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The KRASA LAW, Inc. Estate Planning Blog

Friday, April 1, 2016

Black's Law (Dictionary)


The television show, Grey’s Anatomy, first aired when I was a young attorney.  The show, created Shonda Rhimes, stars “Meredith Grey” but is of course named after the famous medical textbook, Gray’s Anatomy, by Henry Gray, a surgeon from the Nineteenth Century.  As a lawyer, I wondered what would be the legal equivalent of Gray’s Anatomy?  The best I could come up with was Black’s Law Dictionary, the most popular dictionary of legal terms which was created by Henry Campbell Black and first published in 1891.  

I decided that if I ever wrote a legal drama, I would indeed call it Black’s Law Dictionary.  The show would star “Bing Black,” a charismatic and debonair estate planning lawyer who helps people solve their problems without any drama or strife.


Read more . . .


Wednesday, March 23, 2016

Reaping the Rewards of Planning

My five-year-old son is a sports-fanatic.  His primary sport is and probably always will be ice hockey.  Since he was two years old, I have been taking him on the 160-mile round trip journey to San Jose, the location of our nearest ice rink, once and sometimes twice a week.  As a result of that commitment, he has missed out on being able to participate in other sports that can be enjoyed locally such as basketball and lacrosse.  However, that did not stop him from playing every imaginable sport in our backyard.

One sport dear to his heart is baseball.  Although I often will play catch with him or work on his hitting, he always insists on “playing a real game.”  He doesn’t accept my protest that it is very difficult to play baseball with only two people.  He often begs my wife and me to take him to an empty baseball diamond so he can run the bases and pretend to play important games.  When we realized that a break in his hockey schedule would allow him to sign up for tee-ball, we jumped at the opportunity.

My son recently played in his first career tee-ball game.  Hitting in the “clean-up” position, which meant that under the tee-ball rules he’d be able to run as many bases as possible rather than being limited to one base per hit, on his first swing he struck and grand slam!  As he rounded third base, I could see his huge smile and the sheer joy on his face.  It was one of my proudest and happiest moments as a parent.  I was witnessing a “dream” come true.  

After so many backyard sessions of running the bases against imaginary teams, he was doing it “for real” this time.  He jumped on home plate with emphasis, removed his batting helmet, stretched out his arms in celebration, and ran back along the third base line to the dugout cheering and screaming.  He had two more at-bats during the game and, of course, he hit two more grand slams!  Three for three, three homeruns, and 12 RBI – a debut set of stats with which even Ted Williams would be impressed!

It is amazing how one ephemeral moment can serve as a lasting reward.  As my son was rounding third base, I thought of how all of the planning, organizing, travel, and expenses that go into our support of his sports passions are being realized in an instant.  Sometimes preparation can be discouraging.  It is easy to lose sight of the end goal.  On a day when I plan to take my son up to San Jose for his hockey game I sometimes think to myself, “Am I really going to drive all the way up there again?  How do I have the time to do that?”  But when I’m watching him skate or round the bases, I’m reminded of why my wife and I devote so much time and energy into his pursuits.

Planning in any context can be difficult and frustrating at times.  Procrastination can be tempting.  However, the reward is usually well-worth the effort.  

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before acting upon any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.     


Sunday, March 20, 2016

The Lawyer Playbook

I believe in the importance of making general legal concepts accessible to my clients.  While nothing can replace working directly with a qualified attorney, clients should be involved in the process on a macro level in order to make the best decisions for themselves and their families.  However, lawyers often struggle with explaining complex legal concepts to non-attorneys in an easy-to-understand manner.  Clients often leave meetings with their lawyers scratching their heads and quoting Lord Byron from Don Juan: “I wish he would explain his explanation!”  

My latest project, Lawyer Playbook, LLC, is designed to alleviate this confusion by helping clients understand basic legal principles so that they can be better prepared to work with their lawyers to accomplish their goals.  Just as coaches and athletes develop, learn, memorize, and refine certain plays to be utilized in certain situations, lawyers have “legal plays” to apply to their clients’ circumstances in order to carry out their wishes.  The Lawyer Playbook, LLC website, www.lawyerplaybook.com, features a series of videos that explains common legal plays.  Below is a description of a few of the plays that are shared on the website.

Play # 1: What Is a Living Trust?
The first video on www.lawyerplaybook.com describes the most common estate planning play, the Revocable Living Trust.  The video includes explanations of the parties involved in a Revocable Living Trust such as the Grantor, the Trustee, and the Beneficiary, how the three parties interact with each other, and how the parties and their roles can change over time due to specified circumstances.  The video also explains how the Revocable Living Trust can help your family avoid the unnecessary expense and delay of a conservatorship in the event of incapacity and a probate upon death.    

