Excellent Article on Medi-Cal Planning


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California Advanced Health Care Directives

All California competent adults should consider signing a California Advanced Health Care Directive.

In the aftermath of the Terri Schiavo case in Florida, most people recognize how important this estate planning document is to protect yourself and your family.

In this document, you empower someone to make medical decisions for you if you become unable to give informed consent to your medical decisions.  You name your first choice and your alternate choices.

Included in this document can be your wishes on such matters as:

  1. Whether and when you want so-called “heroic measures” used to prolong your life if you were in a terminal condition;
  2. Whether you want your health care agent’s authority to start now or only when you are unable to make health care decisions for yourself;
  3. Whether you wish to be an organ donor and, if so, for what purposes you want the donations;
  4. Whether and when nutrition and hydration may be withheld if you were in an irreversible coma;
  5. Whether you prefer home health care versus nursing home care, as long as home health care were appropriate;
  6. Whether you prefer to be told the truth or whether you prefer not to be told the details of your condition, especially if the news is bad;
  7. Whether you prefer to be buried or cremated or whether you prefer for your health care agent to decide;
  8. Whether your religious beliefs are to be considered;
  9. Who is to be in charge of your funeral or memorial service.

Copies of your California advance health care directive should be given to your nominated agents, doctors, hospitals, and all health care providers.

Seriously ill patients may also want to confer with their physician about a POLST form (Physician Orders for Life-Sustaining Treatment).  A POLST form states what kind of medical treatment patients want towards the end of their lives.  Printed on bright pink paper, and signed by both a doctor and the patient, POLST helps give seriously ill patients more control over their end-of-life care.

copyright James J. Phillips 2014

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Inheritance: Avoiding an Increase in California Real Property Tax

For most California estate plans, federal estate tax can be avoided, as can probate.  Of increasing concern is how to avoid an increase in California real property tax.

For the California residence, it can pass from parent to child (or child to parent) without an increase in property tax.  But, without proper planning, property taxes may increase if one sibling buys out another sibling at death in order for one child to inherit the house with the other child receiving assets of equal value.  Proper planning is required to avoid the problem of the County treating a transfer after death as being between siblings and not from parent to child.

In addition, a parent can transfer up to $1,000,000 of assessed value (not fair market value) to the children (or a child can do the same to the parents).  (Assessed value is the value described on the property tax bill, not to be confused with fair market value.)  This $1M exclusion is for transfers both during life and at death.  Excluding the residence, once a parent transfers (combined in life and in inheritance after death) more than $1,000,000, then all transfers to children will be reassessed to fair market value, with property taxes based on those (usually higher) values.

So it is important to review the assessed values of the real estate in an estate plan in deciding upon which children will receive the benefit of the $1,000,000 assessed value exclusion and which children will receive the residence and which children will be stuck with an increased property tax bill upon inheritance.  (Similar rules apply from child to parent.)

Special rules apply for the transfers to a person’s deceased child’s children and to your children’s spouses.

Otherwise, real property taxes will be reassessed upon an inheritance to a person who is not the spouse, not the registered domestic partner, not the parent, not the child, and (with certain rules beyond this post) not a child of a person’s deceased child.

For example, real property taxes will be reassessed on a gift or inheritance to siblings, cousins, and friends.  Over time, increases in such property taxes can amount to significant dollars.

Hence, real property tax planning is an important part of a California estate plan.

copyright James J. Phillips 2014

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Pets in Your Estate Plan

If you have pets, consider including them in your estate plan.  Who will take your pets if you die or become incompetent?  Who will find them a good home?  How will the costs of your pets be handled?  These questions can be addressed in your estate planning documents.

