Posts By: Gene Osofsky

Q. My husband was just diagnosed with Alzheimer’s, but still seems to be generally okay. Are there legal steps we should take by way of planning for the future?

Yes. Once you or loved one has been diagnosed with Alzheimer’s, it is important to take action to get your affairs in order. Here is my short list of suggestions:

  1. Check Your Long-Term Care Insurance Policy. If you are lucky enough to have a long-term care insurance policy in place, check its benefit provisions, especially its “benefit triggers”.  Many policies are triggered by an inability to perform 2 out of 7 activities of daily living, i.e. eating, dressing, bathing, toileting, ambulating, transferring and continence.  Check for waiting periods, cost-of-living adjustments, lifetime caps, and the extent to which the policy covers care in the home.  Some policies also provide an option to increase benefits periodically without new medical examinations and, if so, consider opting for such benefit increases now, or as soon as eligible to do so.
  2. Check Your Life Insurance Policy for Early Benefit Options. Some life insurance policies offer an option to accelerate benefits under certain conditions, such as the need for long-term care. Check with your insurance company to see whether yours offers an Accelerated Death Benefit.
  3. Consider Applying for a Reverse Mortgage Line of Credit. If you or your spouse are over age 62, consider applying for a Reverse Mortgage (RM) line of credit to draw upon in the event of future need.  To qualify for a reverse mortgage, it is usually necessary for both spouses to receive counseling and sign numerous loan documents.  It is best to do this when both of you are able to fully participate in the process.  Also, just because you have a RM credit line, does not necessarily mean you have to draw upon it; instead, consider it as a stand-by source of emergency money for care expenses should the need later arise.
  4. Check Availability for Veterans Pension. If you or your spouse is a veteran, check with the VA to determine whether you might qualify for a veteran’s pension to help with care expenses.
  5. Review Beneficiary Designations. Review the beneficiary designations on insurance policies, IRA accounts, annuities, bank and brokerage accounts, and the like, to make sure they still conform to your wishes.  Many people designate beneficiaries when they initially set up their accounts and, over the years, neglect to review and update them as family circumstances change.
  6. Have Your Estate Planning Documents Reviewed. Make sure you have in place good quality estate planning documents, such as Advance Health Care Directives, Living Trust & Will, and Durable Powers of Attorney. You might consider changing the nomination of your husband as your Agent under your Power of Attorney and Health Directive, and he might consider voluntarily resigning as a Co-Trustee of your joint trust so as to avoid the need for you to seek out a medical opinion of incapacity when it becomes necessary for you to assume sole trusteeship of your trust.
  7. Consider Availability of a Medi-Cal Subsidy to help with Long Term Care Expenses: Check to see if your spouse would qualify for a Medi-Cal subsidy to help with care expenses, whether in the home or at a facility outside the home.

Overall, I suggest arranging for a review of your documents by an elder law attorney with experience in helping families in your situation.  Revising your documents now to address this new development may help you manage your affairs and finance the future cost of your husband’s care without placing your own welfare and financial security at risk.

 

Posts By: Gene Osofsky

Q. My mother just died, and her Will leaves her estate equally to us three children. I am fairly well-off, but my two brothers are not quite as fortunate. Is there a way that I can redirect some or all of my share to them in a tax efficient way?

A. The answer may very well be “yes.” One way to accomplish this is by the use of a disclaimer. A disclaimer is a renunciation of one’s right to receive a gift or bequest, whether the gift is left in a will, trust, or by beneficiary designation.

However, whether it will accomplish your purpose in routing your share to your siblings depends upon how your mother structured the bequest in her will. Here is why: in order for a disclaimer to be effective, it must pass to the next person in line without any direction on your part. In other words, it must pass to the successors whom your mother, herself, has chosen to take in the event you predeceased her. A couple of examples will help illustrate the matter:

Example #1: let us suppose your mother’s will recites as follows:

“ I leave everything to my three children, equally, but if any of my children predeceases me, then I leave that deceased child’s share to my other surviving children, equally.”

Example #2: now, let us suppose your mother’s will, instead, recites as follows:

“ I leave everything to my three children, equally, but if any of my children predecease me, then I leave that deceased child’s share to his own surviving children”.

