Dear Len & Rosie: My Dad is 90 years old and in excellent health except for losing his eyesight to macular degeneration. He can no longer live alone. He has approximately $300,000 in the bank. He has three children, and I understand that he can give us each $13,000 per year. Are there any circumstances that he can give us more? The reason for this question is the rule about not giving gifts over $13,000 for a three-year period before you enter a nursing home. – Sandy

Dear Sandy: You and many others have confused the gifting rules for Medi-Cal eligibility with the gifting rules for Federal Gift and Estate Tax. Under gift and estate tax law, your father may give up to $13,000 each year to as many people as he wishes, without having to report his gifts to the IRS on a gift tax return (IRS Form 709). But federal gift tax law has absolutely nothing to do with Medi-Cal. Any gifts that your father may make will be subject to both the $13,000 gift tax exclusion and Medi-Cal’s transfer penalty rules.

If your father ever needs nursing home care and applies for Medi-Cal, he will have to disclose every gift he made in the thirty months prior to applying for benefits. Each gift triggers a transfer penalty period during which your father cannot receive Medi-Cal. This does not mean that your father cannot get Medi-Cal benefits for thirty months after he makes a gift. The transfer penalties are applied retroactively to when the gifts were made. If your father makes gifts and waits out the transfer penalty periods before applying for Medi-Cal, he’ll be eligible.

If all of this sounds complicated, it’s because it is. Part of Medi-Cal planning is devising a gifting strategy to minimize the transfer penalties, and it is appropriate to start Medi-Cal planning when a person such as your father is in a nursing home, or suffers from an ailment that is likely to put him in a nursing home someday.

To make it even more complicated, federal law has changed. Once California implements the new rules, you’ll have to disclose gifts made in the five years prior to filing the Medi-Cal application, and Medi-Cal transfer penalties will no longer be applied retroactively. The bottom line: Don’t do this at home. It’s also vitally important to remember that while your father can give his money away, you can’t, at least without his permission. If you are going to transfer money out of your father’s name on his behalf, you had better have a durable general power of attorney that specifically authorizes you to do this gifting. Otherwise you’re stealing your father’s money.

But you should also consider the unlikely prospects that your father will ever need nursing home care. It’s certainly a possibility, but absent some other disability, a nursing home is not usually an appropriate care environment for the elderly blind. However, if your father considers the risk of spending his money on nursing home care unacceptable, he should consult with an elder law attorney and start Medi-Cal planning now, so he’ll be eligible for Medi-Cal, or at least be closer to being eligible, if he needs nursing home care in the future. – Len & Rosie

Dear Len & Rosie: Mother passed away two months ago. We just found the deed to the house. All five names were on the deed – mom and the four kids. When we sell the house do we have to pay capitol gains tax? If so, how much? – Judy

Dear Judy: Will you have to pay capital gains tax? Probably not. Even though you and the other three children were named on the deed, you never knew that until after your mother’s death. She retained the full use and enjoyment of the property and paid all the bills out of her own pocket. The IRS considers this to be a grantor retained interest causing the home to be subject to Federal Estate Tax as a result of your mother’s death. There won’t be any Federal Estate Tax due unless your mother was worth more than $5,000,000 upon her death.

The cost basis should now be the date-of-death value of the property. That’s the amount of money you can sell the home for without having to pay tax. You and your siblings will have to pay 15 percent federal capital gains tax and California income tax on what you get above that amount. Please note that this income tax would be paid in California even for siblings who live in other states. An out-of-state sibling would have to file a California Non-Resident Income Tax Return, form 540-NR.

But we’re jumping the gun here. You can’t sell the home until your mother’s name is removed from the deed. Examine the deed. Does it name all five of you as “joint tenants” or “joint tenants with right of survivorship?” If so, then the home was held in joint tenancy and will not be subject to probate. To remove your mother’s name from the deed to the home, you will have to record an affidavit of death of joint tenant together with your mother’s death certificate. You will also have to submit property tax paperwork to the County Assessor so the home won’t be reassessed under Proposition 13.

