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The KRASA LAW, Inc. Estate Planning Blog

Thursday, October 17, 2013

Is That Really Illegal?

The study of law can sometimes be methodical and tedious.  Occasionally it is a nice change of pace to take a tongue-in-cheek look at some of the more colorful laws that are on the books in various places.  When it comes to unusual laws, Clint Eastwood’s crusade against Carmel’s now repealed law forbidding the eating of ice cream while standing on the sidewalk comes to mind.  Below is a list of other bizarre laws, most of which are still on the books.  These laws are all courtesy of www.dumblaws.com.

California Statewide Laws:

•    Sunshine is guaranteed to the masses.


•    It is a misdemeanor to shoot at any kind of game from a moving vehicle, unless the target is a whale.


•    No vehicle without a driver may exceed 60 miles per hour.

Local California Laws:

•    In Los Angeles County, you may only throw a frisbee at the beach with the lifeguard’s permission.


•    In Baldwin Park, nobody is allowed to ride a bicycle in a swimming pool.


•    In addition to the ice cream rule mentioned above, in Carmel, a man can’t go outside while wearing a jacket and pants that do not match and women may not wear high heels while in the city limits without a city permit. 


•    In Chico, bowling on the sidewalk is illegal.


•    In Fresno, elementary schools may not host poker tournaments. 


•    In Glendale, it is illegal to jump into a passing car.


•    In Indian Wells, it is illegal for a trumpet player to play his instrument with the intention of luring someone to a store.


•    In Pacific Grove, it is illegal to molest butterflies.


•    In Prunedale, two bathtubs may not be installed in the same house.


•    In Walnut, children may not wear a halloween mask unless they get a special permit from the sheriff.

Foreign Laws:

•    In England, placing a postage stamp that bears the Queen (or King) upside down is considered treason.


•    In Finland, taxi drivers must pay royalties if they play music in their cars for paying customers.


•    In France, between the hours of 8AM and 8PM, 70% of music on the radio must be by French artists.


Friday, September 20, 2013

Putting Your Eggs in Your Basket

Most comprehensive estate plans center around a revocable living trust.  A key aspect of a trust is to make sure your assets are titled to the trust.  If your assets are not properly titled to your trust, your entire estate planning can be in jeopardy, subjecting your estate to unnecessary tax, delay, expense, exposure to your beneficiaries’ creditors or divorcing spouses, and in some cases, even transferring your estate to unintended beneficiaries. 

Picture your trust as an empty basket and all of your assets as eggs.  Creating an empty basket without taking the extra step of transferring your eggs into the basket can undermine your entire estate plan.

Below are some general comments about how to put your eggs in your basket.  

Titling Your Assets

With a few key exceptions, generally you should title all of your currently owned and newly acquired assets in the name of your trust.  For example, instead of holding title as, “Bing Crosby,” title should be changed to, “Bing Crosby, Trustee of the Bing Crosby Living Trust, dated June 20, 2013.” 

Social Security Number

For basic revocable living trusts, while you are living, the tax identification number for your trust is your Social Security Number.  In general, because you have complete control over your trust, the IRS does not recognize the existence of your trust for tax purposes.  As a result, you will continue to file your tax returns on your 1040 and your 540 under your Social Security Number as you always have.

Upon your death, your trust will become irrevocable and at that point will require its own tax identification number.   

Cash Accounts

You should sign new signature and ownership cards to re-title all bank accounts or cash equivalents, including treasury bills, money market accounts, and certificates of deposit, to name yourself as Trustee of those accounts. 

Before you re-title your certificates of deposit, consult with a bank officer to make sure that the institution does not consider the change in account name to be an early withdrawal that incurs a penalty.  Generally, this should not be a problem because your tax identification number for the account will remain the same.

Instruct your financial institution by letter or in person to change the title to your trust.  The tax identification number (your Social Security number) on the account for withholding and reporting purposes will remain the same. 

Re-titling the account records should have no effect on the name you wish to have printed on your checks.  There is no reason to have the name of your trust on your printed checks. Ask your bank to continue to print your individual name on the checks.

Investment Accounts

If you hold publicly traded stocks and bonds that are already in brokerage or investment accounts, contact your brokers or custodians and direct them to change the title of the accounts to the name of your trust.  The procedure for doing so is the same as the procedure for re-titling cash accounts explained above. 