In example #1, your mother provides that the share of any predeceased child would go sideways to your siblings, while in example #2, she provides that it would go downward to the deceased child’s own children. In example #1, a disclaimer by you would accomplish your purpose, but a disclaimer by you in example # 2 would not.

A disclaimer is treated as if the disclaiming beneficiary had predeceased the decedent. So, before exercising a disclaimer, it is very important to first determine whom the decedent, herself, has selected as the successors. If the decedent died without a will, then the successors would be determined by state law.

The nice thing about a disclaimer is that it is treated for tax purposes as if you never owned the asset; it passes to the successors without any adverse tax implications to you. As a result, a disclaimer can be a very tax efficient way of doing post-mortem planning. By contrast, if you first accept your share and then re-gift it to your siblings, the gift tax scheme would be implicated: you would need to file a Gift Tax Return for amounts over $17,000 per recipient (in year 2023), and the gifts to your siblings would reduce your own lifetime exemption from gift and estate tax (currently $12.92 Million per person, in 2023), making less available for you later on to shield bequests to your own beneficiaries. Note: that current, high estate tax exemption of $12.92 Million per person is scheduled to reduce dramatically for persons dying after 2025, unless the federal tax law is statutorily amended before then.

To be effective, a disclaimer must meet certain requirements: it must be in writing, it must be made before you accept the gift or any of its benefits, and it must be made not later than nine months after your mother’s death. Caution: a person receiving public benefits, such as Medi-Cal or SSI, should never make a Disclaimer without getting professional guidance, as doing so would be treated as a prohibited transfer of assets and could jeopardize continued eligibility for public benefits.

Posts By: Gene Osofsky

Q.  When I signed my Power Of Attorney a few years back, my primary and successor agents lived at different addresses and had different phone numbers than they do now.  In order for it to remain valid, do I need to completely re-do it?

A. I do receive this question from clients from time to time, so know that you are not alone in wondering.  The short answer is: no, you do not need to completely re-execute your Power of Attorney (“POA”).  What I suggest you do is type up their current addresses and phone numbers on a separate sheet of paper, date and sign it, and attach it to your original POA and to all copies as well.  Although not required, it might also be a good idea to have your signature notarized, just to lend a further auro of reliability to the document. You might also include their current email addresses, as many folks now rely heavily upon email. Call the document something like” “Updated Contact Information for My Agents & Successors”. Do the same with regard to your Advance Healthcare Directive and any other estate planning document which recites the former addresses of your agents or successors.

If you, yourself, have also moved, include your new address, phone and email as well, so that the contact information will be complete.

However, if you have moved to another state, then I would advise seeing an attorney in that new state and arrange for that attorney to prepare a new POA for you in compliance with the laws of that state. I would advise the same with regard to your Advance Healthcare Directive and any other estate planning documents prepared while you were a resident of California, such as a Trust and Will.  That way you will remain in full compliance with the law applicable to the state of your new domicile.  Good wishes.

