One of the most common issues I encounter involves blended families or same-sex relationships. Each of these situations requires careful and customized drafting to ensure that the trustor’s true intentions are accurately implemented and protected from being undermined by later actions.
In a blended family, for example, it’s crucial to ensure that a surviving spouse cannot exclude the children from the deceased spouse. Similarly, in the context of a same-sex relationship, it’s important to prevent a power of attorney from altering the trust in a way that excludes the life partner or same-sex partner. These issues arise with some frequency, which is why I’ve chosen to focus on providing tailored trust services for LGBT clients.
What inspired you to blend your legal expertise and your real estate broker expertise in California? How does that provide a unique value to your clients coming from both worlds?
For many individuals, their estate largely comprises real estate, whether it’s their primary residence, rental properties, or other types of properties. Properly handling these assets is crucial, including how properties are deeded, transferred, and assessed. It’s essential to meticulously manage these details to avoid triggering tax implications or reassessments and to prevent creating opportunities for future disputes or challenges to your trust. Ensuring all aspects are carefully addressed helps protect the integrity of your estate plan.
How often do you see people making mistakes when they’re not working with someone like you? Is it pretty frequent?
Unfortunately, it’s quite common. A recent client asked me about an online service for estate planning, and I mentioned that while I appreciate the business it generates for me due to frequent mistakes, DIY estate planning is generally ill-advised. Just as I wouldn’t perform my own brain surgery, I wouldn’t recommend handling your own estate planning. It’s a complex field with many considerations. One of the things I take pride in is my ability to consider the entire picture when helping clients create or refine their trusts.
Are you able to provide more than just standard contract templates?
It’s more about the strategy than the drafting itself. Once the strategy is clearly defined, the drafting process becomes relatively straightforward—not generic, but more manageable. The strategy must encompass various factors such as blended families, same-sex relationships, real estate, and other unique considerations. For example, if a beneficiary has a substance abuse problem, the strategy will address how to handle funds to prevent misuse. Crafting an effective estate plan involves navigating these complexities to ensure all aspects are thoughtfully considered.
What are the critical elements that make for a comprehensive and effective real estate plan, particularly for clients with particularly complex assets or family dynamics?
It’s crucial to clearly understand the trustors’ intentions and how best to implement them. This involves determining who gets what and addressing specific concerns about individuals involved.
Additionally, while many people focus on how their assets will be distributed after their death, they also deeply care about their quality of life during their lifetime. This is why it’s important to have both a healthcare power of attorney and a financial power of attorney. The choices made regarding who holds these powers and what they can do are vital.
For instance, in California, where the cost of skilled nursing care can be around $11,000 per month, planning becomes even more critical. Fortunately, California offers a generous Medi-Cal program that many people can qualify for, and there are strategies available to help even those who might not initially qualify.
What are some of the common complexities you’re encountering, especially given the increasing frequency of these issues among the aging population?
When planning for your estate, it’s crucial to address not only the financial aspects but also the arrangements for skilled nursing facilities, in-home services, and other care needs. This includes determining who will make decisions and how these services will be paid for.
For example, in your healthcare power of attorney, it’s important to specify your wishes for end-of-life care and ensure that someone who knows your preferences well is designated to make decisions on your behalf. Additionally, it’s advisable to assign healthcare power of attorney to multiple individuals rather than just one. This helps prevent disputes and ensures that decisions are made collaboratively, reducing the risk of accusations or conflicts.
Most of the powers of attorney we draft are “springing” powers of attorney, which only become effective when you are unable or unwilling to make decisions for yourself. This strategic approach helps ensure that your wishes are respected and that the decision-making process is handled appropriately.
When assigning power of attorney to multiple people, how do the logistics typically work? Is it a voting system, or is there another process for making decisions?
Yes, those individuals need to reach a consensus among themselves. If they can’t agree and a stalemate occurs, the situation may need to be resolved in court with a judge making the final decision. However, most families aim to avoid this and will generally work diligently to find a solution that everyone can accept.
As an LGBT-owned firm, can you discuss some of the common challenges faced by LGBTQ individuals when it comes to real estate planning and how your firm addresses these needs in a unique way?
