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The KRASA LAW, Inc. Estate Planning Blog

Friday, October 26, 2012

Kyle A. Krasa Wins "Golden Pine Cone" for "Best Estate Planning Attorney"

Earlier this month, a poll of the 10,500 e-subscribers of the Carmel Pine Cone was conducted asking respondents to vote on what businesses should win "Golden Pine Cone" awards for being the best in their fields.  The winners were announced in the October 26-November 1, 2012 edition of the Carmel Pine Cone.

We are pleased to announce that Kyle A. Krasa / KRASA LAW won a 2012 Golden Pine Cone as the "Best Estate Planning Attorney."

Kyle knows that this award would not be possible without a wonderful staff, great clients, supportive colleagues, and dedicated readers of this blog. 

Thank you to everyone! 

Link to "Golden Pine Cone" special section


Tuesday, October 23, 2012

Reminder: Free Advanced Estate Planning Seminar

The Estate and Gift Tax laws are scheduled to dramatically change on January 1, 2013 unless Congress acts.  Many advisors are recommending that clients make plans now to take advantage of a special and historic opportunity.  However, with all planning opportunities, there are cons as well as pros.

To learn about the changes in the Estate and Gift taxes and the advantages and disadvantages of planning now, attend our free live seminar entitled, "Opportunities and Clawbacks - Taking Advantage of the Once-in-a-Lifetime 2012 Estate / Gift Tax Rules."

The seminar will be held on Saturday, October 27, 2012 from 10:00 am to 11:30 am at 700 Jewell Avenue, Pacific Grove.  Local attorney Kyle A. Krasa will be presenting.  There will also be a Certified Public Accountant and a Financial Advisor on hand to answer all of your questions.

Who should attend: those with estate planning, those without estate planning, and professional advisors with clients who might benefit from this historic planning opportunity.

The seminar is free and complimentary refreshments will be served.

Please RSVP to KRASA LAW at 831-920-0205.


Friday, October 19, 2012

National Estate Planning Awareness Week

In 2008, Congress designated the third week of October as “National Estate Planning Awareness Week.”  The reason for this designation is that most Americans do not have an adequate plan in place to handle disability or death.  It is common to assume that one does not need a plan or that one’s situation is “simple” and that comprehensive estate planning is unnecessary or only for the “wealthy.”  However, the complex inheritance laws, tax rules and regulations, and unique dynamics that are created when death and money mix can make even the “simplest” situation spiral out of control.  Furthermore, there is a lot more to planning that simply transferring “wealth.”  Below is a list of common estate planning documents that most people should have in place.

Revocable Living Trust.  This is the foundational document for most estate plans.  Upon either disability or death, a Revocable Living Trust allows persons you designate (“successor trustees”) to easily take control of your assets and to follow your instructions about what should be done.  During disability, your successor trustees will be able to pay your bills and make sure that your financial needs are handled properly.  Upon death, your successor trustees will be able to settle your estate without court involvement and distribute your assets to your beneficiaries on terms and conditions that you establish.

Funding Documents.  In order for your Revocable Living Trust to be effective, your assets (other than retirement plans, life insurance, and annuities) should be titled to your trust.  Double check your bank statements, financial statements, stocks, bonds, and deeds to real property to make sure that your trust – and not you as an individual – is the registered owner. 

Beneficiary Designations.  Retirement plans, life insurance, and annuities are typically not titled to your trust while you are living.  As such, you should make sure that the “designated beneficiaries” for these assets are up-to-date and coordinated with your overall estate plan.  If you do not have a copies of your Beneficiary Designations, ask your financial institutions for copies and keep them with your estate planning documents.

Pour Over Will.  Even if you have a Revocable Living Trust, you should also have a Pour Over Will.  The will names your trust as the beneficiary for any assets that are not titled to the trust or do not have designated beneficiaries.  Although it’s better to have all your assets titled to your trust, a Pour Over Will can handle assets that you neglected or forgot to title to your trust.

Durable General Power of Attorney.  A Durable General Power of Attorney designates someone to handle matters for you during a period of disability (an “agent”).  Your agent will be able to handle any assets during disability that are not titled to your trust.  In addition, your agent will be able to sign tax returns on your behalf, have access to your mail, and deal with Medicare, Social Security, and other government agencies. 

