Living Trust Planning | Estate Planning Attorney

Category: Life Planning

  • Why Everyone Needs to Keep Their Estate Plan Updated

    Why Everyone Needs to Keep Their Estate Plan Updated

    As the world and its laws continue to evolve, everyone needs to keep their estate plans up-to-date. An estate plan is a set of documents, such as a will or trust, that dictate how assets will be distributed upon death or incapacity. An individual’s current legal and financial situation should be considered to create a comprehensive estate plan tailored specifically to their needs.

    Ensure Your Wishes Are Respected

    The primary reason to update an estate plan is to ensure that an individual’s wishes are respected upon death. For example, suppose an individual has recently acquired valuable property or has had changes in family structure (such as marriage or children). In that case, updating the documents that outline how assets should be distributed is important. If the documents aren’t updated, this could lead to disputes between family members and legal complications when probate occurs. Additionally, if laws change at the state or federal level, those changes need to be incorporated into the existing estate plan to remain valid and effective. 

    Ensure Your Loved Ones Are Protected From Tax Implications

    Another reason for updating an estate plan is for future tax planning purposes. Without proper planning and asset allocation, taxes can significantly reduce the amount that beneficiaries receive after one’s death. Additionally, some states have transfer taxes on certain assets (such as real estate), which must be factored into one’s estate planning decisions. In addition, changes in federal tax law may affect whether other taxes, such as capital gains tax, applies at the time of death or while transferring assets during life – thus providing additional incentive for individuals to review their plans regularly with their advisors and make necessary updates when necessary. 

    Ensure Your Medical Decisions Are Handled With Care

    Estate planning also encompasses contingency plans in case of incapacity due to illness or injury – commonly referred to as disability planning. This means creating end-of-life documents such as Advance Health Care Directives, which list specific instructions about medical treatments that should be administered if certain conditions arise – such as if a person suffers from dementia or a traumatic brain injury and can no longer make decisions on their behalf. This planning can provide peace of mind knowing that an individual’s wishes will be respected even if they cannot make decisions themselves due to illness or injury. 

    Ensure You Leave a Legacy For Your Loved Ones

    Finally, updating an estate plan allows people to express gratitude for those who have helped them over the years – whether it be through providing advice on financial matters or being there simply by offering emotional support during difficult times – by including them in a legacy interview with our firm. Specific instructions can also be included in your plan regarding how charitable donations should be handled after death – enabling individuals who wish to donate part of their wealth to leave behind a lasting legacy that furthers causes they believe in long after they pass away. 

    Keep Your Estate Plan Up-To-Date

    In conclusion, having an up-to-date estate plan helps ensure that your wishes are respected upon incapacity or death; protects you from unnecessary taxes; helps with disability planning; and allows you the chance to express appreciation towards those who have had a positive impact on your life while still alive. Therefore, estate plans should consider current circumstances and anticipate future events to avoid any potential problems. We hold regular reviews of your estate plan through the stages of change in your life or every three years. Contact us today with your questions about your current plan and if you need an update.

    This article is a service of Jeannette Marsala, Personal Family Lawyer. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, during which you’ll get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

  • Obtaining a Power of Attorney for Elderly Parents

    Obtaining a Power of Attorney for Elderly Parents

    Making important decisions for aging parents can be a challenging task, but power of attorney (POA) can provide peace of mind and clarity in times of need. POA enables individuals to make crucial decisions on behalf of their parents, such as managing their finances or making medical decisions, when they’re unable to do so themselves due to age or illness.

    While it may be difficult to approach this topic with your parents, having these discussions early on can help ensure that you follow their wishes if their health changes over time. Starting the conversation with empathy and understanding can make all the difference.

    In this article, we’ll explore how to obtain power of attorney for elderly parents and provide helpful tips on how to approach these discussions with warmth and care. After all, our ultimate goal is to ensure that your aging parents receive the best possible care and support.

    What’s a POA? 

