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Pros and Cons of a Revocable Transfer on Death Deed for California Residents

The California legislature enacted a law in 2016 that offered residents an alternative to keep their homes out of the costly and inefficient probate process. This alternative is known as a “revocable transfer on death deed.” This type of deed is sometimes referred to as the “poor man’s trust.” Why? Because it is a less costly way to transfer real property to a named beneficiary without having to create a full-fledged trust.

Limitations to a Revocable Transfer on Death Deed

There are some limitations associated with transferring real property through this type of deed. For example, the only forms of real property that qualify for a transfer through this deed are (i) a single-family home or condo unit, (ii) a single-family residence that sits on agricultural property of 40 acres or less, or (iii) the residence has no more than four residential dwelling units.

Advantages of a Transfer on Death Deed

There are many advantages associated with a  revocable transfer on death deed. For example, the filing and recording of the transfer on death deed is fairly cost effective and straightforward. This deed will protect your property from probate court, as long as your chosen beneficiary does not predecease you. Another advantage is, as the name implies, the deed is fully revocable during your life time so you can maintain control and ensure the property is passed on to the beneficiary of your choosing.

Disadvantages of a Transfer on Death Deed

Despite the many advantages associated with a revocable transfer on death deed, there are some disadvantages to consider. For example, your property will be subject to probate court if your beneficiary predeceases you and you lack an alternate estate plan. Another disadvantage is if you co-own property under a joint tenancy. In this situation, your joint tenant becomes the sole owner of the property upon your passing and has full control of the property, even if you created a transfer on death deed. Yet another disadvantage is the fact that if you leave your property to a beneficiary who is still a minor when you pass on, the beneficiary will not automatically receive your property. Instead, a court-appointed custodian will be granted control and management of the property until your beneficiary reaches legal age. Another issue that your real property may still be subject to Medi-Cal estate recovery if you were a recipient of Medi-Cal benefits.

Talk to an Experienced Trust & Estate Planning Attorney in California

As you can see, there are many factors to weigh when deciding whether it makes sense to create a revocable transfer on death deed. To ensure you are making the best decision for your family, take the time to sit down with an experienced and knowledgeable trust & estate planning attorney who is familiar with California law.

 

Dying with Debt – Who Is on the Hook to Pay It Back?

Debt is something many American grapple with. In fact, the average U.S. household with credit card debt carries close to $7,000 in revolving balances, or balances carried from one month to the next, according to NerdWallet.

Given the prevalence of debt in our society, an important question needs to be answered: “If you die with an outstanding debt (whether it be a credit card, personal loan, student loan, mortgage, etc.) who or what will be responsible for paying it back?”

The laws pertaining to debt after death vary by state so there isn’t a single answer to this question. Nevertheless, in general, people do not inherit a loved one’s debt. For example, a son or daughter would not be responsible for the debt of a parent, unless they cosigned a loan. An exception to this general principle is in states that have “filial responsibility” laws related to children of aging seniors.

Can I Just Run Up My Balances Before Passing Away and Leave the Credit Card Company with the Bill?

When someone learns that their children may not be on the hook to repay their debts, they think, “well, I guess this means I can spend like a drunken sailor before I pass on.” Not exactly. Your estate is responsible for paying off any balances you owed upon your passing. If your estate goes through probate, the administrator or executor will look at the debts and assets and, guided by the laws of that state, determine in what order the bills should be paid. The remaining assets will be distributed to the heirs according to a will or state distribution laws if no will exists.

Generally, all debts must first be paid by the estate before any remaining assets are distributed to the heirs. An outstanding credit card balance, for example, must be paid before any money or gifts can be distributed to an heir. If there are not enough assets to pay the debts, then all assets and property will be sold to pay down as much of the debt as possible and the heirs will inherit nothing.

Except for certain situations which include joint property or joint debt, creditors typically won’t go after surviving family members when a debt cannot be paid out of the estate under probate. The

Secured Debt

If a loan was secured with collateral such as property or another asset, you should expect a creditor to pursue that collateral if the debt is not repaid. However, you may be able to keep the collateralized asset if you are willing to assume your deceased loved one’s debt.

Unique Laws in Community Property States

In community property states, such as California, married couples are considered to own their property, assets, and income jointly. In fact, credit accounts opened during marriage are automatically considered to be joint accounts. This may affect what a surviving spouse will have to pay, depending on the debt incurred by the deceased spouse.

The majority of married couples have joint accounts and joint debt. In these situations, a surviving spouse will be held legally responsible for the debt of their deceased spouse, even if they did not incur the debt themselves.

