Category: Estate Planning

Creating an effective estate plan that carries out your wishes years into the future is challenging.  Over time, laws, legal strategies, and the circumstances of beneficiaries can dramatically change.  Typically, an estate plan centered upon a living trust will remain revocable by the trust-maker as long as the trust-maker is living and has mental capacity.  As such, it is important to review your estate plan on a regular basis with a competent attorney to make sure that your plan is still effective.  

However, what happens when you are no longer able to keep your estate plan current by making adjustments to it due to your incapacity or death?  Is there any way to ensure that your estate plan can navigate unforeseen change in the future?

The Trust Protector Concept:

One of the most effective mechanisms for ensuring that your estate plan stays current and navigates changes in law, changes in legal strategies, and changes in the circumstances of beneficiaries is to include provisions for a “Trust Protector.” 

According to a popular California legal practice manual:

“Trust protectors serve as the watchful eyes over an irrevocable trust. Trust protectors can be granted, among other important powers, the power to amend an individual’s estate plan. For example, a trust protector can be granted the power to make administrative changes to a trust, such as changes to the procedures for the removal and appointment of trustees or changes to trustee investment provisions. A [trust-maker] may also allow a trust protector to make substantive changes to trust terms to address changes in tax laws or other legal, financial, or familial circumstances that may impact the trust. CEB Estate Planning 2013 – ‘Current Estate Planning Issues and Developments.'”

Trust Protector Law:

Few states have written statutes that address the concept of Trust Protectors.  Nevada, Delaware, and Alaska are three states that have the most statutory authority on this effective estate planning tool.  However, regardless of whether a state specifically acknowledges the implementation of the Trust Protector concept, a trust drafted in almost any state – including California – may incorporate Trust Protector provisions.   

Powers of Trust Protector: 

A Trust Protector can be given numerous powers to ensure that an estate plan remains current and effective in carrying out your intent long after you have become mentally incapacitated or passed away.  The Nevada Trust Protector statute (Nev Rev Stat §163.5553) serves as an excellent overview of the many types of powers that may be granted to a Trust Protector which include:  

• Modify or amend the instrument to achieve a more favorable tax status or to respond to changes in federal or state law;

• Remove and appoint a trustee, trust adviser, investment committee member, or distribution committee member;

• Terminate the trust;

• Direct or veto trust distributions;

• Change the location or governing law of the trust;

• Interpret terms of the instrument at the request of the trustee; and

• Review and approve a trustee’s reports or accounting.

A Trust Protector can be granted all of the aforementioned powers or just a few of these powers. When deciding what kinds of powers to grant to the Trust Protector, it is important to balance the interest in adding flexibility to the trust while at the same time preserving your overall intent. 

Appointment of Trust Protector:

There are numerous methods for appointing a Trust Protector.  First, when creating the trust initially, you can name a Trust Protector.  However, it is often difficult enough to name successor financial fiduciaries, health care agents, and guardians for minor children and adding one more category of responsible individuals to act on your behalf might be too onerous.  

Another method for appointing a Trust Protector would be to allow third parties, such as the beneficiaries of the trust or a trusted advisor such as your CPA or your attorney, to appoint a Trust Protector when needed. 

Trust Purpose – The “Big Picture”:

The Trust Protector has a responsibility to exercise his/her powers in a manner that is consistent with your estate planning objectives.  As a result, it is a good idea to provide the Trust Protector with guidance as to the overall purpose of your trust. For example, the trust purpose might state: “The material purpose of this trust is to provide an effective mechanism for the management and distribution of trust assets in the event of incapacity or death while avoiding court intervention whenever possible.” 

Conclusion:

As the law becomes more complicated and less predictable, it is becoming increasingly important to build as many “off-ramps” and “on-ramps” into your estate plan as possible. Incorporating the Trust Protector concept is one of the most effective tools to accomplish this goal. 

