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Navigating intestacy for surviving spouses in California

When someone dies without a valid will, his or her condition is called "intestacy." Each state has its own laws for determining how the deceased’s estate is divided in cases of intestacy.

When the deceased’s spouse is still living, all community property (meaning property acquired during the marriage) automatically goes to the spouse, while separate property (meaning property acquired before the marriage or gifts and inheritance gifted to only one spouse) is split differently depending on the relationship the deceased shares with other living relatives. 

If the deceased had more than one child with the living spouse, then the spouse will receive one-third of the deceased’s separate property, with the other two-thirds being divided equally among the children.

If the couple only has one surviving child or no children, then the spouse receives one-half of all separately owned property. The remaining half is then either given to the child, or, if there is no child, divided among the deceased’s parents, or the deceased’s siblings if the parents are no longer living.

Legally separated partners do not have any claim to property under California intestate succession laws.

Not all assets fall under this realm of intestate succession laws. Property transferred to a living trust, an IRA, a 401(k), payable-on-death bank accounts, life insurance proceeds and property owned jointly with someone who is not a spouse are all assets which will go to the beneficiary named on their legal paperwork.

Intestacy laws can become quite complicated to navigate, so legal and financial advisors strongly encourage all individuals to create a living will with an attorney as soon as they are able. Living wills enable an individual to transfer property to desired beneficiaries regardless of state intestate succession laws.

Palo Alto Breaks Ground on Innovative Playground for All Children

On June 23, construction began on what is being coined the most innovative and inclusive playground in the United States.

The playground will be called “Magical Bridge” and will be located on 1.28 acres of land between Adobe Creek and Mitchell Park’s southern-most tennis courts. The park will have 15 zones that will accommodate the needs of all kinds of children. The intent of the park is to “bridge the gap between those with and without disabilities,” said Olenka Villarreal, a founding member of the “Friends of the Magical Bridge” organization.

There are an estimated 11,000 people with some sort of disability in Palo Alto. But not one of the 34 parks throughout Palo Alto had the equipment necessary for Villareal’s daughter to play (she has an intellectual disability and lacks the upper body strength to hold on to the chains of playground swings). In 2009, this need inspired Villarreal to find funding for a play area to cater to the special needs of all children in the community.

Villarreal set out to find someone who could set aside land for the park. Funding poured in from a variety of sources, including lemonade stands and a $1 million matching grant from the Peery Foundation (a philanthropic organization out of Palo Alto which aims to fund organizations that fight poverty and other ill effects in the community). All told, Villarreal raised $3 million for the park’s construction. The park will be handed over to the City of Palo Alto once construction is completed.

An official with Palo Alto’s community Services Department said the support for Magical Bridge has caused the city to address the lack of accessibility in existing public spaces, including the lack of wheelchair ramps and toddler bucket swings at Eleanor Pardee Park.

“It’s exciting to see the community unite over something that benefits children of all needs and stages of development,” said Michael Gilfix, a special needs trusts attorney with Gilfix La Poll Associates in Palo Alto. “While I wish something like Magical Bridge already existed in every city across the United States, I’m glad that Palo Alto is innovating change and focusing on the needs of all children.”

Villarreal said that she hopes that once Magical Bridge is created, it will prove successful enough to influence the building of similar parks across the nation. The park is expected to open in November.

“We want to celebrate abilities, not disabilities ... It still astounds me that we are building the first place to address the many different play needs of the many different kinds of children who live in our community,” said Villarreal.

Crummey trusts can maximize benefit of annual exclusion

The annual exclusion to gift taxes is rather straightforward: tax-free, someone can give away up to $14,000 per year. Spouses, through gift-splitting, can effectively double that annual exclusion to $28,000. As a basic precondition, the gift must consist of present interest (or an asset that the recipient can immediately use), such as cash.

Gifts given to many types of trusts do not satisfy this requirement. However, there is one means of employing the annual exclusion to fund trusts while meeting the “present interest” requirement. It is often called a “Crummey trust.”

First, gifts are made to an irrevocable Crummey trust. Children or other designated beneficiaries are given the right to withdraw the gifts from the trust for perhaps 30 to 60 days. Often, the beneficiaries do not withdraw the gifts, instead leaving them in the trust until reaching a (much older) designated distribution age. Crummey trusts can be a great planning tool when used in conjunction with life insurance policies and life insurance trusts.

Every year, trustees must send a notice to the beneficiaries to remind them of their right to withdraw their share of annual gifts made to the trust. That notice, called a Crummey notice, is named for the plaintiff in a 1968 Ninth Circuit Court of Appeals case that sanctioned the use of the process to circumvent the present interest requirement.

Because these trusts allow tax-avoiding gifts to trusts, the Obama administration has proposed their elimination as a way to increase tax revenue and help meet the government’s budget. But for the time being, Crummey trusts remain viable. Anyone considering a Crummey trust must consult with an experienced estate-planning attorney — like those at Gilfix & La Poll Associates.

Within the context of estate planning, charity can come in many forms

Many people considering estate planning want to incorporate charitable contributions in their estate plan. Many also wish to shield estate assets from taxation. In addition, they may wish to benefit from a tax deduction for charitable contributions and save on capital gains taxes that would be levied on appreciated property.

There are two basic irrevocable trusts that can achieve those goals: Charitable Lead Trusts (CLT) and Charitable Remainder Trusts (CRT). Depending on a person's objectives, either can be highly beneficial to an estate.

With a CLT, assets are placed in the trust, and the designated charity receives an annual distribution for the term of the agreement. As such, CLTs permit a donor to see the charity benefit during his or her lifetime. At the conclusion of the term of agreement, which might be 10 or 15 years, the remaining assets are left to noncharitable beneficiaries that the client has designated (typically his or her children). As a bonus, the beneficiaries receive the post-trust assets free of gift tax and estate tax inclusion.

A CRT's arrangement is basically set up in reverse. In a CLT, the designated charity obtains distributions first. Then, noncharitable beneficiaries get the remaining assets at the end of the trust’s term. During the term of agreement of a CRT, the donor or the donor’s beneficiaries receive income for life or for a fixed period not to exceed 20 years. At the conclusion of that term, the remaining assets are transferred to the designated charity.

CRTs are often utilized when significantly appreciated assets would generate huge capital gains tax exposure if sold. With a CRT, assets are sold after being transferred into the trust. No tax exposure results because the assets will ultimately go to a tax-exempt organization. The full net proceeds are then invested to provide the donor with decades of income.

CRTs offer two variations. One is a Charitable Remainder Unitrust, in which beneficiaries receive a fixed percentage of the trust each year during the trust’s term. The other is a Charitable Remainder Annuity Trust, in which, as the name suggests, a defined amount is distributed every year to beneficiaries during the term of the trust.

Experienced estate planning attorneys like those at Gilfix & La Poll Associates can help determine the best option and create the appropriate charitable trust for a donor.