At the CANHR Elder Law Conference that I’m attending today, the award winning film, Alive Inside, was featured. It’s powerful proof of how music can bring life to people who appear lifeless. iPods loaded with a person’s life music does what drugs can’t. A wonderful, helpful tool to help our elderly. Here’s a link to the documentary’s YouTube clip: https://www.youtube.com/watch?v=5FWn4JB2YLU
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:
- Whether and when you want so-called “heroic measures” used to prolong your life if you were in a terminal condition;
- 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;
- Whether you wish to be an organ donor and, if so, for what purposes you want the donations;
- Whether and when nutrition and hydration may be withheld if you were in an irreversible coma;
- Whether you prefer home health care versus nursing home care, as long as home health care were appropriate;
- 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;
- Whether you prefer to be buried or cremated or whether you prefer for your health care agent to decide;
- Whether your religious beliefs are to be considered;
- Who is to be in charge of your funeral or memorial service, if you want one.
Copies of your California advance health care directive should be given to your nominated agents, doctors, hospitals, and all health care providers.
California patients may also want to confer with their physician about a POLST form (Physician Orders for Life-Sustaining Treatment), which were updated October 1, 2014. 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 medical providers understand your wishes at a glance and helps give patients more control over their end-of-life care, including such matters as:
- Medical intervention for full treatment vs selective treatment vs comfort-focused treatment vs other orders.
- Artificially administered nutrition: long term vs trial period vs none at all vs other orders.
- Attempt resuscitation/CPR vs do not attempt resuscitation/DNR vs other orders.
Copyright James J. Phillips October 1, 2014
Due process and California law requires that your closest blood relatives* be notified by the person in charge of your estate if you died or became incompetent in each of these California contexts:
- If probate is required because you died without a will, your administrator must notify your heirs*, as your heirs are those who would inherit. In some case where your spouse died before you and you had no children or descendants who survive you, this can include your spouse’s children (i.e., your stepchildren) or your spouse’s relatives.
- Your heirs must also be notified if there is a probate of your will, even if your will does not leave your estate to your heirs and even if your executor is not an heir. In some case where your spouse died before you and you had no children or descendants who survive you, this can also include your spouse’s children (i.e., your stepchildren) or your spouse’s relatives.
- Your heirs even have to notified by the trustee of your living trust, even if your living trust leaves nothing to your heirs.
- If a conservatorship of your person or estate is required due to your incompetency, your heirs must be notified (even if you would not want them notified).
But what if no one knows the name or location of your children or your siblings or your niece and nephews or your cousins or your closest blood relatives? What if you kept as secret a child born outside of wedlock? What if you were estranged from some of your closest relatives? What if your administrator or executor or trustee or conservator cannot identify your heirs? This can lead to the costly searches and delay, stress, and uncertainty, especially where the person who was incompetent or died:
- Was estranged from the family.
- Kept as a secret the existence of a child born out of wedlock.
- Had no spouse and no offspring, but had step children or in-laws from a deceased spouse.
- Had as closest relatives persons whose existence was unknown by others.
California law expects the person in charge of your estate to attempt to identify and locate your heirs with:(1) Inquiry of the relatives, friends, acquaintances, and employers; (2) Review of appropriate city telephone directories and directory assistance; and (3)Search of the real and personal property indexes in the recorder’s and assessor’s offices for the county where the person was last known or believed to reside. (See California Rule of Court 7.52; Probate Code Sections 1206, 1821, 6402, and 16061.7.)
Just imagine how difficult this would be if you keep the identity and location of your relatives a secret.
For these reasons, consider placing the names and last known address of your heirs* with your original will and trust and other estate planning documents in your safe deposit box. And consider giving a copy to your estate planning attorney.
*Your heirs are often your closest blood relatives, such as your spouse or registered domestic partner and:
A. Your children and the offspring of any deceased children.
B. If none, your parents. (Put see my post on September 14th http://pleasantonestateplanninglawyer.com/blog/if-a-parent-abandons-a-child-should-that-parent-be-allowed-to-inherit-if-the-child-died-without-a-will.)
C. If none, the descendants of your parents.
D. If none, your grandparents or, if none, the descendants of your grandparents.
E. If none, the descendants of your predeceased spouse may be included.
F. If none, your next of kin.
Copyright James J. Phillips 2014
In California, a trust terminates when any of the following occurs:
- The term of the trust expires.
- The purpose of the trust is fulfilled.
- The trust purpose becomes unlawful.
- The trust purpose becomes impossible to fulfill.
- The trust is revoked.
On termination of the trust, the trustee continues to have the powers reasonably necessary under the circumstances to wind up the affairs of the trust. (California Probate Code section 15407.)
But when can the trust be terminated because it has become uneconomically low compared to the costs of keeping the trust (costs such as CPA fees, trustee fees, attorney fees, investment fees, and taxes)? California probate code 15408 gives the court authority to terminate a trust if the court determines that the fair market value of the trust has become so low in relation to cost of administration that continuation of the trust will defeat or substantially impair the trust purpose.
