Year: 2016

San Diego Law Firm Attorney-Client-Privilege

Does the Attorney-Client Privilege Apply After the Death of a Client?

What Happens To Privilege When a Client Dies?

The Basics of Attorney-Client Privilege

Pursuant to Business and Professions Code section 6068, subd. (e), an attorney must maintain inviolate a client’s confidences.  The only exception in that statute is that an attorney may, but is not required to, reveal confidential information to the extent that the attorney reasonably believes the disclosure is necessary to prevent a criminal act that the attorney reasonably believes is likely to result in death of, or substantial bodily harm to, an individual.

But, the Evidence Code and applicable case law provide that the rules applicable to disclosure of a client’s confidences change after the client dies.

Evidence Code section 955 provides that an attorney may only claim the attorney-client privilege on behalf of a client if the attorney is authorized to claim the privilege under Evidence Code section 954(c).

The Importance of Holder of the Privilege

Evidence Code section 954(c) provides in relevant part: …”[the lawyer] may not claim the privilege if there is no holder of the privilege in existence…”  (Emphasis added.)

Evidence Code section 953 defines “holder of the privilege” and provides in relevant part: “…‘holder of the [attorney-client] privilege’ means:

(c) The personal representative of the client if the client is dead…”

This subsection expressly limits the holder of the attorney-client privilege to the personal representative, i.e. an executor, administrator or special administrator appointed by the court.  Simply being nominated in a will does not make one a “personal representative.”

Statement from the California Supreme Court on Privilege After Death

The California Supreme Court, in analyzing Evidence Code sections 953, subdivision (c) and 954, stated: “Taken together, these two sections unambiguously provide that only a personal representative may claim the attorney-client privilege in the case of a deceased client.”  (HLC Properties Ltd. v. Super. Ct. (2005) 35 Cal.4th 54, 65.)  The Court went on to conclude that when there is no personal representative the attorney-client privilege terminates.  (Id. at 66.)

In many cases today there will not be a court-appointed personal representative because prior to death the decedent transferred all of her assets to a trust.  And, a trustee is not a personal representative.  (Prob. Code §58.)  Accordingly, in situations where there is no personal representative, then there is no holder of the privilege and the attorney cannot assert the attorney-client privilege on behalf of a deceased client.

Exceptions to Attorney-Client Privilege Without a Personal Representative

An attorney should also be aware that even when the attorney-client privilege is not terminated because there is a personal representative, the Evidence Code provides exceptions to the attorney-client privilege in several situations, primarily involving a decedent’s estate planning, which require the attorney to reveal the client’s confidential information.  (See Evid. Code §§956-962.)

Evidence Code section 957 provides:

“There is no privilege under this article as to a communication relevant to an issue between parties all of whom claim through a deceased client, regardless of whether the claims are by testate or intestate succession, nonprobate transfer, or inter vivos transaction.”

Evidence Code section 960 provides:

“There is no privilege under this article as to a communication relevant to an issue concerning the intention of a client, now deceased, with respect to a deed of conveyance, will, or other writing, executed by the client, purporting to affect an interest in property.”

In Summary, Careful Evaluation is Required

The above authorities show that after the death of a client an attorney must carefully evaluate whether they are still required to maintain a client’s confidences.

Author(s)

San Diego Estate Law

Proposed Treasury Regulations Aim to Reduce Valuation Discounts on Family Gifts

Significant Changes for Family Gifts

On August 4, the Treasury Department issued proposed regulations under Internal Revenue Code Section 2704 that, if enacted, would significantly limit the applicability of valuation discounts to certain intra-family transfers.

Gift and Estate Tax Implications

In many cases, this limitation would prevent individuals from discounting the value of gifts of real property or business interests made to the individuals’ family members, causing the individual to use more of his or her gift tax exemption amount when making lifetime gifts.

Likewise, the proposed regulations would significantly limit the use of valuation discounts when calculating the size of the gross estate of a decedent, thereby increasing the value of the estate for estate tax purposes and the amount of estate tax payable.

Public Hearing in December

The public hearing on the proposed regulations will not be held until December 1, 2016, and thus the regulations will not become final this year.  Although we believe it is unlikely that the regulations will become final in their present form, we do expect that regulations limiting the availability of valuation discounts for certain intra-family transfers will become final – probably in 2017.

Explore Gifts in 2016 vs. 2017

For that reason, if you are considering making a gift of an interest in real property or a business, we suggest that you at least explore the option of doing so in 2016, rather than waiting until 2017 when the tax results may be less favorable to you.

