General Legal

Tuesday, February 02, 2010

Updating Your Estate Plan

Many years ago, you finally fulfilled your long-time resolution and had your Estate Planning completed by signing a Living Trust, a Will, a Power of Attorney, an Advance Health Care Directive, and other related documents.  It was so long ago that you don’t remember the exact choices you made with respect to the plan.  When you look at it, you’re not sure what it says because of the complex “legalese” that lawyers like to use.  How do you know if it needs to be updated?

If it has been several years since you completed your Estate Plan, it is a good idea to have an attorney review it to makes sure that it is up-to-date.  One of the first issues I address when clients bring in existing Estate Plans is whether or not their Trusts are fully funded.  A Trust will only control those assets that are titled to it.  Your Trust can have the most beautiful, detailed language possible but if your assets are not properly titled to your Trust, it’s as if you never did Estate Planning in the first place.

Another key factor in reviewing existing Estate Plans is to make sure that you are still happy with your nominations for Successor Trustees, Power of Attorney Agents, and Advance Health Care Directive Agents.  What seemed like a good nomination years ago might not be a good nomination today.

You also want to think about whether your family circumstances have changed.  Has there been a birth or a death in the family?  Have any of your beneficiaries developed special needs?  Do any of your beneficiaries have creditor problems or are they facing a divorce?  Amended provisions can address these issues.

Tax laws – such as the 2010 Estate Tax and Capital Gains Tax laws – and other laws may have altered since you signed your Estate Plan.

If your changes are relatively small, you can update your Trust by executing an Amendment, a 1-3 page document changing only specific paragraphs.  This is analogous to changing spark plugs in a car.  If more than a few paragraphs need to be changed or if you already have several Amendments, then a “full body restoration” might be in order and you might want to sign a Restatement.  A Restatement amends your Trust in its entirety but keeps the same name and date so that your existing funding doesn’t have to change.
 

Tuesday, January 26, 2010

Now What?

In my last blog, I discussed the fact that the federal Estate Tax under current law has expired for one year only in 2010.  I outlined how your Estate Planning might be affected in light of these changes.  These new rules that took effect on January 1, 2010 also impact Trust Administration and Probate.

Many married couple's Estate Plans divide the estate into a Bypass Trust and a QTIP Trust upon the death of the first spouse.  It is common for an Estate Plan to include a mathematical formula based on the Estate Tax in order to allocate part of the estate to the Bypass Trust and part of the estate to the QTIP Trust.  In a year such as 2010 where there is no Estate Tax, Successor Trustees will not be sure how to properly interpret such a formula. 

The 2010 rules also abolish old reporting requirements for Trustees/Executors and introduce new reporting requirements.  For estates of decedents dying before and after 2010, the law requires the Trustees/Executors to obtain date of death values for all assets.  If the value of the decedent's estate exceeds the Estate Tax exemption, there is a requirement to file an Estate Tax Return (IRS Form 706).  Under the current rules for decedents dying in 2010, there is no need to file a 706.  However, Trustees/Executors are required to report transfers at death of noncash assets in excess of $1.3 million and certain appreciated property that the decedent had acquired within three years of death. 

Adding to the confusion is the strong belief among many commentators that Congress will pass a new law within the next few weeks or months that will return the pre-2010 Estate Tax rules and have it apply to decedents dying in 2010.  As a result, Trustees/Executors do not know whether to conduct Trust Administrations and Probates based upon the "old" rules or the "new" rules and may not know for some time.   

Because there is so much confusion in this area and we are experiencing an unprecedented uncertainty, I am holding a Free Seminar on February 18, 2010 from 6 to 7:15 pm at 700 Jewell Avenue, Pacific Grove, California.  Please call 831-920-0205 to RSVP.
 

Monday, January 25, 2010

Did the Death Tax Really Die?

The Estate Tax, or “Death Tax,” is a federal tax on inheritance.  Over the last ten years, the Death Tax rate has ranged from 45% to 55%.  However, there is also a “Death Tax Exemption,” meaning that if the total value of your Estate at death is below the Exemption, your heirs do not have to pay any Death Tax; if the total value of your Estate at death is above the Exemption, your heirs only have to pay Death Tax on the amount over the Exemption.  In 2009 the Exemption was $3.5M.  In 2010, the Death Tax – under current rules – is completely eliminated: Bill Gates could die in 2010 and there would be no Estate Tax.  But in 2011, the Estate Tax returns with only a $1M Exemption and a top tax rate of 55%.

Although it sounds like good news that the Death Tax vanishes in 2010, along with the elimination of the Death Tax is a dramatic limitation of the “Step-Up” in Basis which prevented many heirs from having to pay Capital Gains Taxes on the sale of certain inherited assets.  While the Death Tax applied to roughly 6,000 taxpayers per year, the limitation on the “Step-Up” in Basis is estimated to affect approximately 70,000 taxpayers per year.

You may wonder whether these changes will affect your Estate Plan as currently written.  Married couples should check to see whether their Trusts divide the estate of the first spouse to die into a Bypass Trust (sometimes called a “Family Trust,” an “Exemption Trust,” a “Credit Shelter Trust,” or a “B Trust”) and a QTIP Trust (sometimes called a “Marital Trust,” or a “C Trust).  If the terms of the Bypass Trust and QTIP Trust differ – such as different beneficiaries, different trustees, or different distribution standards – it would be a good idea to have an attorney review your Trust as the elimination of the Death Tax in 2010 might affect the allocation of assets to such Trusts and thus adversely affect your intent.

Furthermore, if you have highly appreciated assets, you may want to discuss with an attorney the possible need to amend the formula that allocates assets between the Bypass Trust and the QTIP Trust to take advantage of a limited additional “Step-Up” in Basis for spousal property.

In addition, the 2010 law brings new reporting requirements for estates of individuals dying in 2010.  Whereas in the past you only needed to file an Estate Tax return if the decedent’s estate exceeded the Estate Tax Exemption, now you need to report non-cash transfers at death of assets in excess of $1.3 million and certain appreciated assets received by the decedent within three years of death. 