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

It has taken you a lifetime to figure out your financial strategy.  You have finally reached a point where you feel confident about your approach to saving, investing, and spending your hard-earned assets.  You think about all the wasted years where you either did not make any effort to be deliberate with your finances or where you made mistakes through trial and error.  You want your children or other loved ones to be able to avoid making your mistakes and to begin where you ended up.  A comprehensive estate plan can help you achieve this goal for the next generation in a variety of ways.  

The Prudent Gatekeeper

An inheritance is like a lottery: you did not work for the money and all of a sudden – without any time to prepare – a large amount of money lands in your lap.  While it certainly is not appropriate for minor beneficiaries to manage money at such a young age, it can even be a challenge for mature adults.  One way to ensure that your hard-earned assets will continue to be invested and managed appropriately is to leave your beneficiaries’ inheritances in trust to be managed by a responsible third party such as a trusted family friend, a trusted advisor, or a professional trustee.  

Many people mistakenly believe that this is akin to “locking away” the inheritance for a period of time.  However, the beneficiary will still be able to use and enjoy the trust assets appropriately under the oversight of a responsible third-party trustee who acts as a prudent gatekeeper.  The prudent gatekeeper might say: “No, you can’t use your parents’ money to buy a Ferrari; yes, you may use your parents’ money to go to college.”  Any funds not spent on behalf of the beneficiary can be managed carefully in order to ensure that there will always be a source of support for the beneficiary.  

Sacred Real Property

Famous novels such as Wuthering Heights and Howard’s End feature homes that essentially are characters in the stories. A family home, vacation cabin, or a plot of land can mean much more than a mere asset.  Especially in California with the value of real property growing exponentially and the protections of Proposition 13 from significant property tax increases on real property that is held by the same family for a significant period of time, you might view certain real properties with reverence.  You understand that if you were to sell that property today, tomorrow you would never be able to afford to buy it back.  Indeed, many families have lost an incredible amount of wealth by selling real property when the better financial move would have been to retain the property.

A good estate plan can convey the viewpoint of treating certain real property with particular reverence.  For example, a trust might forbid the sale of particular real property or set certain conditions that require unanimous consent of all the beneficiaries before real property is sold.  A less restrictive approach might be to express the hope that the beneficiaries do not sell certain real property without a legally binding prohibition on such action.   

Special Investments

You might have special investments that you were lucky to acquire and you know that if these investments were liquidated, it would be very difficult to find a comparable investment elsewhere.  Similar to the approach of sacred real property described above, a trust might either forbid the liquidation of that investment or might convey your feelings about the investment and advise that the beneficiaries think twice before divesting themselves of such assets.

Helpful Advisors

You might have found particular financial advisors to be very helpful and you want your children or other beneficiaries to be able to use the services of that advisor.  A Trust can either require or strongly suggest that a particular financial advisor or investment firm be used by the beneficiaries for either a period of time or indefinitely. 

Stretching Retirement Plans

Defined contribution retirement plans such as IRA’s can be beneficial to future generations provided that the beneficiaries do not liquidate them all at once.  It is important that they understand the benefit of the tax deferred structure and that they are both able and willing to “stretch” these plans out as long as possible by limiting withdrawals to the minimum amount required by law.

Careful planning in designating the beneficiaries – especially when using trusts – is paramount.  Furthermore, if you do not trust your beneficiaries to be disciplined when making withdrawals of such plans, a special Retirement Plan Trust might be an appropriate method to ensure that the beneficiaries maximize the advantages of such assets. 

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.  

On a recent family trip, we happened pass through the neighborhood of my law school alma mater, UC Davis School of Law. It was the first time I was able to show my seven-year-old son where I spent three dedicated years that served as the foundation for my professional career. My son was very impressed and he said that if he is not able to become a professional hockey player, he’ll probably become a lawyer.  (That was my plan as well!) 

As most professionals will acknowledge, learning does not end with formal education. Even after earning a law degree and passing the Bar Exam, lawyers must periodically take continuing legal education courses in order to improve the breadth and depth of their knowledge as well as stay current on changing law and legal strategies. I thought the Bar Exam would be the last test I would ever take but five years later I found myself voluntarily sitting for an additional exam as part of the process to become designated as a Certified Legal Specialist in Estate Planning, Trust & Probate Law. (Yes, I passed!) 

