Category: Estate Planning

By Roy Schneider, Esq.

If you are married for the first time and are working on your estate plan, the decisions about where the assets go are usually easy. Most parents in that situation want their entire estate to go to the surviving spouse, and upon the death of the surviving spouse, equally to their children. There may be difficult decisions about who will serve as guardians of the children or trustees over the children’s property, but typically it’s easy to decide where the property will go.

However, in today’s society, there are ever-increasing numbers of blended families. There may be children from several marriages involved, making estate planning more complex. Couples may bring an unequal number of children into the marriage, as well as unequal assets. A spouse may want to ensure that his or her spouse is provided for at death, but may be wary of  leaving everything to that spouse out of fear that at the death of that spouse, he or she will leave everything to his or her biological children.

Planning can also be complicated when a couple gets married and either of them brings very young children into the marriage. The non-biological parent may raise those children, but unless formally adopted, for estate planning purposes, they are not considered the children of the non-biological parent. Therefore, if that parent dies without a will, the children will not inherit from the step-parent.

There are many options for estate planning for blended families that will treat everyone fairly. First, it’s imperative that parents of blended families have a will in place. If they don’t, it’s almost inevitable that someone will be treated unfairly. Also, it’s tempting for parents of blended families to create trusts in which half of everything is left to the husband’s children and half is left to the wife’s children. However, as explained earlier, this approach can also lead to problems. Moreover, it’s not at all uncommon for a surviving spouse to change his or her trust at the death of the first spouse and cut the step-children out of the estate plan.

There are two options often recommended for blended families when doing estate planning. The first option is to set up an AB Trust. Under this plan, the assets of the deceased spouse are usually held in trust. Upon the death of the first spouse, the surviving spouse has the right to use the assets in the trust for support, with certain limits, such as rights to income or limited use of the trust principal for living expenses. However, the surviving spouse will not be able to change the beneficiaries of the deceased spouse’s trust, and hence step-children could not be disinherited from receiving at least the assets of the deceased spouse. If the assets belonging to each spouse vary significantly in amounts, there may still ultimately be an unequal division. A second option is for a certain amount of money to be left to children at the death of the first spouse. In that situation, the children will not have to wait for the death of the step-parent in order to inherit. This works well in situations when the children are mature adults and there is sufficient money for the surviving spouse to support himself or herself without relying on the extra funds that are inherited by the children. One way to accomplish this is through a life insurance policy payable to the children.

Estate planning with blended families can be complex and each situation is unique. It’s important to keep the lines of communication open and to be aware that it can be a sticky situation for many families. However, with proper planning, many issues that could arise on the death of a step-parent can be avoided completely.

Contact Schneiders & Associates, L.L.P. today for your estate planning questionnaire and to schedule your complimentary consultation.  During your consultation, our estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy. 

By Roy Schneider, Esq.

Creating an estate plan is not a one-time event. You should review your estate plan periodically, at least every 3 – 5 years or whenever there is a change in either the law or your family, to ensure it is up to date and make any necessary changes. There are a number of life-changing events that could potentially require changes to your plan, including those to your family and finances, such as:

Change in Marital Status: If you have gotten married or divorced, it is imperative that you review and modify your Trust. With a new marriage, you must determine which assets you want to pass to your new spouse or step-children, and how that may relate to the beneficiary interest of your own children. Following a divorce, it is a good practice to revise your Trust, and to formally remove the ex-spouse as a beneficiary. While you’re at it, you should also change your beneficiary on any life insurance policies, pensions, or retirement accounts. Estate planning is complicated when there are children from multiple marriages, and our estate planning attorney can help you ensure everyone is protected.

Depending on jurisdiction, this may also apply to couples who have established or revoked a registered domestic partnership.

If one of your Trust’s beneficiaries experiences a change in marital status, that may also trigger a need to revise your Trust.

Births: Upon the birth of a new child, the parents should amend their Trusts immediately, to include the names of the guardians who will care for the child if both parents die. Also, parents or grandparents may wish to modify the distribution of assets provided in their Trusts, to include the new addition to the family.

Deaths or Incapacitation: If any of the named executors or beneficiaries of a Trust, or the named guardians for your children, pass away or become incapacitated, your Trust should be revised accordingly.

