The KRASA LAW, Inc. Estate Planning Blog

Monday, April 11, 2011

Don't Let It Go Away

Comprehensive Estate Planning involves a multitude of legal documents: a Living Trust, Pour Over Wills, Durable General Power of Attorney documents, Health Care documents, Property Agreements, Assignments, Deeds, and Beneficiary Designations to name a few.  Once clients have completed their Estate Planning and realize how many documents comprise their Estate Planning portfolio, the question becomes where to safely store such documents.

Historically, when Estate Planning did not involve so many documents, clients would often keep their original documents in safe deposit boxes at the local bank.  As the number and length of Estate Planning documents grew, it became more difficult to find a safe deposit box large enough and thus many clients chose to buy safes to keep at home in order to store their Estate Planning documents.  However, the Japanese tsunami has taught us that safes - and perhaps even safe deposit boxes - are not foolproof.

According to recent press reports, hundreds of dented metal safes are washing up on the shores of Japan's coast.  The  Ofunato, Japan Police Department found so many washed up safes that the department transformed its parking garage into a storage facility for washed up safes.  Compounding the problem is that many safes could go unclaimed.  The safes' owners could have passed away and family members might not be aware of the safes or might not be able to accurately describe them or know how to open them.  Furthermore, even if a person is able to track down a safe, it may be very difficult to prove ownership.  Finally, even if a safe is located and a person is able to prove ownership, the contents of a safe might be destroyed.

Fortunately, modern technology provides a simple solution: storing an electronic version of your Estate Planning documents online.  In response to disasters such as the hurricane in New Orleans and the tsunami in Japan, many businesses and individuals now regularly make electronic copies of all their important documents and keep them backed up online.  Most online back-up services have multiple storage facilities throughout the country so if a natural disaster strikes one part of the country, the data will still be safe.  Companies such as LegalVault provide a secure online database to store electronic copies of your legal and financial documents.  Not only will the documents be protected from natural disasters, but you will be able to access your documents from any computer around the world.

Protecting your legal documents is just as important as executing them in the first place.  To quote the famous rock star Gwen Stefani, "Don't let it go away."  With secure online storage, you can have peace of mind that your important legal documents will not disappear. 

For more information about LegalVault, please see the LegalVault page on this website,


Sunday, April 10, 2011

Dividing Up the Responsibilities

One of the most basic decisions everybody must make when designing an Estate Plan is to name a Successor Trustee: someone who will have the responsibility to manage your assets in the event of incapacity and upon death.  It is prudent to also name alternate Successor Trustees in the event that the Successor Trustee named is unwilling or unable to act as Trustee.  Although it is common for clients to name one person or institution to act as Trustee at a time, in certain circumstances it may be appropriate name multiple persons or institutions simultaneously.

Acting as a Trustee is a big responsibility and thus some clients will name two or more people as Co-Trustees to share the responsibility.  In such circumstances, the clients will give any of the Co-Trustees the power to act independently so that whoever is available at a given time to carry out a task can handle the issue on behalf of the entire trust.

In other instances, clients are concerned about checks and balances and thus require that all Co-Trustees must act unanimously or by majority vote on every issue.  While this does ensure that every action is agreed upon by at least two people, it is a less efficient method for carrying out certain tasks, especially if some of the Co-Trustees are unavailable or out of town.  Furthermore, if the Co-Trustees cannot agree on a particular course of action, there may be a stalemate requiring court intervention.

Some clients may divide the duties of the Trustee among various individuals.  For example, the clients might give one Co-Trustee the authority to handle the investments of the Trust (the "Investment Trustee") and give another person the authority to handle questions of when and how much to distribute to the beneficiaries of the Trust (the "Distribution Trustee").  This can be an effective asset protection tool where the beneficiary of a trust may be named as the Investment Trustee to control how the Trust assets are managed but some independent third party is named as the Distribution Trustee to prevent a creditor from being able to force the beneficiary to distribute assets.  However, such a division of duties can also create problems as the Distribution Trustee might be held liable for the actions of the Investment Trustee and vice versa.

While there are numerous possibilities with Co-Trustees and the division of duties, such planning adds a layer of complexity and therefore some clients - after exploring the various options - decide to keep everything simple by naming only one Successor Trustee at a time.



