Author: Kevin Brown

Estate Planning for
Beneficiaries with Addictions

Recovery from addiction can be a lifelong process – so how to handle this in your estate plan?

Is this your dilemma?

Your beneficiary suffers from addiction (e.g., drugs, alcohol, gambling, shopping, eating, sex, etc.).  He/she may not fully acknowledge it and likely believes that the impact is far less than the reality, which you can clearly see. As part of your estate plan, you want to ensure that this loved one is cared for in the event of your passing.

Your concern is that an inheritance of cash or other assets can make the problem even worse.  However, disinheriting the person doesn’t allow access to funds necessary for recovery.  You’ve thought of doing a trust but aren’t sure how to structure it, much less finding the right person to burden with administration.  What do you do?

What are typical options?

• Lump sum cash inheritance: An addict’s decision-making can be impaired and irrational, so having a large inheritance can prove disastrous, actually contributing to an unhealthy lifestyle, relapse, or bad relationships that feed off the inheritance.
• Disinheritance: While often discussed, this strategy can lead to hurt, shame, further addiction, and alienation from other family members.
• Establishing a trust: Holding the inheritance in a trust, managed by a responsible trust, can be the best option. A trust can be used as a safety net while protecting assets from immediate access by an addicted beneficiary, as well as from creditors.

Recovery from an addiction is likely a lifelong healing process for your loved one.  Further, as a disease, relapse from addiction is common, so remember that your long-term goals are likely to protect your loved one and to foster recovery.

How to select a trustee?

Managing a trust for an addicted person can be extremely difficult, both in time expenditure and the emotional toll.  As such, careful consideration should be given to trustee selection.  If financial resources allow, consider a professional fiduciary. It is easier for a third-party to make rational decisions, and he/she will is less likely to be unaffected by an addict’s manipulative or otherwise bad behavior. While family members may offer emotional and moral support, their history of dealing with the addict may affect them and hinder effective decision-making if selected as trustee. 

How should the trust be structured?

There are numerous questions to be addressed with your estate planning attorney in designing the correct structure for your situation.  Here are a few:

• Timeframe: An ongoing trust may last for years, up to the entire lifetime(s) of your beneficiaries. It may be terminated upon full rehabilitation, death, or if the trust is no longer feasible to maintain.
• What financial needs should the trust cover? Many trusts include provisions for basic needs, such as medical care, food and shelter. The trust might also provide for rehabilitation, counseling, and other forms of treatment. In some situations, no distributions are made to a beneficiary while an addict.
• Who controls the funds? Usually, the trustee controls distribution of funds to creditors, rather than handing funds directly to the beneficiary. This can be a time-consuming activity and is another reason why a professional fiduciary trustee should be considered. Also, incentives can be provided to motivate the beneficiary to seek treatment or meet other “life skills” goals. 

Other considerations?

Since every situation is unique, discuss your needs with a qualified estate planning attorney.  In addition to the above, the attorney might discuss factors such as:

• Should the trust be established while you are living or take effect upon your death?
• How to explain the trust to the addict?
• How can the trust be designed to not interfere with the beneficiary’s eligibility for government benefits?
• How would the trustee evaluate a beneficiary’s addiction?
• What control does the family have when a third-party acts as trustee?
• Should there be both a trust advisor and a trust protector? 

Obtaining Professional Guidance

Addictive behavior can impact every aspect of life, not just of the addict but those who love him or her the most.  Our attorneys have extensive experience in estate planning involving beneficiaries with addictions.  Please contact Mortensen & Reinheimer, PC at (714) 384-6053 or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:
Weily Yang is an attorney at Mortensen & Reinheimer, PC, an estate planning and probate law corporation in Irvine. Weily is a zealous advocate for individuals with special needs. His primary focus is special needs trusts and probate conservatorships together with estate planning, trust administration, and probate. He can be reached at weily@ocestateplanning.net.

Why Unmarried Couples Need Estate Planning – Especially in California

If you are in an unmarried relationship and have determined that you’d like to provide for your significant other in the event of death, there are a few items to address:

• What is your situation and life stage?
• What should be done with your assets?
• How does California law apply?
• What are the essential estate planning documents?

Let’s take a look at each of these.

Situation Analysis

Unmarried couples fall into a wide range of situations and life stages; some are in dire need of an estate plan, possibly without realizing it.