 
Although this 2010 elimination of the Estate Tax combined with the limitation in the “Step-Up” in Basis was written into the Internal Revenue Code in 2002, no observer believed that Congress would actually let this happen.  Over the years, Congress has attempted to make a permanent change to the Estate Tax law but never was able to get enough votes to do so.  In December 2009, the House passed a law to keep the Estate Tax Exemption permanent at $3.5 million but the Senate never even got it out of committee.  When Congress went on holiday break, most observers fully expected Congress to “repeal the repeal” in January by reinstating the Death Tax with a $3.5M Exemption and having in retroactively apply to January 1, 2010.  However, it is already the end of January and there has been no sign that Congress is even thinking about the Estate Tax issue.  As a result, there are three likely possibilities: (1) Congress “repeals the repeal” by passing a temporary or permanent Exemption of $3.5 million and applying it retroactively to January 1, 2010; (2) Congress “repeals the repeal” by passing a temporary or permanent Exemption of $3.5 million and applying to prospectively to the date the bill passes; (3) Congress doesn’t do anything, allowing these unique rules for 2010 and returning to the old rules with a $1 million Exemption in 2011.

As a result of this uncertainty, it may be wise to amend your Estate Plan to make it flexible.  Furthermore, for decedents dying in 2010, it is not clear whether Trustees and Executors should follow the reporting requirements under the old rules or follow the reporting requirements under the new rules, making Trust Administration and Probate very tricky this year.

 
This is a messy situation that nobody thought would actually happen and makes planning difficult for clients, attorneys, and accountants.  Hopefully, Congress will give us some guidance soon though hope is diminishing with every passing day.  
 

Tuesday, December 29, 2009

Sentimental Value

As the credits roll in the Clint Eastwood film, Gran Torino, the young man who befriended Clint's character is seen driving the beloved Ford down a coastal road with the deceased protagonist's dog by his side.  Because the car symbolized an unspoken love and respect, the scene is emotive - even for this Chevy guy (though I think the movie would have been even better if it had been entitled, "Bel Air").

 
Items of tangible personal property, such as a Ford Gran Torino, a Chevy Bel Air, or smaller things such as jewelry and knickknacks, can have extreme significance for loved ones.  Many clients often want to include specific gifts of tangible personal property to specific persons in their Estate Planning.  However, clients often are not ready to finalize their wishes with regard to tangible personal property when it is time to sign their Estate Plans.  Furthermore, clients frequently change their minds about such sentimental items and thus are hesitant to include specific provisions in their Wills or Trusts, thinking that it would require additional expense and effort to update such provisions.

 
To accommodate a frequent change-of-heart with regard to tangible personal property, many people create lists after signing their Wills or Trusts designating who receives what tangible item.  This practice was outlawed in California for many years for fear of fraud.  However, the practice was so popular that a few years ago the legislature enacted Probate Code  §6132 which allows the enforcement of designations of tangible personal property in lists created after a Will under limited circumstances.  First, the item must be tangible personal property, not cash or real estate.  Second, each item must have a value of $5,000 or less.  Third, the total value of all assets transferred in this manner must not exceed $25,000.

Although a similar Probate Code section does not exist for Trusts, many Trusts will include a paragraph allowing the distribution of tangible personal property by a separate writing.  I always include a provision in the Trusts that I draft that states if such a list cannot be incorporated by reference, the list shall act as an amendment.  California law allows the amendment or modification of a Revocable Trust by a writing signed by the Trust creator and thus such a list should suffice as a proper Trust amendment under the Probate Code.

 
By legalizing this method, clients can change their minds about distributions of personal property without having to amend their Wills or Trusts.  However, because of these strict conditions and because values of items can change over time, it is important to be cautious when applying this method as the strict, stagnant rules can inadvertently invalidate constantly updated lists of items with values in flux.  Even if a separate writing designating beneficiaries of tangible personal property violates the strict rules of California Probate Code §6132, the fact that a client took the time and effort to create such a list carries strong moral weight.

   
Because of the fact that such strict rules can be easily accidentally violated, I normally advise my clients to reserve this method only for small items of sentimental value and to be mindful that if they believe there may be a disagreement over who receives a specific item, it might nevertheless be best to include such a designation in the body of the Will or Trust itself.  Case in point: it appears that Clint Eastwood's character included the gift of the Gran Torino in the body of his Will rather than in a separate writing created after the Will. 
 

Monday, December 14, 2009

Organizing Your Estate Plan

Most people understand the need to “get their affairs in order” by executing Estate Planning documents which often include a Revocable Living Trust, a Will, a Property Power of Attorney, an Advanced Health Care Directive, and a HIPAA Waiver as well as other documents.  However, simply executing such documents is not necessarily enough to make sure your loved ones have everything they need in order to administer your Estate.

First you want to make sure that all of your Estate Planning documents are organized and easy to find in the case of an emergency.  Often, clients have their Trust in one location, their Health Care documents in another location, and may not be sure if they even have a Power of Attorney.  If you can’t locate all of your own Estate Planning documents, it will be even more difficult for your loved ones to find sort everything out.  I always provide an Estate Planning binder for all of my clients where all Estate Planning documents can be organized into one portfolio that acts as an “owner’s manual.”

If you have executed one or more Amendments to your Trust or Will, be sure that your Amendments are easy to find and located in the same area as your Trust or Will.  A common problem is for your loved ones to find your Trust or Will but fail to locate your Amendment – or your most recent Amendment – and therefore accidentally follow outdated instructions.  I often recommend that my clients keep their Amendments on top of their Trust or Will.  In the case where there are several amendments, it might be wise to simply restate your Trust in its entirety so that your updated instructions are all in one document and easier to follow.

It is also a good idea to keep an accurate inventory of your assets so that your loved ones know the totality of your Estate in the event of your incapacity or death.  There is nothing worse than a beneficiary not collecting on an insurance policy or taking control of a bank account simply because the beneficiary was not aware of the existence of the asset. 

Finally, you want to make sure that your Estate Plan is up-to-date and complete so that the Estate Plan your loved ones find is not only organized but relevant and effective.
 

