Updating Living Trust After Death of Spouse

When we create Living Trusts for our clients, we always caution them that there’s a reason these are referred to as Living Trusts---these are living documents that need to be updated with important life events.

So what are life events?

A good way to think of this is anything that would affect the inheritance of those who are included in the Trust: Births, deaths, divorce, the acquisition of significant assets, including real property.

A good example of someone’s updating his Trust is Mike, from Pleasant Hill, who came in to update his Trust after his wife, Mary, died from a long battle with breast cancer. Mike and Mary originally created their Trust in 1997, when their daughter Lucy was 15 and their son Joey was 17. They had named Mike's older brother, Bob, as the Successor Trustee, and his wife's twin sister, Jennifer, as the Backup Successor Trustee. Lucy and Joey were equal beneficiaries when they reached 25.

Amending their old AB Trust

Mike and Mary had a complex AB Trust, fairly common at the time, that was to be divided into two Trusts when the first spouse died. But according to Article 7.3 of their Trust, at the death of the first spouse, the surviving spouse can amend or revoke any part of the entire Trust. As the lone Trustee, Mike had permission to amend his Trust.

Needs had changed; Mike now wanted adult children to serve as Trustees

When Mike and Mary had originally created their Trust, their kids were young, and they needed to include adult Trustees in the event something happened to them. But those kids were now grown and married, with lives of their own. Mike wanted to remove Bob and Jennifer as Trustees and make Lucy, a CPA in San Jose, the Trustee—she was most able to take care of him and manage his affairs if he became incapacitated. Joey, a graphic designer, would be Lucy’s backup.

Mike’s home was in the Trust, and he had inherited his mother's home from her Trust when she died. His mother's home was in Washington state, and while he had added Mary to the title, he had never moved this home into their Trust. He wanted to move his mother’s home into his and Mary's trust.

How California Document Preparers assisted Mike

• Amendment to Living Trust. Mike amended their Trust, converting it from an AB Trust.
• A change of Trustees. He amended the Trustees, making his CPA daughter Lucy the first Successor Trustee and Joey her backup. Lucy also became his Agent with Power of Attorney for financial matters and the Agent for his Advance Healthcare Directive.
• Affidavit of Death of Joint Tenants. We created an Affidavit of Death of Joint Tenants, informing Washoe County, Washington, that Mike’s wife had died and prepared a Deed to transfer his mother’s home into his and Mary's Trust.
• Pour Over Will. A standard part of our Trust package is a Pour Over Will, which Mike created. There is a lot to think about when preparing legal documents, and clients are often concerned that they will have forgotten to include some of their assets in their Living Trusts. The Pour Over Will acts as a safety net, stating that any remaining assets or property not previously transferred into the Trust “pours over” into the Trust so they may be distributed according to the terms of the Trust.
• Personal Organizer. We also included a personal organizer, a place for listing contact information of healthcare providers, insurance agents, financial advisers, veterinarians, etc. We also encourage our clients to include login information to their digital assets.

Mike's total fee was $949. This fee included amending and updating his Living Trust, the Will, Power of Attorney, Advance Healthcare Directive, Affidavit of Death and Deed Transfers. The fees for our Living Trusts and Deeds are fixed rates--no surprises.

We were delighted when the following week Mike’s daughter, Lucy, came in to create a Living Trust for herself and her husband, Jake.

Call California Document Preparers today at one of our three Bay Area offices today to schedule an appointment to update your Living Trust. We’re helpful, compassionate, affordable.

Single Mom Creates Living Trust to Provide for Her Daughter

The concept of family has evolved. It’s not uncommon for men or women these days to decide that they really don’t want to get married at all, but they do want to have a child and be a parent. The families they form may include the child’s birth father or mother—or not. It’s really up to them to define their version of the new American family.

Introducing Mary: A 34-year-old pregnant surfer

One such woman, “Mary” recently came in to our Walnut Creek office. She is 34, lives in Danville, has a great job, loves to surf at Ocean Beach—and is five months pregnant with a little girl. She and her boyfriend, “Oliver” have been together for five years, and he’s a software salesman who does a fair amount of traveling. When she told him that she was pregnant, he wanted to get married. But while she loves Oliver, she doesn’t want to marry him.