Play # 2: Trust Funding
The second video on www.lawyerplaybook.com describes the importance of “Trust Funding.”  The key to any trust is to make sure that title to assets has been changed to the trust.  In many cases, without proper Trust Funding, many of the benefits of a Revocable Living Trust – including the avoidance of conservatorships and probate – will be defeated.  The video explains what assets belong in the trust, what assets are controlled by separate beneficiary designations, and how to make sure that your Trust Funding is up to date.

Play # 3: Common Pot Trust
When is equal not fair?  On the surface it makes sense to divide your estate into equal shares for each of your children.  However, when there is an age gap of a few years between the oldest child and the youngest child, it might not be fair to the younger children to divide the estate into equal shares right away.  The Common Pot Trust is a popular legal play that addresses this issue.  The third video on www.lawyerplaybook.com describes this concept and the circumstances in which it would be effective.   

Play # 4: Beneficiary Controlled Trust
Comprehensive Estate Planning is about more than simply avoiding conservatorships and probate and mitigating taxes.  In this age of frequent litigation and high divorce rates, protecting beneficiaries’ inheritances from lawsuits and divorce (“creditors and predators”) becomes a paramount concern for many clients.  The fourth video on www.lawyerplaybook.com describes the concept of a Beneficiary Controlled Trust and how it can provide additional protection that traditional “outright gifts” do not feature.

Play # 5: Step Up in Basis for Capital Gains Tax
Capital gains tax is a tax on appreciation of certain assets, often real estate and securities.  Understanding the concept of the “step-up in basis” can allow you to plan your estate in such a way to substantially mitigate or eliminate capital gains tax for your loved ones.  In Community Property states such as California, couples can take advantage of a special quirk in the law by changing title to Community Property from Joint Tenancy.  The fifth video on www.lawyerplaybook.com explains these concepts and how your attorney can incorporate them into your estate plan.  

It is essential to understand that these lessons are by no means a viable substitute for the proper personal counsel of a licensed attorney.  Nevertheless, I encourage you to visit www.lawyerplaybook.com to become generally familiar with key legal concepts in order to prepare you to work with your attorney to accomplish your goals.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 and Kyle may be reached at 831-920-0205.

Kyle is also the founder of Lawyer Playbook, LLC.  For more information, please visit www.lawyerplaybook.com

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before acting upon any of the information presented in this article, you should consult an attorney who is licensed to practice law in your community.


Friday, February 19, 2016

The X's and O's of the Law

My favorite aspect of practicing law is teaching legal concepts to my clients.  My mother was an elementary school teacher, my father was a school principal, and my grandfather taught Czech at the Defense Language Institute.  Clearly, teaching is in my blood.  At one time, I considered getting a Ph.D. in English literature and teaching at the college level until I became interested in the law.  I ended up using my teaching skills in a different application through my law practice.

Attorneys are problem-solvers: the client has a need and we are tasked with identifying, analyzing, and addressing that need.  Part of that task is explaining to the client the legal concepts and options available and the pros and cons of each option.  The attorney shouldn’t over-explain by using too much legal jargon and technical law-school-level detail that will just confuse the client.  At the same time, the attorney also needs to eschew under-explaining, thereby not letting the client participate in any of the decision-making – essentially telling the client that the concepts are too difficult to understand and insisting that the client blindly trust the attorney’s decisions.   

It is often difficult for attorneys to reach that happy medium between over-explaining and under-explaining.  From the early days of my practice, I would jump up to the white board during client meetings and illustrate various legal concepts and options.  Clients often responded positively to this visual approach and I ended up organically developing short vignettes of about five to ten minutes in length about a variety of legal topics.  Over the years, I refined these sketches as I used them over and over again with new clients.  I discovered the perfect balance between too much and too little information about legal topics in order for my clients to generally understand the concepts and be comfortable with their options and choices.    

In an effort to share these vignettes with a wider audience, several years ago I hired a videographer to film my white board presentations.  I uploaded about ten videos to Youtube and to my law firm website.  This feature became a useful tool. Sometimes clients would watch the videos prior to meeting with me in order to prepare for our meeting.  Other times clients would watch the videos after our meeting to refresh their minds about the various options and concepts that I discussed with them.  In addition, clients would share these videos with their children and other family members to discuss the design of their estate plan.  Professional colleagues such as financial planners and tax preparers shared the videos with their own clients in order to encourage them to draft or update their estate planning.  

