Regardless of the documents name it is important that you make your health care wishes known.

When you execute an Advance Health Care Directive or a Living Will you set forth your healthcare instructions and wishes. You will nominate an individual (“Agent”) to carry out such instructions/wishes.

Most people prefer not to think about a Living Will because it forces them to think about falling sick or dying.  But, as we all know, life is uncertain and unpredictable.  All of us, at any time, could find ourselves sick, injured, on life-support, in a coma, in the final stages of dementia, or near the end of life.  Without a Living Will in place and the nomination of a Health Care Agent to carry out our wishes, you risk putting your healthcare decisions in the hands of strangers.

What is included in a Living Will?

When preparing a Living Will, there are many issues you will need to address:

1. Do you want your life to be prolonged in the event of an incurable illness likely to result in death within a short time? 
2. Would you rather your life not be prolonged in such an event?
3. Do you want pain relief?
4. Do you want to live in the comfort of your own home?
5. Do you want to donate organs, be cremated or buried, etc.?

Who should you choose as your Agent in your Living Will? 

1. Who do you trust to make such personal, health care decisions? 
2. Who do you know that has the appropriate skill set to be able to communicate with your health care providers and doctors? 
3. Who has the emotional stability to advocate your wishes in what may be an emotional and stressful situation?

These are all things you should discuss with your family, doctor, and a Carlsbad probate attorney.

Why hire an Estate Planning Attorney to create a Living Will?

According to a survey published in the American Journal of Preventive Medicine, only a quarter of Americans have Living Wills in place. 

Although creating a Living Will may seem to be simple, oversights are frequent. An attorney who focuses on estate planning can help you create an effective Living Will according to state laws. Contact a probate and estate planning attorney to discuss your concerns and learn how they can help address your Living Will concerns.

About the Author:

The author is a reputed estate planning attorney in Carlsbad CA. He helps clients in estate planning to avoid probate, unnecessary taxes, and legal fees. Visit https://www.rassmanlaw.com/ for more details.

A Personal Representative in a probate (an “Executor or Executrix” if the person was named in the decedent’s Will, or an “Administrator” if not named or no Will existed) is the individual appointed by the Probate Court to faithfully administer a decedent’s estate for the benefit of the decedent’s creditors and beneficiaries.  Failure to perform his/her duties faithfully could be cause for removal. A Carlsbad probate attorney can defend the removal (if representing the Personal Representative) or seek removal of a Personal Representative (if representing a creditor or beneficiary) by filing a petition for removal.

Naming an individual as Executor in your Will gives that person the authority to act on your behalf after your death.  Others can object to his/her appointment by the Court, but without cause the objection will not carry much weight against someone nominated in your Will.  If your Will does not name an Executor, or you pass away without a Will, California Probate Code Section 8461 defines priority for appointment of your Administrator in Probate Court.

Who Will a Probate Court Name as Personal Representative if There is no Will in California?

California Probate Code Section 8461 states that the Probate court should appoint a Personal Representative in the following order:

1. Surviving spouse or domestic partner;
2. Decedent’s children;
3. Decedent’s grandchildren;
4. Decedents other issue;
5. Decedent’s parents;
6. Decedent’s siblings (Brothers and Sisters);
7. The issue of Decedent’s siblings;
8. Decedent’s grandparents
9. The issue of Decedent’s grandparents
10. The children of the Decedent’s predeceased domestic partner or spouse;
11. The other issue of the Decedent’s predeceased domestic partner or spouse;
12. Other “Next of Kin”;
13. The parents of the Decedent’s predeceased domestic partner or spouse;
14. The issue of the parents of the Decedent’s predeceased domestic partner or spouse;
15. The Conservator of the estate who was the Conservator at the time of the Decedent’s death provided they have filed a first account and are not Acting as a Conservator or Guardian for someone else;
16. A Public Administrator
17. Creditors
18. Any Other Person

What are the Requirements to Serve as Personal Representative in California?

Pursuant to California Probate Code Section 8402(a), a person is not competent to act as personal representative in any of the following circumstances:

1. The person is under the age of majority.
2. The person is subject to a conservatorship of the estate or is otherwise incapable of executing, or is otherwise unfit to execute, the duties of the office.
3. There are grounds for removal of the person from office under Section 8502.
4. The person is not a resident of the United States.
5. The person is a surviving business partner of the decedent and an interested person objects to the appointment.