Filial Responsibility Laws

Filial Support (or Responsibility) laws establish a duty for adult children to take care of their indigent parents, meaning that the child may be required to pay for bills accumulated by parents for nursing homes and other form of elder care. Filial Responsibility laws are on the books in 30 states. Nevertheless, they have historically been seldom enforced and lawsuits citing filial responsibility often fail. Furthermore, filial support laws are not a major issue in the DMV. Maryland repealed its filial support laws in 2017. The District of Columbia does not have a filial support law on the books. Virginia has a filial support law on the books but, as mentioned, it is rarely enforced thus far. That does not mean the policy could change in the future. Proper planning can protect most from being blindsided by these debts.

 

Natural Burial – Is it Right for You?

As we learn more about the environmental impact of metal caskets and traditional forms of burial, many people are opting for “green” or “natural” burials. These are burials where no chemicals are used at any stage of the burial. This means no embalming fluid is placed in your body, no vault, and no metal casket. Some natural burial services place a body into the ground wrapped in a shroud or placed inside a non-treated and biodegradable coffin.

Are Traditional Burials Harming the Environment?

The growing popularity of natural burials has been associated with the growing body of evidence highlighting the potential environmental impact associated with a traditional burial where a body is embalmed and placed into a metal casket. Embalming involves filling a body with formaldehyde, phenol, methanol, and glycerin. Formaldehyde is a potential human carcinogen, and can be lethal if a person is exposed to high concentrations, according to Business Insider. In addition to using a troubling combination of potentially dangerous chemicals, traditional burials in the United States use approximately 30 million board feet of hardwood, more than 2,700 tons of copper and bronze, more than 104,000 tons of steel, and 1.6 million tons of reinforced concrete each and every year, according to the Berkeley Planning Journal.

Example of a Natural Burial Service in Virginia

Natural burial services are available across the DMV (i.e. DC, Maryland, & Virginia). For example, there is the Cool Spring Natural Cemetery at Holy Cross Abbey in Berryville, Virginia. Cool Spring Natural Cemetery is maintained by the Cistercian monks of Holy Cross Abbey. They believe that the “sacredness of life and the dignity of each human person” is honored by a natural burial since it is effectively returning your body to the earth from which it came. Their natural burial service means that your body is embalmed, your casket will be made of organic material (i.e. not metal), and that there be no vault. A grave is marked with simple engraved stones.

Is a Natural Burial Right for You?

The decision to have a natural burial or a traditional burial is a purely personal decision. There are many reasons to have a traditional burial. For example, you may want to be buried next to family members in a casket. That is perfectly understandable. The key is to have a plan in place so your wishes are respected and you are buried in a manner you prefer.

To discuss your burial plan, and other estate planning issues, contact InSight Law today.

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Profits Interest – Info You Need to Know

You’ve probably heard of “stock options” that enable an individual to buy into a company at a future time. However, if you work for a limited liability company (LLC), you also have the option of utilizing a unique form of equity compensation known as “profits interest” which represents an actual current ownership interest in the LLC.

Tax Free Equity Compensation

A profits interest, when structured to be in compliance with relevant IRS “safe harbors,” is effectively tax free for the recipient, according to a great article published by Hutchison PLLC. This is because a profits interest basically represents an ownership interest in the future growth of the company but not an interest in the current value of the company.

Example of How a Profits Interest Works

Let’s say an LLC has three owners. Each owns one third of the company. Then, the company grants a 10 percent profits interest to an employee at a time when the company was worth $2 million. Five years later, the company sells for $5 million. Of the $5 million, the first $2 million is divided equally among the three original owners. Nothing from that $2 million goes to the holder of the profits interest because that money represents the value of the company when the profits interest was granted. However, the remaining $3 million is distributed 30 percent to each of the original members and 10 percent to the profits interest holder, who would receive $300,000 of the proceeds from the sale.

Profits Interest and Vesting

Profits interests can be subject to vesting in the same way as a stock option. Vesting can be time-based, so that the equity is earned as the employee continues to provide services over a period of years. Another option is to make vesting performance-based so the employee vests in the equity when they attain predetermined performance goals.

Who Is Eligible for a Profits Interest?

Profits interests can also be granted to non-employee service providers, such as managers, consultants, scientific advisors and the like. As with profits interests granted to employees, the holder of the profits interest becomes a member of the LLC for tax purposes.

Should You Consider Offering a Profits Interest to Your Employees?

Profits interests, especially those that are formulated to be in compliance with IRS safe harbor provisions, can be a very important compensation tool for LLCs. They do have complications, so it is important to consult with an experienced and professional business advisor before embarking on a profits interest grant program for your LLC. Contact InSight Law today to learn more.

Administering a Small Estate in Virginia – Important Info You Need to Know

Virginia has a set of unique rules that allows you to avoid probate if an estate is comprised of “small” assets (defined as assets totaling under $50,000). According to VA Code § 64.2-601, when the total estate does not exceed $50,000, a successor in interest, usually an heir-at-law or a beneficiary of the Will, can collect and distribute the assets without having to go through the full probate process.

