JOY OF LAW AVOIDING LEGAL PROBLEMS IN LIFE AND BEYOND Professor Dagmar Halamka [email protected] 1

JOY OF LAW

AVOIDING LEGAL PROBLEMS IN LIFE AND BEYOND

Professor Dagmar [email protected]

http://emeriti.usc.edu

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http://emeriti.usc.edu/

Today’s Topics

• Co-ownership of property via deed• No reassessment of real property taxes upon sale or

transfer of primary residence (proposition 60 and 90) if…

• No reassessment of real property tax in parent-child transfers or vice versa, transfers to trust (funding)

• Exclusion of income tax of $500,000 capital gains• Preservation of assets with various strategies• Wills• Probate• Probate avoiders• Living trust and pour over will• Living trust advantages

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Today’s Topics

• Three Techniques of Estate Planning (May Utilize Several)• Wills• Trusts• Ancillary Living Documents

• Pre-post nuptial agreements• Separate property• Durable power of attorney for financial matters

(DPAFM)• Advanced Health Care Directive

• Long Term Care• Reverse Mortgages (safer now?)• Factlets• Homework assignments

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Co-ownership of Property

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Co-ownership of Property (Cont.)

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TENANCY IN COMMON

JOINT TENANCY

COMMUNITY PROPERTY

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Community Property

Basic Concept of Community Property:

• Assets accumulated while married and living in California

• Each spouse has a 50% share, can dispose of to other

• No built-in right of survivorship

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Separate Property

Separate Property Examples:

• Inheritance or gifts received by one spouse • Assets owned on wedding date

• To preserve Separate Property status, must keep the asset separate

• Separate can become Community Property by commingling

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Propositions 60 and 90

No actual reassessment of real property tax upon sale or transfer of primary residence

• May buy or construct a new home of equal or lesser value than your existing home and retain that property tax base value for the new property

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Propositions 60 and 90 (cont)

If husband or wife is 55 or older

• Must buy or complete construction of your replacement home within two years of the sale of the original property

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Propositions 60 and 90 (cont)

One Time Only Benefit

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Propositions 60 and 90 (Cont.)

• Proposition 60 applies L.A. County to L.A County

• Proposition 90 applies if LA County to…• Alameda County• Orange County• San Mateo County• Ventura County• San Diego County• Santa Clara County• El Dorado County

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Proposition 58

Proposition 58

No real property tax reassessment in parent-child transfers or vice versa

• Caveat – could incur huge income tax consequences

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Internal Revenue Code

Exclusion from income tax of $500,000 capital gains for sale of residence for a husband and wife ($250,000 if single) effective May 7, 1997.

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Internal Revenue Code (Cont.)Example:

• Purchase price of home is $300,000 and the present sale price is $810,000• (Presume no improvement)

• Husband and wife exclude from tax $500,000 using capital gain exclusion

• Tax at capital gains rates at 15% for profit

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Internal Revenue Code (Cont.)

Example continued:

• Capital gains tax rate (15%) on net profit - basis of $300,000 purchase price + $500,000 exclusion = $800,000

• Sale price of $810,000 - $800,000 = gain of $10,000

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Preservation of Assets with Various Strategies

Estate Planning

• Wills (ticket to probate court)• Probate fees are $22,700 for a $500,000

estate• Primary residence values at gross value for

probate fees (no deduction for mortgage)

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Will It Fly?

Formalities required

• Sign

• With at least two witnesses• Exception: holographic (handwritten will)

• At least 18 years of age

• Testator must know relatives and extent of property owned

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About Wills

A NAMING Document

• Names the persons who receive Probate Estate Assets

• Names an executor and a guardian

Applies to Probate Estate Assets

• Not to assets with Probate Avoiders

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What Is Probate?