    According to the American Bar Association, POAs are legal documents, which vary between states, that provide a person, or several individuals, with the power to perform actions on behalf of someone else. The individual with a POA is an agent, whereas the principal refers to the person who is having their affairs managed by other individuals. Agents can only perform actions outlined within the POA document. Moreover, if someone agrees to a POA, they can still make their own decisions, providing they can still do so coherently. This means the agent cannot make exclusive decisions on behalf of the principal.

    POA Types

    Below is more information regarding the different POA types:

    • General: For this POA, the agent can manage the principal’s affairs for a specific period, and the principal may revoke this at any point. These automatically finish if the principal becomes incapacitated and are common when an individual can still see to their affairs but prefers that someone else does this for them.
    • Durable: These POAs continue after the principal becomes incapacitated and are more common when someone cannot manage their affairs. They can conclude in many ways, including once the principal dies or if the agent completes the conditions within the POA document.
    • Springing: The terms in this POA don’t take effect unless the principal becomes incapacitated. For this POA, the principal remains in control of their affairs until they lose capacity.
    • Medical: These POAs allow agents to make the principal’s medical decisions. They last until the principal is competent and might also expire after a certain period mentioned in the document.
    • Limited: These limit the agent’s ability to make decisions regarding certain tasks as outlined in the POA document, such as paying bills or selling a house. Limited POAs are usually temporary and end when the principal loses capacity.

    Why and When to Consider a POA For Your Aging Parents

    Here are the common reasons why individuals may consider getting a POA:

    • Finance issues: POAs enable individuals to continue paying their parents’ bills and manage their finances when their parents struggle to fulfill these obligations.
    • Serious illness: Having a POA for an elderly parent can be helpful as it allows them to focus on getting better and reduces the stresses associated with managing their affairs.
    • Memory issues: Individuals commonly obtain a POA to manage their parents’ affairs if they develop dementia. It’s helpful to note that it’s necessary to obtain the POA before the parent loses their capacity.
    • Surgery: When an elderly parent is undergoing surgery, it might be a good idea to obtain a POA so individuals can make decisions on their parents’ behalf and manage their affairs until they’ve fully recovered.
    • Frequent travel: Some elderly parents like to travel frequently, so POAs can be useful here for ensuring their affairs remain in order while they’re away.

    How Do I Choose a POA For My Parents?

    When considering a POA for your aging parents, there are several things to keep in mind. The most crucial factor is trust – you must choose someone you can rely on to make decisions in your parents’ best interests and follow their wishes.

    While family members are often chosen for this role, it’s important to consider whether they’re the best fit. If you think an objective outsider may be better suited to the task, such as a lawyer, accountant, or financial institution, this is also an option, although it may come with additional costs.

    Before agreeing to be a POA for your parents, it’s essential to have a thorough discussion with them to understand their needs and preferences. Different types of POAs have different levels of responsibility, and it’s important to clarify what your parents expect from you. If your parents need help with medical decisions, for example, this will require more involvement than if they only need assistance with financial decisions.

    Finally, it’s essential to understand the financial implications of becoming a POA. You’ll need to keep your finances separate from your parents’ and be prepared to justify any decisions you make to avoid legal issues.

    Choosing a POA for your aging parents is a significant decision, and it’s essential to approach it with care and sensitivity. By having open and honest discussions and seeking objective advice, you can ensure that your parents receive the best possible care and support.

    Contact Us To Learn More About Obtaining A Power Of Attorney For Your Elderly Parents

    If you have elderly parents, it’s understandable that discussing power of attorney (POA) may be a sensitive topic. However, starting these discussions as early as possible can bring peace of mind and clarity in the future.

    When approaching these conversations, it’s important to consider your parents’ health and well-being. Let them know that you’re there to support them and that you will only use the POA powers if it’s absolutely necessary. It’s a promise that can help reassure your parents that you have their best interests at heart.

    Additionally, it may be helpful to seek the guidance of an experienced estate planning attorney. They can provide objective advice and alleviate any concerns that your parents may have. We understand that this is a difficult process, but we’re here to help. Please feel free to contact us today to learn more about how we can assist you and your family.

