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For the third year in a row and the forth time overall, Kyle A. Krasa has won the Golden Pine Cone as “Best Estate Planning Attorney” from the readers of the Carmel Pine Cone!

Although the award goes to the “Best Estate Planning Attorney,” this is really the result of a team effort!

Thank you to the wonderful staff at KRASA LAW, Inc. of Marilyn Beans, Tamana Ayubi, Sara Macfarlane, and Cathrina Bonnelli who are all self-starters and as committed to the clients and the work as is Kyle. 

Thank you to the clients of KRASA LAW, Inc. who continue to show their trust in the firm and who support it in numerous ways. 

Thank you to the readers of the Carmel Pine Cone for taking the time and putting in the effort to cast their votes!

Be sure to look for the special ad in the “Golden Pine Cones” edition of the Carmel Pine Cone which will be coming out soon!

Voting is open for the 2018 “Golden Pine Cone” awards from the Carmel Pine Cone.  You can vote for your favorite businesses, including “Best Estate Planning Attorney.”  Below are instructions on how to vote:

ALREADY SUBSCRIBED TO THE ELECTRONIC EDITION OF THE CARMEL PINE CONE

• Click on the “Golden Pine Cone Awards” Ballot

• Click on the “Services and Health Care” section
• Scroll to the very bottom, and then click on the “Next” button
• Scroll to Number 38 (“Best Estate Planning Attorney)
• Tap in “Kyle Krasa, Krasa Law”
• Click on “Submit”

NOT SUBSCRIBED TO THE ELECTRONIC EDITION 

• Please access the Web site (www.carmelpinecone.com)

• Click on “A Free Subscription To Our E-Mail Edition” (you may “unsubscribe” anytime)

• After entering your e-mail address, etc., it may take a day or less for you to receive an acceptance, and then please follow the steps outlined above

Celebrities are notorious for their estate planning blunders. I have several posters in my office that document the many mistakes that celebrities have made with regard to their estate planning. From Elvis Presley failing to properly plan for the federal estate tax, to Marilyn Monroe accidentally leaving the royalties of her likeness (worth millions of dollars) to a woman she never even met, to baseball great Ted Williams who did not leave clear instructions about how to handle his remains, it almost seems that failure to get one’s affairs in order is a prerequisite to becoming a star. However, there is one celebrity who recently passed away who might have been a celebrity anomaly. 

Actor Burt Reynolds recently passed away at the age of 82. Shortly after his death, articles were published that discussed his estate planning. Some articles even hinted that he might have disinherited his only son, despite the fact that it did not appear that they had a strained relationship.  A closer inspection indicates that, to the contrary, the Smokey and the Bandit star actually provided for his son in the best manner possible. 

Reynolds’ Will was filed with the local court in Florida. In most states, a decedent’s Will is filed with the local court and is available for public inspection. However, Reynolds’ Will did not reveal much. His Will states in part: “I intentionally omit [my son] from this, my Last Will and Testament, as I have provided for him during my lifetime in my Declaration of Trust.”  While at first glance it might appear that Reynolds excluded his son from his estate, upon further inspection, it appears that Reynolds followed the advice of the vast majority of estate planning attorneys by using a Living Trust as a Will-substitute.  

By utilizing a Living Trust, Reynolds’ family will not have to endure a lengthy and expensive process known as probate to transfer his assets to his beneficiaries.  Furthermore, the details of his assets, his beneficiaries, and the manner in which his beneficiaries inherit his assets remain private.  His Will appears to be a “Pour-Over Will,” a Will that simply states that anything he might have forgotten to transfer to his Living Trust during his lifetime shall be distributed to his Living Trust for distribution upon his death.

Reynolds famously admitted that he was not the best when it came to managing his wealth. However, he did appear to do something that millions of Americans – and apparently the vast majority of celebrities – fail to do: establish a comprehensive estate plan as a final and significant gift to his loved ones. 

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 a competent attorney who is licensed to practice law in your community. 

My law school Civil Procedure professor often said: “You write the law and I’ll write the procedure and I will win every time.” His point was that understanding and following proper procedure is often more important than understanding the substantive law itself. While it might often feel like “form over function,” procedural rules are designed to ensure due process.

In the estate planning context, following the proper procedure for executing legal documents that legally effectuate your testamentary intent is critical. Below are three common procedural mistakes that people make when attempting “do-it-yourself” estate planning as well as possible solutions. 