Once I obtained a certain degree of expertise and learned how to apply it to practical situations, I discovered the importance of sharing that expertise with others.  Perhaps it was because my parents and my grandfather were all educators that I developed a knack for explaining complex legal principles in an accessible manner.  Early on in my legal career I presented workshops to the public that offered information on estate planning.  I use the same teaching approach with my clients at my office in order to give them enough information to actively participate in their estate planning without overwhelming them with too much technical detail.  

Often, when I give presentations to the public or meet with clients privately, many people reveal that they have questions and concerns beyond estate planning. They have questions about investing and taxes – areas that should be addressed by other experts who specialize in those fields.  There is a need to educate the public on financial literacy as a whole.  

The Financial Awareness Foundation, a 501(c)(3) nonprofit organization, understands the importance of providing the public with access to professionals who represent these various disciplines in a cohesive and cooperative manner. As the Foundation describes on its website, the Foundation “was formed for the purpose of significantly helping to solve a major social problem dealing with the lack of financial awareness and financial literacy.”  

The Foundation partnered with the Monterey Public Library Endowment Committee and the Friends of the Library to put together a two-part series on financial awareness and financial literacy at the Monterey Public Library. I am honored to serve as a panelist along with many other distinguished colleagues for this event.  The details are below:  

Part One: Building Blocks to Successful Financial Planning

When: Tuesday, April 24, 2018 from 6:00 pm to 8:00 pm 

Where: Monterey Public Library 

Part Two: Building Blocks to Successful Estate and Gift Planning

When: Tuesday, May 1, 2018 from 6:00 pm to 8:00 pm

Where: Monterey Public Library 

Admission to both days is free but reservations are required. You may RSVP by calling 831-646-5632 or sending an email to thongchu@monterey.org.

The event is sponsored by the Communities Advancing the Arts Fund of the Community Foundation for Monterey County. 

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 create 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. 

Most people think of an estate plan as a singular document.  On the surface, it might seem simple.  However, there are many nuances to directing the disposition of assets upon death that can become difficult to navigate.  The reality is that most people have multiple estate plans that control various assets depending upon how they are titled and whether or not beneficiaries are designated.  It is important to understand how these different estate plans work.

Trust

Assets that are either titled to a trust or name a trust as a beneficiary upon death are controlled by the terms of the trust.  The inverse is also true: assets that are not titled to a trust or that do not name a trust as the beneficiary upon death are not controlled by the trust.  As a result, it is important that all assets that are intended to be controlled by a particular trust are funded to the trust. 

While it is common to have one trust that controls all assets, there are circumstances in which a person might have multiple trusts controlling different sets of assets due to for a variety of reasons including tax planning strategies, asset protection purposes, or simply having different wishes with regard to different assets.

Trusts provide for the management and control of its assets while the trust-maker is living and has mental capacity, in the event of the trust-maker’s mental incapacity, and upon the trust-maker’s death.

Will

The terms of a will control a person’s assets that were titled to that person in his/her individual capacity at the time of death.  Wills do not control assets that are held in trust, held in joint tenancy, or that name designated beneficiaries.

Wills only come into effect when the will-maker dies.  While the will-maker is living – even during a will-maker’s incapacity – wills have no effect.

Joint Tenancy

Joint tenancy is the most common form for two or more individuals jointly holding title to an asset such as a bank account, an investment account, or real property.  Joint tenants are always equal owners.  Furthermore, joint tenancy features a “right of survivorship” meaning that upon the death of one joint tenant, the remaining joint tenants automatically inherit the deceased joint tenant’s share equally by operation of law.  This is true regardless of whether there is a contrary provision in the deceased joint tenant’s will or trust.

Pension Plan Provisions

Many traditional “defined benefit” retirement plans feature their own polices in terms of who inherits the pension upon death.  Often there is an automatic right for a surviving spouse Sometimes children are automatically included for a type of benefit as well.  

