Advanced Estate Plans

Saturday, October 3, 2015

Understanding the Risks and Benefits of Reverse Mortgages

I am considering a reverse mortgage as a retirement planning tool. Is this wise?

A reverse mortgage is a retirement planning tool gaining considerable recent notoriety, due in part to the uptick in advertising featuring prominent senior-aged celebrities and former politicians. Financial experts, however, are growing increasingly wary of this retirement planning option, with many warning seniors to select this option only as a last resort.

A reverse mortgage is a secured financial transaction available for seniors aged 62 and older. In exchange for future equity in the senior’s home, a bank will forward a lump sum of tax-free cash to the homeowner. In general, the homeowner need not repay the balance until death, or may elect to repay the mortgage in monthly installments.

The problem with reverse mortgages most often occurs when the homeowner passes away and the promissory note becomes due immediately. In this scenario, children are often surprised to learn that their parent’s estate now owes a sizable debt – oftentimes up to the entire value of the home. To satisfy the debt, the estate usually must sell the home and pay the balance of the outstanding mortgage, leaving surviving heirs with nothing.

In another scenario of growing concern, one spouse takes out a reverse mortgage without the other spouse, who may be too young to qualify. Upon the death of the first spouse, the note becomes due and the surviving spouse must either find a way to repay the balance or sell the property all together.

While a reverse mortgage can be a seemingly simple way to gather cash upon reaching retirement age, it is not without risk. In many instances, there may be better options to help ensure surviving loved ones are not left without an inheritance or – in the worst case scenario – without a home.

If you are considering a reverse mortgage and would like to discuss your options, please do not hesitate to contact the Law Offices of Berge & Berge, LLP, serving the South Bay area of California, at 408-985-9918.

Friday, July 10, 2015

Minimizing Liability for Conservators

I was recently appointed as a conservator in California. What can I do to avoid unnecessarily exposing myself to liability? 

Serving as a conservator is oftentimes a thankless and grueling job. However, the role serves a vital purpose in protecting California’s vulnerable children and adults from risk and harm. As a conservator, it is important to follow California’s guidelines to the letter – particularly with regard to the handling of assets and financial transfers on behalf of the ward, as any improper intentional misconduct could lead to significant liability and loss of the role of conservator.

One of the first steps in serving as a conservator is often obtaining a conservator’s bond – which operates to insure the conservatee in the event of loss. If the conservatee’s next-of-kin, and the conservatee himself, consent to the arrangement, the bond may not be necessary. 

From there, a conservator must notify the ward’s banks, financial advisors, and any other individuals or institutions involved in the assets of the estate. This is accomplished by providing Letters of Conservatorship, which are issued after the conservatorship is officially ordered. Attempting to rearrange assets or otherwise access the estate assets could quickly trigger liability for the conservator. 

From there, a conservator must arrange for an inventory of the conservatee’s entire estate, which must be filed with the probate court within 90 days. Another way to avoid liability is to ensure the inventory is completely accurate and includes all real and valuable personal property belonging to the ward. From there, the conservator must make and follow a Plan for Conservatorship, which will cover the methods and techniques the conservator will use to ensure the assets are properly managed and prudently invested. 

One of the most common ways in which a conservator could face liability to a conservatee’s beneficiaries involves the mismanagement of estate funds. As conservator, one must ensure the conservatee is adequately cared for, has all monthly obligations met, has appropriate medical coverage, and is able to live on a reasonable budget. If a conservator fails to properly maintain the conservatee’s assets and the conservatee begins experiencing harm in the process, considerable liability – and even criminal financial culpability – could result. 

If you have questions about the conservatorship process in California, please do not hesitate to contact the San Jose and Santa Clara estate planning attorneys at the Law Offices of Berge & Berge, LLP today: (408)985-9918. 


Tuesday, May 19, 2015

Joint Tenancy in Estate Planning: When (and How) to Avoid an Unintended Override

I am considering adding my daughter to my checking and savings accounts. Is this a good idea? 