Your mother did what’s called “poor man’s estate planning.” Instead of creating a trust to avoid probate, she put the names of her four children on the home. It may work out alright, but that depends on the details. If the deed to your mother’s home is not a joint tenancy, then it’s a “tenancy in common.” If this is the case then your mother’s one-fifth share of the home will be subject to probate administration and only that one-fifth share gets a new cost basis. If her share is worth under $150,000, there won’t have to be a full probate, but a Probate Referee appraisal and a court petition will still be necessary.

There are other potential drawbacks to what your mother did. If she was on Medi-Cal benefits then her one-fifth interest in the home is subject to a Medi-Cal estate recovery claim, whether or not the home was titled in joint tenancy. Also, the home was subject to judgment liens and creditor claims of all four children from the date your mother recorded her deed. If one of the children is disabled then his or her eligibility for public benefits may be at risk due to this inheritance. Those are just a few examples. Your mother may have inadvertently done things right – or at least right enough, but it’s best to create an actual estate plan with an estate planning attorney and not to rely on chance. – Len & Rosie

Now I am wondering if my brother has exceeded his authority. He borrowed almost all of her life savings, over $32,000, to keep his home out of foreclosure.

Stephen signed a note for the money and agreed to pay interest at 10 percent per year. Mom has since reduced the interest to 7 percent. The problem is that she does not even know how much money Stephen pays each month, because he handles all of her finances. Mom hasn’t seen a checkbook or account statement since 1989.

I don’t know what I can do. Mom hasn’t got Alzheimer’s or anything and she seems happy with Stephen handling her money. I don’t know if I should sue or just leave it alone. – Edward

Dear Edward:  Stephen, as attorney-in-fact, has a very strong legally imposed fiduciary duty to your mother. Unless the power of attorney your mother signed specifically authorizes him to self-deal, he cannot loan himself your mother’s money. Of course, if your mother told him that it was OK to borrow the money, than it is perfectly legal.

An interest rate of 10 percent, or even 7 percent, is downright generous these days. Your mother is making more interest from Stephen than if she kept her money in a certificate of deposit, assuming that Stephen is making the payments like he promised. The fact that he asked your mother to reduce the interest rate implies that he is making payments. If he’s lying about it, why would he bother renegotiating the loan?

You said that your mother seems happy with the way that Stephen is handling things and that she even agreed to lower the interest on the money he borrowed. This is a free country and a competent person can do anything she wants to, even if it is not in her best interests. Still, you should talk to your mother. Make her aware of what you think is going on, and have her ask Stephen to give her the account statements showing his payments and what he’s doing with her money.

Then step back to see what happens. Hopefully everything is above board. If it isn’t, or if Stephen refuses to show your mother the books, then she should fire him. As long as your mother is still in possession of her faculties, she can revoke the power of attorney at any time. Should your mother sue Stephen if he isn’t making payments? Most parents don’t want to see their children get in trouble, no matter what they do. But if your mother is willing to go the distance, she should consult with an attorney and consider suing her son for a breach of fiduciary duty.

– Len & Rosie

Dear Cheryl: This is one of those times where you are probably better off keeping quiet about this and not creating a trust. We say this because if the title to the home remains as it is today and your husband dies before you, you will own the entire home.  A joint tenancy is a “last person standing” deed. When a joint tenant dies, the home is automatically owned by the surviving joint tenants.

Upon your husband’s death, all you will need to do to perfect title in your name alone is to record his Certificate of Death with an Affidavit of Death of Joint Tenant. You will also have to submit a Preliminary Change of Ownership Report to the county assessor to prevent a reassessment that could otherwise increase your property taxes. Joint tenancy property passes free of probate administration. Even if your husband had a will leaving his entire estate to his children instead of you, the home will be yours upon his death.

But you have to keep an eye out. It is possible for joint tenants to “sever” a joint tenancy by recording a deed transferring their joint tenancy interests to themselves as tenants in common. Your husband could do this himself without your permission. If he does so, then his half of the home would be subject to probate upon his death and could pass to his children.

