Transferring Ownership of Your Home–An Example of Bad Estate Planning

May 20, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Beneficiary Designations, Estate Planning, Proper Asset Ownership

Even in the best of times, people are always looking for ways to save money. During tough economic times, like we have seen over the past few years, finding ways to save money becomes even more important. Cutting corners when it comes to estate planning, however, is not one of the ways you want use to cut costs. Let’s look at just one example of the bad estate planning that results when trying to save money by “do-it-yourself” estate planning. Imagine the following scenario.

You decide that since you already know you plan to leave your home to your grown daughter it would make things easier, avoid probate, and cost less if you just sign over the deed to the home now. Of course, you will continue to live in the home until you die. What could go wrong right? Any of the following:

  • Your daughter uses the home for collateral on a loan and then becomes disabled and cannot pay the loan at which point the lender forecloses on the home.
  • Your daughter is at fault in a fatal car accident and her liability insurance does not cover all of the victim’s damages so the home is attached to the judgment and sold.
  • Your daughter dies before you without executing a Last Will and Testament. According to the laws of intestate succession, her husband may receive the home and he may decide to sell it.
  • Your daughter gets divorced and the divorce court awards the home, in whole or im part,  to her husband or orders that the home be sold to pay off debts of the divorce.
  • Your daughter sells the property and finds out, much to her dismay, that she has to pay significant capital gains taxes on the sale which could have been avoided had the transfer of the property been done using a more tax-advantaged method.

Don’t take risks with your estate plan. Make sure you use the services of an experienced and qualified estate planning attorney so that you do not end up in one of these situations.

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

Married People Don’t Need Estate Plans, Right?

Apr 29, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Beneficiary Designations, Blended Families, Estate Planning, Joint Owenership Perils, Parents of Minor Children, Proper Asset Ownership, Revocable Living Trust, Trusts

No way!  Married people need estate plans.  Some folks think that because they own assets jointly with a spouse, they don’t need an estate plan.  In fact, joint ownership is called a “poor man’s estate plan.”   In reality, it should just be called a “poor estate plan.”

Joint tenancy ownership is riddled with perils.  Likely, the most serious peril is the unintentional disinheritance of your children.  Sadly, it happens too often because of joint ownership.

This is what can happen when you own assets in joint tenancy with your spouse:

Tom and Tina are married and have three children.  All of their assets are owned in joint tenancy (or will be distributed by beneficiary designation to the surviving spouse which will have the identical effect.)

Tom goes surfing off the California coast and is eaten by a shark.

Tina inherits everything owned in joint tenancy by operation of law (or beneficiary designation.)

After an appropriate period of mourning, Tina marries Phil.  Because she is used to owning everything jointly, she puts all of her assets (and Tom’s assets) in joint tenancy with Phil.

On their first year anniversary trip to Hawaii, Tina falls off a cliff and is killed.  Phil inherits everything he owned jointly with Tina (regardless of what Tina’s will provides because a will doesn’t control joint tenancy property.)

In his despair, Phil dies of a broken heart six months later.

Who inherits all of Phil’s money (much of which used to Tom and Tina’s money)?

Phil’s children get it all.

What do Tom and Tina’s three children inherit?  Nothing.

You can avoid disinheriting your children:

Use trust planning to avoid unintentionally disinheriting your children.  With a trust, assets won’t go directly to your spouse, outright, such as with jointly owned property.  Instead assets will go into a trust for the benefit of your spouse and your children.

When your spouse dies, your children will inherit.  This is why married couples need an estate plan.

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

When a Decedent Dies, What Happens To the Estate Property?

Apr 19, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Joint Owenership Perils, Probate, Proper Asset Ownership, Trusts

When someone dies, they typically leave behind various estate assets. This may include cash, investments, personal property or real property. All of the decedents property must be legally transferred upon his or her death. How the property is handled depends on a number of factors.

Property held in joint tenancy with another person will pass by operation of law to the surviving joint tenant when the one of the joint tenant dies.  In many cases, property held by husband and wife as community property can also pass automatically to the surviving spouse.

Some property may be transferred automatically upon the death of the decedent. Property held in a trust, for example, may already be legally owned by the trust when the decedent dies or may automatically transfer upon death to the trust. Accounts that are held as “pay on death”  or “transfer on death” also automatically transfer to designated beneficiaries as will life insurance proceeds.

If the decedent left behind a valid Last Will and Testament, property that did not automatically transfer will be part of the probate process. Specific bequests will eventually be transferred to the named beneficiary. For example, if the decedent bequeathed his personal residence to his son in his Will, the title will eventually be transferred to the son.