Regarding who will take your pets or who will find them a good home, options include:

  1. Your estate documents can give your pets outright to someone you know, ideally a responsible, trustworthy person.  You can designate alternate choices to take your pets.  If you wish, funds can be given to the caregiver for each pet.  You may wish to provide detailed care and feeding instructions; or
  2. For California residents, you can use a trust to provide for your pets.  This provides a flexible method for managing the funds to care for your pets.  Funds remaining in the trust can be distributed in the manner directed by you.  With a pet trust, you should nominate a trustworthy and suitable caretaker (and alternates) or instruct the trustee regarding the trustee’s responsibility for finding a suitable home for your pets.  The pet trust can pay for all expenses related to the proper care of your pets; or
  3. When you have no suitable person to take your pets, you can leave your pets to an organization.  A number of California animal protection organizations have programs that provide permanent care or guarantee placement of companion animals when their owners die or become incompetent.  Here are some examples:
  • San Francisco Society of Prevention of Cruelty of Animals-Sido Service
  • Animal Rescue Foundation-Guardian Program
  • Berkeley East Bay Humane Society
  • California Cat Center, Inc-Lifecare Program
  • East Bay SPCA-Pet Survivor Placement Program
  • Friends of Cats, Inc-Lifetime Care
  • Helen Woodward Animal Center
  • Hopalong Animal Rescue Pet Survivor
  • Humane Society of Marin County
  • National Cat Protection Society-Retirement
  • North County Humane Society-Friends of Life
  • Pet Pride (Los Angeles)
  • Pets in Life-Guardian Program
  • SPCA of Monterey-Guardian Angel Future Care Program
  • Tony La Russa’s Animal Rescue Foundation (ARF)-Guardian Program
  • Valley Animal Center-No Kill Shelter (Fresno)

copyright James J. Phillips 2014

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How to include your charitable causes in your living trust and estate plan

People are often invested deeply in their charitable causes. Some give their money. Some donate their time. Some share their talent. To them, their charitable causes are an important part of who they are.

It is important for such clients to discuss with their attorney whether they want that legacy to continue in their estate plan after their death.

Here are some examples of living trust provisions that address helping your charitable causes after your death:

  • You can have your pattern of charitable giving continue after your death to your desired charity and for your desired charitable purpose.
  • Your lifetime charitable efforts could continue after your death with your bequest to pay for continuation of your charitable work.
  • Your charitable causes or campaigns or efforts could be supported after your death with a thoughtfully planned bequest.
  • You could give your family members roles in your charitable bequests, if you wish, doing so in a manner that might promote their philanthropy (or that might inspire their passion for your charitable causes).

If you are uncertain whether there will be enough funds in your estate both for your family and for your charity, you could use any of these planning techniques:

  1. The charitable bequest occurs only if your total net worth exceeds a certain amount.
  2. The charitable bequest could equal the lesser of a certain dollar amount or x% of your net worth.
  3. The charitable bequest could apply only if certain family members die before you.

Copyright 2014 James J. Phillips

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Here are my TOP 10 suggestions for reviewing and possibly updating your estate plan in 2014:

#10. Under your existing estate planning documents, who will be charge of your financial affairs if you become ill? Who did you name as your successor trustee and as your attorneys-in-fact under your durable general power of attorney? Has your opinion changed since the time that your trust and power of attorney were signed?

#9. Under your existing advance health care directive, who will be your health care advocate if you become unable to give informed consent to medical decisions? Who did you name as the alternates? Has your opinion changed since the time that your advance health care directive was signed? Did your document state your wishes about “heroic measures,” home health care, organ donation, burial/cremation, and who will be in charge of your memorial service/funeral?

#8. Are your “after income tax” (or “income tax deferred”) assets titled to your living trust? Do you have assets titled in joint tenancy that really should be held in your living trust? Are your assets titled correctly for tax purposes and for avoiding probate?

#7. Do the primary and secondary beneficiary designations of your IRAs, SEP/IRAs, 401(k), 403(b), pension plans, and other income tax deferred assets correctly state who is to inherit those “pre-income tax” assets? Or are these beneficiary designations out of date?

#6. Under your existing living trust and will, who will inherit your estate? How, when, and what will your beneficiaries inherit? Have your inheritance wishes changed since the time that your living trust and will were signed?

#5.  Have the life circumstances of your beneficiaries changed dramatically from the time that your estate documents were signed? Since the date that your estate documents were signed, have you changed your opinion as to what is best for your beneficiaries? For example, since the date that your living trust and will were signed:

  • has a beneficiary’s financial responsibility or trustworthiness changed?
  • has a beneficiary’s health become a concern to you?
  • is a beneficiary now on Medi-Cal or other important government benefits?
  • is a beneficiary’s marriage now of concern to you?
  • have hostilities or conflicts developed involving a beneficiary that warrant changes to your trust and will?
  • if you have minor children, is your designed guardian for them still correct?