Change in Assets: Your Trust may need to be changed if the value of your assets has significantly increased or decreased, or if you dispose of an asset. You may want to modify the distribution of other assets in your estate, to account for the changed value or disposition of the asset.

Change in Employment: A change in the amount and/or source of income means your Trust should be examined to see if any changes must be made to that document. Retirement or changing jobs could entail moving to another state, thus subjecting your estate to the laws of that state when you die. If the change in income modifies your investing, saving or spending habits, it may be time to review your Trust and make sure the distribution to your beneficiaries will be as you intended.

Purchase or Sale of a Business

If you have recently purchased a business, then you should meet with an estate planning attorney to insure that your estate plan is structured properly to deal with the business if you become disabled or after you die, and also to put together a comprehensive business exit plan. On the other hand, if you’ve recently sold a business, then you should meet with an estate planning attorney to insure that your plan is properly structured now that you don’t own a business, that the sale proceeds are titled in the name of your Revocable Trust, and to determine if your estate is no longer, or has become, taxable. If it has become taxable, then you’ll need to figure out how the taxes will be paid as well as ways to minimize the estate tax bill.

Changes in Probate or Tax Laws: Trusts should be drafted to maximize tax benefits, and to ensure the decedent’s wishes are carried out. If the laws regarding taxation of the estate, distribution of assets, or provisions for minor children have changed, you should have your Trust reviewed by an estate planning attorney to ensure your family is fully protected and your wishes will be fully carried out. Since there was a significant change in the Estate Tax Law effective this year, we consider that an event which may make a review of your estate plan at this time, particularly timely.

Further, you may wish to consider the state of your Powers of Attorney and Health Care Directive to make sure they comply with current California law and are reflective of your wishes.

Contact Schneiders & Associates, L.L.P. today for your estate planning questionnaire and to schedule your complimentary consultation.  During your consultation, our estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy. 

By Roy Schneider, Esq.

A thorough and complete estate plan must take into account a significant amount of information about your assets, your family, your property, and your wishes during and after your life. When you make your first appointment with our estate planning attorney, we will send you an Estate Planning Questionnaire to complete.

Generally speaking, you should gather the following information before your first appointment with our estate planning lawyer.

Family Information

List the names, birth dates, death dates, and ages of all immediate family members, specifically current and former spouses, all children and stepchildren, and all grandchildren.

If you have any young or adult children with special needs, gather all information you have about their lifetime financial needs.

Property Information

For all real property you own or can reasonably expect to acquire, gather the property description, your ownership interest information, the address, market value, any outstanding mortgage balance, and the most recent tax assessment.

For any personal property of value (such as vehicles, jewelry, coins, antiques, stamps, and art), compile a list that includes a description, the physical location of each item, your ownership interest information, the market value, and any liens against the property.

Business Information

If you have an ownership interest in a business, make sure you have documents showing your ownership interest in the business, the business location, the names and contact information of other owners, and 2-3 years of past profit and loss statements.

Financial Information

Compile a list of all your financial accounts, including: checking accounts, savings accounts, investment accounts, stocks and bonds, and U.S. Treasury notes. If any of these accounts currently have designated beneficiaries, bring that information as well.

Gather all retirement savings information, including 401(k) plans, 403(b) plans, IRAs, life insurance policies, Social Security statements, and pension information. Make sure you have the account names, account numbers, current balances, outstanding loan balances, and currently named beneficiaries.

If any family members owe you debts, compile that information.

Questions to Think About

The following are some of the first questions our estate planning attorney will ask. You are not required to have answers ready for all these questions, but because some of them are complex, it is a good idea to think through these issues before your appointment.

• A detailed description of all of your assets
• Who will be beneficiaries of your property?
• Do you want to bequeath any specific items of property to specific individuals?
• Is there anyone you do not want to be a beneficiary of any of your property?
• Do you plan to make any bequests to any nonprofit organizations – university, church, charity, or other organization?
• Do you know who you want to act as executor of your will?
• Do you know who you want to act as trustee of any trusts you establish?
• If you have minor children, who do you want to appoint as guardian?
• Do you want to make arrangements for your health and financial well-being in the event you become unable to make decisions for yourself?
• Do you have specific wishes for your funeral?
• Are you a registered organ donor?

During your initial consultation, our estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy.  Contact us today for your estate planning questionnaire and to schedule your complimentary consultation.

By Roy Schneider, Esq.

