Wednesday, March 21, 2018

Trump, Taxes and Divorce: End of the Alimony Deduction

While many of the changes to the GOP Tax Cuts and Jobs Act are geared toward corporations, big businesses and those who own them, a repeal of a deduction for alimony is an example of how the tax law will have consequences beyond the one percent.
In some cases, the new law will be turning over tax policy that has been in place for decades. Given the highly partisan and controversial manner in which this bill was passed, it leaves many wondering if Republican legislators thought through the consequences for those who are likely to be most affected—in most cases women.

Current law has included an alimony payment deduction for 76 years

According to the Act as it is currently written, this deduction will be eliminated, effective 2019. Couples who are in mediation, separated or contemplating Divorce are being counseled to act now if it seems that Divorce is the inevitable outcome. A result of the new law could be a surge in Divorces.
“Now’s not the time to wait,” said one Philadelphia lawyer and former chair of the American Bar Association’s section on family law. “If you’re going to get a Divorce, get it now.”

The deduction substantially reduces the amount of alimony payments

What does the deduction mean for divorcing couples? For those in the highest income-tax bracket, it means that every dollar someone pays to support a former spouse is actually costing him/her a little more than 60 cents. Potential divorcees have all of 2018 to use the alimony deduction as a bargaining chip in their negotiations with estranged spouses.

An increase in acrimonious Divorces that disproportionately target women

Many believe that removing this deduction will make Divorces more acrimonious, that people won’t be willing to pay as much alimony. More couples will end up fighting in court because they won’t be able to agree on alimony terms. Since it is women who tend to earn less and are most often the recipients of alimony, many believe this tax change could disproportionately hurt women. One family law attorney believes that the repeal reduces the bargaining power of vulnerable spouses, mostly women, in achieving financial stability after a Divorce.

Tax break: An overview

  1. A burden on the IRS. This alimony deduction has been criticized for being a burden on the IRS. There is a one-one relationship between what ex-spouses are paying and receiving. In 2010, there was a $2.3B gap in the reporting. If they don’t match, the IRS may be auditing two people who may already be feuding—a very difficult situation.
  2. Alimony has been deductible since 1942 because lawmakers believed it was unfair to tax people on the alimony they paid when the money was not available for them to spend.
  3. The deduction is significant for divorcing couples. Let’s say that John earns $250,000, which puts him in the 24% tax bracket. He agrees to pay $4,000 per month in alimony, but it really costs him about $3,000, with the deduction. Without the break, John may agree to pay only what would have been his after-tax amount, about $3,000.
  4. Unfair to give divorcees a special break. House Republicans justified the repeal by suggesting that it was unfair to offer a special break to divorcees. The repeal prevents divorced couples from reducing income tax through a specific form of payments unavailable to married couples.
  5. The tax change is projected to raise $6.9B over the next decade; it is one of the ways Republicans are trying to compensate for the huge deficit created by the tax cuts.

If you are contemplating Divorce, if it’s uncontested, we can assist you

California Document Preparers has assisted hundreds of couples with their Divorces. If you can agree on division of property and a parenting plan, we can save you considerable money. Our dedicated team is helpful, compassionate and affordable. Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment.

Wednesday, March 14, 2018

Forget the Drama; Probate Court is a Methodical Process

Abby’s mother died in a tragic automobile accident in January. She had never prepared a Living Trust because, like many people, she assumed that this was something she’d have plenty of time for when she grew old.

An only child, Abby would be the Administrator of her mother’s estate

When Abby came in to our Oakland office, we reviewed the Probate process and her responsibilities as Administrator. On the day of our Probate hearing, Abby showed up at the courthouse, and she clearly had prepared for her day in court—she was wearing a suit and heels, makeup and she’d had her hair done. She confessed that she wanted to look professional, but there was another reason. “There were going to be all those good-looking lawyers in the courtroom.” Abby was turning her mother’s Probate hearing into a drama. Hearing her description of how she scanned the courtroom for witnesses, the judge and prosecutor, we couldn’t help thinking that she’d watched too many old episodes of Law & Order.

