Annual Review Letter for Clients 2023
Dear Valued Client:
As the holiday season rapidly approaches, we are reminded to be thankful for all that we have. 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 forty-three (43) year tenure as an Estate, Business, and Tax attorney. Each and every day I have the opportunity to meet or reconnect with some of the most amazing people and help them plan for or 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.
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’ve made it easier to read, accessible on your mobile devices and more user friendly. 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.
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 (what would they do if they got that check in the mail tomorrow?). 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 ensure 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 and is receiving needs based public benefits such as SSI or Medi-Cal, inheriting money may cause the beneficiary to become ineligible for those 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 $184,500.00 of assets or any real property 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 $184,500.00 or you own Real Estate 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 since signing your Trust, please make sure that title of the property is in the name of the Trust.
- 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 $184,500.00 “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 the beneficiaries are minors, would not make good decisions with that much money, or have special needs
If you have any questions with respect to the funding of your Trust, we have two (2) full-time Transfer Specialists, Regina Herrera and Chris Corcoran, who handle these matters. Please e-mail them at regina@drobnylaw.com or chris@drobnylaw.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, 2023, if you are unmarried and your estate exceeds $12.92 million, or if you are married with a living trust and your estate exceeds $25.84 million there will be Federal estate taxes after your death under current law, at forty percent (40%) on anything over the Exemption Equivalent amount. This is supposed to “sunset” to $5 million adjusted for inflation since 2012 at the end of 2025. Keep an eye on our webpage for updates. 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 $17,000 in 2023 per year, per donee, and such gifts below $17,000 per year per donee are not used to reduce the $12.92 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.
- Gifts of appreciated assets during your life will not receive a step-up in basis upon your death, and your donee will receive carry over basis. If your estate is substantially over $12.92 million (unmarried) or $25.84 million (married), using up all or part of the $12.92 million exemption against Estate and Gift Taxes during life might make sense. Retaining the assets in your estate until death causes lifetime future growth and appreciation in value to be includible in your estate, but they would receive a step-up in basis. On the other hand, if your total taxable Estate is not going to exceed $12.92 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. However, gifting all or part of the $12.92 million during life gets the appreciation out of your taxable estate, passing more value to your heirs.
- The current laws governing the federal estate tax exemption will sunset at the end of 2025 dropping it to $5 million in 2012 dollars adjusted for inflation. However, a change in administration in 2024, a decrease in Democrats in the House and a divided Senate are unlikely to cause the exemption amount to fluctuate prior to that time. Furthermore, every previous time a sunset provision was to reduce the Exemption Equivalent, subsequent legislation increased the Exemption Equivalent before it could sunset. The IRS has issued regulations clarifying that there is no clawback on lifetime gifts even if the exemption amount should drop. This “use it or lose it” proposition has made lifetime gifting more appealing to those with potentially taxable estates. If your total estate is over $10 million net unmarried or $20 million net married, please e-mail me at msd@drobnylaw.com so that we can keep you up to date on changes in the tax laws over the next few years.
- 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 to offset other income. If you are facing Required Minimum Distributions (RMD) from a retirement account, this can generate an offsetting deduction. As some clients’ stock and real estate portfolios have increased dramatically, many of our clients need to consider this option, especially in light of recent volatility to lock in that gain, pay no capital gains taxes, generate a huge income tax deduction and generate a guaranteed stream of income for life.
- Spousal Lifetime Access Trusts (SLAT) allow married individuals with taxable estates to capitalize on the current $12.92 million estate tax exemption. A SLAT is an irrevocable trust set up by one spouse for the benefit of the other spouse and descendants. It provides creditor protection and estate tax savings. Creating a SLAT allows those assets transferred to the SLAT to be removed from your taxable estate, while allowing your spouse access to those funds. If your estate exceeds $20 million and you would like to discuss utilizing a SLAT, please contact our office to set up an appointment with my law partner, Anne E. Rosenthal.
Non-Citizen Spouses. If you and/or your spouse are 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 my law partner, Lilit A. Minasyan to discuss this issue.
RECENT CHANGES IN THE LAW
There have been some not so recent notable changes in the law that may impact your estate plan. While we have made repeated requests to clients to address this, many have yet to act.
- 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 ensure 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:
o 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;
o 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;
o File a separate income tax return for the deceased spouse’s Trust each year;
o 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;
o 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,
o 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.
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 Linda Moua or Mary-Jane Black. 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.
Additionally, if you are a surviving spouse administering your deceased spouse’s Irrevocable Trust, recent changes to the California Probate Code may allow our office to petition the Court to terminate said Trust. If you have significant unrealized gain in your deceased spouse’s Trust, please contact Anne to discuss termination options.
If any of the issues listed above are a concern to you, please contact our office and schedule a telephone conference with me, Anne, Lilit, Terri, Anastasia, or Miranda. 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 msd@drobnylaw.com. In my forty-three (43) 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 business 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 ensure 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 our normal hourly rate for in office appointments and amendments to Estate Planning documents, even those prepared by DROBNY LAW OFFICES, INC.
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. Rarely a week goes by without a client asking, “so when are you going to retire?” I can truthfully say that I have no plans to retire. Anne, Terri, Anastasia, Lilit, Miranda, and my team will be here to take care of everyone if and when I am no longer able to do so. Anne Rosenthal became Managing Shareholder in July of 2021 and Lilit Minasyan became a shareholder in 2023. I can truthfully say that no one can do a better job of leading Drobny Law Offices, Inc. for the next thirty (30) years than Anne, Lilit, and Team DLO.
DROBNY LAW OFFICES, INC. does not advertise and has always relied on referrals from valued clients such as yourself for generating new clients. 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 6,000 clients of DROBNY LAW OFFICES, INC.’s clients. It is also going out as an e-mail to 6,000 more. If you received this letter by U.S. Mail and would prefer that we e-mail future letters to you, please e-mail dlo@drobnylaw.com 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
/s/
MARK S. DROBNY
Founder / CEO
This testimonial or endorsement does not constitute a guarantee, warranty or prediction regarding the outcome of your legal matter.