Q. I have been caring for my wife at home for some time, and I could really use help. In the past I was told that our modest savings and incomes were too high to qualify for a Medi-Cal subsidy to enable me to hire care-givers. However, I just heard that these strict requirements may have recently changed. Is this so?

A.  Yes, indeed! Medi-Cal has recently given a welcome gift to couples struggling with care management at home.

In the past, a couple seeking a Medi-Cal subsidy to help with in-home care for an ill spouse would generally not qualify if their savings were greater than $3,000. Further, even if under that $3,000 threshold, yet if their combined monthly incomes were greater than $1,664 [1] , their resulting “co-pay” (aka, ‘Share of Cost’) would be too high to make hiring care-givers affordable, as the co-pay requirement would leave couples without enough money to pay for their other living expenses.  These resource and income limits forced many spouses into nursing homes, where the Medi-Cal financial eligibility rules were much more relaxed. This has now all changed.

Thanks to the Affordable Care Act, and a recent lawsuit to compel Medi-Cal to follow its mandate, Medi-Cal will now allow a spouse seeking care at home to take advantage of the same, more relaxed financial eligibility rules formerly only applicable to a spouse receiving care in a nursing home. These rules are called the “Spousal Impoverishment Rules” (“SI Rules”).  As the name implies, the SI Rules were designed by Congress to avoid impoverishing the At-Home spouse by the high cost of nursing home care for the Ill Spouse.

Under the SI Rules, a married couple may now have as much as $122,900 [2] in savings and still qualify the Ill Spouse for In-Home care, provided a doctor attests on a simple form that the Ill Spouse would otherwise need care in a nursing home. Likewise, the rules for calculating Share of Cost (“SOC”) are now also more relaxed:  only the income of the Ill Spouse will count toward his/her SOC, and then only after (a) an allocation from the Ill Spouse’s income to the Well Spouse to make sure the latter retains at least $3,023 per month to live on, and (b) a deduction of at least $600 for the needs of the Ill Spouse. [3]. For most seniors on modest, fixed incomes, this calculation will result in only a modest SOC, and in many cases none at all !

To inquire about in-home care options under the SI Rules, contact your county Social Service Agency (Alameda County:  510-383-8523) and ask about “Home and Community Based Services covered under the Spousal Impoverishment Provisions, as outlined in All County Welfare Directors’ Letter 17-25”. If you are already receiving In Home Supportive Services (“IHSS”), ask if you are on the “Community First Choice Option”, which would entitle you to the benefit of the SI Rules discussed above and, if not, inquire about your eligibility for that program or another which applies the SI Rules. Even if you are only placed on a waiting list, you will still be immediately eligible for Medi-Cal and IHSS using the SI Rules, no matter how long the wait.

Note: Couples with resources greater than $122,900 should not despair: there are lawful strategies that may enable them to seek an even larger Medi-Cal resource allowance [4], and/or to convert excess countable resources into exempt non-countable resources, and still qualify the Ill Spouse for a Medi-Cal subsidy.

The SI Rules apply equally to married couples (regardless of gender) and to Registered Domestic Partners. They should now enable more couples to remain together in their own homes and avoid, or at least defer, the need for nursing home placement.  Further, the SI Rules only apply to approved Waiver Programs, which are set forth in ACWDL Letter 17-25, referenced above.



[1] $1664 is the current monthly income ceiling for a couple in order to qualify for a No Share of Cost Medi-Cal subsidy under the Aged & Disabled Federal Poverty Level Program, as of 04/01/2017. See, ACWDL 17-19 (June 23, 2017).

[2] The Resource Allowance of $120,900 is that permitted to the Well Spouse. In addition, the Ill Spouse is entitled to retain up to $2,000 in his or her own name, effectively allowing the couple to retain $120,900 + $2,000 = $122,900 in combined savings and other non-exempt assets.

[3] This $600 per month is called a Maintenance Needs Allowance for the Ill Spouse, and is deducted from her income before Share of Cost is determined. In addition, that deduction may be as high as $1,235/month if the Ill Spouse also meets the requirements of the Aged & Disabled Federal Poverty Level Program.