There’s no prosecutor or jury in Probate Court

Our client was in the courtroom specifically to get the judge’s permission to proceed with the Probate of Abby’s mother’s estate. “The judge will review your petition and grant Letters Testamentary, the document that authorizes the Executor of a Will to take control of a deceased person’s estate.” When the required paperwork is completed and submitted to the court, the judge is most likely to review and approve it without any discussion.
California Document Preparers generally manages this process for our clients. We answer our client’s questions and ensure the Probate process continues to move forward after the hearing. Disputes and objections are rare. Settling an estate is a straightforward, orderly process.

Probate can be intimidating, yet it’s a very methodical process

As part of Probate, the Court appoints a personal representative, or Administrator, to settle the estate, so we work with that person throughout the Probate process. The Administrator is responsible for:
  • Collecting all Probate property of the decedent.
  • Paying all debts, claims and taxes owed by the estate.
  • Collecting all rights to income, dividends, etc.
  • Settling all disputes.
  • Distributing or transferring the remaining property to the heirs.

Access to the decedent’s accounts

As the Administrator, Abby will gain access to all of her mother’s records–bank statements, savings accounts and income tax returns–to fully understand the financial landscape. This may include valuing assets, taking physical custody of assets and selling assets, as necessary, to pay off debts or expenses.
During Probate, the deceased’s estate becomes a separate tax entity, so Abby will need to obtain a federal identification number and open a bank account in the name of the estate to pay creditors. It is also necessary to file the estate’s tax return and a final individual tax return.

Distribution of remaining assets

Once all taxes and debts have been satisfied, the Court will then distribute any remaining assets according to the Decedent’s will, or according to state law when there is no Will. In California, as in most states, when there is no will, the first priority is given to the deceased’s spouse, followed by the deceased’s children.
In Abby’s case, her father died in 2013, and she was an only child. Once all debts are paid and the estate is settled, the remaining assets will be hers.

We encourage everyone to create a Living Trust

We all hope to live long, happy lives, but sometimes circumstances intervene. Creating a Living Trust is one of the most thoughtful things you can do for your family. Our dedicated team is helpful, compassionate and affordable. Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment

Tuesday, March 6, 2018

7 Ways One Can Benefit from Divorce!

Whether you’re in the process of getting a Divorce or still just thinking about it, you understand the toll that it will take on you and your family. Divorcing couples are faced with the stark reality that they will be starting a new life as a single person, often a single parent, and on a single income. As couples divide their lives, property and parental responsibilities, they are relieved to be ending what is generally a troublesome relationship, but that ending can leave them with significantly fewer assets and retirement savings.
Most of the articles about Divorce are endless discussions of the negative effects on budgets and families. But here’s a look at seven financial benefits that could help make a sad situation a little brighter.

1. Easier budgeting and more control over money

The end of a marriage can mean the end of fights over money. If one spouse is a carefree spendthrift and the other is thrifty, the relationship will inevitably run into serious conflicts. The expenses you and your partner prioritize and the way you spend money are fundamental to a relationship. If this is one of the issues that has driven a wedge between you and your spouse, and ultimately caused your Divorce, you are looking forward to freedom from having to plead with your spouse to rein in spending.
Nancy Hetrick, a senior financial advisor with Better Money Decisions in Phoenix is an example. In the six months after her Divorce to a spendthrift husband, she accumulated $20,000 in savings, while her ex racked up tens of thousands in debt over the same period. This is a dramatic example of different priorities about how to spend money. In this case, it drove a couple to Divorce.

2. Early access to a retirement fund, penalty-free

A Divorce is one of the few times a person can pull money out of a retirement account early and not be slapped with an early withdrawal penalty. If a Qualified Domestic Relations Order is reached as part of a Divorce, it allows for an early withdrawal from the account. This money is exempt from the typical 10% penalty assessed to those younger than age 59 ½. Note that income tax still needs to be paid if the money is not rolled into an IRA.
Cashing out part of a retirement account can be a risky move, and should only be considered after receiving sound financial and tax advice, but it gives the newly divorced some much-needed cash-flow flow at a difficult time when money may be tight.

3. Potentially better investment returns

Divorce could mean better investment returns, at least for women. Men usually take a more aggressive approach to investments and take more risks. After a Divorce, women have the opportunity to take over their own retirement planning, which ultimately can be advantageous.