And, for California trusts, if the value of the trust does not exceed $40,000, then the trustee has the power to terminate the trust. (California probate code section 15408 (c).)
Historically, both parents have had a legal right to inherit from a child who died without a will, if that child died with no spouse, no registered domestic partner, and no descendants. This has long been the law in California, even in cases where a parent abandoned the child from birth, sometimes resulting in grossly unfair results.
For example, in one California case, a husband abandoned his pregnant wife, stranding her with no means of support in New Mexico. His wife gave birth to their son. The husband never communicated with his son and never provided any support. Yet when the son died 42 years later in California without a will, without a wife or registered domestic partner, and without descendants, the father was entitled to half of his son’s estate (sharing with the mother). (Estate of Shellenbarger (1975) 14 Cal 3rd 831.)
This grossly unfair result has been changed by new California Probate Code 6452 (a) (3), which prevents a parent from inheriting from a child who dies without a will if:
“The parent left the child during the child’s minority without
an effort to provide for the child’s support or without communication
from the parent, for at least seven consecutive years that continued
until the end of the child’s minority, with the intent on the part
of the parent to abandon the child. The failure to provide support or
to communicate for the prescribed period is presumptive evidence of
an intent to abandon.”
Under California law, trustee compensation must be “reasonable” if there are no criteria or other guidelines set forth in the trust. (Probate Code section 15681.)
Often, trusts simply say that the trustee is entitled to “reasonable compensation” without any definition or any guidelines to help determine the amount of trustee compensation. In those cases, California law provides for the following guidelines to consider when determining or approving trustee compensation (California Rule of Court 7.776):
- The gross income of the trust.
- The success or failure of the trustee’s administration.
- Whether the trustee possessed unusual skill, expertise, or experience.
- The amount of time spent by the trustee in performance of trustee duties.
- The custom and practice in the community.
- The charges of corporate trustees for trusts of similar size and complexity.
Applying these legal guidelines to each case requires application of the fact and circumstances of each case, as well as case law and the practices of the local courts. Strategy is often involved in asserting or opposing trustee compensation claims.
In contrast, a living trust can be drafted to specify the amount of trustee compensation and define the amount in different ways.
Copyright James J. Phillips 2014
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:
- First, who serves as trustee for you if you became incompetent?
- Second, who serves as trustee upon your death to administer and distribute your trust?
- 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:
- A family member;
- A trusted friend;
- A corporate trust department:
- 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.)
Copyright James J. Phillips 2014
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).
In California, there are two types of guardians, guardian of the estate and guardian of the person. 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:
- Do you want the person only if that person remains married to the current spouse? Or is marital status irrelevant?
- Who has a genuine interest in your child’s welfare and best interest?
- Who has a present relationship with your child (and, ideally, your family)?
- Does the person possess your desired personal attributes for raising your child? (What are the personal attributes that are important to you?)
- Will the person seek the help that you would want in raising your child?
- Does the person have your desired level of integrity and stability to do what is in your child’s best interest?
- Will the person provide the social, financial, educational, moral, and religious upbringing similar to what you would have provided?
- 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 2014
In planning how to have your financial affairs managed by others if you become unable to manage your financial affairs, it’s not enough simply to have a revocable living trust because there are many financial transactions that legally cannot be handled by the trustee of your living trust. For example, if you become incompetent, your successor trustee cannot do any of the following (in the capacity as trustee):
- Prosecute or defend a personal injury lawsuit;
- Invest in or withdraw money from your IRA, 401(k), or pension plans;
- Sign your income tax returns or represent you in tax disputes;
- Engage in Medi-Cal planning;
- Gain possession of those of your assets not titled in the name of your trust; etc.
Hence, a durable general power of attorney is an essential part of a Californian’s estate plan. In a durable general power of attorney, you authorize another person to act as your agent (also known as your attorney-in-fact) in the event that you become substantially unable to manage your financial affairs or substantially unable to resist the fraud or undue influence of others.
Some additional examples of powers that can be specified in a durable general power of attorney include:
- The power to engage in gift giving in order to reduce possible estate taxes on your death (see prior posts on estate tax laws);
- The power to continue any pattern of charitable giving that you want to continue if you became ill;
- The power to engage in so-called Medi-Cal planning (which is discussed in prior posts);
- The power to amend the estate tax portions of your living trust (to give flexibility to your documents in the event that, while you were incompetent and unable to amend your trust yourself, Congress changes the estate tax provisions from what you anticipated in how your trust was written);
- The power to create a special needs trust in your living trust for any beneficiary who becomes disabled and in need of a special needs trust at a time when you were not competent to amend your trust;
- The power to transfer your assets to your living trust;
- The power to invest, manage, and make withdrawals from your IRA, 401(k), annuities, and pension plans; etc.
Similar to your living trust, your durable general power of attorney should make clear whom you wish to serve in role of managing your financial affairs, whom the alternates are, how (and under what circumstances) that person can be removed, and to whom that person must account, report, and consult.
Coordinating the terms of your durable general power of attorney and living trust protects yourself in the event you become seriously ill.
Copyright James J. Phillips 2014