Friday, December 04, 2009

House Passes Bill to Make 2009 Estate Tax Exemption Amount Permanent

Today, the U.S. House of Representatives voted 225-200 in favor of H.R. 4154.  

H.R. 4154 would make the 2009 Estate Tax Level Permanent.
 

The Senate has not ratified this bill yet but is considering similiar legislation.

For calendar year 2009, the estate tax exemption amount is $3.5 million ($7 million total for a married couple) and the maximum tax rate on estates is 45%. H.R. 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, introduced by Congressman Pomeroy, would permanently extend this estate tax exemption amount and tax rate. Absent this change, the estate tax is scheduled to enter one year of full repeal in 2010 followed by a return of the estate tax in 2011 with much lower exemption amount ($1 million) and a much higher maximum tax rate (55%).

FULL TEXT OF THE BILL FOLLOWS

111th CONGRESS
1st Session
H. R. 4154

To amend the Internal Revenue Code of 1986 to repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES
November 19, 2009
Mr. POMEROY introduced the following bill; which was referred to the Committee on Ways and Means
________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.
This Act may be cited as the `Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009'.

SEC. 2. RETENTION OF ESTATE TAX; REPEAL OF CARRYOVER BASIS.
(a) In General- Subtitles A and E of title V of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such subtitles, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such subtitles, and amendments, had never been enacted.
(b) Sunset Not To Apply- Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act.
(c) Conforming Amendments-
(1) Sections 511(d) and 521(b)(2) of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such sections, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such sections, and amendments, had never been enacted.
(2) Subsection (c) of section 2511 of the Internal Revenue Code of 1986 is hereby repealed.

SEC. 3. MODIFICATIONS TO ESTATE AND GIFT TAXES.
(a) $3,500,000 Applicable Exclusion Amount- Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (relating to applicable credit amount) is amended by striking all that follows `the applicable exclusion amount' and inserting `. For purposes of the preceding sentence, the applicable exclusion amount is $3,500,000.'.
(b) Freeze Maximum Estate and Gift Tax Rates at 45 Percent- Subsection (c) of section 2001 of such Code is amended--
(1) by striking paragraph (2),
(2) by striking so much of paragraph (1) as precedes the table contained therein, and
(3) by striking the last 2 items in the table and inserting the following new item:
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
`Over $1,500,000 $555,800, plus 45 percent of the excess of such amount over $1,500,000.'.
-------------------------------------------------------------------------------------------
(c) Effective Date- The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2009.
 

Wednesday, December 02, 2009

Health Care in Your Control

As the debate over Health Care reform continues in Congress, it is a good time to focus upon those Health Care issues over which you have control.  First, you want to think about how to express your wishes should you lack the capacity to make decisions for yourself due to a medical emergency.  If you had an incurable or irreversible condition that would likely result in your death within a short period of time, would you want artificial nutrition and hydration removed?  Do you want treatment for the alleviation of pain even if it may hasten your death?  Would you prefer to be at home if possible?  Would certain music or other ambience make you more comfortable?

Once you have identified your wishes, whom would you trust to ensure that your wishes are carried out?    Will those persons be able to act under pressure?  Will those persons be available during an emergency?  It is a good idea to have a candid conversation with your possible Health Care agents about your wishes to see if they share your same philosophy with regard to Health Care issues.  If they do not share your same philosophy, you need to explore whether they would nevertheless be able to carry out your wishes. 

After you have identified your Health Care wishes and those whom you trust to carry out such wishes, it is a good idea to memorialize those wishes in an Advance Health Care Directive.  In addition, you will want to make sure that your loved ones and your Health Care agents will be able to access your health information in the event of an emergency in order to make informed decisions with regard to your Health Care.  As a result, be sure to execute a document authorizing the disclosure of health information to specified individuals, often referred to as a “HIPAA Waiver” (named after the state and federal medical privacy laws).

Executing an Advance Health Care Directive and a HIPAA Waiver, however, will not inform your health care providers (1) that you have such documents and (2) how to obtain such documents in an emergency.  This could be a major problem, especially if you become ill or injured while you are traveling out of town, out of state, or even out of the country.  I often advise my clients to take advantage of programs such as Docubank, a company that stores your health care documents in an electronic database and gives you a card to put in your wallet with instructions to emergency care providers on how to obtain copies of such documents 24 hours a day, 7 days a week.   

A qualified Estate Planning attorney can help you ensure that your Health Care wishes will be carried out in the event of your incapacity by helping you identify your wishes, helping you articulate your wishes in legally binding documents, and providing a mechanism to inform your health care providers about your wishes.
 

Monday, November 09, 2009

Today's Plan, Tomorrow's Promise

A charitable organization depends upon the generous gifts of its supporters in order to continue its mission in serving the needs of the community.  When most people think about charitable giving, they usually think of a cash gift: writing a check to a favorite charity either on occasion or on a regular basis.  While this kind of giving is the most common, there are additional methods for financially supporting charitable causes which are less known but particularly useful for some supporters.  These additional methods fall under the category of "Planned Giving."

The simplest form of Planned Giving is to remember a charity in your Estate Plan by making a gift of cash or property in your Will or Trust.  You may leave a specific dollar amount, a specific percentage of your Estate, or a specific gift of real estate or securities to a specific charity.

 
You may have a life insurance policy or a retirement plan such as an IRA, a 401(k), or a 403(b).  Life insurance policies and retirement plans have documents commonly known as "Designated Beneficiary Forms" that allow you to designate who will receive such assets upon your death.  You may name a charity as one beneficiary among many or as the sole beneficiary of such an asset.  Many donors receive nominal life insurance policies through their employers which can serve as a valuable vehicle for making gifts to a charity.
 

Finally, there are other more sophisticated forms of Planned Giving such as Charitable Remainder Trusts and Charitable Lead Trusts.  Regardless of the size of one's Estate, there is an appropriate Planned Giving option for everyone.  Many donors are reluctant to make lifetime gifts for fear of breaking their budget or outliving their savings.  The beauty of Planned Giving is that you can still make a significant impact on those causes close to your heart while not having to worry about running out of financial resources during life.

