Estate Planning & Probate

Basic Planning Services

Lang, Richert & Patch offers its clients a wide variety of services in the estate planning, tax and probate arenas. On the planning side, the primary emphasis is on planning for death and incapacity as well as minimizing taxes and unneeded expenses and delay. Important concerns such as succession to family businesses, asset protection and assuring competent management and control are addressed. In addition, the firm offers planning services to clients concerned with qualifying for Medi-Cal and other benefits.

Clients with younger children are often greatly concerned with both financial and personal matters. Our attorneys design guardianship nominations and trust provisions designed to achieve the client’s goals while balancing the need for supervision by the courts with costs and privacy concerns. On the other end of the spectrum, older clients who desire assistance in the management of their affairs by family members or professionals can also utilize vehicles such as durable powers of attorney and trusts. And all clients should obtain an Advance Health Care Directive to ensure their wishes for medical care are fulfilled.

As a primary goal of many clients is to avoid probate, the revocable living trust is a valuable tool designed not only to avoid probate, but also to reduce costs and provide for defined management upon death or incapacity. Since the trusts are revocable, they do not impose any limitations on the client’s decision-making while they are alive and able to manage their own affairs. Should the unfortunate occur, management of the trust, through a trustee, can be transferred to a family member or trusted friend, with no court involvement and at little or no cost. Another aspect of a trust is the ability to secure assets for the next generation upon the death of the first spouse and to help eliminate any estate taxes.

While clients may have heard that the federal tax law changes of 2001 may have “repealed” the estate tax, the truth of the matter is that the size of the estate subject to estate taxes has and will increase substantially over the next several years. Unfortunately, after 2010, the law is scheduled to be self-repealed, placing the public back to the levels of today. Given that the estate tax has now become a political football, intricate planning to avoid or eliminate the tax is needed now more than ever, for all experts agree further legislative changes are in the offing. As this area of the law remains complex, good legal counsel is a must for any client. Fortunately, there are a wide variety of vehicles such as a family limited partnership or irrevocable trusts that provide clients with the ability to pass on the family business, farm or other assets.

A private, no cost consultation, aimed primarily at educating the client is offered here at our offices. As the firm believes in delivery of quality legal services at reasonable costs, many estate planning representations are done on a flat fee basis, allowing the client to budget and plan for their plan. In addition, the head of our practice area, Doug Griffin, is available for group presentations and seminars.

Probate, Guardianships And Conservatorships

  • When a person dies (“Decedent”), California provides a legal procedure to wrap up the Decedent’s financial affairs, known as probate. The need for a probate is driven by three factors: (a) form of ownership; (b) beneficiary designation; and (c) value of the assets subject to probate.
  • As for ownership, the key is whether the asset is owned in the Decedent’s name and, if so, whether the asset provides for a designated death beneficiary or passes to a surviving joint tenant. Even where neither of these applies, when assets are passing to a surviving spouse or the estate is modest (under $100,000), there are easy shortcuts to the full probate procedure. Note that the availability of these procedures as well as the necessity for probate is determined whether or not the Decedent has a will.
  • When a full probate is needed, the court takes jurisdiction over assets other than those that will pass under a death beneficiary designation (such as life insurance and retirement plans). Here, notice must be given to any “reasonably ascertainable” creditor, the assets must be appraised and the estate tied up usually for a minimum of six months while this all occurs. If estate taxes are due, the estate can be held up for as long as 18 months. If this were not bad enough, the fees and costs can be painful. For example, a $300,000 probate estate will generally cost a minimum of $10,000 in fees and costs, if not more.

Estate-related Litigation

Lang, Richert & Patch, renowned for its prowess in all areas of civil litigation, is also highly experienced in the handling of all variety of litigation matters in the context of an estate. Such disputes often go far beyond the standard will contests, including such diverse areas as property and business ownership issues, conservatorship-related claims of cohabitants, elder abuse, breaches by trustees, executors and other fiduciaries, accountings and community versus separate property issues. The firm also offers its services to mediate problems, particularly when all family members recognize their differing contentions and want to achieve an amicable and reasonable resolution. Given the firm’s wealth of background and experience, particularly in the area of taxation and litigation, these services can be of invaluable assistance.

ESTATE TAXATION BASICS

Fundamentals

The I.R.S. imposes an estate and gift tax on assets given away either during one’s lifetime or at their death. The tax applies during lifetime as well as at death in order to prevent one from giving away assets shortly before death in order to avoid the estate tax. The tax is paid by the “donor” of the gift, not the recipient. All assets owned by you are subject to the tax. This includes the full value of any retirement plan (discussed below) and any life insurance death benefits, regardless to whom they are payable (a life insurance trust can eliminate this problem, as discussed below). The rate of tax graduates like income tax, except that it jumps quickly and reaches a high of 50 percent.

A. Exclusions From Tax.

There are three key exclusions from this tax which can be used for planning purposes.

  1. Lifetime Annual Gifts. First, during a lifetime, each spouse may give away $10,000 per year to any person of their choosing without being subject to tax. That means a married couple can give $20,000 per year to each child and not incur any gift tax.
  2. Spousal Transfers. Second, all transfers between spouses are exempt from taxation. Thus, either during one’s lifetime or at death, any assets given to their spouse pass tax free. This is an important planning consideration due to the third exclusion discussed below.
  3. Estate & Gift Tax Exemption. The third exclusion is the lifetime exemption for assets that may pass completely free of estate or gift taxes (the “Exemption”). The amount of the Exemption at present is such that $1 million of assets per person that may pass tax free, and this applies both to lifetime gifts and property passing at death. For a married couple, this means as much as $2 million in assets can be passed on free of tax.

Note that the Exemption grows over the next nine years at varying intervals and in 2010, the tax is repealed completely. Unfortunately, the way the law is presently structured, the tax comes back with the $1 million exemption in 2011. So, for now, we should plan around a $1 million exemption, or $2 million per couple.

B. Planning Opportunities.

There are numerous ways to reduce the estate tax at one’s death by utilizing the exclusions set out above. The most fundamental method is the use of a “Bypass Trust” which is discussed below. For married individuals with a net worth in excess of $2 million or single people in excess of $1 million, there are a variety of other more complex methods.

A life insurance trust (discussed below) is one example of using gift tax annual exclusions to leverage the amount of wealth that can be passed at a minimal tax consequence. Charitable and other remainder trusts and gifting of partial interests to children using discounts are common methods.

The advantage of lifetime gifts is that the gift tax is computed based on the value on the date of the gift. Thus appreciation on the gift will not be subject to estate tax on the donor’s death. For example, a couple owns a parcel of real property worth $150,000 today. If the property is gifted to the children now, the couple could utilize $150,000 of their Exemptions and/or their annual gift tax exclusion to pay no tax on the transfer. If the couple live another 15 years and the property were to appreciate to $250,000, the $100,000 in appreciation would not be subject to any tax since the property was unowned by the couple during the time the property went up in value.

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