Dear Valued Client:
As the holiday season rapidly approaches, we are reminded to be thankful for all that we have received.
I can think of nothing more professionally fulfilling and rewarding than to get up each day and have the opportunity to be of service to the fine people I have served during my thirty-seven (37) year tenure as a business, estate and tax attorney. Each and every day I have the opportunity to meet some of the most amazing people and help them plan for and negotiate through challenging times in their lives. Many of our clients are the children or even grandchildren of clients, as my staff and I have become a part of those families for a second or third generation.
I have assembled a team of amazing lawyers, paralegals and staff that work incredibly well together to serve the needs of our clients while having a rewarding time doing it.
As DROBNY LAW OFFICES, INC. assisted you in preparing your estate planning documents, this letter is intended to assist you in reviewing and updating, if necessary, those estate planning documents. Please visit our website, www.drobnylaw.com. We will continue to update it frequently with articles of interest concerning your estate planning and business planning. As issues arise, we try to add timely articles.
UPDATING YOUR ESTATE PLAN
Durable Powers of Attorney. If you were to become incapacitated, and unable to make financial or medical decisions for yourself, the general rule is that the Probate Court would step into your life and appoint a conservator of your person and estate to make medical and financial decisions for you. The need for a conservatorship is generally eliminated through the existence of a Durable Power of Attorney for Financial Management and Advance
Health Care Directive. If you (or your parents, or your children who are over 18) do not have these documents in place, you need to contact this office and we will assist in preparing them. California ABX215 allowing Physician Assisted Suicide does not require you to update your Advance Health Care Directive.
Change of Name or Address. If someone named in your documents has changed his or her name or address, you DO NOT need to amend your estate planning documents. Please just mail or e-mail that information to us so we can update our files.
Minor Children. If you have minor children, check your Will to see if the person(s) you have named as Guardian(s) and Alternate Guardian(s) are still the person(s) that you would want to take care of your minor children in the event of your death. If not, contact this office to assist you in preparing a Codicil to your existing Will. If your estate planning documents were prepared when your children were minors, the Wills do not need to be revised after your children turn 18. The provisions nominating guardians of minor children simply become moot.
Testamentary Intent. Review the dispositive provisions of your Living Trust (or your Will if you did not do a Living Trust). Are the persons you named as your beneficiaries still the persons you wish to inherit your estate? Are the percentages for division of your estate among your beneficiaries still the way you want them to be? Review the distribution timing. If the Trust (or Will) provides for “outright” distribution, that means that the beneficiaries will inherit their share of your estate immediately after your estate is administered. Are they capable of handling the responsibility of inheriting that kind of money and property, or do they need some assistance in the management or investment of those estate assets until they reach a designated age or upon the occurrence of a specific event (graduation from college, retirement, etc.)? Have there been any changes in family relations, such as a dissolution of a marriage, death of a family member, marriage of a family member or estrangement from a family member that would require a review of the dispositive provisions of your estate plan? With respect to a child, grandchild, or other beneficiary, have there been any changes in economic circumstances or changes in his or her behavior, lifestyle, or attitude towards you that would give cause to increasing, decreasing or modifying his or her inheritance?
If you suspect or know that a certain beneficiary may have challenges that would prevent him or her from being capable of handling or managing their share of your estate upon inheritance, your estate plan may need to be revised to provide for special management of his or her share of your estate to insure that he or she is adequately protected and that the estate makes a positive impact on that beneficiary’s life, rather than a negative one. If a beneficiary has Special Needs, inheriting money may cause beneficiary to become ineligible for Government programs such as SSI, SDI, MediCare, etc. A Special Needs beneficiary may not be capable of managing his or her inheritance or resisting fraud or undue influence. Accordingly, we strongly advise clients with Special Needs beneficiaries to include a Special Needs Trust in their estate plan for these beneficiaries.
