What Exactly is Proposition 13 and How Does it Still Relate to Estate Planning?

     Get out your disco records and leisure suits, we are going back in time.  If you don’t know what those are, this article is for you.  Way back in 1978, the voters in California eagerly approved Proposition 13, adding Article XIII A to the California Constitution. Article XIII A generally limits the amount of ad valorem tax to a maximum of 1 percent of the full cash value of the real property.  So what does this mean?  Ad valorem tax is a tax based on the assessed value of real estate or personal property. Property ad valorem taxes are the major source of revenue for state and municipal governments.  Municipal property ad valorem taxes are also known as “property taxes”.          For purposes of the Prop 13 limitation, the Constitution defines “full cash value” to mean a county assessor’s valuation of real property as shown on the 1975-76 tax bill, or thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred. As long as the property has the same owner, its assessed value generally cannot increase by more than 2% per year.  This is true even if the property’s market value is increasing at a faster rate. As a result, the market value of many properties is often higher than the assessed value.  In many states, property is reassessed each and every year so the tax keeps up with the value of the property.  We have Prop 13 to thank for our not having annual reassessments.        When it was passed in 1978,...

​​IS THERE A “BEST PLACE” TO KEEP ESTATE PLANNING DOCUMENTS?

At Home or Office: Most people will keep their documents at home or in their offices. The most important thing is to keep them SAFE so they will not get lost, stolen or damaged.  You don’t want to be so clever in keeping the documents safe that no one can find them.  You don’t want them where someone can walk off with your documents, especially a disgruntled or curious heir.  You probably don’t want to store them where there is a chance of fire, water or other damage either.   A personal safe is a great idea but be sure that 1) it is not so small it can be stolen, or 2) the combination can be found by your Trustee.  If you do not have a personal safe, you can store them high and out of the way but be sure your family knows where it is store.  I tell people to take a selfie of themselves holding their plan documents in front of the place they will be stored.  You can then send that image to your family so they know where to look and what to look for as well.   In a Safe Deposit Box: This is a pretty safe place, right?  It is in a bank after all.  This can be a great location.  During your life, in California, you can list access to your Safe Deposit Box on your power of attorney for asset management so that your Attorney-in-Fact can access the Box during your life.  Some of these powers of attorney, though, are only on your incapacity and that may never happen. ...

What Is the Big Deal About the Probate Process?

We hear all the time about how we should avoid probate.  How does it work?  Simply stated, probate is a court supervised process where: 1. The decedent’s assets are collected and then identified; 2. Any debts, taxes or expenses paid, and; 3. What is left, “the inheritance”, is either distributed outright to loved ones or is administered and distributed to them through a testamentary trust [meaning trust set up after you die].   The Gathering: Hopefully, the records are all in a handy dandy binder or file folder and there is no sleuthing required.  If it is all in shoe boxes, then that is the method of gathering of data that will be used.  In most events, the mail [electronic or snail mail] will also bring important information so the Executor should be checking email and also getting all the mail via a change of address card with the post office.  This will result in knowing what the assets and liabilities are.   The Paying: After we now what the liabilities are, we need to use the assets of the estate to pay the liabilities.  Notice to Creditors is given to start a four month period, currently and in California, within which general creditors must present their claim or they are forever barred.  Known creditors are also given notice but directly.  Notice to Creditors is a good thing because it closes off the time for future claims and protects the beneficiaries from creditors trying to follow the assets for payment.   The Distributing: Depending on whether there is a will or not, the result may change.  If there is...

ARE YOU LEGALLY RESPONSIBLE TO PAY YOUR PARENT’S DEBT?

  “Filial support” means that adult children are legally obligated to financially support their parents. California’s filial support laws date back to 1872. It is currently in California Family Code sections 4400-4405. In 1973, the California Supreme Court upheld Swoap v. Superior Court of Sacramento that a revised 1971 statute provided a rational, enforceable basis for adult children to reimburse the State for aid granted to their parents.     On the up side, Family Code Section 4400 is still on the books but it is currently being undermined by California Welfare and Institutions Code 12350 which says   “No relative shall be held legally liable to support or to contribute to the support of any applicant for or recipient of aid under this chapter.”   It further states “No county or city and county or officer or employee thereof shall threaten any such relative with any legal action against him by or in behalf of the county or city and county or with any penalty whatsoever.”   Keep in mind, this code only applies to the government, not nursing home corporations or companies.  There is nothing precluding a nursing home corporation or company from using Family Code Section 4400.  Consider too that with the budget cuts and the deficit of funds, how long will it be until California amends the W&I Section?  Then, how long after will you be responsible to pay your parent’s debt?   Be sure your parents have done their estate planning!  Be sure you have done your estate planning so your own children are not looking at a potential liability for you.  Take these...
Intestate Succession hazards

Intestate Succession hazards

  INTESTATE SUCCESSION? WHAT IS THAT?!? Dealing with the death of a loved one is often traumatic at worst, emotionally draining at best. This process is, however, exponentially more difficult when a person dies without a will, or “intestate”. Real property is particularly difficult to distribute without knowing the intent of the deceased. We may think we know, but if the deceased did not write it down, it will pass by the laws of “Intestate Succession” which means the State of California will instead tell the family how the property is to be divided. The more complex families are, the more complications there can be. Consider the following:     If you die with:Then here is what will happen: • parents but no children, spouse, or siblings• parents inherit everything • siblings but no children, spouse, or parents• siblings inherit everything • spouse but no children, parents, or siblings• spouse inherits everything • children but no spouse, parents, or siblings• children inherit everything • a spouse and child[ren]• spouse inherits all of your community property and 1/2 or 1/3 of your separate property, ½ if one child and 1/3 if more than one child AND • children inherit 1/2 or 2/3 of your separate property • a spouse and parents, no children• spouse inherits all of your community property and 1/2 of your separate property AND • parents inherit 1/2 of your separate property • a spouse and siblings, but no parents or children• spouse inherits all of your community property and 1/2 of your separate property AND • siblings inherit 1/2 of your separate property The Spouse’s Share...

Is It Time to Update My Estate Plan?

Is It Time to Update My Estate Plan? I am often asked what are the events that should make one update an estate plan. Here are my general guidelines: Marriage or Divorce of you, your children, grandchildren or business or life partners; Contemplation of Marriage, especially second marriages, Registered Domestic Partnerships or Divorce; Birth of children or grandchildren; Death of a spouse, children, grandchildren or business or life partners; Serious or life threatening illness of you, your children, grandchildren or business or life partners; Disability of you, your spouse, a parent, sibling, child, grandchild, or a dependant or handicapped dependant that may require special considerations or a special needs trust; Substantial change in your personal estate size, whether increased or decreased; Before any significant business or personal litigation; On any significant change of assets or interests; Especially on any major change in the estate tax laws! Like we just had in 2012. These things do not all require updating your estate plan but any of them should cue you to seek legal...
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