Because the videos are on Youtube, I started getting calls from around the country from people who watched my videos and wondered if I could help them.  Since I am only licensed to practice law in California, I have to turn down most of these requests.  However, the popularity of my legal videos made me realize that there is a need for straight-forward explanations of basic legal principles that are accessible and easy-to-understand.  As a result, I recently launched a new company, Lawyer Playbook, LLC, that features a website, lawyerplaybook.com.  

I re-shot my legal videos using graphics instead of my whiteboard handwriting and uploaded the new videos on lawyerplaybook.com as well as Youtube.  Currently I have five updated legal videos on my website with seven more that have been filmed and are in the process of being edited.  I have ideas for many more topics for videos with plans to eventually expand into other areas of the law besides estate planning.  I am also working on creating a legal directory on the website where other attorneys from around the country can advertise their services.  In the future, when I get a call from a potential client in another state, I’m hoping that I’ll be able to refer the caller to an attorney in the caller’s home state who is featured on the website.  

I strongly believe that nothing replaces the need to consult an attorney who is licensed to practice law in the client’s community.  The law is far too complex for “do-it-yourself” shortcuts.  At the same time, it is important for basic legal concepts to be accessible to the general public.  While most people realize that it is not prudent to attempt to draft legal documents themselves, they reasonably want to be able to investigate general legal concepts in basic terms in order to better to prepare them to work with their attorney of choice in accomplishing their goals.  The purpose of Lawyer Playbook, LLC is to bridge that gap between the desire of the public to comprehend general legal concepts in preparation and the need to work with a local licensed attorney.   

I encourage you to visit lawyerplaybook.com to watch the videos that are posted in order to get a better grasp of basic legal principles and to prepare you to work with your attorney to accomplish your goals.

KRASA LAW is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205831-920-0205.  

Kyle is also the founder of Lawyer Playbook, LLC.  For more information, please visit lawyerplaybook.com.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney/client relationship.  Before acting upon any of the information presented in this article, you should consult an attorney who is licensed to practice law in your community.  


Monday, February 15, 2016

Extinguishing Gifts

It is often hard to estimate how much you will have left when you pass away.  What might seem like a robust estate now can easily be reduced by years of medical expenses, long term care costs, and pharmacy bills.  Some estates are reduced to the point of being insolvent, i.e., there are not enough remaining assets to pay outstanding bills.  Other estates have enough assets to settle all debts but do not have enough to satisfy all of the distributions to beneficiaries under the estate plan.  In the latter case, the rules of “abatement” apply.

California Probate Code Section 21402 provides an “order of abatement” based upon certain categories of estate plan gifts.  

The first category to abate is “property not disposed of by the instrument.”  This confusing language refers to a situation where an estate plan only references specific assets to be distributed and the decedent died owning additional property that was not described.  For example, Gwen might have an estate plan that leaves her shoe collection to her sister and her musical instruments to her brother but does not have a “residuary clause” directing how the rest of her estate – cash, investments, real property, automobiles – shall be distributed.  A professionally drafted estate plan will always include a residuary clause but many “do-it-yourself” estate plans fail to include this basic estate planning device.    

The second category to abate is “residuary gifts.”  For example, Gwen’s estate plan might leave specific gifts of her shoe collection to her sister and her musical instruments to her brother and then have a “residuary” clause directing the rest of her estate – cash, investments, real property, automobiles – to be distributed in equal shares to her children.  

The third category to abate is “general gifts to persons other than the transferor’s relatives.”  “General gifts” are gifts of general property such as cash.  “Relatives” under the Code Section refers to the intestate heirs of the decedent, i.e., those who would inherit had there not been an estate plan.  For example, Gwen’s estate plan might include a general gift of $50,000 to her brother.  If Gwen has children, her brother would not be considered a “relative” under the Code Section since her children – and not her brother – would inherit from her if she died without an estate plan.

The fourth category to abate is “general gifts to the transferor’s relatives.”  For example, Gwen might have a clause in her estate plan that leaves $100,000 cash to her son, Kingston.  Under the Code Section, Kingston would be considered a “relative” since he would inherit from her if she had died without an estate plan.

The fifth category to abate is “specific gifts to persons other than the transferor’s relatives.”  This would include Gwen’s gift of her shoe collection to her sister and her musical instruments to her brother if she has children.  (Gwen’s sister and brother would not be considered “relatives” under the Code Section due to the fact that if she had died without an estate plan, her intestate heirs would be her children and not her brother or sister.)

The sixth category to abate is “specific gifts to the transferor’s relatives.”  For example, Gwen might leave her pocket watch to her son, Apollo.  Such a specific distribution would fit into this category.

