Wednesday, October 18, 2017

Distribution of Assets: Beware Property Tax Consequences



A recent experience with a Living Trust client brought up an issue that frequently surfaces for those who are dividing their estates among their children. “Joe” and “Marilyn” were planning to gift real property equally to their son, “Tony” and daughter, “Sarah”. In the beneficiary section of the Trust, they also were granting the residue (the remaining assets after all specific gifts have been made) of their Trust estate to Tony and Sarah equally.
In each case they named an alternate beneficiary in the event something happened to either Tony or Sarah. For both the property and the residue, the alternate beneficiary was the other sibling. This seems straightforward, but it creates potentially significant property tax ramifications for Tony and Sarah.

Background: Prop 58 excludes transfer of real property from reassessment

In 1986, voters in California approved Proposition 58, which excludes real property from being reassessed when it is transferred from parent to child. When the primary residence is transferred, there is no limit on the value of the property. For property other than the primary residence, there is a limit of $1 million per transferor.
This means that instead of reassessing the property at its current value, the assessment of the current Prop 13 value results in significantly lower property taxes. For Joe and Marilyn and their family, this means that when the property is transferred equally to Tony and Sarah, there will be no reassessment at that time (if they wish to exercise their exemption).

Sarah and her family are living in the primary residence

The situation gets a little more complicated with this family, as it does with many of our clients. Sarah and her own family are currently living in the property and plan to remain there after Joe and Marilyn die. Sarah can buy Tony out, but the assessor will treat the transfer this time as that of one sibling to another—which means that this time it will be without the exemption, so that 50% of the property would be reassessed at current values. In today’s inflated real estate market, this could result in an increase of a few hundred thousand dollars in assessed value and skyrocketing property taxes.

This scenario caused our clients to reconsider

Joe and Marilyn began rethinking how they would split their estate between their children. If they included the property as part of the residue of the estate, this gave Tony and Sarah additional options. If the Trustee valued the total of the estate and then split the estate, one half could include the home that one child wanted and the other half would include a total of equal real and liquid assets. With this scenario, the transfer of the home to Sarah would qualify for the exemption on the entire value of the home. No buyout would be required and no transfer from one sibling to the other would be necessary—avoiding the potentially huge property-tax burden. Tony could receive real property and assets equal to the value of the property that Sarah was inheriting.
California Document Preparers assists clients with the creation of Living Trusts, transferring property into the Trusts, and assisting Successor Trustees in transferring properties to beneficiaries. We also can assist in transferring property to your children now. The implications of the Parent-Child Exemption should be considered in any Deed transfers between parents and children.
Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment or to get more information to help make informed decisions. We’re helpful, compassionate and affordable.

Tuesday, October 10, 2017


We helped a Berkeley couple, “Brad” and “Sonya”, get a Legal Separation four years ago. They’d been married for eight years and had two young children. Their relationship had become increasingly troubled, yet they were not ready for Divorce; rather, they believed that taking the steps to legally separate was the right solution for their family at that time. Just as with Divorce, a Legal Separation requires division of property and a parenting plan. Brad and Sonya were both professionals generating good incomes, and they agreed that Sonya would get the house, and be responsible for refinancing it in her name alone. They shared custody of their two children, but since the kids spent 70% of their time with their mother, Brad agreed to pay child support.

Four years later, they were ready to get a Divorce

The four years of Brad and Sonya’s legal separation did nothing to repair their relationship, and they agreed that it was time to get divorced. Over the period of their separation, both spouses had been promoted, increasing their salaries. Both had made investments, and Sonya had inherited her grandmother’s Tahoe cabin. They had never executed a Deed transferring the home to Sonya, so we immediately prepared a Deed transferring the property to her, enabling her to refinance the family’s home.

Once a legal separation is finalized, the case is closed . . . but a couple is still married, with the responsibilities of a married couple

Legally separated couples need to keep in mind that even if they are officially separated, they’re still married. If, like Brad and Sonya, they decide to divorce, they must start a brand new case and prepare new documents. If a couple wants to keep their agreement the same, the documents can reference their previous judgment, but if they want to make additions or changes to the division of assets or the parenting plan, they must submit a new agreement.
While a separation can take just a few months (effective as soon as the judge signs the document), California legally requires a minimum of six months and one day from the date the spouse is served for a divorce to be official. Some legally separated clients who proceed with a Divorce are surprised that they can’t simply sign off on the change of status, and Brad and Sonya’s case clearly illustrates why this wouldn’t be the best course of action, even if it were possible. Circumstances can change dramatically over the course of an extended separation—for better and for worse, which necessitates revisiting a couple’s collective assets and debt and how they plan to share in the raising of their children.
If you’re considering a Legal Separation or if you’ve decided that it’s time to go through with a Divorce, contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Thursday, October 5, 2017

Trust Update: 25 Years Later, a Completely New Document


Oakland resident “Henry” came in to update his Living Trust after his wife died. Their Trust was amendable by the survivor, and he wanted to make some changes. Henry and his wife had created their Trust 25 years ago, and while it named their five children as beneficiaries, it did not address the fact that two of their now-adult children had special needs.