Estate planning encompasses much more than just real estate; it includes retirement accounts, investment accounts, collectibles, and more. While many people’s primary assets may be in real estate, others may have significant investments in stocks, artwork, or other valuables. Each of these components needs to be addressed in your estate plan.
For the LGBT community, there are additional considerations to ensure that partners are not unfairly excluded. For example, I had a client who had been with his partner for 30 years. When his partner fell terminally ill, they worked with an attorney to draft a trust that left their shared home to the surviving partner. However, the ill partner’s brother, who was named as the financial power of attorney and disapproved of their relationship, took advantage of his position. Once his brother became incapacitated, he used the power of attorney to alter the trust and exclude the partner. This kind of scenario highlights the need for careful planning to ensure that the wishes of both parties are honored and protected.
How can you prevent those scenarios where someone’s wishes aren’t held up? How do you draft and plan for that?
It involves both strategic planning and precise drafting. From a strategic perspective, you need to anticipate potential conflicts with surviving family members and plan accordingly. This might involve addressing how to handle disputes and ensuring that no single person has the unilateral power to alter the trust or estate plan.
On the drafting side, you must ensure that any changes or decisions require collective agreement rather than being left to an individual’s discretion. While sometimes gifting a portion of property or transferring it before death might be considered, this approach often has unfavorable tax implications. Therefore, it’s essential to carefully weigh these factors and consult with a professional to develop a well-thought-out plan.
What are the emerging trends you see in estate law right now? What should people be most aware of?
This might come across as self-serving, but it’s a reality I’ve observed: many people are opting for DIY estate planning to avoid attorney fees. While some attorneys do charge high fees, it doesn’t have to be that way. In many cases, attempting to handle estate planning on your own can end up costing beneficiaries—and sometimes even the trustor—more in the long run than if it had been done correctly from the start.
For instance, consider a common mistake: transferring a house before death. One major benefit of placing a home in a trust is that it receives a “stepped-up basis” for tax purposes when you pass away. If you bought a house years ago for $50,000 and it’s now worth $800,000, placing it in a trust means that upon your death, its value is adjusted to $800,000 for tax purposes. Without a trust, or even with just a will, your beneficiaries would face capital gains tax on the $750,000 increase in value, potentially costing them up to a quarter of a million dollars in taxes. With a trust, the stepped-up basis eliminates this capital gains tax. This is a significant advantage that is often missed by those attempting to manage their estate planning on their own.
Is it true that at its core, the issue is not understanding the legal nuances, meaning that while someone might be able to create a serviceable contract or deal, they really can’t optimally represent themselves?
The tradeoff is highly beneficial for both the trustor and the beneficiary. While the cost of creating a trust is generally modest, the potential costs of not doing it correctly can be substantial. Therefore, it’s definitely worth getting a consultation to uncover what you might not know. The challenge we all face in various aspects of life is that we often don’t know what we don’t know, and that’s why seeking advice from an expert is crucial.
Can you explain the Multi-Tiered Map Act?
When working with developers, you might encounter a process where a property is purchased and divided into four or more parcels. In California, splitting property into four pieces is often feasible without requiring a formal subdivision process, known as a “plat.” Larger splits necessitate additional work, including more extensive engineering and surveying. Each time property is transferred in this context, it’s crucial to manage how it is held and transferred carefully to avoid unintentionally negating any benefits provided by a trust.
What are some of the important legal considerations when it comes to state and federal courts throughout California as it pertains to estate disputes?
The choice of court can significantly impact the resolution of a dispute. Ideally, a well-crafted estate plan should prevent the need for court intervention altogether. However, disputes can arise due to drafting issues or contentious parties, even in the best of families. It’s often said that the passing of a loved one can bring out unexpected conflict over inheritance.
Generally, real estate issues are handled in state court, as state courts have primary jurisdiction over such matters. However, there are instances where federal law comes into play. For example, I recently had a case that, although not estate-related, was strategically taken to federal court because it provided a tactical advantage over the opponent, who was reluctant to face federal jurisdiction.
Federal court has more stringent rules than state courts, which can make a significant difference in the litigation process. Choosing the right court for your case can have a substantial impact on the outcome.
