“Well, Laura,” I said, as I glanced down at my notes, “do you want to leave anything to your grandchildren, as you had planned before?”  We had just gone over her desired changes to her estate plan.  One of the main things she was changing was how much she was leaving her children.  She asked me to remove the lifetime trust for her son, and leave him $13.00.  At first, I was certain I had misunderstood.  “Do you mean $13,000.00?” I asked.  “No,” she replied, “$13.00.  After discussing my son’s behavior with my Rabbi, that was my Rabbi’s suggestion.”  Of course, Laura (not her real name) had also painfully described her son’s behavior to me.  She had shared with me his capacity to harm himself rather than improve himself when he had money in his hands in the past.  Originally, we had set up her son’s share of Laura’s trust so that it was always under someone else’s control.  Under those circumstances, she had made some provision for her grandchildren as well.  But, unfortunately, as they grew older . . . “Nothing for the grandchildren.  In my thinking, you need to actually have a relationship and put effort into maintaining it if you are to receive anything.”   With an understanding of the sadness which brought about these decisions, I drafted the documents to reflect her wishes. 

I don’t generally like the idea of trying to control someone with wealth.  Keeping control over funds after you die, while possible, is more difficult in practice than most clients understand.  However, keeping that control is often necessary to ensure that a person you intend to benefit when you die will actually benefit rather than harm themselves (or others) from the wealth you leave them.

Substance abuse and dependency are what the lay person thinks of as the biggest issue when leaving shares for challenging children.  However, many of my clients want to set up structures that model good financial behavior for their beneficiaries.  Sometimes, a person is not wise with money and age alone doesn’t impart financial management skills to them.  In any situation where someone will need time to change, mature and learn, we draft trusts that distribute wealth slowly or upon need.  We leave the investment control and often the distribution control (who gets how much, when they get it), in the hands of stable, competent adults who have proven financial management skills.  That person can be a trusted friend, family member, or even sibling of the person whose share is being managed, but that choice needs to be carefully considered before being committed to paper.  

Many people come to me feeling like they must give an equal share to a challenging child simply because they are their child.  Sometimes, my clients feel responsible for a challenging child’s bad behavior and want to take care of them for life – a hint of codependency that perhaps helped foster the problem in the first place.  As your attorney, it’s not my role to challenge your desires, but rather to help you determine how best to accomplish your ultimate goals for your family with your estate plan.  Only my training and 20+ years of experience give me the perspective to thoroughly share all the available options after I have asked my clients what their desires are.  With enough gentle persistence and thoughtful questioning, I can help each client honestly discern what they really want to happen to their wealth.  

In your estate plan, you get to do largely what you want (within the bounds of California law).  Just because you CAN, however, I want to make clear that it just may not be wise to do something like give a challenging child with an ongoing problem a full share just because you feel you ‘must’ do so.  Explore your options with a qualified attorney who can review your options with you, help clarify your best choices, and carefully reflect those choices in your estate plan for you. and implement those options for you.  Most of all, make it a priority to plan ahead so that you can help those challenging children have the best possible outcome in life!

Almost everyone has one.  The Drunk Uncle.  The cringeworthy relation.  The unpredictable-to-the-point-of-irrationality family member.  We love – or we try to love – our family; but this person pushes the limits.

Since they are a relative, they are an issue in your estate plan.

In California, we generally have the right to leave our money and property to whomever we want.  Some states require you to ‘take care’ of certain people – a spouse, a minor child – not California.  I could disinherit my two-year old for having a tantrum if I wanted to.  So, with that much freedom, how can the Drunk Uncle become a problem?  

It’s all about ‘standing,’ a legal concept that says whether you can bring a lawsuit to court or not.  It’s also about someone being an ‘heir’ – another legal concept that determines who automatically inherits money or property in the absence of a will or a trust.  The bottom line is that if someone is an heir, they have standing to sue, even if they have been disinherited!  Don’t be confused: just because an heir can sue doesn’t mean they will succeed.  But if there is an heir who is irrational or just plain greedy, even their failure in a suit can be spectacularly expensive.