While these are the default rules to abatement, the estate planning document can override these rules and provide for a different order of abatement.  However, it is difficult to identify whether an estate will be insufficient to distribute all of the gifts that the testator intended to make.  It is therefore good practice to review the types and amounts of gifts in your estate plan periodically to make sure that your estate will likely be sufficient to satisfy all of your intended bequests.  

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California, and Kyle may be reached at 831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before taking action on any of the information presented in this article, you should consult with a competent attorney who is licensed to practice law in your community.    


Friday, January 22, 2016

Calling an Audible

When Aaron Rodgers of the Green Bay Packers gets to the line of scrimmage, he often will “call an audible,” a change in play at the last moment that will supersede the play originally agreed upon as the result of a change in strategy due to unexpected circumstances.  In an earlier article (“Contingency Planning,” dated January 06, 2016), I mentioned the importance of having a thoughtful and carefully-crafted back-up plan in the event that the original plan cannot be carried out for some reason.  I mentioned the unexpected postponement of my beloved annual participation in the U.S. Pond Hockey Championships on Lake Nokomis in Minneapolis as an example of when a back-up plan is necessary.

The U.S. Pond Hockey Championships feature over 2,000 players from around the world who converge upon a frozen lake in Minnesota each January.  It’s a time to be kids again for a long weekend of outdoor hockey “the way nature intended.”  For many participants, the event reminds them of their childhood.  As a hockey fanatic growing up in the moderate climate of the Monterey Peninsula, the event allows me to have the childhood I always dreamed about.  

When I was a kid, my grandfather often told me stories about playing hockey on a frozen pond in the Czech Republic and I read about Wayne Gretzky’s famous backyard rink.  I had often hoped that Lake El Estero in Monterey would miraculously freeze over one day or that I’d be able to flood my backyard in Pebble Beach on a very cold night and that it would somehow turn to ice, even if for a few brief moments of magical skating.  Unfortunately, none of these unlikely wishes ever came to fruition.   

When I discovered the U.S. Pond Hockey Championships tournament about five years ago, I realized that this was my chance to fulfill that childhood dream.  I initially had trouble convincing fellow Californians to join me.  Undeterred, I was able to connect with a team from Iowa.  I headed to the frozen north not knowing my teammates or what to expect but decided to jump in headstrong with unbridled enthusiasm.  After my California friends saw how much fun I was having, they finally agreed to join me a few years later and they too became instantly hooked.  Now, as soon as we are flying home from the most recent tournament, we count the days until the next year’s festivities.  

One can imagine the disappointment we felt when less than a month before the tournament, the organizers were forced to postpone it by a few weeks due to mild weather.  We were unable to change our flights, lodging, and time-off and realized that we could not adjust to the new schedule.  We had all the arrangements in place but no tournament in which to participate.  However, we decided to push forward with our travel plans and call an audible.

We realized that while the lake might not be frozen enough to safely accommodate 2,000 players, there would likely be many opportunities to skate outdoors. To us, Minnesota is a mystical land where outdoor skating rinks can be found in dozens of city parks on every corner.  Surely we’d still be able to play hockey “the way nature intended.”  

The tournament organizers were kind enough to welcome us to their daily lunchtime pick-up hockey game in a park around the corner from their office.  They connected us with other locals who invited us to play in another pick-up game in yet another public park.  We even had the honor to play with 3-time NCAA Division I National Champion and University of Minnesota legend, Rachel Ramsey, the most talented player with whom we had ever had the privilege of sharing the ice.  (She skated circles around us as we expected.  However, I won my face-off against her, though that was likely due to the fact that I accidentally jumped the gun about a half second early – it was just too much awesomeness happening all at once!)  

After the trip was over, we realized that our contingency plan turned out to be a better experience than what our original plan would have been.  My teammates and I are glad that we did not give up on our 2016 pond hockey adventure despite the unexpected challenges that Mother Nature provided this year.    

It is very common to delay important planning because the ideal solution is not readily apparent.  When there are no obvious answers, there is a propensity to give up all together.  I often see this with regard to estate planning.  Clients understand that they are mortals and that they should plan for incapacity and death but are uncertain of how to proceed.  I always tell my clients that “a plan is better than no plan.”  In fact, when they force themselves to confront challenges and obstacles that have hindered them in the past, they are able to achieve a clarity and develop a more detailed and comprehensive plan than the one they originally contemplated.  

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California, and Kyle may be reached at 831-920-0205831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not create an attorney-client relationship.  Before acting on any of the information presented in this article, it is important that you consult with a competent attorney who is licensed to practice law in your community.     