For many Americans, retirement accounts comprise a substantial portion of their wealth. When planning your estate, it is important to consider the ramifications of tax-deferred retirement accounts, such as 401(k) and 403(b) accounts and traditional IRAs. (Roth IRAs are not tax-deferred accounts and are therefore treated differently). One of the primary goals of any estate plan is to pass your assets to your beneficiaries in a way that enables them to pay the lowest possible tax.

Generally, receiving inherited property is not a transaction that is subject to income tax. However, that is not the case with tax-deferred retirement accounts, which represent income for which the government has not previously collected income tax. Money cannot be kept in an IRA indefinitely; it must be distributed according to federal regulations. The amount that must be distributed annually is known as the required minimum distribution (RMD). If the distributions do not equal the RMD, beneficiaries may be forced to pay a 50% excise tax on the amount that was not distributed as required.

After death, the beneficiaries typically will owe income tax on the amount withdrawn from the decedent’s retirement account. Beneficiaries must take distributions from the account based on the IRS’s life expectancy tables, and these distributions are taxed as ordinary income. If there is more than one beneficiary, the one with the shortest life expectancy is the designated beneficiary for distribution purposes. Proper estate planning techniques should afford the beneficiaries a way to defer this income tax for as long as possible by delaying withdrawals from the tax-deferred retirement account.

The most tax-favorable situation occurs when the decedent’s spouse is the named beneficiary of the account. The spouse is the only person who has the option to roll over the account into his or her own IRA. In doing so, the surviving spouse can defer withdrawals until he or she turns 70 ½; whereas any other beneficiary must start withdrawing money the year after the decedent’s death.

Generally, a revocable trust should not be the beneficiary of a tax-deferred retirement account, as this situation limits the potential for income tax deferral. A trust may be the preferred option if a life expectancy payout option or spousal rollover are unimportant or unavailable, but this should be discussed in detail with an experienced estate planning attorney. Additionally, there are situations where income tax deferral is not a consideration, such as when an IRA or 401(k) requires a lump-sum distribution upon death, when a beneficiary will liquidate the account upon the decedent’s death for an immediate need, or if the amount is so small that it will not result in a substantial amount of additional income tax.

The bottom line is that trusts typically should be avoided as beneficiaries of tax-deferred retirement accounts, unless there is a compelling non-tax-related reason that outweighs the lost income tax deferral of using a trust. This is a complex area of law involving inheritance and tax implications that should be fully considered with the aid of an experienced estate planning lawyer. Contact Schneiders & Associates, L.L.P. to create a skillfully crafted estate plan that optimizes your retirement account allocations, while reducing the risk of obscure penalties and excessive taxes being charged against your estate.

By Rennee R. Dehesa, Esq.

Transfer of property at death can be rather complex. Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will. However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.

The legal process of administering property owned by someone who has passed away with a will is called probate. Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.

The difference between non-probate property and probate centers around whose name is listed as owner.  Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account. In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.

Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate. If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will. Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.

Call us today if you have a loved one who has passed on and whose estate may need to be probated.

By Roy Schneider, Esq.

“I just need a simple will.” It’s a phrase estate planning attorneys hear practically every other day.  From the client’s perspective, there’s no reason to do anything complicated, especially if it might lead to higher legal fees. Unfortunately, what may appear to be a “simple” estate is all too often rife with complications that, if not addressed during the planning process, can create a nightmare for you and your heirs at some point in the future. Such complications may include:

Probate – Probate is the court process whereby property is transferred after death to individuals named in a will or specified by law if there is no will. Probate can be expensive, public and time consuming. A revocable living trust is a great alternative that allows your estate to be managed more efficiently, at a lower cost and with more privacy than probating a will. A living trust can be more expensive to establish, but will avoid a complex probate proceeding. Even in states where probate is relatively simple, you may wish to set up a living trust to hold out of state property or for other reasons.

Minor Children – If you have minor children, you not only need to nominate a guardian, but you also need to set up a trust to hold property for those children. If both parents pass away, and the child does not have a trust, the child’s inheritance could be held by the court until he or she turns 18, at which time the entire inheritance may be given to the child. By setting up a trust, which doesn’t have to come into existence until you pass away, you are ensuring that any money left to your child can be used for educational and living expenses and can be administered by someone you trust. You can also protect the inheritance you leave your beneficiaries from a future divorce as well as creditors.