These Resource and Income allowances are the figures for the year 2017. These numbers are indexed to inflation and typically change every year.

[4] Legal proceedings to increase the resource allowance may be brought, either by way of an Administrative Fair Hearing under the Medi-Cal program or by way of a Petition  filed in the Superior Court.  Good news:  Our local courts have been generally accommodating in permitting very significant increases in the Medi-Cal Resource Allowance, where the facts warrant.

Resources:  All County Welfare Directors’ Letter 17-25; 

Fact Sheet By California Advocates For Nursing Home Reform

Justice in Aging’s Summary of the precipitating Kelly v. Kent class action lawsuit.

Kelley v. Kent Class Action: Petition for Writ of Mandate, Declaratory and Injunctive Relief, filed July 6, 2017

Q. A close friend asked me to be the Trustee of his trust in the event of his incapacity or death. While it is an honor to be asked, I wonder what questions I should ask before accepting?

A. It is indeed an honor, as it means that your friend trusts your judgment and is willing to put the welfare of his trust beneficiaries in your hands. But being a trustee is also a great responsibility. You need to consider this request with your eyes wide open. Here are eight questions to ask before saying “yes”:

1) May I Read the Trust? The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read it and understand it. Now is the time to ask questions.

2) What Are the Goals of the Trust-Maker? Unfortunately, most trusts give the trustee considerable discretion about how to spend trust funds, but with little or no guidance. Example: often trusts say that the trustee may distribute principal for the benefit of the beneficiaries’ “health, education, maintenance and support.” Is this a limitation, meaning you can’t pay for a yacht (despite arguments from the son that he needs it for his mental health)? Or is it a mandate that you pay for his support even if he has a job and can support himself?   How are you to balance the needs of current against those of future beneficiaries? Ask your friend to put these wishes in writing.

3) How Much Help Will I Receive?  Will you have a Co-Trustee and, if so, how will you divvy up the duties?  Will you be authorized to hire professionals to advise you on investments, accounting, legal issues, and taxes?

4) How Long Will My Responsibilities Last? Are you being asked to take on this duty for a limited time (for example, until your friend’s youngest minor child reaches age 25), or for an indefinite period that could last the rest of your lifetime? In either case, under what terms can you resign? Be sure that the trust names successor Trustees, so that you may resign if it becomes too burdensome for you.

5) What Is My Liability? Generally, trustees are relieved of liability in the trust document unless they are grossly negligent or intentionally violate their responsibilities. Make sure the trust so provides, so that you are not held liable for innocent mistakes made in good faith.

6) Will I Be Compensated? Often family members and friends serve as trustees without compensation. However, if the duties are especially demanding, it is not inappropriate for trustees to be paid.

7) Are Any of the Trust Beneficiaries Special Needs Persons? If any of the beneficiaries are persons with disabilities who receive public benefits, such as SSI or Medi-Cal, make sure that the trust includes Special Needs provisions so that trust distributions do not cause the suspension of those public benefits.  Ask that the trust be reviewed now by an Elder Law or Special Needs attorney to ensure compliance with relevant public benefit laws. Seek further guidance from an attorney specialist when you later begin your duties, as trust distributions must be handled in a special manner that is compliant with the rules of the public benefit programs.

 8) Are There Problem Beneficiaries? Will acting as trustee create conflict between you and any beneficiary?

 If after getting answers to all these questions you feel comfortable serving as trustee, then by all means accept the role. It is an honor to be asked and you will provide a great service to your friend and his beneficiaries.

Q. My wife needs care in a nursing home, and we really need a Medi-Cal subsidy to help with the cost, which may run close to $10,000 per month. However, I have a large IRA worth about $650,000. I have received conflicting advice as to whether my IRA would make her ineligible for a Medi-Cal subsidy. I am hoping that you can clarify this for us?

A.  I think I can. Here’s the way Medi-Cal treats IRA accounts, as well as other retirement accounts such as 401K’s and 403(b)’s.

The two threshold questions are: (1) Is the proposed Medi-Cal beneficiary married or single? and (2) Which spouse owns the IRA?