Friday, January 8, 2016

When Gwen Stefani is a Beneficiary of your Estate Plan


If you die without a legally valid estate plan, the California Probate Code has certain “intestate provisions” that govern how your assets shall be distributed.  In general, if you were married at the time of your death, your community property and at least a portion of your separate property will be distributed to your surviving spouse.  If you did not leave a surviving spouse, then your assets will be distributed to children if any and if none to your grandchildren or younger descendants.  If you did not have any living descendants, your estate will be distributed to your parents if any and if none then to your siblings.  The intestate provisions go on from there, detailing several more contingent heirs.

Although there are these “default” rules with respect to heirs of your estate absent a valid estate plan, the law allows you to dispose of your assets upon your death however you see fit.  With a few exceptions, there is generally no requirement that you leave your assets to your spouse, children, or other immediate family members.  You are free to exclude your “natural heirs,” i.e., those who would inherit from you absent a valid estate plan, and name anyone of your choice.  This might include significant others, friends, charities, and even complete strangers.  

There have even been several instances where decedents established estate plans leaving their assets to celebrities whom they had never met!  Contrary to the assumptions of my friends, I have actually not left any part of my estate to rock-goddess Gwen Stefani, though I would be free to do so under the law if that were my desire.   

Of course if you decide to leave your assets to named beneficiaries who are not your natural heirs, your natural heirs would have a motive to try to undermine and invalidate your estate plan somehow.  If your estate plan were deemed invalid, then your estate would pass to your natural heirs as if you did not have an estate plan.  Although your natural heirs could not argue that you did not have a right to name someone other than your natural heirs as beneficiaries of your estate plan, your natural heirs could argue that there was a mistake, fraud, undue influence, or that you lacked mental capacity to understand the nature of what you were doing when you signed your estate plan.

There was a recent case where a decedent named a celebrity (not Gwen Stefani) as his beneficiary at the exclusion of his natural heirs.  The natural heirs believed that the decedent was delusional and that he wrongfully thought that the celebrity was a relative.  In fact the celebrity was a stranger.  However, the document did not indicate whether or not the decedent mistakenly thought the celebrity was a relative or whether the decedent simply admired the celebrity and wanted that person to benefit from his estate.  The entire case centered upon that key issue: was the decedent delusional in thinking that the celebrity was a relative and that therefore the estate plan should be deemed invalid due to mistake and lack of mental capacity or did the decedent simply want to name a celebrity he admired as a beneficiary of his estate, knowing that the celebrity was a stranger?  

To date, this case of the celebrity beneficiary has not yet been resolved.  However, the facts and circumstances of the case demonstrate some key principles when leaving an estate to named beneficiaries at the exclusion of your natural heirs.  

First, you should be clear about your intent.  If the decedent in the example above was aware that the celebrity was not a relative but simply wanted to include the celebrity as a beneficiary of the estate plan, he should have said so.  The drafting attorney could have inserted a clause that read: “While I understand that I have never met Celebrity X and am not related to Celebrity X in any manner, nevertheless I admire and respect Celebrity X and I intend to include Celebrity X as a beneficiary of my estate plan.”  

Second, if you are planning on excluding any natural heir, say so.  You could include language that reads: “I acknowledge the existence of my brother who is my only natural heir.  However, I intentionally exclude him as a beneficiary of my estate.”

Third, make sure that you that it cannot be argued that you were unduly influenced when creating your estate plan.  Executing your estate plan with the counsel of an impartial attorney without the presence of your named beneficiary can blunt any accusation that you were wrongfully pressured into naming someone other than a natural heir as a beneficiary of your estate.

Fourth, it is often said that “bad facts make bad law.”  Make sure that there aren’t any “bad facts.”  To the extent that you can execute your estate plan long before it can be argued that you don’t have mental capacity to understand what you are doing, you will blunt an argument that you lacked mental capacity.  “Deathbed planning” by its very nature often raises red flags that can create doubt about the validity of your estate plan.  If you are diagnosed with a mental or physical issue, executing your estate planning sooner rather than later is paramount.  

A qualified attorney can help you take care in drafting your estate plan to ensure that your wishes – whether unconventional or not – will be carried out after your death.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney/client relationship.  Before acting on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.  
   


Wednesday, January 6, 2016

Contingency Planning


Every January, I travel from the moderate climate of the Monterey Peninsula to the frozen lakes of Minnesota to participate in one of the largest pond hockey tournaments in the country.  While most "snowbirds" are escaping the winter, I'm gleefully jumping into it.

As a hockey fan growing up on the Monterey Peninsula, it is a very special treat to experience the sport "as nature intended."  The tournament is held on a large lake where over 2,000 like-minded participants make the annual pilgrimage for a long weekend of fun and enthusiasm in the cold. It's one of the most epic experiences of the year and something we look forward to as soon as the previous year's tournament is over and we're heading home.

