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Five Essential Things Every Adviser Must Know About Estate Planning & Elder Law*

*This is an abbreviated version of Bradley Erdosi’s article
originally published in the OC Lawyer magazine.

Estate planning, probate and elder law are very specialized areas of the law. Often an adviser working in these areas must consider many different issues in order to properly advise a client. Besides the many cross-over issues, these areas of the law are typically highly emotional for a prospective client and/or his or her family members.

Nevertheless, estate planning, probate and elder law issues present themselves in many other areas of the law when counseling a client. Therefore, it is essential that those who counsel clients in estate planning and probate issues also be conversant about elder law concepts so as to identify when an estate planning or elder law attorney should be consulted. This article will highlight the five essential issues with which every attorney should be familiar related to estate planning, probate and elder law.

1. A Will does not avoid probate.

A common misconception among the general public and many advisers is that a valid Will is sufficient to keep a decedent’s estate out of probate court upon death. This is not true. The existence of a Will does not, by itself, dictate whether a probate is necessary. By definition, probate is a court procedure whereby a Will is determined to be either valid or invalid. The advantage of a Will is not that it avoids probate, but rather that it sets forth a decedent’s wishes for the distribution of his/her estate. Conversely, a person who dies intestate (without a Will) relies on California’s default statutory plan in determining the beneficiaries of the estate. Whether one dies with a Will or intestate, the Probate Court will continue to oversee the administration and distribution of a decedent’s estate. The probate process is lengthy (from 9 months to upwards of 24 months on average). Further, because attorney and executor fees are statutory and based on the size of the estate, probate administration can be quite expensive. For example, an estate worth $500,000 would cost the decedent’s estate $13,000 in statutory attorney fees. The estate personal representative would be entitled to the same $13,000 fee. In addition to these fees, there are many costs and other expenses which typically add up to be a significant amount.

Because of the expense and length of probate, Revocable Living Trusts have become a popular tool in California. If set up correctly, a properly drafted and funded living trust will bypass the probate process and the expenses and delay that accompany such a proceeding.

2. Financial Durable Powers of Attorney Are Critical.

A Durable Power of Attorney for financial matters is one of the most important documents for anyone living in California, regardless of estate size or age. A properly drafted comprehensive Durable Power of Attorney is the mechanism by which a conservatorship may be avoided. Typically, a California Durable Power of Attorney comes in two forms: a California Uniform Statutory Form Power of Attorney and an attorney-drafted Power of Attorney.

The California Uniform Statutory Form Power of Attorney is a basic form which is set forth in Probate Code § 4400 et seq. The Statutory Power of Attorney contains a list of enumerated powers which the principal can grant an agent. The benefits to this form are that it is readily accepted by most institutions, and statutory remedies exist if a third party or institution acts unreasonably in refusing to accept the agent’s authority under the Power of Attorney. Although the powers granted under a Statutory Power of Attorney may be sufficient for some clients, for others, a more comprehensive power of attorney drafted by an experienced estate planning attorney or elder law attorney may prove to be necessary and more valuable.

So long as a Power of Attorney complies with Probate Code §4121, an attorney-drafted document will be considered valid. The main benefit of an attorney-drafted form is the customization and expansive powers which can be set forth in such a document. For example, California Probate Code §4264, provides that certain acts require express authorization in the Power of Attorney. An attorney-drafted Power of Attorney makes it possible to include specific acts not allowed by the Statutory Power of Attorney, including: granting the agent authority to change beneficiaries; authority to make loans; authority to make gifts of the principal’s assets; the power to engage in Medi-Cal planning on behalf of the principal; and the power to revoke or modify a living trust created by the principal. A valid Power of Attorney is an essential document for any resident of California over the age of 18.

3. Long-Term Care and Skilled Nursing Care Costs May Devastate Your Client

With life expectancies increasing, it is projected that 70% of people over the age of 65 will need long-term care services at some point during their lives. According to the Center for Medicare and Medicaid Services, long-term care includes medical and non-medical care for people who have a chronic illness or disability. Medicare and most insurance plans do not pay for the cost of ongoing long-term care.

There are different levels of care that may be offered, all of which are expensive. Beginning with in-home assistance, the cost in Orange County averages approximately $144 per day for a home health aide. Adult day care is the most inexpensive option, if sufficient for the individual, at $80 per day. And, assisted living in Orange County does not differ significantly from the rest of the nation with a cost of approximately $3,500 per month.

However, when a nursing home or skilled nursing facility is required due to an individual’s severe health issues, the costs explode. In Orange County the average nursing home will conservatively range anywhere from $7,500 per month for a semi-private room to $8,100 per month for a private room.