Thursday, March 17, 2011

Special Needs Require Special Estate Planning

I have often commented that how a beneficiary inherits is often as important – and in some cases more important – than what a beneficiary inherits.  This maxim is particularly important when it comes to beneficiaries with special needs.  Often, public benefits that are available to special needs beneficiaries such as SSI and Medi-Cal are “means-tested,” which means that the beneficiary’s assets cannot exceed a certain amount.  With regard to Estate Planning, the concern is that a special needs beneficiary’s inheritance will increase the beneficiary’s assets to the point where such public benefits will be eliminated.  The key to preventing this from happening is to establish a Special Needs Trust (“SNT”) for the special needs beneficiary’s inheritance.  

The idea behind an SNT is to restrict the special needs beneficiary’s rights in the inheritance so that it won’t count as an asset or a “resource” of the beneficiary.  The trustee will be instructed to use the SNT’s assets to “supplement but not supplant” needs-based government benefits.  For example, the trustee will not be permitted to use the SNT assets to pay for the beneficiary’s food or shelter as public benefits are often available for such needs.  On the other hand, the trustee would be permitted to use the SNT assets to pay for the beneficiary’s entertainment and other comforts that are not provided by public benefits.

A key issue in designing an SNT is to make a prudent selection for the trustee.  The SNT should last for the lifetime of the special needs beneficiary so it is important to name a younger person as trustee and to name several alternate trustees should the first trustee no longer be willing or able to continue to act as trustee.  Alternatively, naming a bank or trust company as trustee might make the most sense since such institutions will most likely continue to be in existence for the lifetime of the special needs beneficiary.

An SNT may either be embedded in a Revocable Living Trust or may stand alone as a separate and independent document.  Although it often involves additional expense to create a separate “stand alone” SNT, if the creators of the trust feel that other family members and friends might want to make gifts or bequests to the special needs beneficiary, such a separate SNT makes the most sense.

Tuesday, February 22, 2011

IRA's Can Be Tricky in Estate Planning

It is becoming increasingly common for clients to hold significant wealth in Individual Retirement Arrangements (IRA's).  IRA's provide tax advantages for retirement savings.  Upon death, IRA's are controlled by Beneficiary Designation Forms that you are requested to fill out upon the establishment of the IRA.  Such Beneficiary Designation Forms control who receives your IRA regardless of what your Will or Trust says.  As a result, it is very important to make sure your IRA Beneficiary Designations are coordinated with your overall Estate Plan. 

For example, you may have created an Estate Plan that leaves everything to your spouse but you established your IRA before you got married and the Beneficiary Designation Form still names another relative or a friend as the beneficiary.  In such a case, your spouse will not be entitled to the IRA.  Additionally, you may want to name a Trust as a beneficiary, particularly if you have a minor or special needs beneficiary.

While it is often important to name a Trust as the beneficiary of an IRA, you must use extreme caution when doing so as there are many traps for the unwary.  Most of the issues surround the effort to preserve the beneficiary's ability to "stretch-out" IRA's as long as possible, only taking the minimum withdrawal possible so that the bulk of the IRA can continue to grow tax free.

One key aspect to protect a "stretch-out" is to make sure the Trust has "conduit provisions," meaning that each required withdrawal  is paid automatically to the beneficiary.  Most basic Trusts do not have such conduit provisions.  A second key aspect to protect a "stretch-out" is to separately name each beneficiary's trust share, rather than naming the entire Trust as the beneficiary.  There is often not enough room to name each beneficiary's separate trust share on the Designated Beneficiary Form and thus you may be required to attach a separate letter to the form.

Regardless of these issues, preserving a "stretch-out" might not be of paramount concern if it is more important to protect a beneficiary's public benefits or to protect a beneficiary from creditors to the maximum extent possible.  As a result, it is very important to seek the counsel of an attorney who has the specific expertise in these matters.

Monday, February 14, 2011

Your Cyber Legacy

When you think about how many online accounts and profiles a typical person has, it's mind boggling.  In just a few short years, many individuals have amassed dozens of online identities: a Facebook page, a LinkedIn page, a company website, various professional online profiles, subscriptions to newspapers and research materials, as well as many other online services.  It's often hard to keep track of so many websites and their various usernames and passwords.

In addition to the large volume of websites containing personal information, a person's online image has become intertwined with his or her "real world" reputation.  There have been numerous articles about employers screening potential new employees by conducting online investigations, ranging from a simple Yahoo search to more detailed online background checks.  Many people are becoming aware that unflattering pictures, poor grammar, and unsavory comments on a Facebook page can mean lost opportunities for jobs, scholarships, and volunteer activities.  While the focus has thus far been on the effect of online images on a person's lifetime reputation, not many have focused on the impact of such online identities upon a person's legacy.