Mary owns two properties—a four-unit apartment in Alameda and the home in Danville in which she lives. It had been her grandmother’s house, and when she died, Mary and her parents became equal owners.

Having a child will dramatically change her lifestyle

Mary is healthy, happy and eagerly anticipating the birth of her daughter. She knows that being a single mother is going to be challenging and that her lifestyle will change dramatically. Even with her demanding job, she knows she must prioritize the needs of her new daughter.

But Mary has always wanted to have children, and she knows that this is the right time. She also knows she can count on her strong support system, including Oliver. Her parents, who live close by, are ecstatic about the prospect of their first grandchild. Mary also has friends and extended family members who live in the East Bay, and she knows she will need to rely on all of these people as she navigates her new life as a single mom.

What happens to her daughter if something happens to Mary?

Mary is worried, however, about what would happen to her daughter if something happened to her. She wants to make sure her daughter would inherit her assets, but she also wants to make it easy for Oliver to raise their child.

Here’s how California Document Preparers helped Mary provide for her daughter:

• We created Mary’s Living Trust package from the information she provided in our easy-to-use workbook.
• She named Oliver and her father as Co-trustees.
• Mary left the apartment to Oliver and her home to her parents.
• She named Oliver as the child's guardian and her sister as a backup guardian.
• Our comprehensive Living Trust package includes a Power of Attorney, and she decided that her father, an attorney, will be her Financial Power of Attorney, with Oliver as the backup.
• Mary named Oliver, her sister, mother and father on her Advance Healthcare Directive.
• We also did two Deeds transfers for Mary; the Alameda apartment building is 100% in her Trust and her grandmother’s Danville home is 50% in her parents’ Trust and 50% in her new Trust.

Mary is delighted that we were able to take care of her Trust in one week--long before her child is due. It is giving her peace of mind as she prepares for the birth of her daughter.

There’s a common misperception that Living Trusts are just for old people! In the same way that Mary wanted to provide for her daughter if something happened to her, anyone with dependents should have a Trust.

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

The Economics of Divorce: 6 Ways to Prepare

If you’re thinking about divorce, you’re likely agonizing over your decision. While you’d love to be living without the constant bickering and tension that you know are affecting your kids, divorce would likely mean making some economic sacrifices. Living in the Bay Area is expensive, and you’ve built a life predicated on two incomes. Will you be able to afford your current lifestyle on a single income or will you need to make changes, including selling your home? Should you be talking to your boss about a raise or looking for a new job altogether—one that pays a lot more money? What about the timing? Can you be looking for a new job while you’re in the process of getting a divorce?

Here at California Document Preparers, these are among the concerns we frequently hear from our clients. While they invariably decide that creating a new life, free of an abusing spouse or a dysfunctional relationship is worth it, there is significant anxiety associated with the decision. And ultimately, many of those anxieties are related to the economics of divorce.

If you’re contemplating divorce, here are six things to do now to prepare 

1. Take stock of your mutual assets. Take stock of account balances and understand the total value of joint assets, including checking, savings and brokerage accounts, retirement plans and life insurance policies, real property, vehicles and other acquisitions that are part of your total net worth. You will need this information as you begin the division of property.
2. Be fiscally conservative. Resist the urge to make significant withdrawals or expensive purchases prior to or during the divorce process. You’re going to have some big expenses coming up.
3. Prepare for a new career ASAP. As soon as people know they are getting a divorce, they should think about how they will support themselves in the years after the divorce. If one spouse has been a stay-at-home mom or dad, it’s time to get serious about reentering the workforce. A common mistake is waiting until a divorce is final before beginning a job hunt. By that point, precious months have been squandered that could have been spent polishing skills, getting new training or networking to build important business contacts.
4. Don’t get emotional about your home or other items. In many cases, people give up valuable assets or other rights in order to keep the family home. Selling the house can be traumatic because there are so many emotions tied to the family home—it’s where you once lived happily together and raised your kids; it may be in a great neighborhood where you’re surrounded by friends, but sometimes it’s the right thing to do. Try to look at the big picture, with the house as just one part of the overall accumulation of assets.
5. Think about the tax implications. Next to a house, a retirement fund may be the most valuable asset a person owns. But couples shouldn’t simply cash out and split the proceeds. There are tax consequences of trading one asset for another as you divide your property. The vacation home is a tax-free benefit while the 401k is taxable.
6. Consider all insurance options. Divorces commonly require one spouse to pay child support or maintain health insurance for dependents. But if that person loses his/her job or is unable to work for whatever reason—something that is all too common these days—a significant amount of support suddenly disappears. Picking up the cost of health insurance for dependents can be a significant financial contribution.