• Probate’s Purpose• To pass “Probate Estate Assets” of a deceased person

to the deceased person’s heirs

• Court procedure required

• Court approves “executor” to “settle the estate” under court supervision

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More About Probate

• Concerns raised about probate:• Private matters in public proceeding• Time (approximately 15 months)• Cost• Possible proceedings in multiple states

• One approach: What do I care? I’m gone

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Preservation Of Assets With Probate Avoiders

• No probate necessary if estate is under $150,000 (real property cannot exceed $20,000 value)

• No probate necessary if utilize probate avoider

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Probate Avoiders (Cont.)

• All investments with named beneficiaries• Life Insurance, Retirement Plans,

Brokerage Accounts, IRA’s, Credit Unions

• Jointly held personal or real property • (Does not avoid probate on death of second

joint tenant)

• In TRUST FOR (poor man’s trust)• Children, your name in trust for

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Probate Avoiders (Cont.)

• Living trust and pour over will (a.k.a. revocable trust, a.k.a. family trust)

• Should review every 3-5 years (with expert) or any significant change of circumstances

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About Living Trusts

• Also a NAMING document

• It names who receives trust assets• It names a trustee and successor

trustees

• Person creating living trust is called the settlor (or grantor or trustor)

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About Living Trusts (Cont.)

• Trustors maintains control during capacity

• Husband and wife can be trustors and trustees

• No reassessment of real property upon transfer to trust

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Living Trust• Avoids all probate and related costs – both

financial and emotional

• Completely flexible – can be changed or cancelled at any time

• Lets you keep control, even at incompetency and after your death

• Provides effective pre-nuptial protection

• Avoids problems of joint ownership

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Living Trust (Cont.)

• Prevents a conservatorship at physical or mental incapacity

• Preserves privacy – completely confidential

• Can reduce or eliminate estate taxes• Federal estate tax exemption was $5.34 million in

2015 for an individual

• A husband and wife can pass $10.68 million to beneficiaries estate tax-free and with no probate, saving for federal estate taxes and probate fees

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• Very difficult to contest

• Minimizes emotional stress on your family

• Prevents unintentional disinheriting

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• Allows quick redistribution of assets to beneficiaries

• Distribution to minor grandchildren

• Protects minor children from court-imposed guardianships

• Distribution to spendthrift beneficiaries in trust (i.e. $500 a month)

• Can protect beneficiaries with special needs

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• Inexpensive, easy to set up and maintain

• Professional asset management with corporate trustee

• Successor trustee will manage financial affairs if you are unable to do so

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Once I Have a Living Trust, What Do I Do With It?

• Funding

• Transferring title to assets• Examples: real estate deed, bank

account, stock• Assets acquired after create living trust

• Warning: Refinancing home

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ADVANTAGES OF A REVOCABLE LIVING TRUST

• Avoid probate• Other reason: Lifetime asset management

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Living Trust Advantages

• Reduce/Eliminate Estate Taxes – With an A-B Living trust, you and your spouse can each use your $5.34 million federal estate tax exemption. This lets you pass on to your beneficiaries up to $10.68 million estate tax-free and with no probate. The highest estate tax is presently 40%.

• Provide for Surviving spouse – The surviving spouse has complete control over TRUST A. In addition, he/she can receive the income (and principle, if needed for certain living expenses) from TRUST B.

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Living Trust Advantages (Cont.)

• Control For First To Die – After the first spouse dies and the common trust has been divided into Trust A and Trust B, no changes can be made to the provisions of TRUST B giving the first spouse to die complete control over who will eventually receive the assets in TRUST B.

• Estate Tax-Free Appreciation of Trust B – The assets placed in TRUST B are valued and taxed only when the first spouse dies. There will be no re-valuation or estate taxes paid on any appreciation of these assets later when the surviving spouse dies and the assets in Trust B are distributed to the beneficiaries.

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Living Trust Advantages (Cont.)

• Protection Of Assets If Catastrophic Illness Strikes– In the event of catastrophic illness or injury of the surviving spouse, the trust can be written to protect the assets in TRUST B so only the assets in TRUST A will need to be “spent down” to qualify for valuable government assistance

• Does not affect the way you control or manage your assets

• Private• Revocable (by agent?)