How often do cases actually end up in court, either state or federal?
I’d estimate that fewer than 10% of cases actually go to litigation. When they do, it’s often because significant resources are involved, though sometimes it’s about specific items that individuals are determined to secure. More often, however, the driving factor is the substantial financial stakes.
How do you coach your clients when you actually do have to go to court?
First and foremost, it’s best to avoid litigation whenever possible. Settling a case is usually the most cost-effective approach. As an attorney, while I’m prepared to handle litigation, I recognize that it often leads to substantial expenses without necessarily being the best outcome. Instead, engaging in alternative dispute resolution methods, like mediation, can be more beneficial. In mediation, an independent party, who is not bound by the outcome, meets with each side to facilitate a resolution. This mediator presents the potential losses and gains to each party, seeking a middle ground. It’s a bit like diplomatic negotiations between countries. A successful settlement, in my view, is one where all parties leave feeling equally dissatisfied, but with an agreement in place.
What are some strategies or advice for individuals and families looking to minimize estate taxes, but maximize the preservation and distribution of assets?
There are several factors to consider regarding property and estate planning, including taxes and liability exposure. Estate plans, particularly those I draft, often include a spendthrift clause. This clause protects trust assets from creditors (with some exceptions, like the IRS) and prevents beneficiaries from using trust assets as collateral for loans.
Another important aspect is managing rental income. A common strategy is to place rental properties into an LLC and then transfer ownership of that LLC into the trust. This setup provides added protection and can help minimize taxes. Typically, an LLC elects S-corp treatment, meaning any gains or losses from the property pass directly to your personal tax return (Form 1040) rather than being taxed at the corporate rate. This approach is often more tax-efficient.
Additionally, placing the LLC into a revocable trust does not alter this pass-through treatment; the income from the trust will still flow through to your 1040. The LLC also allows for greater expense deductions related to property maintenance and improvements compared to filing on a Schedule E of your personal return. This strategy maximizes the benefits and efficiency of managing rental properties.
When someone’s forming an LLC, how do they differentiate between which actions are taken under the LLC and which are for renting and about the individual? How do you make distinctions between the two?
Typically, you would form an LLC and transfer property into it by deeding the property to the LLC. For example, XYZ LLC would then own the property located at 1234 Lincoln. Any expenses related to the maintenance or improvement of that property—such as insurance, legal services, tax services, and consulting fees—can be legitimately deducted by the LLC. This is generally more straightforward than trying to claim these deductions on a Schedule E of your 1040 tax return, where you might face more challenges.
What brought you into estate law? What motivates you? What inspires you?
It’s striking how many horror stories I’ve heard from friends and family about their experiences with litigation and probate. Some have faced years of legal battles, while others have endured lengthy probates that drained their finances—since probate is significantly more costly than having a trust in place. Witnessing these issues firsthand made me determined to help others avoid similar problems. This is especially critical within the LGBT community, where the impact of poor estate planning can be devastating. After a lifetime of hard work, individuals might see their savings or investments vanish, or their intended beneficiaries may not receive what was planned for them due to complications or deceit.
As a Rotarian, I prioritize service above self, focusing on what truly benefits my clients. My firm’s name, Bottom Line, reflects my commitment to understanding your needs and delivering the best outcomes as cost-effectively as possible. Addressing estate planning now, rather than dealing with probate later, is far more economical and beneficial for my clients.
Is there still a lot you can do after the fact or is that difficult?
Yes, there are situations where this can be addressed. For example, if a piece of real estate wasn’t properly transferred into a trust, meaning it wasn’t deeded to the trust, we can still take steps to correct this. To deed a property into a trust, you would need a grant deed stating, for example, “I, Matt, transfer this property to Matt as trustee of the XYZ Trust,” and this deed must be recorded with the county recorder’s office. This process officially places the property into the trust.
For non-real estate assets, they can be transferred through a pour-over will, though this is not always necessary. The key for real estate is to have a clear deed showing the property’s inclusion in the trust. If this hasn’t been done but the trust specifies that the property was intended to be part of the trust, we can file a petition with the court using a Hagstead motion to include it in the trust. Generally, this petition is successful if the trustor’s intention is clearly documented.