Here are a few typical scenarios, involving unmarried couples in different life stages and with varying assets to consider:

• Rob and Samantha, ages 30 and 28, have been living together for three years and they recently bought a house. They are planning a big destination wedding, set for two years away.  The couple have accumulated some assets together, including the down payment equity in their house, and each has small retirement plans.  Both have substantial student loans.
• Hector and Louise, ages 48 and 35, are awaiting marriage due to Louise’s messy divorce. They live together with her two teenage children.  Hector has never been married and owns real estate and has retirement assets, while Louise expects to eventually get some assets from her previous marriage but it is unclear what it will be and when.  Hector wants to provide for Louise in the event that he passes away.
• Frank and Mary, ages 70 and 66, are both widowed. They knew each other in college and their relationship reignited a few years after both spouses passed away.  At this point in life, they aren’t planning on getting married but would like to share each other’s companionship for their golden years. Both have children and grandchildren, and would like to provide for these family members in the event of death.  Also, Frank and Mary want to make sure that each is provided for in terms of income needs, for the duration of life. 

Each situation is different, of course, so talk with your estate planning attorney about your circumstances and specific wishes.

Asset Planning

As a basic estate planning principle, it is best for anyone with assets to have an estate plan.  Without an estate plan, your estate might be subject to the probate process: If the total value of an estate (personal and real property) is more than $208,850 (in 2025), probate (court-supervised distribution of assets) may be required.

Of course, the necessity of an estate plan is magnified as asset values increases.  Keep in mind that the goal of an estate plan is to ensure your wishes are honored, as well as to minimize stress for loved ones, so even small estates under the probate threshold should have an estate plan, it isn’t just for the wealthy.

California Law Specifics

A “common law marriage” is a legally recognized marriage where a couple is considered married without a formal ceremony or marriage license.  However, California does not recognize common law marriages, regardless of how long a couple has lived together.  This means that an estate plan is necessary in order for a surviving unmarried partner to legally inherit any assets. It is also needed for the right to make medical or financial decisions for each other in times of crisis.  Further, without a valid estate plan in place, assets would typically pass to a deceased partner’s closest relatives, potentially leaving the surviving partner homeless or causing disputes.

Essential Estate Planning Documents

A basic estate plan includes a will, financial power of attorney, and advance healthcare directive, and in many cases a living or revocable trust is advisable, all of which address different aspects of your wishes.  Your estate planning attorney should listen carefully to your unique situation and craft each of these documents, and others as necessary, to address your desires and life situation.

Find Someone Who Can Help

Certain situations in life should cause us to realize the importance of having an estate plan and if you are unmarried and wish to provide for your partner, your situation makes it a priority.  Our estate planning lawyers can walk you through the process, helping to create an estate plan which reflects your wishes. Please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

The Dangers of Undue
Influence in Trusts and Probate

Has this happened to someone you know? An elderly widowed father remarries to a much younger woman.  Within a year, concerns about abuse arise (e.g., emotional, withholding sex/affection, etc.) and the children express their concerns to the father.  Subsequently, the children are told the father doesn’t want to see them anymore.  Later, the adult children find out the will has been changed and most assets are now being designated for the new wife, instead of equally spread to all the children as previously intended.

What is Undue Influence?

Undue influence is a form of abuse.  It is a process of controlling another person’s free will by means of applying emotional, psychological or even physical persuasion, aimed at gaining a benefit that would not otherwise be given to the abuser.   The abuse is often inflicted on someone with diminished mental capacity or physical abilities.

In estate planning, undue influence is typically employed to gain more than a fair share in a last will and testament or family trust, or increasing their trust fund distributions (thereby taking assets and monies away from intended heirs).

Indicators of Undue Influence include:

• Change in behavior of the victim such as eating habits and everyday routines
• Isolation from family or friends, discontinuing regular visits
• Interference when communicating with the victim, or the abuser is always present when attempting to communicate
• Injuries, often claimed to be accidental, such as bruising or broken bones
• Abuser gains authority to access or control financial assets
• Excessive gifting by the influenced person, or large amounts of time spent with one individual

 Who Are the Abusers?

Abusers come in many forms, including: parents, children, spouses and step-spouses, beneficiaries, trustees, caregivers, family friends, neighbors, or service providers (health care workers, attorneys, spiritual advisors, contractors, counselors, etc.).

Given that the goal of abusers is financial gain, it is wise to not limit your perception of who might be a perpetrator.  For example, why would a pastor calling on your elderly mother want to gain a part of her estate?  Could the pastor have debt, gambling, infidelity or other financial motives? Similar to embezzlement, you don’t know the financial situation of the individual that would cause them to be willing to commit a crime.