Designated Beneficiaries

“Defined contribution” retirement plans such as IRA’s, 401(k) plans, and 403(b) plans as well as life insurance policies and annuities allow the owners to designate beneficiaries to receive the assets upon death.  The beneficiary designation form supersedes any contrary provision regarding the disposition of the asset that might be expressed in the owner’s will or trust.  

Intestacy

An asset that is not titled to a trust, is not controlled by a will, is not held in joint tenancy, and does not have a beneficiary designated will be controlled by intestacy.  “Intestacy” refers to a lack of an applicable estate plan. State laws will dictate how such assets will be distributed upon the owner’s death.  State laws typically mandate that the decedent’s closest blood relatives will inherit.  

Conclusion:

Because an asset can be controlled in so many different ways, it is important to review how each asset is titled and to determine how title will dictate the distribution of the asset upon death.  All such estate plans – including beneficiary designation forms – should be kept together to ensure that each asset upon death is distributed efficiently and correctly.

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

Traditional estate planning typically involves the use of a revocable living trust for the purpose of an efficient management and distribution of assets in the event of incapacity or death.  During the trust-maker’s lifetime, the trust is revocable by the trust-maker and simply acts as a manner of holding title to assets.  However, in the event of the trust-maker’s incapacity, the successor trustee chosen by the trust-maker will have immediate authority to manage the assets for the benefit of the trust-maker.  Similarly, upon the death of the trust-maker, the successor trustee will have immediate authority to settle the estate and distribute the assets to the beneficiaries of the trust.  In both cases, the necessity of going to court is avoided.  These are significant advantages of living trusts.  

However, there can be further advantages to trust planning.  Rather than distribute the assets directly to the beneficiaries after the death of the trust-maker, it is often advantageous to keep the assets in trust for the benefit of the beneficiaries. Advantages include managing an inheritance for a minor beneficiary; managing an inheritance for a financially irresponsible beneficiary; protecting an inheritance from the beneficiary’s creditors; protecting an inheritance from a beneficiary’s divorcing spouse; preserving public benefits for a special needs beneficiary; and various tax planning strategies.  

One drawback to in-trust inheritances is the fact that these potential benefits require that the trust be irrevocable upon the death of the trust-maker.  Even the most carefully drafted trust can become outdated as the law changes or as the beneficiary’s circumstances change.  The good news is that a great deal of flexibility can be built in to an otherwise irrevocable trust.  One effective tool for introducing flexibility to an otherwise irrevocable trust is “trust decanting.”

The definition of “decant” is “to pour (a liquid) from one container to another.”  Often wine is decanted in order to separate any sediment that may have formed as well as to aerate it so that its flavor and smell will be more dynamic.  The concept of “trust decanting” is to “pour” the assets from an old, outdated trust into a new up-to-date trust in order to remove out the old, outdated provisions (the “sediment”) and to “freshen-up” the plan.  

In-trust inheritances can provide a wide arrange of authority and directions to the trustee.  Some trusts might require that the trustee distribute a specified amount of principal or income at regular intervals.  Other trusts might forbid the distribution of principal and mandate that all income be distributed to the beneficiary.  However, many trusts give the trustee broad discretion to distribute principal to the beneficiary based upon the beneficiary’s needs or circumstances.   

The concept of “trust decanting” is based upon the trustee’s discretionary authority to distribute principal to or on behalf of the beneficiary.  The reasoning is that if a trustee has the authority to distribute principal directly to the beneficiary, the trustee naturally also has the authority to distribute the principal to a new, updated trust for the benefit of the beneficiary.

Many states have laws that expressly allow trust decanting any time a trustee has the discretionary authority to distribute principal to the beneficiary.  Other states, such as California, do not have such laws on the books.  However, trusts in those states can still take advantage of trust decanting if it is expressly allowed by the terms of the trust.

In a society where the law is constantly changing, including tools for keeping trusts flexible such as trust decanting can provide beneficiaries with more options and broader protections and prevents thoughtful planning from being thwarted by unanticipated developments years into the future.

