In this first episode Emily Bouchard, a family dynamics and money coach and the managing partner at Wealth Legacy Group, talks to me about money and the difficulties that families often have in engaging in honest conversations about it. Emily offers fascinating insights into why money can be such a hard thing to talk about, and tips for helping to get these conversations started. I asked her to be on my show because, so often, a long, uncomfortable silence falls across the room when my clients begin to sort out who owns what in a marriage, or how parents want their children to treat an inheritance. As Emily points out, avoiding open and honest communications about money (like avoiding the same kinds of conversations about death and illness) means a missed opportunity for learning about ourselves, our families, and our most closely held values and hopes. I hope you enjoy it.
Welcome to Life/Death/Law. A podcast about estate planning, an issue that affects all of us, because we're human. Lawyers tend to make estate planning both boring and hard, but I think it doesn't need to be either one. After 20 years writing about it and writing estate plans for hundreds of families, I actually think it's a fascinating and rich topic. Death is like sex. We all do it, but we're often afraid to talk about it. I created the Life/Death/Law podcast to answer your questions with no judgement and to bring you experts on topics that matter. Are you ready? Let's get started.
As of January 1, 2017, California has a new law (The Revised Fiduciary Access to Digital Assets Act) that allows executors and trustees to gain disclosure of a person’s digital assets after the original user’s death under certain conditions. This is a good thing because, until now, federal and state law on digital access for executors and trustees made it difficult for executors and trustees to get such disclosure without a court order. Twenty other states have passed similar legislation but, of course, as is often the case, California’s version is slightly different than the model legislation it is based on.
Attempts to pass state laws to make such disclosure easier (in California and in other states as well) ran into difficulties as laws drafted by lawyers (who wanted to make it easy for executors and trustees to gain access to digital assets simply by virtue of the fact that they were executors or trustees) ran into opposition from privacy advocates (like the ACLU) and service providers/tech companies (like Google, Facebook, and Yahoo), who wanted to protect the privacy of deceased users from such disclosure without their consent and who pointed out that any disclosure without such consent violated federal law.
To read more about the legal issues involved and how content providers are (or aren’t) providing online tools to record your consent and to get a digital inventory form that you can use to catalog your digital assets and record your passwords and usernames, download an Ebook that I wrote, Estate Planning for Digital Assets, at my website, www.lizahanks.com .
Most people know that the FDIC (Federal Deposit Insurance Corporation) insures bank accounts for up to $250,000 per depositor per covered bank. This insurance was increased from $100,000 to $250,000 in 2008, to reassure people during the chaos of the financial meltdown that started in that year. (This increase was supposed to be temporary, but was made permanent in 2010, as part of the Dodd-Frank Act).
So, if, for example, you are the sole owner of a bank account with $500,000 in it, that account is only insured for $250,000. If that same bank account is co-owned by your spouse, that account is insured for $500,000 because each owner gets that $250,000 of insurance. For many of us, that’s enough insurance. But not always. I’ve had clients call me after they’ve sold a house, nervous about the fact that they have a large balance on deposit at the bank. What to do?
A living trust can help here. While it is true that everyday bank accounts that don’t accumulate much money (the ones you use to pay bills) are usually not put into a living trust, larger accounts are. There are two reasons for this: first, large accounts should be held in trust to avoid probate at the owner’s death; second, holding a bank account in the name of a trust means additional FDIC insurance on that account.
I can usually tell when mortgage rates begin to drop because my phone starts ringing with former clients who are trying to refinance. Often, their loan broker wants them to supply assurances that, if the living trust owns the house, the trust gives the Trustee the power to mortgage the property and use the house as collateral so that the lender’s interest is secure. (That’s a lawyer way of saying that the lender wants to be certain that, if the mortgage isn’t paid, they can take the house.)
Sometimes the lender wants a letter from an attorney certifying certain things are true about the trust — usually that it is revocable, that is valid under California law, and the Trustee has certain powers including the power to borrow. Often, they want this letter right away because it’s holding up the deal.
The issue underlying all of this paperwork is that some (but not all) lenders are uncomfortable because something other than the individuals applying for the loan owns the property (the trust). Here’s an article that explains this in more depth from SF Gate
A few months ago, the New York Times published an article entitled, “Single? No Children? No Will? Big Mistake.” I’ve been meaning to write about it ever since. The author writes, “Certain people never reach one of those obvious points in their lives to write one. If you are unmarried in middle age, do not have children and have never had a devastating disease or brush with death, making plans for what happens to your stuff if you’re not around may not feel pressing.”
The author is so right. I have met many people who somehow feel that, because they don’t have children, they don’t need an estate plan. But here’s the thing — people without children may have even MORE need to make a plan that those with kids.
For one thing, all of us, at some point, are going to get sick or otherwise incapacitated, and need someone to act on our behalf — to pay bills, maintain our homes, or make medical decisions. Estate planning is not just about transferring assets when you die, it is also about planning for incapacity. And everyone needs to do that.
