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Frequently Asked Questions

Estate planning

Estate planning involves addressing the potential scenarios of mental and/or physical incapacity and the unavoidable aspects of mortality and taxation. By dedicating time to strategize for these situations, you can ensure that your wishes are respected, and your loved ones receive the maximum share of your assets. You can begin this process by familiarizing yourself with the key aspects that should be considered in estate planning.

Estate Planning has five primary objectives:

  • Tax Minimization: Without effective tax planning, your beneficiaries may end up paying higher estate and income taxes.
  • Probate Avoidance: A court-supervised probate process can lead to unnecessary attorney’s fees, executor fees, court expenses, and significant delays in asset distribution.
  • Property Disposition: Through a trust, you can specify who should receive your property and the manner in which it should be distributed. In cases involving young or financially challenged beneficiaries, it’s often advisable to stipulate that the property be held in trust with periodic distributions for life or until the beneficiary reaches a certain age, such as 25 or 30.
  • Guardianship for Minor Children: To ensure that your minor children are cared for by the individual of your choice, it’s essential to nominate a guardian in your Will.
  • Planning for Potential Incapacity: By establishing a Power of Attorney for property and a Health Care Directive, you can designate the person(s) responsible for your physical well-being, health decisions, and property management in the event that you are unable to do so.
  • Last Will and Testament – determines the allocation of your assets upon your passing, although it does not extend control over IRAs, 401ks, Life Insurance proceeds, or assets held within a Trust.
  • Trust – can take the form of a Living Trust, which is changeable and established during your lifetime, or a Testamentary Trust, which is created through your will and takes effect after your demise.
  • Community Property Agreement – offers a means for a married couple to clearly identify which assets are categorized as community property or as separate property.
  • Advanced Health Care Directive and Power of Attorney for Health Care – empower an individual to designate an agent to make healthcare decisions on their behalf and specify their preferences concerning life-sustaining medical treatments.
  • Durable Power of Attorney for Property Management – provides an agent with the authority to make financial decisions and manage assets that are not part of a Trust.
  • Life Insurance and potentially a Life Insurance Trust – can prove vital for smaller or less liquid estates, especially when dependent children or spouses are involved.

The answer to this question varies. The federal government enforces an estate tax upon your passing, but this only applies when the total value of your assets exceeds the “applicable exclusion amount.” Starting from January 1, 2014, the inflation-adjusted standard exemption stands at $5,340,000 per individual. Any assets surpassing this exemption threshold will be subject to a 40% tax rate.

Although assets bequeathed directly to a U.S. citizen spouse are entirely tax-exempt, this approach may not always be beneficial and, in fact, could lead to higher taxation. Opting to transfer assets directly to a spouse, as opposed to placing them in a trust, might result in an elevated estate tax liability. Despite the existence of a “portability” provision within the law aimed at reducing this outcome, employing a Bypass Trust to convey assets to a spouse remains the most advisable planning strategy for several compelling reasons. Further exploration of this concept is provided in the response to the following question.

A Living Trust serves four primary objectives: (1) to reduce estate taxes for a married couple by ensuring the full utilization of both spouses’ applicable exclusion amounts; (2) to guarantee that your chosen beneficiaries receive the property in accordance with your preferences, whether as an outright bequest or distributed gradually based on need or age; (3) to offer ongoing management of your assets throughout your lifetime, which is particularly crucial if you become unable to oversee your property; and (4) to circumvent the time and cost associated with the Probate process (discussed later).

For a Living Trust to effectively fulfill its purpose, assets must be transferred to the trustee of the trust, a process known as “funding” the trust. This step guarantees that the trust gains control over the assets, eliminating the need for court probate upon your passing.

The U.S. Congress has implemented a permanent provision, allowing for the portability of the estate tax exemption between spouses. This law permits a surviving spouse to utilize the unused exemption of their deceased spouse, although it necessitates the filing of an estate tax return to claim the exemption, even when it would not be otherwise required. This provision eliminates the need to establish a Bypass Trust solely for the purpose of utilizing the exemption of the deceased spouse. While there are several reasons why a Bypass Trust remains an optimal planning strategy, the Portable exemption can simplify your estate planning process.

No, the government has long prepared for this scenario. The Federal Estate and Gift Tax system operates under a unified structure, ensuring that the government levies the same tax, whether property is transferred as a gift during one’s lifetime or at death. As of 2016, if an individual gives more than $14,000 annually to any one person or non-charitable institution, they may incur the federal “gift tax,” which applies at the same rate as the estate tax. However, individuals can make use of their applicable exemption amount before actually incurring the tax. As of 2016, this exemption amount is $5,450,000, allowing for gifts up to this value without tax implications.

