Estate and Trust Planning

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When it comes to setting up a revocable trust, most people are primarily concerned with avoiding the time and expense associated with the probate process. To avoid probate, it is crucial that legal title to any real property is transferred to the trustee of the trust. In discussing the importance of funding the trust with real property, many clients want to know whether or not the transfer to the trust will trigger an acceleration of the debt on the property under a “due-on-sale” clause. Although the question is fairly common, the answer is not as straightforward as you might expect.

 Transfers of a Personal Residence

Under federal law, due-on-sale provisions are regulated by the Garn-St. Germain Depository Institutions Act of 1982 (Garn Act). The Garn Act, as interpreted by the Code of Federal Regulations, prevents a lender from enforcing a due-on-sale clause when a home is transferred to a revocable trust in which the borrower is a beneficiary and the home is occupied (or will be occupied) by the borrower. As far as California law is concerned, a due-on-sale clause cannot be enforced if the property transferred into the revocable trust is “residential property” and the borrower is a beneficiary of the trust. Here, “residential property” is defined as “any real property which contains at least one but not more than four housing units.” Therefore, under both federal and California law, transferring your personal residence into your revocable living trust will not trigger a due-on-sale clause.Continue Reading Avoiding Acceleration: How to Put the Brakes on Due-on-Sale Clauses when Funding Your Revocable Living Trust with Encumbered Real Property

KayBAre you having trouble completing or updating your estate plan, although you are convinced you should?  Maybe you have a referral to an attorney recommended by a friend or other advisor, but you haven’t yet scheduled the first meeting?  Or you have attended the first meeting with your estate planning attorney, but you can’t quite seem to finish your action list for the next meeting?

Estate planning is not the top of anyone’s “to do” list.  As an estate planning attorney, part of my job is to help my clients complete their estate plans.  No one intends to delay the process, but many times the process stalls.

Here are some ideas that have helped my clients cross the finish line and enjoy the relief that a completed plan brings.  See if they work for you!Continue Reading Overcoming Proscrastination – Tips for Starting and Completing Your Estate Plan

In my two previous posts, I discussed the value of comprehensive estate planning even if you have a small estate or you want everything to go to your spouse.  In this last installment, I will address the most common reason I hear from clients who say they don’t need an estate plan, which is, “I don’t need an estate plan because I have everything in beneficiary designation accounts.”

People often try to create a “do-it-yourself” estate plan by creating beneficiary designations on all of their assets.  This is typically done by titling assets with another person “with right of survivorship,” holding assets jointly, or creating “payable on death” (POD) or “transfer on death” (TOD) accounts.  I caution against using this approach for several reasons.

In California, you can have $150,000 in total assets (subject to a few exclusions) outside of a trust or without beneficiary designations without triggering a probate.  Additionally, the threshold amount for transferring real property without a probate in California is $50,000.  With TOD/POD accounts, if the designated beneficiary is deceased at your death and if no successor is named, the account goes back to your estate and counts toward the $150,000.  The same is true if you are the surviving owner of property that had been owned “with right of survivorship,” which often happens with real property.  If enough beneficiary designations fail or were never created, it is possible that a probate will be required.Continue Reading You Need an Estate Plan (Even in Your 20s and 30s) (Part Three)

KayBToday the United States Supreme Court ruled that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional.  The case, United States v. Windsor, 570 U.S. ____ (2013), involved the portion of DOMA that stated that the federal government will only recognize marriages between opposite-sex spouses for purposes of federal law.  There are over 1,000 federal laws that address marital status, and DOMA’s Section 3 denied validly married same-sex couples myriad protections and responsibilities under federal law.  Because of the Windsor decision, same-sex spouses who are validly married under state law will now also be treated as married under federal law. 

Edith Windsor married Thea Spyer, her partner of 46 years, in Ontario, Canada, in 2007.  At the time, their state of residency, New York, did not allow same-sex marriage, but it did recognize the validity of their Canadian marriage.  When Ms. Spyer died in 2009, she left her entire estate to Ms. Windsor.  Ms. Windsor filed Ms. Spyer’s federal estate tax return and claimed that she was owed a refund of $363,053 as the surviving spouse.  Under federal tax law, property passing from a deceased spouse to a surviving spouse is not subject to estate tax.  However, DOMA prevented the IRS from recognizing Ms. Windsor and Ms. Spyer’s marriage, and the refund claim was denied.  The federal District Court and the Second Circuit Court of Appeals ruled in favor of Ms. Windsor, holding that the applicable provisions of DOMA were unconstitutional and ordering that the Treasury refund the estate tax paid to Ms. Windsor with interest.  The government appealed that decision to the U.S. Supreme Court.

In today’s U.S. Supreme Court decision, Justice Kennedy, writing for the majority, stated Section 3 of DOMA violates the due process and equal protection principles of the Fifth Amendment to the U.S. Constitution because it was principally designed to impose an unequal status on otherwise validly married same-sex couples.  Specifically, Section 3 tells these couples that “their otherwise valid marriages are unworthy of federal recognition . . . plac[ing] same-sex couples in an unstable position of being in a second-tier marriage.”  Slip op. at 23.  To the extent that a state has chosen to allow same-sex marriage, the U.S. Constitution prohibits the federal government from imposing “a disability on the class [of same-sex spouses] by refusing to acknowledge a status the State finds to be dignified and proper.”  Slip op. at 25.Continue Reading Supreme Court Rules DOMA Section 3 Unconstitutional

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