Do you have questions about our Uncontested Divorce?

We assist clients who can agree on division of property and a parenting plan. Our family law team prepares the legal documents, notarizes and files them with the court. Divorce is never easy, but we’re sensitive to the emotional needs of our clients and are in touch throughout the divorce process. We’re helpful, compassionate and affordable.

Living Trusts and the Issue of Mental Capacity

These days, hardly a day goes by that we don’t hear about someone we know being diagnosed with Alzheimer’s or some form of dementia. In some tragic cases, it comes way too early and it’s agonizing to see a life cut short.

Alzheimer’s: No hope, no cure

Alzheimer’s is one disease for which we have no cure, no revolutionary treatment. It violates every demographic, and the statistics indicate that nearly 80% of us will experience some kind of dementia before we die—it may not be the complete debilitation of Alzheimer’s, but we’ll have some degree of memory loss and inability to deal with our surroundings. For those who are in the process of creating a Living Trust, along with a Power of Attorney and Advance Healthcare Directive, this presents a potential problem. At what point is someone incapable of creating and signing a legal document such as a Living Trust?

Legally, everyone is presumed to be competent

However, the presumption that someone has legal capacity can be challenged in court. If the challenge is successful, the court will invalidate the Living Trust, making it necessary for the heirs to go through Probate to settle the estate and distribute the deceased’s assets.

Possession of a mental deficit

In California, testamentary incapacity does not refer to physical or mental disorders, but rather to one of three factors: The inability of a person to understand and sign estate-planning documents, the presence of an unsound mind or the possession of a mental deficit “so substantial that, under the circumstances, the person should be deemed to lack legal capacity.”

It’s important to note that age, illness and disease in themselves are not factors in the determination of testamentary capacity. People can be well into their 90s or suffering from debilitating disease, yet still have the capacity to be fully cognizant of what they are doing, legally able to sign a Will and Living Trust.

Under California law, deficits that may affect testamentary capacity are divided into four categories.

• Alertness and attention. The court would be looking for poor arousal or consciousness; a weak orientation to time, place, person, and situation; inability to concentrate.
• Information processing. This includes deficits in short or long-term memory; the inability to understand or communicate with others; the lack of recognition of familiar objects and people; the inability to understand and appreciate quantities; the inability to reason logically and to carry out a plan or action.
• Thought processes. Extreme examples of inability to complete thought processes would be hallucinations, delusions and uncontrollable, repetitive thoughts.
• The ability to modulate mood and effect. In this case, there would be evidence of persistent, recurrent moods inappropriate to an individual’s circumstances, including euphoria, anger, anxiety, fear, panic, depression, hopelessness, despair, apathy or indifference.

The presence of one or more of these factors does not necessarily mean someone is incapable of making decisions regarding his/her estate or signing related legal documents–an illness or prescribed medications may temporarily influence testamentary capacity, for instance. Once the prescribed drug treatment is finished or the illness has passed, the person may be fine once again.

With a diagnosis comes some immediacy

But evidence of any one or all of these factors in at least some degree raises the need to take extra precautions if you or someone in your family is creating estate-planning documents. Once people have been diagnosed with dementia, there is, of course, the need to create end-of-life documents as quickly as possible. In addition to the issue of testamentary capacity, there are very practical considerations–they may soon need these documents to be in place if they are no longer able to take care of their own affairs and make decisions about their own care. They will need to identify a Power of Attorney and an Agent for their Advance Healthcare Directive.

Wedding Season: Is a Prenup Part of Your Wedding Plans?

June is the month when wedding season gets into full swing, which means April is crunch time for wedding plans. Increasingly, those wedding plans include a Prenuptial Agreement.

