Here are some tips to protect yourself:
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.
Custodial accounts are an easy way to hold money for a minor child’s benefit. They have many advantages. They’re free-it’s easy to open up a custodial account at any bank or financial services company. (You’ll know if an account is custodial in California because it will say “CUTMA” on the statement, which stands for California Uniform Transfers to Minors Act.)
They’re simple-a custodial account can hold cash, or other assets, for the benefit of a minor until a certain age (in California, until age 21 if the account is established during life; 25 if created by a Will or a trust after a death). They work as intended – when the property is transferred to the CUTMA account, the child becomes the legal owner, but has no control over the money until the account ends, when they are old enough, presumably, to properly manage it. Until that time, the account’s custodian can use the money for that child’s benefit.
But what do you do if they get too big? I’ve had more than one client come into my office terrified because their children are going to inherit hundreds of thousands of dollars way before their parents think that would be a good idea. Some of you are, no doubt, rolling your eyes in mock horror, but this can be a source of great stress for parents. Imagine, for example, that a well-meaning grandparent bought Pretend Co. stock when it was at $7/share (in 2002) and gave 2000 shares of stock to a custodial account for your child. Fourteen years later, that stock is now worth $104/share and worth $208,000! And your adorable child is now a goofy 17 year old, interested more in texting, dating, and driving than careful investing.
It’s summer and families are on the move. Some of them are crossing borders. And it turns out that in this day and age, in addition to passports, tablets, and endless patience, parents also need to consider whether or not they’ll need a permission letter as well.
If you are traveling internationally with minor children and are either doing it solo, or are not the child’s parents, be prepared to be asked for a document showing that you have permission to do so.
A Minor Travel Consent Form has become an increasingly necessary document. Here’s how the US Customs & Border Protection Service puts it on their website: “Due to the increasing incidents of child abductions in disputed custody cases and as possible victims of child pornography, Customs and Border Protection strongly recommends that unless a child is accompanied by both parents, the adult have a note from the child’s other parent (or, in the case of a child traveling with grandparents, uncles, aunts, sisters or brothers, friends or in groups, a note signed by both parents) stating “I acknowledge that my wife/husband/etc. is traveling out of the country with my son/daughter/group. He/She/They have my permission to do so.”
Last week, the New York Times reported that Prince’s sister filed a Petition in probate court in Minnesota that stated that no Will had been found for Prince’s estate.
Reportedly, in addition to his financial investments, he left behind ownership of his publishing catalog in addition to archival recordings, and real property worth millions. Since his death, the Times reports that 650,000 Prince albums and 2.8 million tracks of his songs have been sold.
On October 5, 2015, Governor Brown signed the End of Life Option Act into law. The law requires that two doctors determine that a patient has six months or less to live before the lethal drugs can be prescribed. Patients also must be mentally competent to make medical decisions and be able to swallow the medication themselves and must affirm in writing, 48 hours before taking the medication, that they will do so.
But the law, when passed, wasn’t to become effective until 91 days after the adjournment of a special legislative session on health care, and no one knew exactly when that was going to happen. Now we do. That session ended on March 10, 2016, which means that the law will be effective as of June 9, 2016.
Since this is a new law and a new policy for the state, it is going to take time for both the public and doctors to fully understand how the process is going to work and what the legal requirements are for compliance.
As an estate planner, I get calls often from disgruntled beneficiaries, concerned parents, frustrated Trustees, or distrustful siblings. Death and money don’t always bring out the best in families. But despite countless books, movies and television shows, rushing to court isn’t always (maybe ever) the best idea for families facing conflict.
Litigation, after all, is designed to create “winners” and “losers,” but family disputes are seldom winner-take-all scenarios. Worse, the very adversarial nature of litigation can fracture and disrupt family relationships to the point that after the dispute is over, those relationships may be lost, forever. And finally, litigation is both expensive (think six figures to go to trial) and public (think family secrets filed as public documents).
Mediation, a process in which the parties themselves can negotiate an agreement to a family dispute, is a real alternative to litigation for trust and estates conflicts, but not one that many people know about. Yet. (I aim to change that.)
In last week’s end of the year budget bill, Congress made permanent the qualified charitable rollover distribution. This lets individuals who are 70 1/2 or older donate up to $100,000 a year directly from their IRA to qualified charities. By doing so, donors can reduce their taxable income (because the money coming out of the IRA won’t count as taxable income to them) and charities can benefit from income-tax free gifts (because qualified charities don’t have to pay income tax on the IRA withdrawals). The charitable rollover counts towards the donor’s required minimum distribution.
In addition to the time-tested check writing method, here are three other ways that you can give that are less obvious and quite beneficial.
- Consider opening up a Donor Advised Fund. You can open up a Donor Advised Fund in 2015 and get a charitable deduction for that gift by year’s end. But, you can make recommendations on how those funds should be spent in 2016 or after. Donor Advised Funds are a great strategy when you need the charitable deduction right away, but haven’t had time to research the charities that you want to support. You can open up Donor Advised Funds at large financial institutions like Schwab and Fidelity and Vanguard and also at community foundations like our very own Silicon Valley Community Foundation.
I’m thrilled to announce the release of my first in a series of e-books on estate planning that are designed to provide you with practical answers to real-life questions. This one is on Estate Planning for Digital Assets, and you can download it for free from my website.
This e-book is for anyone who has digital assets (email, photos, a blog, a Facebook page, Google Docs , and so on) and wants to learn about the best way to provide, or deny, access to these assets as part of a comprehensive estate plan.
It turns out that the traditional model of estate planning, which is to appoint someone to act for you after death, just doesn’t translate well to the digital realm, where terms of service contracts and federal law require an individual to provide consent before anyone else can access their digital assets.