Advance Health Care Directive.  Your Advance Health Care Directive performs two key functions.  First, it gives authority to someone you choose to make health care decisions for you during a period of disability.  Second, it allows you to express your wishes as far as how that person should make such decisions.

HIPAA Waiver.  HIPAA is a law that, among other things, protects your medical privacy.  It prevents health care providers from disclosing your health information to third parties.  This can become a problem when your successor trustees, your power of attorney agents, or your health care agents need to know your condition in order to carry out your plan.  A HIPAA Waiver authorizes health care providers to disclose your health information to certain individuals you designate.  

For “National Estate Planning Awareness Week,” take the time to consider these documents listed above.  If you do not have any of the documents, think about whether you might need them.  If you already have these documents in place, take the time to review them to make sure they are up to date.  A qualified attorney can help navigate you through the process.


Wednesday, October 10, 2012

Free Advanced Estate Planning Seminar

The Estate and Gift Tax laws are scheduled to dramatically change on January 1, 2013 unless Congress acts.  Many advisors are recommending that clients make plans now to take advantage of a special and historic opportunity.  However, with all planning opportunities, there are cons as well as pros.

To learn about the changes in the Estate and Gift taxes and the advantages and disadvantages of planning now, attend our free live seminar entitled, "Opportunities and Clawbacks - Taking Advantage of the Once-in-a-Lifetime 2012 Estate / Gift Tax Rules."

The seminar will be held on Saturday, October 27, 2012 from 10:00 am to 11:30 am at 700 Jewell Avenue, Pacific Grove.  Local attorney Kyle A. Krasa will be presenting.  There will also be a Certified Public Accountant and a Financial Advisor on hand to answer all of your questions.

Who should attend: those with estate planning, those without estate planning, and professional advisors with clients who might benefit from this historic planning opportunity.

The seminar is free and complimentary refreshments will be served.

Please RSVP to KRASA LAW at 831-920-0205.


Monday, October 8, 2012

The Most Important Moment for Estate Planning?

As a prominent attorney recently stated, “If you love rollercoasters, there are only two places to go: Cedar Point in Sandusky, Ohio, or a visit to your estate planner.” The laws concerning the estate tax (also known as the “inheritance tax” or “death tax”) have been in flux for over a decade. The estate tax is a tax on inheritance. The bad news is that the estate tax rate has ranged in recent years from 35% to 55%. The good news is that not all inheritances are subject to tax. Each individual has an estate tax exemption. The exemption is the amount of inheritance that you can exclude from the estate tax. For decedents dying in 2002, the exemption was $1,000,000. In 2004, the exemption increased to $1,500,000, then to $2,000,000 in 2006, and to $3,500,000 in 2009. The exemption was unlimited (which is another way of saying there was no estate tax) in 2010.

In 2011, the exemption was scheduled to take a huge dip, reverting back to $1,000,000. In December of 2010, Congress passed and President Obama signed legislation that created a temporary increase in the exemption to $5,000,000 in 2011 and $5,120,000 in 2012. However, without further legislation, the exemption will automatically drop to $1,000,000 on January 1, 2013.

In addition to the estate tax, there is a gift tax. The idea behind the gift tax is to prevent taxpayers from avoiding the estate tax by giving away their assets during life. Although there are many caveats and exceptions, the general rule is that each lifetime gift reduces the estate tax exemption dollar for dollar. For example, if you give away $100,000 during life, your estate tax exemption is reduced by $100,000. Furthermore, if you make a gift that is in excess of your estate tax exemption, you owe gift tax.

With these general rules in mind, many estate planners are advocating making gifts now, prior to January 1, 2013. The idea is to take advantage of the much higher estate (and gift) tax exemption that is currently available before the window of opportunity closes. The pros of this course of action are obvious. Right now, you can gift away much more than you will be able to in 2013, which will reduce the size of your estate upon death.

