Category: Estate Planning

You have made the decision to address your estate planning because you want to maintain control over your personal and financial decisions in the event of your incapacity or death.  You have found a competent estate planning attorney who is licensed to practice law in your community.  You have even taken the big step of scheduling your first appointment with your new attorney.  What should you expect at the first meeting?  Different attorneys have different approaches.  Below is a description of my typical agenda for a first estate planning meeting.

Introductions:
I like to begin an initial consultation by getting to know you a little bit.  I will start by asking you general questions about your personal situation, your family, your occupation, and your concerns.  I often let you know a little about my background so that we can generally understand each other.  In this way, we can ensure that we are comfortable working together and I can have a general sense of your concerns that I need to address.

Education:
Generally, you know why you are at the appointment: you want to create a plan that protects and preserves your personal and financial wishes for yourself and your loved ones.  However, you probably do not have a full and clear understanding of all of the elements of a comprehensive estate plan and the subtle nuances that each element addresses.  I like to spend some time giving you an overview of the different elements of a comprehensive estate plan and how they work together to accomplish your goals.  

Procedure:
Next, I take some time to explain the process.  It is important that you understand the different steps involved, your responsibilities, my responsibilities, a timeline for action, and at least a general idea of the cost.  Although I sometimes charge hourly, I normally establish a flat fee based upon the likely scope of the work involved.  I make sure you understand what is included in the fee so that there are no surprises later.  

Interview and Discussion:
At this stage, it is time to roll-up our sleeves and really dig into the design of your plan.  I will ask you specific questions.  These questions will include inquiries about members of your family, whom to appoint as financial fiduciaries in the event of your incapacity or death, whom to name as health care agents in the event of your incapacity, whom to name as guardians of your minor children if any, and other questions related to options for the administration and distribution of your estate.  You will be able to answer some of the questions right away while you will be able to answer other questions only after discussion and my counsel.  Still other questions might be unanswered at your first meeting but you will at least have a full understanding of the open issues and will have time to contemplate them before giving me final answers at a later date.

Next Steps and Homework:
I conclude our first appointment by describing the next steps and giving you some “homework” – a confidential asset questionnaire where you will provide me some information about your assets.  We will usually schedule our next meeting and I will send you a written engagement letter that describes the scope of services and the cost.  The letter will also include reminders of the open questions that you still need to answer.  You will be asked to sign the engagement letter and return it to my office along with the completed client asset questionnaire.  In the intervening time between our scheduled appointments, I will be available to answer additional questions and to provide further counsel.  Our mutual goal will be to have all the open questions answered and the client asset questionnaire turned-in ahead of our next scheduled appointment where we will meet to review and sign your written estate plan.    

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.  

Local estate planning attorney Kyle A. Krasa has been nominated as “Best Attorney” for the Monterey County Weekly’s publication, “Best of 2017.” 

“It is quite an honor to be nominated for this category,” said Krasa. “I am humbled by the recognition.” 

You can vote for Krasa as well as many other nominees in a variety of categories here: http://mcweekly.wehaaserver.com/survey-9-best-of-monterey-county-2017-finals.html

Polling closes on February 23, 2017. 

Lawyers are not known for their clear and understandable explanations of legal issues. In fact, the language most lawyers use in attempting to communicate legal concepts is often referred to as “legalese.” Merriam Webster defines “legalese” as “the language used by lawyers that is difficult for most people to understand,” or more precisely, “legal jargon.” Although legal language is important to communicate complex legal concepts and principles, such language is not easily understood by laypersons. To paraphrase Lord Byron’s Don Juan, most people wish lawyers would “explain their explanations.”

My parents were both educators and I seriously considered entering the teaching profession until I made the decision to go to law school. As a lawyer who understands legal jargon but who also appreciates education, I always seek to make mysterious legal concepts accessible in an easy-to-understand manner.

However, making general legal concepts accessible should not be conflated with a “do-it-yourself approach.” The law is complex and what can appear to be simple on the surface can involve a myriad of nuances that can create devastating consequences if not fully recognized or understood. The perfect scenario is for clients to understand enough of the general legal concepts to make informed decisions while leaving it up to their lawyers to make sure the complex technical aspects of the project are addressed.  