When I started writing about California’s End of Life Option Act in this blog, I never imagined that an old friend, from a job that I had in the late 1980’s and early 1990’s, would be one of the people in California to make use of it.
But in late March, Tom Negrino, terminally ill with cancer, made a plan to take drugs that would put him to sleep, then allow him to pass away. The End of Life Option Act allows patients, like Tom, with less than six months to live, to choose to take their own lives, provided that two doctors determine that the person is mentally competent to make medical decisions, is able to swallow medication themselves, and requests the aid-in-dying drug both verbally and in writing.
In a story in the Healdsburg tribune, on March 7, 2017, Dori Smith, Tom’s wife, said that Tom was exhausted after a multi year struggle with kidney cancer and was ready to rest. She said, “He’s fought and he’s fought, all of his life. He’s the eldest son in an Italian family; he’s always been strong. His biggest grief now is that he can’t read or write.” If you’d like to read what Tom had to say about dying, you can read his post here.
I was recently at a friend’s house, and, accidentally made someone’s day. This is not a usual occurrence for me, but I did enjoy it. Here’s what happened: a woman that I didn’t know told me that she had inherited her parents’ house in Berkeley. Because she had inherited it from her parents, she also was able to keep their very low property tax rate. Her problem was that she thought that she’d like to sell that house and buy a new one, but was worried that her property tax rate would skyrocket as a result.
Here’s what she didn’t know: if she waits until next year, when she turns 55, and purchases a new home that’s worth the same or less than the residence that she is selling, and buys the new house within two years of selling the old one, she can keep her old property tax base for the new house. She has to sell her old house to a new owner so that the new home can be reassessed for property tax purposes and she has to file a claim for exclusion from reassessment on the new property within three years of the purchase. In tax language, this is called “transfer of base year value,” which is the value that the county assessors use to calculate the property tax owed each year.
This is a one-time exclusion from reassessment for those over 55. So, the next time she sells her home and buys a new one, her property taxes will go up. Proposition 60, passed in 1986, established this exception for intra-county transfers–that’s Latin for WITHIN a county. So, if my new acquaintance stays in Alameda county, and otherwise follows these rules, she won’t be reassessed.
As the season turns and it starts to feel like Fall, many parents are either paying college tuition bills or worrying about paying them. Many of my clients have asked me how 529 college savings plans or custodial accounts are counted when colleges consider financial aid.
Here are the basic rules and a few strategic ways to use them.
Student’s assets are counted more heavily than parents’ assets by colleges. When a school analyzes family finances using the Free Application for Federal Student Aid (FAFSA), which most schools do, they count parental assets differently than those owned by students when they calculate how much a family should contribute towards college costs. When the schools calculate the Expected Family Contribution (EFC), they expect parents to contribute no more than 5.64% of their assets. But a student is expected to contribute 20% of their assets. That means that if a student is considered the owner of an asset, a school will expect that student to use more of it to pay for school than they would expect from a parent that owns the same amount of assets. So, any asset a student owns will reduce available financial aid more than any asset a parent owns.
New parents face so many new challenges–from figuring out how car seats work to figuring out how babies work. I remember taking a deep breath as we opened the door of the hospital, loaded our daughter into the car (including several annoying moments in the parking lot trying to gently put her new born and limp body into the brand new car seat) and out into a whole new world.
Part of that world includes estate planning. I built my practice, in the early days, by giving workshops at preschools, parenting groups and new parent groups at all of the local hospitals. New parents are often sleep deprived, terrified, and overwhelmed. But here’s what I told them, over and over again — you don’t have to do everything now, just put the basics in place and promise yourself to revisit your estate plan in a few years, when you are getting some sleep.
If you are a new parent, or know one, here are the basics:
Many of my clients come to me with a very Californian problem: they bought their home many years ago for a fraction of what that home is worth today. For example, their mid-century house near downtown cost them $125,000 in 1973 and could be sold for $3.2 million next weekend. While that’s an excellent problem to have in some ways, what it means for a person who needs to sell that home is that they are going to have to pay a lot of capital gains on that sale.
Capital gains taxes are levied upon the difference between what someone buys an asset for (called ‘basis’) and what they sell that asset for–the lower the basis, the higher the gain, and the higher the tax. In 2016, the maximum for long-term federal capital gains taxes (for assets held longer than one year) is 23.8% for high income families. In California, you need to add another 10%-13.3% for capital gains , so roughly a 33% total tax is what you’d expect to pay for capital gains at both the state and federal level.
Each person is entitled to a $250,000 exclusion on capital gains taxes for the sale of their primary residence, so if a married couple sells, they’ll have $500,000 excluded from tax. In many parts of the country, that means people can indeed sell their residence and pay no capital gains taxes. But not around here.