A recent case from my office illustrates the point.  A son of the deceased was left a motorhome and nothing else.  When the deceased died, the son wanted the motorhome right away, but there is a waiting period.  He became frustrated with the waiting period and began to claim that the successor Trustee had ‘abused’ or ‘damaged’ the motorhome, which was patently absurd since the motorhome was already very dilapidated before his father died and hadn’t been moved in years.  Nevertheless, the son sued in every court he could find the door for.  Soundly defeated at each and every turn, he was finally shut down last month with the last possible judge ruling in our favor.  Plus, he didn’t get his motorhome – the storage yard sold it to cover their fees (we hear he’s suing them for ‘fraud’).  Unfortunately, when the smoke cleared, this disgruntled heir cost the Trust far more money in time and court fees than the vehicle was worth.  

You can’t always plan around these people.  However, you can be more careful in planning with your own drunk uncle in mind.  There are three main ways to attack this problem in a good estate plan.  

First, you can just completely disinherit someone.  In the case above with the motorhome, the deceased client felt guilty because he and his son had been at odds for years.  Once upon a time, they had fun in the motorhome.  Dad thought it would be a nice gesture.  But it left an asset that required monthly maintenance fees to someone who had long proved their inability to make mature decisions with money; and his standing as a beneficiary allowed him room to make trouble.  It would have been much better to simply disinherit him.  

Alternatively, he could have simply been given a round sum of money – perhaps an amount about equal to what the motorhome was worth.  Much less management for the Trustee – and that means less opportunity for the irrational beneficiary to claim bad behavior by the Trustee.  

Finally, for the drunk uncle you just have to take care of, their inheritance can be parceled out over time – perhaps for life.  The downside is, the Trustee is exposed to claims for bad behavior; but the upside is, the money is managed and used for real needs, not crazy shenanigans (or booze).  This structure prevents someone with real needs from being able to throw money at bad decisions, that look like good decisions – if you’re a Drunk Uncle.

An interesting twist on the notion of ‘income’ is the capital gain.  This matters in estate planning because of the way capital gains are handled when someone dies.  Income which is a ‘capital gain’ is the difference between what you paid for something (your ‘basis’) and the net revenue you receive when you sell that something.  All kinds of special tax rules apply to this sort of income – including different rates, holding times, and – important for today’s discussion – treatment after death.  Before an asset is sold and the capital gain income is measured, the potentiality is called ‘appreciation.’  Appreciation is how much an asset increased in value since you bought it.

Under current law, when you die and leave appreciated assets to your heirs, they get a tax benefit known as a ‘step up’ in basis.  This means that the value of the asset on the date of your death is your heirs’ new basis in the asset, regardless of what you paid for it.  Essentially, when you die, current law ignores the appreciation on the asset during your life.  This rule provides two important benefits to your heirs.  First, when they sell the asset, the capital gain income is measured from the value on the date of your death, so they are paying less income tax on the capital gain than you would have if you had sold that asset while you were alive.  Second, if the asset can be ‘depreciated’ (which is a fancy way of saying it gives you an annual income tax break just for owning it), a higher starting basis gives you a larger deprecation amount, so you get more annual tax benefit.

This rule also gives the government and taxpayers an additional benefit, which is that each party (e.g., the taxing government and the taxpayer) knows with clarity and reasonable certainty what the basis number is that future tax burdens and benefits are calculated from.  

I appreciate you putting up with my definitions so far.  Hold on a bit longer and I hope you will see where I’m taking you.  This benefit of the stepped-up basis at death has a big tax-negative for the government, which is that the ability to tax the appreciation disappears at death, never to return.  This leads to substantial lost revenue for the government.  

Now imagine that a government wanted to capture that capital gains tax revenue.  Conceivably, they could assess a tax on appreciation during someone’s life and prior to a voluntary sale.  But there are a lot of problems for the taxing authority in that scenario.  At least two obstacles are first, a fight with the taxpayer over the measure of the appreciation; and second, actually collecting the tax without forcing the taxpayer to sell the asset so that the taxpayer has the money to pay the tax.  