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

Inheritances are often compared to winning a lottery: suddenly, without any work or effort on your part, you are handed a check or title to assets and your net worth instantly increases.  However, being entitled to an inheritance is not always akin to hitting the jack pot.  There might be times when you would before to say “no thank you” to an inheritance.

One common situation might be where you are entitled to assets with liabilities.  If a parcel of real property has environmental contamination, for example, and the owner is legally and financially responsible for the clean-up, you might prefer to decline that inheritance.

Another common situation might be where you feel that you already have enough assets and you might be worried about future estate tax.  You might prefer that your children or other family members receive the inheritance instead.  

If you have significant debt and you are concerned that receiving an inheritance would simply mean handing all of those family assets over to your creditors, you might prefer to decline the inheritance and let other family members or friends who do not have creditor issues enjoy the new found wealth.

Sometimes an estate planning document might contain an error or an outdated provision.  Beneficiaries might choose to decline an inheritance entitled by an outdated document in order to allow the inheritance to go to the intended recipient.

Some estate plans build in provisions to provide alternate dispositions in the event that a beneficiary declines a gift.  This type of planning can create substantial flexibility which can navigate changes in the law or changes in a beneficiary’s circumstances.  

Saying “no thank you” to an inheritance is referred to as a “disclaimer.”  If a disclaimer is “qualified,” then the person declining the inheritance can do so without any adverse tax consequences.  Both federal and state law recognize “qualified disclaimers” under certain circumstances.

With regard to a federally recognized disclaimer, Internal Revenue Code Section 2518 provides the following conditions:

“(a) General rule

For purposes of this subtitle, if a person makes a qualified disclaimer with respect to any interest in property, this subtitle shall apply with respect to such interest as if the interest had never been transferred to such person.

(b) Qualified disclaimer defined.   For purposes of subsection (a), the term “qualified disclaimer” means an irrevocable and unqualified refusal by a person to accept an interest in property but only if—

(1) such refusal is in writing,

(2) such writing is received by the transferor of the interest, his legal representative, or the holder of the legal title to the property to which the interest relates not later than the date which is 9 months after the later of—

(A) the day on which the transfer creating the interest in such person is made, or

(B) the day on which such person attains age 21,

(3) such person has not accepted the interest or any of its benefits, and

(4) as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either—

(A) to the spouse of the decedent, or

(B) to a person other than the person making the disclaimer.”

California law has similar provisions and expressly provides that if a disclaimer is qualified under federal law, it is also qualified under state law.

Being aware of disclaimers and their different applications can be effective in improving or protecting a beneficiary in a variety of circumstances.  

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.

Each year the Rotary Club of Pacific Grove hosts “Job Shadow Day.”  Rotarians volunteer to take one or two high school students with them to work for half a day.  At noon, the Rotarians bring the students to the club for lunch and they are further introduced to other professionals in the community.  For students, it is an opportunity to have a deeper understanding of various occupations at a time when they are beginning to think about life after school.  For Rotarians, it is an opportunity to take a fresh, bird’s eye view of their vocations to reflect upon and appreciate their accomplishments and skills.  

Although I am a supporter of the concept, as an attorney with a solo practice, I have often struggled to figure out how to successfully fill a morning.  After all, I can’t very well have students sit in on confidential client meetings or go through confidential client flies.  The prospect of having high school students spend their morning watching some guy type doesn’t seem too appealing, despite the fact that I am a true magician when it comes to my typing skills (thanks to my high school typing teacher, Mrs. Washburn).  I tried to think about a way to introduce the students to the law in an engaging manner.  And then I thought about how I decided to go to law school.

Close to the end of my junior year in college, I reached out to Monterey County Superior Court Judge Albert Maldonado, a family friend.  I expressed my interest in learning more about the law.  He proposed an informal arrangement whereby he would mentor me.  I spent the summer hanging around the Monterey and Salinas courthouses and law libraries.  Judge Maldonado had me observe trials and other court proceedings.  I brought my notepad with me to take studious notes.  At first, most of the judges assumed I was a reporter but relaxed a bit when Judge Maldonado later introduced me and they realized that I was just an eager and interested student.  Judge Maldonado also taught me how to conduct legal research and gave me various projects designed to help me understand a wide array of practice areas.  That fall I applied to law school and was on my way to becoming an attorney.