Upon death, what happens to your Facebook page for example?  Do you want it to be frozen in time from the last moment you logged on?  Do you want it terminated or do you want it modified so as to serve as cyber "tribute"?  These are modern versions of the eternal question: How do you want to be remembered?  This is an important issue yet it is often overlooked in Estate Planning. 

Think about your collective cyber image from the various online identities you possess and how you might want that image modified or solidified upon death.  Take the time to articulate in writing guidelines for what should happen to every online account.

In addition, it is important to provide your trusted loved ones with access to your online accounts.  Using a service such as LegalVault ( that securely stores all of your online usernames and passwords and allows you to designate a person to have post-death access to such information can make this important, modern task much easier and thus more likely to be carried out.

Monday, February 14, 2011

Portability - a Magic Provision?

Most people who pay attention to the Estate Tax (or the “Death Tax”) understand that Congress increased the Estate Tax Exemption to $5 million through 2012 in the recent tax bill signed by President Obama on December 17, 2010.  However, the legislation also includes a little-known surprising feature that many estate planning professionals had been lobbying for over the course of many years.  This new feature, known as “Portability,” has the potential to dramatically influence Estate Planning.  In order to understand Portability, it is first important to understand the problem it attempts to resolve.

With regard to a married couple, each spouse has his or her own Estate Tax Exemption.  Historically, if a married couple prefers to leave the entire estate to the surviving spouse, the couple wastes the deceased spouse’s Estate Tax Exemption unless they create a special type of trust known as an “A/B Trust.”  Portability is designed to eliminate the need for a couple to create an A/B Trust in order to use the deceased spouse’s Estate Tax Exemption.

Under the new law, for decedents dying in 2011 and 2012, the surviving spouse has the option to file an Estate Tax return in order to “claim” the deceased spouse’s unused Estate Tax Exemption.  Not only does this feature allow a surviving spouse to “recover” from a lack of proper Estate Tax Exemption planning, but Portability may also be useful for couples who have A/B Trusts in place and for couples who have significant non-trust assets such as IRA’s, qualified retirement plans, and annuities.  Estate Planning attorneys are only beginning to explore methods for taking advantage of this new rule.

Despite this exciting new feature, it is still best practice for a married couple to utilize an A/B Trust.  First, Portability is set to expire in 2013 unless Congress passes additional legislation that extends this rule.  Second, A/B Trust planning provides additional tax-saving features that Portability lacks.  Finally, A/B Trust planning also provides non-tax benefits that appeal to many couples.  Nevertheless, Portability represents an exciting new frontier in Estate Planning that – when utilized properly – will provide new advantages and protections for clients and their families.

Monday, February 14, 2011

Providing for "Children" who Wear Fur Coats

Many people are aware of the benefits of using Trusts with regard to their Estate Planning.  Trusts can accomplish many objectives such as avoiding probate, tax planning, asset protection, and Medi-Cal planning.  Probably the most commonly understood purpose of a Trust is to provide a gift or an inheritance to a child or other beneficiary who is not mature or responsible enough to manage the property.  The basic idea is to entrust the property with a third party who will manage it on behalf of the beneficiary.  Much like an immature or irresponsible beneficiary, a beloved animal cannot take care of itself and is in need of a caretaker.

Most people never think of their pets in the context of Estate Planning.  It is a common assumption that friends or family members will automatically be willing to assume the role of caretaker to a companion animal.  The reality is that when a pet owner dies or becomes incapacitated, it is often very difficult to find caretakers for pets.  In fact, The Humane Society estimates approximately 1 million pets are euthanized each year as a result of pet owners not adequately planning for their care in the event of incapacity or death.  Fortunately, there is a solution: a "Pet Trust."

A Pet Trust is a mechanism where a pet owner can designate a certain amount of funds to be held in trust by a third party for the benefit of a companion animal.  The idea is very similar to providing a certain amount of money for a minor child or immature beneficiary.  Using a Pet Trust, you can ensure that your beloved animals will be have somebody - and a source of funds - to provide for their care and needs for the rest of their lives.