Note, Paragraphs (4) and (5) above do not apply to a person named as Executor in the decedent’s will.

What are the Duties of a Personal Representative in California:

• Collect all outstanding payments owed to the estate including insurance claims, pensions and tax refunds, if any;
• Investigate whether there are payments, refunds, reimbursements and/or debts owed to the estate (e.g. checks that have not been cashed, dividends, utility refunds, etc.);
• Reimburse individuals who may have advanced the decedent’s last illness and funeral expenses;
• Pay creditors and expenses of the estate using the estate assets;
• Establish the availability of probate assets and determine their value;
• Manage the estate’s assets through the probate period;
• File tax returns for the decedent and the estate;
• Inform creditors of their right to present creditor claims during a narrowly defined creditor claim period;
• Determine whether creditor claims are genuine;
• Ascertain who the beneficiaries are and to what each is entitled; and
• Etc.

A Personal Representative may be Personally Liable for some of the Following:

• Improper or negligent management of assets;
• Wrongful payment of creditors (excess payment);
• Late filing of (or failure to file) tax returns;
• Distributing property to beneficiaries before paying creditors or taxes;
• Failing to collect debts owed to the estate.

For What Reasons May a Personal Representative be Removed?

Pursuant to California Probate Code Section 8502, A personal representative may be removed from office for any of the following causes:

1. The personal representative has wasted, embezzled, mismanaged, or committed a fraud on the estate, or is about to do so.
2. The personal representative is incapable of properly executing the duties of the office or is otherwise not qualified for appointment as personal representative.
3. The personal representative has wrongfully neglected the estate, or has long neglected to perform any act as personal representative.
4. Removal is otherwise necessary for protection of the estate or interested persons.
5. Any other cause provided by statute.

Probates are “statutorily driven”, meaning to remove (or defend) a Personal Representative, one must fully understand the California Probate Code, California Rules of Court, and the local Rules of Court. These statutes and rules are complex and working with a probate attorney in Carlsbad can give you a head start in the process.

The Personal Representative should work with an experienced probate lawyer to guide him/her through the Probate process in Court.  If the Personal Representative fails to faithfully perform his/her duties, he/she could be removed and surcharged by the Court.

Feel free to reach out to a Carlsbad probate lawyer if you have probate questions in California.

Lastly, creating a comprehensive estate plan ahead of time will help to save your loved ones the headache of going through the full probate process. Please contact us if you would like to learn more about how you can plan for your estate. (760) 933-8254.

The good thing is that you don’t have to do it all alone. There are several times when a Carlsbad probate attorney can step in and help.

Here are 7 practical ways a Carlsbad Probate Attorney can help you:

1. Protection against Probate Litigation

Litigation surrounding the transfer of assets after death happens more often than you imagine. The probate procedure can be a magnet for those trying to take advantage of an unsavvy beneficiary after the passing of a benefactor. These come in the form of contesting a valid will or trust, to long lost creditors making a claim against the estate.

When you hire a probate lawyer, you can make sure that all claims against the estate are valid claims. In addition, an experienced probate lawyer will help to ensure that once money is distributed to a beneficiary, that beneficiary will not have to worry about lawsuits against them to recover the money from a creditor of the estate.

2.Limit Family Fighting During a Time of Grief.

Probate is usually a period of incredible turmoil within families. Particularly when the will of a decedent leaves out certain individuals or does not split the assets equally.  A probate lawyer can help reduce these pressures on the executor. A qualified probate attorney translates the will and encourages a tension free probate process. In doing so, this will help preserve un-necessary legal expenses to be paid out of the estate. The probate attorney will help with communicating to siblings who are not on speaking terms, in order to settle the estate.

3. Drafting Your Will.

Though you may want a DIY will, we strongly advise to have your Last Will and Testament created by an expert estate planning attorney. That is the best way to ensure that the Last Will and Testament is going to carry out your wishes, as you intend. It also reduces the likelihood of a court pronouncing your will as invalid after your death based on a technicality.