I decided to bring my students to the Monterey courthouse to give them a miniature “Judge Maldonado” experience.  We went to the law library and spent a lot of time looking through the various books containing federal, state, and municipal codes, regulations, and case law.  I explained the many ways that laws are made, interpreted, and applied.  We then looked for an open courtroom to observe a proceeding.  One of the greatest aspects of our American legal system is its transparency through public hearings.  

We noticed that Judge Lavorato’s courtroom was open and that a proceeding was taking place.  I decided to bring the students in for a few minutes.  We were the only ones in the gallery and the judge and other court employees took notice.  After the proceeding, Judge Lavorato inquired about why we were there.  I explained who I was and who my students were.  He was incredibly gracious and eager to carry on Judge Maldonado’s legacy by inspiring a new generation about the legal profession.  He introduced us to the court employees and had them explain their roles.  He then invited us into his chambers for a brief chat.  It was certainly an experience that the students will never forget.  Whether they go on to legal careers or not, they certainly have a deeper understanding and appreciation of our legal system.  

The special day also reinforced the importance of community: Judge Maldonado and Judge Lavorato being willing to take the time to share insight about the law with students and the many service clubs such as Pacific Grove Rotary that are comprised of members who want to lend their knowledge and skills for the betterment of others.  And of course it was also beneficial to those of us who mentored the students to be able to take a break from our daily grind and reflect on the “big picture” of what we do and how we achieved our professional positions.

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 contained in this article, you should consult a competent attorney who is licensed to practice law in your community.
        

Estate planning generally focuses on two key elements.  First, in the event of your mental incapacity, having an Advance Health Care Directive, a HIPAA Waiver, and other related health care documents will ensure that your wishes with regard to your health care and your personal comfort and well-being will be carried out by the person of your choice in accordance with your own specific guidelines.  Second, in the event of your mental incapacity and upon your death, having a well-drafted revocable living trust, financial power of attorney, and other related documents will ensure that your monetary assets are managed by the person of your choice and distributed to your selected beneficiaries under any conditions that you provide.

While these two elements are crucial, there is a third element that is often overlooked: your legacy.  After you pass away, how will you be remembered? What “life lessons,” observations, and values do you want future generations to understand and appreciate?  What family history do you have stored in your mind that will be lost with your death if you don’t make a record of it?  Indeed, these are your most valuable assets and yet traditional estate planning avoids addressing their preservation.  An “ethical will” solves this problem.

Ethical wills are methods for families to transfer moral teachings and family history to future generations.  Ethical wills are not legal documents but personal communications that can take many forms such as letters, notes, audio, video, and artwork.  

My paternal grandparents left verbal ethical wills by constantly telling me their family history: growing up in the Czech Republic; surviving Hitler’s invasion; escaping the Communist party; journeying to the United States; beginning a new life in a new country.  They also wrote memoirs that better preserve this family history as my recollection of their verbal stories fades over time.

It can be challenging to create your own ethical will.  A few simple questions can help you get started:

1.  What are five virtues that you value most in life?

2.  What is your favorite place in the world?  Why?

3.  Who are your five favorite people? Why?

4.  Who are your favorite artists?

5.  How did you choose your profession?

6.  If you could distribute $5,000 equally to five charities, what charities do you choose?

7.  What is the most important thing you’ve learned from your parents or grandparents?

In addition, there are several companies that will work with you to develop your own ethical will by helping you identify important aspects of your family history and life lessons and transform them into an engaging narrative for your children and other loved ones.

Your legacy is much more than the accumulation of tangible items and bank accounts.  Meaningful estate planning recognizes this reality by ensuring a legacy that will be treasured by your family for generations to come.

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

Legal terms can be confusing.  Often, terms can sound similar to a non-attorney but have very different meanings.  Below are some of the most common legal terms related to Estate Planning that sound similar but have important distinctions.  