If you are interested in learning more about Pet Trusts, please join me for a panel discussion on Pet Trusts on Saturday, March 12, 2011 from 10:00 am to noon at 700 Jewell Avenue, Pacific Grove, sponsored by Animal Friends Rescue Project (831-333-0722) and Peace of Mind Dog Rescue (831-718-9122).  RSVP by calling either agency.

Tuesday, December 28, 2010

Health Care Agents: Do I Have to Choose?

One of the most important aspects of Estate Planning is the completion of an Advance Health Care Directive ("AHCD").  An AHCD has two main components: (1) making your wishes known regarding your general health care philosophy; and (2) naming an agent who has the responsibility to carry out your wishes in the event of your incapacity.  Selecting your health care agent requires careful considerations.

You may wish to name an adult child as your health care agent.  If you have more than one child, you might be tempted to name all of your children as co-agents so as not to choose between them.  While naming co-trustees on your Revocable Living Trust or co-agents on your property Power of Attorney might be prudent in certain circumstances, the vast majority of doctors and lawyers strongly discourage you from naming co-agents for health care decisions.

Naming co-agents for health care decisions can create problems when it becomes critical that health decisions are made quickly.  One co-agent might be available while another co-agent could be out-of-town or simply out-of-reach.  The available co-agent might be forced to make a decision that the unavailable co-agent - who was not privy to the difficult, exigent circumstances - might later find objectionable.  On the other hand, if the available co-agent waits until the unavailable co-agent can be reached or is able to visit the health care facility, critical time might be lost.  Furthermore, even if both co-agents are available, they might not agree on a specific course of action and they might interpret the medical options, possible risks, expected benefits, and even your wishes differently.  When siblings are named as co-agents for health decisions, issues of sibling rivalry and differences of opinion can impede the decision making process. This is why most doctors prefer to deal with only one spokesperson rather than a "committee" of spokespersons.

The problems involved in naming co-agents on health care decisions are unequivocal to the point where the "standard" AHCD Form that is most often used in California was designed specifically not to have a section for naming co-agents with the purpose of discouraging clients from naming co-agents on health care decisions. 

It is, however, important to name alternate agents on your AHCD who each serve one at a time.  If the first agent is unwilling or unable to act - or if the first agent cannot be reached by health care professionals - then the next agent named in the AHCD will be in charge. 

It is critical to seek the counsel of an attorney or a doctor when executing an AHCD so that you can be properly advised on how to make the critical decisions on the form.  Recent laws allow Medicare to pay doctors to have this crucial discussion with their patients.

Monday, November 22, 2010

What is Probate?

If an asset is titled in the decedent's name at death, generally nobody else will be able to manage it.  For example, if a loved one owns a checking account and then passes away, the bank will not take direction from anyone in terms of what to do with that account.  Instead, the account will be frozen until someone is able to provide the bank with proof that he or she has the authority to deal with the asset.  The same is true with all kinds of assets including savings accounts, investment accounts, stocks, bonds, and real property.

By submitting the decedent's estate to probate, you are requesting that the Court appoint someone as Executor and issuing "Letters of Administration," legal authority that allows the third party to manage all assets that are titled in the decedent's name.  By showing the "Letters of Administration" to the financial institutions, the Executor will be able to take control of the decedent's assets.  With this authority comes responsibility.

The Executor has the legal duty to take inventory and appraise all assets in the estate, protect the assets of the estate, notify known creditors of the decedent's death, publish notice in a newspaper of the decedent's death to give unknown creditors the opportunity to step forward, address creditor claims, pay taxes, and keep the beneficiaries informed. 

After all of the above tasks are completed, the Executor is ready to request the Court's permission to distribute the assets to the beneficiaries of the estate.  The Executor must file a "Petition for Final Distribution" which reports on all of the Executor's activities and proposes how the estate should be distributed.  Once the Court approves of the proposed final distribution, the Executor is able to transfer the assets to the beneficiaries.

Most of the time, the Executor is not able to accomplish all of these tasks without legal counsel.  Attorney fees for probate are set by statute and are based upon the gross value of the estate.  Such fees are usually much higher than if the Executor were able to pay the attorney an hourly rate. 

Most clients who are familiar with the probate process choose to base their estate plans around a Revocable Living Trust which allows loved ones to avoid the probate process all together.  All of the above tasks will still need to be performed, but with a properly drafted Revocable Living Trust, the courts most often can be avoided entirely and there are no set statutory attorney fees: the trustee and attorney can agree on whatever fee structure is most appropriate for the specific situation.

