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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.

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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.

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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.

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If Used Properly, Annual Gift Tax Exclusion Can Be the Gift That Keeps on Giving

Natural instinct often urges parents to help their children financially. But when they seek to do so, they must be mindful of the interest the federal government will collect. Transfers of wealth that exceed an exclusionary level are subject to the federal gift tax. Fortunately, with careful planning, a grantor can limit or exclude the government from taking a cut of the proceeds.

The government permits an annual exclusion amount, currently set at $14,000 per year. That sum is not subject to either reporting or taxation. And that figure can effectively be doubled through the procedure known as gift-splitting, whereby each spouse exercises the annual exclusion and sends a combined $28,000 tax-free gift to a child.

The gift-splitting provision can be especially useful when a couple wants to help their married child with a big-ticket item (such as the down payment for a house). If the gifts are properly timed, a respectable sum can be transferred tax-free in short order.

For example, a couple using the gift-splitting provision could give $28,000 to a married child and another $28,0000 to that child’s spouse during Christmas week. Then, they would repeat the process during the following New Year’s week. Within the two holiday weeks, the younger couple would have amassed $112,000 tax free. If parents take this route, they better be sure they like their son-in-law!

The annual exclusion gift is not limited to use for parent-to-child transfers. Indeed, anyone is entitled to give anyone else — relatives, friends or even total strangers — the annual exclusion gift. In addition, the annual exclusion gift is not considered part of a person’s $5.3 million exemption from the estate tax.

Yearly gifts larger than $14,000 are not likely to result in gift tax exposure, but they must be reported to the IRS.

While most gifts take the form of cash, neither the gift nor the annual exclusion must be in that form. Gift-givers can transfer a massive variety of assets, including artwork, boats, businesses, family heirlooms, homes, stocks and bonds. When a gift is anything other than cash, the government requires appraisal. The assets are best held in a revocable trust in which ownership stakes are recorded and maintained.

Whenever asset transfers are contemplated, the advice of an experienced estate-planning attorney is simply essential. There are smart, protective ways to give gifts. Too often, mistakes and unpleasant surprises result from more casual approaches.

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Health Care Decisions Day April 16, 2014

A Message from Myra Gerson Gilfix

We at Gilfix & La Poll Associates believe that estate planning includes planning with regard to what will happen to us – not just to our property and other assets – when we're at the end of our lives. We make it part of our service to you to enter into a discussion about what you want and don't want to happen when the end of life is near. This is only the first conversation; we encourage you to share your feelings, values and wishes with your loved ones and medical practitioners. We practice what we preach. If we don't engage in this planning, we’re vulnerable to what can transpire by default – spending our last few days in an ICU, even if that’s at odds with our needs and preferences.

“Dying well” is quite personal. Your conversation(s) with the people you’re closest to lets them know how you want to die and how they, surviving friends and family members, can help carry out your wishes without uncertainty and guilt. People who’d prefer to die at home can do so, and benefit from pain management and comfort over costly and "heroic" measures. Having this conversation before a crisis – or being open to such conversations – gives everyone time to digest, reflect and integrate the information.

We want you to be clear about end of life treatment so that family members and medical providers have the guidance they need to respect your preferences. Loved ones need to talk to one another when circumstances aren’t so charged. Better that these conversations occur around a dining table than around a hospital bed.

Most of you have already signed an Advance Health Care Directive. That is a huge benefit to you and to your loved ones. But be sure to keep the conversations going. The person you appointed to make decisions on your behalf when you are unable to speak for yourself needs to feel comfortable with your wishes and to understand your values. Having the rest of your family "on board" is also important.

Wednesday, April 16, is Health Care Decisions Day. Let this be a reminder to communicate with those you care about so that your life can reflect your values and wishes – even at its end. Then go out and celebrate life!

Myra Gerson Gilfix was the founding Chair of Healthcare Decision-making Special Interest Group (SIG) for the National Academy of Elder Law Attorneys. This SIG dealt with multiple issues regarding health care, including health care advance directives, durable powers of attorney, DNR orders, biomedical ethics, issues relating to pain relief, dying at home, palliative care, and informed consent.



How to Reduce Expenses After Retirement

A retirement savings plan and an estate plan go hand in hand. Proper planning can allow you to enjoy retirement in comfort and to leave an inheritance to children and grandchildren. However, in order for a retirement plan to be effective after you stop working full time, it is often necessary to make adjustments in accordance with changes in income. Here are a few ways to reduce expenses while still living comfortably in retirement.

First, consider dispensing with a second car or luxury car. You and your spouse may not need two cars outside the workforce. Dispensing with a luxury car may also mean that you can forego comprehensive insurance coverage, adding to your savings. You may also wish to review your life insurance and disability insurance needs. Depending on individual circumstances, these may no longer be necessary after retirement. You may also wish to reassess your home. A larger home that was ideal for raising children may be more spacious and more expensive than necessary during retirement. These savings can make more resources available to you for travel and leisure activities.

To enjoy a comfortable retirement and still leave enough to provide for your heirs, it is important to acknowledge that retirement will mean a change in lifestyle. Make the appropriate adjustments to reduce your expenses after retirement.

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529 College Savings Plans Can Be Incorporated Into Estate Plans

The college savings plans known as “529 plans” are an excellent way to save money for your child's college education. Although contributions to the plans do not receive any federal tax breaks, the money withdrawn is not taxed, so any income earned within the plan is free from federal taxes and California state taxes. California's version of a 529 plan is known as the ScholarShare program.

Contributions to the ScholarShare program may decrease the taxable value of one's estate. They may also qualify for a yearly federal gift tax exclusion of $14,000 per donor, or $28,000 for married couples, per beneficiary. If contributions in a single year rise above that limit, then the account owner may treat up to $70,000 (or $140,000 for married couples) as having been made over the course of five years for the purposes of the gift tax exclusion.

It is also possible to change the beneficiary of a plan to the next generation by moving up to $14,000 per year to a new beneficiary. Such a move will not reduce your lifetime gift and estate tax exclusion.

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Ethical Wills

Most of us pay careful attention to passing along our assets – our material goods. We worry about tax, asset management, and preservation of a lifetime’s earnings. We pay precious little time to something that is arguably more important – passing along our values.

Ethical Wills have long been used for just this purpose. The concept has been around for centuries. The concept is firmly imbedded in the Old Testament.

The goal is to pass along the wisdom and maturity of your lifetime. The goal is to pass along the values that you have developed over the decades. While this is primarily achieved by the life you lead and the nature of your relationships, a written legacy can be even more enduring.

What might an Ethical Will address?

It might identify the more formative experiences of your lifetime or the critical lessons that you learned. It might identify the issues or causes that are most important to you – and why. For some, biblical or other such references are appropriate. For others, it may be poetry or chosen words of a favored philosopher.

An Ethical Will is very personal. In addition to global or enduring truths, it might address the very nature of your relationship with your loved ones.

You must prepare your revocable living trust, your Durable Power of Attorney, and your Advance Health Care Directive. You must also think about passing along your values in a meaningful, written way. An Ethical Will – and the thoughtful process of developing the will – is perhaps the best planning tool that you can use.

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