Property that did not automatically transfer, or that was not part of a specific bequest, will be transferred to beneficiaries if a Will was left, or heirs if the decedent died intestate, after the probate process is completed. Non-liquid assets will be sold by the executor or personal representative and turned into cash. Once all assets have been liquidated, the executor or personal representative will distribute the cash pursuant to the Will terms or pursuant to the state intestate laws if no Will was left behind.

Problems associated with using a Will as the basis for transfering assets at death include higher administration costs, delays and loss of control and privacy because, except for modest estates, it is likely the estate will have to go through the probate process at the court house before assets can be distributed.

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

Important Estate Planning Tools for the LGBT Community

Mar 26, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Beneficiary Designations, Estate Planning, Living Wills, Powers of Attorney, Proper Asset Ownership, Revocable Living Trust, Trusts, Wills

Estate planning is important for everyone; however, it cam be even more important for members of the LGBT community. Because of the unique, and often varied, legal position that a partner has among the states, estate planning is of particular importance in order to ensure that your partner is provided for in the event of your death, and recognized in the event of your incapacity. While each situation is unique, consider incorporating the following tools into your estate plan:

Last Will and Testament: This is your chance to leave specific items or assets to your partner in the event of your death. You may also wish to appoint him or her as executor of your estate.  Wills may be all that is needed for transfers at death for modest, simple estates.

Trust: A trust can potentially be used in a variety of ways. It may allow control of assets to pass to your partner in the event of your incapacity. It can also provide a direct route for assets to pass upon your death without the need for them to go through probate.  Trusts generally work better than Wills for estates that include real estate or are moderate to large in size.

Advance Health Care Directive: This critical document allows you to legally appoint your partner to make healthcare decisions for you in the event of your incapacity. It can overcome problems with decision making and visitation should there be a hostile family environment.

Financial power of attorney: A power of attorney can be used to give your partner the legal authority to act as your agent in legal transactions. If the POA is made durable, this authority will also survive your incapacity in most states.

Pay on Death Accounts: Financial accounts and titles can sometimes be converted to “pay on death” accounts. Typically, this means that ownership of the asset will immediately transfer to your partner upon your death. In the case of bank accounts, the funds held in the account will be payable to your partner upon your death.  Use of POD accounts has its pros and cons.  Get competent legal advice before using this strategy.

The best place to start in your planning efforts is to consul

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

How People Accidently Disinherit Their Children

Mar 11, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Beneficiary Designations, Blended Families, Estate Planning, Joint Owenership Perils, Parents of Minor Children, Proper Asset Ownership

Each and every day, children are unintentionally disinherited and receive nothing when their parent dies.  If you’re like most people, this is not what you want.  Here are two examples illustrating how children are disinherited.

Example One

Jim and Susan have a long happy marriage.  They have been married for 32 years and have four children, all boys.  Jim has a heart attack and dies.  He and Susan owned everything jointly so at his death, Susan inherited all of the assets.

Several years later, Susan remarries and puts all of her assets in joint tenancy with her new husband, Fred.  Susan is killed by a drunk driver.  Fred and Susan owned everything jointly so at her death, Fred inherited everything, automatically and by operation of law.

Fred now owns all of the assets that originally belonged to Jim and Susan.  When Fred dies, where do his assets go?  To Fred’s children, of course, and Jim and Susan’s four boys inherit nothing.

This is not what Jim and Susan would have wanted.  Their four children were unintentionally disinherited.

Example Two

Sam and his brother, Ethan, own the family vacation home in joint tenancy.  They each have a wife and children.  Sam dies.  Ethan inherits the family vacation home automatically, by operation of law.

Sam’s wife and their children have no rights to or ownership of the family vacation home, yet they are responsible for estate and inheritance taxes due on the transfer of the home from Sam to Ethan.

When Ethan dies, his wife and children will inherit the home.  Again, Sam’s wife and children receive nothing.  They have been unintentionally disinherited.  This is not what Sam would have wanted.

If you have questions about estate planning, joint ownership, and avoiding disinheriting your children, consult with a qualified and experienced estate planning attorney.

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

What a Will will do (And, what it won’t do)

Feb 28, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Beneficiary Designations, Blended Families, Estate Planning, Joint Owenership Perils, Proper Asset Ownership, Wills

If you’re like most people, you may be startled to learn that your will won’t do what you think it should do.  A will is effective for naming guardians for minor children, naming an executor, and directing assets titled in your individual name or payable to your estate.