Will v. Trust 

Both a Will and a Trust are documents that are used to direct the disposition of your assets upon your death.  

With a Will, you leave your assets titled to your name while you are living.  Your Will nominates an Executor who will have the responsibility for distributing your assets in accordance with the terms of our Will upon your death.  However, once you pass away, your Executor will generally have no power over your assets until your Will is submitted to Probate and the Court formally appoints the person you nominated as Executor of your Will.  Once the Court issues “Letters” to your Executor, your Executor will have the authority to settle and distribute your estate, but always under the supervision of the Court which generally causes delays and expenses that can often be avoided by using a Trust.  Furthermore, your Will only handles death and does not deal with your incapacity.  

With a Trust, you generally re-title your assets to the Trustee of your Trust.  You typically will serve as the initial Trustee, thereby maintaining complete control over your assets.  However, your Trust will also name a Successor Trustee who will have the immediate authority to manage your assets in the event of either your incapacity or your death.  Because your assets are already titled to your Trust, there is no need for any Court involvement in order to give your Successor Trustee authority over your estate in the event of either incapacity or death.  As a result, the administration and settlement of your estate is much faster and much less expensive through a Trust than through a Will.  

In addition to addressing issues of incapacity, there are other functions that a Trust can perform that are not possible with a Will.  A Trust can provide for the management of an inheritance for young or irresponsible beneficiaries, can protect a beneficiary’s eligibility for certain public benefits like SSI or Medi-Cal, can address certain tax planning, and can even provide a degree of divorce protection and asset protection for beneficiaries.  

Codicil v. Amendment 

Estate Planning is rarely set in stone until you die.  A Codicil is a subsequent modification to your Will after it was originally created whereas an Amendment is a subsequent modification to your Trust after it was originally created.  

Testamentary Trust v. Living Trust 

Because a Trust can perform many more functions than a Will, sometimes a Will-based Estate Plan will create a Trust upon the death of the Will-Maker.  A Trust that is created by a Will is known as a Testamentary Trust.  Unfortunately, the Testamentary Trust will not be established until after the Executor goes through the expense and delay of Probate.  

To avoid Probate, Living Trusts became popular.  The basic concept of a Living Trust is to create the Trust now, while you are living, first for your own benefit and then upon your death for the benefit of your chosen beneficiaries.  In this manner, your family is able to avoid the expense and delay of Probate as well as plan for incapacity in an efficient and comprehensive manner.  

Living Trust v. Living Will 

As discussed above, a Living Trust is a Trust that you create while you are living as a better and more efficient alternative to a Will.

A Living Will is an entirely different document.  A Living Will provides instructions on how decisions should be made regarding your care during your incapacity.  With a Living Will, you are able to express your preferences with regard to life support, the treatment and management of pain, certain health care options such as surgeries, medication, and other treatments, and whether and to what extent you prefer to stay in your home rather than be admitted to a care facility. 

A Living Will is often part of your Advance Health Care Directive.  

Health Care Power of Attorney v. General Durable Power of Attorney 

A Health Care Power of Attorney appoints a Health Care Agent who will have the authority to make health care decisions for you in the event of your incapacity.  A Health Care Power of Attorney is often part of an Advance Health Care Directive.  The other part of our Advance Health Care Directive – your Living Will – provides instructions to your Health Care Agent about how to make medical decisions on your behalf.  

A General Durable Power of Attorney is a document that appoints a person who will have the authority to manage your financial decisions in the event of your incapacity.  Financial decisions include the management of assets as well as the ability to sign your personal tax return, get your mail, and deal with agencies such as Medi-Care and Social Security.  

Pour-Over Will

With an Estate Plan based on a Living Trust, your Trust replaces your Will for any assets that are titled to your Trust.  However, if you forget to transfer assets into your Trust while you are living, a Pour-Over Will names your Living Trust as its beneficiary and is designed to capture those assets that you should have titled to your Trust while you were living but for some reason failed to do so. 