It would be much easier for the taxing authority to demand payment of tax on the appreciation at the death of the owner, when the owner won’t be needing to use the asset anymore.  The only obstacle remaining is measuring the appreciation.  

Currently, you and after you, your heirs, can put off selling an asset – and thus triggering the tax – as long as YOU want to.  But a government might put rules in place that would force some recognition of gain at death, which would either have to be paid out of cash in an estate, or the heir’s own pocket if the heir wanted to keep the appreciated asset.  Over the years, Congress has debated this sort of action, either eliminating the step up in basis, or taxing capital gains at death.  However, to date, no such changes have been made.

At the Law Offices of Mark E. Lewis & Associates, we plan estates carefully to maximize the benefits of the step up in basis at death.  This includes thoroughly reviewing the manner in which title to assets are held, as well as creating trusts and other structures for our clients that can take the best advantage of the law on avoiding or deferring tax on capital gains income.  If the law changes, we are ready to meet the challenges that will arise so that our clients can pass on the best benefit of their wealth to future generations.  Call us to set an appointment to discuss these issues in light of your current estate plan and the challenge of future changes to the law.

There are two main types of giving you can engage in that can have estate benefits: charitable giving and giving to family and friends.

Charitable Giving

Charitable giving at death is straightforward – every dollar you leave to a charity will not be part of your taxable estate. The United States tax code has long encouraged charitable giving with favorable tax benefits, both annually and at death. Sometimes, clients will plan to leave taxable wealth to a charity rather than to their beneficiaries. I’m not a fan of this simple approach, because we don’t really know what the estate tax limits will be when a person dies. The beneficiaries may only receive a token amount, and the charity would get the bulk of the wealth. A better strategy can be lifetime charitable trusts: the Charitable Remainder Trust, and the Charitable Lead Trust.

Charitable Remainder Trusts (CRT) are used for clients who own a highly appreciated asset that they would like to sell. If they simply sold the asset, they would pay a large capital gains tax. Instead, they can put the asset into a CRT, which then sells the asset but pays no capital gains tax. The CRT invests the proceeds of the sale and pays the client an income. This income is taxable, but the value of the asset initially put into the CRT becomes an immediate charitable tax deduction against income over five years. Upon the client’s death, the contents of the CRT are distributed to a charity and avoid estate tax. Benefits: The client avoids capital gains taxes, disposes of a difficult to manage asset, gains an income based on the full value of the asset, gets an immediate tax deduction, and avoids estate taxes on that asset. Good giving!

Charitable Lead Trusts (CLT) are used to deflate the value of an income-producing asset to pass to a client’s beneficiaries without gift tax. Benefits: My heirs inherit a valuable asset, I use a very little portion of my lifetime tax credit, and a charity receives a great income for 10 years.

Gifts to Loved Ones

Giving to family members or friends allows them to grow your gift in their own estate. However, personal gifts over $15,000 are subject to a gift tax and should be reported to the IRS. Gift taxes often surprise people, and in true IRS form, the rules are confusing. For example, if you put a non-spouse on title to a property you purchase, you’ve made a gift to that person! If the value of the property interest exceeds $15,000, you are supposed to report the gift to the IRS. 

Unreported gifts are currently safe from tax consequences because the lifetime credit amount is over $11M. In 2025, this amount will sunset back to approximately $6 million. Gifts over $15K in a year reduce the lifetime credit amount. So, since some normal activities could legally constitute a reportable gift, careful consideration is needed when an estate plan gifting strategy is implemented.

The Giving Season

Due to the shrinking death-and-gift-tax credit, the next three years are going to be the “giving season” in estate planning. With the lower lifetime limit, it will make sense for wealthier parents and grandparents to give amounts up to $5 million to their heirs and beneficiaries – in trust or out of trust. Yes, their future ability to use the credit will be lost. However, the amount they give, especially in an economy of high inflation, will grow in value, making such gifts a good estate planning move.