Monday, November 22, 2010

The Beneficiary Controlled Trust

Most Estate Planning attorneys recommend Revocable Living Trusts as the main vehicle for managing assets in the event of incapacity and transferring assets upon death.  The most common reasons for utilizing Revocable Living Trusts are (1) probate avoidance and (2) the minimization or elimination of Estate Tax.  While these are important objectives, most Estate Planning attorneys fail to fully utilize all beneficial aspects that a trust structure can provide, particularly for the Revocable Living Trust's beneficiaries.

If the attorney only thinks about (1) probate avoidance and (2) the minimization or elimination of Estate Tax as the reasons for creating a Revocable Living Trust, the attorney most likely will structure the trust to provide "outright distributions" to the beneficiaries upon the death of the trust makers.  This means that the trust will distribute the inheritances out to the beneficiaries in their individual names and then the trust will terminate.  The inheritances will be comingled with the beneficiaries' other property and subject to the total control of the beneficiaries.  While this makes sense on the surface, a deeper understanding of the additional advantages trusts can provide for beneficiaries demonstrates why outright distributions - though extremely common - are less than ideal.

If a trust is properly structured, receiving an inheritance in trust rather than directly in the beneficiary's name can provide additional features such as (1) divorce protection; (2) creditor protection; and (3) additional Estate Tax protection. 

Receiving an inheritance in trust rather than in one's own name creates a bright line distinction between property that has been inherited by a beneficiary and property that the beneficiary and his/her spouse have earned together.  In a divorce, it will generally be much easier to distinguish between what property is separate (the inheritance) and what property is community and thus subject to division.

If the trust for the beneficiary has certain provisions, the inheritance can often be protected from the beneficiary's creditors.  With the proliferation of lawsuits over the last several years, many people are concerned about frivolous lawsuits subjecting hard earned assets to plaintiffs and their attorneys.  Receiving an inheritance in trust rather than outright provides significant creditor protection.

Finally, within certain limits, an in-trust inheritance can mean that some or all of the inheritance received by the beneficiary will not be considered part of the beneficiary's estate and thus will not use up the beneficiary's Estate Tax exemption.

If the trust makers feel that the beneficiary is capable of handling his/her inheritance, the trust for the beneficiary can be designed as a "beneficiary controlled trust," giving the beneficiary the protections of an "in-trust" inheritance while at the same time giving the beneficiary control over the inheritance.  With all of these additional protections, "in-trust" inheritances are far more valuable than "outright inheritances," yet most attorneys are not aware of these additional benefits.

Monday, October 25, 2010

When Inheritance Can Create Unnecessary Problems

When most people create their Estate Planning, they focus on what or how much they are going to give to their loved ones as inheritance.  Very few think about how they are going to structure such inheritances.  Sometimes the "how" question is much more important than the "what" question.  Without careful consideration about how to structure inheritance, you could be creating unnecessary problems for your loved ones.

One of the most important questions I ask my clients during the initial interview process is whether their children or other beneficiaries have any health problems or are receiving any public benefits.  The reason I take the time to ask this question is because if their proposed beneficiaries are on public benefits, it may be necessary to structure their inheritance in a Special Needs Trust.

The most common public benefits programs, which are established and governed under the Social Security Administration, are SSDI and SSI.

SSDI is an "entitlement" program which means that eligibility is based upon how much you have paid into the Social Security system through taxes.  SSDI is a monthly stipend the amount of which is based upon your estimated Social Security benefit had you been able to work until retirement age if you did not have a disability.  Although you have to meet the definition of "disabled" in order to receive this stipend, it does not matter how much money or income you have.  An SSDI recipient is therefore able to receive an inheritance without worrying about interference with his/her SSDI stipend.

SSI is also a monthly stipend.  However, the amount of the stipend is fixed.  SSI is a "means tested" benefit: you must be under a certain asset and income level in order to qualify.  If your asset level ever exceeds the maximum allowed in order to receive SSI, you will lose all of your public benefits.  As a result, if you are an SSI recipient, an inheritance will likely throw you off public benefits.

The good news is that a properly drafted Special Needs Trust will allow the SSI recipient to enjoy the benefits of an inheritance while still maintaining his/her public benefits.  However, it is important to address these issues in the planning stages, which is why proper and comprehensive Estate Planning is essential.

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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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