We read about celebrities and other wealthy individuals who wouldn’t dream of getting married without a carefully conceived Prenuptial Agreements to protect their fortunes. Other couples create their Prenuptial Agreements with provisos that leave us skeptical about the long-term stability of a marriage that’s based on these kinds of priorities:

• Who gets the pool boy, the gardener and the dog.
• The right to perform random drug tests.
• A claim on all frequent-flier miles should a spouse be unfaithful, plus severe financial penalties for incidents of unfaithfulness
• Thresholds on the amount of weight both partners can gain. If either exceeds the limit, he/she will be fined $500/pound.
• Limits on the number of football games the husband can watch with his BFFs; the wife’s constraints on the number of reality TV shows she’s allowed to watch.
• Assurances that the kids will be raised as vegans.

We can laugh at these silly stipulations that have little relation to the hard work of making a long-term commitment and sharing a life with someone. Thankfully, these are rarely the kinds of terms that we see our clients including in their Prenuptial Agreements.

Prenuptial Agreements are on the rise for a few very good reasons

• Couples are entering marriage later in life. They’re likely have gone to have graduated from college and often graduate school and have well-paying jobs. They’ve worked hard and accumulated assets—a home, a portfolio, a 401k. These are level-headed people who may have fallen in love and truly want to get married and live happily ever after, but they’re also practical enough to want to protect their assets.
• Divorce has created another demographic that is increasingly inclined to create Prenuptial Agreements. These couples, like the ones described above, also tend to be older and have accumulated assets that they want to protect. But there’s another big factor here—each partner is likely to be bringing children into this relationship as they merge and become one of America’s many blended families. Especially for older couples who are getting remarried later in life, there’s a likelihood that each spouse wants to protect the assets that he/she is bringing into the marriage and, ultimately, the inheritance of his/her own children.

While there is often some initial reluctance to talk about money and creating a contract before the wedding has even taken place, it is really a very logical thing to do. Marriage is a contract, and thoughtfully working through the process of creating this agreement is an excellent way to begin a marriage.

Attorney review: A very good idea

Because a Prenuptial Agreement deals with the property rights of the marrying parties, it is advisable for both parties to have separate and independent attorneys review the agreement. Certain provisions, such as giving up the right to spousal support, are unenforceable if the party who later wants support (in a divorce proceeding) did not have an independent attorney explain the agreement to that party. California Document Preparers has relationships with excellent local attorneys and can provide referrals for the reviews. Combining quality legal document assistance with legal advice is an excellent use of your legal dollars.

Are you and your fiancé considering a Prenup? We know this can sometimes be difficult for couples, so we’re sensitive to their needs. Contact California Document Preparers at one of our three Bay Area locations and schedule an appointment today! We’re helpful, compassionate and affordable.

April 16–National Healthcare Decisions Day: The Importance of Naming a Healthcare Agent

April 16 is National Healthcare Decisions Day, so we want to emphasize the importance of advance healthcare planning. This is a difficult conversation—no one really looks forward to sitting down with his/her loved ones and talking about end-of-life planning. Instead, people tend to ignore it and keep it buried at the bottom of their to-do lists.

Today’s baby boomer generation has redefined “aging”

It’s easy to put off advance healthcare planning because today’s baby-boomer generation has raised the bar on aging—they’re youthful and vigorous; embarking on new careers; traveling the world and living their lives to the fullest. They think they’ll have plenty of time for end-of-life-planning when they get “old”. But the time for planning is always too soon until it’s too late. Sadly, half the people over 65 who are admitted to a hospital are unable to make decisions for themselves. The reality is that the majority of us will have at least a temporary period when we are unable to communicate our healthcare wishes.

What is an Advance Healthcare Directive

Advance Healthcare Directives (AHDs) are written directions that appoint another individual to make healthcare decisions on your behalf. You not only should be appointing a trusted person to make decisions for you, but you should be thinking about important decisions such as whether or not you want to remain in your own home or in nursing care, when to enlist the help of hospice care when you are clearly in failing health.

How to choose an Agent or Healthcare Proxy

A Healthcare Proxy (also called a Healthcare Agent) is the person you choose to make healthcare decisions for you if you’re incapacitated or too sick to make them for yourself. Once permissioned, your Proxy can talk with your doctors, consult your medical records, and make decisions about tests, procedures and treatment options.