There are cons to this kind of planning as well. For one, you must be comfortable with the concept of gifting. If you do not want to – or can’t afford to – part with certain assets, then this kind of planning might not be a good fit for you. Secondly, if the estate tax exemption really does drop to $1,000,000 in 2013 and you made gifts in 2012 in excess of that amount, will the IRS try to recapture the difference from your beneficiaries (a concept known as a “clawback”) or will your gift be grandfathered in? Finally, what if Congress ends up extending the $5,120,000 estate tax exemption in 2013 and beyond? You will have spent time, effort, and money – and given away significant assets – for possibly no benefit.

Although there are potential problems to making gifts in 2012, it is worth considering these possibilities if your estate is likely to exceed $1,000,000 upon death. As such, I am holding a free seminar about this topic entitled, “Opportunities and Clawbacks – Taking Advantage of the Once-in-a-Lifetime 2012 Estate/Gift Tax Rules,” on Saturday, October 27, 2012 from 10:00 to 11:30 am at 700 Jewell Avenue, Pacific Grove. The seminar will cover these unique 2012 issues but will also cover general advanced estate planning gifting strategies that will always be relevant regardless of what happens to the estate tax exemption. Please RSVP at 831-920-0205.


Friday, September 21, 2012

Saving Some of the Toothpaste in the Tube

When closing a decedent’s estate, the Trustee or Executor (commonly referred to as the “Fiduciary”) is often eager to distribute all of the assets of the estate to the beneficiaries.  However, typically there are expenses that trickle in after the bulk of the estate has been distributed.  This can leave the Fiduciary in a bind if he/she has already “squeezed all of the toothpaste out of the tube” and has nothing left to pay the last expenses.  

To avoid the necessity and awkwardness of the Fiduciary having to ask the beneficiaries to pay their shares of the last expenses, the Fiduciary should explore whether to hold back a “reserve” (a small amount of cash) prior to making the distributions of the estate to the beneficiaries.  The idea is to retain enough cash to be able to pay final expenses without having to ask all of the beneficiaries to “chip in.”

In calculating the amount of the reserve, the Fiduciary should consult his/her tax preparer to determine whether the estate will be required to file a tax return and whether the estate will be required to pay taxes.  If a tax return will be required, the Fiduciary should ask the tax preparer to estimate the cost of the tax preparation fee and the amount of the tax, if any.

The Fiduciary should also consult his/her attorney to determine what the final legal fees will likely be and whether there will be any additional fees such as recording fees or filing fees. 

If the estate is in a position to be closed within a year of the decedent’s death, there is the possibility that there could be unknown creditors of the decedent who later make claims against the estate.  Although the Probate Code specifies that in such a case the beneficiaries would be personally responsible for their pro rata share of the debt, it would be helpful and more efficient if the Fiduciary had the cash to be able to resolve these issues.  The likelihood of creditors making valid claims against the estate after the distribution of the bulk of the assets should therefore also be considered in calculating the amount of the reserve.

Once the amount of the reserve is determined, the Fiduciary should prepare an accounting to the beneficiaries showing an inventory and appraisal of the estate, the Fiduciary’s proposed fee, the planned distribution amounts to each beneficiary, and the amount of the reserve.  Because the concept of a reserve might not be familiar to most beneficiaries, it is often a good idea to include an explanation of its purpose.  Once the beneficiaries approve of the final accounting, the Fiduciary may distribute the assets minus the reserve to the beneficiaries.  

The Fiduciary should hold on to the reserve until he/she is absolutely certain that all final expenses have been paid.  Generally, this would be after the final tax returns have been filed, after final attorney fees have been paid, and after at least one year has passed since the decedent’s date of death.  The balance of the reserve can then be distributed to the pro rata to the beneficiaries of the estate. 

Although it is a rather simple concept and ultimately does not have a significant bearing on the amount of each beneficiary’s share at the time of distribution, keeping a small amount of “toothpaste in the tube” prevents potential headaches for the Fiduciary and allows efficient resolution of final expenses.


Monday, September 17, 2012

Crucial Steps in Closing a Trust Administration

A trustee has many responsibilities in settling a decedent’s estate.  The trustee must locate all of the beneficiaries, interpret the terms of the trust, send out required notices, take an inventory and appraise the assets, pay final expenses, satisfy all remaining creditors, pay all taxes, and finally distribute the assets to the beneficiaries in accordance with the terms of the trust.