My website, http://www.lawyerplaybook.com/ gives the public access to general legal concepts in an understandable manner. The website features three main sections: videos, articles, and a legal directory.

1. Videos

In the videos section, you can watch 5 to 10 minute videos about a variety of estate planning topics, from basic concepts such as “What is a Revocable Living Trust” to more sophisticated ideas such as “Preserving California Prop. 13 Property Tax Basis.” Currently there are eight such videos with new videos on the way.

2. Articles / Blog

The blog section features articles about general estate planning concepts. Many of the articles are my own which have appeared on my law firm’s website and in the Cedar Street Times. Other articles were contributed by other colleagues about various topics of interest.

3. Lawyer Directory

As the videos and articles posted on my website and on other platforms have gained attraction, people from around the country have expressed interest in working with a knowledgeable attorney to help them with the various topics that I have addressed. As I am unable to represent everybody, I am building a directory of estate planning attorneys. The directory currently features attorneys in all three West Coast states and will be expanding in due time.

It is essential to understand that the information presented on the website is by no means a viable substitute for the proper personal counsel of a licensed attorney.  Nevertheless, I encourage you to visit http://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 http://www.lawyerplaybook.com/.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.

At its core, estate planning is not something that you necessarily do for yourself.  Instead, estate planning is something that you do for the people you love.  Often the primary motivating factor for clients to engage in their estate planning is the unpleasant experience of administering a decedent’s estate that was not addressed properly.  In addition to having to grieve your loss, a poorly execute estate plan – or no estate plan at all – can leave your loved ones mired in years of unnecessary confusion, delay, expense, and frustration.  Conversely, a compressive, up-to-date, and detailed estate plan will serve as one of the best gifts you can make to those you care about.  

Recently, the loss of a dear family friend motivated me to focus upon my own family’s estate planning.  Below are the steps that I took.

1.  Review and Update
As an estate planning attorney, of course I drafted my own estate plan as well as updated my father’s estate plan.  But it had been several years since I had reviewed any of the documents.  While there were elements of both estate plans that I had in mind to change, I kept putting off addressing those issues.  As clients constantly relay to me, my good intentions were overshadowed by family, work, and social obligations.  Motivated by not embodying the old expression of the “shoemaker’s kids not having any shoes,” I finally buckled down and cleared a weekend where I finally took charge to update my family’s estate planning.

If you are not an estate planning attorney, you should make an appointment with your attorney to review your existing estate planning documents.  Ask your attorney to explain your plan and to give you an overview the practical steps that your fiduciaries will have to take.  If you can, request a meeting with your attorney and your children so that everybody has an understanding of how the plan will function when needed.

Keep in mind that certain assets such as retirement plans, life insurance, and certain types of annuities will not be titled to your trust while you are living but should have up-to-date beneficiary designations.  Contact each financial institution to make sure that your assets are either titled to your trust or, if appropriate, have the correct beneficiary designations.  

2.  Record-Keeping
If having an up-to-date plan is the first step, the second step is making sure that your loved ones can find your plan and have all the information they need to carry out that plan with ease.

After updating my estate planning and my father’s estate planning, I made sure to keep copies in accessible places.  First, I created folders on my computer that featured final versions of all documents.  I also created documents that provide an overview of the assets and how they were titled.  With regard to non-trust assets such as retirement plans, life insurance, and annuities, I kept a separate folder of the confirmed beneficiary designations.  I made a list of professional advisors such as my CPA, my financial planner, and my insurance agents.  I also provided a detailed list featuring important elements of how I run my business with certain instructions.  I executed a document allowing a “practice administrator” to help run my law firm in the event of my disability or death.

I realized that while I know (for the most part) what various keys at home and at the office are for, it might not be so obvious for loved ones.  After all, many keys look alike and some are in fact duplicates.  I developed a system where I coordinated keys with specific keyrings and provided instructions to easily identify each key.

I put copies of these important documents on duplicate flash drives, leaving one flash drive with the binder, giving one to each of my successor trustees, and leaving one in my safe deposit box.