Let’s take married couples first, and for clarity I will use the terms “Ill Spouse” (for the nursing him spouse who needs the Medi-Cal subsidy), and “Well Spouse” (for the spouse living at home).

Married Couple: IRA in the Name of the Ill Spouse: If the IRA is in the name of the Ill Spouse, the IRA can be easily converted into a non-countable asset by the simple act of taking Minimum Required Distributions (“MRD’s”) under IRS rules.  Medi-Cal will then not count the IRA as a resource, although it will count the MRD’s as income. This MRD income then goes toward Share of Cost (“co-pay”), usually increasing it only modestly.  Thus, by taking MRD’s, the IRA is effectively rendered exempt, usually paving the way for the ill spouse to qualify for a Medi-Cal subsidy with only a modest increase in her Share of Cost.

Married Couple: IRA in the Name of the Well Spouse: If the IRA or other retirement account is the name of the Well Spouse, it is not counted it all !  In this situation, there is not even a need for the well spouse to begin taking MRD’s. Thus, in your situation, your $650,000 IRA will not count it all when Medi-Cal considers your wife’s application for a Medi-Cal nursing home subsidy.

Single individual: An IRA in the name of a single individual who needs a Medi-Cal subsidy is treated the same as an IRA in the name of an Ill Spouse. In both situations, the owner must be receiving, or arrange to begin receiving, MRD’s in order for the IRA not to count.

Planning Option For Younger Individuals Not Yet Receiving MRD’s:   For individuals under age 70.5 who have not yet started MRD’s, there is another option:  as an alternative to taking full MRD’s, they may opt to commence only bare-bones withdrawals representing only “periodic distributions of income and principal”. This is technically all that Medi-Cal requires, and the withdrawal of some interest and some principal appears to meet the test. These more modest withdrawals would effectively reduce the IRA income and, correspondingly, the patient’s Share of Cost. This optional approach could continue to age 70.5, when full MRD’s then become mandatory under IRS rules.

In short, ownership of an IRA – whether in your name or your wife’s name — need not be disqualifying. With proper planning, it can be rendered “non-countable” effectively rendering it as exempt. So, if your other countable resources are within Medi-Cal limits, then your wife should qualify for the much-needed Medi-Cal nursing subsidy.  I do hope that this was the good news that you were seeking

Q.  My wife and I are being charged extra for Medicare Part B and prescription drug coverage premiums, apparently based upon our higher income in years past. Beginning last year, our income dropped significantly. Is there way to get the surcharges removed?

A.  Yes, if you can link the reduction in income to a “life changing event” as defined by Medicare.

First, a bit of background for our readers. Medicare premiums for 2017 are linked to your “Modified Adjusted Gross Income” (“MAG I”) as shown on your income tax return.  Higher-income Medicare beneficiaries (individuals who earn more than $85,000/year) pay higher Part B and Prescription Drug Benefit Premiums then lower income Medicare beneficiaries. The extra amount increases as the beneficiary’s income increases. The Social Security Administration uses income reported two years previous to determine a beneficiary’s current premiums. Thus, the income reported on a beneficiary’s 2015 tax return is used to determine whether the beneficiary must pay a higher monthly premium in 2017.  Here are the income brackets used by Medicare to add a surcharge:

Standard Bracket: For Individuals with a MAGI under $85,000 annually, or Married Couples with a MAGI under $170,000 annually, the Standard Premium for Part B is $134 per Month, but you may pay less this year if it is taken directly out of your social security benefits.  For Individuals above those numbers, the standard premium increases as follows:

Bracket #1: For individuals with MAGI above $85,000 and married couples with a MAGI above $170,000, the standard premium increases by $53.50 per person;

Bracket #2: For individuals with MAGI above $107,000 and married couples with MAGI above $214,000 the standard premium increases by $133.90;

Bracket # 3:  For individuals with MAGI above $160,000, and married couples with MAGI above $320,000, the standard premium increases by $214.30 per month.

Bracket #4:  For individuals with MAGI above $214,000 and married couples with MAGI above $428,000, the standard premium increases by $294.60 per month.

Likewise, there are corresponding increases in the prescription drug coverage monthly premium amounts, although not as dramatic as the Part B surcharge.