4. Helps you to Understand the Complex Probate Process.

You may be an agent or a beneficiary with questions about a complex probate process. A well-qualified probate lawyer will have the answers. The truth of the matter is that probate can be a very tense time for everybody involved. Family members who don’t understand the process sometimes feel like they are being taken advantage of.

This is all amplified during a time of grief after the passing of a friend or family member. An experienced Carlsbad probate lawyer can assist in making sure that you understand the probate process, and are able to effectively make important legal decisions.

5. Assist in Probate Court.

Again, the probate procedure is complex and has many technical subtleties. Particularly when the bequest settlement is being overseen by an unpracticed agent with minimal experience in accounting or money management, or the probate court rules. A seasoned probate attorney will act as a guide for executors and help to streamline the process. This also helps shield the executor from personal liability for making uninformed decisions, even when their intentions are pure.

6. Repayment of the Estate’s Debts.

Executors at times battle with the reimbursement of expense part of the probate procedure. They may even postpone payment of debts, increasing the balance through interest, by trying to be overly careful. With the help of a Carlsbad probate attorney, all of the estate’s debts should be paid off prior to making distributions of the remaining assets to the beneficiaries.

There is a unique and specific procedure for notifying creditors of the probate estate. When done properly, this will limit the creditors ability to try and collect from the beneficiary’s after the assets have been distributed. However, a professional Carlsbad probate attorney will help to ensure that you follow all requirements, and track the notification period for creditors so that you will not have to delay the distribution to beneficiaries one day longer than the law requires.

7. Helps with the Technical Probate Details

Executors of an estate have a wide range of duties when they take on that role. With that said, if they make a mistake, they can be held personally liable. A significant number of these obligations are court rules and procedures that are hard to understand with strict deadlines. While you can absolutely do them yourself, the process can be greatly simplified by using someone who has done it before. This also greatly reduces the risk of any personal liability for the actions of an executor.

Hence, a probate attorney Carlsbad can make sure that you understand the technical details, so you don’t commit unnecessary errors. Errors in probate end up creating delays and incur unnecessary expenses to be paid by the estate.

With that said, different estate planning attorneys may use synonyms for the names of the different people within an estate plan. This can make reviewing a simple estate plan feel more complicated that it is. By becoming familiar with these terms and their synonyms, you will be ahead of the curve when creating or reviewing an estate plan.

Below is a summary of some key estate planning terms.

What is the Definition of a Trustor?

The Trustor (also known as a “Settlor” or a “Grantor”, depending on the attorney’s preference) is the person who creates the Trust (i.e. the person who owns assets, like a home, and wishes to transfer those assets to a Trust).  The Trustee is the person in charge of managing and investing Trust assets and making distributions (if the terms of the Trust require it) to the Trust’s beneficiaries.

The term Trustor is synonymous with Settlor and Grantor.

What is the Definition of a Grantor?

A Grantor of a Trust is another way of saying Trustor. Simply put, it is the person who creates a trust, and puts trust assets into their trust, for the benefit of another person.

The term Grantor is synonymous with Settlor and Trustor.

What is the Definition of a Trustee?

A Trustee is a an individual (or corporate fiduciary) who is specifically named in a Trust document to carry out the instructions of the Trust. The Trustee is tasked with collecting all of the assets in the Trust Estate and manage them until the Trust instructs them to distribute them to a beneficiary. The Trustee can also manage the Trust Property full time and pay the beneficiary income from the property. The specific instructions for a Trustee should be clearly drafted in a trust by a qualified estate planning attorney.

While a trustee can administer a trust without the help of an attorney, there are strict laws that should be followed. Thus, many Trustees choose to hire a Trust Administration attorney to make sure that they follow the trust instructions correctly, and do not take on any personal liability.

What is a Beneficiary?

Simply put, a beneficiary is a person, group of people, or organization, to which a gift of an asset is made. The gift or benefit can be made through legal documents such as a trust, a will, life insurance policy, or financial account with a beneficiary designation.

Except for estates that are exempt from probate, the beneficiary of a Will only receives their inheritance after the will is examined and approved by a probate judge.

Beneficiaries of trusts, life insurance, and other financial accounts with beneficiary designations, will receive their benefit based on the terms of the legal document in which they are named.

How do the Trust, Grantor, Trustee and Beneficiary all work together?

