By Jim Gianelli

Probate is a court process set up to assure that upon one’s death, assets get distributed to the people in one’s will (or in absence of a will, to one’s legal heirs), creditors get paid, and disputes are settled.

Probate requires the estate to pay set statutory attorney and executor fees based upon the estate’s gross value. It takes at least six months and, more likely, a year or more, and involves court costs, inventories, appraisals, and court-approved accountings.

For those who don’t plan ahead, probate is required, and the laws of the State of California – rather than you – will determine where your assets go and who is in charge of your estate. However, it is possible to avoid the inherent delays, costs and difficulties of probate.

Here’s the process: By submitting an estate to probate, one is asking the court to appoint someone to act as executor and issue “letters of administration” allowing banks, title companies, and stock advisors to deal with the executor.

The executor must take inventory and appraise all assets in the estate, protect the estate’s assets, notify creditors of the death, publish a death notice in a newspaper (to give unknown creditors a chance to step forward), address creditor claims, pay taxes, and keep beneficiaries informed.

After all this is completed, the executor files a “petition for final distribution” which reports on all of the executor’s activities, and finally, transfers the assets to the beneficiaries.

Why is probate often a bad thing? In a community like ours, most estates are small to medium in size. Most are under $1 million, and most are fairly simple, comprised of a house, money in the bank, and an investment account.

Probate is usually not necessary upon the death of a person with a simple estate, no surviving spouse, and no major family disputes – provided they’ve planned properly. By contrast, the estate of a person who leaves a will only (or did no estate planning) and has assets in excess of $100,000 must go through probate. However, a person who enters into a carefully crafted revocable living trust can easily avoid probate and allow for an informal (albeit attorney-guided) distribution of assets.

For a simple estate, in cases where it’s easy to reach agreement on structure and attorney participation and fees, this can mean big savings to your loved ones in terms of time and money.

Attorney Jim Gianelli is a founding partner in Gianelli & Polley, a Sonora law firm.

© 2011 Friends and Neighbors

Jim Gianelli

When it comes to planning your estate, it’s best to start the process with an estate planning attorney, preferably a state-certified specialist. But other advisors may play a vital role: your accountant, banker, insurance agent, financial advisor or broker. You may also wish to involve your family, your doctor and, if applicable, your spiritual advisor.

Here is how each of these individuals can help.

Accountant

Your accountant can share valuable information with the attorney, such as an asset’s purchase date and price (this establishes the cost basis, vital for capital gains purposes), or how a business is structured (i.e., whether it is an S or C Corporation, which has huge implications as to how trusts for children are structured).

Your accountant will also need to know – particularly if you do any advanced estate, gift tax or asset protection planning – the tax status of any trusts you’ve created and the tax consequences of gifts you’ve made. Charitable remainder trusts, irrevocable life insurance trusts or other irrevocable trusts necessary to save federal estate taxes require the accountant to file a Form 1041 income tax return yearly.

Any large gifts made to children (more than $13,000 each per year) require filing of a Form 709 gift tax return. And any estate in excess of the federal estate tax exclusion will require a form 706 death tax return. On a related note: Individuals could pass up to $3.5 million tax-free to heirs in 2009 and 2010, but that amount will drop to $1 million in 2011 if Congress does not act quickly. The inaction and ineptitude of Congress, if it fails to prevent this absurdity, will be the subject of a future article.

Accountants are also vital to the trust termination, probate or conservatorship process if the trustee, executor or conservator is required to do a complex accounting.

Banker, insurance agent and financial advisor

Your banker, insurance agent or financial advisor can provide important information to your estate planning attorney, such as account titles, cash values and beneficiaries of your life insurance policies, and values and beneficiaries of your retirement accounts and annuities.

These advisors should make sure your accounts are properly funded into your revocable living trust, and that beneficiary designations are updated to comply with your new or updated estate plan. They are also essential in funding sub-trusts in more advanced estate plans. And an insurance agent familiar with irrevocable life insurance trusts is invaluable in cutting estate tax costs.

Family members

Involving your family in your estate plan can promote harmony and avoid confusion and distrust later. If you keep everything a secret, then your estate plan will be more prone to challenges after you die, since only your professional advisors will know your true intent.

Involving your family in these complex transactions from the beginning may give them peace of mind after you’re gone, since they’ll already understand what was done and why. And if a family member is your main trustee, executor or health care agent, it is essential that he or she understands the duties and obligations involved.

