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Case Examples

Case Studies – Don't Let This Happen To You

The following are examples of problems that can be avoided by obtaining the help of an estate planning attorney. Do not let these stories become your reality. Contact the Kisner Law Firm today. 

Wills and Trusts Created During Second Marriages

Anita and Francisco were 35 years old when they decided to get married. Both of them had been previously married and divorced and each had two children from their prior marriages. Francisco had been living in an apartment before he got married; he did not own a home. However, Anita owned a home and that is where Anita and Francisco chose to live after getting married. Not long after getting married, they each created their own will, in which each left all of his/her assets to his/her spouse and if such spouse was no longer alive, half of his/her assets to one spouse's children and the other half to the other spouse's children. For example, if Anita died first, Francisco would inherit all of Anita's assets. Then, under their current wills, when Francisco died, half of his assets, which then included the assets inherited from Anita, would go to his children and the other half to Anita's children. Anita died first and Francisco inherited all of Anita's assets. Francisco later created a new will that left all of his assets to his own children. He did not include Anita's children in his will. Therefore, when Francisco died, his children inherited everything and Anita's children inherited nothing.
The unintended results of this scenario could have been avoided if Anita and Francisco had consulted with an estate planning attorney. An estate planning attorney would have advised the couple to create a revocable living trust that provided the following: on the death of the first spouse that dies, all of that spouse's property would go automatically into an irrevocable trust for the surviving spouse's benefit but that on the survivor's death all of the assets of the irrevocable trust would go to the first deceased spouse's children. Because such a trust is irrevocable, it could not be changed by Francisco after Anita's death. This would have ensured that Anita's children would inherit their mother's estate upon Francisco's death and that Francisco would be able to live in Anita's house until he died.

Wills and Trusts Created Before Second Marriages

Marsha and Robert were 60 years old when they decided to get married. Both of them had been previously married and divorced and each had two children from their prior marriages. Robert owned a home and a substantial investment account before he got married. After his divorce but before marriage to Marsha, Robert signed a revocable living trust leaving his entire estate to his two children. Before he married Marsha, he told her about his trust and his intention to leave all his estate to his children.
Marsha also owned a home that was subject to a significant mortgage and that is where Marsha and Robert chose to live after getting married. Robert rented out his house, which did not have a mortgage. Although they talked about signing a premarital agreement (a "prenup") they decided that it was not necessary, and both agreed that Robert's house and investments were Robert's separate property because he acquired them before he married Marsha. Not long after getting married, Marsha signed her will, in which she allowed Robert to live in her house for a year after she died and left all of her assets, including her house, to her children. Robert agreed that it was OK to do that. Robert never signed a new will or trust after his marriage to Marsha.
Robert died first. Marsha consulted with an attorney who told her that since Robert did not make a provision for Marsha in his will or trust, according to Probate Code §21610 Marsha as the "omitted spouse" was entitled to receive a share of Robert's estate consisting of the one-half of the community property that belonged to Robert and a share of Robert's separate property equal in value to that which Marsha would have received if Robert had died without having executed a will or trust, not to exceed one-half the value of Robert's separate property, even though Robert's trust left all his assets to his children. Since Marsha was financially strapped to pay the mortgage on her house after Robert's death due to the loss of Robert's income, she elected to proceed against Robert's estate to claim her share as the omitted spouse. When Marsha later died, her entire estate including what she received from Robert's estate went to her two children according to Marsha's will.
The unintended results of this scenario could have been avoided had Marsha and Robert consulted with an estate planning attorney after their marriage. An estate planning attorney would have advised the couple that Robert needed to amend his trust to indicate that he was then married Marsha and he intended that notwithstanding the marriage, he was leaving his entire estate to his two children and nothing to Marsha, or to have Marsha sign an agreement waiving her right to claim a share from Robert's estate if he died first. Robert could have amended his trust to provide income payments or a lump sum to Marsha to help offset his lost income if he died first so that Marsha could have continued to pay her mortgage and live in her house after Robert died.

Providing for Disabled Children

Michael and Linda had just celebrated their 30th wedding anniversary when they were killed in a car accident. They left behind two adult children, Daniel and Rebecca. Daniel was disabled at birth and is currently receiving Supplemental Security Income (SSI) and Medi-Cal (Medicaid) benefits. SSI and Medi-Cal are government programs that help only those who have very limited income and resources. Michael and Linda died without a will. Following the laws of intestate succession, a probate court divided Michael and Linda's estate in the following way: Half of the estate to Daniel and the other half to Rebecca. Daniel's inheritance disqualified him from receiving further SSI and Medi-Cal benefits because his inheritance put him above the income/resource levels that he must stay below in order to continue receiving government benefits. Daniel, therefore, had to either spend down his inherited assets back to the poverty level so that he could reapply for the SSI and Medi-Cal benefits he had been receiving or form a special pooled special needs trust where his inheritance would be managed by a stranger, who also manages the pooled assets of other special needs beneficiaries.
Daniel's disqualification from SSI and Medi-Cal could have been avoided. An estate planning attorney would have advised Michael and Linda to create a revocable living trust that would also create a "special needs trust" for Daniel. The special needs trust could have named Daniel's sister, Rebecca, as the trustee. This would have allowed Rebecca to pay for Daniel's needs that were not covered by the government benefit programs by using the principal/income of the trust. The special needs trust also could have provided that if Daniel died before Rebecca, the remainder of the trust's principal would go to Rebecca or to Rebecca's children. The creation of a special needs trust would have been recommended by an estate planning attorney. Had Michael and Linda obtained such advice, Daniel would not have been disqualified from receiving government benefits and the family's estate would have been preserved for Michael and Linda's heirs.