    This article is a service of Jeannette Marsala, Personal Family Lawyer. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, during which you’ll get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

  • Keep the Government and Lawsuit Happy Opportunists Away from Your Children’s Inheritance

    Keep the Government and Lawsuit Happy Opportunists Away from Your Children’s Inheritance

    If you have a current estate plan, I’ll bet you plan to leave your assets to your children outright and unprotected by age 35, or maybe a little later. Go take a look at your estate plan, and see what it does right now. And, if you don’t have an estate plan, and you have kids or other people you care about, contact us today and let’s get that handled for you. 

    If you do have a plan and it distributes your assets outright to your kids — even in stages, over time, some at 25, then half of what’s left at 30, and balance at 35 (or something along those lines), you’ve overlooked an incredibly valuable gift you can give your children (and the rest of your descendants for generations); a gift that only you can give them. And a gift that, once you’ve died and left them their inheritance outright, is lost and cannot be reclaimed. 

    Leave your kids a nest egg protected from lawsuits, divorce, and estate taxes.

    While you may think to yourself, “my kids’ inheritance doesn’t need to be protected. They aren’t going to get sued.” You may be right, but you may also be overlooking one of the most common “lawsuits” that causes inheritances to be lost everyday, and that’s divorce. If you want to protect the money you’re leaving to your children from their future divorces, even if you love their spouses or expect you will, in the future, you can easily do so using a protected trust. 

    And, if your child is ever involved in a lawsuit, for example, a simple car accident, or if a business transaction goes bad, what you leave to your child can be protected from all future lawsuits or claims against them. 

    The best part is that if your child has their own taxable estate when they die, your planning now could save your family 40 cents on every dollar (or more) handed down from one generation to the next. 

    Save your family up to 40 cents on every dollar — currently — at each generation.

    As of 2023, the current federal estate tax rate is 40% — meaning that every dollar passed on over the estate tax exemption rate is taxed at 40%. And it has been as high as 55%. On top of that, many states have estate taxes as well.

    This all adds up fast, and can decimate your family’s financial legacy over time. For every million dollars you leave outright to your children, if your children have a taxable estate when they die, could result in  your grandchildren receiving only $550,000, with $450,000 going to the government … unnecessarily. 

    So, if you want to know that everything you’ve worked so hard to create will stay in your family for generations to come and not be lost to outsiders, leaving your assets to your children protected in a trust we call a Lifetime Asset Protection Trust, instead of outright, is the way to go. And, it can be easily built into your existing estate plan or trust. You just need to ask us to help you get a Lifetime Asset Protection Trust added to your plan. 

    But how will my kids get to use what I leave to them?

    Here’s the best part about leaving your assets to your children in a Lifetime Asset Protection Trust. Not only is what you leave protected, but your children control what you leave them when you decide they’re ready.

    After your death, the assets you leave behind will pass to your children (and your grandchildren, great-grandchildren, and so on for successive generations) in a Trust that your child can control,  as the Trustee of the Trust. You can decide when your child is mature enough to act as a Trustee.

    As the Trustee of the Trust, your child decides how what you’ve left is invested and what to do with the Trust assets. And your child will even be able to determine the amount of control vs. the amount of asset protection he or she wants based on his or her specific circumstances.

    Is this still important if I don’t have much money?

    If you only leave your children a small amount of money, this is still incredibly valuable for protection, if you’re leaving assets that will be invested and grown, and not just spent right away on consumables. Some might say it’s even more important because your family has less to lose to taxes, lawsuits, and divorce each generation. And the impact of such losses is much greater. 

    A mere $10,000 protected now can become millions for the people you love for generations to come.

    Imagine that you leave just $10,000 to your child in a Lifetime Asset Protection Trust, and instead of spending that $10,000 or losing it in a divorce, they invest that $10,000 in creating their own business inside their trust, and then grow that business into a million dollar or multi-million dollar venture because of how you chose to leave your child that $10,000 gift … and it’s fully protected for generations.

    Secure the future of your family today by speaking to us. We review estate plans and inherited funds with you, ensuring that all legalities are in place so generations can enjoy the benefits according to your wishes. Get peace of mind now – contact us today to get started.