Physician

It is often necessary to involve the family physician in the estate planning process, particularly if the time comes when your mental capacity is in doubt. Almost all of my estate planning forms require a physician’s certification of the client’s incapacity before a trustee, attorney-in-fact or health care agent can act.

Also, physicians are directly involved in decision making, along with the health care agent named in the advanced health care directive. A good physician will identify who is in charge of health-care decisions while trying to involve the whole family in the process. And, when it is advisable or timely, he or she will discuss DNRs (“Do Not Resuscitate” forms), which spell out when a person may be removed from life support.

Spiritual advisor

Spiritual advisors may be important to include in estate planning, particularly if your religion has specific canons about what should happen to your property after you die, or mandates certain decision-making with respect to health care decisions (such as Christian Scientists or Jehovah Witnesses).

So you can see that, when it comes to successful estate planning, it often takes a “village” of professional advisors, family members, physicians and spiritual advisors.

Attorney Jim Gianelli is a founding partner in Gianelli & Polley, a Sonora law firm.

Copyright © 2010, Friends and Neighbors Magazine

Your spouse has died, and whether or not the death was sudden and unexpected or gradual and expected, you are in shock. Your mind is just not working quite right. The realization of what has happened – and the grief – comes in waves, most of the time when you least expect it.

You still need to take care of the details of the living, those pesky matters that require you to act, when you just feel like stopping the world and taking a time-out from all responsibilities. Here’s a practical guide on what to expect.

Fortunately, you have things in order, things like your revocable living trust, your will, your health care directive, and other estate planning documents. You have a continuing relationship with an estate attorney, so your documents are up-to-date. You wait a few days (even a couple of weeks is OK), then call the attorney and ask: “What do I do now?”

Schedule an appointment. If possible, bring with you the next person (usually a child) in the family line who would take over your health care and financial decision-making if you should become incapacitated or die. It is important to establish a relationship between this person and your estate attorney, and a face-to-face meeting is the best way to do this.

Your next question: “What should I bring to the appointment?” Note that if the attorney you are seeing is your current estate attorney, he or she will already have your living trust and will on file. It’s helpful to bring these additional documents:

• Certified Death Certificates (the number needed depends on your assets and investments)
• Your latest income tax return and current statements for all assets and investments, including retirement accounts, insurance policies, bank accounts, real estate, and other investments
• A list and statements of all your bills and debts

At your appointment, unlike in the movies, there is no formal “reading of the will.” Instead, you will be guided through a checklist of do’s and don’ts – steps that need to be taken to transfer title of assets and investments, pay or not pay creditors (some debts may belong to your spouse and not to you) and tie up loose ends, such as contacting Social Security or other agencies.

There may be important tax decisions to make. For instance, whether to roll over an IRA into a spousal IRA, and whether to divide a revocable trust into two trusts for estate tax planning purposes. You may need to obtain real estate values by getting appraisals, or to determine the investment values as of your spouse’s date of death in order to determine the income tax basis for the surviving spouse (especially important if you intend to sell an investment asset or depreciate rental real estate). If real estate is involved, there may be a need to record an “affidavit death of co-trustee” form and an “exemption from real property tax” form to prevent property tax reassessment.

You are still in a fog but glad that your son or daughter is there to help you gather information and take notes on what you need to do next. This is a good time to review your current estate plan to make sure that everything is up-to-date. Addressing issues ahead of time, as always, makes things much easier when a crisis occurs.

A caveat: Be alert for con games that people try to play on grieving widows and widowers. You are especially prone to these scams if you relied on your spouse to take care of the finances and must now do it yourself for the first time.  If something does not feel right, run it by your accountant, financial advisor or attorney. And tell the person who is trying to sell you something that you will need to do this prior to acting.

Finally, be gentle with yourself.  Your world is now different and it will take time to develop a new “identity” without your life partner. The amount of time varies from person to person, but most inform me that it takes about two years to really begin to regain your balance. And remember, you are never alone – many have been there and felt what you are feeling, and grief support services are offered locally. If you need help, rest assured that it is available.

Attorney Jim Gianelli is a founding partner in Gianelli & Polley, a Sonora law firm.