By analogy, think of a Trust as a small, single shareholder corporation.  In this imperfect analogy, the Grantor is the sole shareholder of the corporation and the Trustee is the President of the Corporation. 

Like this corporation, where all assets owned by the corporation are indirectly owned by the sole shareholder, all assets owned by the Trust are indirectly owned by the Grantor. 

Similarly, like in a corporation, where all day-to-day decisions of the corporation are made by the President, who has the legal authority to manage, invest, sell, and encumber (to name only a few) corporate assets, the Trustee of the Trust is the person who has these powers with respect to Trust assets.

When a California resident dies without a Will, he/she has died “intestate”.
This is a legal term meaning the person died without documenting his/her wishes for distribution of his/her estate.

When this happens, California law decides who inherits the decedent’s assets. Keep in mind, this excludes assets held 1) by a Trust, 2) in accounts or policies that designate beneficiaries, and 3) jointly with someone else.

The definition of “intestacy” in California?

As stated above, “intestacy” is a legal way of saying someone died without a Will. 

In this case, California’s intestate inheritance laws (California Probate Code 6401 and 6402) dictate who inherits the decedent’s assets.  Again, this excludes assets held by a Trust, in accounts with beneficiaries, and/or jointly owned accounts.

What are California’s intestate laws?

When someone dies without a Will in California, assets owned by the decedent in his/her sole name (as opposed to assets held 1) by a Trust, 2) in accounts or policies that designate beneficiaries, and 3) jointly with someone else) pass to the decedent’s heirs-at-law, as defined in California Probate Code 6401 and 6402. 

What happens to the property of a married person after death when there is no Will, Trust, or Beneficiary in California?

Under these Probate Code provisions, if the decedent was married, his/her community property (broadly defined as any property owned jointly by a married couple) passes to the decedent’s spouse; and his/her separate property passes to a combination of his/her spouse and other relatives (e.g. children, parents, brothers/sisters, etc.).

What happens to the property of a single person after death when there is no Will in California?

If the decedent was not married, his/her assets pass to cascading list of relatives under Probate Code 6402 starting with his/her children (and their “issue”), then parents, then brothers/sisters, etc.

The headings listed below are used to give the reader a general idea of how assets will be transferred, and should not be relied on without speaking with a qualified estate planning attorney. We have referenced the actual text of the probate code below which is current as of February of 2019.

Who inherits property if there is no Will in California and the deceased is not married?

Except for assets that would not be a part of a probate estate (as defined below), if an unmarried decedent passes away without a Will, his/her assets will likely be distributed as follows:

The headings listed below are used to give the reader a general idea of how assets will be transferred, and should not be relied on without speaking with a qualified estate planning attorney. The actual text of the probate code

1. First to the Children of the Deceased (or their children’s children, or children’s children children*)

“(a)      To the issue of the decedent, the issue taking equally if they are all of the same degree of kinship to the decedent, but if of unequal degree those of more remote degree take in the manner provided in Section 240.”

CA Probate Code 6402 (a)

  Definition of Issue: “Issue” of the decedent is all of his or her lineal descendants, of all generations, with the relationship of parent and child at each generation being determined by the definitions of child and parent.

2. Second to the parents of the deceased

“(b)      If there is no surviving issue, to the decedent’s parent or parents equally.”

CA Probate Code 6402 (b)

3. Third to the children of the deceased parents (aka the decedent’s brothers and sisters)

“(c)      If there is no surviving issue or parent, to the issue of the parents or either of them, the issue taking equally if they are all of the same degree of kinship to the decedent, but if of unequal degree those of more remote degree take in the manner provided in Section 240.”

CA Probate Code 6402 (c)

4. Fourth to the decedent’s grandparents:

“(d)      If there is no surviving issue, parent or issue of a parent, but the decedent is survived by one or more grandparents or issue of grandparents, to the grandparent or grandparents equally, or to the issue of those grandparents if there is no surviving grandparent, the issue taking equally if they are all of the same degree of kinship to the decedent, but if of unequal degree those of more remote degree take in the manner provided in Section 240.”

CA Probate Code 6402 (d)

5. Fifth to the other children of the Grandparents (aka the decedent’s aunts and uncles):

“(e)      If there is no surviving issue, parent or issue of a parent, grandparent or issue of a grandparent, but the decedent is survived by the issue of a predeceased spouse, to that issue, the issue taking equally if they are all of the same degree of kinship to the predeceased spouse, but if of unequal degree those of more remote degree take in the manner provided in Section 240.”