    This article is a service of Jeannette Marsala, Personal Family Lawyer. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, during which you’ll get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

  • A Letter of Instruction Can Spare Your Heirs Great Stress

    While it is important to have an updated estate plan, there is a lot of information that your heirs should know that doesn’t necessarily fit into a will, trust or other components of an estate plan. The solution is a letter of instruction, which can provide your heirs with guidance if you die or become incapacitated.

    A letter of instruction is a legally non-binding document that gives your heirs information crucial to helping them tie up your affairs. Without such a letter, it can be easy for heirs to miss important items or become overwhelmed trying to sort through all the documents you left behind. The following are some items that can be included in a letter:

    • A list of people to contact when you die and a list of beneficiaries of your estate plan
    • The location of important documents, such as your will, insurance policies, financial statements, deeds, and birth certificate
    • A list of assets, such as bank accounts, investment accounts, insurance policies, real estate holdings, and military benefits
    • Passwords and PIN numbers for online accounts
    • The location of any safe deposit boxes
    • A list of contact information for lawyers, financial planners, brokers, tax preparers, and insurance agents
    • A list of credit card accounts and other debts
    • A list of organizations that you belong to that should be notified in the event of your death (for example, professional organizations or boards)
    • Instructions for a funeral or memorial service
    • Instructions for distribution of sentimental personal items
    • A personal message to family members

    Once the letter is written, be sure to store it in an easily accessible place and to tell your family about it. You should check it once a year to make sure it stays up-to-date.

  • Estate Planning for Single Parents by Choice

    Estate Planning for Single Parents by Choice

    A single parent by choice (SPC) is a person who intentionally becomes a parent while unpartnered, knowing that they will be a solo parent of that child. They become a parent through conception with the assistance of a donor, or through fostering or adoption. People of all genders can be a SPC, though it is currently more frequent among women aka single mothers by choice or choice moms (commonly abbreviated as SMBC or SMC). 

    Single Parents by Choice need to ensure their estate plans protect for their children because there is no other parent to provide for them. In addition, because SPCs tend to be more financially established before becoming parents, SPCs also need to protect the assets they’ve accumulated.

    Role of known sperm donor

    Unlike in cases of adoption or even with using an egg donor, there are some special concerns that single mothers by choice if she used a known sperm donor to conceive. In California, a known donor not considered a legal parent as long as certain conditions are met, such as not including the donor on the birth certificate, entering into a donor contract before conception and conception of the child was not the result of intercourse. If the conditions are not met, then the sperm donor may have legal rights over the child, including the right to gain custody of the child following the death of the SMC. If the known sperm donor is considered a legal parent of the child, then he does not need to establish a guardianship of the child following the SMC’s death because he automatically gains full legal custody of the child despite any nomination of guardians by the SMC or the SMC’s wishes.

    Nomination of a guardian

    It is extremely important that a single parent by choice names a guardian for their minor child. Unlike with divorced parents or unmarried co-parents, there is no other parent or anyone else with legal rights to that child. 

    In fact, pregnant single mothers by choice should consider consulting with an estate planning attorney before the child is born. While rare, complications can occur during childbirth which may leave a baby orphaned. It would be unfortunate for a much-wanted baby to enter the foster care system because there is no guardian nominated.

    Read about our Kids Protection Plan

    Living trust

    If an SPC owns a house, then the SPC should definitely have a living trust prepared by an estate planning attorney. As with any other homeowner, SPCs want to have a living trust to hold the title to their real estate in order to avoid probate. A living trust can also include a minor’s trust to hold all the assets so that the child inherits the house or the sale proceeds.

    Minor’s trust

    Generally, a parent will want to leave all of their belongings to their children. But they don’t want the child to be given everything at age 18 without any conditions. Imagine an 18-year-old with $1 million dollars and it’s understandable why a trust is preferred to delay distribution. A minor’s trust can specify that the principal may be used for education (college) while the rest of the money stays in the trust until the child reaches a certain age like 25 or 30.

    Beneficiary designations

    Certain accounts such as life insurance, retirement accounts, checking accounts, etc. also the account holder to name a beneficiary for when the owner passes away. If a beneficiary is named in these types of accounts, then the asset will pass to the beneficiary without the need for probate. However, for SPCs of minor children, they should not name their minor child as a beneficiary. So, what then?