#4.  What is your plan for payment of your future home health care or long term care, if needed? If you want your estate to have the option to have California pay for your skilled nursing care under the Medi-Cal program, then your durable general power of attorney should be reviewed and updated if it does not include so-called “Medi-Cal planning power” in it. Should there be changes to your assets to make yourself more “self-insured” for home health care or long term care? Should you consider long term care and home health care insurance?

#3. Does the current assessed value (not fair market value) on your California property tax bill of all of your California real property exceed $1,000,000? If so, then your estate plan should be reviewed to avoid a possible increase in real property taxes on your death (as there is a limit on how much real property can be inherited by your children without triggering an increase in property taxes).

#2.  Has your health or financial or family situation or your wishes changed significantly from the time that your estate documents were signed? If so, review your estate documents to make sure that they will still accurately reflect your wishes.

#1 MOST IMPORTANT REASON TO REVIEW YOUR ESTATE PLAN is to improve and simplify your estate plan due to new, generous estate tax laws. Washington recently replaced the uncertainty of the Bush era estate tax laws with generous estate tax laws, gift tax laws, and generation skipping transfer tax laws. You can still leave an unlimited inheritance to your surviving spouse (who is a U.S. citizen). But the amount that you can now leave without estate tax to others has increased to $5,340,000 for persons dying this year (indexed to increase with inflation after this year).

For a surviving spouse, there is now a new planning option to increase his/her $5,340,000 estate tax exemption by the estate tax exemption of the deceased spouse. For example, with proper planning, it is possible for a widow who inherits everything from her husband to inherit (via what is called “portability”) her husband’s estate tax exemption, leaving her with an estate tax exemption of $10,680,000 (so long as she does not remarry).

Hence, married couples whose living trust was written before 2012 may have trust provisions that are far more complicated than needed now under current estate tax laws. Note that the estate tax exemption used to be $600,000 in 1997, $675,000 in 2001, $1,500,000 in 2005, and $3,500,000 in 2009. These lower estate tax free amounts often lead to complicated bypass trust type living trusts in order to save estate taxes. For many couples, those bypass trusts may no longer be needed (unless they are used for “control” purposes or to save property taxes).

The amount that you can leave without federal gift tax now equals the same estate tax exemption amount, including the so-called “portability” rules applying to a surviving spouse. The current annual gift tax exemption is $14,000. The amount that you can leave without generation skipping transfer tax is also now $5,340,000, but without the “portability” benefits for a surviving spouse.

Copyright by James J. Phillips 1/1/2014

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Medi-Cal Planning for Payment of Long Term Care for California Residents

This article is an excellent summary of how to qualify for Medi-Cal payment for long term care for California residents:


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New, higher tax free exemptions for 2014


Unified estate and gift tax exclusion amount. For gifts made and estates of decedents dying in 2014, the exclusion amount will be $5,340,000 (up from $5,250,000 for gifts made and estates of decedents dying in 2013).

Generation-skipping transfer (GST) tax exemption. The exemption from GST tax will be $5,340,000 for transfers in 2014 (up from $5,250,000 for transfers in 2013).

Increased annual exclusion for gifts to non-citizen spouses. For gifts made in 2014, the annual exclusion for gifts to non-citizen spouses will be $145,000 (up from $143,000 for 2013).

Foreign earned income exclusion. The foreign earned income exclusion amount increases to $99,200 in 2014 (up from $97,600 in 2013).

Gift tax annual exclusion. For gifts made in 2014, the gift tax annual exclusion will be $14,000 (same as for gifts made in 2013).

