Estate Planning In Light of the Passage of the TCJA
Since the passage of the Tax Cuts and Jobs Act (TCJA), we have received several inquiries regarding the necessity of an estate plan. With the TCJA, Congress increased the Estate and Gift Tax exemption to $11,200,000 for individuals, and $22,400,000 for married couples (double the amount for individuals). As a result, is a Trust still necessary? Answering this question will be the focal point of this blog post.
For readers who can't contain their excitement, the short answer is yes! However, before proceeding, it is important to note that even prior to the passage of the TCJA, many individuals and families were not subject to the Estate and Gift Tax. Prior to the TCJA, individuals were able to exclude up to $5,490,000 in 2017, and married couples $10,980,000. Most Americans were far from these exemption limits.
Retain Control Over Who Get’s What, and How Much
For the vast majority of Americans, the primary motivation for an estate plan is not the avoidance of taxation, but rather, avoidance of probate. In the State of California, if you die without a Will, Trust, or other distribution method, the State will direct the distribution of your entire estate pursuant to the laws of intestate succession.
Contrary to conventional wisdom, the State does not automatically take your property. The laws of intestate succession (which are essentially default rules), will distribute your assets according to a priority established by the State. However, these default rules cause two significant problems.
First, your property may be distributed to people you do not want. The default rules direct who receives your property if you pass away without a Will or Trust. As a result, you lose control of who gets your property and the State will decide for you. Second, the default rules determine the amount that passes to each person. Therefore, even if the property passes to someone you prefer, it may not be the amount you desire.
Executing a Will or Trust avoids these (and many other) complications. You, the individual, retain control over the final disposition of your assets and can ensure that (1) your property goes to the person or entity you desire and (2) direct the amount that passes to each beneficiary.
Avoid Costly Probate
Many families with modest estates question the necessity of an estate plan. We are often asked, “I only have one house, two cars, jewelry, and household furnishings. Why do I need an estate plan?”
First, as discussed above, an estate plan allows you to retain control over who gets your assets, and in what amount. Without directing the disposition of your assets, the State of California will make that determination for you. You worked tirelessly throughout your life and the State of California should not determine who receives your assets after you pass away.
Second, without a trust or some other distribution method (such as joint tenancy), your estate will be placed into probate proceedings. Probate refers generally to the process by which the probate court disposes of assets upon your death. Absent some other distribution method, failing to place property into a Trust will generally cause your estate to be placed in probate proceedings. Even a Will requires probate proceedings. For this reason, creating a trust is of paramount importance.
So what is the problem with probate? The primary concern, in addition to not retaining control over the disposition of your assets, is the astronomical cost. Probate proceedings often swallow the value of most assets. After the dust settles, not only will the probate process have taken 1-2 years (depending on the size of your estate), but the amount that passes through to survivors will be far less than the amount that would have passed with a Trust.
Laws Are Constantly Changing
Partisanship on Capitol Hill is arguably at its apex. At no time in history have the parties disagreed so greatly on matters of critical importance. Compromise is a foreign language, and leaders of both parties are fixated on obtaining power only to reverse and dismantle what the previous power holders did. In fact, shortly after passage of the TCJA, Democratic leadership had already turned their attention to the next election and overtly promised to repeal much of the TCJA.
Therefore, assuming you are in the small group of Americans subject to the Estate and Gift Tax, having a carefully drafted estate plan should still be a priority. Relying on the increased exemption limit is not recommended since (1) it may be repealed when, and if, the Democrats obtain power and (2) the increased exemption expires at the end of 2025.
Medi-Cal Estate Recovery
Prior to January 1, 2017, Medi-Cal Estate Recovery had the right to recover Medi-Cal benefits paid to a decedent during his/her life. This included benefits paid for both medical and long-term care costs. Medi-Cal recovered benefits paid by collecting from the decedents estate. This included property held in joint tenancy, as well as property titled solely in the decedents name.
This Medi-Cal recovery mechanism forced survivors, most often surviving spouses, to sell the family home and/or other assets to pay for Medi-Cal benefits. Effective January 1, 2017, however, Medi-Cal reimbursement is limited to assets which pass by way of the deceased Medi-Cal recipients probate estate. Property placed into a valid living trust, whether revocable or not, is not within a decedents probate estate.
The significance of this law cannot be overstated. By creating and transferring assets into a living trust, a decedents estate will generally avoid probate, and thus, will not be within the reach of Med-Cal Estate Recovery. A living trust essentially shields your assets from recovery by Medi-Cal and preserves your estate for those nearest and dearest to your heart.
To bring this all together, the primary factor for having a Will and Trust for most Americans continues to be the avoidance of probate and retention of power over who gets your assets, and in what amount. Medi-Cal only adds to the necessity of an estate plan. Although the TCJA significantly increased the exemption amount, for the vast majority of Americans, it is not a factor that should weigh against having an estate plan.
