” or “Form 706” for short.  Form 706 is due on or before nine months after the deceased spouse’s date of death, but an automatic six-month extension of time to file the return can be requested by filing an “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes,” or Form 4768 for short, on or before the due date of the estate tax return.

Which Estates Are Subject to the Final Estate Tax Portability Rules?

The portability election first went into effect for the estates of decedents who died on or after January 1, 2011 and in response the IRS issued temporary regulations to guide taxpayers and their advisors through properly making the election.  The final regulations that were recently released replace the temporary regulations for the estates of decedents who die on or after June 12, 2015, while the temporary rules still apply to the estates of decedents who died on or after January 1, 2011 and before June 12, 2015.

What Do the Final Rules Provide?

The final rules clarify that a regulatory extension of time to make the portability election will only be granted to estates that have a gross value below the estate tax exemption in effect in the year of death.  In other words, in 2015 the gross estate must be valued less than $5.43 million in order for a request for a regulatory extension to be made.

The final rules also make it clear that the administrator of the estate of a decedent who was not a U.S. citizen at the time of death may not make a portability election on behalf of the non-citizen decedent.

Unfortunately the IRS ended up rejecting a recommendation made by the American Institute of CPAs for the creation of a shorter version of Form 706 that would be used solely for the purpose of making the portability election.  The IRS cited problems it has had with other types of abbreviated forms and the difficulties and costs associated with maintaining alternate forms as the reasons for rejecting this recommendation.

How Do the Final Rules Affect Existing Estate Plans?

Married couples who already have an estate plan should consult with their estate planning attorney to determine if any changes need to be made to their plan in view of these final rules.  Things to consider include the potential for an estate to be subject to state estate taxes, whether the portability election is a viable option in view of second or later marriages, the projected value of the couple’s estate over their life expectancies, and the loss of the step up in basis when traditional AB Trust planning is used.

How Do the Final Rules Affect Recent Widows and Widowers?

Surviving spouses of decedents who died within the past eight months should immediately consult with an estate planning attorney to determine if the portability election can and should be made with regard to their deceased spouse’s estate.  Failure to timely make the election or seek an extension may end up shortchanging heirs and putting the estate administrator at risk of being sued.

Please do not hesitate to contact me if you have any questions about the final estate tax portability rules.




New Law: Medi-Cal To Dramatically Scale Back Estate Recovery

There are big changes coming. Gov. Jerry Brown just signed the state’s Budget Bill, which included special provisions dramatically scaling back Medi-Cal’s right of recovery after the death of a Medi-Cal beneficiary. This change will help minimize the devastation faced by some families when later forced to sell the family home to settle up with Medi-Cal.

Health Care Services Historically Subject to Recovery

Historically, this right of recovery applied to the following: (1) All health care services received by a Medi-Cal beneficiary after age 55, and (2) a Long Term Care (nursing home) subsidy received by a Medi-Cal beneficiary of any age.

Current Rule: Recovery Applies to All Assets Owned By Beneficiary

Under current law, when an individual receives a Medi-Cal subsidy for the cost of long-term care, Medi-Cal has the right — after the passing of that individual and his/her surviving spouse – to recover the value of benefits paid, unless the individual is survived by a disabled child.  That right of recovery has historically applied to ALL assets in which the beneficiary had an interest, regardless of whether they are held in a Living Trust, Joint Tenancy or Pay on Death (“POD”) accounts.  Until now, the only way to protect against recovery was for the beneficiary to engage the services of an Elder Law attorney to proactively plan for recovery avoidance by, for example, making carefully structured lifetime gifts of the home and other assets to family members, creating specially designed Irrevocable Trusts, and the like.  Until now, the garden-variety “Living Trust” did nothing to protect against recovery, nor did holding assets in Joint Tenancy or POD accounts.

New Rule: Recovery Will Apply Only To Assets Subject to Probate

Under the new law, Medi-Cal’s right of recovery will only apply to assets which pass from the beneficiary to others by probate or by a probate summary procedure.  By way of example, assets held in the individual’s own name, alone, and designed to pass by Last Will, would typically be subject to probate and would still be exposed to recovery.  However, assets held in a Living Trust will soon be immune from recovery, as the trust is designed to pass ownership upon death without a probate.  Likewise, assets held in Joint Tenancy form or in Pay On Death (“POD”) form will also usually be immune from recovery, as they are likewise designed to pass ownership to the survivors without probate.

The new law will only be effective for individuals dying after January 1, 2017.  Thereafter, it should be relatively easy to avoid Medi-Cal recovery by merely holding assets in a format which avoids probate, such as in a Living Trust or in Joint Tenancy or POD account formats.  Indeed, given the prevalence of Living Trusts, and the use of these beneficiary-type accounts, it may soon be the rare family that experiences Medi-Cal recovery after the death of a loved one. Caution:  the new law does not expressly address whether the new Transfer of Death Deed will also be immune from recovery.

The new law has some other helpful features:

(1) There will be no recovery, in any event, if the beneficiary is survived by a surviving spouse or domestic partner;

(2) There will be no recovery, in any event, against a home of modest value, defined as a home worth less than 50% of the average price of homes in the county in which the home is located;

(3) Upon request, Medi-Cal must furnish, at least once per year, an itemized statement for a $5 fee; and

(4) Interest charged on Voluntary Post Death Liens will be limited.

Proactive planning will still be necessary for those persons who are at risk of dying before the new law takes effect, but for others recovery can usually be avoided by merely holding assets in a form which avoids probate.


What is Probate?

What is probate?

Probate is the process by which the court validates a will and supervises the settlement of an estate, including the transfer of assets to beneficiaries.  (more…)


Who Should Start Their Estate Plan?

Many people believe that estate planning is only for people who are particularly wealthy, have elaborate schemes in mind for passing their money to their heirs, or for people who are acutely ill and contemplating their death. This could not be farther from the truth! Estate planning is for every husband, wife, mother, father, grandparent, business owner, professional, or anyone else who has someone they care about, are concerned about providing responsibly for their own well being and for the well being of those they love, and for anyone who seeks to make a difference in the lives of others after they’re gone. Estate planning is not “death planning”; it’s “life planning”, and an essential and rewarding process for individuals and families who engage in it.