While it certainly is easier and faster than handling a formal probate, trust administration is often a lot more work than one might imagine.  In the midst of handling all of these responsibilities, the trustee is often under pressure from the beneficiaries who do not share the trustee’s responsibilities to distribute the assets “as soon as possible,” not understanding all the steps the trustee is legally required to take.  

By the time the trust is in a position to be closed and the assets are ready to be distributed, the trustee is often anxious to “be done” with the duties of trustee.  However, it is crucial that the trustee follow very specific steps in distributing the estate in order to be fully discharged of the responsibilities as trustee.

The California Probate Code requires the trustee to give the beneficiaries an accounting at the close of trust administration.  The Probate Code requires the accounting to include specific details and to be presented in a certain way.  Often the formal accounting required by the Probate Code is more detailed than beneficiaries feel necessary and requires additional time and expense to complete, right when both the trustee and the beneficiaries are ready for the trust administration and its expenses to be over.  Ignoring the formal accounting, however, is not without peril as the trustee will forever be “on the hook” to the beneficiaries.  

The middle ground in this situation is for the trustee to give the beneficiaries a summary report of the financial aspects of the trust administration such as the date of death values of the trust’s assets, the current values of the trust’s assets, the trustee’s proposed fee, and the planned distribution amounts to each beneficiary.  The trustee can then request that the beneficiaries accept the summary report and waive in writing the necessity of a formal accounting.  This assures that the beneficiaries are provided with key information and it also absolves the trustee of the duty to prepare a formal account while simultaneously saving time and unnecessary expense.  

Once the beneficiaries all approve of the report and waive in writing the necessity of a formal accounting, the trustee may distribute the trust’s assets.  The trustee should require that the beneficiaries sign a receipt for their share of the trust so that there is no doubt that the beneficiaries received their full distribution.

The trustee might wish to retain a certain amount of cash as a “reserve” to handle final expenses that might be necessary such as taxes and tax preparation fees.  The amount of the reserve should be reflected in the trustee’s report.  

While most trustees and beneficiaries (and believe it or not, their attorneys as well) are eager for the trust administration to conclude, making sure that each final step is handled correctly is crucial in fully relieving the trustee of all responsibilities and preventing future disputes related to the trust administration.  As tempting as it might be by that point, it is never a good idea for the trustee to shortcut the process at the end in an attempt to save a few weeks of administration.  Handling the trustee’s responsibilities properly at all stages is always the best course of action.


Friday, August 24, 2012

Straightening Out an Upside-down Estate

One of the main responsibilities of an Executor or Trustee (“Fiduciary”) is to pay off all of the decedent’s debts and then distribute the balance of the estate to the beneficiaries. The assumption is that the decedent will die leaving more assets than debts. In the current economy, this is not always the case. If an estate has more debts than assets, the Fiduciary has a difficult – and sometimes thankless – task.

When an estate’s debts exceed its assets, debts of the United States or of California (i.e., unpaid taxes) have top priority. After those debts are satisfied, the California Probate Code divides the remaining debts into certain classes as follows:

1.  Expenses of Administration: this class typically includes attorney fees, Fiduciary fees, and out-of-pocket costs necessary in order to settle the estate (i.e., recorder fees, bank fees, etc.).

2. Obligations Secured by a Mortgage, Deed of Trust, or other Lien: this class includes the outstanding mortgage on a real property or other debt that is secured by collateral. This category is limited to the asset that is held as collateral. If the secured debt exceeds the value of the asset that is held as collateral, the excess debt will fall into the classification of “General Debts” as described below.

3. Funeral Expenses.

4. Expenses of Last Illness.

5. Family Allowance: this is a term of art as defined by the Probate Code that allows certain individuals (such as the parent or minor children of the decedent) a certain amount out of the estate to handle their personal expenses. The amount varies by the individual’s circumstances and is subject to Court approval.

6. Wage Claims.

7. General Debts: this class includes all debts not previously classified.

The Fiduciary’s responsibility is to determine which debts fall into which of the aforementioned classes and then to pay the debts of each class in the order listed above. There is no priority of debts within the same class and no debt of any class may be paid until all those of prior classes are paid in full. For example, the Fiduciary must not pay any debt that falls within the class of “Expenses of Last Illness” until all the debts classified as “Funeral Expenses” and all debts of the prior classes are paid.