4. More college financial aid for the kids

Divorce can be hardest on children, but there is one place where they come out ahead–college financial aid. The Free Application for Federal Student Aid (FAFSA) only requires financial information from the custodial parent rather than both parents. However, child support and alimony received from the noncustodial parent must be included on the FAFSA application. Additional financial aid is a little-known benefit of Divorce, but one that can be significant.

5. Social Security perks for older divorcees

Divorced spouses may be eligible to file for Social Security spousal benefits at retirement. If you were married to your spouse for at least ten years, you’re entitled to these benefits. This is something the ex-spouse doesn’t know you’re doing, and it has no impact on the benefits the ex-spouse receives.
If you were 62 by Jan. 1, 2016, you can file a restricted application for Social Security spousal benefits once you hit full retirement age. No longer allowed for younger workers, this application will allow you to receive half of your spouse’s benefit, while you defer your own and let it grow until age 70. For married couples, this only works if a person’s spouse has already started his/her benefit. For divorced couples, you don’t have to wait until your ex-spouse turns on Social Security.

6. Opportunity to reset financial priorities

Many divorced couples end up resenting the lifestyle changes necessitated by their Divorces. Divorce often means selling the family home; membership in the country club may no longer be affordable. Moving to a more modest neighborhood or apartment may be unsettling. Financial experts point out that a Divorce gives people the opportunity to rethink their priorities. It well may be that giving up a family home is a good thing—families are often significantly overextended with huge mortgages, spending more than they can afford, constantly challenged to keep up with their neighbors. Downsizing and living an affordable lifestyle can be a relief.

7. A better bottom line

Divorce doesn’t have to mean a depleted bank account. Even on a lower income, divorced people can build wealth by making smart use of their resources. Not everyone’s financial situation will improve with Divorce, but some people are surprised to learn that it does.
Getting a Divorce isn’t something to rush into, but if you find yourself in the midst of a crumbling marriage, don’t despair. You can still come out ahead. While it is always disruptive and emotionally draining, many couples enjoy new lives that are free of constant tension and bickering.

Are you contemplating Divorce? 

If it’s uncontested, we can help you. Our dedicated team is helpful, compassionate and affordable. Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment.

Tuesday, February 27, 2018

When their father died, Allison was surprised to learn that she had been named Successor Trustee of the family Trust. It seemed like a stretch—her brother, Oliver, was a banker, and her sister, Zoe, a lawyer. She, on the other hand, was a wife and mother with an unused elementary education degree. “Why would Dad name me Trustee?” Allison wondered. She had no qualifications and wouldn’t know a Trust from a greeting card. Both of her siblings were far more qualified for this role.

Their father had named Allison as the Trustee because he trusted her

Zoe and Oliver suggested that their father may have felt that Allison had the time to devote to the Trust’s administration and would rely on her siblings for help. But there was a likelier reason. “Allison was always Dad’s favorite. He trusted her. I am not sure he always trusted us.” Allison remained anxious about the new role that she had inherited. She had just started working as a substitute teacher and needed the money, with her kids headed off to college.
“As the administrator, you do get paid from the Trust.” Zoe told her. “Perhaps the fee will be sufficient to cover your lost income, and it’s not a full-time job, so you can still work. Track your hours and we can decide what’s reasonable.”
As usual, Allison was skeptical of advice from her brother and sister “Unfortunately, what may be reasonable to me may not be reasonable to you. I’m going to be facing a big learning curve, and to make this realistic, I need to be able to charge for the time that I spend researching and learning what I need to do. It might be more economical to just hire a professional.”
“Don’t do that,” Oliver said. “They’re expensive and that fee will eat into our income. Let’s agree on a reasonable hourly rate.” Allison promised to talk to her husband and make a decision that was right for her family. Her domineering siblings had always tried to interfere with her decisions and it clearly wasn’t going to stop with their father’s death. “I don’t want to get so bogged down with this that I can’t take care of my family and my job.”