Author(s)

San Diego Probate Law Firm

The California “End of Life Option Act”

California is the fifth state in the United States to legalize aid-in-dying through a law called the End of Life Option Act.

This law permits a competent, terminally-ill patient to request a prescription for a drug that can be used to end his or her life. Participation in the law is entirely voluntary for physicians, patients, pharmacists and others. Patients and physicians who choose to participate must carefully follow the steps set forth in the law in order for their actions to be considered lawful and appropriate.

The purpose of this writing is not to take a position, either in favor of the Act or against the Act.  The sole purpose is to objectively explain the California End of Life Option Act law (the “Act”) that was signed October 5, 2015, and became operative on June 9, 2016.

California’s new End of Life Option Act allows terminally ill patients to obtain a prescription from their attending physician for medication to end their life. The patient then administers the medication themselves.

To be eligible for medical aid in dying under California’s law, an individual must be:

  • An adult: a person 18 years of age and older;
  • Terminally ill: an incurable and irreversible disease that has been medically confirmed and is expected to result in death within six months; and
  • Mentally capable of making their own healthcare decisions.
  • Further, to be eligible, an individual must also be
  • A resident of California;
  • Acting voluntarily;
  • Making an informed decision that includes being given information about all other end-of-life options;
  • Informed that they may choose to obtain the aid-in-dying prescription but not take the medication; and
  • Capable of self-administering and ingesting the aid-in-dying medication.

In addition to the requirements listed above, certain steps must be followed in order for a person to qualify for aid-in-dying medication. It is estimated that the average length of time between requesting and receiving a prescription will between 15 days and three months and requires at least two doctor visits.

Two California physicians must agree that a person is eligible to use the Act. One physician prescribes the medication, and the other physician gives the consulting opinion.

If either physician is unable to determine a persons’ mental capacity in making the request, a mental health professional (psychiatrist or psychologist) must evaluate the person to ensure that the person is capable of making his or her own healthcare decisions.

The Act sets forth steps that both the patient and his or her physician must follow.

The following is a summary of the key steps and is not intended to be a complete restatement of the Act.

  • The patient must consult with his or her attending physician (the physician who has primary responsibility for the patient’s healthcare and treatment of the terminal illness) who must determine if the illness is terminal, meaning that the patient cannot be cured or the illness reversed and that death will likely result within six months, and that the patient has capacity to make medical decisions.
  • The patient must make two oral requests, at least 15 days apart, to the attending physician, as well as one written request. This written request must be on a form as set out in the Act. The written request must be witnessed by two persons (one of whom must be a non-relative of the patient) and signed by the patient. The patient must discuss the request with his or her physician with no one else present (except an interpreter, if necessary) to be certain that the request is voluntary.
  • The patient must then be seen by a second physician (a consulting physician) for that physician to confirm the patient’s diagnosis, prognosis, and ability to make medical decisions. If either physician questions the patient’s mental condition, the patient must then be seen by a mental health specialist to confirm that the patient has the capacity to make medical decisions.

The patient and the physician must discuss each of the following:

  • The aid-in-dying drug, how it will affect the patient and the fact that death might not be immediate.
  • Realistic alternatives to the aid-in-dying drug, including comfort care, hospice care, palliative care, and pain control.
  • Whether the patient wants to withdraw the request.
  • Whether the patient will notify next of kin, have someone else present when taking the drug, or participate in a hospice program, although the patient is not required to do any of the three things.
  • Ensure the patient knows that he or she does not have to take the drug, even though they have filled the prescription.
  •  Once all of the above have occurred, if the patient still wishes, the physician can write a prescription for the drug.
  • Before taking the drug, the patient must sign a form as set out in the Act, that states that the drug is being taken voluntarily. The patient must take the drug himself or herself.  While others may assist in preparing the medication, the patient must self-administer the drug.
  • The participation of the physician is absolutely voluntary, as is that of the patient.
  • Lethal injection, mercy killing, or active euthanasia remain a crime in California.

How does the Act affect the patient’s insurance, will, or other contracts?

The Act protects patients in that they cannot be denied life or health insurance or annuities based on requesting or taking an aid-in-dying drug. A health insurer cannot tell a patient an aid-in dying drug is covered by insurance unless the patient asks.

A health insurer cannot refuse treatment for the illness at the same time that it offers coverage for aid in dying. A will, a contract, or other agreement cannot require a patient to receive aid in dying or prevent a patient from doing so.