Problem 1: Non-Self-Proving Will

A formal will is generally witnesses by at least two disinterested witnesses.  The witnesses subsequently sign the will attesting under penalty of perjury that the testator declared the instrument to be his/her will, appeared to be acting of his/her own free will, and did not appear to be under menace, fraud, or undue influence.  

Often the attestation clause that the witnesses sign does not include all of the text that is required under the law. If this is the case, the will is not “self-proving” and additional procedures are required in order to admit the will to probate. If one of the witnesses can be located, the witness may sign a statement that he/she remembers witnessing the testator’s execution of the will.  This document is known as a “Proof of Subscribing Witness.”  

If no witness can be located, the will can still be admitted to probate if further evidence is presented that satisfies the court that the instrument was intended to be the testator’s will. 

Problem 2: Holographic Will

If a will is not properly witnessed, it may still be valid if the material terms of the trust are written in the testator’s handwriting. This is often referred to as a “holographic will.” 

In order to admit the holographic will to probate, someone familiar with the testator’s handwriting must file a document entitled, “Proof of Holographic Instrument,” stating that the handwriting in the will appears to be the same as the handwriting of the testator. 

Problem 3: Typed Will Without Witnesses

In the current digital age of computers where many younger people do not even know how to write cursive, drafting documents using word processer software is the modern equivalent to a holographic will.  It is common for testators to use their computer software to write their own wills. If the will does not have witnesses with the proper attestation clause, then the will might not be valid on its face. 

California law allows such a will to be admitted to probate under the “harmless error” rule which allows for such a will to be admitted to probate provided that there is clear and convincing evidence that the testator intended the document to be his/her will. A person familiar with the will should file a declaration with the court explaining why the will should be admitted to probate despite its non-conformity with the proper procedure for executing a valid will. 

Bonus Problem: Copies Only 

If the original will cannot be located, there is a presumption that the testator intended to revoke the instrument.  However, this presumption can be overcome by introducing clear and convincing evidence that simply not being able to locate the original does not necessary mean that the testator intended to revoke the will.  In such a circumstance, complete signed photocopies of the will can be admitted to probate. 

Conclusion

Although there are many ways to overcome a will that was not properly executed, methodically following proper procedure can make things much easier for your loved ones in the event of your passing.  Attorneys who specialize in estate planning are familiar with the execution requirements and can ensure that you do not make a procedural mistake that creates uncertainty and unnecessary expense and delay. 

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. 

Legendary singer Aretha Franklin recently passed away after a battle with pancreatic cancer.  A few days after her death, it was revealed that Ms. Franklin had joined the very popular “club” of celebrity estate planning blunders. Ms. Franklin – with all her wealth, her illness, and professional advisors – failed to create an estate plan.  Her attorney, Don Wilson, stated: “I was after her for a number of years to do a trust.  It would have expedited things and kept them out of probate, and kept things private.”  Apparently, Ms. Franklin did not fully appreciate her attorney’s prudent advice. 

Dying without a formal estate plan is commonly referred to as “dying intestate.”  If you do not have an estate plan in place, the state’s Probate Code has a “default” estate plan for you.  It appears that in Ms. Franklin’s case, the Michigan Probate Code (Ms. Franklin was a resident of Michigan at the time of her death) provides that her share is to be divided into equal shares for her children.  Often intestacy statutes provide that the default heirs will be the closest surviving blood relatives.  While in Ms. Franklin’s case this might have been what she wanted, the default rules of a state’s intestacy laws do not always coincide with a decedent’s wishes. 

Even if the intestacy rules do coincide with the decedent’s wishes and the “right” people inherit, probate can still present unfavorable situations.  Probate is often a slow process because many aspects of the settlement of the estate must pass through the court.  The court’s schedule is often overburdened and thus it can take several months to schedule a court date.  Furthermore, probate is often expensive.  In some states, such as Michigan where Ms. Franklin was a resident at the time of her death, attorney fees for probate are based on private agreement between the Personal Representative and the attorney.  In other states, such as California, attorney fees for probate are set by statute and are based upon the gross value of the decedent’s estate. 

In addition, the probate process is public.  At some point, the whole world will know exactly what Ms. Franklin owned at the time of her death, the value of each asset, as well as the name and address of each heir.  A trust-based estate plan would keep all of these details private. 

With Ms. Franklin’s wealth, another missed opportunity was the ability to plan for estate and income tax to her heirs.  It is very likely that her estate will be subject to much higher taxes than there would have been if a comprehensive trust-based estate plan were in place. With an estimated estate of $80,000,000, Uncle Sam will likely be very happy that Ms. Franklin ignored her attorney’s advice to execute a trust.