Stocks and Bonds Not Held in Investment Accounts

If you possess original stock or bond certificates, there are two ways to transfer the certificates to your trust.

(a) Open a brokerage or investment account in the name of your Revocable Living Trust and deposit your original certificates in the account. 

(b)  Work directly with the transfer agent for the stock or bond and direct the agent to reissue your stock with your Revocable Living Trust named as the new owner.

Mortgage, Notes, and Other Receivables

If you have loaned money to anyone, you should assign your interest as lender to your Revocable Living Trust by a written document and notify your debtor of the assignment. 

Real Property

Transferring your real property to your trust will require attention to ownership and tax issues based on the nature of the current title to the property.  Ultimately, the transfer will require preparing, executing, and recording new deeds for each property.

Personal Effects

Tangible personal property such as furniture, works of art, jewelry, clothing, tools, artifacts related to your hobbies, and electronics are transferred to your trust by a written document stating your intent to hold such assets in your trust.

Non-Trust Assets

Three categories of assets are generally not transferred to your trust while you are living but instead are controlled by separate beneficiary designations with the financial institution.  These categories include (1) Retirement Plans, (2) Life Insurance, and (3) Annuities.  It is important to make sure that the beneficiary designations on such assets are coordinated with your overall estate plan. 

In many circumstances, it might make sense to name your trust as the designated beneficiary, though special care is required when it comes to retirement plans and certain annuities.  In general, the trust must have special provisions to help navigate tricky tax issues and the beneficiary designations must be written in a very specific way.  Naming a trust as a beneficiary of retirement plans or annuities should NEVER be done without the guidance of a qualified attorney.  

Conclusion     

Putting your eggs in the basket is essential to proper trust-based estate planning.  While many attorneys leave this critical part of the estate plan to their clients to complete, the task can be overwhelming and can easily lead to major mistakes with devastating consequences.  The best procedure is for your attorney to help guide you through this onerous process. 

Although it may appear that the information contained in this article is enough of a guide to help you with the trust funding process, there are far too many caveats and other "hidden traps" than can be fully expressed in a forum such as a blog.  Be sure to work with a qualified attorney who is licensed to practice law in your community before acting upon any of the information contained in this article.  


Friday, September 6, 2013

It’s All in the Execution

You can have the best plan in the world, but if it is not executed correctly, it will fail. This is literally true when it comes to following the proper procedures for signing estate planning documents and thus making them legally valid. To make matters more complicated, each specific type of estate planning document has its own execution requirements.

1. Formal Will

A formal will must be in writing and is generally a typed document. It must be (a) either signed by the testator or signed by a third party in the testator’s presence at the direction of the testator, (b) signed in the presence of two witnesses, and (c) signed by the two witnesses with the understanding that they are signing the testator’s will.

The witnesses should be “disinterested” meaning that they are not named as beneficiaries in the will and are not natural heirs of the testator.

Notarization of the will is not required and is also irrelevant: notarization does not take the place of the two-witness requirement.

2. Holographic Will

If the “material” terms of a will are written in the testator’s handwriting, it might be considered a holographic will. In such a case, the will does not have to be witnessed but must be signed by the testator. Although, if properly executed, holographic wills are valid, it is generally not recommended to execute a holographic will because there is a lot of room for error.

Just as with a formal will, notarization of the holographic will is not required and is in fact irrelevant.

3. Trust

Most estate plans are “trust-based,” meaning that the key document is a revocable living trust. A trust is a type of contract that, when properly drafted and funded, supersedes a will. The trust must express a declaration by the trust-maker indicating an intent to hold the property in trust. If the trust involves real property, it must be signed by the trust-maker.

Although it is not legally required, it is often wise to have the trust-maker’s signature notarized in case there is any dispute as to the authenticity of the trust-maker’s signature.

A trust does not have to be witnessed in most states but doing so does not make the trust invalid and might add an extra layer of protection.