From our firm to you, have a wonderful holiday season with all the gifts of love and friendship that the season brings. And as always, when you are ready to give your family the peace of mind that comes from a well-planned estate, come see us!

But swimming pools are artificial.  The ocean in our backyard is natural; and when you master the skills required to successfully swim there, swimming in the ocean, including body surfing and snorkeling, can be very satisfying and fun.

In today’s article, I want to compare life to the ocean.  We swim in it every day.  I believe we inherently know that sticking to the tide pools and the shallows isn’t best for us – we need to learn how to ride the waves, read the weather, and look below us –  even if it’s frightening.

Traditionally, probate lawyers like myself acted like lifeguards – when something goes wrong, the client calls on us, and we come out to them, get beside them, and rescue them when they are in over their head.  But for many years now, my firm has been dedicated to giving our clients the tools they need to navigate the ocean.  

The entire estate planning process is about examination and preparation.  We know what the waves might be like, because we have swum rough seas with our clients for almost thirty years.  We can show you the proper strokes to stay swimming above the rough waves and speeding through calm waters. We know what’s swimming below you, and we can look at it all together, so you can swim away from danger and put aside worry.  In other words, we need to examine your situation together with you, and determine your estate planning needs.  

Examination means reviewing your assets, your family situation, and your desires for the use and preservation of your wealth – both upon your incapacity prior to death, as well as the efficient disposal of your wealth after you die.  Preparation means creating those documents, including deeds, trusts, wills, and powers of attorney, to enable you to meet all the calms and storms of life with confidence rather than swimming in worry or fear.

Once you’ve been counseled by us who know rough seas, and you’ve learned the strokes and techniques for navigating the ocean waves, currents, sea creatures and all, you can enjoy the ocean’s beauty and the fun of swimming along.  We’ve been helping people swim the sea of life for 29 years.  Come have a dip in our pool!

Reflecting on my law career, I realize I’ve never held a law job where the first day did not involve moving furniture.  Every time, it came as a sweaty surprise, and I was usually ill-prepared for it.  One time I even split my suit pants crouching down to pick up a desk.  Moving itself is rarely, if ever, fun.  The destination or the goal of the move is usually what motivates us.  Downsizing, upsizing, retiring, escaping, new job, new family, new school – so many reasons to make it through the move.  

My office is moving this fall.  We are only moving ten yards – same building on Beach & Warner, same floor, from suite 101 to suite 150 – but it’s still a lot of work.  At least this time, I won’t wear a suit the day we move. 

Moving is often connected with a real estate transaction.  The moving person is either buying, selling, or refinancing some real estate.  Here in California, people who own property need to create a trust to avoid the time and expense of probate.  However, if the real estate title is not properly coordinated with that trust, some or all of the benefit of the estate plan can be lost!  We strongly recommend our clients call us right away when they refinance or purchase property so we can examine the real estate transaction In light of their estate plan.

Moving to another state – as many Californians are choosing to do – can also greatly impact an estate plan.  Each state has different estate planning rules.  Some are very similar to California’s and some are very different.  Thanks to the US Constitution, estate planning documents (including trusts) that are created and signed in California ARE valid in all other states; however, it is always a good idea to have those California documents reviewed when you settle permanently in another state.  The issue is that the California documents may have to be administered in that new state under the rules of California law, so it is often wise to restate the documents in the new jurisdiction.  

The same principle applies for people choosing to move to California.  Everyone who does so should have their estate plan reviewed!  Many states don’t have the same large cost involved with passing real estate through a court probate, so many newcomers to California with only a will (no trust) have no idea the time, expense and headache even a simple probate action here can be.  For those of you who are new, let me say, Welcome!  And then say, if you have minor children, any real estate, or other assets that exceed $186,000 – you need to come talk about an estate plan with a trust!