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Posts By: Gene Osofsky

Q.   My wife and I created a Living Trust back in the year 2001.   We never thought to have it reviewed or updated.  She recently died and I just re-read our trust.   To my surprise, it requires that her half of our assets go something called a Bypass Trust and greatly limits my access to that portion.  This comes as a surprise, as we always intended everything to go to the survivor without restrictions.   Am I now stuck with this arrangement or is there anything I can do? 
A.   There is something you can do, but it’s helpful to first understand the background:  At the time that you and your wife created your trust the tax laws were quite different than they are today.  Back then, the estate tax exemption was only $675,000 per person, and the first spouse’s exemption died with her unless the couple had signed a trust directing the deceased spouse’s share of assets into a ByPass sub-trust. (The ByPass was sometimes called a “B Trust”, Credit Shelter Trust, Family Trust, or Exemption Trust).   This Bypass sub-trust was designed to preserve the first spouse’s exemption so that – at the survivor’s later death – their two exemptions could be combined, thereby doubling the assets that the couple could pass estate tax free to their children or other beneficiaries. That appears to be your situation.
However, these trust “split” arrangements came at a price:  The survivor no longer had unrestricted use of the decedent’s share of marital assets, was required to keep separate accounts and was obliged to file fiduciary income tax returns each year for the ByPass Trust.  Further, the assets placed into the Bypass portion usually did not get a second “step up” in tax basis upon the survivor’s death, and the trust split interfered with Medi-Cal planning if nursing care was needed.  Most surviving spouses found these restrictions onerous.
However, the estate tax exemption has increased many times since then, and the current exemption amount for persons dying in the year 2023 is $12.92 Million per person, and married couples may double that exemption by filing a timely election after the first death.  Given the current exemption, a ByPass Trust is no longer needed for most couples. The problem is that many couples still have these outdated trusts in place and, like you, only learn of the trust split requirement upon the death of their spouse, when the terms of the trust can no longer be changed by an amendment.
Good news: While the terms of your trust cannot now be changed by you, alone, there is still a remedy: you can petition the superior court for an order reforming the trust to eliminate this restrictive trust split requirement.  Your court petition would be based upon “changed circumstances” that were not known or anticipated at the time the original trust was created.   Since most of these trusts were created years ago for tax savings purposes, the change in tax law dramatically increasing the exemption usually qualifies as the requisite “changed circumstances”.
In our experience, judges have been receptive to this analysis and have issued orders reforming these older trusts to eliminate the sub trust requirement, so as to permit all assets to go to the survivor.  The key is to petition the court for relief soon and before you take steps to split assets and/or file tax returns.
Further, in some cases, it may be possible to reform your older trust without court involvement under the recently adopted California Decanting Act.
We suggest reviewing these matters with your attorney to see if your trust might qualify for reformation, and thereby accomplish the result that you and your wife originally intended.

Posts By: Gene Osofsky

Q. My brothers and I plan to buy a home together, and wonder whether we should take title to the home as joint tenants or as tenants-in-common. Can you explain the difference?

A. Sure. There are distinct differences between these forms of ownership. The principal differences pertain to the equality of ownership and the right of survivorship. Here is the breakdown.

Joint Tenancy: For owners of property to qualify as Joint Tenants, the property must be (1) acquired at the same time, (2) by the same deed which clearly states that the owners are joint tenants, (3) the interests of all joint tenants must be equal, and (4) each must have the right of full access and possession of the property. These four requirements are often called the “4 unities” in the law of joint tenancy. If so acquired, this form of ownership creates the following right of succession: upon the death of the other joint tenant(s), the last surviving joint tenant takes ownership of the entire property, without probate or other proceedings. This right of survivorship is one of the most important features of Joint Tenancy ownership.

Tenancy-In-Common: By comparison, persons who own their interest as Tenants-In-Common can have different percentage interests in the property and can acquire their interests by different deeds and at different times. Further, upon the death of a Co-Tenant, his interest goes, not to the other co-tenants, but to his own beneficiaries or heirs.

In terms of succession upon death, it is sometimes helpful to think of Joint Tenancy as requiring, upon death, a “sideways” movement of ownership to the other surviving Joint Tenant(s), whereas upon the death of an owner holding his interest as a Co-Tenant, the succession moves “downstream” to his/her own heirs or beneficiaries.

Because of the right of survivorship, married couples will often hold title to their home as Joint Tenants, as most couples typically want the surviving spouse to acquire ownership of the entire home or other property, which would then occur without the need for probate. By contrast, co-owners who are friends, business partners, or even siblings, who may have their own families, would – upon their own death – typically wish their interest to go down to their own family members, and not to the other surviving co-tenants. This difference is significant.

In your situation, you indicate that you plan on making a purchase with your siblings. I presume that, if any of you passed away, each brother would want his share to go to his own family, which may include his own spouse or children, rather than to the other brothers. In that event, you would want to acquire title as Co-Tenants, so that this preference is clear.

An important comment about joint tenancy: if a joint tenant conveys his/her interest to someone else, or even to his own trust, that transfer may sever the joint tenancy, eliminate the right of survivorship, and create a Tenancy-In-Common. So, be mindful about such transfers when you do your own estate planning.

Posts By: Gene Osofsky

Q.  My husband and I would like to make wills, but I am concerned because he has been recently diagnosed with early-stage dementia. Legally, can he still make a will?