4. Durable General Power of Attorney

A durable general power of attorney is a document that gives an agent the power to manage the principal’s financial affairs. In order for a durable general power of attorney to be valid, it must (a) contain the date of the document, (b) be signed by the principal or signed by a third party at the principal’s direction; (c) and either be notarized or be signed by two witnesses who are adults, who are not named as agents under the durable general power of attorney, and who were present when the principal signed the durable general power of attorney.

5. Advance Health Care Directive

An Advance Health Care Directive is a power of attorney for health care decisions as well as an expression of how the principal would like the health care agent to make his/her health care decisions. Just like a durable general power of attorney, an Advance Health Care Directive must (a) contain the date of the document, (b) be signed by the principal or signed by a third party at the principal’s direction; (c) and either be notarized or be signed by two witnesses who are adults, who are not named as agents under the advance health care directive, and who were present when the principal signed the durable general power of attorney.

In addition, if the principal is a resident in a skilled nursing facility, the Advance Health Care Directive must also be signed by a patient advocate or ombudsman designated by the Department of Aging. This is a precautionary measure meant to ensure that the skilled nursing facility patient is making a truly voluntary decision by signing the Advance Health Care Directive.


Thursday, September 5, 2013

Celebrity Estate Planning Blunders

Prominent figures such as musicians, athletes, and actors have many talents and characteristics that are to be admired and enjoyed. There is no better live singer than Gwen Stefani. Witnessing Aaron Rodgers throw a perfect pass at legendary Lambeau Field is awe-inspiring. Tina Fey’s wit and dry sense of humor is insightful. However, many celebrities do not make the best decisions with respect to their estate planning. As William Shakespeare famously said, “past is prologue.” Do not repeat these celebrity estate planning blunders!

Marilyn Monroe

Actress Marilyn Monroe took the time to draft a will, but she did not put enough effort into her planning to make her wishes legally binding. She left the bulk of her estate to her acting coach with the “hope” that he would donate it to charity. Her acting coach never did donate her estate to charity and later married a woman whom Marilyn never met. Upon his death in the early 1980s, he left Marilyn’s estate to his wife who some estimate earned more than $30 million over the years from Marilyn’s image. If Marilyn had simply taken the time to draft a comprehensive trust, this colossal mistake would have been avoided. (Source: Insurance News Net.)

Amy Winehouse

Singer Amy Winehouse died “intestate,” meaning that she did not leave any estate planning document. At the time of her death, she was divorced however most of her friends, family members, and acquaintances confirm that she was still very close to her ex-husband and still viewed him as her “soul mate.” Because she did not take control of her estate by creating a will or a trust, her estate passed by law to her “natural heirs” as determined by law which did not include her ex-husband. If she had simply drafted a will or a trust, her estate would have passed to the person of her choice rather than leaving it up to the default rules of the legislature. (Source: Insurance News Net.)

Heath Ledger

Actor Heath Ledger executed a will three years before he died. However, the will pre-dated his relationship with actress Michele Williams with whom he had a daughter. As a result, legally his estate passed to his parents per the terms of his will instead of to his daughter. Luckily his parents agreed to take care of their granddaughter financially but the anecdote demonstrates the importance of making sure that one’s estate plan is up-to-date. (Source: Forbes.)

Ted Williams

Baseball great Ted Williams died with an estate plan that stated he wished to be cremated. However, two of his children from a second marriage produced a handwritten document that stated he wished that his body be cryogenically frozen. It was unclear whether the handwritten document was really written by Ted or whether he had sufficient capacity to make such a change to his wishes with regard to the disposition of his remains. Sometimes people think that it is “easy” to amend their estate plans on their own but this case demonstrates the importance of formally making changes with the aid and guidance of a qualified attorney. (Source: Forbes.)

Elvis Presley

Due to a lack of proper planning, singer Elvis Presley’s estate was reduced by a whopping 73% due to probate fees, settlement costs, and avoidable taxes. His case is often cited as an example of why avoiding probate and addressing estate tax planning by utilizing a revocable living trust can be crucial to protecting one’s hard-earned assets from being lost unnecessarily. (Source: Asset Protection Wealth Management.)