3.  Calendar Regular Updates
It took me several hours to update my estate planning and to create records of important information.  If I wait too long before reviewing it, it will quickly become obsolete.  I made an early New Year’s resolution to review and update my estate planning information every Christmas break and to give my successor trustees copies of the updated information each year.  While my son might be excited about what Santa will bring him each year, the most important gift I can make to my family is the peace of mind knowing that a detailed plan is in place in the event of an unexpected incapacity or death.

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

 
A paramount goal of estate planning is to protect and preserve your hard earned assets for your loved ones.  Most basic estate planning focuses upon specifying the beneficiaries of your choice, mitigating taxes, and providing an efficient method for the transfer of assets upon death without the unnecessary delay and expense of a formal probate.  A revocable living trust is often the best vehicle for accomplishing these goals.  However, most basic estate plans focus only on the transfer process and do not focus on providing continued protection after your beneficiaries have received their inheritances.    

To provide continued protection for your beneficiaries, you might want to consider providing an “in-trust” inheritance.  Instead of providing that your trust distributes your assets to your beneficiaries outright and free of trust upon death, your trust could provide that separate trusts are established for each of your beneficiaries.  In most states it is generally not feasible to execute your own trust with your own assets for own asset protection purposes.  However, in most states you are generally able to provide third parties with asset protection if you execute and fund the trust on their behalf.  An “in-trust” inheritance takes advantage of this planning opportunity in an effort to provide continued protection for your beneficiaries even after your death.  The degree of asset protection, however, depends upon the identity of the trustee.

The best asset protection for “in-trust” inheritances is to name an independent third party as sole trustee.  Depending upon the distribution provisions, this arrangement makes it extremely difficult for the beneficiary’s creditors to be able to attack the inheritance.  The cost for this protection, however, is the loss of direct control by the beneficiary.  If your beneficiaries do not have any immediate creditor problems, the likely asset protection against possible future creditors is not worth the sacrifice of direct control by the beneficiary.

In an attempt to provide both direct control and asset protection when needed, an “in-trust” inheritance could instead be drafted to name the beneficiary as the sole trustee of the trust and to provide extensive successor trustee provisions.  The idea behind this arrangement is to give the beneficiary control while there are no creditor problems but to provide a mechanism whereby the beneficiary will appoint a co-trustee or resign as trustee if creditor problems later develop.  Although this arrangement provides much less creditor protection than having a third party trustee, the arrangement is still better than an outright distribution and the beneficiary retains full control unless and until creditor protection is needed.  

Some practitioners worry that having a beneficiary as a sole trustee might not provide enough creditor protection, particularly if the beneficiary fails to resign as trustee in time when the prospect of a creditor claim arises.  A third option is to bifurcate the trustee’s duties into two categories: administration and distribution.  The beneficiary would be named as the trustee on title of his or her trust and would have full authority to manage the assets of the trust, including making decisions on how to invest the assets.  However, before being able to distribute any of the trust’s assets, such as to purchase a new car for the beneficiary, an independent third party would serve as a “distribution trustee” and would have to authorize in writing each distribution.  The idea would be that the distribution trustee would likely authorize most trust distributions at the beneficiary’s request but in the event of a creditor claim, the distribution trustee would refuse such authorization.  

Although most trust-makers do not like the idea of giving total control to a third party trustee to protect their beneficiaries from future possible creditors, the idea of using a distribution trustee to balance between their dual interests in providing a stronger degree of creditor protection while simultaneously giving the beneficiaries greater control makes this concept appealing.  Use of distribution trustees is becoming more popular as practitioners and their clients get more comfortable with this creative concept.    

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.  

When I was a kid, one of the most popular sitcoms was Golden Girls.  I often watched it with my grandmother.  On a typical Saturday night in the 1980’s, my grandmother in her 70s, and I, an elementary school child, would laugh together at Rose’s St. Olaf stories, Blanche’s exploits, Dorothy’s bad luck, and Sophia’s witty yet insightful comments.  In college, a few of my friends and I agreed that when we were ready for retirement, we would get a house together and be the “Golden Boys.”  We’d share many adventures, discuss our latest dilemmas in the wee hours while eating cheesecake, and enjoy each other’s company.  It certainly is an ideal vision that seems to have universal appeal.