When it comes to Trusts and inheritance, family conflicts have a way of surfacing

The selection of a Trustee is an important, and often difficult, decision. As the previous scenario illustrates, longtime family conflicts have a way of surfacing—especially when there’s money involved. Selecting a family member as Trustee can alleviate Trustee fees, if that person agrees to waive the right to be compensated.
But volatile family situations can make Trust administration difficult. While appointing a third party, such as a trusted friend, a financial adviser or a fiduciary may sustain a fee, it does circumvent family politics. If it’s a complex Trust, a professional trustee may be better qualified to administer it.
It’s a Trustee’s job to administer the Trust according to the instructions set forth in the legal document. They may include monitoring investments, assessing property and other resources, managing the sale of assets, paying taxes, making distributions to beneficiaries, complying with reporting and accounting requirements and responding to beneficiary requests for information. If the Trust is a simple one, these tasks can be managed fairly easily without a significant commitment of time. For more complex Trusts, however, settling the estate can become very time consuming.
Under California law, if a Trust does not specifically identify a fee for trust administration, a trustee is entitled to “reasonable compensation” that may be set by a probate court or the approval of the beneficiaries.

The Trustee’s fee is considered taxable income

Because the fee is taxable, a Trustee who is also a beneficiary may choose to waive payment of a Trust administration fee. An inheritance passed on through a Trust is generally tax-free. In addition, by waiving a fee, more resources remain in the Trust, gaining interest or otherwise accumulating value while the estate is being settled—and if it’s a complex estate, it can take a significant amount of time.

Trust administration requires careful documentation

Trust administration requires careful documentation. It means creating descriptions of tasks performed and saving receipts for administrative expenses. When it comes to naming a Successor Trustee, the primary consideration should be focused on that child, friend or professional who will ensure that the Trust is administered impartially for all, in accordance with the grantor’s instructions.
In our case, their father well may have appointed Allison for a very good reason. While he knew that Oliver and Zoe were far more qualified to be dealing with legal and financial records, he wasn’t convinced that they would be honest and impartial in distributing his estate among the three children. But he knew he could trust Allison to do what was right.
Is creating a Living Trust one of your plans for the New Year? Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Tuesday, February 20, 2018

A Cautionary Tale: Unmarried Spouse Ends Up With Nothing

This is a story with which many will be familiar. We likely know a friend, colleague or family member who has gone through just this kind of tragic situation.
  • It starts with two mature people, Jack and Stella, who meet, fall in love and begin a committed relationship that lasts more than 20 years.
  • Jack has significantly more assets than Stella.
  • Jack and Stella never legally marry, yet they live together, and for all intents and purposes act and live as husband and wife for a large part of their adult lives.

Jack comes from significant family wealth . . .

Jack’s mother, who has never approved of his girlfriends, does not want her son to marry. After all this time, Stella has never developed a relationship with Jack’s mother, and Jack has led her to believe it is because she thinks all women are after his money.
Stella is well-educated, teaches music at the local high school and has no family money. Despite Jack’s wealth, she wants to maintain her independence in the relationship and insists they split everything fifty/fifty. She quickly becomes accustomed to Jack’s expensive tastes, yet she finds herself splitting the cost of lavish trips and expensive meals that she really can’t afford.

Twenty years later, Jack falls in love with Karen

After more than 20 years, Jack finds himself falling in love with Karen, a new colleague, and leaves Stella. More specifically, he tells Stella about Karen, and Stella moves out of the home they have shared for two decades.
Stella, now in her 60s, must endure the pain and loss of what feels like a Divorce, but because they never created any legal documents defining their relationship—they never married, created a Domestic Partnership or a Living Trust naming Stella as the beneficiary of any of Jack’s assets–she is entitled to nothing–no spousal support, none of the income Jack earned during their relationship, no property. Stella has to find an apartment and start over.

This cautionary tale makes a strong argument in favor of marriage or a Domestic Partnership

Jack’s and Stella’s relationship consisted of 20-plus years of long-term dating. Had they married or created a Domestic Partnership, under California Probate law, Stella would be entitled to community property, assets and a portion of Jack’s separate property assets. If Jack had died, the results would have been the same. Pain and heartbreak for Stella, but nothing in the way of property or assets.
While marriage isn’t necessary, to be protected in the event of death or a breakup, a couple needs to register as Domestic Partners and/or create a Will or Living Trust identifying those assets that the partners will inherit. Creating these legal documents is particularly important when two people come from different economic levels.