When I anticipate an experience like the pond hockey tournament, I often worry about whether something will go wrong.  What if I get sick or injured and that causes me to miss the five days I look forward to the whole year?  I always make sure to get my flu shot well in advance and I take extra precaution in the weeks leading up to the annual event.

There is one aspect that is not under anybody's control: the weather.  It is crucial that we thread that needle between unbearable below-zero temperatures and an unseasonable warm spell that melts the ice.  In the past years, I had always been lucky.  This year, however, is a different story.  With less than a month until the tournament, the organizers made the decision to postpone the tournament by a few weeks due to the fact that the lake has not fully frozen over yet. 

Our team already made travel, lodging, and vacation-time arrangements and we could not adjust to the new schedule.  At the same time, there is no guarantee that the lake will be frozen by the rescheduled dates.  We were collectively bummed out that we won't get to experience the joy of the Land of 10,000 Frozen Hockey Ponds for at least another year.  However, everybody took it in stride.  We understand that nobody has any control over the weather and we need to make the best of it. 

I compared this disappointing experience to a star player being injured and out for a season.  While it is a heart-break to miss an entire year, once the player is back on the team the next season, the missed games will seem like a blip on the screen.  With any luck, in January of 2017 we will be back on the frozen Minnesota pond, trying to prevent hypothermia from setting in, and happily playing the sport that we love so much in an environment that Californians don't often have the opportunity to enjoy.

As I discussed with my teammates, this is the way it goes sometimes.  Life is messy and it does not always go according to plan.  We all understand this and, after taking some time to process the change, we were prepared to move forward with amended plans.

Having a back-up plan is critical.  When it comes to estate planning, we often only think about scenarios on the surface, never fully contemplating what we would like to happen if the ideas that we have in our minds cannot work out due to an unforeseen change of circumstances.  A comprehensive plan should anticipate reasonably foreseeable contingencies with alternate plans ready to be triggered should the need arise.  In establishing a new estate plan or reviewing an existing plan, take the time to consider a "Plan B" and a "Plan C" in addition to your "Plan A."  Sometimes the backup plans end up being critical and more valuable than the original plan.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before acting on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community. 

 

 


Friday, December 11, 2015

Full Disclosure


A trust is a relationship of three parties: (1) the Grantor, also known as the “Trust Maker,” who designs, implements, and funds the trust; (2) the Trustee, also known as the “Trust Manager,” who manages the assets of the trust for the benefit of the Beneficiary in accordance with the terms of the trust; and (3) the Beneficiary who benefits from the assets of the trust.

In a Revocable Living Trust where all three parties are the same person or the same married couple, there is no concern as to whether the Trustee is properly managing the assets for the benefit of the Beneficiary in accordance with the Grantor’s instructions.  However, when the Trustee is different from the Grantor and the Beneficiary, it is of paramount importance that there is full disclosure as to how the Trustee is managing the assets to make sure that the Trustee is acting in accordance with the terms of the trust and that the Beneficiary’s rights to the trust’s assets are being enforced.

The California Probate Code imposes three key duties of disclosure on a Trustee who is managing a trust for a third-party Beneficiary: (1) the duty to account; (2) the duty to provide reports; and (3) the duty to keep beneficiaries informed.

(1) Duty to Account (California Probate Code § 16062)

The Trustee has an affirmative duty to account to the current Beneficiaries of a trust at least annually and upon the occurrence of specified events.  The accounting under this Code Section must contain specific elements as outlined under California Probate Code § 16063.  The Trustee is responsible for providing the Beneficiary with this specific accounting even if the Beneficiary does not request it.  As such, the Trustee should either provide the accounting automatically or request that the Beneficiary sign a Waiver of Accounting.

The Trustee under this Code Section is not required to provide an accounting to “remainder” Beneficiaries, i.e., Beneficiaries who have a future interest in the trust’s assets after the “current” Beneficiaries pass away.  

However, the other two duties of disclosure described below often apply to remainder Beneficiaries as well as current Beneficiaries and the Trustee might be required to provide essentially the same information to remainder Beneficiaries under those other duties.  

Furthermore, if the current Beneficiary of a trust is incapacitated, it is often recommended that the trustee provide an accounting to the remainder Beneficiaries as well in order to guard against a later accusation of mismanagement of trust funds.  

