Winter 2003

With all of the effort our clients focus on their estate planning in order to save their heirs estate taxes and avoid probate proceedings, it is sometimes easy to forget some of the smaller, but just as practical, steps we should take to simplify the task of our caregivers and survivors. Here are just a few of the common sense actions we can take toward this goal.

California permits an individual (“the principal”) to complete a statutory form, now called an Advance Health Care Directive (AHCD), which designates another person (“the agent”) to make crucial medical decisions for the principal if the principal is unconscious or otherwise unable to make his or her own decisions. The form is simple to complete, and either must be witnessed by two persons or acknowledged by a Notary Public. By executing an AHCD, the principal can also state his or her own wishes regarding special care needs, heroic efforts to sustain life and anatomical gifts.

We recommend that when you execute an AHCD you make several photocopies (hospitals and physicians readily accept photocopies of the signed original), and give a copy to each named agent and your primary physician. In addition, we suggest that you and your agent keep a photocopy of your AHCD in the glove compartment of your and his/her automobile, simply because when the AHCD must be presented (at a hospital or with another medical service provider), you or your agent will likely be traveling in an automobile to get there, and there will be little or no time to look for it elsewhere.

Most people use safe deposit boxes as receptacles not only for valuable personal property (such as jewelry, precious coins and stamps and family heirlooms) but also for what they perceive to be valuable and irreplaceable papers. The bank or other institution maintaining your safe deposit box will keep specific records identifying those who may enter (either jointly with you or alone) your box, simply by signing the institution’s entry card or book and presenting a box key.

Unfortunately, surviving loved ones, even if they are permitted to enter the safe deposit box of their deceased relative, often do not do so until weeks or even months after the death occurs. We are aware of an extreme situation where a son buried his mother at one cemetery, not discovering until he later entered her safe deposit box that she had prepaid for burial services at another cemetery.

Except in the case of a celebrity (whose important documents would, if stolen, risk being sold to tabloid newspapers), we recommend that our clients maintain in their homes photocopies of all important documents that they decide to keep in their safe deposit boxes.

Sometimes, regardless of the value of the estates of our loved ones, disharmony in the family may be caused by the physical possessions we leave behind, simply because these articles can be seen, touched, and displayed in open view as a loving reminder. While some children can easily divide up the possessions of their deceased parents, others find only disappointment and resentment in the manner with which such items are distributed, and this is not the legacy you wish to leave for your children.

Our advice is that you leave a detailed listing of your possessions and personal effects, with specific instructions as to who gets what, and that you put this message to your survivors with your important papers at home where your loved ones can find it. If you’re uncomfortable reducing these instructions to writing, then a videotape tour of your home with verbal instructions for each possession viewed can also be helpful. We find that when parents leave these instructions, the children can divide the possessions peacefully, and any disappointment is focused upon the deceased parent, rather than the living siblings.

Many of our clients have used the expedient method of making gifts to minors by establishing custodial accounts under the California Uniform Transfers to Minors Act (CUTMA). By making a gift to a named custodian for the minor donee, the donor may complete the gift but still have the gift under the supervision and control of an adult (who is then under a fiduciary duty to use the funds solely for the benefit of the minor donee). Under the general rule of CUTMA, when the minor reaches age 18, he or she may demand that the custodian convey the remaining custodial assets to him or her.

If, however, the donor desires to extend the custodianship of his or her gift to the 21st birthday of the minor donee, he may do so by adding the words “until age 21” to the formal title of the property given. For example, Grandfather may make a gift to “Son, as Custodian for Grandson under CUTMA, until age 21.”

Some of our clients regularly make gifts to children and grandchildren using the gift tax annual exclusion (currently $11,000 per donor for each donee), as a method of reducing their eventual taxable estates. These gifts may be made each calendar year to each donee. Often these gifts are made in December for the holidays, but they would be somewhat more effective if made in the preceding January of the same year, for two important reasons.

First, assuming that the donee will invest the funds given, the earnings on the investment, like the gift itself, will not be included in the donor’s estate. By waiting until December to make the gift, all earnings for the year on the property gifted will have accumulated in the estate of the donor.

Second, you either use the annual exclusion from gift taxes or you lose it. In the past, some of our clients have died suddenly, well before they made their annual exclusion gifts for the year, thereby missing an opportunity for further reduction of their taxable estates. By making the gifts early, such as in January, this opportunity is preserved.

Estate Planning Bits and Pieces will appear as a regular feature in future editions of Legal Updates.

Legal Update

Practical Estate Planning Bits and Pieces