CA Probate Code 6402 (e)

6. Sixth to the children of a predeceased spouse:

“(f)      If there is no surviving issue, parent or issue of a parent, grandparent or issue of a grandparent, or issue of a predeceased spouse, but the decedent is survived by next of kin, to the next of kin in equal degree, but where there are two or more collateral kindred in equal degree who claim through different ancestors, those who claim through the nearest ancestor are preferred to those claiming through an ancestor more remote.”

CA Probate Code 6402 (f)

7. Seventh to the decedents Next of Kin

“(g)      If there is no surviving next of kin of the decedent and no surviving issue of a predeceased spouse of the decedent, but the decedent is survived by the parents of a predeceased spouse or the issue of those parents, to the parent or parents equally, or to the issue of those parents if both are deceased, the issue taking equally if they are all of the same degree of kinship to the predeceased spouse, but if of unequal degree those of more remote degree take in the manner provided in Section 240.”

CA Probate Code 6402 (g)

Will a Probate be Required on my Death in California?

If a decedent dies owning more than $166,250 of assets (excluding certain assets, as set forth below), someone (usually known as an “Executor” or “Administrator”) will be required to petition the Probate Court to:

• get a judge’s approval to collect the decedent’s assets;
• pay the decedent’s debts and taxes, and
• thereafter distribute all remaining assets to the decedent’s beneficiaries.

This will happen either according to the instructions the decedent set forth in his/her Will or as determined by California’s intestacy laws as provided above if the decedent died without a Will.

What Assets Are Not Included in Probate in California?

In calculating the $166,250 probate number referenced above, certain assets are excluded, including but not limited to:

1. Assets owned by a living trust;
2. Assets (e.g. 401(k)s, IRAs, life insurance policies, bank accounts with “payable on death” designations, etc.) that have beneficiaries properly designated;
3. Assets owned in “joint tenancy” with someone else; and
4. Mobile homes and automobiles.

What will happen to my home if I die without a Will or Trust?

If you own a home in California, you likely need a Trust.  The reason being, most (just about all) homes in California are worth more than $166,250, and if you’ve read this far, you know that probate may be required if you have more than $166,250 of assets in your name on your death.

If, however, you have a Trust, and your home is owned by your Trust on your death, your home would not be subject to the costly and time-consuming Probate process. 

In this event, the Trustee of your Trust would distribute your home (or the proceeds from the home if it is sold by your Trustee after your death) to the beneficiaries named in your Trust without involvement of the Probate Court.

Who will take care of my Children on my Death if I die without a Will or Trust?

Hopefully you and your children will be lucky enough to have a relative or friend willing and able to take care of your children on your death. 

Sadly, this is not always the case.  In the event such a relative or friend is willing and able to care for your children, a Probate Guardianship proceeding may be necessary.  In this case, such a person would file a Petition for Guardianship with the local Probate Court.

In the event more than one (1) individual is interested, willing and able to care for your children, your nomination of a Guardian for your children may carry weight with the Probate Court in determining which such individual is ultimately appointed. 

For this reason, it is common practice to nominate your choice for Guardian(s) of your Children in your Will.

Who to Contact if Someone you know dies without a will or trust in San Diego?

If you have any questions about how to avoid probate or how to set up an estate plan please feel free to reach out to attorney T. Owen Rassman. Attorney Rassman can help you with Estate Planning, assist in the probate process, or help a trustee administer an estate. The first consult is always free, so please call Rassman Law today (760) 933-8254.

Wills are potentially subject to Probate, whereas well-drafted and fully funded Trusts generally are not. In other words, if you die with only a Will, and have more than $166,250 in assets (excluding those assets identified elsewhere on this website), a Probate will be required. Whereas if you die with a Trust, assets transferred to the Trust before death are generally not subject to Probate. In a comprehensive estate plan, you will likely need both a Will and a Trust. See Estate Planning page.

