The Dayton Law Firm

Estate Planning Tips for Noncitizen-Residents of the United States

In light of recent events, we felt offering a few free tips for noncitizen-residents was in order.  While we don’t know much about immigration law, Estate Planning and Administration are an important part of everyone’s life.  National boundaries may cause some complexities, so below are a few tips to help you navigate:


  1. Your estate is administered in the nation you are residing in, regardless of your citizenship or where you were located at the time of your death. This means long-term resident-noncitizens of the United States should do estate plans just like any other resident or citizen.  In California, this generally includes a Will, Trust, Power of Attorney for Financial Affairs, Advance Health Care Directive, and HIPAA Waiver.  Failure to plan will mean your estate will be distributed according to the laws of the State you were a resident of under a Court supervised probate.
  2. There is a generally recommended subtrust to be included in a Revocable Living Trust when planning for a noncitizen-resident: the Qualified Domestic Trust. While not always needed, including a standby version of a “QDOT” in a Trust where a beneficiary may be a noncitizen can help minimize the tax burden of the gift and ongoing income taxation of the Trust.
  3. It is important to carefully choose your Trustees and other fiduciaries. A nonresident trustee may cause a trust to get a big tax bill for being a foreign trust.  A health care agent who cannot be easily contacted by your U.S. hospital may cause delays in an emergency situation.  California Courts require additional bonds for nonresident Executors, even where the bond is waived in your Will.  To avoid these pitfalls and many others, it is important to discuss who you plan to name in your documents with your Attorney.

How To (Estate) Plan For 2017

As we prepare to ring in the new year, there are a few upcoming legal changes set occur early next year.  These are both from the Federal and California State governments, and some are still yet to be determined.  Below is a brief rundown of major legal changes related to estate plans in expected in early 2017:


First, let’s talk about what we know for certain: California is encouraging its residents to create a trust.  Built into the California 2017 budget is a provision disallowing Medi-Cal estate recovery from reaching revocable living trusts.  This means a funded trust based estate plan has an even bigger additional benefit than before.  The new rule provides a roundabout tax-cut to those with revocable living trusts who end up receiving Medi-Cal at the end of their life.  The issue they are trying to resolve is that the California Courts are over-scheduled, with many county Probate Courts being months behind.  While a Will based estate plan still has to go through a Court Supervised probate, a funded and uncontested revocable living trust avoids going to Court.  Thus, by exempting them from estate recovery, California is encouraging its citizens to make Trusts in hopes to reduce Court cases.  This means 2017 will be a good time for California residents to do a new estate plan or update a Will based estate plan into a Trust based estate plan.


Second, we have a law we know is certain, just not when it goes into effect.  After a bipartisan push to fix an unintended drafting error, Federal law now allows individuals with physical disabilities who receive government needs based benefits to sign their own estate plan without interfering with the government benefits.  Under prior law, any disability would prevent an individual from being able to sign their own “Special Needs Trust.”  Unfortunately this lumped in people with purely physical disabilities who are perfectly competent to sign legal forms.  Now this is fixed under Federal law.  However, they did this while California’s legislature was on recess, so we will have to wait until January 2017 to know when and how this will be adopted in our state.


Last but not least, is the least certain: the incoming Republican administration’s tax proposals.  Unfortunately, the President and his Congress are set to disagree on several budget decisions that may directly affect your estate plan.  This means we won’t know exactly how to do tax planning until that dispute is settled and the Federal budget is passed.  Among the things they do agree on are (1) repealing the Estate Tax (2) changing Capital Gains Tax step-up basis on death rules, and (3) changing income tax rates for nongrantor trusts (ones that pay their own taxes).  Like everyone in our industry, we wait with bated breath to see just how different the tax code will look in the coming years.  For those with tax planning in their estate plans (e.g. Bypass or QTIP Trust), the second half of 2017 will be a good time to check in and see if any of that could be updated to be more efficient under the new tax regime.


We at the Dayton Law Firm wish everyone (especially those who made it to the end of this lengthy blog post) a great holiday season and happy new year.

What the 2016 Election means for your Estate Plan

The results of the 2016 Election have been surprising to say the least.  Most experts were expecting a very different result, and it has caught the professional planning community off guard.  Up until early November, estate planners expected a certain set of tax rules to stay in place.  Interestingly enough, among the possible Budget proposals expected for 2017 include wholesale replacements of those exact tax rules.  Specifically, we are expecting a repeal of the Estate Tax and a substantial change to how Capital Gains tax is affected by the property owner’s death.  This means an estate plan put in place to prevent unnecessary taxes under the current rules may need a revision in the next few years.


However, not everything needs to be thrown out with the bath water.  After the big changes to tax law in 2013, our firm started using a flexible tax planning technique which we call the A/C/B trust.  Our clients who obtained a tax planning trust in the past few years are likely okay for now.  If you are a married couple with a Trust, we would be happy to take a look and let you know what type of Trust you have.