Chief Justice Warren Burger

Former U.S. Supreme Court Chief Justice Warren Burger took the law into his own hands by typing up his own will. However, the Justice made several key mistakes including subjecting his estate to probate and neglecting to give his executor the power to sell real estate without court approval. As a result, his family paid hundreds of thousands of dollars in taxes and fees that could have been avoided by a properly drafted estate plan. This demonstrates that even brilliant legal minds can make major estate planning mistakes if they are not proficient in the highly specialized practice area of estate planning.

Conclusion

No matter how much talent, intelligence, money, or fame a person might have, failure to take the time and effort to plan your estate properly will lead to unintended consequences that could have a dire impact on your loved ones. Learn from these bad examples and be sure to properly address your estate planning.


Monday, August 12, 2013

"Maybellene, Why Can't You Be True?"

To paraphrase country music singer Allan Jackson, my first love was an “older woman.” I was sixteen and she was forty-two. Despite the age difference, she was the prettiest I had ever seen. Although my parents were skeptical at first, they became very supportive of our relationship. My friends had their doubts at first as well, but they grew to truly adore her. She was born in Michigan in 1953. She is teal/blue and white and originally had a Powerglide transmission. I’m speaking of course about “Maybellene,” my 1953 Chevy Bel Air, named after the Chuck Berry song.

Recently, my mechanic suggested that I purchase taller and narrower wheels and tires to better accommodate the custom frame. I was excited to outfit Maybellene with “saddle shoes” (white wall tires), but I realized that beyond starting the car and steering the wheel, I know next to nothing about cars. My mechanic made it sound easy, “Just go taller and narrower.” The mechanic said that he was “not a tire guy,” but that the tire shop of my choice should be able to help me.

I visited my tire shop and was informed that in order to purchase white wall tires, I should go directly through a tire distributor on the east coast. The tire shop gave me dimensions on the height and width of the wheels and tires, but advised that when it comes to hot rods, they defer to the mechanic. The tire shop agreed to install my new tires and wheels after I ordered them through the distributor.

I called the tire distributor to sort through its catalog and finally settled on specific wheels and tires. Again, the focus was solely on the height and width. Before placing my order, I reviewed the potential purchase one more time with my mechanic and the tire shop. Both stated, “That sounds right.” Finally, not completely sure of what I was doing, I placed the order.

As feared, something indeed went wrong. Even though everybody only focused on the height and width of the wheels and tires, nobody mentioned to me the existence of a third measurement: “inset measurement,” that is, how far in or out the wheels sit. As it turned out, the wheels sat too far out, hitting the fenders, and rendering Maybellene non-operational. To make matters worse, because the wheels were mounted to the car, they were considered “used” and the tire distributor refused to accept a return. As far as finding a solution, it only got worse from there.

My mechanic suggested the solution was to order new wheels with different inset measurements. My tire shop dealer told me that getting new custom wheels would be too expensive and suggested instead to have a body shop roll the fender to create more space between the tires and the fender. I therefore visited a body shop. The body shop (predictably) advised me that rolling the fender will not work and suggested that I might need a smaller front clip.

In a few short hours, I went from having a drivable classic car that was going to be fitted with new and improved wheels and tires to a non-operational disaster with three different and contradicting opinions as to the best solution! Thankfully my mechanic offered to solve the problem for me, which ended up with my purchase of five new custom wheels with the proper inset measurement. Between the original wheels, the wheels I purchased from the east coast, and the custom wheels, at one point I had 15 wheels (including the spares) for one car!

This anecdote offers lessons that can be applied to estate planning.

1. Communication between expert and client is essential. Just as I do not expect my clients to know about conduit provisions, generation skipping tax, spendthrift clauses, and the rule against perpetuities, I should not have been expected to know or to inquire about inset measurement. The best attorneys are those who have a keen appreciation of what their clients should not be expected to know and effectively communicate that information in an easy-to-understand manner.

2. Communication among advisors is also important. Often, a client will have an attorney, an accountant, a financial advisor, and in some cases a realtor and a mortgage broker. If the parties are not on the same page, advice is bound to get muddled and the client suffers. Advisors must acknowledge that the client cannot be “stuck in the middle” and should put their egos aside and reach out to their colleagues to make sure that the plan is comprehensive from all perspectives.

3. Client care and service is necessary. When I had three different advisors giving me three different and contradicting solutions, I felt lost and frustrated. Thankfully my mechanic offered to lift the burden off of my shoulders by finding a solution himself. There is truly a benefit to having an expert who will accept the responsibility to address the client’s needs.