Benjamin Franklin is oft’ quoted as saying “there are only two certainties in life, death and taxes”. With a United States tax code hundreds of times longer today (according to the IRS, measuring ~3,700,000 words, roughly equivalent to the Harry Potter series) than it was in the 18th century, federal estate and gift taxes as high as 40%, federal income taxes as high as 37%, and federal capital gains taxes as high as 20%, Mr. Franklin couldn’t have been more prescient. That said, no one likes to pay more taxes than they must, and Rassman Law offers forward-thinking estate planning counsel to preserve your hard-earned wealth and save and/or defer estate, gift and/or income taxes in the event of death.

Summary of Federal Gift and Estate Tax

In 2018, the U.S. Federal Gift Tax and the U.S. Federal Estate Tax are equal to 40%. Subject to certain exceptions (which are discussed below), this means that the federal government imposes a 40% tax on the value of gifts made by individuals during life and bequests made on death.

The government, however, grants to each individual an “exemption”, which in 2018 is equal to $11,200,000 (indexed annually for inflation) per individual. Simply put, this means that individuals, under our 2018 federal gift and estate tax laws, can gift during life or leave to beneficiaries on death, or some combination of the two, an aggregate amount of $11,200,000 without incurring a Federal Gift Tax or Federal Estate Tax; but every dollar gifted during life or passed at death exceeding $11,200,000 will incur a Federal Gift Tax and/or Federal Estate Tax of 40%.

Example #1:

In 2016, Father (“F”) gifts $1,000,000 to his Son (“S”). No Federal Gift Tax will be owed, because F can gift during his lifetime up to $11,200,000 in assets without incurring a Federal Gift Tax (although a federal gift tax return will need to be filed for 2016). F passes away in 2018 with $11,000,000 (net of liabilities) in assets remaining in his estate. Due to the fact that F gifted $1,000,000 to S in 2016, F on his death has only a $10,200,000 Federal Estate Tax Exemption remaining. Accordingly, F will owe a Federal Estate Tax of $320,000 – i.e. 40% of the difference between $11,000,000 (i.e. the assets remaining in F’s estate on his death) and $10,200,000 (i.e. F’s remaining Federal Estate Tax Exemption remaining on his death).

What follows are various estate, gift and income tax reduction and/or deferral opportunities, all of which are subject to certain important exceptions and requirements (which are beyond the scope of these illustrations).

Annual Federal Gift Tax Exclusion: Under Internal Revenue Code §2503, individuals (aka “donors”) can gift up to $15,000 (indexed annually for inflation) per year to others without incurring a Federal Gift Tax and without reducing such donor’s Federal Gift Tax or Federal Estate Tax Exemption.

Example #2

Same facts as set forth in Example #1 above, except F applies his $15,000 annual gift tax exclusion to the $1,000,000 gift made to S in 2016. By doing so, F is deemed to have made only a $985,000 gift to S in 2016 (as opposed to a $1,000,000 gift). Accordingly, on F’s death in 2018, he will owe a Federal Estate Tax of $314,000 (as opposed to a tax of $320,000) – i.e. 40% of the difference between $11,000,000 (i.e. the assets remaining in F’s estate on his death) and $10,215,000 (i.e. F’s remaining Federal Estate Tax Exemption on his death).

Unlimited Federal Marital Gift Tax Deduction: Under Internal Revenue Code §2523, a spouse can gift during life to a U.S. citizen spouse an unlimited amount without incurring a Federal Gift Tax and without reducing the donor spouse’s Federal Gift Tax Exemption or Federal Estate Tax Exemption.

Example #3

In 2016, Husband (“H”) gifts $1,000,000 to his U.S. citizen Wife (“W”). No Federal Gift Tax will be owed, because H can gift an unlimited amount to W during his lifetime (although a federal gift tax return will need to be filed for 2016). Assuming H passes away in 2018, and further assuming he has not made other taxable gifts during his lifetime, H will continue to have his full $11,200,000 Federal Estate Tax Exemption available to him on his death.

Unlimited Federal Marital Estate Tax Deduction: Under Internal Revenue Code §2056, a spouse can bequest on death to a U.S. citizen spouse an unlimited amount without incurring a Federal Estate Tax and without reducing the donor spouse’s Federal Estate Tax Exemption.