Each individual has an annual gift tax exclusion set at $14,000, and this figure is adjusted yearly to account for inflation. Consequently, every person has the ability to gift $14,000 to each beneficiary annually. By judiciously leveraging this $14,000 annual gift tax exclusion and commencing early, you can realize substantial savings in estate taxes. For instance, gifting $14,000 per year for four years results in the removal of $56,000 from your estate’s taxable value. In the case of a couple, each member holds a distinct $14,000 exclusion, allowing a couple to collectively bestow $28,000 annually to a child without incurring gift tax. If you have multiple children or other individuals you intend to gift (such as sons- or daughters-in-law), employing this method can lead to a noteworthy reduction in your estate’s taxable size over time. Many individuals opt to direct this gift into a specialized trust known as a “Crummey Trust” to retain management of the property and maintain control over their children’s access. In addition to the $14,000 annual exclusion, an individual can contribute any amount for educational and/or medical expenses, provided the funds are remitted directly to the educational or medical provider.

If you have an existing estate plan, it’s essential not to regard it as a fixed and unchanging document. Both circumstances and your personal preferences may evolve over time. As a best practice, estate plans should undergo a thorough review every 3-5 years, with certain significant life changes necessitating immediate attention. To ensure that your estate plan remains aligned with your current needs and objectives, we strongly recommend consulting with your attorney for a comprehensive review.

Probate

California has established specific criteria governing attorney and executor fees concerning probate proceedings, although the courts reserve the authority to approve higher fees in exceptionally intricate cases. The maximum allowable fees are set at 4% of the initial $100,000 of the estate, 3% of the subsequent $100,000, 2% of the subsequent $800,000, 1% of the subsequent $9,000,000, and 0.5% for the subsequent $15,000,000. For any estate value exceeding $25,000,000, the determination of fees falls under the purview of the courts, addressing each case individually.

The person who possesses the original will at the time of the deceased individual’s passing is required to present the original will to the probate court clerk’s office within a 30-day timeframe. Simultaneously, the individual holding the will must send a copy of the will to the designated executor. In cases where the executor cannot be located, the will must be dispatched to one of the beneficiaries named in the will. Failure on the part of the person holding the will to fulfill these aforementioned obligations may render them liable to legal action for any resulting damages.

In situations where the deceased individual passed away without a will, and the circumstances necessitate a court proceeding, the court is responsible for designating an administrator to oversee the estate throughout the probate proceedings. Should an individual wish to assume the role of the administrator, they are required to initiate the process by submitting a Petition for Letters of Administration (Form DE-111).

Generally, the chosen administrator is frequently the decedent’s spouse, domestic partner, offspring, or a close family member, which may encompass parents or siblings.

No, the probate process is not obligatory for all estates. It’s possible that you may or may not need to engage in probate court proceedings to transfer ownership of the deceased person’s assets. The necessity of probate hinges on various factors, including the monetary value at stake, the nature of the assets in question, and the identity of the party asserting a claim to the assets.

Probate proceedings are not applicable to all assets. In essence, assets directed through a will are subject to the probate process. Conversely, assets exempt from probate encompass those held within a trust, life insurance policies with designated beneficiaries, bank accounts with payable-on-death arrangements, securities with transfer-on-death designations, retirement accounts, and real estate owned jointly with a right of survivorship. Given that all these assets automatically transfer to their designated beneficiaries, probate proceedings are deemed unnecessary.

Trusts

A revocable living trust is a trust established while you are alive, hence the term “living” trust. This type of trust is labeled “revocable” because you retain the ability to annul, modify, or adjust the trust’s terms at any juncture. A living trust serves multiple purposes, including asset management and safeguarding your interests in the event of illness or challenges posed by the aging process.

An irrevocable living trust, once established, remains unalterable and cannot be revoked. This type of trust is typically crafted with a primary focus on achieving precise tax or asset protection objectives.

Much like a will, a revocable living trust serves to outline the allocation of your assets upon your passing. However, in contrast to a will, a revocable living trust grants you the ability to oversee your assets while you’re alive and empowers a designated trustee to manage trust property for your and your family’s benefit in case you experience incapacity. Consequently, there’s no requirement to designate a guardian for this purpose.

No, there is no obligation for you to do this while you are alive. The taxpayer identification number utilized for trust-held accounts is your Social Security number. As a result, all income and deductions pertaining to the trust’s assets should be reported on your personal income tax returns. In the event of your passing, the income taxation of the living trust closely resembles the process associated with probate.