The reality of retirement living is more serious than sitcom fodder.  Concerns about declining health and an ever-increasing need for care often cause seniors to seriously consider moving into a retirement home that promises to care for them as they age.  While the concept seems simple on the surface, there are numerous risks that both the retirement home resident and the retirement home provider endure.  Indeed, the transaction is far more complicated than renting a pad in Miami with your best friends.     

At a recent estate planning conference I attended, I listened to a presentation from Anne Marie Murphy, an attorney with Cotchett, Pitre, & McCarthy, LLP, a law firm in Burlingame, California. She listed the following key issues to consider before deciding to enter into a retirement home.  

1.  Is the provider profit or non-profit?
2.  How long as the provider been in business?
3.  How many retirement homes does the provider operate?
4.  Have any of the retirement homes that the provider operates gone bankrupt?
5.  Has there been any litigation with respect to the retirement homes operated by the provider?
6.  Historically, how have monthly fees increased?
7.  How long is the current waiting list?
8.  What is the occupancy rate?
9.  Upon vacancy, what is the average time to re-sell?  What is the longest time to re-sell?
10.  Does the provider have any plans to build additional units at the site or nearby?
11.  Under what circumstances are entry fees repayable?
12.  Are funds returned only upon sale?
13.  Are funds returned if the resident leaves the apartment for a higher level of care and the apartment is resold?
14.  Are entrance fees kept local or are they transferred to a parent company?
15.  If entrance fees are transferred to a parent company, how is that reflected on the books?
16.  If entrance fees are transferred to a parent company, what responsibility does the parent company have to return the funds?
17.  Does the contract call the entrance fees “refundable” or “repayable”?
18.  Does the provider keep an entrance fund reserve?
19.  If the provider keeps an entrance fund reserve, how much is kept in the reserve and how is it calculated?
20.  With regard to the monthly fees, what are residents responsible for paying?
21.  Are the costs of the community isolated to the specific community or can the provider spread costs between its communities?
22.  How are marketing costs handled?
23.  How are taxes handled?
24.  How is insurance handled?  
25.  How much insurance is in place?  
26.  Is there earthquake insurance?  
27.  Is the insurance adequate?  
28.  What are the deductibles for the insurance?
29.  Does the company have money in reserve to cover deductibles in the event of a catastrophe?
30.  What role doe residents play in governance decisions?
31.  How much transparency is there with regard to the company’s finances?
32.  How good is management in taking into consideration resident concerns and preferences?
33.  Are there problems with there not being openings at higher levels of care when needed?
34.  How respectful is management when residents want to maintain independent living but with support?
35.  When an independent living resident needs to move to a higher level of care but there is no space, does the resident have to pay out-of-pocket for in apartment care?
36.  What happens when a spouse moves to a higher level of care?
37.  What amenities are available?
38.  Do residents have say in communal furnishings?
39.  If the community is affiliated with a religious denomination, is it in name only?

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.

Last weekend, the Chicago Cubs won the National League Pennant for the first time since 1945.  They have an opportunity to win their first World Series since 1908.  Even though I grew up on the Monterey Peninsula, I always like the Cubbies.  Wrigley Field, with its ivy-covered brick and history, the Billy Goat Curse, and the fact that they hadn’t won in a long time appealed to me.  

Additionally, a lot of 1980’s pop culture that I consumed as a kid featured the Cubs.  Ferris, Cameron, and Sloane take in a ballgame at Wrigley Field in Ferris Bueller’s Day Off; Larry and Balki head into to Wrigley Field for an afternoon Cubs game during the intro to Perfect Strangers; Jimmy Dworski breaks out of prison to see the Cubs play the Angels in the world Series in Taking Care of Business; Henry Rowengartner becomes a star pitcher for the Cubs as a young boy after his broken arm heals in a manner than gives him super strength in Rookie of the Year; and Punky and Henry attend a Cubs playoff game at Wrigley Field in an episode of Punky Brewster.  The Punky Brewster episode had particular impact.