A qualified Estate Planning attorney can help you find the right method for charitable giving that fits your circumstances and allows you to pass on your values to the next generation. 
 

Friday, October 23, 2009

Ensuring the Care of Your Pet

Whether or not you have done your Estate Planning, you most likely have considered who will inherit your material assets.  If you have minor children, you hopefully created a legal plan nominating both immediate and permanent guardians for your children in the case of incapacity or death as discussed in my last blog.  An additional component of any comprehensive Estate Plan is to plan for the care and welfare of your pets.

Approximately 60% of U.S. households have at least one pet.  20% of households have five or more pets.  If you own a pet, you are aware of the companionship, unconditional love, and general happiness pets provide.  But have you ever considered what will happen to your pet if you become incapacitated or pass away?
 

The most basic Pet Planning option is to create a provision in your Will or Trust that gives your pet to a family member or a friend who is willing to care for your pet when you are no longer able to do so.  However, it is not always possible to find somebody who is willing to take over the responsibility for your pet.

A second option is to create a provision in your Will or Trust that leaves your pet to the custody of an animal care organization.  Many animal care organizations are willing to put your pet into a foster home until a permanent home can be established.  Most animal care organizations request a cash gift in a specific dollar amount to cover expenses in order to undergo this task. 

If you want more control over how your pet will be cared for, you can establish a "Pet Trust."  A "Pet Trust" sets aside a certain amount of money out of your Estate that is dedicated to the care and welfare of your pet.  The "Pet Trust" would name a Trustee to handle the amount of money set aside for the pet and would also either name a pet caregiver or instruct the Trustee to find a suitable caregiver.  Effective January 1, 2009, major changes were made to California "Pet Trust" law.  Among these changes are the ability of "any interested party" to ask the Court to enforce the terms of a "Pet Trust," the creation of a legal system of checks and balances to make sure the Trustee and caregiver are in fact taking care of the pet, and the establishment of a large role for animal care organizations to play in the enforcement of "Pet Trusts."

Other practical issues to consider are how much money should be set aside for the care of your pet and what specific instructions you want to provide to your Trustee or caregiver with regard to the care of your pet.  Part of any comprehensive plan would also include a mechanism for notifying your loved ones of your Pet Plan and a method for providing immediate access to your pet and to information critical to the care of your pet such as the name of your veterinarian, any medications your pet takes, and any special dietary issues.

 A qualified Estate Planning attorney can discuss the pros and cons of each option relative to your specific circumstances to ensure that your pet will be in good hands long after you are no longer to give the love and attention to which your pet has become accustomed and deserves.
 

Monday, October 12, 2009

Because Minors Matter

In legal lingo, a child under the age of eighteen is considered a “minor.”  A very misleading legal name for a child.  Ask any parent - nothing about a child is minor.

Parents today have a lot to handle.  Beyond the basics like nutrition, health and education, parents also need to juggle extracurricular activities, play dates and doctors appointments.  And when there is more than one child in the family, these stressors multiply.  Juggling everyday life can be a challenge for even the most organized parent. 

Fortunately, most families have help.  Whether it’s grandma or grandpa taking the children for a Saturday, a neighbor watching the kids after school, a babysitter who allows mom and dad to have an actual “date,” or a full time nanny who helps in a variety  of ways, this trusted person (or people) is part of what keeps the family happy and balanced. 

These are the people you trust with your most precious creation.  They watch over your children, protect them and care for them.  Making sure that they are prepared for such a monumental task is your job.  And it’s simple.

There are things you know about your child that are second nature to you.  You know that your daughter has ear tubes.  You remember that peanuts make your son break out in a rash. You know that he needs an inhaler when he runs.  This is all knowledge that you have down pat at this point.  And it’s information that you carefully pass on to your child’s care givers.  Or do you?

Well now you don’t have to worry that you forgot something, or that the new sitter won’t remember the little details that you take for granted.  You can do all this simply by enrolling your child in Minors Matter.

Minors Matter is an emergency access card that provides immediate access to the information and documentation that any of your child’s caregivers would need in an emergency if you are unavailable.  This includes health insurance information, pediatrician information, immunization records and an additional information form that you supply for each child.  Along with the information the card provides access to, it also displays critical allergies and medical condition information.  So health personnel have immediate access to the information they need to provide proper care.

And the Minors Matter service includes an alert sent to you whenever your child’s card is used to obtain their information.  This text and email message includes the phone number of the requestor so that you can call them directly to follow up.

There are legal documents that you can put in place to protect your children in your absence.  Temporary Guardianship forms indicate who will take temporary care of your child until permanent guardians can be contacted, should something happen to you.  Medical Parental Consent forms are used to designate those people you trust to make medical decisions about your child should you be unavailable.  These documents, or some version of these, might be a good idea for your family and can be included in the Minors Matter program. 

For more information about how to create an action plan for the care of your minor children and how to enroll in the Minors Matter program, contact us at 831-920-0205.
 

Tuesday, September 29, 2009

The Hardest Decision for Parents: Naming a Guardian

One of the most difficult decisions clients face with regard to their Estate Planning is nominating legal guardians for their minor children in the event of incapacity or death.  Many parents have no idea where to start in making such a decision.  There are several guiding principles that can help parents make wise decisions regarding guardians of their minor children.

Tip 1:  Think beyond the obvious choices.  Make a list of all the people you know who you would trust to take care of your children.   You don’t need to limit your list to close family members.  While siblings and parents can be excellent choices, consider also extended family members who are old enough to raise your children – cousins, aunts, uncles, nieces, nephews, even second cousins once removed. 

Tip 2:  Friends can make excellent guardians.  Beyond family, consider close friends, families with whom your family is close, the families of your children’s friends, friends you know from your place of worship, even teachers or child care providers with whom you and your children have a special relationship.

Tip 3:  Don't stress about finances or the size of someone’s house.  Don’t eliminate anyone from consideration because you don’t think they have the financial wherewithal to take care of your children.  You can take care of the finances with what you leave. (That's what adequate life insurance is about.)  You can even instruct your trustee to provide funds for your chosen guardian to build an addition to their home or move to a larger home to accommodate your children.