    If the intent is to leave that asset to the child, then it would be a mistake to name a trusted adult as a beneficiary instead of the child. Whoever the SPC names as a beneficiary receives that asset without any restrictions. And while the named beneficiary may be trustworthy, there may be future disputes with the child regarding the use of the money and when the money should be turned over to the child. 

    For instance, if Aunt Sue is the named guardian of the child and the beneficiary of a $300,000 life insurance policy, then Aunt Sue can use the money for whatever she wants. Let’s assume Aunt Sue is trustworthy and saves the money for the child. But she may decide that the $300,000 should be spent on certain purchases necessary because she is looking after another child. Maybe she needs to upgrade her car or buy a larger home. By the time the child reaches 18, maybe only $200,000 is left.  Naturally, the child believes that they are entitled to the full $300,000 because the intent of the money was that it be saved for the child. But legally, because Aunt Sue is the named beneficiary of the life insurance, the child isn’t entitled to anything. But regardless of the legal merits of the child’s claim, the feelings of resentment and mistrust may remain.

    The solution is to name a trust as a beneficiary. Aunt Sue may be the successor trustee, but there are clear guidelines within the trust specifying when and for what the money can be used. More importantly, it reduces the potential for friction between Aunt Sue and the child.

    Consult with an estate planning attorney

    This blog post is meant to illustrate some special considerations for SPCs, but it can’t account for all the nuances in this complex factual situation. If you are interested in learning more, please contact the Marsala Law Firm for a Family Wealth Planning Session.

  • How to Handle Sibling Disputes Over a Power of Attorney

    How to Handle Sibling Disputes Over a Power of Attorney

    A power of attorney is one of the most important estate planning documents, but when one sibling is named in a power of attorney, there is the potential for disputes with other siblings. No matter which side you are on, it is important to know your rights and limitations.

    A power of attorney allows someone to appoint another person — an “attorney-in-fact” or “agent” — to act in place of him or her — the “principal” — if the principal ever becomes incapacitated. There are two types of powers of attorney: financial and medical. Financial powers of attorney usually include the right to open bank accounts, withdraw funds from bank accounts, trade stock, pay bills, and cash checks. They could also include the right to give gifts. Medical powers of attorney allow the agent to make health care decisions. In all of these tasks, the agent is required to act in the best interests of the principal. The power of attorney document explains the specific duties of the agent. 

    When a parent names only one child to be the agent under a power of attorney, it can cause bad feelings and distrust. If you are dealing with a sibling who has been named agent under a power of attorney or if you have been named agent under a power of attorney over your siblings, the following are some things to keep in mind: 

    • Right to information. Your parent doesn’t have to tell you whom he or she chose as the agent. In addition, the agent under the power of attorney isn’t required to provide information about the parent to other family members.
    • Access to the parent. An agent under a financial power of attorney should not have the right to bar a sibling from seeing their parent. A medical power of attorney may give the agent the right to prevent access to a parent if the agent believes the visit would be detrimental to the parent’s health.
    • Revoking a power of attorney. As long as the parent is competent, he or she can revoke a power of attorney at any time for any reason. The parent should put the revocation in writing and inform the old agent.
    • Removing an agent under power of attorney. Once a parent is no longer competent, he or she cannot revoke the power of attorney. If the agent is acting improperly, family members can file a petition in court challenging the agent. If the court finds the agent is not acting in the principal’s best interest, the court can revoke the power of attorney and appoint a guardian.
    • The power of attorney ends at death. If the principal under the power of attorney dies, the agent no longer has any power over the principal’s estate. The court will need to appoint an executor or personal representative to manage the decedent’s property.

    If you are drafting a power of attorney document and want to avoid the potential for conflicts, there are some options. You can name co-agents in the document. You need to be careful how this is worded or it could cause more problems. The best way to name two co-agents is to let the agents act separately. Another option is to steer clear of family members and name a professional fiduciary. 