For additional information, please refer to the Act, Senate Bill 128/Health and Safety Code Section 443 et. seq. or contact the author.

 

 

 

Author(s)

San Diego Law Firm

Can a third party pay a client’s fees?

In certain situations, attorneys may be asked to allow a third party to pay

There are various situations that may arise where an attorney may be asked to allow a third party to pay a client’s attorney’s fees.  Examples include a parent paying for a criminal defense attorney or a divorce attorney for a child.  When a third party is paying the bills it is particularly important to comply with the applicable rules and not to confuse the client with the person paying the bills or to include the third party in confidential client communications.

Rule 3-310(F) provides that an attorney may not accept payment for representing a client from anybody other than the client unless the attorney complies with certain requirements.

No interference is allowed

First, there must be no interference with the attorney’s independent professional judgment or with the attorney-client relationship.  This means that just because a person is paying the bills she doesn’t get to direct the representation.

Confidentiality must be maintained

Second, you must strictly maintain the client’s confidential information as required under Business and Professions Code section 6068, subdivision (e).  Often a person paying the bill, particularly a parent or other close relative who is genuinely interested in helping the client, will want to be informed about what is going on in the case and offer input on the attorney’s strategy.  Also, they may want details about what services they are paying for.

However, just like in any other matter, unless the client specifically authorizes the attorney to discuss confidential or privileged information, the attorney cannot disclose anything to the third party.  An attorney should also be careful to make sure the client doesn’t feel obligated to share confidential information with the third party simply because that person is paying the bills.

Written consent is required

Third, the attorney must obtain the written consent of the client before the attorney may accept payment from a third party.  A good practice is to discuss payment terms directly in the engagement agreement and confirm that though a third party will be paying the bills, she shall have no authority to direct the representation or have access to confidential client information or privileged communications.

The attorney will also want to have the third party sign an agreement to confirm responsibility to pay the client’s bills.  The attorney should consider whether to have the third party sign the same engagement agreement as the client or to enter into a separate agreement with the third party.  In order to preserve any privilege as to the client’s engagement agreement, the attorney should do a separate agreement with the third party.  The agreement should also confirm that the payor is not the client, shall have no authority to direct the representation or have access to confidential client information and privileged communications.

A related issue is who is entitled to a refund of any funds remaining at the conclusion of representation, the client or the person who paid?  COPRAC Formal Opinion 2013-187 addressed this question and concluded that the attorney must return the balance to the third-party payor rather than the client, unless the engagement agreement with the client provides otherwise.  Accordingly, the attorney should also clarify return of funds in the client engagement agreement.

Author(s)

San Diego Real Estate Law Firm

What to Do With a Residence Upon Death

Dear Sophos

 I am acting as Trustee for my dear dead Aunt Betsy.  One of the Trust assets is her California residence.  What are some of my fiduciary duties and what should I be doing with the house?

 Little Johnny

 

Dear Little Johnny:

First, as Trustee, you have a general duty to secure the residence and to preserve its value.

Assuming that the house is not passing to a specific beneficiary, after the initial 120 Notice period, you should consider liquidating, selling, the house.

During the initial 120-day period of administration, I suggest that, at a minimum, you do the following:

  • Make a detailed inventory of the house content, by photos or video, remove and secure any personal property of substantial value and empty the refrigerator;
  • Have a Locksmith change all of the locks and give you the keys;
  • Have all mail forwarded to your address and stop any newspaper delivery
  • Install an inexpensive security system that will automatically contact the security company if there is a break-in;
  • Have the yard regularly maintained, as though someone was living in the residence;
  • Talk to the neighbors and leave your telephone number with them in the event of an emergency;
  • Install a timer on several lamps, set to go on and off at different times;
  • Find the homeowner’s insurance policy and contact the insurance agent to be certain that the coverage is adequate;
  • If appropriate, have a plumber “winterize” the house;
  • Timely pay the monthly utility bills and loan payment as well as any homeowner’s association fees or at least contact the vendors to explain the circumstance.
  • Obtain legal advice from an attorney experienced in the area of trust administration.

I hope that you find this advice helpful and good luck in your capacity as Trustee.

The Sophos

Author(s)

San Diego Tax Law Firm

What to Expect from an IRS Audit

What every taxpayer should know regarding types of IRS audits and common issues that can trigger audit.

An audit is an investigation into a tax return of an individual, business, estate or trust.  The IRS uses this process to determine if the information provided in the tax return is correct. This article discusses three types of audits and several common audit triggers.

