Step-up or Step-down?

When certain “capital assets,” such as real property or securities, are sold, capital gains tax will typically be due on the difference between the “basis” in the property and the sales price. The “basis” in an asset is the original purchase price. With regard to real property, the basis can be adjusted by the cost of improvements on the property (i.e., installing a new roof).

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Filling a Trustee Vacancy

When establishing a trust, the selection of a trustee is of paramount importance. The trustee manages the assets of the trust for the benefit of the beneficiaries in accordance with the terms of the trust. Without a responsible and effective trustee, the trust will not carry out its objectives. 

In the event that the trustee ever becomes unable or unwilling to continue to act as trustee, often due to disability or death, a trust should name a successor trustee and several alternates to ensure that the trust will always be managed by a trusted individual. There is no legal limit to the number of alternate successor trustees that can be named in a trust and having a “deep bench” is important.

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Protecting Inheritances Through an Irrevocable Trust


Under California law, as in most states, Trust-Makers cannot establish asset protection for themselves by creating their own trusts with their own assets for their own benefit (CA Probate Code §15304). Such a trust is commonly referred to as a “self-settled trust.” However, under California law, as in most states, Trust-Makers are able to establish asset protection for third-parties by creating irrevocable trusts for the benefit of third-parties (CA Probate Code §15303). Such a trust is commonly referred to as a “third-party trust.” 

The concept of the “Beneficiary Controlled Trust” (“BCT”) is to take advantage of the rule permitting the establishment of creditor protection for third-parties by utilizing a third-party trust to transfer either a lifetime gift or a gift upon death to a third-party.

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An Artful Respite


Although I grew-up on the Monterey Peninsula, I chose to attend Saint Michael’s College in Vermont, a small liberal arts school located near the shores of Lake Champlain. I sought frigid weather, covered bridges, and green mountains and that’s what I found! I majored in English Literature and I enjoyed reading the works of the 19th Century American Transcendentalists and the 18th and 19th Century British Romantics, especially Ralph Waldo Emerson, Henry David Thoreau, and William Wordsworth. It was special to study their works in the same region of the country where Emerson and Thoreau lived and in a similar setting as Wordsworth’s Lake District. 

As a senior in college, after I had made the decision to attend law school, my advisor suggested that I take an art history class. His daughter was an attorney and he thought that in addition to being able to discuss literature with each other, lawyers should also be able to discuss art.

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The “Back-Pocket” Trust


With regard to the distribution of assets upon death, comprehensive estate planning should focus on three key areas: (1) Who should inherit? (2) What should they inherit? And (3) How should they inherit? Most time and energy are spent focusing on the first two elements. However, the third element should not be overlooked as it might be the most important. The manner in which an inheritance is structured can take advantage of key planning opportunities including protecting an inheritance from creditors, predators, and divorce. In the case of a Special Needs beneficiary, the careful structure of an inheritance will ensure the preservation of crucial government benefits. 

Many public benefits such as Medi-Cal and SSI are “means-tested”: an individual is only entitled to such benefits if his/her estate is below a certain asset threshold.

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Decanting a Trust

A key idea of estate planning is to preserve your wishes. It is important to have confidence that when you make an estate plan, it will be honored by future generations. In order to preserve such wishes, trusts typically become irrevocable upon the trust-maker’s death.  In certain circumstances, a trust might be irrevocable as soon as it is executed.  The irrevocable nature of the trust is intended to create a legally binding agreement that will be enforced in the future, long after you have passed away.

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Be Careful about Non-U.S. Resident Trustees

My wife grew-up in a relatively small town in Maine. Her aunts, uncles, cousins, and grandparents all lived in the same town.  Her parents’ aunts, uncles, cousins, and grandparents also lived in the same town. However, her generation was the first to “leave town.” I dragged her to California; her brother lives in New Hampshire; and she has cousins who live in Vermont and Illinois.

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IRA’s and Special Needs Trusts – A Tricky Mix

Inheritances are not always the carefree “jackpots” that people often envision. Sometimes they can create problems if the estate planning instrument is not structured properly. Two areas where inheritances can become especially problematic without careful planning are Individual Retirement Arrangement accounts (“IRA’s”) and Special Needs Trusts for beneficiaries who are reliant upon means-tested public benefits such as Medi-Cal or SSI.  Exceptional care must be taken when both of these areas are combined. 

IRA’s – Preserving “The Stretch”

Traditional IRA’s allow tax deferment in order to encourage saving for retirement.

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Making Sense of Legal Jargon

As an English major, I am passionate about vocabulary.  For me, part of the appeal of practicing law is that lawyers have their own dictionaries!  In preparing for law school, I purchased a copy of Black’s Legal Dictionary from Borders in Sand City, California (remember that store?) and learned terms of interest.  Unfortunately, most legal jargon is not readily accessible to the average person.  A lot of the terms are confusingly similar.  In the Estate Planning context, there are several terms that appear to be the same but in fact have very different meanings.

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Advanced Trust Planning

Traditionally, basic estate planning focuses on avoiding the unnecessary delay and expense of a court-supervised conservatorship in the event of mental incapacity, avoiding the unnecessary delay and expense of a court-supervised probate in the event of death, and minimizing estate tax.  A basic revocable living trust is usually the best vehicle for addressing all of these concerns.  

While it is important to avoid conservatorship, avoid probate, and minimize tax, an advanced trust can take advantage of many more planning opportunities.  Below is a description of some of the additional planning opportunities that a more comprehensive trust can provide.

Preserving a Beneficiary’s Eligibility for Public Benefits:

Many public benefits, such as Medi-Cal and SSI, are “means-tested,” meaning that a recipient of such benefits must be below a certain asset threshold.

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