Changes in Economic or Personal Conditions. The value of your estate or the nature of the assets in your estate may have changed since you signed your estate planning documents. The nature of the assets may have changed, you may have retired, you may have bought or sold a business, or you may have acquired property in another state. If any of these events have occurred, you might want to rethink how your estate is to be administered and/or distributed after your death.
Probate Avoidance. Under California law, if a person dies holding title to more than $150,000.00 of assets that do not vest upon your death, then those assets must be probated. The time and expense of probate is substantial and can be avoided through use of a Living Trust. If the value of your estate is significantly over $150,000.00, and you have not already executed a Living Trust, you should call us to discuss the merits of doing one.
If you have already executed a Living Trust, that by itself does nothing to avoid probate. The key to avoiding probate is properly funding the Living Trust. In other words:
- All real property that you own must be deeded to the Trust and titled in the name of the Trust at the time of your death. If you have purchased property or refinanced property, please make sure that title of the property is in the name of the Trust. Your property tax bill should provide this information. California passed a law in 2016 to allow for Transfer on Death Deeds for real estate. We do not believe that those are a reasonable alternative to a Living Trust, see our article on our webpage explaining why.
- All stocks, bonds, mutual funds, securities (other than those held in retirement accounts, 401(k)s or IRAs), savings accounts, certificates of deposit, and other investments must be titled in the name of the Trust. If you have opened up any new accounts since the execution of your documents, please make sure they are properly titled in the name of your Trust. We do not advise that your day-to-day checking account or vehicles be placed under the umbrella of your Trust. The $150,000 “cushion” was designed for this.
- For retirement accounts, such as IRAs, 401(k)s, 457, 403(b), Profit Sharing Plans, etc., we generally advise that the spouse (if any) be named as the primary beneficiary and the Living Trust named as the alternate or contingent beneficiary. If you are unmarried or consider the retirement account to be your separate property, the Trust should probably be named as the primary For an explanation of why we recommend this, go to our web page www.drobnylaw.com and click articles and then click the article “Designating a Trust as Beneficiary of Individual Retirement Account Benefits.”
If you have any questions with respect to the funding of your Trust, we have three (3) full-time Transfer Specialists, Regina Herrera, Chris Corcoran and Linda Moua who handle these matters. Please e-mail them at email@example.com, firstname.lastname@example.org or email@example.com with any questions with respect to properly funding your Trust. If this office helped you create your Trust, there is no charge for their services with respect to keeping it properly funded.
Federal Estate Taxes. Beginning January 1, 2017, if you are unmarried and your estate exceeds $5.49 million, or if you are married with a living trust and your estate exceeds $10.98 million there will be Federal estate taxes after your death under current law, at forty percent (40%) on anything over the Exemption Equivalent amount. The Administration has proposed an increase in the Exemption Equivalent to $10.0 million per person and total repeal of the Federal Estate Tax by 2014. Significant tax planning strategies are available to minimize or eliminate these Federal estate taxes, but I am hesitant to undertake those strategies unless a client’s net worth significantly exceeds these thresholds. Techniques include:
- You can gift up to $14,500 in 2017 and $15,000.00 starting in 2018 per year, per donee, and such gifts below $14,500/$15,000.00 per year per donee are not used to reduce the $5.49 million that you can give away at death. If you can afford to make these kinds of gifts without impacting your future income or standard of living, you might consider making these gifts early each new year. If you wish to gift to a disabled individual, California recently created 529A/ABLE accounts. See below for more information.