    Sibling disputes over how to provide care or where a parent will live can escalate into a guardianship battle that can cost the family thousands of dollars. Drafting a formal sibling agreement (also called a family care agreement) is a way to give guidance to the agent under the power of attorney and provide for consequences if the agreement isn’t followed. Even if you don’t draft a formal agreement, openly talking about the areas of potential disagreement can help. If necessary, a mediator can help families come to an agreement on care. 

    To determine the best way for your family to provide care, consult with Marsala Law Firm.

  • Planning After an Alzheimer’s Diagnosis

    An Alzheimer’s diagnosis is devastating and overwhelming. If you or a loved one has been diagnosed with Alzheimer’s disease, it is important to start planning immediately. There are several essential documents to help you once you become incapacitated, but if you don’t already have them in place, you need to act quickly after a diagnosis.

    Having dementia does not mean an individual is not able to make planning decisions. The person signing documents must have “testamentary capacity,” which means he or she must understand the implications of what is being signed. Simply having a form of mental illness or disease does not mean that you automatically lack the required mental capacity. As long as you have periods of lucidity, you may still be competent to sign planning documents.

    The following are some essential documents for someone diagnosed with dementia:

    1. Power of Attorney

    A power of attorney is the most important estate planning document for someone who has been diagnosed with Alzheimer’s disease or some other form of dementia. A power of attorney allows you to appoint someone to make financial decisions on your behalf once you become incapacitated. Without a power of attorney, your family would be unable to pay your bills or manage your household without going to court and getting a conservatorship, which can be a time-consuming and expensive process.

    2. Advance Healthcare Directive

    An advance healthcare directive explain what type of care you would like if you are unable to make decision regarding your healthcare. An advance healthcare directive will include a nomination of a health care proxy. A health care proxy or agent is someone who you choose to make decisions regarding your health when you are unable to do so. Your advance healthcare directive may contain directions to refuse or remove life support in the event you are in a coma or a vegetative state or it may provide instructions to use all efforts to keep you alive, no matter what the circumstances.

    3. Will and Other Estate Planning Documents

    In addition to making sure you have people to act for you and your wishes are clear, you should make sure your estate plan is up to date, or if you don’t have an estate plan, you should draw one up.  Your estate plan directs who will receive your property when you die. Once you are deemed incapacitated, you will no longer be able to create an estate plan.

    An estate plan usually consists of a will, and a trust if you own a house or have other assets to protect. Your will is your legally binding statement on who will receive your property when you die, while a trust allows to you pass your property without the need for lengthy court hearings and procedures.

    Plan For Long Term Care

    In addition to executing these documents, it is also important to create a plan for long-term care. Long-term care is expensive and draining for family members. Developing a plan now for what type of care you would like and how to pay for it will help your family later on. Your attorney can assist you in developing that plan and drafting any necessary documents.

    An elder law attorney, such as Marsala Law Firm can help you with create a life plan. Call (650) 600-1735 now for a free telephone consultation.

  • How to Pass Your Home to Your Children Tax-Free

    Giving your house to your children can have tax consequences, but there are ways to accomplish it tax-free. The best method to use will depend on your individual circumstances and needs.

    Leave the house in your will

    The simplest way to give your house to your children is to leave it to them in your will. As long as the total amount of your estate is under $5.45 million (in 2016), your estate will not pay estate taxes. In addition, when your children inherit property, it reduces the amount of capital gains taxes they will have to pay when they sell the property later.

    Capital gains taxes are taxes paid on the difference between the “basis” in property and its selling price. If children inherit property, the property’s tax basis is “stepped up,” which means the basis would be the value of the property at the time of death, not the original cost of the property.

    However, there are 2 major downsides to leaving the house in a will without a trust: probate and Medi-Cal recovery claims.  Without a trust, your children have to go through an expensive and lengthy probate court proceeding to inherit the house. Further, Medi-Cal is entitled to a recovery claim and your children may have to sell the house to pay the Medi-Cal recovery claim.

    Leave the house in your living trust

    The simplest way to give your house to your children is to leave it to them in your living trust. As long as the total amount of your estate is under $5.45 million (in 2016), your estate will not pay estate taxes. In addition, when your children inherit property, it reduces the amount of capital gains taxes they will have to pay when they sell the property later.