Joint tenancy is a legal term referring to the situation in which two or more individuals share an undivided ownership interest in an asset or piece of property. The situation is extremely common between spouses or domestic partners, as it creates a seamless transition of property to the other upon the death of the first. However, joint tenancy is not always as convenient as it seems, and it can actually lead to the override of a well-intentioned, carefully-considered estate plan. If you are considering joint tenancy for the sake of convenience, we encourage you to read on before taking this step – there may be more to it than you realize. 

Joint ownership of financial accounts

For many, the thought of managing daily and monthly personal finances proves exceptionally overwhelming, prompting the decision to add a significant other, child or close friend to an account. By virtue of being added to the account, this individual gains all the administrative rights of the original owner, including the ability to write checks, make deposits, and initiate withdrawals. This person will also gain outright ownership of the account upon the death or incapacity of the original owner, despite the language of that owner’s will or living trust. In other words, joint tenancy over checking and savings accounts – which can grow to a considerable size with income from one’s pension and retirement accounts – will override one’s intentions in an estate plan, and there is little that can be done to undo this arrangement. 

For anyone struggling with upkeep of personal finances, one alternative to joint tenancy is a simple durable power of attorney for finances. This document will allow a trusted friend or relative to make transactions on behalf of the account holder without actually undoing his or her predetermined estate plan. 

If you have additional questions about the effects of joint tenancy on financial assets or real property, please do not hesitate to contact the estate planning attorneys at the Law Offices of Berge & Berge, LLP today by dialing (408)985-9918. 

Monday, May 18, 2015

Tips for Second Marriages: How to Best Protect Both Your Children & Current Spouse

I am in my second marriage, with children from my first marriage. How can I craft an estate plan that will protect both interests? 

Estate planning often encompasses more than just a Last Will and Testament, and can become increasingly complex as family dynamics change and grow. One common scenario seen by many experienced estate planning lawyers involves testators engaged in a second marriage with children from a first marriage or prior relationship. At the outset, it may seem simple enough: leave everything to the surviving spouse, remainder to the children. However, this “plan” can quickly unravel should the surviving spouse opt to redo his or her estate plan in favor of their own children, a favorite charity, or other surviving family members. One major factor to keep in mind when preparing your estate plan is that once the assets have passed to the surviving spouse, that property then becomes part of that individual’s estate, and may be disposed of in his or her own discretion. 

Keeping assets protected for the surviving spouse and children

One way to avoid the above-described scenario is to set aside certain assets in trust for the benefit of either the surviving spouse or the surviving children. There are many ways to set this up, and one popular trust instrument designed specifically for this scenario is known as the Qualified-Terminable Interest Property trust (or, QTIP trust for short). The QTIP trust creates two sub-trusts – often simply titled as the “A” trust and “B” trust – which are designated for two distinct purposes. The first trust is to contain an amount of assets calculated to adequately provide for the surviving spouse’s health, education, maintenance, and services as needed for the duration of his or her life. This is a finite figure, and is often managed by a trustee to ensure proper distribution. For higher-net worth couples, the spousal trust language will instruct the trustee to only fund the trust with an appropriate amount so as to fulfill the marital estate tax deduction. 

The remaining funds in the “B” trust are then set aside for the benefit of the trustor’s children. If the children are still minors, the trustor must choose an appropriate trustee to oversee the distribution of these assets. For adult children, this may not be necessary. 

In the end, the surviving spouse is adequately provided for, and the deceased’s children will be able to enjoy their parent’s legacy without fear of disinheritance. 

If you are looking to set up an advanced estate plan, or would like to discuss your options upon remarriage, contact the experienced estate planning attorneys of the Law Offices of Berge & Berge LLP. The firm’s office is conveniently located for residents of San Jose and Santa Clara counties, and can be reached by calling 408-985-9918. 

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