When Should Legal Counsel be Involved?

As indicated, undue influence cases are common in estate disputes, trust contests, and will conflicts.  If you suspect undue influence, seek the advice of a probate and trust litigation attorney, in order to help protect the victim and intended beneficiaries.  Even if the victim has passed, undue influence can be a component of contesting a will. If you are falsely accused of undue influence, a probate and trust litigation attorney can help protect you.

For assistance, contact Mortensen & Reinheimer, PC at (714) 384-6053 or use our online contact form.  You can also learn more about probate and trust litigation on our website.

About the author:
Noah B. Herbold, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). His primary focus is assisting clients with litigated matters such as: Trust Contests, Breach of Trust, Fiduciary Appointment and/or Removal, Asset Ownership, Beneficiary Rights, Determination of Heirship, Elder Financial Abuse, Property Disputes, and Conservatorships. Contact Noah at noah@ocestateplanning.net.

Estate Planning for Rental Properties

(Note: This article is general in nature and is geared towards California properties.  Seek professional legal and accounting advice before making any decisions.)

It used to be that rental properties could be passed down for generations, as a wealth transfer technique.  But now, our California government has changed the property tax aspect of that approach with the passage of Prop 19.  This law has potentially severe financial consequences for children who inherit real property from their parents, because it considerably limits the availability of the parent-child exclusion for purposes of real estate tax assessments and resulting property-taxation.

Before and After Prop 19

Prior to Prop. 19, which took affect in 2021, parents could transfer a rental property with up to $1 million of the assessed value being exempt from the increase in property taxes.  This was regardless of the property’s use by the children.

For generations, California families used this law to build family wealth that could be passed on to future generations.  Apartment buildings, townhomes, and single family homes were often purchased, refinanced, and more properties acquired, generating rental income as well as increased net worth.

However, while these wealth building strategies can still effectively take place from a capital gains tax perspective, the impact of property taxation has changed dramatically.  (Note: From a capital gains tax perspective, current law still is unchanged by Prop 19. Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, which generally means no capital gains will be applied if the estate is less than that amount.  If the home is sold, capital gains taxes are only due on any gains made since it was inherited.) 

Property Tax Increase

While a primary residence might possibly be exempt from value reassessment due to the “Intergenerational Transfer Exclusion,” this does not apply to rental properties.  When a rental property is inherited, it is reassessed at its current market value, which can lead to a significant increase in property taxes. This can make it difficult for children to keep inherited rental properties. 

For example, if the parents purchased a rental property in 1990 for $150,000, and the value of the rental property is more than $1 million when it is transferred upon the parents’ death to a child, the parents’ tax basis doesn’t pass on to the child.  Since the child will now have to pay property taxes based on the assessed fair market value, it can make cash flow negative and impact the child’s decision to keep or sell.

Potential Strategies

There have been efforts to repeal the Intergenerational Transfer Exclusion but so far with no success.  So, what can be done?

Your heirs will likely decide upon one of these choices:

• Keep it and pay the higher property taxes. Depending on the cash flow, your tax situation (i.e., depreciation and tax write offs), overall investment portfolio, and potential property value growth, it can make sense to keep the rental property.  Of course, finances and taxes aren’t the sole reason to sell or keep property, but they typically are key drivers.
• Sell the property. This might happen in any case, if heirs would rather have the cash (which might be excluded from capital gains).  Further it might be the only viable option if heirs cannot afford any significant negative cash flow.
• Convert it to an LLC. The rules applicable to LLCs under the California Revenue & Taxation Code can provide a potential loophole for avoiding higher property taxes. However, the implementation of this strategy depends on when the property was acquired, appreciation, ownership structure of the LLC, rent control, and numerous other factors and rules that might apply.
• Make it your primary residence. This would be part of a fairly complex process, including evaluation of tax implications (especially for depreciation deductions), Section 121 exclusion (involving how long you’ve lived in a property and capital gains), what will be done with your existing primary residence, etc. However, this strategy can make sense in certain circumstances, such as downsizing, a more suitable location as you age, and if your rental property might be better suited to avoid any increase in taxes because it fits within the parameters of Prop 19’s exemption for primary residences.  On top of all these considerations, in order for your child to take advantage of your property taxes (i.e., the primary residence exemption allowed under Prop 19’s Intergenerational Transfer Exclusion), your child would need to occupy the home as their primary residence within one year of inheritance.