A will may not control all property because of the way most property is owned.  For example, consider Marv’s will.  Marv’s will provides that all of his assets go to his children upon his death because he spouse, his second wife aka “evil stepmother,” has her own assets and her own children.  What happens to the most commonly owned assets when Marv dies?

The house

Typically, husband and wife own their house as joint tenants with right of survivorship.  So, by operation of law, when Marv dies, the house goes to evil stepmother.  Marv’s children have no rights to the house, regardless of what Marv’s will provides.  This is not want Marv wants.

The investment accounts

Again, Marv and his spouse own the investment accounts jointly and the entirety of the account goes to the survivor, in this case, evil stepmother.  Again, Marv’s children have no rights to the investment accounts, the spouse inherits.

The bank accounts

As with all jointly held assets, the survivor gets it all.  In Marv’s case, his surviving spouse will inherit all bank accounts held in their joint names.

The life insurance

Life insurance is a contract and the contract (beneficiary designation) dictates who receives the proceeds upon Marv’s death.  If Marv names his spouse, she will receive all of the proceeds upon Marv’s death even if his will provides otherwise.

Retirement accounts

Retirements accounts are also contracts and if the spouse is named as the beneficiary, the will has no effect on the assets.  If his spouse is named as the beneficiary, Marv’s children receive none of the retirement assets.  Under federal law, if Marv wants to name someone other than his spouse as beneficiary of his retirement plan, the spouse must sign in consent.

A will controls only those assets in your individual name or in the name of your estate.  If Marv wants to give everything to his children upon his death, he must title his assets in a manner so that his children or his estate are his designated beneficiaries.  Blended families mandate that careful, thoughtful and comprehensive planning be obtained to ensure that intentions are fulfilled and conflicts avoided.  The best place to start is to consult

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

Divorce and Estate Planning

Feb 22, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Asset Protection Planning, Beneficiary Designations, Estate Planning, Parents of Minor Children, Proper Asset Ownership, Trusts, Wills

Most couples enter into marriage with the hope that the union will last forever. As such, couples typically blend assets, name each other as beneficiaries in estate planning documents, and assume the other one will take care of the children in the event of death. Sadly, more than 50 percent of all marriages end in divorce. If you are in the middle of a divorce, or who has recently concluded the divorce process, you may not have considered the impact the divorce has on your estate plan. While most people consider the immediate financial concerns associated with a divorce, most fail to look at the estate planning concerns that are also associated with a divorce. Consider the following estate planning documents that could need to be amended, created or revoked as a result of your divorce.  However, before taking action, consult with both your divorce attorney and an experienced and qualified estate planning attorney because California law imposes certain “automatic temporary restraining orders” during the pendency of the divorce proceeding.  Changing estate planning documents that violate these orders could result in advance sanctions by the judge presiding over the divorce proceeding.

With that said, the following are actions to consideer:

Execution of a new advance healthcare directive if one was executed in favor of your ex-spouse at any point in time and in any state.

Revocation of any existing powers of attorney that gave your ex-spouse agency powers.

Appointing a guardian, or modifying a previous appointment of a guardian, in your Will for your minor children.

Removal of any bequests to your ex-spouse in your Last Will and Testament.

Replacing your ex-spouse as the beneficiary of pension plans, life insurance policies, ERISA plans, investment plans, or pay on death accounts. Don’t make the mistake of counting on state laws to automatically disinherit your ex-spouse as a result of the divorce.

Creating a trust, and appointing someone in whom you have both trust and confidence in their financial abilities, as trustee. You can then direct your estate assets that are meant for your children into the trust and be assured that someone other than your ex-spouse will oversee those assets.

With careful planning under the supervision of qualified and experienced legal counsel, you can accomplish your goals of control

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

Estate Planning Options for Small Business Owners

Feb 20, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Advanced Estate Planning, Asset Protection Planning, Estate Planning, Proper Asset Ownership, Retirement Planning, Tax Avoidance

If you own a small business, make sure you include your interest in the business in your estate plan. Even if you plan to leave all your interest in the business to a family member, failing to structure the transfer of your interest in the business in the right way could subject the value of the interest to estate or gift taxes. With proper planning, you may be able to minimize or eliminate estate or gift taxes by using one of the numerous business succession options.