If your income has changed due to a significant event, there is a procedure to demonstrate that to Medicare and seek a reduction in your “add-on” monthly premiums for both Part B and Prescription Drug Coverage. The change must be linked to what Medicare considers a “life changing event”, which includes the following:

1) You married, divorced, or became widowed;

2) You or your spouse stopped working or reduced your work hours;

3) You or your spouse lost income-producing property because of a disaster or other event beyond your control;

4) You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan, or received a settlement because of an employer’s closure, bankruptcy or reorganization.

If any of the above events apply to you, you may be eligible for a reduction in the monthly surcharges for both the Part B and Prescription Drug Coverage Premiums. To assist you, Medicare has a form called Form SSA – 44 [”Medicare Income -Related Monthly Adjustment Amount – Life-Changing Event”]. You can download it on line at www.SSA.gov, or you may request a copy by calling 1-800-772-1213. Your best bet is to complete the form and take it along with appropriate documentation to your local Social Security office. Good luck!

References:  Medicare Premiums: Rules for Higher-Income Beneficiaries”;

Q.  In connection with creating our estate planning documents, my husband and I would like to leave our children and grandchildren something more than just our money and assets. We would like to leave them a sense of our values. A friend mentioned something to us about an “Ethical Will”. Do you have any thoughts on this?

A, Yes. An Ethical Will is a statement in your own words expressing your values, hopes for the future, family history, emotions, and anything else that you would like to pass on to your loved ones.   It deals with values, rather than with assets. It is really a very old concept: one of the earliest references is found in the Book of Genesis, chapter 49, where Jacob gathers his 12 children around him and gives them his charge for their futures.

Initially, Ethical Wills were transmitted orally, but eventually they were written down. Although an ethical will is not a legal document, it can be a valuable complement to legal documents.   It can be an expression of love, a statement of personal or family history, a statement of lessons learned in life, a wish for the future of your loved ones, or anything else that you would like to pass on down as a personal legacy.

It is really a personal statement that carries your “voice” to future generations. It can be as simple as a one-page letter of love, or a novella length memoir detailing your life experiences.

In our family, we actually went a step further and videotaped my grandmother over a number of sittings, a project that ultimately took approximately 2 years to complete. We began with her earliest memories of growing up in Europe and covered all the history forward, all in her own voice. At times she broke into song, especially when our young children toddled into the room. That videotape, since turned into a DVD for preservation, is now a cherished family heirloom and each member of the family has a copy. We view it from time to time at family gatherings.

If you wish, your “Ethical Will” can be shared with your loved ones during your lifetime, and you might even add to it from time to time. It is your spiritual legacy which can live on long after your will or trust has been permanently filed away.

Q. I was thinking about naming my minor grandchildren as beneficiaries of my IRA, to inherit in the event of my demise. But I heard something about the “Kiddie Tax” that might apply here. Can you share any thoughts about this?

A. Yes, the so-called “Kiddie Tax” is essentially a special tax that was adopted years ago to limit the ability of parents or grandparents to shift income-generating assets to minor children or grandchildren in order to reduce the family’s overall income tax burden. This rule needs to be considered when leaving IRA’s and other income generating assets to minors, whether they be children or grandchildren.

Here’s the way the Kiddie Tax works: For 2017, the first $1,050 of unearned income to the minor is tax-free, and the next $1,050 is taxed at the child’s own (usually, lower) tax rate.  But here’s the catch: Any additional income is taxed at the parent’s rate, which could be as high as 35 percent.  The Kiddie Tax applies to the following youngsters:  individuals under age 18, individuals who are age 18 and have earned income that is less than or equal to half their support for the year, and individuals who are age 19 to 23 and full-time students.