(2)  Duty to Report (California Probate Code § 16061)   

A Beneficiary may make a “reasonable request” for information “relating to the administration of the trust relevant to the beneficiary’s interest.”  Under this Code Section, the Trustee’s duty of disclosure is not limited to current Beneficiaries and thus even future remainder Beneficiaries can require the disclosure of certain information.  Exactly what kind of information the Beneficiary is entitled to under this Code Section is an open question.  However, courts have indicated that in some circumstances, the information required to be disclosed under this Code Section could be identical to, or even broader than, the information required to be disclosed under the Duty to Account.

It is important to note that unlike the Duty to Account, the Duty to Report is not an affirmative duty and the Trustee is only required to Report upon a “reasonable request” by a Beneficiary.  

(3)  Duty to Keep Beneficiaries Reasonably Informed (California Probate Code § 16060)

The Trustee has an affirmative duty to keep Beneficiaries “reasonably informed of the trust and its administration.”  Trustees must communicate "information that is reasonably necessary to enable the beneficiary to enforce the beneficiary's rights under the trust or to prevent or redress a breach of trust.”  

This Code Section applies to both current and remainder Beneficiaries.  Once again, it is an open question as to exactly what information is required to be disclosed under this Code Section, but it is widely accepted that providing an accounting in accordance with the Duty to Account will satisfy this responsibility.

Conclusion

Trustees should be mindful of the fact that their actions in managing the assets of a trust might be held under a microscope.  They should operate imagining that a judge is looking over their shoulders reviewing every investment, expense, and distribution.  Every action should be addressed in a reasonable and fair manner and should be well documented.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California.  Kyle may be reached at 831-920-0205831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before taking action on any of the information presented in this article, you should consult a qualified attorney who is licensed to practice law in your community.


Friday, October 30, 2015

How to Double a Popular Tax Break

Although the real estate market has fluctuated over the past few years, over time real estate has appreciated significantly.  The median price of a home in California in 1968 was less than $25,000.  Today, the median price of a home in California is over $450,000.  Typically, if you were to sell a house that has appreciated significantly, you would likely owe considerable capital gains tax.  In general, capital gains tax is a tax on the difference between the original purchase price (the “basis”) and the sales price on real property and securities.  There are some exceptions to the general rule such as the cost of improvements increasing the basis and a $250,000 exclusion from capital gains tax on the sale of a principal residence pursuant to Section 121 of the Internal Revenue Code.  Nevertheless, if you bought a home in California in 1968 and sold it today, you would likely owe significant capital gains tax.

Carry-Over Basis
As indicated above, if you bought a home in 1968 for $25,000 and sold it today for $450,000, not taking into account adjustments to basis for home improvement and the Section 121 exclusion, you would owe capital gains tax on the $425,000 difference.  Instead of selling the house, if you were to give away a house that you purchased for $25,000 when it was worth $450,000, your $25,000 basis would “carry-over” to the recipient of your gift.  If the recipient sold the house for $450,000, the recipient would owe capital gains tax on the $425,000 difference.  

Step-Up in Basis
Suppose instead of gifting the house away during your lifetime, you left the house to your beneficiary upon your death through your will or your trust.  Even though your basis in the house was $25,000, your beneficiary would not inherit your basis.  Instead, your beneficiary’s basis would be adjusted to the fair market value on the date of death.  If the house were worth $450,000 at the time of your death, your beneficiary’s basis would be adjusted to $450,000.  If your beneficiary sold the house for $450,000, your beneficiary would not have to pay any capital gains tax at all.  If your beneficiary waited 10 years to sell the house and the value had appreciated to $600,000, your beneficiary would only have to pay capital gains tax on the $150,000 of appreciation between the value on your date of death and the sales price.  

This adjustment to a beneficiary’s basis after a transfer upon death to the fair market value as of the date of the transferor’s death is commonly referred to as a “step-up” in basis.  It should be noted that the basis adjustment could be a “step-down” in basis if the real property were worth less at the date of death than the original purchase price.  However, with regard to real property, particularly in California, over a long period of time, it is generally likely that real estate values will increase.  

Half Step-Up in Basis
Suppose that you own the house with your spouse equally as joint tenants.  If your spouse pre-deceases you, your spouse’s half of the house will get a “step-up” in basis as to the fair market value on the date of his/her death.  However, your half of the house will not get a “step-up” in basis because you are still living.  Therefore, if you were to sell the house, you would be able to eliminate or substantially reduce the capital gains tax on your spouse’s half of the house, but would have to recognize significant gain on your half of the house.

This concept whereby the deceased spouse’s half of the house gets a “step-up” in basis whereas the surviving spouse’s half does not get a “step-up” in basis is often referred to has a “half step-up” or a “single step-up” in basis.  Although the surviving spouse’s capital gains tax would be reduced to an extent, the surviving spouse still has to recognize capital gains tax on his/her half of the house.

