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Sacramento Estate Planning Law Blog

For many people, estate planning should include tax planning

Most people in California don't have to be concerned about estate taxes when they prepare an estate plan. The federal estate tax only applies to estates that are worth more than $5,490,000. Married couples can effectively combine their estate tax exemptions, meaning that up to almost $11 million of their combined estates can be shielded from estate taxes. At the state level, California has eliminated its estate and inheritance taxes.

For those whose estates are above, or approaching, the federal exemption amount, tax planning is a critical part of the estate planning process. Fortunately, there are a number of strategies to reduce one's potential estate tax liability.

Heirs continue legal fight in Anna Nicole Smith case

Some readers may remember the probate fight involving former model Anna Nicole Smith and the estate of her deceased husband, Texas billionaire J. Howard Marshall. Smith married Marshall in 1994 when she was 26 and he was 89. When he died the following year, Smith was not named in his will. She challenged the will unsuccessfully in a Texas probate court. She later filed for bankruptcy in California, and argued in that proceeding that Marshall's eldest son, Pierce Marshall, had improperly prevented his father from leaving an inheritance to her.

The bankruptcy court awarded Smith $474 million. A federal appeals court overturned the award, ruling that a federal bankruptcy court did not have jurisdiction over a case that had already been decided in a state probate court. The case went to the U.S. Supreme Court, which ruled in 2006 that the federal bankruptcy court did indeed have such jurisdiction.

When are simplified probate proceedings available in California?

Probate in California can be expensive and time-consuming. But if an estate is of relatively modest size, a full estate administration proceeding may not be required. Under California's Probate Code, simplified proceedings are available for smaller estates.

If the total value of the estate, including real and personal property, is not more than $150,000, persons entitled to inherit real property can file a Petition to Determine Succession to Real Property in the probate court for the county where the decedent resided. If the decedent resided out of state, the petition should be filed in the county where the real property is located. The petitioners must wait until 40 days after the decedent's death to file the petition. The court will schedule a hearing to determine if the petitioners are entitled to receive the property.

California law limits how long a trust interest can last

Creating a family trust that will endure for generations is an ambition of many people who have amassed significant wealth. Under California law, however, there is a limit on how long an interest created by a trust can last. That limit is called the "rule against perpetuities."

The common law rule against perpetuities first appeared in England and has been around for centuries. But, California has enacted the Uniform Statutory Rule Against Perpetuities, which supersedes the old common law rule.

Do I need a durable power of attorney?

A Sacramento resident must decide for himself what estate planning documents he wants to execute to ensure that his affairs will be managed to his expectations in the event of his incapacitation or death. As such, readers are asked to speak with their estate planning attorneys about their needs rather than relying on this blog post as advice. It is offered for informational purposes only.

However, a durable power of attorney for financial affairs is an interesting grant of legal power. To answer the question posed in this post, whether a person needs one will depend on what financial matters the principal may need managed when he is incapacitated.

Living trusts have many advantages in California

For some people in California, estate planning is very simple. The cornerstone of their estate plan is a simple will containing instructions as to how their assets should be distributed upon death. Combined with a durable power of attorney to provide some protection if they become incapacitated, and a living will to make sure their health care wishes are respected, they have all they need in an estate plan.

Many other people want more out of their estate plan. For them, an inter vivos trust - also known as a living trust - is an option to consider. Unlike a will, which only becomes effective upon the testator's death, a living trust can be used for asset management and distribution during the trustor's lifetime, as well as after death.

California families should know the warning signs of incapacity

Sooner or later many families in California will have to face the reality that aging loved ones are no longer able to manage their own financial affairs. Research has shown that an individual's ability to make financial decisions peaks at about age 53. A person's capacity to deal with new information begins to decline around age 60. For family members, it is best to be prepared for the possibility of an older relative's diminishing capacity by planning ahead, and being watchful for some key warning signs.

According to a recent study, there are five warning signs that an older person's financial skills are beginning to decline. First, the person may take longer to perform routine financial tasks. Second, they may overlook important information in financial documents. Third, they may find it harder to do common mathematical computations. Fourth, their ability to understand everyday financial concepts may diminish. Finally, they may have a harder time understanding the risk in a financial opportunity.

How long does the probate process take in California?

Probate refers to the court-supervised process of distributing a person's assets after they have died. In California, the probate court handles cases in which a person died "testate," or with a will, or "intestate," without a will. If the person left a will, their property is distributed according to the terms of the will. The process is overseen by the executor named in the will. If the person died without a will, their property is distributed to surviving relatives under the California intestacy statute; the process is overseen by an administrator appointed by the court.

Probate tends to be a lengthy process in California. If there is a will, the court must make sure it is valid. If there is no will or trust, the court must be satisfied that all living relatives who are entitled to a share of the estate have been identified. It usually takes about four to six weeks to appoint an administrator or executor of the estate. Once this is done, notice must be sent to all creditors of the estate. The creditors are given a minimum of four months to respond to this notice.

Repeal of federal estate tax would not affect most Californians

Although our current president-elect campaigned on promises to fight for blue-collar workers, one of his major policy proposals will likely benefit only a few very wealthy individuals. The repeal of the combined federal gift and estate tax is a cornerstone of the Trump tax plan. While it is impossible to know at this stage what Trump - or Congress - will actually do, eliminating the gift and estate tax seems probable, since it will have little effect on tax revenue and is therefore unlikely to generate much controversy.

The current tax is only applicable to those whose gross estates, plus prior taxable gifts, total over $5.45 million. The exemption will increase to $5.49 million for those who die in 2017. The portability of the exemption means married couples will have a combined exemption of $10.98 million in 2017. And, in California, there is no state-level estate or inheritance tax.

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