While it is generally advisable to avoid the unnecessary delay and expense of probate by executing a formal, trust-based estate plan, if you find yourself “stuck” with a probate, a knowledgeable probate attorney can help guide you through the arcane and nuanced process.  As I explain to my probate clients, while the situation is not ideal, the assets will end up in the right hands. It just might take a little longer and be a little more expensive than it could have been. Probate does have a few positive features such as clear and articulated rules and procedures as well as judicial oversight.  However, most people will agree that probate should be avoided whenever possible.

I have posters in my office entitled: “Estate Planning Mistakes of the Rich and Famous.” Ms. Franklin can now be added to the list. I often ask my clients, “What do all these celebrities have in common?” My answer: “They did not come to see me to do their estate plan!”  Aretha Franklin included! 

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 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, you should consult a competent attorney who is licensed to practice law in your community. 

Last week, to celebrate the reopening of Highway One, Visit California, WeatherTech Raceway Laguna Seca, and the California Highway Patrol arranged a convoy of over 80 cars from Monterey to Morro Bay, each representing a model year from each year that the famous route has been in existence. Members of the media traveled in each car to write about their adventures and to spread the word that Highway One is again open for business.  The convoy stopped in Ventana for brunch, at Hearst Ranch for hors d’oeuvres, and at Morro Rock for dinner.

I was fortunate enough to have been invited to participate with my beloved 1953 Chevy Bel Air, “Maybellene,” named after the Chuck Berry song of course! The media members who rode with me were a husband and wife travel writing team, Hannah and Adam, who own a travel website, www.gettingstamped.com. We spoke about my automobile, the “car culture” of California, and the proclivities of car enthusiasts.

My interest in Chevy Bel Airs can be traced back to a trip to Disneyland when I was in 4th Grade. The theme park held a “Fabulous 50’s” celebration where 50’s music, cars, and fashion were on display. I was in awe.  My mother bought me a cassette tape that I wore out from listening on a continuous loop.  As a ten-year-old in 1989, my favorite song was “Only You” by the Platters!

In high school, I worked at a classic car consignment where I was surrounded by fine machines of all eras but I was most enthralled by the cars for the 1950’s.  At that time, I found an ad for what turned out to be Maybellene in the local Auto Trader newspaper.  To quote the Alan Jackson song: “My first love was an older woman.”  I was 16 and “she” was 42!  Maybellene was my daily driver throughout high school.  

There is truly something special about driving an “analog” car on a beautiful, iconic road. No air conditioning other than rolling down the windows (I truly despise the invention of power windows); not one computer chip in the vehicle; and the simple feel of the rumbling motor as the miles of the road are eaten up by the big machine.   In our digital age, it’s a feeling for which many increasingly yearn – even the youngest among us.  When my son was about five years old, as we were sitting in Maybellene waiting for her carburetors to warm-up, he asked me: “Dada, when you die, I’m getting this car, right?”  Apparently, he understood the concept of estate planning at an early age!

For much of the Dream Drive, I followed behind a 1959 Aston Martin convertible.  Russ, the owner of the British sports car, said that his father purchased it from a dealership in San Francisco in 1964.  The car was chosen over a Mercedes Benz SL Roadster because his mother had trouble getting into the German vehicle.  His father paid $2,500 for it and today it is worth more than $1,000,000! (I was very careful to keep a good distance from it during the drive!)  I’m sure the car is worth far more to him given its family history.

My dad has a special car of his own: a bright red 1988 BMW E30 nicknamed, “The Red Baron.” He has owned it for nearly 30 years and continues to enjoy it. It’s definitely a “keeper.” As I explain to my wife, when a couple has a new child, they do not get rid of their old child – the same is true with cars!

Comprehensive estate planning often involves careful planning for sentimental tangible items, such as classic cars and other collectibles that can be links to our past.  Often it is the sentimental tangible items that have the most significance to beneficiaries regardless of their monetary value.  The special drive down Highway One certainly reminded me of this fact.

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

Disclaimer; This article is for general information only. Reading this article does nto 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.

Legal dramas are popular.  Hollywood has an endless supply of television shows and movies featuring lawyers in an assortment of situations.  Many non-lawyers ask me whether these programs are an accurate reflection of the legal profession.  I often respond by relating an anecdote from when I studied for the Bar Exam: to prepare for the legal ethics portion of the Exam, our instructors advised us to watch any legal show and write down all the ethical rules that the characters routinely break!  In another words: in real life, lawyers couldn’t get away with anything that makes for engaging entertainment.    