Finally, moving assumes change.  All of us are moving into the future each day.  As you move to meet the future, you will see other changes in your situation and circumstance.  When those changes happen, remember your estate plan and your relationship with your estate planning attorney should be designed to accommodate those changes.  In my office, we don’t always know what has changed in our clients’ circumstances until they tell us.  Your successor trustees may have died, moved away, or aged out of the role.  Your beneficiaries may have grown in maturity so they can receive an inheritance right away.  Periodic review of your estate plan helps identify when changes like these have occurred that could make an update necessary. 

Don’t let the passage of time and all the moves that happen therein get ahead of you!   Although we are moving one suite over, our office is still right here to help you move into the future – wherever that takes you.

What do cars have to do with probate lawyering and estate plans?  As the old saying goes:  the quality of something is only as good as its parts.  This analogy could apply to an overall financial plan – income, savings, retirement, insurance, budget (does anyone budget anymore?), and a comprehensive estate plan –  all important elements of a financial picture that “runs well.”  Diving even deeper, an estate plan itself must have well-crafted elements that are properly interrelated so the plan will work, and work well.

The foundation for most estate plans in California, the chassis, if you will, must be the versatile revocable living trust.  This independent structure allows the trusted “driver” to control the assets placed inside it. The trust is supported by a will, the engine of the estate plan, which must be carefully designed to work with the trust. (Note that in CA, a will alone is not sufficient in most cases.)  To manage a situation where the client becomes incapacitated, we add a well-drafted durable power of attorney for finance as the gas pedal and brakes, determining how and when to move the plan forward as needed.

By California law, a separate suite of documents must be created to handle health care decisions. This “steering wheel” has a direct effect to speak for a client who cannot speak for themselves, but also to enable the individuals named in the other documents to fulfill their particular functions.

None of this works without the “gasoline.”  A client’s assets must be funded or placed into the trust to make the estate plan run – to enable all the good work that went into the documents apply to the client’s individual situation. 

Finally, like special options on a car, high performance engines or superlatively luxurious interiors  such as irrevocable life insurance trusts, disclaimer, or ‘credit shelter’ trusts can be added to protect a client from the expensive effects of estate taxes or the attack of creditors on the beneficiaries. 

A failure of any of these individual parts could lead to the car running roughly or breaking down altogether and requiring expensive repairs.  But when a machine is designed so that all the parts work together in harmony, driving is a pleasure and oh!  the places you can go.  

To this end, our office is always ready and willing to review your current estate plan for a $250 fee that is applied to any recommended updates.  If we can be of service, we look forward to your call.

By Kelli M. Larson

No one wants to think about dying or having to deal with legal issues associated with the loss of a loved one. Fortunately, the Law Offices of Mark E. Lewis & Associates is here to help. With more than 20 years of estate planning experience, they are able to bring competence, care, consistency, and commitment to the handling of client needs. “We engineer documents that make it as easy as possible to transfer wealth and avoid court in the event of something bad like death or incapacity,” Mr. Lewis explains. In that situation, “We also help those who are named to be in authority (executors, trustees, agents under power of attorney) go through the process, whether that involves court or not.”

Your Document Prep Experts

What kind of documents do people need? Lewis says that estate plans consist of a living trust, will, powers of attorney for finances and health care, and other documents. While his practice handles all legal matters related to a client’s estate, estate planning and document drafting are what he enjoys working on most. “There are rules that need to be followed to properly settle anyone’s estate: the documents have to be implemented and the responsibilities carried out properly,” he explains. “This gets the wealth transferred as the decedent wanted, and as efficiently and cost effectively as possible.”

Lewis says that it’s a mistake not to have attorney provide oversight because “the person doing the distribution could be violating rules they aren’t aware of and not closing the door on personal liability in a timely matter.” Consequently, they could wind up with a contested situation or a costly lawsuit down the road.

A big part of the practice is setting up living trusts, which Lewis suggests that Californians need. He says that there are three reasons to have one:

1. If you own any real estate;
2. If the total of your estate (not in retirement accounts or whole life insurance) adds up to more than the threshold of $166,000; and 
3. If you have a minor child, especially one named as a life insurance or retirement account beneficiary.