Example #4

Same facts as set forth in Example #3 above. Further assume H has $12,000,000 (net of liabilities) in assets remaining in his estate on his death in 2018, and that H’s estate planning documents provide that H’s entire estate passes to W. Despite the fact that H has an $11,200,000 Federal Estate Tax Exemption available to him on his death, H will not owe a Federal Estate Tax because H can bequest on death to a U.S. citizen spouse an unlimited amount.

Example #5

Same facts as set forth in Example #4 above, except that H’s estate planning documents provide that one-half (1/2) of his assets pass to W and one-half (1/2) to his son (“S”). Despite the fact that H has a $11,200,000 Federal Estate Tax Exemption available to him on his death, H will not owe a Federal Estate Tax because H can bequest on death to a U.S. citizen spouse an unlimited amount and because H’s $11,200,000 Federal Estate Tax Exemption is more than sufficient to absorb the $6,000,000 bequest made to S.

Portability: Under Internal Revenue Code §2010, any Federal Estate Tax Exemption unused by the first spouse to pass away can be used by the surviving spouse (i.e. “ported” to the surviving spouse”) on the first spouse’s death, provided an estate tax return is timely filed on the death of the first spouse electing “portability”.

Example #6

Same facts as set forth in Example #5, wherein H passed away having an unused Federal Estate Tax Exemption of $5,200,000 – i.e. he had a $11,200,000 Federal Estate Tax Exemption available to him on his death, only $6,000,000 of which was used to absorb the $6,000,000 bequest made to S. Assuming (among other assumptions) that (i) W passes away after H, (ii) H’s executor timely filed an estate tax return electing “portability”; (iii) W had not remarried, (iv) W never exceeded her own annual gift tax exclusion, and (v) in year of W’s death, her Federal Estate Tax Exemption is $11,200,000, W will have a Federal Estate Tax Exemption of $16,400,000 available to her – i.e. her own $11,200,000 Federal Estate Tax Exemption plus H’s unused $5,200,000 Federal Estate Tax Exemption – meaning W can pass up to $16,400,000 in assets to her beneficiaries on her death without incurring a Federal Estate Tax; but every dollar exceeding $16,400,000 (if any) will be taxed at 40%.

Unlimited Charitable Deduction: Under Internal Revenue Code §2055, bequests made to qualified charities / non-profit organizations are deducted from the calculation of the decedent’s gross estate for purposes of calculating the Federal Estate Tax.

Example #7

Father (“F”) passes away in 2018 with $15,000,000 (net of liabilities) in assets remaining in his estate. F’s estate planning documents provide that 10% of F’s estate (i.e. $1,500,000) passes to a specifically named, federally recognized non-profit organization, and the balance of his estate (i.e. $13,500,000) passes to Son (“S”). Under Internal Revenue Code §2055, the bequest to charity will be deducted from F’s estate, leaving him with an effective gross estate of $13,500,000. Accordingly, F will owe a Federal Estate Tax of $920,000 – i.e. 40% of the difference between $13,500,000 (i.e. F’s gross estate) and $11,200,000 (i.e. F’s remaining Federal Estate Tax Exemption remaining on his death).

Step-up / Step-down in Basis: Under Internal Revenue Code §1014, the tax basis of certain assets acquired from a decedent is equal to the fair market value of such asset as of the decedent’s date of death. Note, however, that some assets will not receive a “step-up” in basis (e.g. IRAs, U.S. Savings Bonds, Treasury Notes, accounts receivable in a business, etc.).

Example #8

Father (“F”) passes away in 2018 owning a home free and clear of debt with a fair market value of $500,000 that he acquired in 1975 for $50,000. Under the terms of F’s estate planning documents (which hopefully included a Trust in order to avoid probate), F’s home passes to Son (“S”). Soon after F’s death, S sells the home for $500,000. Under Internal Revenue Code §1014, S will report no “gain” on the sale and thus owe no capital gain tax – i.e. the tax basis in the home “steps-up” from $50,000 (i.e. the basis the home had while F was alive) to $500,000 (i.e. the fair market value of the home on F’s death), leaving $0 gain.