The good news is that your husband cannot sign a deed severing the joint tenancy and hand it over to his children for them to record after his death. Under California Civil Code section 683.2, a deed severing a joint tenancy has to be recorded before death, unless it was signed within three days of the date of death and recorded no later than seven days after the death.

If your husband does sever the joint tenancy, then his half will pass by his will if he has one. If he does not, then it gets complicated. Depending on how much money each of you put into the home, and when you did it, part of his share of the home may be community property passing to you, and part will be your husband’s separate property which will pass one-third to you and two-thirds among his children by intestate succession (the law about who gets what when someone dies without a will).

The smart thing to do is to create a trust that will take into account the desires of both of you. You and your husband could enter into an agreement by which you leave everything to one another on the first death, and when the survivor dies, half goes to your family and half goes to his. This way, you could have the security of a home to live in for the rest of your life, and your husband can rest knowing that eventually his children will get their just inheritance. – Len & Rosie

I want to protect my daughter and grandchildren as my husband’s son is not close to them. My husband has a sizable amount of stock in his own name, and he and his son share a $50,000 account inherited from one of their relatives. I’m worried that won’t be enough to my husband’s son. How can I make sure my daughter will receive her share of what I have accumulated if his son is put in charge of a trust? Should we even get a trust? – Dorothy

Dear Dorothy:  Whenever spouses talk to us about estate planning, we talk to them about potential conflicts of interest, because there may be things about which they will disagree. When clients have children from previous relationships, the conflict is often real, not just potential, so it’s important to us, as lawyers, not to get caught in the middle.

Lucky for you, your husband did not sign your letter. That means we get to take your side. We are providing you and you alone with advice and we don’t have to be concerned with your husband’s interests. So, our considered legal advice is that the last thing that you want to do is to make a trust that will put your ne’er-do-well step-son in charge of all of your property when you die. The primary qualifications to be trustee is that the person has to be both honest and smart enough to seek professional help when it’s needed. You do not trust your step-son. That means he’s unqualified to be your trustee. It’s that simple.

If you die with a will and step-son was your executor, it might turn out alright, because your estate would go through probate in court. The court would look over your step-son’s shoulder to make sure he is doing the job right. But trusts do not go through probate. Your step-son could simply take all of your property and give it to himself.

If that were to happen, your daughter could sue him, and she would probably win. However, the attorney’s fees she would have to pay, the time she would lose, and the emotional stress of a court battle would cost far more than probate.

You need a trustee you can trust, or you need a will. You also need to consider putting some of your assets in pay-on-death accounts for your daughter. You should consult with an estate planning attorney by yourself, without your husband, to discuss how your daughter can get her fair share without having to fight for it in court. – Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, 3-4 PM, on KKSF Newstalk 910 AM.

Dear Douglas:  Everything you and your wife acquire during your marriage as a result of your labor is community property. But you did not earn your inheritance. Everything you inherit is your separate property, and will remain separate property unless you do something to transmute it into community property. California law requires an express transmutation in a writing that clearly states you are converting your separate property to the community property of you and your wife.

Most well-drafted trust documents include a provision that says putting property into the trust, or taking it out of the trust, will not change its characterization as either separate or community property. Because of this, your inheritance should not be transmuted into community property if you put it into your revocable trust, even if your wife is a trustee.

But that’s not playing it safe. Your trust could say otherwise, and we have not had the opportunity to review your trust document. If you sign a deed putting your half of the apartment building into your joint trust and you get divorced later, your wife can make things very difficult for you. Remember the old saying that possession is nine-tenths of the law? If the two of you get divorced, she may refuse to sign a deed putting the property back into your name, even though it belongs to you alone. It would make your divorce more expensive than it would be otherwise if you have to fight her over this.

It’s a silly rule, but the best way to keep your separate property separate is to keep it separate.  The cautious thing for you to do would be to keep the property out of your wife’s name, even as a trustee. Create a new revocable trust just for your separate property. Keep it separate by never, ever transferring anything into your separate property trust that can be traced to any community property source. Name the children as your successor trustees instead of your wife.