© 2009, Friends and Neighbors Magazine

Consider this real case (the names have been changed). Mr. Jones, 87, is in the mid-to-late stages of dementia. His wife, 86, has cared for him for the past five years but can no longer manage without help. The couple has a modest estate: a home that’s paid for, a modest pension, and a bank account of nearly $100,000.

They cannot afford the 24-hour live-in care that Mr. Jones now needs because of his deteriorating medical condition. His wife has heard that she may receive state aid in the form of Medi-Cal, which will cover the costs of a skilled nursing facility.

Q: Is Mr. Jones eligible For Medi-Cal?

Yes. Medi-Cal requires that an applicant (and his/her spouse) have limited resources. He can have a home (considered to be exempt under most circumstances), and certain other assets. For married couples, this is known as the “CSRA amount” of $109,560 (as of 1-1-09). For a home to be considered exempt, Mr. Jones must intend to return home – an intent that can be declared by his representative, Mrs. Jones in this case.

Q: How much of the skilled nursing facility costs will Medi-Cal pay?

Generally speaking, if Mr. and Mrs. Jones’ income from all sources (including pension, social security, interest, etc.) does not exceed $2,739 per month (the “effective maintenance needs allowance,” effective 1-1-09), then Medi-Cal will pay all of Mr. Jones’ skilled nursing home costs! This is remarkable. Costs of a skilled nursing facility in Tuolumne County vary widely, but the average is $7,500 per month. Through Medi-Cal, the State pays it all!

Q: What’s the catch?

It is this: After Mr. Jones dies, the state may make a claim against the home, unless Mrs. Jones is still alive (but they will lien the estate after her death), or unless the home passes to a minor child, or a blind or disabled child of any age.

Laws passed in 1993 expanded the definition of “estate” from which the state can seek recovery. California now may seek recovery from any real or personal property, or any other legal assets held at time of death, including but not limited to the home of Mr. and Mrs. Jones. The “estate” is composed of what is in the Jones’ estate at the time the second of them dies.

An estate includes living trusts, joint tenancies, tenancies in common, life estates that are considered “revocable,” and assets received by a surviving spouse by distribution or survival, e.g., assets left by a will or community property. Many people place their property into living trusts, thinking it will protect it from an estate claim. However, property placed in a living trust can be subject to recovery; unless the property has been transferred out of the beneficiary’s name during life, there will likely be an estate recovery claim.

Q:  How do the Jones’ avoid an estate claim and save their home for their children?

The Jones should have nothing in their estate at the time of death of the second of them. The state can only claim for the amount of Medi-Cal benefits paid or the value of the estate, whichever is less. The Jones’ home is their main asset, as is often the case. To protect the home from recovery, the couple must transfer the home title out of their name. However, there are a number of ways to transfer property and still retain some control over it. Any such transfer should be discussed with a qualified estate planning attorney, to avoid complications (both tax-wise and liability-wise) created by doing these transfers without legal help. Contrary to popular myth, there is no 30-month “waiting period” for transferring a home which is an exempt asset.

I recommended that the Jones transfer the home to their children as tenants in common, and retain an “irrevocable life estate interest” in the home. This provided tax benefits and liability protection. In the end, the home was saved for the children and not subject to state Medi-Cal recovery lien.

© 2009, Friends and Neighbors Magazine

Two brothers sought my advice when their parents were severely injured in an out-of-state automobile accident. The father was in extremely critical condition. The mother was also critical but expected to live, albeit with brain injuries.

The brothers, two of five siblings, asked how they could gain control of their parents’ finances and get them returned to California for medical care. The accident occurred in a very rural area with limited health facilities.

I asked if their folks had done their estate planning – specifically, if they had a “health care advance directive” and a financial “durable power of attorney.” They told me there had been no such planning. I explained that certain states would allow for one sibling to be deemed a health-care advocate for the parents without a written directive. As an advocate, that child could make binding health-care decisions for the parents.

But with respect to financial decisions, without a durable power of attorney document (or a revocable trust document, another option) they would be forced to file for conservatorship, a costly, complex process requiring court approval.

The brothers had not talked to their three siblings in years; there was a bitter rivalry between the factions. In fact, the brothers said, their siblings would certainly contest their being named health-care advocates or conservators.

This was unfortunate. For the brothers, a court battled loomed over who was to be conservator of the person (regarding health care) and the estate (regarding finances). A court would ultimately decide who would best serve the interests of the parents. Both sides would hire attorneys, and the process would take valuable time, money and energy at a time when all were in short supply.