Grandparents may be tempted to leave an IRA to a grandchild because children have a low tax rate, but the “kiddie tax” could make doing this less beneficial. Before doing so, the grandparent should run the numbers and determine whether the income generated by the IRA, as well as any other unearned investment income of the child, will likely put the youngster over the exemption of $2,100 (for 2017), and thereby — at least partially — defeat the income-shifting plan.  While an IRA can be a great gift, consider the following:

On the “plus” side: A young person who inherits an IRA has to take Required Minimum Distributions (“RMD’s”), but because the distributions are based on the beneficiary’s longer life expectancy, the grandchild’s RMD’s each year from the IRA will likely be small and thus allow the bulk of the IRA to continue to grow, tax deferred, over a longer period. So, if the RMD’s to go to the grand child, combined with any other investment income, would be less than $2,100 per year (2017), naming a grandchild as your beneficiary might be a good plan.

On the “minus” side:  If the grandchild’s unearned income is expected to be greater than $2,100 per year (in 2017), the excess will be taxed at the child’s parent’s rate, which would usually be much higher and could be as high as 35%.  Note:  In addition to income from IRAs, the kiddie tax applies to other investments that generate unearned income to the youngster, such as from cash, stocks, bonds, mutual funds, and real estate.

If grandparents wish to leave investments to their grandchildren, they might be better off leaving investments that appreciate in value, but don’t generate income until the investment is sold. As an alternative, Grandparents could leave grandchildren a Roth IRA, because the distributions are tax-free.

My suggestion is that you meet with your tax advisor and evaluate whether your proposed gift makes sense for you. In the right situation, an IRA can be a great gift to a grandchild.

References: “IRS “Publication 929 (2016), Tax Rules for Children and Dependents”; Wikipedia Article; Internal Revenue Code § 1(g); IRS:  “Topic 553:  Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)”

Q.  Years ago, when my mother and father created their powers of attorney, they each appointed the other as their first choice agent, and appointed me, their son, as first successor. Neither of my parents is now able to handle their own affairs, nor act as agent for the other. How do I step in as their successor? Their form Powers of Attorney do not give me any guidance.

A. Your question is a good one, as most basic powers of attorney do not provide guidance. The important point to note is that your authority to take over as their successor agent is not automatic. It requires affirmative action on your part to establish their incapacity.

My guess is that each of your parents probably signed a very basic power of attorney (“POA”) form, very likely the “California Uniform Statutory Form Power Of Attorney”, or something similar.  If so, the form only recites that if the first choice agent is “not willing or able to serve”, then the nomination passes to the designated successor. The absence of guidance as to how that is determined can lead to reluctance on the part of third parties to accept the successor’s authority to act, often just when the need is greatest.

That said, what banks and other third parties usually expect is that you present one or, preferably, two letters from each of your parents’ physicians reciting that each is unable to handle their own affairs, nor act as agent for the other, with a brief statement of  the reason, e.g. advanced dementia. With those letters in hand, you should be able to induce the banks to honor your authority as successor agent.

Looking back, it would have been helpful if your parents had each signed a formal resignation as agent for the other, when each realized that their own ability to handle financial affairs was waning. Then your authority to act would now be clear.  We actually advise clients who sign POA’s, or who accept appointments as agent for another, to consider this option from time to time, so as to make things easier for the designated successor.

If the banks or other third parties are unwilling to accept your authority, you may need to be more aggressive, perhaps pointing out that if you are forced to commence legal proceedings to confirm your authority, the bank may be liable for your attorney fees if the court rules in your favor.

In requesting that your parents’ physicians write letters, you may find that their doctors have their own concerns about the disclosure of your parents’ medical information that preparing such letters would entail. While this is sometimes a problem due to medical privacy laws, in practice it has been less of an obstacle, especially if their physicians feel that you are acting in your parents’ best interests.

If all else fails, you may need to engage an attorney to petition the Superior Court to seek an order affirming your authority as your parents’ successor agent, or to seek a formal order appointing you as their conservator. An appointment as conservator would override their powers of attorney and give you the authority that you seek to manage your parents’ affairs.




Q.  I hear there is a new law which protects widows from losing their homes in foreclosure when a spouse dies. Do you know anything about that?

A.   Yes. I believe you refer to the “Survivor Bill Of Rights” (SB 1150), effective January 1, 2017.  SB 1150 now imposes certain responsibilities upon a mortgage lender when the borrower dies and leaves a surviving homeowner who is not on the loan. This situation could easily occur, for example, where a borrower remarries after taking out the loan. The survivor in these cases is most often a senior, and usually a woman who must now struggle to make the mortgage payment without the income of her deceased spouse.