If there is a Last Will and Testament, it must be admitted to probate, but there is no requirement that an executor or personal representative be appointed, according to the Virginia Academy of Elder Law Attorneys.  This is known as “recording” a Will.

To claim assets without being appointed executor or personal representative, the person collecting the assets must provide an affidavit signed by all the lawful successors in interest (usually the heirs-at-law or the beneficiaries under the Will) stating the following:

  1. The total estate, wherever located, does not exceed $50,000.00;
  2. At least 60 days have passed since the decedent’s death;
  3. No application for the appointment of an executor or personal representative is pending or has been granted in any jurisdiction;
  4. The Will, if any, has been admitted to probate;
  5. The claimant is entitled to collect the asset and the basis of that entitlement;
  6. The names and addresses of all other successors in interest;
  7. The name and addresses of the successor, or successors, designated to receive the assets on behalf of all the successors; and
  8. An acknowledgement that the claiming successor has a fiduciary duty to safeguard and promptly pay the assets to the lawful successors in accordance with Virginia law.

Assets Valued at Less than $25,000

According to VA Code § 64.2-602, if an asset is valued at less than $25,000, it is possible to pay or deliver that asset to a successor without an affidavit.  The only requirements to accomplish this are the following:

  1. At least 60 days have elapsed since the death of the decedent; and
  2. No application for the appointment of personal representative is pending, or has been granted, in any jurisdiction.

Mandatory Versus Permissive

Keep in mind that VA Code § 64.2-602 is permissive while VA Code § 64.2-601 is mandatory.  Many practitioners advise potential personal representatives of estates valued under $25,000 to go ahead and qualify as executor or personal representative. Doing this gives the executor or personal representative the Letter of Qualification they’ll need to collect assets and take any other action for which a Letter of Qualification may be necessary, such as accessing a safe deposit box.  This does, however, require the payment of the Court’s fees and probate tax, which is typically nominal in total.

Reach Out to InSight Law for Guidance

If you have been named a personal representative of a smaller estate, it is important to take the necessary steps to get the estate settled properly, which is why you should reach out to InSight Law. Our team of legal professionals are here to help.

Administering a Small Estate in Virginia – Important Info You Need to Know

Virginia has a set of unique rules that allows you to avoid probate if an estate is comprised of “small” assets (defined as assets totaling under $50,000). According to VA Code § 64.2-601, when the total estate does not exceed $50,000, a successor in interest, usually an heir-at-law or a beneficiary of the Will, can collect and distribute the assets without having to go through the full probate process.

If there is a Last Will and Testament, it must be admitted to probate, but there is no requirement that an executor or personal representative be appointed, according to the Virginia Academy of Elder Law Attorneys.  This is known as “recording” a Will.

To claim assets without being appointed executor or personal representative, the person collecting the assets must provide an affidavit signed by all the lawful successors in interest (usually the heirs-at-law or the beneficiaries under the Will) stating the following:

  1. The total estate, wherever located, does not exceed $50,000.00;
  2. At least 60 days have passed since the decedent’s death;
  3. No application for the appointment of an executor or personal representative is pending or has been granted in any jurisdiction;
  4. The Will, if any, has been admitted to probate;
  5. The claimant is entitled to collect the asset and the basis of that entitlement;
  6. The names and addresses of all other successors in interest;
  7. The name and addresses of the successor, or successors, designated to receive the assets on behalf of all the successors; and
  8. An acknowledgement that the claiming successor has a fiduciary duty to safeguard and promptly pay the assets to the lawful successors in accordance with Virginia law.

Assets Valued at Less than $25,000

According to VA Code § 64.2-602, if an asset is valued at less than $25,000, it is possible to pay or deliver that asset to a successor without an affidavit.  The only requirements to accomplish this are the following:

  1. At least 60 days have elapsed since the death of the decedent; and
  2. No application for the appointment of personal representative is pending, or has been granted, in any jurisdiction.

Mandatory Versus Permissive

Keep in mind that VA Code § 64.2-602 is permissive while VA Code § 64.2-601 is mandatory.  Many practitioners advise potential personal representatives of estates valued under $25,000 to go ahead and qualify as executor or personal representative. Doing this gives the executor or personal representative the Letter of Qualification they’ll need to collect assets and take any other action for which a Letter of Qualification may be necessary, such as accessing a safe deposit box.  This does, however, require the payment of the Court’s fees and probate tax, which is typically nominal in total.

Reach Out to InSight Law for Guidance

If you have been named a personal representative of a smaller estate, it is important to take the necessary steps to get the estate settled properly, which is why you should reach out to InSight Law. Our team of legal professionals are here to help.