A.  It depends, but very often the answer would be yes. Under the law, he must have what is called “testamentary capacity”. This means that at the time he signs a will he must understand what he is signing and the implications of making a will. Simply because he has been diagnosed with a form of mental illness or disease process, does not necessarily mean he lacks legal capacity to make a will.

Generally speaking, he would be considered mentally competent to make a will if: (1) he is able to understand that he is making a will, (2) he understands the nature and extent of his property, which means he understands what he owns, and (3) he knows and understands who his family relations are.  Further, he would only need to meet these requirements at the time he signs his will.  Some persons are more lucid at certain times during the day, and he should sign his will during those lucid periods.

A related question is whether he would also have sufficient capacity to make a trust. The question here is whether signing a trust requires a greater degree of capacity than signing a will, as trust documents are usually more complex.

A few years ago a California court addressed this question in a case called Andersen vs Hunt. In that case, a father made an amendment to his original trust, created years earlier, to leave a 60% portion of his estate to his longtime romantic partner, thereby reducing the share going to his three children. When the father died, his children contested the trust on the ground that their father lacked sufficient capacity, urging that the act of creating a trust required a greater degree of capacity than signing a will.  On appeal, the court upheld the trust amendments, concluding that they were rather simple in nature and therefore the law concerning the capacity to make a will should control. The lessons: (1) if a trust document were drafted to be relatively simple and straightforward, then the requirement of capacity would likely be construed under the more relaxed standard applicable to the making of wills; (2) alternatively, for a person whose capacity were questionable, perhaps a will would be the better choice.

If there is concern that capacity may later be questioned, it would be helpful to have evidence of your husband’s capacity at the time he signs the will or simple trust, such as a current letter from his physician attesting to his capacity and/or a video-taped pre-signing interview conducted by the attorney preparing the will.

If your husband has sufficient capacity to meet the relaxed standards for making a will, or even a simple trust, I would urge him to do so as soon as possible. Further, if he does not plan to disinherit any children, or to treat them differently in the overall division, the chance of a later contest is much reduced.

Posts By: Gene Osofsky

Q.  Our grandson will be graduating from college soon, and we would like to get him a gift which recognizes the beginning of his adult life and career.  We thought that something of a “legal” nature might be worthwhile, and wondered if you have any ideas?

A.  Great thought and indeed I do.  Why not arrange through your attorney to provide him with a basic estate planning package, which would include an Advance Health Care Directive, a Durable Power Of Attorney and a simple Will. The message, of course, is that he has now formally entered the world of adulthood and needs to take prudent steps to protect himself and his loved ones from the unexpected.  He would also learn that these essential “life planning documents” need to be kept up-to-date as circumstances change, e.g. when he marries, has a child, purchases a home or acquires wealth.

Understandably, his focus will most likely be upon other things, such as deciding where he will live, beginning a new career, and perhaps finding a life partner. But your thoughtfulness can also teach him that these new adventures come with a certain responsibility.  What if, for example, he were in an accident or suffered serious illness and became unable to manage his own affairs or direct his medical treatment.  This happens!

In our own family, while our son was away at college, he suddenly had to undergo emergency surgery.  I can assure you it was quite unsettling to have to scurry around to prepare and arrange the remote signing of an Advance Health Care Directive while, at the same time, make emergency travel plans to be with him.  Fortunately, everything turned out fine, but one never knows.

While your grandson’s own parents may feel that, should anything happen, they can always make decisions for him, they may be surprised to learn that the law does not agree.  Once he  turns 18, he becomes an adult in the eyes of the law, and his parents no longer have the legal right to make decisions for him or direct his medical care.  Instead, if suitable legal documents were not in place, they could only acquire that legal authority through a court ordered conservatorship, a public, time-consuming and expensive legal proceeding.

Your grandson need not worry that his designated Agents will take over management of his life.  The Advance Health Care Directive and the Durable Power Of Attorney can be “springing powers”.  This means that they would only “spring to life” and become operational when– and if– he became incapacitated and could not make those decisions for himself.  Also, he need not feel obliged to name his parents as his agents.  Instead, he could name whomever he wishes, such as a sibling or even a very good friend to serve as his agent or successor agent.