If the assets of the estate are insufficient to pay all the debts of any class in full, each debt of that class must be paid a proportionate share.

Not only must the Fiduciary deal with dividing the debts into the various classes, but the Fiduciary also must deal with creditors who might be unhappy with the fact that they either won’t be satisfied at all or will only be given a small fraction of what they are owed and heirs/beneficiaries who are unhappy that they won’t be receiving anything from the estate.

Historically, the silver lining in an insolvent estate was the fact that the creditors were generally limited to the value of the estate and could not pursue claims against family members of the decedent. However, as a recent case from Pennsylvania dramatized, nursing homes and other health care providers might attempt to pursue claims against family members of a decedent who left an insolvent estate based on “filial responsibility laws” which are on the books in California but have rarely been enforced. This is potentially a new “wild card” that could dramatically reshape the settlement of insolvent estates.


Monday, August 20, 2012

Making Your Intent Clear

Ensuring that your wishes are carried out after your death is the main purpose of estate planning. Figuring out exactly what your wishes are is the first step. The process often involves brainstorming, weighing a variety of goals and practical considerations, and finally shaping a particular plan. Once you have figured out your wishes, expressing those wishes in a clear manner can often be more challenging than you might think.

When planning for young children or grandchildren, clients often become concerned that their beneficiaries will foolishly spend their inheritances before they become mature enough to properly manage their finances. Clients will commonly say, “Until my beneficiary is 30 years old, I only want her to be able to use her inheritance for education.” While this appears to be a well thought out and clear idea, upon further review, a great deal of ambiguity remains.

What does “education” mean? Does it include vocational training or is it limited to academic pursuits? Is it limited to tuition or can it include books, room, and/or board? How do internships or study abroad programs factor into the equation?

What appeared to be clear in the client’s mind is vague and open to debate once it is time for the trustee to respond to requests from the beneficiary for use of the trust assets. These practical questions might be issues that the client never even considered. Without more detailed instruction, a simple clause can be open to great debate which can result in litigation.

The beneficiary might insist that “education” necessarily includes a backpacking trip to Europe and tuition for an underwater basket weaving class. The trustee, worried about liability, might insist that “education” is strictly limited to tuition for a Bachelor’s degree. If they end up in court, the intent of the client will be the key factor.

It is therefore a good idea to flesh out in detail exactly what you are thinking when you express your ideas in your estate planning. Sometimes a separate writing that provides guidelines to the trustee can be very helpful. The guidelines can serve as an explanation as to how the trustee should interpret the instructions of the trust. An experienced trustee will readily agree that anything that sheds light on the thinking behind your estate planning documents can be very helpful in understanding how to carry out your wishes.


Friday, July 27, 2012

The Cutting Edge: Developments in Estate Planning

I just returned from the annual WealthCounsel “Generations Symposium” that was held in Denver, Colorado from July 18, 2012 through July 20, 2012.  Over 500 estate planning attorneys from across the country convened for attorney-education classes, workshops, and a general collaboration of ideas.  WealthCounsel is known for its state-of-the-art approach to estate planning.  Below are a few highlights from the event.

1.  Filial Responsibility for Long Term Care Expenses on the Rise

With the rising cost of long term care and health-related expenses, I am often asked the question of whether family members are responsible for medical or long term care expenses of their parents.  In the past, my response had been that in general, long term care and medical expense creditors are limited to the recipient’s estate and such creditors are unable to pursue claims against family members (other than the spouse in certain situations).  However, a recent case from Pennsylvania held that a son is liable for his mother’s unpaid nursing home expenses based upon filial responsibility law.  Filial responsibility laws date back to England’s Elizabethan Poor Relief Act of 1601.  These laws establish a duty for adult children to care for their indigent elderly parents.  Although 30 states have filial responsibility laws (including California), historically they have been rarely enforced (if at all) and thus the Pennsylvania case came as quite a surprise.  As states and counties continue to lose funding and other resources for a variety of services, enforcement of filial responsibility laws may increase.