In this case, the court process lasted six months and cost tens of thousands of dollars. The parents could not be moved in that time and, unfortunately, the father died. In short, an agonizing process for all concerned.

There are two lessons here.

First, with respect to health care decisions, an advanced health care directive properly executed in discussion with one or more of the children, would have avoided this entire situation. The parents, not the courts, would have chosen who they believed had their best interests at heart (perhaps a friend and not even one of the children in order to avoid a heated battle). The parents also would have made other decisions clear in the document, such as:

• When to remove life support
• When to treat for pain
• Whether to consent to a medical procedure
• Whether to permit an autopsy if the law did not require one
• Whether to permit donation of organs or donations for educational research
• How to treat remains
• Adherence to special beliefs (i.e. Jehovah Witness or Christian Scientist clients)
• Desire to stay in one’s home as long as is reasonably possible
• Other vital health-care related matters, including allowing the health-care agent to obtain the patient’s medical records

With a health-care directive, there would have been no argument, and immediate action by the agent named in the directive (not an expensive six-month court battle). The family would have been spared all of the drama, not to mention that the father’s life perhaps could have been spared.

Second, a durable power of attorney for finances would have likewise appointed a person the parents consider the best choice for taking care of their finances in the event of incapacity. Perhaps again, this might have been a third party, avoiding the squabbles that would have ensued if one of the siblings was chosen.

This durable power of attorney could have been set up to be effective immediately upon signing or with the opinion of physicians that the principal was incapacitated.  It could provide for the following:

• Paying parents’ bills during their period of incapacity
• Dealing with insurance companies and/or Medicare
• Managing investments
• All other financial matters during the period of incapacity (authority terminates at death)

The financial durable power of attorney would have provided a mechanism for taking care of the parents’ financial matters without the time, energy and money that is required in a conservatorship proceeding.

Attorney Jim Gianelli is a founding partner in Gianelli & Polley (533-2233), a Sonora law firm.

© 2008, Friends and Neighbors Magazine

Jim Gianelli

Let me tell you a sad but true story that carries an important message: It pays to plan ahead.

Two brothers sought my advice when their parents were severely injured in an out-of-state automobile accident. The father was in extremely critical condition. The mother was also critical but expected to live, albeit with brain injuries.

The brothers, two of five siblings, asked how they could gain control of their parents’ finances and get them returned to California for medical care. The accident occurred in a very rural area with limited health facilities.

I asked if their folks had done their estate planning – specifically, if they had a “health care advance directive” and a financial “durable power of attorney.” They told me there had been no such planning. I explained that certain states would allow for one sibling to be deemed a health-care advocate for the parents without a written directive. As an advocate, that child could make binding health-care decisions for the parents.

But with respect to financial decisions, without a durable power of attorney document (or a revocable trust document, another option) they would be forced to file for conservatorship, a costly, complex process requiring court approval.

The brothers had not talked to their three siblings in years; there was a bitter rivalry between the factions. In fact, the brothers said, their siblings would certainly contest their being named health-care advocates or conservators.

This was unfortunate. For the brothers, a court battled loomed over who was to be conservator of the person (regarding health care) and the estate (regarding finances). A court would ultimately decide who would best serve the interests of the parents. Both sides would hire attorneys, and the process would take valuable time, money and energy at a time when all were in short supply.

In this case, the court process lasted six months and cost tens of thousands of dollars. The parents could not be moved in that time and, unfortunately, the father died. In short, an agonizing process for all concerned.

There are two lessons here.

First, with respect to health care decisions, an advanced health care directive properly executed in discussion with one or more of the children, would have avoided this entire situation. The parents, not the courts, would have chosen who they believed had their best interests at heart (perhaps a friend and not even one of the children in order to avoid a heated battle). The parents also would have made other decisions clear in the document, such as:

• When to remove life support
• When to treat for pain
• Whether to consent to a medical procedure
• Whether to permit an autopsy if the law did not require one
• Whether to permit donation of organs or donations for educational research
• How to treat remains
• Adherence to special beliefs (i.e. Jehovah Witness or Christian Scientist clients)
• Desire to stay in one’s home as long as is reasonably possible
• Other vital health-care related matters, including allowing the health-care agent to obtain the patient’s medical records

With a health-care directive, there would have been no argument, and immediate action by the agent named in the directive (not an expensive six-month court battle). The family would have been spared all of the drama, not to mention that the father’s life perhaps could have been spared.