I recently re-watched the Punky Brewster Cubs episode online.  Even though it had been probably thirty years since I had seen the episode, I remembered many details.  The Cubs had made it to the National League Championship Series with a chance to make their first appearance in the World Series since 1945.  Henry, a lifelong Cubs fan, really wanted to take Punky to the game in an effort to recreate the experiences he had with his dad as a kid at Wrigley Field.  He told her that he attended the 1932 World Series when Babe Ruth called his shot to center field and subsequently hit a home run, smacking him on the head and leaving a permanent scar.  

They buy tickets from a scalper, only to find two nuns sitting in their seats.  They realize that they were sold counterfeit tickets and although they made it into the park, they did not have seats.  Eventually, Punky somehow makes friends with the Cubs team and they get invited to watch the game from the Cubs dugout.  The episode ends with the Cubs winning the game.  No mention is made of the fact that the Cubs had three chances to make it to the World Series only to lose the playoff series in five games to the Padres.

The sentiment of the Punky Brewster episode is the same sentiment that the broadcasters discussed last weekend when the Cubs finally clinched an appearance in the World Series after so many years of futility: a shared experience and shared emotions from one generation to another.  During the celebration after the Cubs beat the Dodgers, no doubt many Cubs fans thought about their grandparents, parents, other relatives, and friends who were lifelong Cubs fans but were never able to see their team make it to the World Series.  

As parents and grandparents, it is important to us to share experiences and passions with our children and grandchildren that we enjoyed when we were their ages.  As children and grandchildren, experiences and passions that our parents and grandparents shared with us have a special significance.  Estate planning is perhaps the ultimate expression of this sentiment.  Although there are legal details and physical assets to address, the ultimate purpose of estate planning is to share both the tangible and the intangible with the next generation.    

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.    

Local attorney Kyle A. Krasa was the winner of a “Golden Pine Cone” award from The Carmel Pine Cone for “Best Estate Planning Attorney.” 

Each year, readers of the venerable publication vote on the best businesses and services in the area.  This was the second time that Krasa received the award.  “I know that this honor is because of my clients, my employees, my colleagues, and members of the community.  I am humbled by the recognition.” 

You may read about all the winners of the 2016 “Golden Pine Cones” at http://pineconearchive.com/gpc2016.html

An estate plan consists of a series of decisions.  These decisions include whom to name as your financial agents in the event of incapacity or death, whom to name as your health care agents in the event of your incapacity, who should receive your assets upon death, and whether and to what extent you should place conditions or restrictions on inheritance.  

These decisions necessarily involve inclusion and exclusion: you will favor certain people at the expense of others.  There is no duty to disclose these decisions to the parties involved in your estate plan, such as your named agents or your beneficiaries, until you pass away.  Upon death, your closest family members and those who are named in your estate plan will learn of your decisions.  

Your estate plan is often the final communication of your wishes.  However, it is formal and often difficult to comprehend for those who are not estate planning experts.  It is therefore often prudent to consider sharing at least the general concepts of your estate plan with your loved ones while you are still living.

I always offer my estate planning clients a “family meeting” at no additional charge to go over their estate plans with their agents and/or beneficiaries.  I explain that although the completion of the estate plan provides the tools to administer an estate efficiently, knowing how to use the tools is just as important.  I often explain the general concepts of the estate plan to the agents and beneficiaries and explain what they need to do in the event of incapacity or death.

Clients often take this opportunity to explain why certain people were chosen as financial or health care agents in a particular order so that nobody feels slighted in the selection process.  In this way, they know what to expect and there are no surprises which goes a long way to ensure that there will not be disputes or misunderstandings when the estate is distributed.

If clients choose to exclude a natural heir – such as a child – from an estate plan, communication can be even more important.  If they do not want to have the discussion while they are living, I often recommend that they at least write a letter to the excluded person that explains the thinking and serves as an olive branch for the unfortunate circumstances that led to the exclusion.  It is remarkable how this one extra step can avoid a tremendous amount of aggravation and even litigation.    

Surprises in estate planning seldom lead to positive results.  Although you have no obligation to share any of the details of your estate plan with your loved ones or to offer any explanations for your decisions, it is definitely worth considering being open to an extent about your estate plan to ensure a smooth procedure.  

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.  