Under prior law, mortgage lenders often took the position that a non-borrowing spouse or child had no right to even receive information about the decedent’s loan, and no right to apply for a loan modification to enable them to keep the home. As a result, many homes were lost through foreclosure.

Under SB 1150, the law now extends to the surviving, non-borrowing home-owner the same rights that the borrower had under pre-existing law, known as the “Homeowner’s Bill Of Rights”, which protects the borrower’s own right to secure loan information and to apply for a loan modification where necessary.

Previously, some lenders took the Catch-22 position with non-borrower survivors that they would not even consider a loan modification until the loan was first brought current, which itself was often impossible without the corresponding opportunity to arrange a loan modification. Some lenders even proceeded with foreclosure proceedings while the non-borrowing family member was attempting a rescue of the home loan.

SB 1150 now requires mortgage lenders to provide relevant loan information about the status of the loan to the deceased borrower’s “successors in interest”, to afford the successors a reasonable opportunity to apply to assume the loan and/or for a loan modification, and to delay foreclosure proceedings while this process is underway.

A “successor in interest” is defined as a surviving spouse, domestic partner, joint tenant, parent, grandparent, adult child, adult grandchild, or adult sibling who occupied the property as his/her principal residence within the six months prior to the borrower’s death, and who can demonstrate that he or she has an ownership interest in the home. The successor may acquire his/her ownership  interest by reason of the death of the borrower, e.g. pursuant to a Will or Trust, or by reason of being an heir-at-law if the borrower died without a Will.

Significantly, the new law does not impose upon the lender an affirmative obligation to actually grant the requested loan modification. It only requires that the lender provide relevant information about the loan and afford the decedent’s successor(s) a reasonable opportunity to qualify for foreclosure prevention alternatives offered by the lender, subject to its credit guidelines. It also prevents the lender from proceeding with a foreclosure while the application is pending.

SB 1150 only applies to first deeds of trust secured by owner-occupied residential real property containing up to four (4) dwelling units, and does not apply to Reverse Mortgages. Even though so limited, the new law can be a lifesaver for surviving family members who would otherwise be unable to even secure loan information necessary to enable them to apply for a loan modification to save their home.

For more information on this new law, go to https://SurvivorBillofRights.org/. For advocacy assistance visit Housing and Economic Rights Advocates at www.heraca.org or call the organization at 510-271-8443.

References:  Text of New Law: SB 1150; also see Survivor Bill of Rights.Org;  and see Frequently Asked Questions.  For attorneys assisting clients with foreclosure problems, visit California Homeowners Bill of Rights; For more information on the predecessor Homeowner Bill of Rights, click HBOR.

Q.  My wife and I were wondering how much we could leave to our children free of any gift or estate tax?

A.  The answer may surprise you. A married couple can actually transfer to up to $10,980,000 to their children, free of any gift or estate tax (in 2017). You can either do so by either making lifetime gifts, or by leaving it to them as an inheritance. You can actually mix-and-match: you can gift a portion of this exemption amount to them during your lifetimes by way of gifts, and the balance upon death by way of your will or trust.

This comes as a surprise to many couples, who mistakenly believe that they are limited to gifts of $14,000 per year per child. Not so. The $14,000 per year Annual Exclusion Amount (“AEA”) is merely the amount that each of you may gift annually to as many individuals as you wish, without the need to file a gift tax return.  If you were so inclined, you and your wife could each make a $14,000 gift to every single person in your neighborhood without the need to file a single gift tax return!

More realistically, married couples typically prefer to leave their assets to each other, first, and then to their children. Under tax laws signed by President Obama in 2010 and 2013, each person has an exemption from the federal estate tax of more than $5 million. This exemption adjusts each year based upon inflation. For an individual dying in 2017, that exemption is now $5,490,000.  If a married person dies without using his entire exemption, the unused portion may be timely claimed by his surviving spouse, who thereby preserves it for later use to combine with her own exemption. The deceased spouse’s unused portion is called the Deceased Spouse’s Unused Exclusion Amount (“DSUEA” for short).