A New Year is a very good time to update your Living Trust to reflect on important changes in your life

Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.

Tuesday, February 13, 2018

Countdown for a Stress-free New Year

End of life planning can be an unsettling process. No one wants to think about death, much less plan for it. Yet while the majority of our Living Trust clients are older, often retired or thinking about it, anyone who has assets and a family should have a Trust. It documents how you want your property to be distributed, how you want your children cared for if something should happen to you. Rather than being unsettling, many of our clients tell us that creating their Living Trust provides important peace of mind.

A New Year and a fresh start

There’s a good chance that you’ve been putting this off for a while, so here’s a countdown to a stress-free 2018. Make this the year you finish creating your Living Trust and related documents.

5. Create an Advance Health Care Directive

Creating an Advance Healthcare Directive is an important part of long-term planning. Unless your wishes are stated explicitly in writing, doctors, hospitals and EMTs are taught to keep people alive—not necessarily to follow their wishes. Healthcare professionals are not legally bound to listen to your loved ones.
Think about how you want to spend your final days. If you should become incapacitated, do you want to be at home, surrounded by family, perhaps with the help of an aide or hospice, or in a nursing facility? You will need to think about whether you want to sign a Do Not Resuscitate (DNR) Order. Whatever your wishes, you need to share them with your family and your doctor. Make sure you choose people whom you trust to carry out your wishes—even if their views conflict with their own beliefs or feelings.

4. Appoint a Power of Attorney whom you trust

Power of Attorney is that person whom you trust to manage your life if for some reason you are no longer able to do this yourself. A Power of Attorney will be responsible for paying your bills, taking care of your taxes and other financial commitments as well as making important healthcare decisions. This can be a demanding role that requires time as well as the ability to manage financial matters, so choose this person carefully.

3. Review a Will or Trust if it is more than five years old

Surprisingly, more than 50% of Americans die without a Will or a Living Trust. The result? Their families will have to go through Probate—a lengthy and expensive process at what will already be a very difficult time.
Many people create their Trusts but fail to update them. That can be a problem if someone dies and his/her Trust is 20 years old–there were likely a number of significant life changes over those 20 years that were not reflected in the Trust.

Consider updating your Trust if it is an AB Trust

There have also been several significant law changes over the last 20 years that affect married couples with Trusts. Many couples did “AB” Trusts in the past because the estate tax threshold was much lower than it is today. Those AB Trusts come with very onerous administration after the first spouse dies, including segregating assets and filing an additional annual tax for the Trust.  The surviving spouse is also prohibited from changing part of the terms of the Trust because it partly becomes irrevocable.
With the recent tax bill, estates under $10,000,000 are not subject to the estate tax, so a married couple should check their joint trust to see whether it is an AB Trust, and whether that is still appropriate for them.  We can help convert an old AB Trust into a simpler and more flexible plan.
Anything that will affect the inheritance of your family is a reason to update a Trust. Births, deaths, divorces, purchases of property and assets need to be reflected in your Trust.

2. Make provisions for your pets

Pets these days are spoiled and pampered for good reason—they’re funny and charming and provide comfort and companionship to millions of people who might otherwise be lonely. If something were to happen to you, whom would you trust to care for your pets? Think about the costs of feeding your pets and trips to the vet. Most important, identify someone who will love your pets as much as you do.

1. Provide access to your digital assets and accounts

Most of us conduct the bulk of our personal business online, but what happens to these online assets and accounts after you die? Take some steps now to help your family deal with your digital property.
  • Make a list of all of your online accounts, including e-mail, financial records, Facebook and other social media accounts–anywhere you conduct business online.
  • Include your username and password for each account.
  • Include access information for your digital devices, including smartphones, tablets and computers.
  • Make sure the Agent for your Power of Attorney and the Successor Trustee of your Trust have authority to access your online accounts.

California Document Preparers makes it easy for our clients

Our comprehensive Living Trust package includes a Power of Attorney and Advance Healthcare Directive. We help our clients through every step of the process. Contact California Document Preparers at one of our three Bay Area offices todayto schedule an appointment. We’re helpful, compassionate and affordable.