- However, gifts of appreciated assets will lose step-up in basis upon your death and your donee will receive carry over basis. If your estate is substantially over $5.49 million (unmarried) or $10.98 million (married), using up all or part of the $5.49 million exemption against Estate and Gift Taxes during life might make sense. Retaining the assets in your estate until death causes lifetime appreciation in value to be taxed in your estate. On the other hand, if your total taxable Estate is not going to exceed $5.49 million, keeping the assets until you die allows your heirs to inherit those assets at a stepped-up basis, while gifting them during life results in carry over basis. On the other hand, gifting all or part of the $5.49 million during life gets the appreciation out of your taxable estate, passing more value to your heirs. If your total estate is over $5 million net unmarried or $10 million net married, please e-mail me at firstname.lastname@example.org so that we can keep you up to date on changes in the tax laws over the next few years. It is highly likely that a significant reduction or elimination of the estate tax is forthcoming early in 2018. Therefore, we caution against additional planning this year.
- Charitable Remainder Trusts allow you to liquidate appreciated assets without paying any capital gains taxes, retain the income for life, retain control of the asset management decisions for life and receive a significant income tax deduction in the year you fund the Charitable Remainder Trust. If you are facing Required Minimum Distributions (RMD) from a retirement account, this can generate an offsetting deduction. As clients’ stock and real estate portfolios increased dramatically, many of our clients need to consider this option.
- Long-Term Care / Medi-Cal Recovery Rules Changed / SB 833: For Medi-Cal recipients who die on or after January 1, 2017, claims by Medi-Cal Estate Recovery will be reduced to what is minimally required under Federal Law. Under SB 833, Medi-Cal will no longer be able to recover from the surviving spouse’s estate. Medi-Cal will only be able to proceed against assets that are in a recipients Probate Estate, meaning that starting January 1, 2017, assets transferred to a Revocable Living Trust are not subject to Medi-Cal Recovery.
- Family Limited Partnerships and Intentionally Defective Grantor Trusts have allowed you to pass a significant portion of a closely held business, farm, ranch or investment real estate out of your taxable estate while allowing you to retain control and income during your life. Proposed changes to Tax Law could eliminate the use of discounting as early as December 31, 2017. Please contact me immediately if your estate significantly exceeds $10.0 million and you would like to discuss a Family Limited Partnership or Intentionally Defective Grantor Trust, as it is likely that tax laws enacted in the future could eliminate this tool.
Non-Citizen Spouses. If either you and/or your spouse is not a U.S. citizen, there may be some significant estate tax problems with the way your Trust is written, which may be avoided by amending your Trust and creating a Qualified Domestic Trust (QDOT). If either you and/or your spouse is not a U.S. citizen, and your Living Trust does not contain QDOT provisions, please contact Philip S. Sousa to discuss this issue.
RECENT CHANGES IN THE LAW
There have been some recent notable changes in the law that may impact your estate plan. Each is described in greater detail on our webpage, www.drobnylaw.com under articles:
- ABX2-15 / Physician Assisted Suicide: A terminally ill patient may now request their physician to provide them a prescription to terminate their life. You do not need to amend your Advance Health Care Directive to include these provisions, as only the terminally ill patient may make this request, not their Agent under an Advance Health Care Directive.
- AB 139 creates a Transfer on Death Deed for Real Estate. Similar to a Beneficiary Designation form on life insurance, 401(k), etc., an individual can designate a beneficiary who will receive their real estate upon their death without having to go through probate or utilizing a Revocable Living Trust. The potential complications of this are numerous, and we are advising extreme caution before considering this option.
- 529A / ABLE Accounts (Achieving A Better Life Experience) allows for a tax free account to be created for an individual with special needs to pay for his or her health, education, support and maintenance without disqualifying them for SSI, Medi-Cal, SSDI and other government entitlements. A California resident can set aside up to $15,000 a year starting in 2018 to a maximum of $371,000. This presents an alternative to creating a Special Needs Trust during a donor’s lifetime, but does not eliminate the need for a Special Needs Trust in the donor’s Will or Revocable Living Trust. California has yet to issue regulations allowing these accounts, and we anticipate a delay until late 2017 or early 2018.