We will keep our ear to the ground on this subject to ensure we offer the most up-to-date planning available.  Check back and we will have a new blog post in early 2017 after the dust settles a little more.

Who to choose as your fiduciaries?

One of the biggest decisions we counsel people through when creating an Estate Plan is who will be responsible after you are gone.  The nominated agents and trustees who act under the powers in your estate planning documents (Trust, Will, Power of Attorney, Advance Health Care Directive, etc.) are known as fiduciaries.  This is a term that carries with it a specifically legal meaning.  There are two parts of being a fiduciary that most aren’t aware of: (1) being a fiduciary carries personal legal liability if the job is done incorrectly, and (2) the role is not mandatory, so a named person may can decline to act or step down, leaving the next in line to act.  With these in mind, let’s review the general options available for choosing fiduciaries:


Family and friends:

Pros: Least expensive, even when they do request fees.  Sometimes already involved with the estate, so low effort required to collect and administer assets.

Cons: Estate Administration can be complex and confusing, and leaving this responsibility to someone ill-prepared can be a troubling situation to dump on their lap.  Many of your friends and family are not ready for the job and/or do not want to take on the liability if it is done wrong.  Luckily, they can decline to act if they don’t want the job.


Private Professional Fiduciaries

Pros: Available in California as a less expensive alternative to a Corporate or Bank Trustee.  They are Certified, bonded, and are willing to work on almost anything you request.  They are also efficient, since their job regularly entails administering estates.

Cons: They charge a fee, either hourly for services provided or a percent of assets under management.


Corporate and Bank Trustee

Pros: They have their own legal department, and will be an absolute stop against beneficiaries trying to get money earlier than you wanted.

Cons: Known to charge the highest fee of all as a percent of assets under management.  Their legal department may be stubborn for any request that does not comply with their internal policy, which may be based on federal rather than California law.


We generally recommend listing out at least four fiduciaries for every role, and in the order of friends and family, then Private Professional Fiduciaries, and then (just in case) name one Corporate or Bank Trustee. This way each can consider whether they want to take the job or just decline to act, leaving the next more-expensive option available to take over if needed.

New Medi-Cal Recovery Rules (and a Free Booklet)

In June this year, Governor Jerry Brown signed the proposed California Budget for 2017.  While most newspapers focused on the hot-topics like an increase to the rainy-day fund, there is also a big change for those of us in the estate planning world that we are all still getting to grips with.  As of January 1, 2017, the estate recovery rules for Medi-Cal (California’s unique version of the federal Medicaid program) are reworked to limit what assets are available for recovery.

Medi-Cal is a needs-based government program that helps provide homes and living assistance to elderly California residents.  In most circumstances, the California Department of Health Care Services submits a claim against the person’s estate after they pass to collect back what was paid.  This is like a death tax limited only to people who received the extra service.

Under prior rules, estate recovery was allowed to make claims against assets held in a decedent’s Revocable Living Trust.  Under the new rules, California will not be able to make a claim against assets held in a Revocable Living Trust.  Previously, costly, complex, and irrevocable planning was needed to achieve this type of estate recovery protection.  Now, a standard Revocable Trust-Based estate plan will avoid most Medi-Cal estate recover claims.  This is a groundbreaking shift for people who may end up receiving Medi-Cal at some point later in life and have gifts they want to leave to loved ones.  Exactly what to do is still uncertain and most Attorneys are waiting for early 2017 to see how things work in practice.  One thing is certain though: everyone who was previously okay with doing just a Will now has a strong reason to set up a Revocable Living Trust.

We are members of the California Advocates for Nursing Home Reform (CANHR) and find their seminars and legal updates to be great California-focused resources.  CANHR released their new Medi-Cal Recovery Laws Booklet available on their website here with a printed version for $1.00 or for free as a downloadable PDF by clicking the link on their page.  CAHNR provides great materials written in simple terms to help summarize the convoluted rules so people who are not legally trained can understand.  Most importantly, page 9 includes the updated list of what type of property is exempt from Estate Recovery.  We encourage you to take a look, and consider how these rules may affect your estate plan.

Knowing Your Emergency Contact

It’s vacation time, and many of us are having fun on trips enjoying jeopardizing activities like surfing, boating, zip-lining, hang-gliding, go-karting, rock climbing, and mountain biking.  When signing up, there is normally a form that asks you to list an emergency contact.  Most of us have someone in mind for this, but sometimes not.  As you find yourself filling out emergency contact forms, there are three big considerations to think about before choosing an emergency contact.


First, and this is probably most important, is whether or not that person wants to be on-call in case you are hurt.  It is an often overlooked step to ask before putting down a name and number.  What can happen is the person named is either not available or does not want to take the responsibility.  In these cases, putting down a name was just as good as leaving it blank.  Thus, it’s important to ask the person first and make sure you have their preferred contact information.


Second is whether you want that person to be the responsible party in case you are hurt.  Sometimes this is as simple as “do I think he/she will respond and act responsibly?”  However, it is also good to consider the kinds of decisions you are asking them to make.  For example, regardless of what the injured person wanted, parents are unlikely to authorize risky medical decisions or to withdraw life support for their children.