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Who’s In Charge?

Stay in Charge with Powers of Attorney

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Two Questions You Need to Answer

• Who will speak for you?• How do you get decisions you want?

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Staying in Charge of Your Finances

Durable Power of Attorney for Financial Matters (DPAFM)

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Durability

• Called a Durable Power of Attorney for Financial

Matters

• Must be durable to last beyond loss of capacity

• Must include required language

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Required Language

• “This power of attorney shall not be affected by subsequent incapacity of the principal.”

• Or similar language

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DPAFM Powers

• Need to be spelled out – Read carefully

• Create, amend or revoke trust

• Make gifts

• Gifts to agent

• Loans to agent

• Change survivorship interests

• Change beneficiaries 43

DPAFM Powers (Cont.)

• Still need DPAFM if you have Living Trust

• Living Trust applies only to trust assets• Agent under DPAFM can be given power to

amend/revoke Living Trust

• Avoids conservatorship ($3,000)

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Many Duties, One Purpose

• Agent’s Purpose─ Protect Principal’s interests

• Agent’s Duties─ Acts only in Principal’s interest─ Keeps assets separate─ “Prudent person” test─ Keep records─ More… should have financial savvy

• Agent right to reasonable compensation

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How to set up a Health Care Directive

Start conversation by carefully reviewing five wishes booklet – https://www.agingwithdignity.org/five-wishes.php – covers personal, emotional, spiritual and medical needs.

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https://www.agingwithdignity.org/five-wishes.php

https://www.agingwithdignity.org/five-wishes.php

My Wish for…

• The person I want to make care decisions when I cannot

• The kind of medical treatment I want or do not want

• How comfortable I want to be• How I want people to treat me• What I want my loved ones to know

*Consider Quality of Life Statements*

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Quality of Life Statements

• Types of illness where this advance directive would apply whether I am terminal or not

• What is important to me? What makes my life worth living?

• What conditions would be reprehensible to live with…a fate worse than death?

• What would be an acceptable level. I wouldn’t live it but I would be willing to live with ______

• What is important enough to me that my agent implement my wishes 48

Quality of Life Statements (cont’d)

• What is a good death for me• What do I want the doctors to know about

honoring my religious/cultural beliefs both while I am sick and/or dying

• What are my considerations regarding CPR, ventilator, and feeding tube

• Do I want to be in the hospital or at home? • Reassurance to my decision makers• Additional guidance for the doctor

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Advanced Health Care DirectiveCalifornia Probate Code section 4701

• Provides right to name someone else to make health care decisions for you

• Provides right to give instructions about your health care

• Permits you to express your wishes regarding donation of organs and the designation of your primary physician

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Advanced Health Care Directive(Contd.)

• Part 1 is a Durable Power of Attorney for Health Care

• Allows you to name another individual to make heath care decisions for you if you become incapable of making decisions

or• If you want someone else to make decisions

even if you are capable51


• Unless you limit the authority of your agent, your agent may make all health care decisions for you

• Form has a place for you to limit the authority of your agent, if you wish

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• Part 2 of the form allows you to give specific instructions

• Part 3 of the form allows you to express your intention to donate bodily organs and tissues following your death (to DMV too)

• Part 4 permits you to designate a physician to have primary responsibility for your health care

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• Principal must be of sound mind and 18 years of age

• Must be signed by two qualified witnesses or acknowledged by a notary public

• Signed and dated by Principal

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• Give a copy of the signed and completed form to your physician and any health care agents you have

• Talk to the person you have named as agent to make certain that he or she understands your wishes and is willing to accept responsibility

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• Store a copy in the glove compartment• Register copy with CA Secretary of State. Cost

is $10.000 for inclusion in its database• Private companies offering 24/7 world wide

access to your Health Care Directive - Docbank

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Choosing Your Agent

• Will this person─ Communicate well with you?─ Ask questions and get answers?─ Make choices you would make?─ Stand up for You?─ Be available?