Lately my wife and I started watching the USA Network television legal drama, Suits.  I know that we are late to the game but we are enjoying the show.  However, I cannot help but point out to my wife all of the ethical rules that are broken in every episode.  Without asking for it, my wife is getting a free Bar Exam review course on legal ethics!  Below are some of the most egregious examples. 

Unauthorized Practice of Law

The premise of the show features Mike Ross, a young man with a photographic memory who passed the New York Bar Exam but did not formally attend law school and was never admitted to the Bar.  Nevertheless, veteran corporate attorney Harvey Spector hires him anyhow because he is impressed with his intelligence and this confident attitude.  He pretends to have graduated from Harvard Law School and immediately jumps into the hectic pace of legal work.  Later, other members of the top New York law firm, including the managing partner Jessica Pearson, learn of Mike’s secret that he really has not been admitted to the Bar and yet they all comfortably allow him to act as an attorney, including representing the firm’s clients in court. 

According to the New York State Board of Law Examiners website, “Section 520 of the Rules of the Court of Appeals for the Admission of Attorneys and Counselors at Law provides four routes for an applicant to qualify to take the New York bar examination, all of which require at least some form of classroom study in a law school.”  Clearly, Mike is not eligible to practice law. 

Mike, Harvey, and Jessica all consistently violate ABA Model Rule of Professional Conduct 5.5: “A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.”

Harvey and Jessica further violate ABA Model Rule 5.1 – Responsibilities of a Partner or Supervisory Lawyer: 
“(a) A partner in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.
(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.”

Competence 

ABA Model Rule 1.1 requires all lawyers to practice competently: “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”

For the most part, the show portrays Mike Ross as an effective advocate for the law firm’s clients.  However, he has not been formally trained as a lawyer pursuant to the New York State Bar of Law Examiners requirements and is not properly guided by the senior attorneys at the firm.  The law is complex and it is truly impossible for him to practice competently. 

Additionally, the law firm of Pearson Hardman / Pearson Darby / Pearson Spector appears to be able to practice in every area of the law, from corporate law to landlord / tenant law to criminal law.  The reality is that the legal profession is so specialized that it is not likely the same attorneys can be competent in such a wide range of practice areas.  

Fairness to Opposing Party and Counsel

Mike, Harvey, and Jessica see every aspect of their practice as a competition and they want to win every time.  They often engage in gamesmanship and “creative lawyering” that involves being untruthful with opposing counsel.  In one instance, a key document was buried and later it was revealed that a partner had planted the document in the first place. 

ABA Model Rule 3.4 prevents this kind of dishonest behavior: “A lawyer shall not: unlawfully obstruct another party’ s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value. A lawyer shall not counsel or assist another person to do any such act.”

Duties for Former Clients

Partner Daniel Hardman represents a particular client in one case.  Later, after he is forced out of the firm, he is hired by the opposing law firm to represent the other side in the same matter.  

ABA Model Rule 1.9 provides: “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.”

Conclusion

Legal shows are entertaining precisely because the characters engage in activity that does not happen in reality without adverse consequences.  While the portrayals contribute to an unflattering view of the practice of law, they do remind law students and attorneys of the ethical rules that we all must follow!

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

I have been writing a bi-weekly column for the Cedar Street Times and its predecessor, The Pacific Grove Hometown Bulletin, since 2007.  Although the content of my column sometimes varies, it mainly focuses upon aspects of estate planning.  I am often asked – and I sometimes wonder myself – if I will ever run out of topics about which to write!  However, there always seems to be something new that I can say about this vast and highly nuanced area of the law.  Indeed, being able to apply complex legal concepts to a host of varied applications requires an almost infinite infrastructure of knowledge, the pursuit of which never ends.  While that can sometimes feel daunting, I am encouraged by a famous quote from Albert Einstein: “The only thing that you absolutely have to know is the location of the library.”

As an English major in college and then as a law student, I have spent a good amount of time in libraries.  Although I did most of my studying in my room, if I needed to focus on a particular project, the library was a perfect setting.  I remember one time in law school I became overwhelmed with the technical aspects of the law that I was studying.  I wandered into the university’s main library and found mental and emotional relief in the warm and fuzzy pictures of paintings from the Hudson River School artists in the Art History section.  The ability of a library to take you to other places, both literally and figuratively, is truly a treasure.