One of the other benefits of this gift would be his introduction to a professional with whom he might build a relationship, and who might be able to assist him over the years as he matures.  You might also consider introducing him to your banker or stockbroker, help him establish a contributory IRA and discover the wonders of compound interest.  Indeed, you might be able to show him how – with regular contributions– he could be a millionaire by the time he is your age:))

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Posts By: Gene Osofsky

Q. I recently qualified for SSI and Medi-Cal, but I am going through a divorce . I worry that when my ex-spouse is ordered to pay me Spousal Support, I may then lose my SSI and Medi-Cal. Is there a way that I can keep my public benefits and also receive support? I am now 62 years old, if that makes any difference?

A. Yes, indeed, if the right strategy is implemented. Unfortunately, very few Family Law attorneys and judges are familiar with how to preserve these benefits in the divorce context. As a result, the sad fact is that many persons on SSI and/or Medi-Cal lose their benefits when they divorce. A bit of background might be helpful:

To qualify for Supplemental Security Income (“SSI”), an individual with a disability must meet two financial conditions: The individual must (a) have less than $2,000 in non-exempt resources (e.g. savings), and (b) his or her monthly income must be less than the SSI benefit rate, currently $1,133.73 (in 2023). An award of SSI also entitles the beneficiary to Medi-Cal.

In the divorce context, a spouse would typically be awarded both spousal support and a division of marital assets, such as bank accounts, IRA’s, etc. If that spouse were receiving SSI and/or Medi-Cal, the award of support and/or marital assets could render her ineligible for public benefits if they put her over the income or resource ceilings. The question, then, is whether there is a way to preserve BOTH a spouse’s public benefits AND her right to support and to a share of marital assets in a divorce?

Answer: YES.  Enter the Special Needs Trust (“SNT”). If set up properly, the SNT can hold both your court-ordered support and your share of community resources without impairing your right to SSI, and thus preserve both your public and “private” benefits.

Working with an attorney with expertise in this area, you could establish your own SNT and even select your own Trustee, who might be a parent, sibling, or even a trusted friend. Alternatively, you could join a Pooled SNT, established and managed by a non-profit organization for a pool of beneficiaries, which would provide professional trustee services for a reasonable fee.

Your court-ordered support would then be paid monthly directly to the SNT Trustee, rather than to you. The Trustee would then deposit the funds into your SNT and handle them in a manner compliant with the SSI and Medi-Cal rules. This typically would mean that the Trustee would not disburse funds directly to you, but instead would pay your third party providers, selected by you, directly for the goods and services that you need, such as a car, computer, clothing, etc. A good trustee would comply with your requests for payment to your selected providers, so long as those payments did not undermine your ongoing eligibility for the public benefit programs. The trustee would also typically make periodic reports to the government programs to affirm compliance with the program rules.

Recipient of Support Must be Under Age 65 When the Initial Order is Made

Also, you must be under age 65 when the Court Order is initially made, but once made, spousal support paid into the SNT even after you turn age 65, continues to be treated as exempt unearned income by SSI.

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To make this option work, it is essential that you engage an Elder Law or Special Needs attorney familiar with the use of the SNT in the divorce context. The SNT attorney would then work with your divorce attorney and would help educate the judge and opposing counsel as to the benefits of this technique.

Adult Child With Disability

The same technique would apply in the case of an adult child with a disability who receives SSI and Medi-Cal and for whom a parent is ordered to pay child support. By properly establishing and administering a SNT for that child, he or she could then receive the advantages of both public benefits AND child support, which together would enhance that child’s life.

For more reading, see the article on this website entitled “Special Needs Planning and Divorce”

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Posts By: Gene Osofsky

Q. My wife and I hold title to our home as joint tenants, and most of our cash assets are in the form of two large IRA accounts and one big annuity. We have basic wills which leave everything to the other and then on to our children. Our son suggested that our wills may not control what happens to our assets when one of us dies. Should we be concerned?

