California Wills & Trusts: August 2001 Summary

Legal Developments

Tax Bill Becomes Law

The Economic Growth and Tax Relief Reconciliation Act of 2001 was signed into law by the President on June 7, 2001. The Act increases the applicable exclusion amount to the following: $1 million in 2002 and 2003; $1.5 million in 2004 and 2005; $2 million is 2006, 2007, and 2008; and $3.5 million in 2009. In addition, estate and gift tax rates are reduced over the next several years. The estate tax--but not the gift tax--is repealed in 2010; the step-up in basis is eliminated at that time, subject to a $1.3 million exemption and a $3 million spousal exemption. However, the Act itself expires at the end of 2010 unless re-enacted by Congress.

While the uncertainty created by the new law presents difficult planning issues, we have concluded that no changes to the documents are required at this time. Minor changes have been made to the commentary. The program's options and language already accommodate the increased applicable exclusion amounts. Furthermore, many commentators are skeptical that the Act's estate and gift tax provisions will survive in their present form and that estate tax repeal will actually see the light of day.

As always, we will continue to monitor any new developments in this area, and we will update the product as appropriate to account for any new estate planning considerations.

An online version of the Act can be accessed through the Lawgic Resources for California Wills & Trusts, using your internet browser.

Community Property with Right of Survivorship

New Civil Code Section 682.1, which became operative on July 1, 2001, allows community property to be titled as community property with right of survivorship. The new law applies to instruments created on or after its operative date. No changes were required to the program.

Updated Product Features

Trust Transfer Deed Added

In response to your requests, a Trust Transfer Deed has been added to the Wills & Trusts title. Selecting the Trust Transfer Deed option on the Ancillary Documents menu will allow you to transfer one or more items of California real property to the revocable trust. Each trust transfer deed will provide that the conveyance is a trust transfer under Revenue & Taxation Code Section 62 and, therefore, no documentary transfer tax is due.

Trustee Guidelines Added

Trustee Guidelines (A-B-C Trust) has also been added to the Wills & Trusts title as a new Ancillary Document. This document consists of an explanation of the management and administration of a two-settlor revocable trust, and includes a copy of the Uniform Principal and Income Act as an attachment.

Anatomical Gifts

The Proprietary Advance Health Care Directive was revised so that you will now have the option of whether to provide for anatomical gifts and for the specific donations and purposes.

Acknowledgment and Schedules

In response to your requests, we have changed the order of the notary acknowledgment and any attached schedules at the end of the revocable trust and life insurance trust. The acknowledgment will now appear before any schedules. In addition, regardless of whether an acknowledgment is included, the page numbering of each schedule is now reset to 1, with the page numbering on the first page of any schedule suppressed.

Prohibited Appointments

In the ILIT, a sentence has been added to the "Prohibited Appointments" provision in "The Appointment of Trustees" article stating that if a settlor has the power to replace a trustee, the replacements shall be limited to persons who are not related or subordinate parties. This change was made to ensure that a settlor will not incur any adverse tax consequences if given the power to remove and appoint trustees.

Protection of Trustees

A statement was added to the end of the "Right of Trustees to Secure Releases" provision in "The Protection Provided the Trustees" article to clarify that the trustees may not condition the performance of their duties on the delivery of a release. In addition, in that same article, the "Liability insurance" provision in the "Extent of Liability" section was modified to clarify that the provision refers to errors and omissions insurance and fiduciary liability insurance.