Each of these strategies can be evaluated with your estate planning attorney, so that your estate plan can be optimally structured to meet your personal goals.

Experts in Estate Planning for Real Estate

At Mortensen & Reinheimer, PC we’ve crafted estate plans that have involved literally thousands of real estate properties!  Let us put that experience to work for you in simplifying what can be a very complex process. We look forward to helping you!  Please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

Recently Divorced? Key Changes Necessary for your Estate Plan

When a marriage is dissolved, it is important to understand how it affects your estate plan.  There are two critical aspects that should be understood: the impact of California law on estate planning, and personalized changes that should be made by divorcees.

The Impact of California Law

In California, the law states that when a divorce is finalized your ex-spouse is automatically removed as a beneficiary – he or she will receive no property or gifts that were a part of your estate plan (unless stated otherwise in your documentation).  By default, that property would be dispersed to an alternate or residuary beneficiary listed in the will.  If there are none, the court will distribute the property per the state’s inheritance laws.

Also, unless stated otherwise, your ex-spouse can no longer serve as the executor of your estate or have power of attorney.

Please note that this applies to wills but not necessarily other estate planning documents, such as life insurance policies or retirement accounts which require separate beneficiary updates (see “Why Proper Asset Titling is Critical to Your Estate Planning”).

Changes You Need to Make

You will need to update your estate plan immediately following a divorce to reflect your current wishes.  If you fail to do so and then pass away, it can lead to expensive and time-consuming litigation for your heirs. There are several key items to consider:

• Updating your will and living trust. This includes reviewing all beneficiaries and executors, and ensuring proper disposition of assets previously held jointly with your ex-spouse and any assets held in trust.
• Updating Power-of-Attorney and Advanced Health Care Directives. Determine who should now handle these critical decisions.
• Disinheriting your spouse from any insurance policies or retirement plans in which he/she is named as beneficiary.
• Update named beneficiaries on life insurance policies, retirement accounts, bank accounts, and other financial accounts.

Specialized Estate Planning Expertise

This is a complex area of law, so it is important to consult an experienced estate planning attorney in order to protect yourself and your heirs, and give you peace of mind in knowing that your wishes will be honored.

If you are going through a divorce and are concerned about estate planning, Mortensen & Reinheimer, PC understands and can help you.  If you need legal expertise in addressing your specific estate planning needs, please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

The Importance of Funding a Trust

Scenario: Your widowed father, who was always a do-it-yourselfer, met with his attorney and prepared an estate plan.  Wanting to save a bit in legal fees, he planned on handling all the paperwork in funding the trust, including changing and refiling deeds of trust. Unfortunately, this never happened, as you and other heirs just found out – while you await probate court decisions on the disposition of your father’s assets. The moral of the story: While creating a trust is a great estate planning strategy, unless your trust is “funded,” it will be of little value.

How is a trust funded?

To “fund” a trust simply means to transfer assets into it.  How this is accomplished depends on the nature of the property, for example, by changing the titles on any accounts, property, or beneficiary designations.

An attorney can assist you with this process to ensure everything fully complies with California state law. Your attorney can also create a pour-over will that acts as a “safety net” in case you accidently leave an asset outside of your trust (though the probate process may apply).

What happens when a trust is not funded?

If you fail to legally assign or transfer assets to your trust, those assets will not pass to your designated beneficiaries and could be subject to probate (unless you have used another technique to avoid probate). In a worst case scenario, your assets could be distributed to creditors instead of your intended beneficiaries.

In a nutshell, you may have set up a living trust with your attorney – but without funding, in reality there is no trust.

What decisions are required?

Funding a trust will involve creating an inventory of all your assets, consulting with your attorney, then preparing and filing paperwork to complete funding.

Your estate planning lawyer will be able to guide you through this entire process. He or she can explain the legal details that will affect how to correctly handle each asset in terms of including or excluding it from your trust, as well as beneficiary designations. These decisions will involve all of your real and personal property, bank accounts, safety deposit boxes, stocks and bonds, life insurance, retirement accounts, and business assets.

Also, if your trust was properly funded years ago but your assets have changed  over time (which is common), it is important to re-inventory your assets and make sure the paperwork is up-to-date.

How to proceed?

For assistance in establishing and funding trusts, contact Mortensen & Reinheimer, PC at (714) 384-6053 or use our online contact form. You can also learn more about trusts on our website.

