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The KRASA LAW, Inc. Estate Planning Blog

Thursday, September 17, 2009

The Trusted Advisor

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

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

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

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


Friday, September 4, 2009

In Trust: Asset Protection

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

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


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

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


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


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

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


Wednesday, August 12, 2009

A Gamble Worth Taking?

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

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


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


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

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


Tuesday, July 28, 2009

Modifying Irrevocable Trusts

 
Proper Estate Planning often centers around a Revocable Living Trust. The Revocable Living Trust is used for its probate-avoidance feature, its ability to provide a mechanism to deal with incapacity, and its ability protect future beneficiaries. Most clients who create a Revocable Living Trust understand that as long as they are alive and have capacity, they may make changes to their Trusts at any time. Most clients also understand that once they become incapacitated or die, they may no longer make changes to their Trusts. Their Revocable Trusts become "Irrevocable" upon incapacity or death of the Trust creator. 
Sometimes clients create trusts that are Irrevocable from the start, even during the Trust creator's life and capacity, for specific Gift and Estate Tax purposes. 
If an Irrevocable Trust becomes outdated and is now in actuality contrary to the Trust creator's intent, does this mean that nothing can be done and the family is "stuck"?
The reality is that an Irrevocable Trust is not necessarily irrevocable. The Trust may have internal modification provisions, allowing certain amendments, for example, an amendment to conform to changes in the law. Even without internal modification provisions, under California law, an Irrevocable Trust may be modified if all the beneficiaries and the Trust creator consent. In addition, the Court may approve a modification to an Irrevocable Trust under the following circumstances:           
·         If all beneficiaries consent
·         If at least one beneficiary and the creator consent
·         If principal is uneconomically low
·         If there are changed circumstances
·         To conform to tax laws
 
Courts will be very careful not to allow modifications that will frustrate the intent of the Trust creator. 
If you are "stuck" with a "bad" or outdated Irrevocable Trust, it might not be too late to make a "repair."  Furthermore, if you've made the decision to petition the Court to make a specific change to an Irrevocable Trust, it is worth doing a comprehensive review of the entire Trust as well as the advancement in Trust law and Trust concepts since the Trust was created.  There might be other opportunities to "modernize" or "improve" the Trust that the Court may be inclined to approve. 

Thursday, July 2, 2009

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


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


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


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


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


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


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

 


Monday, June 8, 2009

Before Your Child Takes That Trip This Summer . . .

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


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

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


Wednesday, May 27, 2009

Are You Subject to Probate?

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

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

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


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

 


Tuesday, May 12, 2009

The Practical Solution

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

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

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

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

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


Thursday, April 16, 2009

Protecting Your College-Age Child

Preparing for College can be Hard

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

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

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

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

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

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

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

 


Wednesday, April 15, 2009

Selecting Your Successor Trustee

Selecting Your Successor Trustee

 

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

 

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

 

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

 

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

 

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

 

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

 


Wednesday, March 25, 2009

Who Needs Estate Planning?

Planning for Life

By Kyle A. Krasa, Esq.

Who Needs Estate Planning?

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

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

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

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

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

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


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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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