Typically, only four options exist to pay for the cost of long-term care:

1. Utilize personal assets and savings;

2. Long-term care insurance;

3. Family member assistance (such as children paying for care); or

4. Medi-Cal (California’s version of Medicaid)

Medi-Cal will pay the cost of skilled nursing care for eligible individuals. However, not everyone qualifies for Medi-Cal. Qualification for Medi-Cal is means-based, with certain assets exempt from consideration (such as an applicant’s personal residence). Practitioners should note that with a few exceptions, the State of California Department of Health Care Services is entitled to recover from a recipient’s estate for the cost of benefits provided by the Medi-Cal program. However, planning can be done to successfully avoid any recovery.

It is very important that, as part of the estate planning process, individuals consider the cost of long-term care from the outset. Even if long-term care seems like a remote possibility, the statistics show that a majority of individuals will need such care at some point in their lives.

4. Special Needs Require Special Consideration

Many individuals with special needs rely on public benefits such as Medi-Cal and/or Supplemental Security Income (SSI) for their medical care and basic necessities. Because these programs are means-based, an inheritance, gift, or personal injury settlement may completely disqualify a Medi-Cal or SSI recipient from these necessary benefits, with drastic consequences.

While disqualification from public benefits is a major reason to plan for a special needs beneficiary, other goals must be considered as well. Special Needs Trusts are a very effective way to help an individual with special needs continue to receive SSI or Medi-Cal benefits, without disqualification. An additional goal of a Special Needs Trust is to provide funds for a special needs beneficiary, with the expectation that these funds will enhance his or her life. A parent with a special needs child would be making a mistake by leaving assets outright to such a child.

5. What You Don’t Know About Taxes Could Cost Your Client a Fortune

A little knowledge about taxes could save your client a lot of money.

Income Taxes

Often times, a husband and wife hold title to community real property as joint tenants. Assuming husband and wife own property together as joint tenants, this form of title may have some unforeseen and unwanted consequences upon the death of one or both spouses. Generally, upon the death of the first spouse, only one-half of the real property will receive a “stepped-up” tax basis. This is especially important considering the rapid appreciation of real property in today’s market. The surviving spouse may incur a significant amount of capital gains if he/she decides to sell the property after the death of the deceased spouse/former joint tenant. Of course, if the property is a principal residence and has been occupied 24 out of the previous 60 months, some capital gain may be sheltered from taxes. However, highly appreciated rental properties are not subject to this capital gains exclusion.

California law has provided a solution to this problem by allowing husband and wife (and those in same sex marriages) to take title in the form of “community property with right of survivorship.” This form of ownership was created to allow a surviving spouse to obtain a “stepped up” tax basis for the entire community property asset, while maintaining the survivorship benefit associated with joint tenancy. When a married couple holds title in this manner, the new tax basis of the property upon the first spouse’s death will be its fair market value on such date of death. Accordingly, should the surviving spouse decide to sell the property shortly after the death of the deceased spouse, capital gains may be minimized or eliminated.

Property Taxes

California Law exempts from reassessment transfers of certain real property from parent to child, and, in some circumstances, transfer from grandparent to grandchild. This is oftentimes overlooked in estate planning and can cause permanent and unnecessary reassessment of property. A typical reassessment example involves children who inherit a residence from their parents. Without considering tax consequences, one sibling agrees to buy out the others. What was an excluded transfer will result in reassessment when one child buys out the others. Specifically, the portion that was bought by the purchasing sibling will be reassessed, resulting in an increase in property taxes.

Estate and Gift Taxes

In prior newsletters we’ve indicated that the American Taxpayer Relief Act of 2012 (also known as the 2012 Tax Act) made permanent the federal gift, estate and generation-skipping transfer tax laws. The 2012 Tax Act provides for an estate and gift tax exemption of $5 million adjusted annually for inflation. The exemption amount for 2014 is $5,340,000, $5,430,000 for 2015.

The 2012 Tax Act also provides for “portability” of a deceased spouse’s unused estate and gift tax exemption amount. Thus, a married couple can have a combined exclusion of $10,860,000 (for 2015).

However, in order for the surviving spouse to take advantage of this “portability,” he or she must file an estate tax return (even though no tax is due) within the time prescribed by law (9 months), including extensions. Failure to file the return “claiming” the portability results in the loss of the deceased spouse’s unused exemption amount, which may later have severe estate tax consequences. Thus, for many individuals it may make sense to put estate planning in place rather than to rely on the portability election.


Regardless of your practice area, you will, no doubt, come across clients who will benefit from your knowledge of some of these basic concepts. And knowing what you don’t know makes it easy to lead a client in the right direction.

Please contact us at 714-384-6500 if you have any questions or clients who could benefit from our help in these areas.

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