About the author:
Weily Yang is an attorney at Mortensen & Reinheimer, PC, an estate planning and probate firm in Irvine. Weily is a zealous advocate for individuals with special needs. His primary focus is special needs trusts and probate conservatorships together with estate planning, trust administration, and probate. He can be reached at weily@ocestateplanning.net.

Estate Planning for Your Primary Residence

How does Prop 19 Affect Your Plans?

(Editor’s note: This article is general in nature and is geared towards California properties.  Seek professional legal and accounting advice before making any decisions).

Your primary residence is typically your most valuable possession.  In Orange County, the median home price is currently around $1.3 million, and for many older homeowners their mortgage is paid off, meaning there is typically substantial equity in the property.  So, what are some considerations in estate planning for this key asset?

WHO GETS WHAT?

A key aspect of estate planning is identifying assets, specifying who will get them, and achieving your goals in distributing each asset to specific heirs.  See our articles on “Key Steps in Asset Distribution” and “Unequal Distribution of Your Estate.”

DEBTS AND LIABILITIES

Does your home have an outstanding mortgage?  Is there a home equity line of credit with  a balance tied to it?  See “How To Handle Debts and Mortgages In Your Estate Plan” for more information.

TAXATION

A major part of estate planning for real estate involves potential taxation for your heirs.  Of course, you’d like more of your hard-earned assets to get passed on to loved ones vs. the government taking a larger share.

Tax-wise, it is important to distinguish between capital gains tax and property taxes.

Capital gains tax:

Estates of those who pass on during 2025 have a basic exclusion amount of $13,990,000 per decedent, which generally means no capital gains will be applied if the estate is less than that amount.  If the home is sold, capital gains taxes are only due on any gains made since it was inherited.  This involves what is called a “double step-up” in basis in a community property state: when one spouse dies, the surviving spouse receives a step-up in cost basis on the asset.  After the surviving spouse passes, the asset is stepped up again.    This offers great potential to reduce the amount of capital gains tax paid by the beneficiary.

Example: You decide to pass your primary home equally to your three children.  Your home was purchased in 2000 for $100,000, and it was worth $900,000 on the day in 2025 that the surviving spouse died.  Your heirs’ cost basis will be raised, or stepped-up, to $900,000, and capital gain taxes will only be applied to the difference between $900,000 and the sales price.  Of course, the final distribution amount will be determined after closing costs.

Property taxes:

Proposition 19, which took effect in 2021, has potentially severe financial consequences for children inheriting property from their parents.  While this law helps eligible homeowners in transferring their tax basis, it considerably limits the availability of the parent-child exclusion for purposes of real estate tax assessments and the resulting property-taxation.

Prior to Prop. 19, parents could transfer a primary residence to children without any new fair-market reassessment, regardless of how the children chose to use the real property. So, children could have the same property tax basis that their parents enjoyed.  However, with Prop 19, children who inherit real property from their parents will have to factor in increased property taxes in the decision to keep or sell the property.   They may also need to use the property as their primary residence.

There are several complicated  aspects involved in calculation of the reassessed value that can be excluded from the new property-tax basis, so seek professional advice.  

Prop 19 now leaves heirs with just a few options, typically including:

• Sell it. This is the most common choice by heirs, especially when multiple children inherit the property.
• Live in the home. One of the caveats to avoid reassessment of value upon inheritance is the intergeneration transfer exclusion.  “At least one eligible transferee must continually live in the property as their family home for the property to maintain the exclusion …”
• Use an LLC. It might be possible to transfer real estate to children without incurring a property tax reassessment by using a strategy that relies on family LLCs.  However, this option has limitations and definite pros and cons (such as Change in Control Rules  or the Change in Ownership Rules), so talk with a lawyer about the specifics of your situation.

WE UNDERSTAND THE IMPORTANCE OF YOUR ASSETS

At Mortensen & Reinheimer, PC we realize that your assets represent years of hard work and can hold not only financial but also sentimental value.  We know that our clients may have specific goals for certain assets and beneficiaries and need legal guidance in how to best achieve these objectives. Please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

Holiday Greetings!

As we approach the end of another successful year, Mortensen & Reinheimer, PC would like to take this opportunity to thank all of our clients for their patronage during 2024.  We truly appreciate your business and confidence in us.

To each of you, please accept our warmest holiday greetings and best wishes for a healthy 2025!

Need Help?

We are always available to serve you with your estate planning, conservatorships and probate & litigation requirements.  Please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form.  Our website is http://www.ocestateplanning.net.