Creating Estate Planning Documents on Your Own

Jamal and Vanessa have been married for many years and have acquired a net worth of about $3,000,000. Jamal discovered that he could save hundreds of thousands of dollars by creating certain estate planning documents that avoid probate and eliminate or reduce estate taxes. Having been well educated, he decided to save a few thousand dollars legal fees and prepare his own estate planning documents. He purchased a "home-lawyer" software package where he obtained a trust form that he filled out and signed. The trust form provided that upon the death of the first spouse to die; the entire combined estate would be divided equally into a revocable "survivor's trust" and an irrevocable "decedent's trust" or "bypass trust." These types of trusts are commonly referred to as the "A" trust and the "B" trust.
Jamal died in his late 60's. After his death, Vanessa consulted with an estate planning attorney who advised her that the trust form Jamal used was applicable only to very large estates. The attorney also advised her that the ½ of Jamal and Vanessa's estate that went into the irrevocable decedent's trust will be subject to additional reoccurring annual expense since there will now be two different trusts instead of just one trust and that Vanessa now has restrictions on what she can use the assets in the bypass trust for.
The attorney explained that on January 2, 2013 President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) that extended the Bush Tax Cuts indefinitely for most tax payers and extended the $5,000,000 estate and gift tax exclusion amount with inflation adjustments indefinitely, increasing the exclusion amount to $5,490,000 for gifts made and/or estates of those dying in 2017 plus annual increases based on inflation.

On December 22, 2017, President Trump signed into law PL 115-97, commonly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA), that temporarily increased the $5,000,000 estate and gift tax exclusion amount to $10,000,000 with inflation adjustments starting 2011, for gifts made and estates of those dying after December 31, 2017 and before January 1, 2026. Therefore, the exclusion amount for those dying in 2018 will be $11,200,000. However, on January 1, 2026 the estate tax exclusion amount will revert to about $6,500,000 if new legislation is not passed to increase that amount.

Another benefit allowed by ATRA is the ability of the surviving spouse to claim the Deceased Spouse's Unused Exemption Amount (DSUEA) under the concept called "portability" by timely filing a federal estate tax return for the first deceased spouse within two years after the first death, if such estate tax return is not otherwise required, or within nine months after the first death if an estate tax return is required to be filed for the deceased spouse's estate, which can increase the surviving spouse's "gift and estate tax exclusion amount" from $11,200,000 to as much as $22,400,000 for those dying in 2019, subject to annual increases based on inflation, until January 1, 2026 when the estate exclusion amount will revert to about $6,500,000.

Therefore, the trust that Jamal drew up and they signed imposed unnecessary expenses and financial and tax complications on Vanessa for the rest of her life, when there was no estate tax benefit to be obtained since the estate tax law was changed in January 2018 that avoided the payment of an estate tax when Vanessa died.
The unintended consequence of Jamal's actions could have been avoided by seeking the help of an estate planning attorney before Jamal died. Jamal could have taken the documents he created to an estate planning attorney who would have reviewed them and informed Jamal of the consequences of such documents. An estate planning attorney would also have been able to recommend a different estate plan for Jamal that better met his goals of avoiding probate and estate taxes. The money that Jamal would have spent on a consultation with an estate planning attorney would have been insignificant compared to the expenses and complications that his wife had to endure as a result of creating estate planning documents on his own.

Beware of Trust Mills

A living trust for $399.00. Sounds too good to be true. Well it usually is. Some companies or firms put on seminars at local hotels or meeting rooms, advertising living trusts at low prices. Usually an attorney will give the presentation and offer you a special deal if you sign up that day. You fill out a questionnaire form and give them your check, which are sent to their computer processing center, usually in another city. Data entry clerks input your information and a computer-generated form living trust is printed based on your responses. Sometimes the final documents are delivered to you by their representative, who may be an annuity sales person, who will then try to convince you to convert your savings, IRAs, 401Ks, stocks, bonds and other investments to annuities with the promise that these annuities will give you a good return on your money, protect your estate from creditors and exempt your assets from Medi-Cal requirements if you need long term care in a nursing home. Such promises are rarely true, but these annuities generate large commissions that are split with the trust mill that you hired to do your trust. That’s where they make their money. Don't rely on these assembly lines to create the best estate plan for you.
For information on a class action lawsuit that was filed in November 2004 by the California Advocates for Nursing Home Reform against certain trust mills, click on the following link: - Trust Mill Lawsuit