Tip. 4:  Focus on love.  Consider whether each couple or person on your list would truly love your children if appointed their guardian.  If they have children of their own, will your children be second fiddles?  Or is the couple sufficiently loving that they will make your children feel loved no matter what? 

Tip 5:  Consider values and philosophies.  Ask yourself which people on your list most closely share your values and philosophies with respect to your:
• religious beliefs
• moral values
• child-rearing philosophy
• educational values
• social values

Tip 6:  Personality counts.  Consider whether each of your candidates has the personality traits that would work for your children.
• Are they loving?
• Are they good role models?
• Do they have the patience to take on parenting your children?
• How affectionate are they?  (If your family is particularly affectionate, a guardian who is loving but not physically affectionate could be damaging.)
• If they're fairly young, how mature are they?

Tip 7:  Consider practical factors.  For example:
• How would raising children fit into their lifestyle? 
• If they’re older, do they have the necessary health and stamina?  Do they really want to be parents of a young child at their stage in life?
• Do they have other children?  How would your children get along with theirs?  Are there potential problems if your children were to live with theirs?  How easily could the problems be dealt with?  (For instance, do you want to place a child who struggles in school with a high-achieving child of the same age for whom everything comes easily?)
• How close do they live to other important people in your children’s lives?
• If a couple divorced, or one person died, would you be comfortable with either of them acting as the sole guardian?  If not, you need to specify what you would want to happen.

Tip 8:  Look for a good – but not a perfect – choice.  Most likely, no one on your list will seem perfect – that is, just like you.  But if you truly consider what matters to you most, you will probably be able to make some reasonable choices.  In the end, trust your instincts.  If one couple or person meets all of your criteria, but doesn’t feel right, don’t choose them.  By the same token, if someone feels much more right than any of the others on your list, there’s a good reason for it. Make your primary choice, then some backup choices.  It’s essential that both you and your spouse agree.  If you cannot make a decision, or if you and your spouse cannot agree, a good counseling-based estate planning attorney can help you through the process.

Tip 9:  Select a temporary as well as a permanent guardian.  Temporary guardians may be appointed if both parents become temporarily unable to care for their children – for example, as the result of a car accident.  Depending on your choice for permanent guardians, you may want to designate different people to act as temporary guardians.  If your choice for a permanent guardian lives a considerable distance away, choose someone close by to serve as temporary guardian.  If you're temporarily disabled, you'll want your children close by.  And you won't want their lives unnecessarily disrupted by moving them to a new town and school.  If you have no relatives or close friends nearby, consider families of your children’s friends.
 

Tip 10:  Consider a Guardianship Panel.  Because it's difficult to predict what your children’s needs will be as they grow older, consider appointing a “Guardianship Panel” to decide who would be the best guardian when and if it becomes necessary.  Choose trusted relatives and friends to make up the panel. This allows for maximum flexibility, so the most appropriate choice can be made at the time a guardian is actually needed.  The Panel can consult with your children and assess their needs and desires to make the most appropriate choice based on the current situation.

 
Tip 11:  Write down your reasons.  If you’ve chosen friends over relatives, or a more distant relative over a closer one, be sure to explain your decision in writing.  That way  – in the unlikely event your choice is challenged by people who feel they should have been chosen – a court should readily uphold your decision, knowing you've made your choice for good, solid reasons. 

Tip 12:  Talk with everyone involved.  If your children are old enough, talk with them to get their input as well.  And be sure to confer with the people you'd like to choose, to ensure they're willing to be chosen and would feel comfortable acting as guardians.
Once you’ve made your choice, there are steps you can take to make sure the potential guardians you’ve chosen will have guidance and support they need.  Here are a few ideas:
• Create a set of guidelines to convey information about your children, your parenting values and your hopes and dreams for your children.  (See or ask for our “Guidelines for Guardians” handout.)

• Set up a trust that will hold the assets you pass to your children, and instruct the trustee to provide necessary financial assistance to the guardians.  You can also create specific instructions about special things you’d like the trust funds used for (for example, annual trips for your children to visit close friends and relatives, a particular summer camp, putting in a swimming pool at the guardians’ house). 

• Designate “mentors” consisting of special people in your children’s lives to help guide them in ways for which the “mentor” is particularly well-suited.  For instance, the person you choose for trustee may also be a good “financial” mentor for your children.  Or you may want to designate a “spiritual” mentor, particularly if the guardians you choose have religious philosophies that differ from yours.  You can also name in your estate planning documents people who you simply want to have ongoing involvement in your children’s lives.  This can be a good way to include both sides of the family. 

Thursday, September 17, 2009

The Trusted Advisor

In this uncertain economy, it is natural to look for less expensive alternatives for many important goods and services.  The Mo-Town harmony group, The Miracles, advised "You better shop around," and many people have internalized this sentiment with the market on a sharp decline.  When it comes to items or services that are exactly the same, finding the lowest price makes sense.  However, not all goods and services are identical.

With respect to Estate Planning, a popular phenomenon is out-of-town "trust mills," organizations of non-attorneys who sweep into town, put on seminars, sign you up for a trust at half the cost of a local attorney, and then disappear.  You think you've done your estate planning at a bargain.  However, are you getting the same quality plan and service that a local trusted adviser can provide?

When working with your Estate Planning Attorney, it is important that he or she make the effort to get to know you, your family, your financial situation, and your concerns.  Once the attorney has tailored a plan that is specific to your needs, your attorney should take the responsibility to make sure that all of your current assets are titled to your Trust and that the designated beneficiaries on your life insurance policies, annuities, and retirement plans are up-to-date and coordinated with the rest of your Estate Plan.  Finally, your attorney should be available to answer questions and counsel you and your family long after you've signed your Estate Plan. 

Having a trusted adviser that your family can rely upon for a lifetime is a more important factor than cost when searching for someone to entrust with the important life decisions involved in Estate Planning.
 