A lot had changed in 25 years, including the addition of new grandchildren

Henry wanted to add his five grandchildren as beneficiaries—all had been born after the Trust’s creation. Henry was active and in good health, but his wife’s death had made him aware of his own vulnerability, and he wanted someone to help him manage the Trust’s assets immediately. His son, John, was a CPA, and while Henry was closer to his artist daughter, Kate, he knew that John would be the better choice to help manage his estate.

As often happens, we discovered real property that had not been moved into the Trust

There’s a reason why we urge our clients to review their Trusts periodically or after important life events. A lot changes in 25 years. When we investigated the status of his real properties, we found that they were no longer in the old joint Trust. Since these were the only assets they had originally deeded into their Trust, and they were no longer in it, Henry decided that the old trust was so dated that it made sense to start from scratch, creating a new Trust and moving all of the appropriate assets into it. He would also address the life changes that had taken place since the first Trust some 25 years before, including adding his new grandchildren and making accommodation for his two special-needs children. Henry completed the appropriate workbooks for us, including those to establish two Special Needs Trusts as well as the transfer of his three properties into the Trust.

Another obstacle: Incorrect Deeds which needed to be unraveled

When we were preparing the Deed transfers to go into his new Trust we could see that the property descriptions for two of the properties were incorrect. After exploring this with him, we found out that more than 20 years ago, he had split one property into two. No new property descriptions had been written, and the last recorded Deeds were incorrect. With the help of the county assessor, we were able to discern what needed to be done to help him correct the property descriptions and transfer the properties into his Trust. This was important because Henry was leaving one of those properties to his son.

Important features of the new Living Trust

  • John was immediately named as co-Trustee; if Henry became incapacitated or simply needed help with Trust assets, his son could take over without requiring the involvement of doctors.
  • Two Special Needs Trusts put the beneficiaries’ shares in the hands of the Successor Trustee to manage so his children did not lose the public benefits to which they are entitled.
  • After Henry’s death, shares for Henry’s five grandchildren will be controlled by the Successor Trustee who, at his discretion, can use the funds if needed for their welfare or education until they reach an age Henry designated.
California Document Preparers prepared the new Trust, an updated Power of Attorney, and Advance Health Care Directive and called Henry when it was time to sign them. He was immensely relieved to have these documents brought up to date.
How long has it been since you prepared your Living Trust? Like Henry, there’s a very good chance that there have been significant changes to in your life. Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment to amend your Trust. We’re helpful, compassionate and affordable.

Wednesday, September 27, 2017

Divorce: “Petition to Publish” Rather than Serving Your Spouse

A sad young man who lived in Albany, “Ben”, came into our Oakland office. He and his wife were married for 15 years; they’d separated 18 months ago and he was still devastated. His wife had moved away, and he wanted to file for divorce, hoping this would create some finality so he could get past this. There were no children, so this significantly simplified the divorce process for this couple.

Filing a Petition to Publish

Benjamin had done some research, and he wanted to file a “Petition to Publish” rather than having to serve his wife personally because he didn’t know—but more importantly—he didn’t want to know where she was living. He was still very hurt about his wife’s leaving, and he thought it would be easier if he didn’t have to meet with her in order to serve her.

Service by publication: publishing the summons in a local newspaper

According to California law, if you don’t know the whereabouts of your spouse or domestic partner to properly serve him/her with your filed summons and petition (or some other document), you can ask the court for permission to serve your papers "by publication" or "by posting." "Service by publication" means that you publish the summons or other document in a newspaper of general circulation in the area where your spouse is likely to live. The summons must be published weekly for four consecutive weeks, and the publication invoices accordingly.

Getting court approval for a Petition to Publish can be difficult

The courts strongly encourage personally serving documents on the other party, so it can be difficult to get a Petition to Publish approved by the courts. Even though our client was willing to pay additional fees to have the paperwork prepared, he realized that, as part of the paperwork, he couldn’t swear under penalty of perjury that he had made every effort possible to find his wife. The courts require that the petitioner diligently record every effort he/she has made in the effort to locate the other party, which can be very time consuming and may include:
  • Publication in a newspaper in the last known city the respondent lived.
  • Detailed logs of attempts to locate the missing spouse through internet searches and social media.
  • Checking DMV records.
  • Scouring the white pages.
  • Contacting relatives and persuading them to divulge the address.
Most people find the process of searching and documentation daunting. They realize that it would be easier to reach out to likely sources and locate the missing spouse than try to get court approval for a Petition to Publish. Ben agreed that getting a divorce was his primary goal and this process would further delay his divorce.