Full Step-Up in Basis
Suppose that you own the house with your spouse equally, but instead of holding it as “joint tenants,” you hold it as “community property.”  California is one of ten states that recognize community property as a method for holding title to property between spouses.  

If the house is held as “community property” and your spouse pre-deceases you, just as in the example above, your spouse’s half of the house will get a “step-up” in basis as to the fair market value on the date of his/her death.  However, this time, your half will also get a “step-up” in basis as to the fair market value as of your spouse’s date of death.  If you decide to sell the house, you would be able to eliminate or dramatically reduce the capital gains tax on the entire house.

This concept is often referred to as a “full step-up” or a “double step-up” in basis. Knowing these rules, spouses in community property states will often change title from joint tenants or from an alternate form of ownership to community property in order to double this tax break, potentially saving tens of thousands of dollars.  It is important to note that property may be held as community property even though it is placed in a living trust.

As with most aspects of the law, issues are not always as simple as they appear to be on the surface.  All forms of joint ownership have their pros and cons and you should consult a qualified advisor before changing the form of ownership on property.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California, and Kyle may be reached at 831-920-0205831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before acting on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.     


Friday, October 16, 2015

Tattoos - More Permanent Than Ever!

Estate planning invariably involves dealing with assets.  Some assets are common and relatively easy to handle: a residence; checking and savings accounts; and stocks, bonds, and mutual funds.  Other assets create their own unique complexities.  CEB, a publication of practice manuals for attorneys, has a volume entitled, Estate Planning for Special Assets.  The volume covers family businesses; vineyards, farms, and ranches; family vacation homes; out-of-state real property; pets; art and other collectibles; copyrights, patents, and trademarks; restricted securities; compensatory stock options; and even the disposition of a law practice.  

When helping my clients fund their assets to their trusts, in addition to titling specific assets to their trusts, I have them sign an “Assignment of Personal Property” that is quite broad and includes the following text:

“My tangible personal property includes all of my jewelry, clothing, household furniture, furnishings and fixtures, chinaware, silver, photographs, works of art, books, boats, automobiles, sporting goods, electronic equipment, musical instruments, artifacts relating to my hobbies, and all other tangible articles of personal property that I now own or later acquire, regardless of how they are acquired or the record title in which they are held.”

As comprehensive as these examples are, there is one “asset” I never considered in over a decade of practicing estate planning: tattoos.  I always knew that one had to carefully consider getting tattoos since they are permanent, but a new organization has taken the permanence of tattoos to a new level.

The National Association for the Preservation of Skin Art (“NAPSA”), which launched earlier this year, features a “tattoo preservation” program which allows you to preserve and then transfer your tattoos in the form of collectible art to your loved ones after your death.  NAPSA’s website provides a 9-step procedure for the preservation and transfer of your tattoos upon death as follows:

Step One: If you do not want to be defined by others, declare who you are today by registering for a NAPSA membership!

Step Two: Visit your profile to complete the straightforward online forms to ensure the preservation of your registered tattoo and that your Final Wish Fulfillment Benefit is activated.

Step Three: Share your plans for the preservation of your tattoos with your friends, family, and loved ones - show off your Membership Certificate! For those who you will entrust with your preserved art, download or order a Beneficiary Certificate.

Step Four: Enjoy all of your NAPSA benefits and interacting with our groundbreaking community of like-minded tattoo collectors, enthusiasts, and artists. Renew your annual NAPSA membership to ensure that your benefits remain active.

Step Five: Upon your passing, your Final Wish Beneficiary begins the quick and easy process to give NAPSA notice within 18 hours.

Step Six: Soon after the claims process begins, your Beneficiary is electronically provided detailed information covering the recovery and preservation process. A preservation kit, containing instructions and all the necessary equipment to recover, temporarily preserve, and safely ship your tattoo to NAPSA, is mailed overnight to the recovery provider (In most cases, your funeral home).

Step Seven: With the advice and support of the Association, your Beneficiary confirms that the recovery of your tattoo is undertaken in accordance with the instructions and with the equipment provided in our kit within 60 hours of your passing.

Step Eight: Upon NAPSA’s receipt of your art for preservation, the Final Wish Fulfillment Benefit will be mailed to your Final Wish Beneficiary.

Step Nine: In the following three to six months, your designated beneficiary will receive your beautifully preserved art!”

NAPSA’s website even features a “gallery” of preserved tattoos.  Each piece is nicely framed and tastefully presented.  
There is no doubt that NAPSA addresses a niche interest that will have a unique, yet strong, following.  

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney/client relationship.  Before acting on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.   


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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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