Friday, July 26, 2013

Kyle A. Krasa Named as a "Rising Star" by Super Lawyers

Local attorney Kyle A. Krasa was recently named by Super Lawyers as a “Rising Star.”  From the Super Lawyers website (www.superlawyers.com):

“Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process is multi-phased and includes independent research, peer nominations and peer evaluations.

Super Lawyers Magazine features the list and profiles of selected attorneys and is distributed to attorneys in the state or region and the ABA-accredited law school libraries.”

The selection process for Super Lawyers is rigorous and is typically a year-long endeavor.  Once again, from the Super Lawyers website:

“Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with third party research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis. 

The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. Since Super Lawyers is intended to be used as an aid in selecting a lawyer, we limit the lawyer ratings to those who can be hired and retained by the public, i.e., lawyers in private practice and Legal Aid attorneys.

The Super Lawyers patented selection process involves three basic steps: creation of the candidate pool; evaluation of candidates by the research department; and peer evaluation by practice area.”

The final published list of Super Lawyers represents no more than 5 percent of the lawyers in each state.  With regard to the “Rising Star” designation, the selection process is the same except that a “Rising Star” must be either 40 years or younger or in practice 10 years or less.  No more than 2.5% of the lawyers in each state are selected as “Rising Stars.”

Mr. Krasa is very appreciative of his selection by Super Lawyers.  “I am very honored and humbled by this prestigious recognition,” said Mr. Krasa.  “Even before I passed the Bar and became an attorney, I remember seeing Super Lawyers Magazine each year and thinking that it would be an incredible achievement to be selected.  Now that it has happened, it is quite surreal.”  He quipped, “Now that I am part of the Super Lawyers community, perhaps I need to go shopping for a cape!” 

In addition to being selected by Super Lawyers as a “Rising Star,” Mr. Krasa is certified by the State Bar of California Board of Legal Specialization as a Legal Specialist in Estate Planning, Trust, and Probate Law. 

Mr. Krasa believes that his accessible, comprehensive, and friendly approach sets him apart and aided in his selection as a “Rising Star.”  “I believe that it is important for attorneys to first remember that ultimately the goal is to address the needs of our clients and to solve their problems,” said Mr. Krasa.  “We are not academics in ivory towers discussing legal theories.  Our clients have real needs and our task is to help them in a comfortable and understandable manner.”     

Mr. Krasa expressed his gratitude to his family (in particular his wife Amanda, his three-year-old son, Jonah Bing, and his father Peter Krasa), his staff (Marilyn Beans, Caroline McMillin, and Rachel Hunter), his professional colleagues, his friends, and most of all his clients for their support.  “This is certainly a joint effort and although I am a solo attorney, this honor would not have been possible without scores of other individuals,” said Mr. Krasa. 

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle can be reached at 831-2240-0594.  


Wednesday, July 24, 2013

The Ideal Attorney

As with all professional relationships, it is paramount that there be a good fit between an attorney and a client.  Personalities, expectations, and dynamics play an important role in determining whether the engagement is a success.  My last issue examined the “ideal client.”  This issue examines the “ideal attorney.”

A popular discount clothing store has famous commercials where one person will be shown on the left side of the screen to have purchased a jacket from a competitor for a certain price, and a second person will be shown on the right side of the screen to have purchased the exact same jacket at the discount store, plus three or four additional items of clothing, for the same price.  The message of the advertisement is that one can purchase the exact same product at the discount store for less and that therefore the discount store is naturally the better option.  

Searching for the right legal services is not as easy.  It is much more difficult to determine if a client would be able to get the same services from different attorneys.  Unlike shopping for a product, when searching for the ideal attorney, a client must look beyond the surface.  Below are key qualities that the ideal attorney possesses and that should be considered when searching for legal counsel.    

(1)  Accessibility  

One of the most common complaints about attorneys is that they are unable to create a comfortable rapport with their clients.  Attorneys spend years learning complex legal principles and are often unable to “translate” these ideas for non-attorneys.  As a result, they use language and concepts that are foreign to their clients.  The clients often do not feel comfortable enough to ask for clarification and do not fully understand the advice they are seeking.  