Tuesday, February 6, 2018

Hospice: A Family’s Tragic Tale of Inadequate Staffing Levels

Living Trusts are an important service for us, and because many of our Trust clients are either retired or thinking about retiring, conversations about healthcare, assisted living and long-term care frequently surface. Hospice is another topic that gets a lot of attention. It’s an industry that has exploded over the last few years as healthcare providers strives to provide services for an aging baby-boomer population.
A recent article in The New York TimesThis Was Not the Good Death We Were Promised, is a very moving story about one woman’s hospice experience with her father, who was diagnosed with pancreatic cancer, which is notoriously difficult to treat. They had decided that he would die at home, surrounded by his family and those things which were familiar and dear to him. The author spent the final weeks with her father, watching favorite TV episodes, poring over old photos and reminiscing.

A family enlisted the support of hospice to help their father die

There was little she could offer her father at this point in his life, but what she could promise him was a painless, easy death. They were wary of the unnecessary medicalization of hospital deaths, so they had enlisted the support of an in-home hospice agency to ease him through his final days.
When a doctor determined that her 83-year old father had about six months to live, the author invited a hospice representative to their home. The representative provided a summary of the Medicare-provided services. Most importantly, she told them that if a final “crisis” came, such as severe pain or agitation, a registered nurse would stay in his room around the clock to treat him.

Looking back, the problem centered around inadequate staffing levels

Things went well for a few months. A caretaker made regular visits and a physician’s assistant prescribed pain medication for the relatively little pain he was having. But towards the end, her father experienced a deterioration—and hospice failed to respond as promised.
At 7:00pm on the last day of her father’s life, his pain spiked dramatically. His nurse turned her phone off at 5:00pm, so the author called the hospice switchboard. No doctor was available, and it took the receptionist an hour to reach a nurse by phone, who told them to double his dose of oxycodone. Yet that had no effect; her father needed another level of care.
The only on-call nurse was helping another family two hours away. The author and her sister experimented with Ativan and more oxycodone and fumbled through administering a dose of morphine their mother found in a cabinet. A nurse arrived at midnight, and, incredibly, had brought no painkillers.

After the nurse left, the father’s pain broke through the morphine

The author called the switchboard again, and it took three hours for a new nurse to arrive. She was surprised the patient hadn’t been set up with a pump for a more effective painkiller. This nurse agreed that they were now in a crisis that should trigger the promised round-the-clock care. She made a phone call and told the family that the crisis nurse would arrive by 8 a.m. But the crisis nurse did not arrive by 8:00, 9:00 or 10:00am. Apparently the nurse had strep throat, but another nurse would arrive by noon. By 2:00pm, no nurse had arrived. By this time, the father had slipped into a coma, leaving his family heartbroken that he had been in severe pain and would not be able to hear their final goodbyes. The crisis nurse finally arrived at 4 p.m., but there was little left to do.

At the end of life, things can fall apart quickly

Neither a medical specialist nor a hospice worker can guarantee a painless exit. But this family was assured that a palliative expert would be at their father’s bedside if he needed it. No one mentioned the strain on their staffing levels that would make this impossible.
The author saw in a report several months later that the home hospice system is stretched thin and falling short of its original mission. Many of the more than 4,000 Medicare-certified hospice agencies in the U.S. exist within larger healthcare or corporate systems, which are often under pressure to keep profit margins up. Hospice began as a nonprofit, with pure motives. With the large, aging baby-boomer population and the profit potential, many more for-profit hospice organizations have sprung up.

Hospice complaints are in the minority

Kaiser Health News discovered that there had been 3,200 complaints against hospice agencies across the country in the past five years. Few led to any recourse. In a Medicare-sponsored survey, fewer than 80% of people reported “getting timely care” from hospice providers, and only 75% reported “getting help for symptoms.” That said, more than a million Medicare patients go into hospice care every year, and those with complaints are in the minority. A new government-sponsored website called Hospice Compare will soon include agency ratings, which may inspire some to raise their level of service. When the author looked up the agency they had used, its customer-satisfaction rate for handling pain — based on the company’s self-assessment — was 56%.
Just as this family had an unfortunate hospice experience, many other people can tell stories of the wonderful care their family members received from hospice providers. Thoroughly researching the background of a hospice agency before engaging it may help ensure that your loved ones receive excellent care.