Friday, September 04, 2009

In Trust: Asset Protection

For centuries, the common estate planning method was for assets to be distributed from one generation directly to the next.  In the context of living trusts, once the trust makers died, the trust would terminate either immediately or upon the beneficiary attaining a specified age and the assets would be titled directly to the beneficiary. 
 
At first glance, this method makes sense: you want your assets to pass to your beneficiaries.  However, the problem with beneficiaries directly inheriting assets "free of trust" is that such assets are vulnerable and unprotected: they may be co-mingled and lost in a divorce or they may be subject to your beneficiaries' creditors.  In this litigious era where the divorce rate is staggering, protecting beneficiaries' inheritance from divorce and lawsuits becomes a key concern.
 
By creating trusts that continue for the lives of your beneficiaries, you can protect your beneficiaries' inheritances from divorce and even lawsuits.  Instead of having the trust terminate and the assets be transferred directly to the beneficiary, your trust would create a "trust share" for each beneficiary.  If the beneficiary is mature and responsible, the beneficiary can even be the trustee of his/her "trust share" and be able to manage his/her inheritance.  This method of keeping the assets in trust will make it easier and more likely that your beneficiary will keep the inheritance separate and not co-mingle it with a spouse, thus greatly reducing the chances of it being lost in a divorce.  Depending on how the trust is drafted, if a beneficiary is sued, the beneficiary can resign as trustee and the inheritance will likely be protected from most creditors.
 
Rather than "letting the toothpaste out of the tube," and "dumping" your assets to your beneficiaries, careful Estate Planning can ensure that your hard-earned assets are protected for your beneficiaries, even in the event of divorce and lawsuits.

While many clients are interested in protecting their beneficiaries' inheritance, some clients inquire as to the feasibility of protecting their own assets from their own actual or potential creditors.

A typical Revocable Living Trust will not provide you with asset protection.  It is considered a "see-through" trust and creditors may seize trust assets just as easily as they can seize assets titled to your individual name.  However, there are Estate Planning steps you can take in order to provide you with a degree of asset protection.
 

If you run a business or own rental properties, you may form an entity such as a corporation or an LLC to own such assets.  By holding such assets through an entity, you can substantially limit your liability.  For example, if you own a vacation house that is titled to an entity and someone slips and falls in the house, your liability will generally be limited to the house and the potential plaintiffs will not be able to go after your personal property.  Corporations and LLCs will not, however, protect you from professional malpractice claims and you may not transfer your personal assets, such as your residence, into such entities.

A second method for protecting your own assets is to ask your potential benefactors (such as your parents) to amend their Estate Planning to create trust shares for your inheritance rather than "dumping" your inheritance to your individual name.  With "spendthrift" language and other provisions, your inheritance will be protected from most creditors.

 Protecting your residence and other "personal" assets that you acquired through your own hard work is more difficult.  California law does not allow you to create trusts where you protect your own assets from your own creditors while still being able to enjoy such assets.  Other states, however, such as Nevada and Delaware, do allow such trusts.  It is uncertain how a California court would rule concerning California property held in a Nevada trust, but it does create obstacles for potential plaintiffs and at least gives you a chance at protecting your hard-earned assets from creditors.
 

Purchasing general liability insurance is inexpensive and another form of asset protection.  Finally, always acting in a cautious, responsible, and thoughtful manner in everything you do is perhaps the best form of asset protection, though in this litigious era, it certainly isn't foolproof.
 

Wednesday, August 12, 2009

A Gamble Worth Taking?

Occasionally, clients may wish to leave their natural heirs less than what their heirs would inherit by law if they never set up an estate plan in the first place.  Some clients even wish to completely disinherit a natural heir for a variety of reasons.  In these situations, an heir has an incentive to challenge the validity of the estate plan.
 

To discourage the challenge of an estate plan, attorneys for years have inserted "No Contest Clauses" into their clients' wills and trusts.  A "No Contest Clause" is a provision that states if anybody contests the validity of an estate plan and loses that challenge, that person gets absolutely nothing.  By forcing the heir to "gamble" his or her inheritance when challenging an estate plan, the idea is to give the beneficiary pause about creating trouble.

For years, the Probate Code Section outlining "No Contest Clauses" was so open-ended that it applied to a broad spectrum of situations.  Courts held that an estate plan's "No Contest Clause" applied to a petition to remove a trustee and to a petition by a beneficiary to increase the dividends of corporate stock that the trustees held.  The result was chaos: beneficiaries were losing their shares so often that the legislature created a procedure whereby potential litigants could "ask" the court whether a potential action would violate the "No Contest Clause" before actually taking that action.  This was creating a huge backlog of court filings which caused unnecessary expense and delays.

In response to the excessive litigation, California recently dramatically narrowed the application of "No Contest Clauses" to only apply to six specific allegations: (1) Forgery; (2) Lack of Due Execution; (3) Lack of Capacity; (4) Menace, Duress, Fraud, or Undue Influence; (5)  Revocation; or (6) Disqualified Beneficiary.  If a litigant contests an estate plan based on one of these allegations and lacks probable cause, the "No Contest Clause" will apply.  Furthermore, the new Probate Code Section eliminates the ability for potential litigants to "ask" the Court whether a particular action will violate the estate plan's "No Contest Clause."  These changes will take effect on January 01, 2010 and will be applicable to estate plans that became irrevocable on January 01, 2001 or later.  It remains to be seen how this "retroactive" application will play out.   

Even with this narrowed application, a "No Contest Clause" can ensure that your wishes get carried out at death.  However, "No Contest Clauses" only work if the disgruntled heir actually has something worthwhile to lose by challenging the estate plan.  It is for this reason that I often counsel my clients to leave a certain amount to a particular beneficiary (i.e., $20,000) rather than leaving that beneficiary nothing - make them ask themselves, "Is this a gamble worth taking?"
 