• Agent must be at least age 18 and have legal capacity

• Co-agents?

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What Does Your Agent (or successor agent) Do?

• Duties─ Makes decisions for you─ Follows your instructions and wishes─ Cannot make decisions you disagree in

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Changing Your Mind

• Can revoke part or all─ Principal must have capacity

• Divorce or annulment

• Update Periodically

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The POLST ConversationPhysicians Order for Life Sustaining Treatment

• Diagnosed with Advanced Serious or Chronic Progressive Illness but still receiving aggressive treatment at any age

-or-• Extreme difficulty managing symptoms at any age

• Honored across Health Care Settings

• Compliments the advance health care directive guide for discussion as to treatment

⁻ Likelihood of impairment⁻ Length and difficulty of recovery⁻ Sedation and immobility⁻ Likelihood of success

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Handout – Statement of DesiresStatement of Desires, Special Provisions and Limitations for Durable Power of Attorney for

Health Care• Discuss with physician or social worker for hospital• “If I develop any incurable, progressive, or degenerative disease

stated to be terminal with respect to outcome (not with respect to time) and no cure is available and treatment only prolongs dying, I request that my physician follow my guide regarding life support and life sustaining intervention listed below. If my desires are not known and life sustaining or life support procedures are utilized in an emergency situation, I request that my desires be respected and followed once they are known to my professional care team. I do not want to be kept alive in a vegetative state.”

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Handout – 25 Suggested Topics to Discuss With Your Health Care Agent• “Before having your health care agent sign any forms, you

should discuss your beliefs and wishes with him or her. When instructing your health care agent about your wishes in the event you become incapacitated and he/she needs to make health care decisions, we suggest you consider the following questions. We suggest no particular answers. Each person should answer these questions based on his/her own beliefs and convey those beliefs and wishes to his/her health care agent. Any other wishes or desires that you feel your health care agent should know should also be given to him/her so that they can carry out his/her responsibilities as you would wish.”

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Factlets

1. Pensions earned in California are taxable in state of residence at time of receipt of pension

2. Internal Revenue Code Section 529a) A plan operated by state or educational institution to

promote saving for college (ex: child or grandchild or anyone)

b) Earnings are NOT subject to Federal Tax and usually NO STATE TAX

c) Withdrawals now include the cost of the purchase of any computer technology and internet access for beneficiary of account while in school

3. No 3 day rule63

Factlets (Cont.)

4. Implied warranty of merchantability

5. Home deliveries

6. Landlord-Tenant Law

7. Take wine home from restaurant

8. Written estimate for auto repairs signed by YOU

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Factlets (Cont.)

9. Joint and several liability vs. joint liability

10. Renters insurance

11. Paid in full

12. Employee or independent contractor?

13. Extended warranty – buy or not?

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Handout: Statement of Desires Life Support

For each procedure, choose ‘Yes,’ ‘No,’ or ‘Uncertain’• Pacemaker – Any device that substitutes for the normal

heart beat• Peritoneal Dialysis/Kidney Dialysis – alternative means

of filtering poisons from the body when the kidneys fail• Respirator – A breathing machine attached to a tube

inserted into the lungs through the nose or mouth• Cardiopulmonary Resuscitation (CPR) – Intervention

given by man, machine, or drugs when the heart and/or lungs stop working 66

Handout: Statement of DesiresLife Prolonging or Life Sustaining Procedures

• Feeding Tube for Food or Fluid• Hypodermoclysis for Nutrition or Food• Intravenous (IV)• Antibiotics• Cancer Therapy – Radiation and Chemotherapy• Transfusion• Medical Treatment• Surgery• Paramedic• Uniform Gift Act – Organ Transplant• Autopsy, complete or selective• Participate in research 67


• Feeding Tube for Food or Fluid – A tube placed into the stomach or bowel to give fluid and/or nutrition