    Capital gains taxes are taxes paid on the difference between the “basis” in property and its selling price. If children inherit property, the property’s tax basis is “stepped up,” which means the basis would be the value of the property at the time of death, not the original cost of the property.

    Plus, by leaving the house in a living trust, you avoid probate.

    In addition, California recently changed the Medi-Cal estate recovery laws. Starting on January 1, 2017, property that avoids probate is not subject to recovery by Medi-Cal. So if you leave the house in your living trust, the house will not be subject to the Medi-Cal estate recovery claim because it will avoid probate.

    Gift the house

    When you give anyone other than your spouse property valued at more than $14,000 ($28,000 per couple) in any one year, you have to file a gift tax form.  But you can gift a total of $5.45 million (in 2016) over your lifetime without incurring a gift tax. If your residence is worth less than $5.45 million and you give it to your children, you probably won’t have to pay any gift taxes, but you will still have to file a gift tax form.

    The downside of gifting property is that it can have capital gains tax consequences for your children. If your children are planning to sell the home, they will likely face steep capital gains taxes. When property is gifted, it does not receive a step up in basis, as it does when it is inherited.

    When you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient.

    In addition, gifting a house to your children can have consequences if you apply for Medi-Cal within 30 months (or 5 years in states other than California) of the gift. Under California’s Medi-Cal rules, if you transfer assets within 30 months before applying for Medi-Cal, you will be ineligible for Medi-Cal for a period of time (called a transfer penalty), depending on how much the assets were worth.

    Sell the house

    You can also sell your house to your children. If you sell the house for less than fair market value, the difference in price between the full market value and the sale price will be considered a gift.

    As discussed above, you can use the $14,000 annual gift tax exclusion as well as the $5.45 million lifetime gift tax exemption on this gift. The same issues with gifts discussed above will apply to this gift.

    Another option is to sell the house at full market value, but hold a note on the property. The note should be in writing and include interest. You can then use the annual $14,000 gift tax exclusion to gift your child $14,000 each year to help make the payments on the note. This can be tricky and you should consult with your attorney to make sure this won’t cause tax problems.

    Put the house in an Medi-Cal Protection Trust

    Another method of transferring property is to put it into an irrevocable trust such as a Medi-Cal Protection Trust.  Similar to the living trust discussed above, if you put it in an irrevocable trust that names your children as beneficiaries, the house will no longer be a part of your estate when you die, so your estate will not pay any estate taxes on the transfer. The house will also not be subject to Medi-Cal estate recovery.

    The downside is that once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust.

    This is advantageous over a living trust if you have Medi-Cal and may have to sell the house while you are still living.  While a house is an exempt asset under Medi-Cal eligibility rules, proceeds following the sale of the house is not.  If you sell the house while you are still living and the house is not in a Medi-Cal Protection Trust, you may lose your Medi-Cal benefits.

     

    Ask an Attorney for Help

    Figuring out the best way to pass property to your children will depend on your individual circumstances. Talk to your elder law attorney to decide what method will work best for your family.

    Marsala Law Firm can help advise you on your best options.  Please call (310) 237-3872 now for a free telephone consultation.