Tuesday, July 28, 2009

Modifying Irrevocable Trusts

Thursday, July 02, 2009

Michael Jackson's Will is Mostly Irrelevant (Read the Will Here)

The media is focusing on the contents of Michael Jackson's Will, implying that his Will is his primary Estate Planning Document.  In fact, Michael Jackson's Will is largely irrelevant in determining how his assets will be distributed, to whom they will be distributed, and when they will be distributed.  The reason is because Michael Jackson's primary Estate Planning document is the Michael Jackson Family Trust, dated March 22, 2002.  This Trust is a "Living Trust" which means that the details of Mr. Jackson's specific plans with regard to the distribution of his Estate are private and will not become public record unless it is contested.  Furthermore, because he created a Living Trust as his primary Estate Planning document, Mr. Jackson's Estate will likely not be subject to Probate, saving his beneficiaries (whomever they may be) millions of dollars in attorney fees.

Mr. Jackson's Will is what we in the Estate Planning community refer to as a "Pour Over Will."  His Will does not say much more than the fact that if he accidentally forgot to title any of his assets to his Trust, he wants such assets to "pour over" into his Trust to ensure that the terms of the Trust (which are private and completely unknown at this point) will control his entire Estate. 

The Will offers a few additional details of Mr. Jackson's Estate Plan that would not be interesting if he were not such a high-profile individual with high-profile friends.  First, the Will states his wish that the guardian of his minor children be his mother, Katherine Jackson, and if she is unable or unwilling to act as guardian, Mr. Jackson wishes that his celebrity friend, Diana Ross, will act as guardian.  These wishes are not binding and must be approved by the Court, but courts often place high value on a parent's nominations for guardian of their children.  Second, the Will makes it clear that Mr. Jackson is intentionally omitting from his estate his former wife, Deborah Jean Rowe Jackson. 

The media is pouncing over these few and minor details of Mr. Jackson's overall Estate Plan, acting as if the entire Estate Plan has been revealed.  Unfortunately, such misinformation is common in this era of 24-hour news cycles.  The fact is we have no idea the identity of Mr. Jackson's beneficiaries, how much each beneficiary will receive, when each beneficiary will receive his/her inheritance, or what specifically Mr. Jackson's assets and debts are at this point. 

One thing we do know is that Mr. Jackson - with the advice of his attorney - made at least one smart Estate Planning move: he created a private Living Trust as his primary Estate Planning document.

Read the Pour Over Will here:  
http://www.aolcdn.com/tmz_documents/0701_mj_will_wm.pdf

Monday, June 08, 2009

Before Your Child Takes That Trip This Summer . . .

School is out and summer is here!  It is that time of year when many of us will be traveling.  When I was a kid, both of my parents were educators with the Monterey Peninsula School District and we therefore were able to spend our summers traveling together.  However, not all families are fortunate enough to have the same amount of vacation time.  Often, parents will travel out of town and leave their minor children in the care of a trusted family member or friend.  Other times, minor children travel with other family members or friends while the parents stay home.  In each situation, it's important to make sure that specific legal issues are addressed.

If you plan to travel and leave your minor child with another, what will happen if your child has a medical emergency?  It is important to execute a Power of Attorney that specifically gives your child's custodian the right to make health care decisions for the child, including the ability to decide whether to elect or withhold surgery and medication.  Furthermore, state and federal medical privacy laws (commonly known as HIPAA) put severe restrictions on access to another's health information.  It is important that you specifically authorize your child's custodian the right to receive all health information relating to your child. 
 

If your minor child is planning on traveling with somebody else, make sure you have signed an authorization giving the adult with whom your child is traveling permission to take your child out of town, out of state, or out of the country (depending on the travel destination) and to change the child's traveling plans in case of weather or other variables.  In light of the recent custody struggles of David Goldman, whose son was taken to Brazil by his mother without his permission, it is especially important that such documentation is in order if your minor child will be traveling through an airport as authorities may be extra sensitive to children traveling with non-parents.
 

Wednesday, May 27, 2009

Are You Subject to Probate?

Probate is the court-supervised process that oversees the payment of your final creditors and the distribution of your assets upon death.  Because it is a court procedure, the fair market value of everything you owned at death and the beneficiaries of your assets become public record.  Furthermore, in California, probate is typically time-consuming (about nine to twelve months on average) and expensive (statutory attorney fees are 4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; and 1% of the next $9 million). 
 

You are ordinarily subject to probate if the fair market value of assets titled in your name exceeds $100,000 or if you have any real property in excess of $20,000.  However, the manner in which your assets are titled is key.  The most common and popular estate planning strategy in California is to re-title your assets to a revocable living trust.  By doing this, you retain control over your assets while living and at death you can entirely avoid probate.  This strategy hinges upon making sure your assets are re-titled to your trust and is why I perform this important task for all of my clients. 
 

Occasionally, clients die with some assets titled to their trusts and some assets titled to their individual names.  In this scenario, it is important to review how each asset is titled and the total fair market value of non-trust assets to determine whether a probate is necessary.  I have seen cases where the attorney cuts corners by not verifying that all assets are subject to probate and commences probate proceedings unnecessarily.  At the other end of the spectrum, I once had a client who was sure his deceased mother had over $100,000 in non-trust assets based on the most recent bank statements he could find.  Rather than jumping to conclusions and immediately starting a probate, I suggested we write letters to the banks to double check the date of death values of the accounts.  As it turned out, one account was titled to the trust and another account was closed six months prior to the decedent's death.  As a result, there were less than $100,000 in non-trust assets and we were able to avoid a probate all together.

Re-titling your assets to your trust during the planning stage and carefully verifying the title and value of a person's assets at death are the fundamentals of avoiding probate.  At both stages, careful attention to detail and a comprehensive approach are crucial elements of good legal service.

Tuesday, May 12, 2009

The Practical Solution

When clients have a dilemma, the first question they typically ask me is what legal avenue can be pursued to resolve the situation.  Clients naturally expect their attorneys to have legal answers to their legal issues.  While attorneys are formally trained in a myriad of legal remedies, sometimes the best and least expensive course of action is not a legal one at all.

I once had clients who inherited an IRA.  The IRA custodian refused to distribute the IRA in the manner we requested.  My clients asked me whether I could sue the IRA custodian to force it to comply with our request.  Instead of fighting a giant financial institution, I found a different IRA custodian that was willing to fulfill our request. The solution was simply to transfer the IRA to the new custodian.