A. Perhaps, in the sense that your wills will not control what happens to your assets when one of you dies. Rather, the form of title will control as to your home, and the beneficiary designations on your IRA’s and annuity will control what happens to those assets. Here is the way it works:

Your Home: Since you and your wife hold title to your home in joint tenancy, when one of you dies the other will automatically become the owner by right of survivorship. The right of survivorship is the primary feature of joint tenancy. In essence, the form of title overrides your wills. It is only when the survivor later dies that his or her will then control who ultimately gets the home. While many couples in California do hold their home in joint tenancy, it is often not the best form of co-ownership. One principal reason: it does not optimize the tax benefits that go along with holding title as ”community property” where the home has appreciated significantly in value since the time of purchase.

Your IRA Accounts: Each of your IRA accounts will, upon the death of the IRA owner, go to the primary beneficiary named in the account agreement signed when you created your IRAs. The pattern of distribution very much depends upon who you designated as primary and contingent beneficiaries when you created your accounts. Presumably, the primary beneficiary for each of you is the other spouse and, if deceased, your children. It is always wise to review these designations and retain in your permanent file a copy of the documentation you signed when you created your accounts. As a lawyer, I have been involved in at least one case where the IRA custodian lost the paperwork on a very large IRA account, almost costing the designated beneficiary a six-figure tax bill because of the resulting delay in distribution. The IRS has strict rules about handling inherited IRA accounts, and these must be observed on a timely basis to avoid unnecessary tax.

Your Annuity: the person or persons to receive your annuity would, just like the IRA, depend upon who are named as beneficiaries on the annuity contract, itself. The same would be true if you owned any other insurance products or policies. Where you have designated named individuals to be primary or contingent beneficiaries, the contract or policy controls and not your will.

In view of the above, whenever clients come in to see us for estate planning, we always urge a review of all beneficiary designations associated with IRA and other retirement accounts, as well as annuities and other insurance products. Where appropriate, the beneficiary designations can then be corrected, so that the plan design accomplishes the clients’ goals and everything works together.

Posts By: Gene Osofsky

Q. It seems that my father lost the will that he signed some years ago. It might have been misplaced when he moved from his home into an assisted living facility two years ago, but we only just noticed its absence when we were helping him organize his papers and affairs. What do we do?

A. Surprisingly, this is not an uncommon occurrence. Indeed, the actual court form required to initiate a probate proceeding in California actually has a question asking if the will has been lost. If so, it requests that either a copy or a “statement of the testamentary words or their substance” be attached to the court petition. However, merely because the petition asks for this information, does not necessarily mean that it is a simple matter of furnishing a photocopy to the court in order to validate his will and testamentary intentions.

Indeed, under California law, if a lost will was last in the testator’s possession, if he were competent at the time of his death, and if there is no “duplicate original” that can be found, there is a presumption that the testator destroyed it with the intent to revoke it. Further, there is one California judicial opinion that has held that a photocopy of a lost will did not meet the test of being a “duplicate original”, which would actually be an original duplicate signed by the testator at the time he executed his will .

So, if his will still cannot be found at the time of your father’s death, then the presumption will apply, at least initially. At that point, unless you can produce evidence to convince the court that it was misplaced without intention to revoke it, the court would likely then proceed with the case as if he had died intestate, which means dying without a will. California law would then control what happens to his estate and the designation of beneficiaries and their corresponding shares of his estate. Unfortunately, if your father does not now have capacity to sign a new will, you will either have to convince the court after his demise that he never intended to revoke it, or have your father’s estate be distributed according to the California Law of Intestate Succession.

So, if your father is alive and able to do so, I would strongly urge him to execute a new will, and to make arrangements to keep it in a safe place. Some folks prefer to keep their original will in their bank safety deposit box. This is okay providing that the designated executor knows where that box is located and, further, knows where your father keeps the key to his box. Alternatively, your father might open a safety deposit box with two co-owners, each of whom has a key to the box, so that the co-owner (presumably his designated executor) can access the box without administrative delay following your father’s demise.

If there had been a calamity, such as a fire, or burglary, or something of that nature, and if there is evidence to believe that the will was lost or destroyed in that event, I would then urge the family to secure and keep safe a copy of the fire or police report, which hopefully references the loss of valuable papers, will, etc. That report might later be shown to the court when the executor files a formal Petition for Probate, and may then be deemed sufficient evidence to explain the “lost will”, overcome the presumption that your father intentionally destroyed it, and accept a photocopy, or statement of its contents, as sufficient evidence of his will.