The ideal attorney removes all barriers by communicating in a manner that the client understands and creates a pleasant environment where the client does not hesitate to ask questions or request additional explanation.  Regardless of how much expertise the attorney possesses, there is no need to “put on airs” or try to “impress” the client with the attorney’s education.  Being helpful to the client should be the primary goal.    

(2)  Listens to the Client’s Concerns

Sometimes attorneys have the propensity to “force” a solution that does not seem to address the client’s concern.  While it may often be the case that an attorney will identify issues of which the client was not aware, it is of paramount importance that the attorney truly understands what is motivating the client to seek legal guidance.  Attorneys might have pre-conceived notions about what “should” be the client’s concerns and develop solutions to those issues that do not address the client’s actual needs.  

The ideal attorney balances the need to guide the client through the maze of legal issues while at the same time ensuring that the solutions proposed solve the client’s actual problems rather than solving parallel issues that might not be as important to the client.  

(3)  Expertise

The law is complex and it is impossible to be an expert in all of the hundreds of different legal practice areas.  “General practice” attorneys who handle legal matters as varied as criminal law, civil litigation, intellectual property, and estate planning most often do not have enough the depth of knowledge in any one area of the law to adequately counsel their clients.  

The California State Bar puts such an emphasis on the need for attorneys to focus on key areas of the law that it created the Board of Legal Specialization.  The Board of Legal Specialization creates a rigorous program to certify attorneys as “Legal Specialists” in several different practice areas.  The ideal attorney is a Certified Legal Specialist in the area of law in which the client seeks help.  To find a Certified Legal Specialist in California, you may visit the website listed below:  

http://ls.calbar.ca.gov/LegalSpecialization/BoardofLegalSpecialization.aspx

(4)  Fair, Reasonable, and Caring

The ideal attorney treats the client with respect, honesty, and integrity.  With regard to all aspects of the attorney / client relationship such as scheduling, communication, and billing, the ideal attorney is fair and reasonable and is primarily motivated with the desire to help solve the client’s issues.  Far too often attorneys are “slaves” to the billable hour, believing that every communication and interaction must be reduced to an invoice.  While the legal profession is a business, the ideal attorney has a holistic view of the relationship and understands that a basic “fairness component” must always be considered.         

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle can be reached at 831-920-0205.


Friday, June 28, 2013

The Ideal Client

As with all professional relationships, it is paramount that there be a good fit between an attorney and a client.  Personalities, expectations, and dynamics play an important role in determining whether the engagement is a success.  This “Part One” of a two-part series examines the “ideal client.”  Next issue’s “Part Two” will examine the “ideal attorney.”

Often colleagues will ask me to describe the “ideal client.”  The expectation is that I will rattle off demographics and statistics describing objective attributes such as average net worth, level of education, age, and family profile.  However, what I look for in an ideal client has very little to do with such qualities.  My ideal client is someone who (1) has a need that I can address, (2) understands and appreciates the value of thorough legal services, (3) is cooperative and responsive, and (4) is polite, courteous, and a pleasure with whom to work. 

(1) Has a Need That I Can Address

Almost everyone has a need for estate planning.  Although the word, “estate,” is sometimes a loaded term, estate planning is simply about protecting and preserving your hard-earned assets for yourself and the ones you love, both in the event of incapacity and upon death.  Most people have an interest in these pursuits, whether their estates are large or small.  Statistics show that only 20% to 25% of people have any estate planning in place.  Not only is that a small percentage of the population, but most of the estate planning in place is rudimentary and inadequate.  As a result, most people need the services of an estate planning attorney.    

(2)  Understands and Appreciates the Value of Thorough Legal Services

Everybody who seeks the advice of an attorney knows that they have a need, otherwise they would not seek the services of an attorney in the first place.  However, some people seek a “quick fix” at a bargain fee, not understanding that the law often involves complex nuances that must be addressed with detail and measured counsel.  The stakes are high with regard to legal issues.  In any project I undertake, I want to make sure that it will be done correctly and completely, leaving no loose ends.  The ideal client has the same appreciation for a thorough approach to the law and is willing to make a congruous investment to achieve that end.       