Finally, note that this post is a limited discussion of why having an estate plan is critical for every individual and family, irrespective of age. Going through each factor weighing in favor of drafting an estate plan would be a futile task. However, this discussion sheds light on some of the most important motivations individuals have for creating an estate plan, and makes clear that these motivations persist in the post-TCJA era.
How We Can Help You
The Wills and Trusts attorneys at Randhawa Hundal LLP have assisted many families in the greater Sacramento and Roseville region navigate the intricacies of estate planning. You and your loved ones should have the peace of mind that everything, including themselves, will be provided for. Whether you need to care for a child with a disability, ensure that children from a different marriage receive their fair share, or have any other concern to address, our Estate Planning Attorney’s will assist you. Call us today for a FREE CONSULTATION.
When to Hire a Tax Attorney Tax Attorney vs. Enrolled Agent vs. CPA We are often asked: what is the difference between an Enrolled Agent, CPA, and Tax Attorney? Why hire one over the other? Below, we have outlined some of the most important and basic differences between these professionals. Enrolled Agents (EA) An Enrolled…
Most landlords have faced this issue at some point in their career. The written lease agreement will name the individuals who both the landlord and tenant have agreed may occupy the premises. Somewhere along the way, however, an additional person moves into the premises who is not named in the lease.
This may present significant problems when evicting a tenant. Because the unnamed occupant is not a party to the lease agreement, they are not a party to the unlawful detainer case. Thus, even if the landlord obtains a favorable judgment, the unnamed occupant may object to its enforcement since the occupant is not named in the judgment.
This often causes significant delays to the eviction process. The landlords primary goal is to obtain possession of real property as quickly and efficiently as possible. However, when an unnamed occupant objects, weeks may be added to the overall process.
This result may be avoided by filing a prejudgment claim of right to possession at the time the unlawful detainer action is filed in Superior Court. This form is served with the Summons and Complaint, and informs any unnamed occupants of their right to insert themselves into the unlawful detainer proceeding. By giving unnamed occupants this right, it forces them to either insert themselves or lose the right to later object to an eviction.
Serving the prejudgment claim of right to possession is of paramount importance and can lead to significant delays if it is not properly and timely served. To ensure that the landlord obtains possession as soon as possible, Randhawa | Hundal LLP’s Eviction Attorneys make it a practice to serve the document even if there is no reason to believe the presence of an unnamed occupant.
For more information on the eviction of tenants, please contact Randhawa | Hundal LLP and speak with their experienced Eviction Attorneys.
Evicting a Tenant for Non-Payment of Rent
Evicting a tenant can be a stressful process. The landlord must comply with several legally required procedures, most of which are hyper technical and detail oriented. Failing to comply with each of the specific requirements can, and often will, result in an adverse ruling. This blog post will briefly discuss the overall procedures landlords must employ to legally, and properly, evict a tenant for failing to pay rent.
Step 1: Notice
To evict a tenant for failing to pay rent, the landlord must begin with the service of a 3-day notice to pay rent or quit. Under California Code of Civil Procedure § 1162, the landlord must include the following items in a 3-day notice to pay rent or quit:
1. Name, address, and telephone number of the person to whom rent is to be paid.
2. If payment may be made in person, the days and hours that the person can receive rent payment. If personal deliveries cannot be accepted at that address, the notice must state that rent may be paid by mail, to the owner, at the name and address stated in the three-day notice. The notice may, as an alternative, state the name, street address and account number of the bank or financial institution where rent may be paid.
3. The amount overdue must be accurately stated, and can only include overdue “rent.” Late charges are not considered “rent.”
4. The notice must be stated in the alternative. It must inform the tenant of the option to either pay the outstanding rent and remain in possession of the premises, or vacate the premises.
5. The notice must specifically itemize the amount of rent overdue for each specific month.
6. The notice must state the name(s) of the tenant(s) you are seeking to evict and the address of the rental property.
California Law provides significant legal protections for tenants. It is for this reason that many of the procedures required to evict a tenant are highly technical in nature. For example, if one of the required facts stated above is not mentioned in the 3-day notice to pay rent or quit, the tenant may file a motion to dismiss for improper notice.
Thus, even if a case is filed, it may be dismissed if the requirements mentioned above are missing from the notice. This results in wasted filing fees, service of process fees, and requires the landlord to start the proceeding over, all from scratch.
Step 2: Serve the Notice
Once the notice is created, it must be served on the tenant. Unlike a court filing, the 3-day notice to pay rent or quit can be served by the landlord and does not require service by a nonparty. It is critically important that the landlord waits for the 3-day period to expire before initiating unlawful detainer proceedings. Evicting a tenant can be delayed if the notice has any deficiencies.
Step 3: File Unlawful Detainer Action
If the 3-day period lapses without any action by the tenant, the landlord may file an unlawful detainer action in the Superior Court. The action must be filed in the county in which the real property is situated.
Filing an unlawful detainer action can be a complex process. It requires several required documents and an attorney should be consulted for this process.