  • Sale of Your Business: Among other options, selling your business can be accomplished by using a private annuity, a buy-sell agreement, an outright sale, or other sale options. As a general rule, as long as the sale is completed prior to, or at the time of, death, it will not result in the need to pay gift or estate taxes; however, it may incur capital gains taxes.
  • Trusts: Trusts are not only for personal assets. You can create an irrevocable trust in the form of a grantor retained annuity trust (GRAT) or grantor retained unitrust (GRUT) for your business and use the business assets to fund the trust. As the grantor, you will receive annuity payments each year for the life of the trust. When the trust terminates, the remaining trust assets are transferred to the trust beneficiaries, but at a reduced valuation, thereby reducing any applicable taxes.
  • Forming a Family Partnership: By forming a family partnership, you may be able to retain control as the holder of the general partner interest — something that is likely important to you. You can then gift the limited interests to your family member over the life of the partnership. The limited interest may be eligible for a discounted valuation which will decrease the resulting transfer taxes.

The biggest problem most likely to occur to business owners is simply the failure to plan for the future taking into account the prospect of retirement, possible disability and eventual death.  The best way to avoid the potentially devastating problems that could occur

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

Second Marriages Call for Careful Estate Planning

Feb 18, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Blended Families, Estate Planning, Joint Owenership Perils, Parents of Minor Children, Proper Asset Ownership

If you are in a second or third marriage and have children from previous relationships, very careful estate planning is necessary to keep the peace while you’re alive and avoid litigation after your death.

Tips for Using Estate Planning to Keep the Peace in a Second Marriage

  • Communicate. Let your loved ones know that they are protected by and provided for in your estate plan.
  • Update. Update your estate planning when your family changes.
  • Honor Prenuptial Agreements and Promises. If you have a prenuptial (or post-nuptial) agreement or have promised your spouse that you will do something for him/her in your estate plan, do it.
  • Avoid Joint Ownership. If you are in a second marriage, you will most likely need trust planning; your trust should own your assets.  Do NOT own assets in joint tenancy with your spouse, unless you want your spouse to inherit them.  Jointly tenancy assets held with your spouse will disinherit your children if you are the first to die.
  • Consider Planning That Won’t Make Your Children Wait. In some cases, it may make sense not to make children from a previous relationship wait until your spouse dies to inherit. Without careful planning, making your children the remainder beneficiary of a trust for your spouse may cause conflicts between them.  Every dollar your spouse spends may be questioned and disputes and litigation may arise unless careful planning is used.
  • Be Specific about Personal Possessions.  Your children would, likely, appreciate inheriting personal items, family pictures, family heirlooms and the like. Be sure that all of your personal possessions don’t go automatically to your spouse. Either pass these items while you’re alive or make a list of things to go to your children (and include the list in your estate plan.)

If you’re in a second or third marriage and have children from a previous relationship, get thorough legal advice from a qualified and experienced estate planning attorney and follow these tips to keep peace in the family.  Failing to plan will inevitably lead to more conflicts and higher legal costs as your survivors are left to fight over your estate.

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.

Do I Really Need a Trust?

Feb 16, 2012  /  By: Timothy Murphy, Estate Planning Attorney  /  Category: Beneficiary Designations, Estate Planning, Incapacity Planning, Proper Asset Ownership, Revocable Living Trust

We get a lot of questions about revocable living trusts and some prospective clients wonder whether they really need a trust.  They say, “After all, I’m not a Warren Buffet or a Kennedy. Do I really need a trust?”

Whether you need a trust (or not) depends upon your assets and your goals; mainly your goals.  You do not need to be wealthy to benefit from a trust.

You Need to Consider a Revocable Living Trust if you…

  • Want to avoid probate
  • Want to avoid court interference, through the conservatorship process
  • Want to stay in control of your assets
  • Want to minimize costs
  • Want to minimize time delays
  • Want to lessen the burden on loved ones
  • Want to protect the assets you leave to your surviving spouse and children
  • Want to keep your affairs private
  • Want to avoid having your assets, debts, and beneficiary and trusted helper contact information published at the courthouse.
  • Want to minimize or eliminate federal estate taxes
  • Want to provide for your pet

Where to Get Help Creating a Revocable Living Trust

Estate planning is not appropriate for the do-it-yourselfer (i.e., no downloaded or formbook documents, with no legal counseling.) The potential for failure and its consequences are too high.  You should also avoid bargain basement trusts prepared by non-lawyers, paralegals and even general practice attorneys who do not specialize in estate plannng.  Estate planning involves many complex considerations involving topics such as a multitude of ta

Instead, consult with a qualified estate planning attorney who will design, draft, and implement your revocable living trust, according to your individual goals and needs.

Northern California Center for Estate Planning and Elder Law is a member of the American Academy of Estate Planning Attorneys.