Ethical Will 

An Ethical Will attempts to convey your “life story” to the next generation.  Often Estate Planning focuses on material assets.  However, the greatest asset you can leave for your loved ones is your legacy.  An Ethical Will is a document that explains who you are, what your values are, and what you’d like the next generation to learn from you.

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

The Republican Tax Cuts and Jobs Act is now law. It overhauls much of the federal tax code, including the Estate Tax, often referred to as the “Death Tax.”

What is the Death Tax? 

The Death Tax is a tax on inheritance. However, the Death Tax does not apply to every estate.  Decedents who leave inheritances to their spouses who are U.S. Citizens do not have to pay any Death Tax.  This is often referred to as the unlimited marital deduction.  Furthermore, estates that are below a specified value, the “Estate Tax Exemption,” are also excluded. 

What is the Estate Tax Exemption? 

The federal Estate Tax Exemption has changed over time. In 2001, the Estate Tax Exemption was $675,000. This meant that estates of that value or less did not have to worry about the application of the Death Tax at all.  Estates larger than that amount had to pay significant tax on the amount over the Exemption.

The “Economic Growth and Tax Relief Reconciliation Act of 2001,” also known as “EGGTRRA,” increased the Estate Tax Exemption over time as follows: $1,000,000 in 2002; $1,500,000 in 2004; $2,000,000 in 2006; and $3,500,000 in 2009.  EGGTRRA eliminated the estate tax in its entirety in 2010, but originally scheduled to lower to exemption back to $1,000,000 in 2011.  This “yo-yo” effect of the Estate Tax Exemption increasing, going away, and then returning, made it difficult to plan.   

Congress subsequently passed the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” to temporarily increase the Estate Tax Exemption to $5,000,000, adjusted for inflation, for decedents dying in 2011 and 2012.  The legislation once again lowered the Estate Tax Exemption to $1,000,000 for decedents dying in 2013. 

On January 1, 2013, Congress passed the “American Taxpayer Relief Act of 2012.” The Act kept the Estate Tax Exemption at $5,000,000, adjusted each year for inflation, indefinitely.  After so many years of uncertainty, it seemed as if the Estate Tax Exemption was finally settled.   

What Does the New Legislation do to the Death Tax? 

The Tax Cuts and Jobs Act of 2017 doubles the federal Estate Tax Exemption to $11,000,000 per person, adjusted each year for inflation, beginning for decedents dying in 2018 through 2025.  Under the legislation, what happens for decedents dying after 2025? You guessed it – it reverts back to the 2017 level of $5,000,000 adjusted for inflation!  

Will Congress pass additional legislation ahead of 2025 to make the $11,000,000 Estate Tax Exemption permanent?  Will Congress try to increase the Exemption further?  Will Congress decrease the Estate Tax Exemption to pre-2010 levels?  Will Congress finally abolish the Estate Tax altogether? If we have learned anything over the course of the past twenty years, the federal Estate Tax will likely be in a constant state of flux. 

How to Plan? 

The best method for planning for this uncertainly is to build an estate plan that is flexible and has as many “on-ramps” and “off-ramps” as possible. 

Married couples who want their estate plans to remain revocable upon the death of the first spouse should consider setting up “disclaimer trusts” that also have provisions allowing the successor Trustee to claim the deceased spouse’s Estate Tax Exemption upon the death of the first spouse. 

Married couples who want to limit the surviving spouse’s ability to amend the trust after the death of the first spouse should consider setting up a “Clayton Election Trust” that allows the surviving spouse to choose the tax treatment of the irrevocable portion of the trust upon the death of the first spouse. 

All clients should consider including provisions for Trust Protectors that would allow the modification of a trust even after it has technically become irrevocable after the death of the Trust-Maker to allow for the modification of the trust’s administrative and tax provisions without court involvement. 

All clients should also consider “trust decanting,” allowing a trustee to pour assets from an old, outdated trust into a new and improved trust for the benefit of the same beneficiaries. 

No matter how unpredictable Congress can be, a comprehensive and flexible estate plan that is able to navigate changes in circumstances can be invaluable. 

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 provided in this article, you should consult a competent attorney who is licensed to practice law in your community.