Our goal here is to develop for you (or if you are married, you and your spouse) a personalized and comprehensive estate plan by which, when you die, your estate is passed on efficiently to those you wish to receive it – and with such potential expenses as estate taxes and probate fees reduced as much as legally possible.
What “Estate Planning” Is
Estate planning is the creation of legally enforceable documents (such as a written trust or will) by which you can pass on your estate (home, financial accounts, car, personal property items, and any other assets) to your intended beneficiaries. You can pass on some or all of your estate while you are living. This is called lifetime giving. You can pass on some or all of your estate upon your death. This is called at-death giving.
Inherent in good estate planning is making the effort to pass on as much of your estate as possible – certainly so in the case of at-death giving. Without good estate planning your estate may be subject to unnecessary shrinkage by (i) the payment of probate fees and costs (which are attorneys’ fees, executors’ fees, and costs authorized by California law for processing an estate through a court-supervised administration [“probate”] of the estate); (ii) federal estate taxes; (iii) Medicaid costs; and (iv) while unlikely, a possible judgment for damages.
How is estate planning accomplished? Estate planning is typically best accomplished by your disclosing all of your estate planning goals and assets to your estate planning attorney. Depending upon the value and complexity of your assets, you and your attorney may need the input of your financial planner and/or accountant. Your attorney will then prepare the legal documents such as a trust and/or will which will best meet your estate planning goals.
Estate Planning Tip: Consider Purchasing Long-Term Care Insurance to Keep Your Assets Free from Medicaid Liens
If you can afford it, make a present purchase of long-term care insurance to pay for the costs of possible future nursing home or in-home care (not covered by federal Medicare) — and so minimize the estate shrinkage which may otherwise occur to your estate, should you be unable to pay for these costs.
What can happen here is that you can be placed into a nursing home, or given home-care; if you are unable to pay such costs, MediCal will pay them, but it will place a lien against your home for the total of such costs; and after you die, or if you are married, after both of you die, the State will foreclose upon its lien to collect the debt owed it, unless the beneficiary(ies) who received your home on your death under your will, trust or other will-substitute, pay it first. However, if you transfer ownership of your home into a revocable living trust before you died, Medi-Cal can not place a lien on it or otherwise use your home to seek reimbursement of medical benefits paid on your behalf (“Estate Recovery”).
Estate Planning Tip: Consider Purchasing an Umbrella Policy to Minimize Potential Liability Pay-out
If you are eligible, consider purchasing an umbrella liability insurance policy through your auto or home insurer to minimize estate shrinkage due to a possible judgment for damages against you arising, say, out of a vehicle accident or a personal injury to some person occurring on your property, where your potential liability might exceed your pay-out under your standard insurance policy. These policies are very inexpensive for the amount of added coverage you receive.
FEDERAL ESTATE TAX
The federal estate tax (“FET”) has had a checkered history of being “on again, off again.” For decedents dying in 2019 it’s on again, but with a relatively large exemption provision after Congress passed the Tax Cuts and Jobs Act of 2017. For a single person you can die without having to pay FET if your net estate does not exceed $11,400,000 (called the “basic exclusion amount”). And a married couple can pass up to double this amount, even if the first spouse who died had an estate considerably less than $11,400,000 and the surviving spouse died with an estate having a greater value than $11,400,000 (under the “portability” feature of the FET exclusion amount). But a federal estate tax return must be filed within 9 months of the death of the first spouse to die to enable such portability. The net value of the estate in excess of the $11,400,000 will be taxed at roughly 40%.
Unfortunately, just what will happen to the FET after 12/31/2025 (when the current law “sunsets”) is up to Congress. Absent Congressional action at that time, the FET will revert back to the 2017 level, subject to indexing for inflation, thereby setting the FET in the $5-6 million range.