Testamentary trusts represent an alternative trust category. These trusts are established in accordance with the guidelines outlined in your will and only come into effect subsequent to the probate procedure. Testamentary trusts are distinct in that they do not address the administration of your assets while you are alive. However, they serve the purpose of ensuring provisions for individuals, like young children or others in need of asset management after your demise.

Corporate

  • STRUCTURE
    • A corporation is a legal entity distinct from its shareholders with differing characteristics. There are different types of corporations:
      • Publicly held corporations; Privately held corporations; Statutory close corporations; professional corporation; A domestic corporation; foreign corporation; and nonprofit corporations
    • Distribution of Profits.
    •  Capitalization.
      • A corporation is capitalized by the issue of one or more classes or series of shares;
      • Debt securities also may be issued for capitalization;
    • Management; 
      • Management control of a corporation rests indirectly in the majority of the voting shares of the corporation.
      • The voting of shares may be effected or restricted by agreement, voting trust, proxies, pooling agreements, etc. Corporation management and shareholders may change hands during the life of the corporation; The decision of the majority of shares may be subject to attack by the minority shareholders on various grounds; .
    • Property Ownership. As a separate entity a corporation may own, purchase, or transfer property;
    •  Liability.
      • Shareholder liability is limited to the amount of the fully paid in capital contributions of each shareholder unless the corporate veil is pierced.
      • Failure to observe corporate formalities could result in the IRS’ taking the position that no corporation exists and that the entity should be taxed as a partnership or sole proprietorship as the case may be.
      • A corporation can sue and be sued in its own name.
    • Regulation.
      • A corporation is much more heavily regulated than any other business entity,
      • A corporation that does not maintain formal records may be held to be the alter ego of its shareholders.
    •  Formation
      • A corporation is formed by the filing of articles of incorporation with the Secretary of State; 
      • Equity capitalization is by the issuance of stock, etc.;
      • Additional shares for additional capitalization may be sold following incorporation; 
    • Business Purpose and Structure;
    • Capitalization Regulation.
  • Transfer or Termination
    • A corporation terminates:
    • By suspension of its franchise or charter due to its failure to comply with statutory tax requirements;
    • By dissolution by a vote of 50% or more of the voting power of the shares;
    • By approval of the board for a corporation that is adjudicated bankrupt;
    • Approval of the board of a corporation that has disposed of all of its assets and that has not conducted any business for a period of five years; or
    • By a resolution of the board if the corporation has issued no shares.
    • A corporation’s existence may also be terminated by:
    • Merger, or sale of all of its assets followed by voluntary dissolution;
  • Taxation
  • Estate Planning
    • Business Continuity. Because of the indefinite duration of the corporate entity, the business can continue at the death of any of the shareholders. 
    • Liquidity for Bequests and Devises.
      • With the ease of transferability of shares of a corporation, they are easily transferable at death for bequests.
      • In close corporations, buy-out agreements should be considered.

Commercial Cannabis

The Law Offices of Julia Sylva can assist regulators and operators with the following commercial cannabis license types:

The Department of Cannabis Control (DCC) issues licenses based on the type of cannabis activity that your business will perform. If you will do more than one activity, you may need more than one license.

You must have a valid DCC license before performing any commercial cannabis activity, including:

  • Growing cannabis (cultivation)
  • Transporting cannabis (distribution)
  • Making cannabis products (manufacturing)
  • Testing cannabis or cannabis products (testing laboratory)
  • Selling cannabis (retail)
  • Holding an event where cannabis will be sold (event organizers)

 

Cultivation licenses

Cultivation license types are based on the:

  • Type of production and lighting used
  • Number of plants grown or size of the canopy. The canopy is the area where mature (flowering) plants are grown.

The cultivation license types are:

  • Specialty cottage
    • Specialty cottage outdoor – up to 25 mature plants
    • Specialty cottage indoor – up to 500 square feet of canopy
    • Specialty cottage mixed-light tier 1 and 2 – up to 2,500 square feet of canopy
  • Specialty
    • Specialty outdoor – up to 50 mature plants or up to 5,000 square feet of canopy
    • Specialty indoor – 501 to 5,000 square feet of canopy
    • Specialty mixed-light tier 1 and 2 – 2,501 to 5,000 square feet of canopy
  • Small
    • Small outdoor – 5,001 to 10,000 square feet of canopy
    • Small indoor – 5,001 to 10,000 square feet of canopy
    • Small mixed-light tier 1 and 2 – 5,001 to 10,000 square feet of canopy
  • Medium
    • Medium outdoor – 10,001 square feet to 1 acre of canopy
    • Medium indoor – 10,001 to 22,000 square feet of canopy
    • Medium mixed-light tier 1 and 2 – 10,001 to 22,000 square feet of canopy
  • Large – By law, large size cultivation licenses cannot be issued until after January 1, 2023
  • Nursery – for cultivators that only grow clones, immature plants, seeds or other types of cannabis used for propagation
  • Processor – for cultivators that only trim, cure, dry, grade, package or label cannabis

Determining your license type

Outdoor licenses are for cultivators who grow cannabis outside without using any artificial lighting or light deprivation techniques on mature plants.