Example #9

Same facts as set forth in Example #8, except F sells the home in 2018 for $500,000 before he passes away. In this event, Internal Revenue Code §1014 does not apply. Accordingly, F will report “gain” on the sale of $450,000 – i.e. sale of $500,000 less F’s tax basis of $50,000 – and will owe a significant capital gain tax. Note, this example assumes F did not get the benefit of Internal Revenue Code §121, which, subject to certain important exceptions and requirements (which are beyond the scope of this illustration), may have allowed F the ability to exclude a significant portion of the gain from capital gain tax.

Probate is a complex process. At the best of times it can be overwhelming. See below a Probate flowchart for a better understanding.

More often than not, the action items below should be undertaken by the Decedent’s Executor (if the Decedent died with a Will) and/or Heirs-at-Law (i.e. those persons who are entitled to inherit from the Decedent if he/she died without a Will – i.e. died intestate). Most importantly, if in doubt, or if there is conflict among any Executor, Trustee, Beneficiary or Heir-at-Law, be sure to contact an attorney to avoid the risk of becoming personally liable for actions you have taken or are about to take.

Immediately:

• Arrange for organ donation, after reviewing Decedent’s driver’s license, Advance Health Care Directive, Living Will and/or other documented wishes;
• Notify family members, close friends and Decedent’s attorney;
• Arrange care for minor family members and dependents;
• Arrange for pets;
• Arrange for funeral and memorial, after discussing the same with immediate family members and after reviewing Decedent’s Advance Health Care Directive, Living Will and/or other documented wishes;
• If the Decedent was a Veteran, visit the U.S. Department of Veteran’s Affairs website, and their Burial Benefits page;
• Contact extended family and friends to spread the word about the funeral;
• Arrange for a headstone;
• Prepare an obituary;
• Arrange for security at Decedent’s home and/or request policy to routinely check on Decedent’s home if left vacant; and
• Dispose of perishable food in Decedent’s home and water plants;

As Soon as You are Able:

• Contact the Decedent’s estate planning attorney, or if none, a Trust and Estates attorney;
• Locate and secure Decedent’s estate planning documents (if any);
• Locate and secure Decedent’s financial documents (e.g. bank statements, retirement statements, life insurance statements, veteran statements, credit card statements, health insurance statements, list of creditors and debts, etc.);
• Notify Social Security (usually this is done by the funeral director, but if not, visit the U.S. Social Security Administration’s website);
• Notify Medi-Cal if the Decedent was receiving Medi-Cal benefits (visit California Department of Health Care Services website);
• Notify utility companies if services need to be stopped;
• Notify health insurance company to cease coverage (do not, however, cease benefits for the Decedent’s dependents);
• Notify Decedent’s employer;
• Notify credit reporting agencies;
• Notify mortgage company on Decedent’s home, if any;
• Notify Decedent’s bank(s);
• Obtain original Certificates of Death (an attorney can advise as the number of originals needed), which will be needed in the up-coming estate and/or Trust Administration (usually the funeral director can assist with this);
• Re-direct mail to person named as Executor in Decedent’s Will (if any) or to one of Decedent’s Heirs-at-Law (i.e. those persons who are entitled to inherit from the Decedent if he/she died without a Will – i.e. died intestate)
• Make a list of those who attended the funeral and/or sent well-wishes and send thank-you cards;
• Make a list of Decedent’s debts and creditors (do not, however, pay any of Decedent’s debts without speaking with an attorney);
• Close Decedent’s credit card accounts; and
• Maintain records of all expenses incurred on behalf of Decedent (e.g. funeral and memorial expenses).

To Finish:

• If a probate is necessary, file a Petition for Probate;
• If Decedent died with a Trust, the Trustee must begin the Trust Administration;
• Lodge Decedent’s original Will (if any) with the Probate Court;
• File appropriate documents with the County Assessor (e.g. Preliminary Change of Ownership Report, Change of Ownership Statement, Parent-Child Exclusion, etc.) and/or Recorder (Affidavit Death of Trustee, Affidavit Death of Joint Tenant, Quitclaim Deed, etc.) with respect to Decedent’s home, if any;
• File Form 56 with the IRS and California Franchise Tax Board;
• Determine whether an Estate Tax Return is necessary;
• Determine whether income tax and/or trust tax returns need to be filed;
• Pay Decedent’s rightful creditors (not barred by statutes of limitations periods) and taxes;
• Distribute assets remaining to Decedent’s beneficiaries; and
• Get a release of liability from beneficiaries.