Ben renewed his search, located his wife and hired a process server

Ben restarted his search and eventually found a friend who provided his wife’s current address, and he hired a process server to serve her with the dissolution paperwork, circumventing his having to personally interface with her. Now that his wife has been served, as long as she does not file a response with the court, we will be able to help him finish the dissolution process without her involvement, easing the divorce process as much as possible for Ben.
Are you thinking about Divorce but need more information about how we work with our clients? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Wednesday, September 20, 2017

"Forgotten" Tahoe Property Results in Probate


Probate is never easy for a family. It comes at a time of loss and grieving. Depending on the complexity of the estate, it can be extremely time-consuming, and it can be expensive. There’s generally also a sense of remorse. If parents or loved ones had only created a Living Trust, funded it and kept it updated, all of this could have been avoided.
Danville resident “Kathleen” recently came in to our Walnut Creek office seeking information and direction. Her Mom had died peacefully in her Walnut Creek home in July and Kathleen was now in charge of settling the estate. Thankfully, at the urging of her daughters, mom had created a Living Trust and Kathleen trusted that all of her assets were titled in the name of the Trust.

A Tahoe vacation property had never been moved into the Trust

In reviewing the paperwork, however, Kathleen realized that her mother’s Tahoe vacation home, which the whole family had enjoyed over the years, had never been moved into the Trust. In order for Kathleen to settle the estate so she could divide the assets with her siblings, she had to sell the Tahoe property, which meant Probate. Kathleen would have to open a Probate case, then be appointed by the court as Executor of her mother’s estate.

A Living Trust must be properly funded and updated

When a Living Trust is set up, it is important that all assets be transferred into the Trust, including vacation property. Note that this also includes timeshares—something that frequently gets overlooked. California Document Preparers can help with Deed transfers anywhere in the United States. Kathleen learned the hard way–having a deed prepared and recorded is a lot simpler and much less expensive than Probate.

Of course we do Probate!

Unfortunately, more than 50% of Americans die without a Living Trust, which means their heirs must go through Probate. If the Probate is uncontested, California Document Preparers can help you—and also help you save a considerable amount of money. Call today for an appointment. We’re helpful, compassionate and affordable.

Wednesday, September 13, 2017

Estate Tax Law Changes Make it Time to Amend Dated AB Trust


Many of our clients are coming in to simplify their old AB Trusts. The AB Trust was originally designed to create estate tax savings by keeping the deceased spouse’s property out of the estate of the surviving spouse. In 2011, however, a dramatic change in the federal estate tax laws exempted most estates from paying any estate taxes. For 2017, for example, the exemption is $5.49 million, which quickly eliminates the vast majority of Americans.

How the AB Trust works

When the first spouse dies, the Trust is divided into two Trusts: Trust A and Trust B. Trust A receives half of the couple’s community property and the surviving spouse’s separate property. Trust B receives the other half of the community property, and the separate property of the deceased spouse, but with the surviving spouse named as life beneficiary of the Trust. The surviving spouse can receive all income from Trust B and may also receive some principal, if Trust A is exhausted.

Results of the estate tax laws changes

The results of the estate tax law changes mean that an estimated 1% of the US population now pays any estate tax at all. This makes the old AB Trusts dated and cumbersome for the vast majority of Americans.

Limitations of the AB Trust

  • Restrictions on what the surviving spouse can do with AB Trust property can make it difficult to sell assts.
  • The surviving spouse cannot make gifts of the AB Trust’s property to anyone.
  • There can be substantial costs involved in managing the AB Trust after the death of the first spouse—preparing taxes and ensuring that this property is kept separate from that of the surviving spouse.
The reality is that the AB Trust is no longer necessary or advisable for estate planning. We are helping many of our clients amend or restate their Trusts to remove the AB Trust provisions.
Do you and your spouse have an AB Trust that you’d like to amend? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Thursday, September 7, 2017

Estate Tax Law Changes Make it Time to Amend Dated AB Trust


Many of our clients are coming in to simplify their old AB Trusts. The AB Trust was originally designed to create estate tax savings by keeping the deceased spouse’s property out of the estate of the surviving spouse. In 2011, however, a dramatic change in the federal estate tax laws exempted most estates from paying any estate taxes. For 2017, for example, the exemption is $5.49 million, which quickly eliminates the vast majority of Americans.

How the AB Trust works

When the first spouse dies, the Trust is divided into two Trusts: Trust A and Trust B. Trust A receives half of the couple’s community property and the surviving spouse’s separate property. Trust B receives the other half of the community property, and the separate property of the deceased spouse, but with the surviving spouse named as life beneficiary of the Trust. The surviving spouse can receive all income from Trust B and may also receive some principal, if Trust A is exhausted.

Results of the estate tax laws changes

The results of the estate tax law changes mean that an estimated 1% of the US population now pays any estate tax at all. This makes the old AB Trusts dated and cumbersome for the vast majority of Americans.

Limitations of the AB Trust

  • Restrictions on what the surviving spouse can do with AB Trust property can make it difficult to sell assts.
  • The surviving spouse cannot make gifts of the AB Trust’s property to anyone.
  • There can be substantial costs involved in managing the AB Trust after the death of the first spouse—preparing taxes and ensuring that this property is kept separate from that of the surviving spouse.
The reality is that the AB Trust is no longer necessary or advisable for estate planning. We are helping many of our clients amend or restate their Trusts to remove the AB Trust provisions.
Do you and your spouse have an AB Trust that you’d like to amend? Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.