Indoor licenses are for cultivators who grow cannabis in a permanent structure using at least 25 watts of artificial light per square foot.

Mixed-light licenses are for cultivators who grow cannabis in a:

  • Greenhouse
  • Hoop-house
  • Glasshouse
  • Conservatory
  • Hothouse
  • Other similar structure

Mixed-light licenses have two tiers based on the amount of artificial light used:

  • Tier 1 – Up to 6 watts per square foot of artificial light
  • Tier 2 – 6 to 25 watts per square foot of artificial light

 

Manufacturing license types

Manufacturing license types are based on:

  • The activities performed
  • The chemicals used for extraction and post processing, if any
  • Whether the manufacturer works in a shared-use facility

Type 7: volatile solvent manufacturing

Type 7 manufacturers can:

  • Use volatile solvents for extraction or post processing (refinement) of cannabis extract
  • Use non-volatile solvents for extraction or post processing
  • Use mechanical methods for extraction
  • Make cannabis products through infusion
  • Package and label cannabis products

Volatile solvents are chemicals that produce a flammable gas or vapor. Examples include:

  • Butane
  • Heptane
  • Hexane
  • Propane

Type 6: non-volatile solvent manufacturing or mechanical extraction

Type 6 manufacturers can:

  • Use non-volatile solvents for extraction or post processing
  • Use mechanical methods for extraction
  • Make cannabis products through infusion
  • Package and label cannabis products

Non-volatile solvents are chemicals that do not produce a flammable gas or vapor. Examples include:

  • Ethanol
  • Carbon dioxide
  • Cooking oils
  • Butter

Mechanical extraction uses pressure, heat or cold to extract cannabinoids instead of using chemicals. Examples include:

  • Rosin presses
  • Dry ice

Type N: infusion of products

Type N manufacturers can:

  • Make cannabis products through infusion
  • Package and label cannabis

Infusion mixes cannabis extract or plant material with other ingredients to make a cannabis product.

Type P: packaging and labeling

Type P manufacturers can only package and label cannabis products.

Type S: manufacturers who work in a shared-use facility

Type S manufacturers operate in shared-use facilities and can:

  • Extract cannabis using butter or cooking oils
  • Make cannabis products through infusion
  • Package and label cannabis

Shared-use facilities are places where multiple Type S manufacturers rotate on a schedule and share space and equipment. A Type 7, 6 or N license can register all or part of their manufacturing premises as a shared-use facility.

 

Distribution licenses

Type 11: distributor

Type 11 distributors can:

  • Move cannabis and cannabis products between cultivation, manufacturing or distribution premises
  • Move finished cannabis goods to retail premises
  • Provide storage services to other licensees
  • Arrange for testing of cannabis goods

Type 13: transport-only distributor

Type 13 distributors can move cannabis and cannabis products between cultivation, manufacturing or distribution premises. Reduced fees are available if you only want to transport the goods you cultivate or manufacture.

 

Testing laboratory licenses

The Type 8 license is for laboratories that test cannabis goods prior to sale at a retailer.

Testing laboratories must obtain and maintain ISO/IEC 17025 accreditation. You can use an interim testing license while you work on your accreditation.

 

Retail licenses

Type 9: non-storefront retailer (delivery only)

A non-storefront retailer sells cannabis goods to customers only through delivery.

Type 10: storefront retailer

A storefront retailer has a physical location where cannabis goods are sold. Storefront retailers can also deliver cannabis goods.

 

Microbusiness licenses

The Type 12 license is for businesses that do at least three of the following activities at one location:

  • Cultivation – up to 10,000 total square feet
  • Manufacturing – use of non-volatile solvents, mechanical extraction or infusion
  • Distribution or distribution transport-only
  • Retail – storefront or non-storefront

 

Event licenses

There are two cannabis event license types:

  • Event organizer – for the person hosting cannabis events
  • Temporary cannabis event – for the event itself

Cannabis events can only be held by a person with an event organizer license.