(3)  Cooperative and Responsive

While it is true that the client hires the attorney to perform a service, there is always a give and take with an attorney/client relationship.  The attorney will need information from the client, might need the client to perform certain tasks, and will need to make follow-up telephone calls and schedule follow-up meetings.  The ideal client is committed to the work at hand and is responsive to the attorney’s reasonable requests. 

 

(4)  Polite, Courteous, and a Pleasure with Whom to Work   

As with any relationship, good manners go a long way.  A happy and friendly work environment is key to making sure that complex legal work is performed correctly.  The attorney and staff must feel comfortable and positive about the clients for whom they work.  The client must feel the same way about the attorney.  Life is too short to deal with the unnecessary angst that incivility creates. 

Conclusion

Far too often in identifying the ideal client, attorneys focus on tangible characteristics that do not adequately predict the success of the professional relationship.  The aforementioned characteristics are not universal – different attorneys will have different notions of the ideal client just as different clients will have different notions of the ideal attorney.  The key is to be able to match those characteristics to ensure a positive attorney/client experience.


Friday, June 14, 2013

Does Your Trust Need to Pay Taxes?

A trust is the most common estate planning document.  Many clients inquire as to whether their trusts are required to file their own tax returns.  As with all legal answers, “it depends.”  The nature and structure of a trust determines whether it is required to file a tax return.

 All trusts feature the same three roles: (1) a trust maker, who establishes the trust, dictates the terms of the trust, and transfers assets into the trust; (2) a trustee who manages the assets of the trust; and (3) a beneficiary who uses and enjoys the assets of the trust.

The most basic type of trust is often referred to as a “revocable living trust.”  At its inception, the same person (or the same married couple) occupies all three roles.  During the lifetime of the trust maker, the trust is completely revocable and amendable.  Because the trust maker has total control over all of the assets of the trust and may manage them however he or she sees fit, the IRS and the Franchise Tax Board do not recognize a difference between the trust maker and the trust.  As a result, the trust does not file a separate return.  The IRS and the Franchise Tax Board “look through” the trust and simply tax the trust maker on his or her 1040 and 540 under his or her Social Security Number.  

When the trust maker dies, the trust becomes irrevocable.  At this point, because the trust can no longer be changed and because the trust maker can no longer be taxed individually, the trust becomes a tax payer.  In general, the trustee obtains a Tax ID Number from the IRS which is essentially a Social Security Number for the trust.  If the trust has any income for the year, the trustee will likely be required to file a federal and state trust tax return, Form 1041 and Form 541 respectively.  

In obtaining the Tax ID Number, there is a question on the application that is often answered incorrectly: the “start date” of the trust.  Many people incorrectly understand this question to mean the original date the trust was executed.  However, because the IRS does not recognize the existence of a revocable living trust for tax purposes, the “start date” of the trust is not the date the trust was executed but instead the date of the trust maker’s death.  If the date the trust was executed is mistakenly entered on the Tax ID Number application, the trustee will receive a letter for the IRS asking why it hasn’t received years of trust tax returns that of course were not necessary.

Another factor to consider is whether a Tax ID Number is even required after the death of a trust maker.  If the trust does not contain any income producing assets, then a Tax ID Number might not even be necessary.  For example, a trust might only contain the decedent’s residence or small non-interest bearing checking account.  The trustee would be able to distribute the assets to the beneficiaries without having to file a trust tax return at all.

For more advanced estate planning purposes such as tax planning, asset protection, and Medi-Cal planning, a trust maker might choose to establish a trust that is irrevocable at its inception.  Based upon how many powers the trust maker retains, the irrevocable trust might or might not require its own Tax ID Number.  

As with most legal issues, the specific circumstances dictate whether a trust is required to file its own tax return.  A qualified attorney can help a trustee navigate these rules to ensure that his or her duties are carried out appropriately. 


Monday, June 3, 2013

The Pushback

Lawyers provide a wide array of services and skills.  Above all, lawyers are problem solvers: the client is faced with a legal obstacle or policy hurdle and needs a knowledgeable advocate who can navigate the circumstances.  A common myth is that the law is “automatic,” that somehow third parties will always do what the law requires.  However, enforcement of the law sometimes requires an experienced mind and a strong arm.