After law school, I studied for the Bar Exam at the Pacific Grove Public Library, returning to the same building where as a child my grandmother and mother took me to check out books to begin my lifetime journey of learning.  Libraries are indeed the cornerstone to any democratic community and our community of Pacific Grove has been fortunate enough to have had a centralized location for accessible knowledge for over 110 years.

The Pacific Grove Public Library has gone through many changes and developments since its establishment.  Currently, the Friends of the Library, the Library Foundation, the Pacific Grove City Council, the Library Board, and community volunteers have joined together to raise funds to make a substantial renovation to our beloved community library.  The Pacific Grove Public Library website outlines the highlights of the renovation:

“Preserving Our Community’s Past

•    Reveal and refinish the 1908 Carnegie rotunda.
•    Restore and connect the historic “heart” of the Library
•    Create a central history space to preserve and display our irreplaceable local archives.

Enhancing the Present

•    Provide comfortable, accessible, and welcoming community spaces to support early literacy, lifelong learning and information access for all ages and abilities through children’s services, internet access, study groups, small and large meetings, and public programs.
•    Update restrooms, carpeting, shelving, and fixtures
•    Improve usability and accessibility with a new central service desk, upgraded and energy-efficient lighting, improved lighting and way finding.
Preparing for our Community’s Future
•    Improve and expand connectivity and infrastructure for 21st century technology needs.
•    Provide flexible spaces to support quiet reading, group study, programs, and meeting.
•    Ensure the renewed Library meets the needs of generations to come.”

I think this is an exciting project for our community and I look forward to taking my son to see the completed renovation in the fall of 2019.  I will remind him that as long as value is placed on access to information, including the support of a local library, there is no limit to the amount of knowledge that one can acquire.  

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 any action on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.   

This article is courtesy of guest columnist Beverly Nelson, the operator of standupforcaregivers.org.

There are a few times in everyone’s life when words fail and we just don’t know what to say to someone else. One of the most awkward situations anyone will ever face is having to discuss death and end-of-life arrangements with a loved one. If you aren’t tongue-tied and at an absolute loss for how to begin such a discussion, you’re apt to be harshly self-critical for not having said the “right thing.” It’s a necessary conversation, but some people never figure out how or when to broach the subject, even with someone they’ve known their entire lives. Anxiety, sadness, guilt, and fear may afflict you all at once. The important thing to remember is that there’s no right or wrong way to handle it. Every situation and individual is different. But there are several tips that can help you find ways to be open and honest with a loved one who faces their own mortality.

Strategies

No one likes to talk about death, but it can be a therapeutic, even revelatory experience if handled with love and patience. Try creating an opening for airing the subject by asking how your loved one is feeling emotionally and physically. Offer to provide assistance if they’re feeling depressed or in pain, and ask if they’d like to discuss their feelings with you. Don’t be insistent or confrontational; just make it known that you’re available and willing to talk if they’d like. Don’t fear awkward silences. Often, they become openings for candid remarks that can lead to a substantive conversation. Besides, silence can be reassuring, even if it comes in the middle of a conversation.

Share a Laugh

Laughter is renowned for its ability to provide an emotional uplift. It makes you feel better physically and emotionally. Try discussing common experiences that will get you both laughing and reminiscing about happy times. Laughing and remembering are excellent ways to help a terminally ill relative feel better about their quality of life and may create an opening for talking about end-of-life dispositions.

Change the Subject

Sometimes, terminally ill individuals just want to talk about something that will take their minds off things. Try airing subjects that have nothing to do with a loved one’s illness. Instead, talk about something near and dear to his heart, a favorite subject, a sports team, or a much-loved hobby, like gardening or genealogical research. Show a genuine interest and ask questions that’ll stir their interest and enthusiasm, which can lead to the airing of a necessary though uncomfortable discussion you both know needs to happen. Your loved one may express gratitude for your help with day-to-day activities they’re no longer able to handle on their own. This sense of gratitude can make them more amenable to talking about their situation and wishes.

Avoid Overly Simplistic and Clichéd Expressions  

Be sure to avoid platitudes and simplistic expressions that someone may find patronizing or even insulting. Remember that someone who knows you well will easily recognize when you’re being insincere and just trying to placate them. Don’t indulge in expressions like “It’s God’s will,” or “Everything happens for a reason.” It’s an indirect way of saying that you’re not comfortable with having a meaningful exchange, which won’t help you when it comes to discussing death and end-of-life arrangements.

