- Annuities are the type of investment that sounds too good to be true: You invest a certain amount, you receive a tax-deferred payment from the annuity for a fixed number of years, and there is even a death benefit.
- Disadvantage: Although annuities are promoted as a good basic investment, there are some major differences between annuities and stocks or mutual funds. Annuities usually have a period, usually seven years, during which the annuity cannot be cashed in. In other words, you are stuck with the annuity for at least seven years. Not every annuity will hold its value. A “variable” annuity is actually a collection of mutual funds that may substantially lose their value in a bearish stock market. The tax advantages of annuities often are cancelled out by the high fees charged by the institution selling the annuity. Annuities can also mean additional income taxes for heirs of the person who buys the annuity because the annuity does not offer a “step-up” in basis when it is inherited, unlike securities and real property.
- What should you do if you want to buy an annuity? Shop around to find an independent financial advisor who doesn’t rely on commissions for his or her livelihood. Look for an advisor who charges an annual percentage of the funds that are being managed for you. If you decide to get an annuity, read all of the information that you are given. Do not rely on oral statements about the annuity from the salesman. Ask some hard questions about the annuity, including the “lock-in” period, and the chances of losing part of your investment, the commission and the internal expenses.
- What is community property? Married couples and domestic partners are subject to community property laws. Community property includes all assets acquired by spouses during marriage while domiciled in California, except for inheritances and gifts made to only one spouse. (Family Code section 760.) Separate property are assets acquired before marriage are separate property. Assets acquired through inheritances or gifts to only one spouse are separate property. (Family Code section 770.)
- Estate Planning complications due to community property: The courts tend to favor community property over separate property, and there are several ways that separate property can be determined to be all or part community property.
- California gives certain legal rights to same-sex partners and opposite-sex seniors who are not married. These couples are called registered domestic partners.
- Who can be registered domestic partners? (1) Both persons must have a common residence. (2) They must agree to be responsible for each other’s basic living expenses. (3) Neither person can be married or a member of another domestic partnership. (4) The two persons cannot be related to each other. (5) Both persons must be at least 18. â€¨6. Both persons must: (a) either be members of the same sex, or (b) over age 62 if they are of opposite genders. (7) A Declaration of Domestic Partnership must be filed with the California Secretary of State. In this document, each partner must consent to California court jurisdiction if the couple seeks a dissolution or nullity of the relationship.
Estate Planning Cons and Scams.
- Living Trust Seminars: Many seminars about living trusts are legitimate and provide useful information about estate planning. However, there are some that are blatant schemes to sell annuities
- Constitutional Trusts: These are often a series of trusts that might include trusts called a “business trust,” “equipment trust,” “residence trust,” and the “final trust.” The general idea is that income will shift from trust to trust, and IRS will never figure out where it went. The cost of these trusts is often much higher than an attorney would charge, and the companies that sell these trust arrangements warn their customers to never discuss the trust with their attorneys or accountants. These trusts are illegal. They violate federal or state tax laws, and they are not based on any legitimate court cases. IRS is constantly fighting these trusts and has been successful in convicting the sellers and buyers of these trusts of tax fraud.
- Trust and Will Kits from the Internet
- Legal Advice From Non-Lawyers
California Advance Health Care Directive
- The Advance Health Care Directive can be used to appoint a family member or friend to make health care decisions for you if you are physically or mentally unable to make those decisions yourself. Similar documents are also called Durable Powers of Attorney for Health Care.
- How does it work? The directive appoints an agent (and backup agents) who will carry out your wishes for health care. The directive also describes how much, or how little, medical care you want. The agent’s authority to take action is triggered only by a determination that the patient lacks mental capacity. Lack of capacity is determined by the patient’s primary physician and by the agent.
- Joint tenancy is a way of avoiding probate. When a joint tenant dies, his or her interest in the asset vests in the surviving joint tenant or joint tenants. If property is owned in joint tenancy, the surviving joint tenant will receive the deceased joint tenant’s interest in the property, regardless of what that person’s will or trust says about the property. An exception would be if both joint tenants died simultaneously, in which case their wills would control their interest in the asset.
- Advantages of joint tenancy: (1) Joint tenancy avoids probate. (2) Title to real property can be cleared after a death by filing an affidavit of death of joint tenant.
- Disadvantages of joint tenancy: (1) The step-up in basis is limited for married couples who own property in joint tenancy (2) The asset will usually be probated after the death of the surviving joint tenant unless it is put into another joint tenancy or a trust. (3) The tax planning advantages used in a living trust, such as the creation of an exemption trust, are not possible for joint tenancy property.
Tenancy in Common
- Tenancy in Common is the ownership of an asset by two or more persons, who own the asset in undivided interests that may be unequal. When a tenant in common dies, his or her share of the asset is subject to his or her will or trust, or, if there is no will or trust, to intestate succession. A tenancy in common may be subject to probate, but joint tenancies are not subject to probate. A tenancy in common may involve interests that are not equal. An interest in a tenancy in common may be given to others through a will or trust.
- Disadvantages of a tenancy in common: (1) the interest owned by the decedent may have to be probated. (2) If the shares are unequal, that fact must be stated in the title to the asset, or the ownership will be presumed under state law to be equal.