- AB Trusts: If you are married and executed a Living Trust between 1981 and 2012, it is highly likely that it is an AB or ABC Trust. This was done primarily to insure that each spouse took advantage of the greatest amount that could pass free from Federal Estate Taxes. The American Taxpayer Relief Act of 2012, signed into law in early 2013, made Portability a permanent part of Estate Planning by allowing a husband and wife to each take the greatest amount free from Federal Estate Taxes without having to do an AB or ABC Trust. Since an AB or ABC Trust:
- Requires the surviving spouse to incur the appraisal fees, attorney’s fees, accounting fees and divide those assets into two (2) separate Trusts after the first death;
- File a separate income tax return for the deceased spouse’s Trust each year;
- The surviving spouse cannot amend the deceased spouse’s Trust and may be limited in his/her access to income or principal from that Trust;
- Copies of the deceased spouse’s Trust must be provided to all next of kin and everyone named in that Trust or any previous Amendments after the first death;
- Any person named in the deceased spouse’s Trust or any previous Amendments is entitled to an accounting balanced to the penny retroactive to the date of death and annually for the duration of the surviving spouse’s life; and,
- The assets in the deceased spouse’s Trust do not receive a step-up in basis after the surviving spouse’s death.
We are advising any clients with an AB or ABC Trust to give some serious thought to an amendment in its entirety / restatement of their AB or ABC Trusts unless:
- They are a blended family and there are concerns about the surviving spouse disinheriting the deceased spouse’s children;
- There are concerns about the surviving spouse amending the deceased spouse’s share after the first death (remarriage);
- One spouse has already died; or,
- There are concerns about someone being able to exert undue influence over the surviving spouse.
For any client who decides to do an amendment in its entirety / restatement of their AB or ABC Trust prepared by DROBNY LAW OFFICES, INC., we will offer them a forty percent (40%) discount. To schedule an appointment, call Michelle Glenn or Linda Moua. Please understand the number of clients who need to do this is substantial and barring a serious medical condition, we will be scheduling these appointments two (2) to six (6) weeks out. Your patience is appreciated.
If any of the issues listed above are a concern to you, please contact our office and schedule a telephone conference with me, Hannah, Scott or Terri. I can assure you that any one of us is most capable and competent to assist you.
Due to the overwhelming response we receive to these annual letters, we have to request that you begin this review process with a letter or e-mail to me at email@example.com. In my thirty-seven (37) years of practice, I can say that at least 9 out of 10 review and update appointments can be taken care of by letter or e-mail. If an amendment or codicil is required in response to that letter or e-mail, it can usually go out to you in the mail within 10-14 days for you to sign and return. Obviously, if we conclude from your letter or email that a face-to-face meeting is required, we will schedule it at that time. By following this procedure, we can insure that every client’s concerns are addressed in a timely manner. We do not charge for routine amendments handled by mail or email to documents prepared by DROBNY LAW OFFICES, INC. We do charge for in office appointments and amendments to Estate Planning documents, even those prepared by DROBNY LAW OFFICES, INC.
DROBNY LAW OFFICES, INC. has never advertised and has always relied on referrals from valued clients such as yourself for generating new clients. Less than 40% of Americans have taken the time to do a Will and less than 20% have done a Living Trust. One-half of those are out of date. Please encourage your friends and relatives to follow your example and properly prepare their Estate Plans. We would be most appreciative if you would recommend that they contact us to assist them in that regard.
This letter is going out to over 7,500 of DROBNY LAW OFFICES, INC.’s clients. It is also going out as an e-mail to one thousand more. In order to save us printing and postage fees for future client updates, which will allow us to communicate with our clients more often, we are asking for your assistance. If you received this letter by U.S. Mail, please e-mail firstname.lastname@example.org and request that all future client communications be e-mailed to you.
On behalf of everyone here at DROBNY LAW OFFICES, INC., thank you for the opportunity to be of service to you, and have a safe, happy and healthy holiday season and a prosperous new year.
Very truly yours,
DROBNY LAW OFFICES, INC.
A Professional Corporation
MARK S. DROBNY