Second Marriages – Couples in which one or both of the spouses have children from a prior relationship should carefully consider whether a “simple” will is adequate. All too often, spouses execute simple wills in which they leave everything to each other, and then divide the property among their children. After the first spouse passes away, the second spouse inherits everything. That spouse may later get remarried and leave everything he or she received to the new spouse or to his or her own children, thereby depriving the former spouse’s children of any inheritance. Couples in such situations should establish a special marital trust to ensure children of both spouses will be provided for.

Taxes – Effective this year, the federal gift tax applies to any transfers of property from one individual to another for no return or for a return less than the full value of the property. The federal gift tax applies whether or not the giver intends the transfer to be a gift. In 2013, the lifetime exemption amount is $5.25 million at a rate of 40 percent.  Gifts for tuition and for qualified medical expenses are exempt from the federal gift tax as are gifts under $14,000 per recipient per year.

Incapacity Planning – Estate planning is not only about death planning. What happens if you become disabled? You need to have proper documents to enable someone you trust to manage your affairs if you become incapacitated. There are a myriad of options that you need to be aware of when authorizing someone to make decisions on your behalf, whether for your medical care or your financial affairs. If you don’t establish these important documents while you have capacity, your loved ones may have to go through an expensive and time-consuming guardianship or conservatorship proceeding to petition a judge to allow him or her to make decisions on your behalf.

By failing to properly address potential obstacles, over the long term, a “simple” will can turn out to be incredibly costly. An experienced estate planning attorney can provide valuable insight and offer effective mechanisms to ensure your wishes are carried out in the most efficient manner possible while providing protection and comfort for you and your loved ones for years to come.

By Roy Schneider, Esq.

If you’re like most people, you want to make sure that you and your loved ones pay the least amount of tax possible. Many use year-end gift giving as a way to transfer wealth to younger generations while also reducing the overall estate tax that will be due upon their death. Below are some steps you can take to make gifts to your heirs without triggering gift tax liability. Some of these techniques may also reduce your own income tax liability.

A combination of estate and gift tax exemptions can be used to significantly reduce the overall tax liability of your estate. Upon your death, federal estate tax may be owed. A portion of your estate is exempt from the tax.  That exemption amount is set by Congress and can change from year to year. For deaths that occur in 2011, the exemption amount is $5 million and the value of an estate in excess of that amount is subject to estate tax. The exemption amount is set to drop to $1 million dollars on January 1, 2013 with a 55% estate tax rate.

Many taxpayers make annual gifts to loved ones over the duration of their lifetimes to reduce the overall value of their estate so that it does not exceed the exemption amount in effect at the time of death.  It is important to consider that gifts made during your lifetime can also be subject to a gift tax (equal to the estate tax). However, certain gifts or transfers are not subject to the gift tax, enabling you to make tax-free gifts that benefit your loved ones and reduce the overall taxable value of your estate upon your death.

The annual gift tax exclusion allows each individual to make annual gifts of up to $13,000 to each recipient.  There is no limit to the number of recipients who may each receive up to $13,000 totally tax-free. Married couples may gift up to $26,000 to each recipient without triggering any tax liability. This annual exclusion expires on December 31 of each year, and larger gifts may be made by splitting it up into two payments. By making a payment in December and one the following January, you can take advantage of the gift tax exclusion for both years. Keeping annual gifts below $13,000 per recipient ($26,000 for married couples) ensures that no gift tax return must be filed, and that there is no reduction in the estate tax exemption amount available upon your death.

Annual gifts may also be made in the form of contributions to a §529 College Savings Plan. These, too, are subject to the $13,000 annual gift tax exclusion. Additionally, such contributions may afford the giver with a state tax deduction.

Payment of a beneficiary’s medical expenses is also excluded from the gift tax. There is no limit to the amount of medical expense payments that may be excluded from tax. To qualify, the payment must be made directly to the health care provider and must be the type of expenses that would qualify for an income tax deduction.

If you have a large estate that may be subject to taxes upon your death, making annual gifts during your lifetime can be a simple way to reduce the size of your estate while avoiding negative tax consequences.

Don’t let yourself be caught unprepared. Contact us today to review your estate plan and ensure that your assets are appropriately managed. Let us create the best possible scenario for you and your loved ones, both during your lifetime, as well as after your death.