Some things to be thinking about as you choose a Healthcare Agent

• Can you trust the person to make decisions that are in line with your wishes?
• Will the person make decisions on your behalf even if his/her own wishes and belief system don’t necessarily align with yours?
• Will the person find it difficult making decisions on your behalf because of the close emotional connection?
• Can your Agent make fairly quick decisions–“Your mother has pneumonia. Do you want us to start antibiotics?” or “Your brother is no longer able to take food by mouth. Do you want us to insert a feeding tube?”

In one example, a woman initially chose her mother as her Agent. But then she realized that she would likely outlive her mother, making this an impractical choice. She also knew that it might be too painful for her mother to be put in the position of making decisions that would have such a direct effect on her life, so she chose a friend instead.

When to choose an Agent or Proxy

Up until age 18, parents automatically serve as a child’s Agent. After 18, no one can access your medical record or make decisions for you unless that person has written permission. Everyone age 18 or older should complete a Healthcare Proxy form — even if perfectly healthy. If you’re over 18 and haven’t yet chosen a Healthcare Agent, the time to do this is now!

It’s good to review your choice of proxy:

• At the start of each decade. When you turn 20, 30, 40, 50, 60, 70, etc.
• At a major life event. When you go to college, get married, have children, are eligible for Medicare, have a major illness.

At California Document Preparers, we make getting an Advance Healthcare Directive easy; it’s part of our comprehensive Living Trust package that also includes a Power of Attorney. We want our clients to be thinking about all of the details that should be included in this document. We provide space to list important contact information for healthcare providers, financial service advisers, insurance agents, veterinarians, etc. We also encourage our clients to include the logins and passwords to their online accounts. The more information you provide, the easier it will be for your loved ones at what will be a very difficult time.

Call California Document Preparers at one of our three Bay Area offices today to schedule an appointment to create your Living Trust and Advance Healthcare Directive. We’re helpful, compassionate, affordable.

Do You Have an AB Trust? Ask us about how you can simplify it with a Joint Disclaimer Trust

Creating and funding your Living Trust doesn’t necessarily stop there. A Trust should be updated with important life events—a birth or death in the family; changes to relationships, including divorce; or acquisition of property or other assets that could affect the inheritance of your loved ones. Occasionally, there are also changes to laws, which is what happened with AB Trusts.

“AB Trusts” used to be very popular, because in the past, the estate tax used to affect significantly more people than it does today. The Economic Growth and Tax Relief Reconciliation Act of 2001 began the process of increasing the threshold for estate taxes.

Before that law, the federal estate tax affected any estate with a net value of $675,000 or more. The rates were upwards of 50% on amounts subject to the tax. Considering the value of California estates, one can imagine that many middle-class people found themselves subject to this tax, which was really only intended for the very wealthy.

To mitigate the effect of the estate tax, many people would create an “AB Trust”.  

What are AB Trusts?

The standard AB Trust usually begins as a shared marital Trust. 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.

The downsides to this arrangement are many

1. Costly Trust administration at the death of the first spouse
2. The surviving spouse’s lack of control over the terms of Trust B, which is irrevocable
3. The need to prepare a tax return every year for Trust B for the rest of the surviving spouse’s life. What a headache!

The history of AB Trusts

AB Trusts were quite common when the federal exemption for estate tax was much lower. But now, the federal exemption is $5.45 million per person, $10.9 million per couple, and rising each year. These days, there is little reason for most of our clients to choose the difficulty of splitting the estate at the first death and losing the flexibility of amending the B Trust.

Most of our clients are relieved that the estate tax rules are much simpler now. Ordinary couples can still do an AB Trust if they want to restrict the surviving spouse’s ability to make changes to the Trust after the first death, but they are not required to engage in this very complicated device merely by the size of their estate.

Do you have an AB Trust that you’d like to update to a Joint Disclaimer Trust?

You may have done a Trust in the ‘80s or ‘90s. If so, you may benefit greatly from the simplification of the estate tax rules. Contact us today and we can assist you with a restatement of your Living Trust to get you out from under the burden of the AB Trust which you may no longer need.

Schedule an appointment with California Document Preparers at one of our three Bay Area offices today.