Types of IRS Audits

Correspondence Audit

This is the most common type of audit and also the easiest in terms of what is required and the length of time involved.  Usually the IRS will send a request for supporting documentation to prove deductions, exemptions, proof of dependents, proof of charitable donations or other documentation to corroborate a specific part of the return.  This is the least stressful form of audit for the taxpayer and usually sending in the requested paperwork is enough to satisfy the IRS.   It is strongly advised that you seek the help of an experienced tax attorney to prepare your reply to the IRS correspondence audit and to ensure the documentation you send is exactly what is needed.  As long as a response is made within the timeframe and the documentation enclosed satisfies the proof needed by the IRS, the audit is complete.  This type of audit is most commonly utilized for individual tax returns, where there are perhaps one or two simple issues the IRS wants you to substantiate.

 Office Audit

An invitation to appear at an IRS office to conduct an office audit is a serious matter.  It is important you do not attend the office audit without your tax attorney.  Being asked to an office audit means the IRS is counting on the possibility that you owe additional taxes.  It is essential that you seek the advice of an experienced tax attorney to accompany you to the IRS office audit to protect your rights and to use their knowledge and experience to assist you in finding ways to reduce or eliminate any additional taxes.

Field Audit

A field audit is the most serious form of audit and involves an IRS Auditor coming to your place of business to thoroughly audit your records.  If the IRS finds that your business has inaccurately reported income and evaded paying the correct tax, the consequences could result in heavy penalties, additional taxes and possible prison time.  It is of utmost importance to engage the services of an experienced tax attorney to be present while the IRS auditor is at your place of business.

Below is a summary of common audit triggers

Large amount of charitable donations

The IRS looks closely at the receipts and proof of your charitable donations.  If your charitable donations are more than 3% of your income, the IRS will scrutinize your documentation.  Make sure you have receipts, cancelled checks, and appraisals for all donations to substantiate your claim for deductions.

Failing to report part of your income

The IRS already knows what is on your W-2 and 1099s in terms of income.  If you do not report your income accurately on your tax return, this will likely trigger an audit.  You will receive a W-2 from your full-time job, but may also receive 1099s for freelance work you do on the side, as well as other forms of miscellaneous income, in all cases you must report all of your income from all sources.

Large losses on Schedule C, or many years of losses on Schedule C

If you are self-employed, and report your income on a Schedule C, you will report either a profit or a loss.  If your return shows a very large business loss on a Schedule C, or if you have a history of several years of losses on your Schedule C, this will likely attract IRS attention.

The reason behind this is that the IRS likes to see a profit at least two out of five years to consider a business legitimate.  If there are five years of losses reported on a Schedule C, the IRS will likely audit to see if ‘hobby’ would be a better description.  This is important because taxpayers are required to report any income earned from a hobby, but tax payers generally cannot deduct losses.

For example, a Professional Photographer with his own business, clients, advertisements, portfolio etc., can claim as a business expense the purchase of a camera.  Whereas, a doctor who enjoys taking photographs during his weekend hikes cannot claim a new camera as a business expense.

Claiming too many business expenses

In addition to the business/hobby issue just discussed, reporting too many losses can also cause the IRS to question how your business is staying solvent.  If you report many personal expenses through your business without it being a true necessary business expense (in order for your net profit to decrease and therefore your tax liability to decrease) the IRS will scrutinize your records during an audit.

Random Selection

Unfortunately, even if you do everything right, there is always a small (less than 1%) chance that your return will be randomly selected for an audit.

In Conclusion

If you do receive an audit notice from the IRS, it does not need to be the start of a stressful and difficult time for you and your family, or your business.  You will likely benefit from an experienced tax attorney’s advice and direction with the protection of the attorney client privilege.

Author(s)

San Diego Real Estate Law Firm

To Buy or Not to Buy – Unwrapping Title Insurance

Title insurance is one of the great mysteries when buying or selling real property.

In California, rarely does someone purchase residential real property without title insurance included.  Almost as rarely does the Buyer know why title insurance is being purchased and what coverage the insurance provides.

Basic title insurance questions include: do I need title insurance; who pays the premium; and what does the insurance do for me?

The answer to the first two questions are simple . . . yes, Buyers in California need title insurance to be certain that they are buying property with marketable title and, generally, the Seller pays the premium for the Buyer’s title policy through escrow, based upon the selling price, and the Buyer pays the premium for Buyer’s lender’s title policy based upon the amount borrowed by the Buyer to purchase the property.