On another occasion, I had a client who wanted to get rid of a timeshare.  She spent hundreds of dollars unsuccessfully trying to sell it.  She asked me about legal consequences of defaulting on the association dues and the taxes.  While researching legal options, it occurred to me that a charity might be willing to accept the timeshare as a donation.  I found a charity that took the timeshare off of my client's hands.  We avoided a big fight with a large timeshare company and also avoided the negative consequences of defaulting on owner association fees and taxes.  
 

Several years ago, a client's father died leaving literally hundreds of stocks held in certificate form.  The stock certificates were to be divided amongst eight beneficiaries.  My client was having trouble with the stock transfer agent and was told that it was not possible to divide the stocks in such a manner without major expense.  My client naturally asked me if legally I could find a way to force the stock transfer agent to divide the stocks in such a manner without the additional expense.  Instead, I discovered that I could transfer all of the stock certificates to a local brokerage house which was more than happy to divide the account amongst the eight beneficiaries free of charge.
 

While it is natural to think of legal solutions to various problems, sometimes the practical solution is the best strategy.  It is important that you have an attorney who can see the big picture and can find solutions that are simple and inexpensive rather than being preoccupied with showing off what he or she learned in law school.
 

Thursday, April 16, 2009

Protecting Your College-Age Child

Preparing for College can be Hard

With you child’s college acceptance now in hand, you can turn your attention to preparing your 18 year old for this new and exciting stage of life.

You will have a lot to plan for as you prepare to send your “baby” off to school this fall.  Making sure that they have the right bedding, dorm supplies and meal plan is all part of that planning.  

Once you’ve gotten through the checklists and dropped them off (with some tears and lots of good advice), the only thing you’ll have left to do is worry.  You’ll worry whether your freshman is eating enough, studying enough, and getting enough sleep. While we can’t help with these everyday concerns, we can help with one of the big ones:  How will you know if something happens to your son or daughter while away at school?  

In most cases, unless your 18 year old has created the appropriate legal documents, (i.e. HIPAA release, Health Care Power of Attorney) you might not know.  HIPAA, the federal Health Insurance Portability and Accountability Act, was created to help protect patient privacy; but it can mean that you, as the parent of an “adult child,” may not be able to get information about your child in a medical emergency.  This is why your child needs a HIPAA release before leaving home.

KRASA LAW can create the HIPAA release and Healthcare Power of Attorney your child needs. Coupled with a DocuBank I.C.E. (In Case of Emergency) wallet card, you can rest easier knowing that these important documents will be quickly accessible to hospital staff in an emergency – 24/7/365.

The I.C.E. service also sends you an alert, should your child’s card be used to retrieve their emergency information, containing the phone number of the facility requesting the information so you can immediately call to follow up.  And, since the hospital will have the HIPAA release form before you call, there should be no obstacle to you receiving the information you need.

To find out more about, HIPAA and DocuBank I.C.E., or to schedule an appointment, please call us (831-621-7375 or 877-402-2719).  Let us help you with one less thing to worry about!   

 

Wednesday, April 15, 2009

Selecting Your Successor Trustee

Selecting Your Successor Trustee

When thinking about their Estate Planning, most clients carefully think about who should be a beneficiary of their Estate, what percentages each beneficiary should receive, whether there should be any strings attached to such inheritance, and what should happen if a particular beneficiary is pre-deceased.  These are all issues that should be carefully considered.  However, most clients do not give much thought to who should serve as their Successor Trustee.  This is an important role that should be carefully considered.

Your Successor Trustee has the responsibility of managing and distributing your assets in accordance with your wishes when you are no longer able to do so, either due to incapacity or death.  First, you want to make sure that the person you are considering is trustworthy and responsible.  Will that person follow your instructions?  Will the person take the time to make sure that he/she is doing everything correctly? 

Second, you want to make sure that the person you selected is competent.  There are often many complex decisions that must be made.  While it is true that your Successor Trustee may seek the guidance of an attorney, tax professionals, and even financial advisers, every decision is ultimately in the best judgment of your Successor Trustee.

Third, make sure that the person you selected is willing to act.  There is no rule that requires a person to act as Successor Trustee simply because you designated that person as such in your Estate Planning documents.  Having a personal and candid conversation with that person will not only assure you that the person is willing to act, but will also affirm that you have made the right selection.

A qualified Estate Planning attorney can guide you through the very important process of selecting your Successor Trustee.

KRASA LAW is located at 704-D Forest Avenue, PG and Kyle can be reached at 831-621-7375.

Wednesday, March 25, 2009

Who Needs Estate Planning?

Planning for Life

By Kyle A. Krasa, Esq.

Who Needs Estate Planning?

The other day I ran into an old family friend in a local drug store.  She had heard that I was an Estate Planning attorney and she said to me, “When I get an Estate, I’ll give you a call.”  This is a common reaction to the term, “Estate.”  The term conjures images of Bill Gates and Oprah Winfrey, large lawns and stately mansions.  The truth is that the term, “Estate,” is just a fancy word for all the assets you own such as your house, cars, bank accounts, retirement plans, and life insurance.  Everybody has an “Estate.”  Some “Estates” are worth billions of dollars while other “Estates” are only worth a few hundred dollars.  So, who needs “Estate Planning”?

Whether your Estate is large or small, everybody needs Estate Planning.  You want to be able to designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.

You also want to be able to plan on who will receive your assets after your death and who should carry out those wishes for you after you pass away.  Depending on the size of your Estate, you may also want to plan on reducing or eliminating unnecessary taxes, such as the federal Estate Tax.

If you fail to plan ahead, a judge will simply appoint someone to handle your assets and personal care through a process known as Probate.  Contrary to popular myth, everything does not automatically go to the state if you die without a plan. Your relatives, no matter how remote, will likely inherit from you.  However, an estate plan gives you much greater control.

Regardless of the size of your Estate, there is an Estate Plan for everybody’s circumstances.

KRASA LAW is located at 704-D Forest Ave., PG and Kyle can be reached at 831-621-7375.