Second, a durable power of attorney for finances would have likewise appointed a person the parents consider the best choice for taking care of their finances in the event of incapacity. Perhaps again, this might have been a third party, avoiding the squabbles that would have ensued if one of the siblings was chosen.

This durable power of attorney could have been set up to be effective immediately upon signing or with the opinion of physicians that the principal was incapacitated.  It could provide for the following:

• Paying parents’ bills during their period of incapacity
• Dealing with insurance companies and/or Medicare
• Managing investments
• All other financial matters during the period of incapacity (authority terminates at death)

The financial durable power of attorney would have provided a mechanism for taking care of the parents’ financial matters without the time, energy and money that is required in a conservatorship proceeding.

Attorney Jim Gianelli is a founding partner in Gianelli & Polley (533-2233), a Sonora law firm.

© 2008, Friends and Neighbors Magazine

There are three main reasons for creating a revocable living trust:

1.  Avoiding Probate

A revocable living trust avoids probate, a lengthy (often seven to 12 months or longer) court-mandated procedure that permits the attorney and the executor of the estate to each receive a “statutory fee” based on the gross value of the estate, a substantial fee even in relatively smaller estates (the value of which is based upon the estate’s “gross value”). For instance, a house valued at $400,000 with a mortgage against it of $375,000 is not valued at the net equity value of $25,000, but rather at its “gross” value of $400,000 for purposes of determining attorney-executor fees. In this instance, the attorney and the executor each would be entitled to $10,000, a substantial amount for an estate of this type, especially if there are not many liquid assets available. The executor may choose to waive this fee. Most assuredly, the attorney will not.

2.  Planning for incapacity

Most people who create revocable trusts are the initial “Trustees” (managers) of their own trusts.  There is little change that occurs in the lives of a person who creates a revocable trust: There is no need to account to anyone, nor is there a reason to file a separate income tax return for the trust. But the document also permits the creator of the trust (the “Trustor”) to select a successor trustee to manage the trust assets for the Trustor’s benefit in the event of incapacity. Without a succession plan for financial assets, it is likely that a court-mandated conservatorship proceeding will be initiated, an expensive, time-consuming, and often dispute-ridden procedure. A revocable living trust (along with other documents such as Durable Powers of Attorneys and Health Care Directives, the subject of future articles) is an excellent vehicle for being the captain of one’s own fate and, choosing, in advance, who will manage the finances and how. No disputes, no court costs, no time delays. We all die, but a little-known fact is that about 75 percent of us become incapacitated and unable to handle our own finances prior to death.

3.  Organizing your estate

One of the least talked about reasons for having the revocable trust is the benefit of organizing how assets that are “beneficiary designation” type assets (such as life insurance, annuities and retirement plans) are “organized” by a revocable living trust. Let’s take an example: Assume a young couple with two minor children, who are adequately insured (say, life insurance policies of $250,000 each), name each other as primary beneficiaries and the two children as alternate or secondary beneficiaries. If both were to die in an auto accident, the insurance would be held by a guardian until the children reach the age of 18. It’s usually not a great idea for an 18-year-old to receive such a large sum.

A revocable living trust can create, upon the death of both parents, a “children’s trust” in place until the child reaches a certain age, say 28, with instructions to a designated trustee (perhaps the aunt or uncle of the child) to administer such trust and provide for the children’s health and education costs which the trustee deems necessary or advisable. The trust could be named secondary beneficiary of the life insurance policy, solving the problem of an 18-year-old getting $250,000. There are tax issues involved in this type of planning with respect to annuities and retirement plans, but the premise is the same.

Many young couples without children and without assets such as a home and other non beneficiary designation assets in excess of $100,000 do not need a revocable living trust. Many elderly persons with no assets other than a house that has been dealt with by transferring such house to the children and reserving a life estate interest (a Medi-Cal planning device and the topic of a future article) will not need a revocable living trust.

For anyone who owns a home or other significant assets, however, a revocable living trust is an option that should seriously be considered.

Attorney Jim Gianelli is a founding partner in Gianelli & Polley, a Sonora law firm. Contact him at (209) 533-2233.

© 2008, Friends and Neighbors Magazine