On the other hand, you and your wife have been married for over three decades, and you can be fairly sure that she hasn’t stuck with you this long just to cash in on your inheritance. – Len & Rosie

Dear Connie: You can give away your stuff, but you can’t give away your children. It’s important for you and your husband to make new wills to provide for your new daughter. But it’s just as important to understand that while you can make almost any provision for how your home and life savings are dealt with after you die, you can only suggest guardians to raise your daughter in your stead. Guardians are nominated by parents, just as actors are nominated for the Oscars. A parent’s nominee doesn’t always win, because guardians are appointed by judges, not the parents.

Why is this so? Parents sometimes make mistakes, or time may pass after a will is made and the trusted friend you picked as guardian could turn out to be a bad person. No judge in California is going to appoint a death row inmate as your child’s guardian, no matter what you want. In guardianship proceedings, the judge will take your wishes into account but must ultimately pick the guardian based on what he or she perceives to be best interests of the minor child. Fortunately, it usually takes a pretty good reason to convince a judge to ignore your stated wishes. But you have to state your wishes. That’s why you and your husband need to make wills setting forth your choice of guardians. And if there’s someone in particular you don’t want as guardian, such as your mother-in-law, your wills should say that as well.

Your estate plan should also be designed to protect your daughter from herself. The last thing you should want is for your bright and beautiful daughter to get her inheritance in one lump sum on her 18th birthday. She’ll be broke by the time she’s 20. It would be worse if you had a son – he’ll spend it all on a car and not bother buying auto insurance. We have seen this happen.

Whether it’s just wills, or wills and a revocable trust, your estate plan should include a sprinkling trust for your daughter. A trustee that you pick will be in charge of your daughter’s inheritance, spending money on her for whatever she needs until she’s old enough to be trusted with the money. Most parents pick age 25, because by that age their child is out of college and is learning how hard it is to save money. And best of all, even if your mother-in-law somehow gets appointed as guardian, she won’t be in charge of your daughter’s inheritance.

You and your husband should update your estate plan, but if all you want is a quick guardianship nomination, you can download the California Statutory Will form, for free, on the State Bar’s web page calbar.ca.gov. Click on the link to the left labeled “Public Services.”

– Len & Rosie

Dear Nancy: The default rule is that everything a husband and wife acquires during their marriage is community property. Fortunately, a gift or inheritance is separate property. But that’s only half the battle. Your brother has to be careful to keep his separate property separate. He should keep the money in accounts that do not have his wife’s name on title.

Your brother may even want to put the money into accounts at completely different financial institutions from where he and his wife keep their money today. With the popularity of online banking, it would be easy for your brother’s wife to access his separate property accounts through the Internet if they have already arranged for online access to their other accounts.

Also, your brother must never, ever, ever, put any money into his separate property accounts that comes from a community property source, such as his paycheck. That’s called commingling and can result in some of your brother’s pre-inheritance gift being counted as community property if he and his wife divorce. If he commingles community and separate property within the same account, the burden of proof would be on your brother to show what portion of the account should be his and his alone.

You may have to protect your brother from himself. He may not be strong enough to withstand his wife. He could share his gift with his wife despite your mother’s wishes. Your mother can prevent this from happening by putting your brother’s gift into a dynasty trust. You or another family member can be trustee to prevent your brother from giving the money to his wife now, and the trust can direct that whatever is left over when your brother dies passes to his children instead of to his wife.

If your mother gives away more than $13,000 to any one person this year, she must file a gift tax return with her income tax returns next year. But this year your mother’s unified credit protects the first $5,000,000 of her assets from gift and estate tax. That means she will not have to pay any gift tax to the IRS.

