Military Estate Planning - The lawyer is preparing for court. Without an in-depth knowledge of inter-vivos trusts, many judge advocates are unwilling to advise military personnel of the potential pitfalls of a traditional will.
Military Legal Aid attorneys must either be properly trained and licensed to create inter-vivos trusts and advise estate planning clients on trusts, or get out of the estate planning business entirely.
Military Estate Planning
An inter-vivos trust is an important part of almost every estate plan because it can reduce taxes and fees. Military planning should not be left out. This is especially true in California, given its 32 military installations, more than any other state. There are approximately 280,000 active duty military personnel, as well as many reservists, retirees, dependents and others eligible for military legal aid. For every decedent (testator) in California with more than $166,250 in assets, a military testamentary instrument results in less money being bequeathed to the testator's beneficiaries because those assets require probate.
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All military testamentary instruments are wills (or testamentary trusts) because inter-vivos trusts are not permitted as part of the Marine Corps Legal Aid Program. 2 For estates that exceed certain values, which vary from state to state, the will guarantees the disclosure of the inherited property and ensures that the duties and costs of the succession are paid by the deceased's heirs.
The Navy's policy prohibiting legal aid attorneys from creating inter-vivos trusts can impose exorbitant probate fees and costs on service members' heirs. Military heirs will therefore receive less inheritance if legal aid attorneys are allowed to set up those trusts. Without familiarity with the situation in this area of law, judge advocates may not be well trained to advise clients on this disadvantage of a traditional will.
The basics of using inter vivos trusts are not complicated. All practitioners should understand what a probate estate is, when probate is required, and the fees and costs associated with such litigation. These consequences must be explained to the client.
Probate, a legal process after a person's death, provides a formal mechanism for managing the deceased's estate. Under the supervision of a court, the deceased's debts can be formally recognized and paid (or creditors' claims can be dealt with). A marshal's estate is divided, sold, distributed or renamed to reflect the new ownership. The legatees (those who are to inherit the property) can contest the will, and if there is a dispute, their share can be determined by the courts.
Estate Planning For Military Families
Probate estates require payment to a variety of service providers, some of which may be unexpected to the layperson. Generally, such fees can significantly affect the amount a residuary legatee receives. These fees and charges include: payment to the publisher of the official notice of the case, communication costs, court filing fees, possible court reporter fees, trust fees payable to the personal representative, possible fees payable to the public administrator, attorney fees, account fees and possible payments by trustees.
In some states, the more assets paid to the probate estate, the higher the cost of administration. A probate estate consists of all assets held in the name of a deceased individual or payable to such an individual or his estate. Examples of assets a person may own include: a house, car, boat, bank account, investment account and tangible personal property such as guns or art. Retirement accounts, annuities or insurance paid to the deceased or their estate can be included in the probate estate. In California and New York (and other states), the personal representative is paid according to a statutory schedule. California currently pays 4 percent of the first $100,000 to such a fiduciary on a graduated scale. A $1,000,000 estate is $23,000 for a personal representative.
Attorney fees can be quite high. Both the attorney and the personal representative can be paid according to that fee schedule, which can double those fees. Another situation in California is that debts are not included in the value of assets. A $700,000 home with a $500,000 mortgage may be valued by a California probate court as a $700,000 asset and subject to $34,000 in probate fees.
Alternatively, people can easily reduce their probate and related fees to zero. If all of a person's assets are transferred to a trust before the person's death, those assets are not subject to probate. Pensions and insurance can be paid to a loved one or to a trust. With this careful and important planning, the fees and delays associated with probate can be completely avoided. Post-death accounts, joint tenancies, "community property with right of survivorship", post-death transfer accounts, inter-vivos trusts and multi-party accounts can also be used to avoid probate. This designation of assets can avoid probate and the associated fees, preserve confidentiality in many cases, and avoid the inevitable delays that come with litigation. Estate planning that avoids probate also reduces the risk of estate litigation for a minimal down payment. A fraudulent heir can contest a will, but it is more difficult to contest a lifetime transfer of money to a creditor on death.
Veteran Estate Planning Luncheon
The benefits of inter vivos trusts are not taught in the Basic Lawyering Course at the School of Military Justice, and estate planning is not a required class in law school. Moreover, given the rapidly increasing amounts excluded from federal property taxes, as well as relocation and other taxpayer-friendly developments over the past decade, this is not a generally recommended course.
Before exemptions were increased and transfers were allowed (which reduced transfer tax to zero except for the very wealthy), estate tax planning was a profitable business in the civil sector. Focus has shifted to income tax planning, creditor protection and other wealth management strategies.
Comprehensive estate planning for high net worth clients is a niche area of the law, and the vast majority of military personnel do not require creative estate planning strategies to avoid federal estate taxes.
Because military personnel are not very wealthy, Military Legal Aid attorneys must be very careful when proposing strategies to protect military personnel's wealth. Many military personnel need a trust intervivos to avoid scrutiny, and this is especially true in California. Voluntarily going to a Military Legal Aid attorney in California and elsewhere can be penny-wise and pound-wise. For a decedent with a modest estate ($166, $250 or more), the member can now save several thousand dollars in fees and pay thousands more at death.
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Even estate plans that include trusts often include the execution of a "spillover" will, which among other things donates all probate assets to the deceased's trust. Inter-vivos trusts work to keep assets out of probate during the decedent's lifetime, to maintain privacy and save on taxes, trust fees and probate fees in California. They are bread and butter, even for beginning estate planners. If trial lawyers are not allowed to provide this simple planning, clients who need it will be disadvantaged. Judge advocates don't know that out of the main gate a trust provided by an attorney is a better option. Creating a will for a client with assets in excess of $166,250 in California is not stumbling around blind.
Despite their military duties, judge advocates practice in almost every imaginable area of law. Obviously, trial lawyers cannot be trained to be experts in all areas of the law; There is no lawyer. A focus on efficient estate planning will come at the expense of other opportunities. Marine Corps' MCDP 1 Warfighting instructs readers to concentrate combat power on a decisive point. Federal and state tax authorities outmaneuver adversaries seeking to circumvent and exploit other loopholes. There are many low-hanging fruits, such as preemption rights, that judge advocates can participate in and achieve the intended effect. If Military Legal Aid attorneys cannot create trusts, perhaps they should withdraw from this war space altogether and allow private practice to carry out this mission so that we can focus more on other areas of legal aid or military justice. If the JAG Corps cannot do this, it should at least train legal aid attorneys to provide informed advice on other appropriate options for its valued clients.
1. See California Probate Code §13100 and depending on the value of the civil estate plan, usually $2,500 and up.
4. The median home price in San Diego County is $632,000, according to Zillow.com; §10810(b), $17,000 to personal representative and attorney.
Military And Civilian Retirement Plans
5. The amount of property excluded from FET, all assets above the exclusion amount are taxed.
6. California is one of 38 states with no property tax; However, a bill to introduce such a tax was introduced in the state legislature in 2019.
7. Author
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