This transferability of the DSUEA to the surviving spouse is called “portability”. In essence, the unused portion of the first spouse’s exemption may be “ported”, or transferred, to the surviving spouse, assuming a timely election is made by the survivor.

Example:  Bob and Sue have an estate worth $9 million. Bob dies in 2017 and leaves everything to Sue. Everything passes to Sue without tax under the Unlimited Marital Deduction available to transfers between spouses. So Bob’s entire DSUEA is therefore unused. Sue’s CPA helps her make a timely election to claim Bob’s DSUEA by filing a Form 706 Estate Tax Return.  For simplicity, assume Sue also dies in 2017 and that her estate is then still worth $9 million.  Her estate would then be entitled to all of Bob’s unused DSUEA, plus her own exemption, so she could then leave $5,490,000 + $5,490,000 = $10,980,000 to their children, estate tax free. This plan completely tax shelters the estate passing to their children. Caution: if Sue does not made a timely election to port Bob’s DSUEA, then the excess value of her estate above $5,490,000 would be subject to estate tax, at the very hefty rate of 40%, resulting in an estate tax of over $1.4 million.

By combining your exemptions via a timely election after the first death, you and your wife can minimize, or even eliminate, estate tax for your children. Note: The ability to port over the DSUEA is more complicated if the survivor later remarries, but even then there are planning options available to minimize tax.

Q.  I hear that the federal estate tax may be repealed during this administration. If that happens, will trusts still be a useful estate planning device?

A.  In a word, yes. But remember, the federal estate tax now only kicks in if your estate is valued at more than $5.49 Million at death (2017). At this high threshold, 99% of Americans will never need to worry about the estate tax and so, as for them, the estate tax has already been “repealed”. Yet trusts continue to be used as a common estate planning device and their utility has not diminished. Here are some of the nontax benefits of creating a trust:

  • Avoiding Probate: One of the great benefits of using a revocable trust, in preference to a will, is that a trust is designed to avoid probate. In California, probate is a court proceeding whereby a judge oversees the settling of your estate. The process tends to be time-consuming, expensive and public. By contrast, the postmortem settling of a trust is usually more expeditious, less expensive and private.
  • Management upon Disability: If you were to become disabled, and unable to manage your assets, your designated successor trustee could step forward and manage them for you, and thereby avoid the need for a court created conservatorship, which is a more involved, expensive and public proceeding. By contrast, a simple will would only kick in upon death, and therefore would not provide you any benefits for asset management during life. Note: a comprehensive Durable Power Of Attorney (“DPOA”) would be another alternative to management of your financial assets in the event of disability; but the DPOA expires on death, making a trust the better option for uninterrupted asset management.
  • Protection from Creditors: Certain types of trusts can protect your beneficiaries from creditors. By way of example, if you had a child who was a spendthrift, you could appoint a trustee to manage that child’s share of your estate in a “Discretionary Support Trust”, which could remain in existence well after your demise. The trustee might be authorized to retain that child’s share in trust and pay out only as much as necessary for his needs. Under that arrangement, your child’s unpaid creditors would not be able to seize any part of his share which remained in trust.
  • Provide for a Child with Special Needs: If you have a child, or grandchild, with a disability who relies upon public benefits, such as Medi-Cal or SSI, you could leave his share in a “Special Needs Trust” (“SNT”). A SNT is a special trust designed to hold assets for the benefit of a person on public benefits in a manner that does not undermine his ongoing eligibility for those benefits. The trustee would then use the SNT funds to supplement your child’s public benefits and thereby enhance his quality-of-life.
  • Avoid Medi-Cal Recovery: Because of recent changes in the law, the estates of persons dying after January 1, 2017, who have received Medi-Cal benefits during life, will no longer be subject to recovery (or “payback”), if their estates do not go through probate. Since a trust is typically designed to avoid probate, holding assets inside a trust can thus avoid Medi-Cal recovery and potentially save their estates many thousands of dollars.

A trust can be as useful today as in years past, and you should still give serious consideration to using this device as part of your estate plan.