• Hyperdermoclysis for Nutrition or Food – Placing fluid under the skin outside a vein with a needle. The body will absorb this fluid

• Intravenous (IV) – tubes for feeding and hydration• Antibiotics – to treat pneumonia or any other infections• Cancer Therapy

─ Radiation – X-ray treatments given for tumors or cancer─ Chemotherapy – cancer medicine given by mouth or

intravenously• Transfusion – blood or blood products given into the vein

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• Medical Treatment – Diagnostic Procedures and Tests – Further tests and procedures to monitor my failing condition

• Surgery – An operation only if it provides for my comfort and dignity• Paramedic – For transport to an acute hospital with CPR in progress• Uniform Gift Act – Organ Transplant – Donating body parts – specify

parts, if usable• Autopsy, complete or selective – To confirm my diagnosis (circle

one)• I consent to Participate in research; i.e., chemical studies, drug

studies and procedures approved by a Research and Human Subjects Review Committee, before or after death. Consent may be given by my Attorney-In-Fact.

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Handout: Statement of Desires Other Concerns

I wish:1. Caring and supportive nursing and medical care to

relieve pain and suffering including narcotics to relieve pain even if respiration is depressed.

2. Food and fluids to be offered as long as I am conscious to take them by mouth and then moist sponges to moisten my lips to relieve the sensation of dehydration

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25 Suggested Topics (Cont.)1. Do you think it is a good idea to sign a legal document that says what medical

treatments you want and do not want when you are dying? (This is called a “living will”

2. Do you think you would want to have any of the following medical treatments performed on you?a. kidney dialysis (used if your kidneys stop working)b. cardiopulmonary resuscitation, also called CPR (used if your heart stops

beating)c. respirator (used if you are unable to breathe on your own)d. artificial nutrition (used if you are unable to eat food)e. artificial hydration (used if you are unable to drink fluids)

3. Do you want to donate parts of your body to someone else at the time of your death? (This is called organ donation.)

4. How would you describe your current health status? lf you currently have any medical problems, how would you describe them?

5. If you have current medical problems, in what ways, if any, do they affect your ability to function? 71

25 Suggested Topics (Cont.)6. How do you feel about your current health status?7. lf you have a doctor, do you like him or her? Why?8. Do you think your doctor should make the final decision about any medical

treatments you might need?9. How important is independence and self-sufficiency in your life?10. If your physical and mental abilities were decreased, how would that affect

your attitude toward independence and self-sufficiency?11. Do you wish to make any general comments about the value of

independence and control in your life?12. Do you expect that your friends, family, and/or others will support your

decisions regarding medical treatment you may need now or in the future?13. What will be important to you when you are dying (e.g., physical comfort, no

pain, family members present, etc.)?14. Where would you prefer to die?15. What is your attitude toward death?16. How do you feel about the use of life-sustaining measures in the face of

terminal illness? 72

25 Suggested Topics (Cont.)17. How do you feel about the use of life-sustaining measures in the face of

permanent coma?18. How do you feel about the use of life-sustaining measures in the face of

irreversible chronic illness (e.g., Alzheimer's disease)?19. Do you wish to make any general comments about your attitude toward

illness, dying, and death?20. What is your religious background?21. How do your religious beliefs affect your attitude toward serious or terminal

illness?22. Does your attitude toward death find support in your religion?23. How does your faith community, church, or synagogue view the role of

prayer or religious sacraments in an illness?24. Do you wish to make any general comments about your religious background

and beliefs?25. What else do you feel is important for your agent to know?

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25 Suggested Topics (Cont.)

If, over time, your beliefs in any area change, you should inform your health care agent. It is also wise to inform your health care agent of the status of your health when there are changes such as new diagnoses. In the event you are informed of a terminal illness, this, as well as the ramifications of it, should be discussed with him or her. How well your health care agent performs depends on how well you have prepared him/her.

http://emeriti.usc.edu Professor Dagmar Halamka [email protected] 74

http://emeriti.usc.edu/

mailto:[email protected]