Their Wishes, Funeral Expenses, and Insurance

People often genuinely want to talk about their funeral arrangements. They may want a particular song or hymn played, or a favorite psalm or Biblical reading included. In that case, you can expect them to give you an opportunity to talk about any other issues, such as a will or trust. If there’s a problem with funeral expenses, one option to consider is talking with your loved one about selling a life insurance policy to free up cash. Learn the ins and outs before taking any steps, just to be sure this option is the best one for your particular situation.

Having the end-of-life conversation with a relative or friend can take some time and effort getting your loved one to feel comfortable airing the subject of death. Try encouraging them to bring up the subject when they’re comfortable, and be gentle about steering the conversation. Don’t be banal or insistent; be patient, open, and sharing so that it’s clear you’re being sincere and respectful with them. Once someone knows you have their best interests at heart, it’s much easier to initiate a conversation that can be painful and even frightening.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 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 provided in this article, you should consult a competent attorney who is licensed to practice law in your community.

Image courtesy of Pixabay.com

As American society is becoming more litigious, there is the increasing threat that you might end up on the wrong side of a lawsuit even if you did not intend any wrongdoing. Car accidents, health bills that exceed the coverage of your health insurance, bad business deals, and professional malpractice can all present threats to your hard-earned assets.  Estate planning can provide many opportunities for asset protection planning. 

Traditionally, the law has not allowed asset protection for persons who establish trusts for their own benefit with their own assets.  Some states, such as Nevada, Delaware, and Alaska, created statutory exceptions to this general rule that allow people to utilize special types of trusts to create asset protection for their own assets.  These are known as “Domestic Asset Protection Trusts” or “DAPT’s.”  California Probate Code Section 15404, however, specifically states that it is against the state’s public policy to recognize DAPT’s.

Although it is not possible under California law to establish an asset protection trust for one’s own benefit with one’s own assets, there are several California laws that allow the creation asset protection trusts for the benefit of third parties such as children or other loved ones.  Such third-party asset protection trusts can be incorporated into a living trust by providing a beneficiary with an “in-trust inheritance” as opposed to the more common and traditional “outright distribution.” 

The three most common types of third-party asset protection trusts allowed under California law are spendthrift trusts, support trusts, and discretionary trusts. 

Spendthrift Trusts 

California Probate Code Sections 15300 and 15301 state that a California trust can provide that a beneficiary’s interest in the income and principal of a trust cannot “be subject to voluntary or involuntary transfer.”  The idea behind this provision is that a beneficiary cannot assign his/her interest in a trust to a third party, including a creditor.

A key limitation to this type of trust is that once income or principal is actually distributed to the beneficiary, the asset protection is lost.  Furthermore, there are statutory exceptions to the asset protection provided by spendthrift trusts.  For example, a spendthrift trust will not protect a beneficiary against claims of child support of spousal support.  Furthermore, other types of creditors might be able to reach up to 25% of the income or principal of the trust under certain situations. 

Support Trusts

California Probate Code Section 15302 provides that a trust that specifically provides for a beneficiary’s education and support cannot be reached by the beneficiary’s creditors, at least until assets of the trust are actually distributed to the beneficiary.  “Support” can include support for the beneficiary as well as the beneficiary’s spouse and minor children. 

Discretionary Trusts 

California Probate Code Section 15303 specifically authorizes discretionary trusts.  A discretionary trust gives complete discretion to the trustee to decide whether or not to distribute any income or principal to the beneficiary: the trustee may give all of the trust assets to the beneficiary; none of the assets of the trust to the beneficiary; or any amount in between.  

Because the beneficiary cannot enforce a trust distribution, a beneficiary’s creditor also cannot enforce a trust distribution.  As such, a discretionary trust is the most effective asset protection trust allowed under California law.  

Other Asset Protection Strategies

Although California limits asset protection trusts to the benefit of third parties, California does allow for other asset protection strategies for that can protect a person’s own assets.  These include Limited Liability Companies (“LLC’s”), corporations, professional corporations, liability insurance, and retirement plans such as IRA’s and private retirement plan trusts. 

Conclusion

Although other states such as Nevada, Delaware, and Alaska, have better reputations than California for asset protection, there are still many opportunities for asset protection strategies that are directly recognized under California law.  Engaging in estate planning presents a good opportunity to explore the possibility of maximizing the full potential of trusts and other legal instruments that can provide a significant degree of asset protection in a variety of circumstances. 

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 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.