Having seen what happens when families don’t plan ahead, Lewis says that he would love to see couples with new babies and retirement life insurance set up trusts for them right away. “If you don’t, the court will poorly invest the money and give it to them at the age of 18 with no oversight or control.”

He Knows the Numbers

A University of Southern California alumnus, Lewis’ undergraduate degree in finance (with an emphasis on real estate finance) also plays into the practice because many trusts control real estate. “It’s vital to be aware of the debt, property taxes, and associated rules,” he explains. “Also, when we deal with brokers and salespeople after a death, we need to make sure that we thoroughly look over all factors of the sale: the listing agreement, sales agreement, escrow papers, etc.” The Law Office of Mark E. Lewis handles transferring the real estate into trusts on the front end upon being hired to do a client’s planning documents.

Having an estate plan also avoids or minimizes probate fees and administrative costs, to the tune of tens of thousands of dollars. Because many people fail to create one, Lewis is also available to personally shepherd clients through the probate process from his offices in Huntington Beach, Corona, Irvine, San Diego, Torrance, and West Covina.

The Dream Team

The Surf City location serves as the corporate office for the practice, which also consists of associates Karen Kirshon and Alex Bogdan, David Pawloswki (of counsel, who handles contested matters), a paralegal, other legal assistants and staff, and office manager extraordinaire, Kristin O’Brien. The team prides themselves on being thorough — four sets of eyes review prepared documents prior to client delivery. 

“From the moment people call and talk to the front office staff, they are treated with respect, kindness, and professionalism,” Lewis maintains. “They love how caring and concerned we are — most of our business comes from referrals.”

To make the Law Offices of Mark E. Lewis & Associates your family resource, call 714-847-8586 or www.marklewislaw.com. Located in Ocean Plaza at 17011 Beach Blvd., Ste. 101 (in Ocean Plaza).

This past week, two separate old friends and clients have had to put their fathers (also both clients) on Hospice care.  Both men were physically and mentally robust for their entire lives.  Now they are suffering from dementia in addition to their terminal illnesses, and their physical pain and mental confusion are making it difficult for family and caregivers to serve.  

The family members are united in their care for these patriarchs, but there is discussion among the families about the ‘who, how, and where’ of their individual care plans.  After they reached out to my office for help, it set me thinking about selecting health care decision-makers and the critical consequences that flow from that choice.

So how do you choose the right person?  There are a few characteristics that prove to be helpful:

First, choose someone who can “spring into action” when they are needed.  This is likely someone local who can be available in case quick decisions must be made.  Second, pick someone who can digest complex information from your doctor and manage their own emotional distress over your situation to make clear decisions.  Third, choose someone assertive and firm enough to be your advocate in an over-burdened health care.  Lastly, select someone who knows you intimately enough to fill in the gaps the power of attorney document can’t cover – acting on your behalf in a way that would mirror what you would choose for yourself if you were able.  

The person in your life who meets the above criteria may not be the closest relative or most obvious choice.  I have a friend who chose her older brother rather than her adult children to serve as her primary health care decision-maker.  She is close to her children and trusts them, but she wanted a decision-maker who would work with them as someone more removed from the emotion of the circumstances.  As someone who has personally experienced removing life support from a parent, I can attest to needing strong people around me in making one of the most difficult choices I have ever made in my life.

Finally, make sure to review your choice of decision-makers often.  As life happens and people move, relationships change, or those close to us may face health challenges of their own, your best choice may be different over time.  In addition, make sure to develop a relationship with a dedicated estate planning attorney who you can call for advice and help when these situations arise.  It has been a privilege for me to be available to my friends in that capacity this past week.  

Our office has been serving our clients for the last 25 years when they need advice or a helping hand in the midst of an emergency or preparing for the future.  If you would like help reviewing your current decision-makers, we would be honored to work with you to make your best choices for this vital role.