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How to select who will serve as the successor trustees of your living trust

In selecting a successor trustee for a living trust, people often gloss over the complications involved and think in terms of such broad generalizations as “manage my estate” and “take care of my beneficiaries.” In reality, a trustee performs very specialized functions. The trustee must prudently invest assets, consider distribution requests, keep accurate records, file tax returns, account to the beneficiaries, and carefully weigh often complex legal and tax issues. The trustee must obey strict duties for the benefit of your beneficiaries, being financially liable to them if the trustee violates those duties. Also, being trustee is usually a time-consuming, frequently thankless job.

               For living trusts, a trustee is needed for at least three separate situations:

  1.  First, who serves as trustee for you if you became incompetent? 
  2. Second, who serves as trustee upon your death to administer and distribute your trust?
  3. Third, who serves as trustee of ongoing trusts created on your death for your beneficiaries?  (In each of those three contexts,  successor trustees should be named.)

            The personal attributes of the trustee should be of paramount importance in the selection process. A trust that works for tax purposes will be of little benefit if an imprudently selected trustee dissipates the trust assets through poor administration.

            There are four possible choices for trustee:

  1. A family member;
  2.  A trusted friend;
  3.  A corporate trust department:
  4.  A private fiduciary. 

          As discussed below, each choice has advantages and disadvantages. Factors to consider include: reliability, integrity, and financial responsibility; willingness and ability to devote time to the job of trustee; relationship to the beneficiaries; personal dynamics among the beneficiaries; judgment, experience, impartiality, and potential for conflict of interest; and the size and type of trust assets.

                Unlike an “outsider,” a family member knows you and the personalities involved. A family member may also serve for free, although my experience is they usually are paid.  However, there can be significant disadvantages to having a family member as trustee. The family member may lack experience in the crucial functions performed by a trustee. The family member trustee may be subject to pressure or influence by beneficiaries. Throwing a family member in the middle of family hostilities by naming him or her as trustee could become a ticking time bomb that eventually may explode. Ask yourself whether the proposed family member trustee will be susceptible to influence by other family members. Will the family member tirelessly withstand the beneficiary who is constantly asking for funds?  Will the family member resist the temptation to play favorites among beneficiaries? The very intimacy that seems to make a family member an ideal choice can be a burden and disadvantage sometimes. Also, conflicts of interest may arise when the family member is both a trustee and a co-owner of trust property or a beneficiary.

            In considering a trusted friend as an option, be mindful that being a trustee for someone else’s trust is time-intensive and can entail a high degree of personal liability. A friend should not be expected to serve as trustee for free. As with a family member, the trusted friend probably is inexperienced in trust administration and will require assistance from a lawyer, an accountant, and possibly a financial advisor.             

            A corporate trust department employs individuals with specialized training and experience in all the diverse areas involved in trust management and administration. A trust department employs lawyers, tax specialists, investment professionals, and trust administrators. This team of individuals should possess a higher degree of knowledge across all these areas than almost any one individual. A corporate trustee provides neutral and objective supervision, treating all beneficiaries in the same way. Corporate trustees also have the accounting and record keeping capabilities required for trust administration. They can provide accounting which distinguishes between principal and income and can track investment information, such as cost basis and current yield.  Certainly, a corporate trustee will charge a fee for serving. That fee should be compared against the fee charged by an individual trustee plus the accountant and attorney’s fees incurred by the individual trustee. 

            In California, another option involves nominating a California private fiduciary. As with corporate trustees, private fiduciaries could be interviewed, with their potential services and fees described. (See Professional Fiduciary Association of California’s web page http://www.pfac-pro.org  and Department of Consumer Affairs Professional Fiduciaries Website  http://www.fiduciary.ca.gov )

            Your trustee is bound by several legal duties, including the duty to be prudent, the duty of loyalty, and the duty of impartiality. Other duties include the duty to identify and collect property, the duty to protect property, the duty to account to your beneficiaries, the duty not to delegate unwisely, and the duty to carry out the purposes of your trust. These are complicated duties. A trustee can be held personally liable for losses that occur if such a fiduciary duty is violated.