The last tip we have is to make sure your emergency contact has the legal authority to make decisions if needed.  Doing an Advanced Health Care Directive with HIPAA authorization and naming the first named agent as your emergency contact is the best solution.  These forms can sometimes be available from your Doctor’s office, but will certainly be included in an Attorney drafted comprehensive estate plan.  This means the first person called in an emergency will also have the paperwork needed to talk to your Doctor and make medical decisions immediately.

Yes, you know you own your home, but do you know how?

Over the weekend our firm helped with the Sunnyvale Public Library’s seminar series Aging in Place.  The series focused on educating the public about common concerns for aging and retiring homeowners.  Based on the feedback, one big realization for many attendees was few of the homeowners knew how they owned their property.


By this I mean the characterization phrase that comes after your name on the deed.  Some common examples for a married couple in California are “Community Property,” “Sole and Separate Property,” and “Joint Tenancy.”  If you own a house, then your deed has this on it.  While you may not be aware of what it says, that short phrase may cause substantial taxes if not planned correctly with your situation.


We encourage all homeowners to check and make sure they know what the characterization on their property is, and that it matches their situation.  Most Estate Planning Attorneys will confirm this while placing the property into the client’s trust, so this is an issue you can handle by hiring professional assistance.

Retirement Account Planning

If you haven’t received a letter or email from the company in control of your retirement account and/or 401(k) account, you may soon.  John Oliver’s HBO show (Last Week Tonight with John Oliver) did a recent spotlight on fees related to managers of retirement accounts, resulting in follow-up articles from other media sources like TIME, Forbes, and CNBC.  Many in the industry have been quick to respond with updated fee disclosures and policies, hopefully leading to people getting in contact with their company to review their policy agreements and updating their accounts.


As you wander into the local branch or log back into your retirement accounts to check how your policy is charging you, remember to keep your “Designated Beneficiary” sections filled out.  This is a quick task that should be available for you through your retirement account company’s branch or website.  Leaving your account without a beneficiary means it gets left in your Probate Estate, potentially costing your heirs thousands in legal and administrative fees.  While it is good to keep things updating, it is also important to be careful. If you previously did some estate planning work with an attorney, updating the beneficiary on the account may undo some of what was done by the attorney.

Celebrity’s Estate as a Public Slideshow

The cover of many magazines this month is focusing on the life and death of Prince.  Unlike most other celebrity deaths, the actual details of the court proceedings are being published.  So, why do the tabloids know all the juicy details about Prince’s estate?

Surprisingly enough, this is not about a gossip, leak, or breach of private information.  Instead, the fact that his family’s squabbles are public is because Prince died without a Trust.  His estate must be administered with court supervision, so all of the details end up as part of the publicly accessible court record.

Most basic modern estate plans include a Revocable Living Trust as the primary method of passing down property.  Trusts, unlike Wills or not planning, can be administered with a “Trust Administration.”  One of the unsung benefits of this process is the possibility your Estate can be administered without going through Court.  Instead, the Trustee processes everything via confidential communications to the known heirs and creditors unless some circumstance requires court action.  This means there is a good chance details of the administration are kept secret.  Had Prince done a Trust, information like his estimated net worth ($300 million), names and addresses for all of his siblings, and the number of people claiming to be a love-child (as of this blog the number was whittled down to 2) would only be known by the Trustee.

Thus, an often unconsidered benefit of a Trust based estate plan is to keep your family’s information from becoming public.  This is a good lesson to be learned, even if you don’t expect to be on the cover of a tabloid.

Calling “Dibs” On The Collection: Heirlooms Are Worth Passing On

Collecting has long been a popular hobby in the United States. Whether your collection includes a set of 1898 Trans-Mississippi U.S. stamps, a 1928 Ford Model A, a 1913 Liberty Head nickel, or a more esoteric find like an Alpha Black Lotus (from the collectible card game Magic: The Gathering) you are in good company. These items are valuable for both sentimental and monetary reasons, so they can be the most disputed parts of a person’s estate.

When people own valuable collectible items without a detailed estate plan, issues arise after their death. The Probate system in California handles the transfer of personal property, but offers little guidance or assistance to family members or friends who take on the responsibility of administering an estate. If not carefully planned for, collections can be unintentionally divided, lost, destroyed, or even worse, sentimental heirlooms may need to be sold for a fraction of their personal value to pay estate creditors or taxes.

An estate plan, including both a pour-over Will and a Revocable Living Trust, allows you to specifically control how your property will pass after your death. This can be of great interest to collectors with valuable property, but can be just as beneficial for family heirlooms, or other sentimental items that you wish to leave to a specific family member. If you have no family members who share your interest in collecting, you can leave them to a charitable organization that understands the value.

Whether you are a Philatelist, a Numismatist, or simply value your family heirlooms, an experienced estate planning attorney can assist you with creating a plan to fulfill your goals for your property and help ensure that it will pass to someone who values it as much as you do.