2.  The Importance of Medical Advocacy

One of the most memorable presentations was given by an attorney who is also a registered nurse.  The underlying message of the presentation is that you are the center of your health care team.  It is important to take an active role in your health care and to be your own advocate.  If you are not able to do so, your health care agent needs to know how to be your advocate.  You can become a health care advocate by remembering the acronym, “S.P.E.A.K. U.P.”:  Speak up if you have questions or concerns about your care; Pay attention to the care you get; Educate yourself about your illness; Ask a trusted family member or friend to be your advocate, advisor, or supporter; Know what medicines you take and why you take them; Use a hospital, clinic, surgery center, or other type of health care organization that has been carefully checked out; and Participate in all decisions about your treatment. 

3.  The Power of Collaboration Among Advisors

Your estate planning attorney, accountant, and financial planner all have their own distinct roles.  While it is important for each advisor to be conscious of the boundaries of his/her own area of expertise, it is also important that they collaborate with each other in order to make sure that your plan is as effective as possible.  Far too often there is not sufficient communication among your advisors.  The attorney might think, “Well, if that’s how the accountant thinks we should do it, I’ll go along with it,” not realizing that the accountant is simultaneously thinking, “Well, if that’s how the attorney thinks we should do it, I’ll go along with it.”  However, when all of your advisors take an active role to work together to find solutions that address all legal, tax, and financial aspects of your situation, the results are beneficial to everyone involved.  It is important to work with advisors who are interested in collaborating with each other in order to provide you the best service possible.


Tuesday, July 24, 2012

Does My Non-Existent Will Exist?

Estate Planning is a fluid process.  What makes sense today, might not make sense tomorrow.  If you ever contemplated planning your estate, you might have realized that from time to time you change your mind about who should receive certain specified assets upon your death.  You might change your mind so frequently – particularly with respect to gifts of tangible personal property – that you might wish there was a way to add flexibility to your Estate Plan.  Most Estate Plans are revocable, meaning that you may change any aspect of your plan by executing a formal amendment or a codicil.  However, you might be tempted to “shortcut” the process by referring to a future created document that will specify how certain assets shall be distributed.  The thinking is that you would save the time, effort, and expense of drafting a formal amendment or codicil by simply having your will or trust refer to a list that you would create later, on your own.

For years, such reference to a future created document was not allowed under the law for fear that after your death, it would be too easy for an unscrupulous person to forge a list that would alter the distributions from your estate.  The thinking was that it would be much more difficult to forge a formal notarized amendment or witnessed codicil. 

Despite the fact that it was not legally recognized, this method of “incorporation by reference” of a future document that does not exist at the time the will or trust is executed was always very popular.  A few years ago, the legislature in an effort to accommodate this popular procedure, changed the law to allow for the incorporation by reference of a future document under certain conditions.

First, the future writing must only refer to gifts of tangible personal property such as jewelry, clothing, furniture, and other household items (i.e., not cash, real property, automobiles, etc.).  Second, each item distributed by a future writing must have a date of death fair market value of $5,000 or less. Finally, the total amount of assets distributed in this manner must not exceed $25,000.

When this law was passed, a common criticism was that these strict rules will still frustrate the intent of many testators as they may not be careful to adhere to the strict rules, may not know about the rules, or may underestimate the value of the assets they are distributing in this manner.  Some wills or trusts might attempt to mitigate these potential problems by stating that if a future writing cannot be incorporated by reference under the law, then such a future writing shall be considered a valid amendment or codicil.

If you are not worried that beneficiaries or heirs will fight over such items tangible personal property if they are aware of your intent, then using this method might be appropriate.  However, if there is any doubt, it is safer to avoid this perceived shortcut and simply execute a formal amendment or codicil to ensure that your wishes will be carried out.


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KRASA LAW assists clients with Estate Planning, Elder Law, Pet Trusts, Asset Protection, Special Needs Planning and Probate / Estate Administration in Pacific Grove, CA(93950), Monterey (93944, 93940, 93943, 93942), Salinas (93901, 93905, 93906, 93907), Hollister (95023,95023) Pebble Beach (93953), Carmel By The Sea (93921), Seaside (93955) and Carmel (93923, 93922) in Monterey County and San Benito California.

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