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As a shareholder in the firm’s Estate Planning, Tax & Fiduciary Abuse group, Hilary counsels individuals and businesses in all aspects of estate and tax planning, including trusts, wills, and powers of attorney, health care documents, life insurance trusts, education trusts, charitable giving, gifting programs, and family business entities such as limited liability companies and family limited partnerships. She also assists clients with estate and gift tax issues, and probate and trust administration, including advising executors, administrators, and trustees.

HilaryLWhen discussing your estate planning needs with your attorney, after you discuss basic terms and concepts, your attorney will likely talk to you about the different types of revocable living trusts that may be appropriate for you.  If you are married, this may include a discussion about a revocable living trust structure commonly referred to as a “Sweetheart Trust.”

The Sweetheart Trust derives its name from the high level of control and discretion the surviving spouse maintains after the death of the first spouse. Initially, while both spouses are alive and competent, either spouse can revoke his or her share of the trust and the terms of the trust can usually be modified with the consent of both spouses.  When one spouse dies, all trust assets remain in the same revocable trust for the lifetime of the surviving spouse.  During the surviving spouse’s lifetime, he or she can terminate the trust, change its terms, add or remove beneficiaries, and otherwise manage the trust as he or she sees fit.  Because the surviving spouse has complete and absolute control over the trust after the first spouse dies—in essence, an unconditional gift—this type of trust is called a Sweetheart Trust.
Continue Reading Estate Planning 101: What is a “Sweetheart Trust?”

HilaryLThere has been a lot of talk lately about repealing parts of Proposition 13.   Passed in 1978, under this initiative, property tax increases are severely limited. The resulting loss of tax revenues was devastating to the public school system and other infrastructure in California.  Democrats who now have a supermajority in the state legislature are looking at their supermajority as an opportunity to turn that around.   In addition, recent polls show that a majority of Californians are in favor of a repeal of Proposition 13 as it relates to commercial (non-personal residence) properties.  For an extended read about the recent polls of Californians who are in favor of a repeal of Proposition 13 see the following SFGate: Poll Finds Support for Prop. 13 Change .

In addition, Proposition 13 has recently even come under attack by its usually staunch supporters due to a perceived abuse of loopholes (See LA Times Article).   In response to this perceived abuse, Assemblyman Tom Ammiano has introduced a bill to plug the “loophole.”

The basic rule of Proposition 13 is that increases to the property tax are limited to not more than 2% each year until sold or otherwise transferred, for example by gift or inheritance;  such sales or transfers are referred to as a “change of ownership.”  It is not quite that simple, however.  Property passed to children under the parent/child exemption is exempt from reassessment for a home regardless of value, and for other property up to $1 million in assessed value. Assessed value is the amount for which property is assessed on the property tax bill, not the fair market value of the property.  Since property tax increases are so severely limited under Proposition 13, that $1 million exemption can cover a lot of property if the property has been held for a long time.

In addition, if property is held in an entity,  such as a corporation, partnership or LLC, then until more than 50% of the property changes hands, or one person gains control (obtains more than 50%), transfers of interests within the entity are not deemed to be a “change of ownership.”  The parent/child exemption does not apply to these transfers; so once more than 50% of the entity is transferred to the children, or one person obtains control, there will be a “change of ownership” and a reassessment even if the interests do pass to children.Continue Reading Uncertainty Surrounding the Repeal of Proposition 13 May be a Reason to do Tax Planning Now to Avoid Increases in Property Taxes Later

HilaryLThe United States Supreme Court issued its opinion in Hollingsworth v. Perry, 570 U.S. ___ (2013), this morning, regarding the validity of Proposition 8.  The outcome is that same-sex marriage is once again legal in California.  The Supreme Court did not rule on a specific right to same-sex marriage, but rather it stated that neither it nor the federal Court of Appeals for the Ninth Circuit (which includes California) had the power to hear the case.  Hollingsworth is largely a procedural case, and it requires some background to fully understand.

In 2008, the California Supreme Court held that the California Constitution’s equal protection clause prohibited limiting marriage to opposite-sex couples.  Shortly thereafter, California voters passed Proposition 8, which amended the state constitution to restrict marriage to opposite-sex couples.  The Respondents in Hollingsworth, two same-sex couples, filed suit against various California state and local officials in federal District Court asserting that Proposition 8 was invalid under the Fourteenth Amendment of the U.S. Constitution.  California state officials declined to defend Proposition 8, and the District Court allowed the Proponents (the parties who put Proposition 8 on the ballot) to defend it.  The District Court then declared Proposition 8 unconstitutional, and state officials declined to appeal.  The Proponents then appealed to the Ninth Circuit Court of Appeals.  The Ninth Circuit ultimately held that Proposition 8 was unconstitutional, and the Proponents appealed to the U.S. Supreme Court.  Even though the Ninth Circuit found Proposition 8 to be unconstitutional, it put a “stay” in place, meaning that same-sex marriages were put on hold while the appeal to the Supreme Court was pending.Continue Reading Marriage Equality Returns to California

HilaryLRetirement plans and life insurance and annuities often constitute a large portion of a client’s estate.   At death, these plans are distributed by beneficiary designation, not by the client’s Will or trust.

Many clients are aware that under California law (unless a Will specifically provides otherwise) bequests made to the former spouse in a Will that was made prior to the divorce are revoked at the time the dissolution becomes final.  In addition, some beneficiary designations naming the former spouse are automatically revoked upon divorce; but that is not always the case.  For example, there is no such automatic revocation of beneficiary designations for retirement plans that are covered by ERISA.  For an extended discussion of the effect of California law on the inheritance rights of a former spouse see the following Death and Divorce Blog.


This is a question that has arisen in my practice numerous times this year since “Portability” became permanent when the American Taxpayer Relief Act (ATRA) was signed in January 2013. And I’m sorry, but–the answer is “Maybe”.

The Way It Was

The majority of my clients want the surviving spouse to continue to be able to use all of the couple’s assets after the first spouse dies. In the not so distant past, when the Estate Tax Exemption (Exemption) was $600,000 (increasing to $1 million over a period of years), and estate tax rates were up to  55%, this was a real problem.  If clients with $2 million in assets provided for all assets to pass outright to the survivor, then when the survivor died owning the whole $2 million, there could be $500,000 of estate taxes to pay.  As a result, the vast majority of my clients who are married couples have an estate plan that creates a “Bypass Trust” when the first spouse dies, to bypass estate taxes.  The Bypass Trust will hold the deceased spouse’s assets, and use the deceased spouse’s Exemption.  The survivor is the beneficiary of the Bypass Trust but the assets in the Bypass Trust are not taxed when the survivor dies.  This allows the survivor to use all the assets during his or her lifetime, and to use the Exemption of both spouses; this approach essentially doubles the amount that can pass free of Estate Tax.

There has always been a potential downside to the use of the Bypass Trust, and that is: while the assets in the Bypass Trust escape Estate Tax at the death of the survivor, they also do not receive a new ”stepped up”  income tax basis at that time.  Because the Estate Tax was taxed at up to 55% versus capital gains at 20% (plus California capital gain taxes around 9+%), it was almost always better to avoid the Estate Tax and forgo the “stepped up” basis at the death of the survivor.  With the current Estate Tax rate of 40%, and California capital gain tax rates bumped up to 13.3%, this is not such an easy choice now.Continue Reading Now that there is “Portability” of the Estate Tax Unified Credit, Do I Need a Bypass Trust?