Step 4: Serve the Summons and Complaint
Upon completing the necessary documents, the landlord must serve the tenant. There are three general methods of service:
1. Personal Service
2. Substituted Service
3. Post and Mail
The summons and complaint must be served by a nonparty. This most often requires the landlord to hire a process serving company. After service, it is important to file a proof of service with the court.
Step 5: Tenant has 5 days to respond
The tenant has five (5) days to respond to a summons and complaint. There are specific requirements for counting these days. An attorney should be consulted for this matter. If the tenant fails to respond within the five days, a default and default judgment may be obtained along with a writ of possession. This is the fastest and most efficient way to obtain possession of real property. However, it does not cover a judgment for overdue rent. Separate procedures must be utilized for that purpose.
Step 6: Prepare for Trial
If the tenant responds, the matter will be set for trial. It is critical that landlords prepare for trial. Obtain all documents, affidavits, and sworn statements. If witnesses can be reached, bring them to court. Judges highly favor in person testimony. Evicting a tenant and recovering money damages requires evidence to be submitted to the court.
Although this blog post addresses the steps required to evict a tenant for failing to pay rent, it is not exhaustive of what is legally required. This is a very general breakdown of what to expect, and covers the major topics. There are additional filings and documents that are critical to ensure the proper and speedy recovery of possession. Contact Randhawa | Hundal LLP to speak with the firms Eviction Attorneys regarding these other delicate matters.
This blog post discusses the unlawful detainer process. The discussion is abbreviated, and thus, should not be relied upon as controlling authority. There are many other steps involved in filing an unlawful detainer action. Therefore, the reader of this post is strongly encouraged to consult with Randhawa | Hundal LLP’s Eviction Attorneys.
What is an Unlawful Detainer?
An unlawful detainer is a legal term of art. When seeking to evict a tenant, a landlord files an unlawful detainer action in the Superior Court. This initiates the formal court process that must be used to evict a tenant for unlawful detainer.
Using the formal court process is of paramount importance. Under California law, a landlord is prohibited from using self-help procedures to evict a tenant. As such, a landlord cannot forcibly remove a tenant from possession of lawfully leased real property. Doing so exposes the landlord to civil liability and delays the eviction.
Steps for Evicting a Tenant
In most (but not all) circumstances, the landlord must serve a notice upon the tenant prior to filing an unlawful detainer action in court. The type of notice that must be served depends upon the reason for which the tenant is being evicted. The various types of notices differ in length and purpose. As a general matter, a landlord can serve either a 3-day, 30-day, or 60-day notice.
3-day notice to pay rent or quit:
If the tenant fails to pay rent, the landlord may serve the tenant with a 3-day notice to pay rent or quit. This notice must be stated in the alternative, and provides the tenant with two options. First, the tenant can pay the full amount of past due rent. Second, the tenant can choose, in the alternative, to forfeit the lease and vacate the premises.
The 3-day notice to pay rent or quit is hyper technical and must expressly state particular facts. Failure to comply with the requirements will adversely affect an unlawful detainer proceeding.
Thirty (30) day notices are utilized for several reasons. This discussion, however, will be limited to the primary reason: to terminate a periodic tenancy.
A periodic tenancy is a tenancy which automatically renews itself for successive periods. A month-to-month tenancy, for example, is a periodic tenancy since it renews every month until either party provides proper legal notice of termination.
To terminate a periodic tenancy, the landlord must serve a 30-day notice stating the intention not to renew the tenancy. However, it is important to bear in mind that if a tenant has been residing at the premises for more than one year, a 60-day notice (and not a 30-day notice) must be served to terminate a month-to-month tenancy.
A 60-day notice is not very common. Therefore, this blog post will not discuss the intricacies of such a notice. For purposes of this blog, it is sufficient to state that if a tenant has occupied the premises for more than one year, a 60-day (and not a 30-day) notice must be used to terminate a month-to-month tenancy.
When to Start Unlawful Detainer Proceedings
The landlord may commence unlawful detainer proceedings after legal notice is served and the notice period stated therein expires. For example, if a 3-day notice to pay rent or quit is served, an unlawful detainer action cannot be filed until after those 3-days expire. Similarly, if a 30-day notice is served, an unlawful detainer cannot be filed until the 30 days expire.
What Happens After Filing the Suit?
After the Unlawful Detainer is filed in court, the landlord must serve the tenant with the summons and complaint. To serve the summons and complaint, a nonparty must be used. This is most often carried out by hiring a process serving company. It is important to note that although a nonparty must be used to serve the summons and complaint, anyone (including the landlord) may serve the initial notice.
After the summons and complaint is served, the landlord must file a proof of service with the court. The tenant has 5 days to respond to the complaint. If the tenant fails to respond, the landlord may request a default and default judgment to regain possession of the premises. This concept will be discussed in a different blog post. If the tenant does respond, however, the matter will be set for trial. What happens at trial, and how one should prepare for it, is beyond the scope of this post.
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