Sometimes third parties only have marginal knowledge of an area of the law and insist upon a specific course of action, not even realizing that alternatives exist.  A common example is a bank or other financial institution insisting that a probate proceeding be initiated when an asset is titled to a decedent’s individual name rather than a living trust.  A probate proceeding is expensive and time consuming and unnecessary if certain conditions exist such as when the total value of the assets titled to the decedent’s individual name is $150,000 or less or when there is a surviving spouse.  Often it takes an attorney to educate the financial institution about the legal alternatives – such as a “small estate affidavit” or a “spousal petition” – and insist that they be accepted. 

In other situations, a company might have stricter policies than the law requires.  The policies are designed to protect the institutions from liability rather than provide service to the client.  Often, financial institutions will balk at accepting the authority of a power of attorney agent, even when the agent’s authority is granted under a properly drafted and executed power of attorney document.  It becomes a matter of arm-twisting.  The problem is so prevalent that a popular legal practice manual even provides a sample letter for the attorney to convince third parties to accept a power of attorney with references to the Probate Code.  It’s amazing what a difference a stern letter from an attorney can make.

Accepting information at face value can often cause unnecessary expense, delay, and hardship.  However, without sufficient knowledge of the law or the various additional options that might be available, there is no ability to pushback and insist upon alternative solutions.  This is where the assistance of an attorney can be of great value.  Not only do attorneys have knowledge of the law and the experience to suggest creative alternatives, but they also are trained to question the information presented and hold firm with conviction. 


Thursday, May 30, 2013

When You Need a Little Help From Your Friends

Upon creating your estate plan, you have the capacity to not only formalize your wishes, but you also have the capacity to manage your finances.  The original intent of your estate plan is to ensure that your affairs can be handled efficiently by the persons of your choice in case of a future invent such as incapacity or death.  As a result, you typically name third parties who will have the legal power to handle your affairs in the future, while retaining sole control over your finances and personal decisions in the meantime.  However, at some point, you may decide that you need a trusted person to have legal authority to help you with your finances such as writing checks and dealing with financial institutions on your behalf.

When you are ready to give a third party current authority to handle your finances, you have to make sure that you execute the correct documents for the appropriate situation.  Most laypersons – and even many attorneys – simply think of executing a power of attorney document.  It seems simple enough and many people assume that a general durable power of attorney will give the agent authority over all assets.  However, if your estate plan includes a living trust, your power attorney alone will not be sufficient.

With a trust-based plan, most of your assets are titled to the trust and are not held in your individual name.  Technically, you do not actually own the assets – your trust is the owner.  However, you are the trustee and the beneficiary and thus you have the power to manage your assets for your own benefit.  Most trusts do not allow a trustee to delegate authority to a power of attorney agent and most power of attorney documents specifically do not apply to trust actions.  As a result, a general durable power of attorney will not give any legal authority to the power of attorney agent over trust assets.  If most assets are titled to the trust, the general durable power of attorney will not accomplish the goal of giving a third party the legal authority to manage the majority of your assets.

In addition to executing a general durable power of attorney that gives an agent immediate authority, you must also amend your trust to add the third party as a current co-trustee.  Once the amendment is executed, you must deliver a copy of the amendment to each financial institution and have the new co-trustee added to the signature cards.  Although this is basic estate planning knowledge, it is astounding how often the step of amending a trust to add the third party as a co-trustee is overlooked.  Often, the power of attorney agent will go to the financial institution assuming that the general durable power of attorney document will be sufficient, only to get turned down by the bank.  
Even with an amended trust that adds the third party as a co-trustee, a general durable power of attorney document is still prudent.  First, there are assets that are not titled to your trust during your lifetime such as retirement plans, annuities, and life insurance policies.  Second, there are other tasks that might need to be performed on your behalf that can only be handled through a general durable power of attorney such as having the ability to access your mail, signing your tax returns, and entering into contracts on your behalf. 

What seems to be a very simple task is more complicated than it first appears.  As with all legal issues, it is important to make sure that the goals you are trying to accomplish are addressed comprehensively by an attorney who has the expertise to navigate the various legal rules and technicalities to ensure that you avoid unnecessary delays and hurdles due to a misunderstanding of the law. 


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