The simple answer to what does it do for you, is that Title insurance protects against losses due to defects in title.

But that answer is misleading because in California there are three different insurance coverage levels, depending on the type of residential title insurance policy that is purchased.

Based upon this chart, provided by Fidelity National Title chart, the best title insurance choice for a Buyer is the ALTA Homeowner’s Policy, as it provides the broadest coverage.

 

Coverage Item

CLTA Standard Coverage

ALTA Residential (Plain Language)

ALTA Homeowner’s Policy

Post Policy Forgery Protection

No

No

Yes

Enhanced Access Coverage

No

No

Yes

Building Permit Violations

No

No

Yes

Subdivision Map Act Coverage

No

No

Yes

Restrictive Covenant Violations

No

No

Yes

Mineral Extraction Coverage

No

No

Yes

Map Inconsistencies Coverage

No

No

Yes

Coverage Extended to Living Trusts

No

No

Yes

Enhanced Encroachment Coverage

No

No

Yes

Automatic Inflation Protection (5 years)

No

No

Yes

Helpful online article on Title Insurance

I recently came across this article which includes an example of why every Buyer should insist on and obtain an ALTA Homeowner’s Title insurance policy when purchasing residential real property.

Click here to read this article.

Author(s)

San Diego Tax Law Firm

Tax Season is Here – The Advantages of Hiring a Professional Tax Preparer

The Advantages of Hiring a Professional Tax Preparer

Even the words ‘Tax Season’ can be enough to give anyone a headache!  Fortunately, you do not need to face tax season alone.  Hiring a tax professional can be invaluable to you especially if your situation has recently changed or is complex.

Federal tax law is adjusted every year, making it difficult for an average taxpayer to keep up to date with all the changes, and to understand how to apply these changes to their own tax situation.

A professional tax preparer works hard to keep up to date with all adjustments to tax law, both federal and state, making it advantageous to the taxpayer to hire someone with such an accurate knowledge base.

Deductions and Credits

With extensive knowledge and experience, a professional tax preparer will be able to assist you in finding little known deductions or credits, that you may be unaware you qualify for.

Where you may be eligible for several deductions and/or credits, and yet only be allowed to use one, your tax preparer will have the knowledge to accurately calculate which deduction and/or credit would be the best choice to minimize your tax liability.

IRS Audit

Facing an IRS audit alone can be tremendously difficult and stressful.  If you are audited, it might be tempting to answer the IRS yourself. It is strongly recommended that even the initial response to an IRS audit inquiry come from a tax attorney.

You can communicate confidentially with a tax attorney before the response to the IRS is prepared to give you the best chance of a “no change” letter from the IRS at the conclusion of the audit.

Filing Status

Did you get married or divorced in the past year?  Did you have a child?  Adopt?  Or have you recently lost your spouse?  These changes in situation can dramatically change your filing status and exemptions, deductions and credits you may be entitled to.

If you are a widow(er) your status may change not only for the year in which you lost your spouse, but for a specific time period after.  Determining the best and most tax advantageous filing status takes special knowledge of tax law and time-sensitive dates.

Your professional tax preparer would be able to determine the best way forward.

Child in College?

Is your child in college?  Your tax preparer can assist you in determining how to claim your child under the age of 24, if they are still in full-time education.

Determining how to properly claim older children, especially if they have income either in the form of wages or investment income, requires in-depth knowledge of ever-changing tax law.

Real Estate

If you have bought or sold any real estate, or have invested in rental property, a tax professional can assist you to make the most of the credits and interest deductions available to you.

If your home or property has been affected by a fire, flood, earthquake or other natural disaster, your tax preparer can assist you to take advantage of relief provisions and elections with regard to replacement property and any gain or loss incurred.

Starting a New Business

Starting a new business is an exciting time for anyone, however there are tax implications that can be difficult to understand.  A tax preparer will help you navigate the complex world of business deductions, expenses, insurances, how to properly report your income, accurately calculate self-employment tax and paying estimated taxes.

If you have started a new business, large or small, it would be wise to seek professional tax advice and assistance in preparing your taxes to ensure accuracy and to take advantage of your tax preparer’s knowledge to utilize all allowable deductions and credits to minimize your tax liability.

Summary

Indeed, hiring a Professional Tax Preparer to prepare and file your taxes, will ease the stress and burden of tax season, and leave you with peace of mind and confidence in your financial future.

Author(s)