But your mother should be concerned about Medi-Cal. She may be giving her money away because she is worried that she will wind up in a nursing home and have to spend her life savings on her care. If so, she should be very cautious. Giving away her savings in a lump sum gift would make her ineligible for Medi-Cal nursing home benefits for almost two years. If your mother is trying to qualify herself for Medi-Cal benefits if she needs nursing home care in the future, she should first talk to an Elder Law attorney who practices Medi-Cal planning. – Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, 3-4 PM, on KKSF Newstalk 910 AM.

I know that is probably a naive plan, but we are with the dreaded majority that have yet to contact a lawyer to complete the process. Am I at least correct on the probate part for those items listed? – Annie

Dear Annie:  You have made a good start, but you are really only halfway there. This plan of yours will avoid probate when the first of you dies, but it won’t avoid probate upon the death of the surviving spouse. The problem is your house. It will avoid probate on the first death, because it’s titled as community property with right of survivorship. And your retirement accounts and other investments will avoid probate if you have designated beneficiaries for each account.

But your house will be subject to probate if it’s not in a trust and your childrens’ names are not on the deed as joint tenants or remainder-persons if you give them the home and keep a life estate for yourself. What if your daughter gets sued? There could be a judgment lien recorded against your home. What if you want sell your home someday? Your son could refuse to sign the deed. So forget about putting your children on the deed to your home, ever, unless there’s no other alternative and you do so with the advice of an attorney.

Ideally, you and your husband should create a revocable trust. If you don’t do this, the surviving spouse could create a trust after the first death. But it’s best to do it now, because avoiding probate isn’t all there is to estate planning. You should have durable general powers of attorney and advance health care directives so you and your husband, or your children, can make important legal and financial decisions for one another if either of you become incapacitated.

You should also review the beneficiary designations of your retirement accounts. You said you have taken care of this already. But have you really? Does each account name alternate beneficiaries? Do you have copies of signed beneficiary designation forms in case your IRA custodian or insurance company loses the paperwork? Be very careful with your retirement account beneficiary designations, because if you made a mistake, there won’t just be a probate, there will be a whole lot of income tax due on your retirement savings when you die. Your children could lose the ability to stretch out retirement account distributions (and the income tax liability) over their own lives.

So, you’ve made a good start. Sort of. But you’re not there yet. In a pinch your plan will work, assuming your wills are valid and actually do what you want them to do, but if you really want to be sure, you need to consult with an attorney and create a proper estate plan. – Len & Rosie

Dear Mark: You do not need to concern yourself with the original deed to your mother’s home, so long as the deed was recorded by the County Recorder. Title companies handling escrow for home sales and loans rely solely on recorded deeds. The only reason you would need to get the original deed out of your mother’s safe deposit box is if it has not yet been recorded.

You ought to be able to get into the safe deposit box, if necessary, using your mother’s durable general power of attorney if the box is titled in her name alone. However, many banks do not honor perfectly valid durable general powers of attorney other than their own bank signature forms. As a general rule, if you want your children or other trusted family members or loved ones to have access to your bank accounts, you should take them to your bank and add them to your account signature cards. It’s easier than fighting a bank manager worried more about getting laid off than the needs of his or her clients.

If the safe deposit box is in your mother’s name as trustee of her trust, then you have to follow the procedures of the trust to remove your mother as trustee as a result of her incapacity. Most trusts require one or two physicians to certify that your mother is no longer able of making her own decisions or protecting herself from undue influence.

That’s not all there is to it. To borrow against your mother’s home, you will probably need her original durable general power of attorney, which will have to be recorded as part of the loan escrow. Also, if her home is held within a trust, she will have to be removed as trustee before you, as successor trustee, may borrow against the home or transfer the home out of the trust so that you can borrow against the home using your mother’s power of attorney.

Be flexible. Your mother may or may not qualify for a reverse mortgage, and if she can’t get one, she may not qualify for a traditional loan or home equity line of credit on her own credit record. It may be necessary to put a small percentage of the property into the names of her children to qualify for the loan. Work with your family to find out from the lender what it needs for your mother to qualify for the loan. Then, if your path is not clear, review the situation with an elder law attorney. – Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, 3-4 PM, on KKSF Newstalk 910 AM.