  • 10 Early Signs and Symptoms of Alzheimer’s Disease

    Early diagnosis of dementia provides the best opportunities for treatment, support and planning for the future. The Alzheimer’s Association (www.alz.org) has released the following list of signs and symptoms that can help individuals and family members recognize the beginnings of dementia. If you are concerned about any of these, be sure to see a doctor and, if suggested, begin treatment as soon as possible.
    1. Memory loss that disrupts daily life. Of concern: Forgetting recently learned information, important dates or events; repeatedly asking for the same information; relying on notes, devices or family members for things they used to handle on their own. Normal age-related change: Sometimes forgetting names or appointments, but remembering them later.
    2. Challenges in planning or solving problems. Of concern: Changes in the ability to develop and follow a plan or work with numbers, such as having trouble following a familiar recipe or keeping track of monthly bills; difficulty concentrating and taking much longer to do things than before. Normal age-related change: Making an occasional error when balancing a checkbook.
    3. Difficulty completing familiar tasks at home, work or leisure. Of concern: Finding it hard to complete daily tasks, such as driving to a familiar location, managing a budget at work or remembering the rules of a favorite game. Normal age-related change: Occasionally needing help to use settings on a microwave or to record a television show.
    4. Confusion with time or place. Of concern: Losing track of dates, seasons and passage of time; trouble understanding something if it is not happening immediately; forgetting where they are or how they got there. Normal age-related change: Getting confused about the day of the week but figuring it out later.
    5. Trouble understanding visual images and spatial relationships. Of concern: Vision problems that make it difficult to read, judge distance, and determine color and contrast. In terms of perception, they may pass a mirror and think someone else is in the room. They may not recognize their own reflection. Normal age-related change: Vision problems due to cataracts.
    6. New problems with words in speaking or writing. Of concern: Having trouble following or joining a conversation; stopping in the middle of a conversation with no idea how to continue, or repeating themselves; having problems finding the right word or calling things by the wrong name. Normal age-related change: Sometimes having trouble finding the right word.
    7. Misplacing things and losing the ability to retrace steps. Of concern: Putting things in unusual places; losing things and not being able to go back over their steps to find them; accusing others of stealing from them. Normal age-related change: Misplacing items (glasses, car keys, remote control) from time to time.
    8. Decreased or poor judgment. Of concern: Changes in judgment or decision making, especially when dealing with money, such as giving large amounts to telemarketers; paying less attention to personal hygiene. Normal age-related change: Making a bad decision once in a while.
    9. Withdrawal from work or social activities. Of concern: Not wanting to participate in hobbies, social activities, work projects or sports; having trouble keeping up with a favorite sports team or completing a favorite hobby; avoiding social situations because of changes they are experiencing. Normal age-related change: Sometimes feeling weary of work, family and social obligations.

    10. Changes in mood and personality. Of concern: Becoming confused, suspicious, depressed, fearful or anxious; becoming easily upset at home, at work, with friends or in places where they are out of their comfort zone. Normal age-related change: Developing very specific ways of doing things and becoming irritable when a routine is disrupted.

    If you notice any of these warning signs, please talk to your doctor. In addition, please contact the Marsala Law Firm (310) 237-3872 so we can prepare a life plan for you that avoid costly court proceedings later and explore your long-term care options. A diagnosis of Alzheimer’s disease doesn’t necessarily mean that it is too late, but planning early is always best.

  • What Is Cost Basis and How Do You Prove It?

    Knowing the “cost basis” of your property is important for tax purposes, but proving cost basis can be difficult. Cost basis adjusts at death, so it is a good idea to appraise property when a joint owner dies.

    Cost basis is the monetary value of an item for tax purposes. When determining whether a capital gains tax is owed on property, the basis is used to determine whether an asset has increased or decreased in value. For example, if you purchase a house for $150,000, that is the cost basis. The cost basis can be increased by improvements to the property. If there are no improvements and you later sell the house for $250,000, you will have to pay taxes on the $100,000 increase in value.  (However, if the property is your principal residence, you can exclude up to $250,000 in gain, or up to $500,000 for a couple.)

    When a property owner dies, the cost basis of the property is “stepped up.” This means the current value of the property becomes the basis. For example, suppose you inherit a house that was purchased years ago for $50,000 and it is now worth $250,000. You will receive a step up from the original cost basis from $50,000 to $250,000. If you sell the property right away, you will not owe any capital gains taxes.

    When a joint owner dies, half of the value of the property is stepped up. For example, suppose a husband and wife buy property for $200,000, and then the husband dies when the property has a fair market value of $300,000. The new cost basis of the property for the wife will be $250,000 ($100,000 for the wife’s original 50 percent interest and $150,000 for the other half passed to her at the husband’s death).

    The burden is on the property owner to prove cost basis, and it isn’t always easy to prove, especially if it has been awhile since the property was purchased or improvements were made. Homeowners should keep good records of improvements to a house, which means keeping receipts and purchase orders. If a joint owner of property dies, you should get the property appraised to show the value at the time it is “stepped up” in basis. Be sure to save the documentation so you can use it later.

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