            In selecting a trustee, ask yourself these questions: (1) Is the trustee capable of handling the types of assets that will be held in the trust?; (2) Is the trustee capable of, and inclined to, resolve problems that may arise with the trust and its beneficiaries?; (3) Is the trustee capable of managing the trust investments?; (4) Will the trustee be able to devote the time and attention needed to avoid problems?; (5) How well will the trustee get along with the beneficiaries? Will there be hostility or antagonism between the trustee and a beneficiary?; (6) Is the trustee capable of communicating with the beneficiaries?; (7) Will the trustee’s greed prevent proper trust administration?; (8) Will the beneficiaries respect and accept the trustee?; (9) Is the trustee capable of understanding and fulfilling the fiduciary duties and responsibil­ities of trusteeship?; (10) Is the proposed trustee likely to suffer major personal problems (health, family, or financial)?; (11) Do the beneficiaries have inflated ideas of their financial needs?  If so, can the trustee handle them?; and (12) What compensation may the trustee receive?

            Some clients prefer the option of the successor trustee working in conjunction with special trustees. For example, if you nominate a corporate trust department or California private fiduciary as trustee, you could nominate as special trustees the individuals in your life whose judgment you trust. Those individuals could be given many powers over the trustee. For example, the special trustees could nominate the trust department or private fiduciary to serve as trustee, fire that trustee, and replace it with another trust department or private fiduciary as trustee. The special trustees could be entitled to regular accountings and status reports.  You could also require the trustee to confer with the special trustees prior to any significant changes to the trust assets. Special trustees could even be given a veto power over the trustee’s proposed actions.   (You can also use the special trustee concept when your trustee is a family member or friend.)

                The option of co-trustees can also be considered. But that will be the topic of a separate article, as cotrusteeships often add lots of complexity.

Copyright James J. Phillips (2013)

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Selecting the guardian for your minor children

Every parent knows how important it is to select a guardian for minor children. Many parents find this decision to be terribly stressful. Here are some tips to help with deciding whom to nominate as the guardian of your child if neither parent is living  (or if both parents became incompetent).

There are two types of guardians. The guardian of the estate deals with any assets left to a minor child (not in trust for the minor). This article deals with the guardian of your child’s person.

First, in considering the guardian of the person, take into consideration all of the possible candidates, from Mom’s relatives to Dad’s relatives to your friends and the parents of your child’s friends.

Of course, no one is required to act as guardian simply because you nominate them. So eliminate those whom you know would decline to act.

With your remaining list of possible candidates, consider these factors:

  1. Do you want the person only if that person remains married to the current spouse? Or is marital status irrelevant?
  2. Who has a genuine interest in your child’s welfare and best interest?
  3. Who has a present relationship with your child (and, ideally, your family)?
  4. Does the person possess your desired personal attributes for raising your child? (What are the personal attributes that are important to you?)
  5. Will the person seek the help that you would want in raising your child?
  6. Does the person have your desired level of integrity and stability to do what is in your child’s best interest?
  7. Will the person provide the social, financial, educational, moral, and religious upbringing similar to what you would have provided?
  8. Will the guardian work well with your child’s trustee (who has control of your child’s financial inheritance)?

 I recommend that nominations of guardian include alternate choices. Your written nomination of guardian should be part of your estate planning documents and consistent with your trust for your minor child.

It is essential that you review your selection frequently, especially as your child gets older and as changes happen in your life and residence and in the lives of those whom you nominated as guardians of your child’s person. Revisit this annually. 

In California, the determination of who serves as guardian is made by the court’s determination of what is in “the best interest of the child.”  

In California, Probate Code 1514 requires the court to appoint the parent’s nominee who petitions for the position of guardian of the person “unless the court determines that the nominee is unsuitable.” But the law gives the court the ability to consider the child’s preference and to consider what the court believes is in the child’s best interest under the circumstances at that time.

In California, any relative or “other person on behalf of the minor” may seek to become the guardian of the minor’s person. Relative is defined as a spouse, parent, step parent, sibling or half sibling, uncle, aunt, nephew, niece, first cousin, “grand” or “great” relatives, and the spouse of those persons. (Probate Code 1513 (g).) Person on behalf of the minor would include whomever the minor’s parent nominated as guardian. Also, in California, once the minor is 12 years old, the minor may petition for appointment of guardian of the person of the minor’s choosing. (Probate Code 1510 (a).)

Copyright James J. Phillips September 2013

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