Limited Liability Companies, or “LLC’s,” are popular legal structures for maintaining investment assets or operating a business. Although they involve additional administration and specific formalities, they can also provide many benefits.   

Establishing an LLC

One of the first considerations in establishing an LLC is choosing the right jurisdiction.  LLC’s may be formed in any of the 50 states regardless of where the owners, or “members,” reside or where the LLC is to conduct business.  The home state of the members might not necessarily be the optimum jurisdiction for forming an LLC.  Rules related to the degree of asset protection, taxation, and obligations members of LLC’s owe each other should be carefully contemplated when choosing the appropriate jurisdiction.  If a jurisdiction other than the location of the business is chosen, the LLC will have to register in each state in which it conducts business.

Another key consideration is how the LLC should be structured.  LLC’s may be structured as “single-member LLC’s,” where one person (or a married couple in a community property state) owns the LLC, or a “multi-member LLC” where multiple parties own the LLC.  By default, single-member LLC’s are treated as disregarded entities for income tax purposes, meaning that taxation falls upon the individual owner, while multi-member LLC’s are treated as partnerships for income tax purposes and a separate partnership tax return must be filed on behalf of the LLC each year.  However, both single-member and multi-member LLC’s may elect to be treated as corporations for income tax purposes.  

Naming the LLC is another important step.  Most jurisdictions provide searchable online databases to make a preliminary check on name availability.  If an LLC is to be formed in one state while it conducts business in another state, further investigation as to the name availability in both states should be performed.

After filing the application documents with the appropriate government agency in the state of establishment, it is often prudent to draft a detailed operating agreement that governs how the internal workings of the LLC should be conducted.  In addition, minutes of the initial meetings of the members should be executed, membership certificates to the owners should be issued, and assets should be transferred into the LLC.  

Pros of Establishing an LLC:

One benefit of establishing an LLC is to provide centralized management when there are multiple owners.  For example, if four siblings inherit rental properties, they might wish to appoint one manager to act on behalf of the rental properties to collect rent, authorize repairs, pay bills, and distribute the net income to the owners.  

Another benefit of forming an LLC is asset protection.  If properly established and administered, LLC’s in all 50 states will provide a degree of asset protection against “inside creditors,” that is creditors who have a claim against the business as a whole rather than against the individual members.  For example, if an LLC owns a rental property and a person is injured on the property, the plaintiff is limited to the assets of the LLC and is barred from pursuing a claim against assets of the individual LLC members.

In a limited number of jurisdictions, known as “charging order only” states, LLC’s can also provide a degree of asset protection against “outside creditors,” that is creditors who have a claim against the member personally rather than against the LLC as a whole.  For example, if a member of an LLC is liable for a personal act that is unrelated to the LLC such as a car accident or professional malpractice, LLC’s can prevent the plaintiff from pursuing a claim against the assets of the LLC or the member’s ownership interest in the LLC.      

LLC’s can also be useful as an estate tax reduction strategy.  Partial interests of LLC’s can be gifted to family members or friends over time in a manner that allows significant estate reduction that could potentially reduce the estate tax liability by hundreds of thousands of dollars or more.  

Cons of Establishing an LLC:

There are drawbacks to establishing and maintaining and LLC as well.  Although there are online, “do-it-yourself” companies that advertise they can establish an LLC for a nominal fee, such companies are not able to give comprehensive counsel on the many considerations mentioned above.  Often the better route is to consult both an attorney and a CPA when establishing an LLC which will result in professional fees.

Maintaining an LLC can also be expensive.  Many states require a “minimum franchise tax” to be paid every year for the privilege of owning an LLC.  Additional reporting requirements, tax filings, and formal administration procedures can also add to the expense and complication of running an LLC.  

Finally, for LLC’s that hold real property in California with a low property tax base, LLC’s are not eligible for the application of the parent/child exclusion for Prop. 13 tax purposes.  If an individual owns real property in an LLC at the time of his/her death, the individual’s children might be subject to a dramatic property tax reassessment that would not be applicable if the asset were held in the owner’s individual name or through a trust.  If the Prop. 13 assessed value is significantly lower than the fair market value, one will have to think carefully about whether the benefits of establishing an LLC are worth the potential property tax reassessment.

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