Category: Estate Planning

Whenever a celebrity dies, there is great public interest in how the estate will be distributed. The details can be fascinating, especially when the celebrity fails to properly address his or her estate planning. For example, reports indicate that Prince did not have an estate plan because he did not trust attorneys. Not only will the settlement of his estate unnecessarily incur extremely expensive attorney fees and executor fees, but there is controversy regarding the proper heirs of his estate.  

Celebrities make estate planning mistakes so often that there seem to be unlimited stories warning about the consequences of failing to properly address estate planning.  In fact, I have several posters in my office describing the many blunders of the rich and famous and the lessons to be drawn from these examples.  

Part of the reason why we are able to understand the details of these estate planning mistakes is because poor estate planning often leads to court procedures such as probate which is a public process.  Indeed, the details of the decedent’s assets, the values of each asset, the beneficiaries, and the names and addresses of each beneficiary become public record.  However, there are times when celebrities seem to do their estate planning correctly. In those instances, the details of their affairs are private, despite the desperate attempt of the media to create a story. One example appears to be that of legendary college basketball coach Pat Summit.

Pat Summit died earlier this year at the age of 64 after a battle with Alzheimer’s disease. Recently, a newspaper obtained a copy of her will after it was filed with the court and wrote an article implying that the will revealed substantive details about the distribution of her estate. The article included comments that the will “did not spread [her] assets around” and that it left her “tangible personal property” to her only son.  Upon further examination, Summit’s will is a “pour-over will,” a type of will that is used in conjunction with a revocable living trust.

Most comprehensive and properly drafted estate plans center upon a revocable living trust.  It is the trust that provides the details of the distribution of the majority of the estate. The trust remains private after the trust-maker’s death and the media is shut out of the details.  One requirement of a revocable living trust is to re-title the vast majority of the decedent’s assets to the trust.  In the event that the decedent forgot to title some assets to the trust, the estate plan will also include a “pour-over will” which simply names the trust as the beneficiary of any assets that were accidentally left out of the trust prior to the decedent’s death.  The details of the trust, including the assets that were titled to it before the decedent’s death and the distribution of those assets, remain private.  

Sometimes the “pour-over will” distributes the tangible personal property, such as jewelry, clothing, furniture, and other household items.  Summit’s will included such a clause.  However, beyond the tangible personal property, the will did not reveal any details of how Summit’s estate is to be distributed. For greater privacy, the estate plan could be structured in a way where the tangible personal property is assigned to the trust during the decedent’s lifetime and the distribution of those assets is private as well.

The comment in the newspaper article that her will “did not spread [her] assets around” is misleading due to the fact that it is unknown how her trust was structured.  It is quite possible that she left all her real property, cash, and investments to her son but it is also possible that she made gifts to other family members, friends, and charities.  The public will likely never know because of the privacy that a trust-based plan affords.

Privacy is just one of the many benefits of a properly drafted estate plan that centers upon a revocable living trust.

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.  

The third week in August is “Car Week” on the Monterey Peninsula.  Dozens of various car events throughout the area lead up to the famous Pebble Beach Concours d’Elegance, “quite simply the finest exhibition of show cars on Earth, . . . an annual gathering of rare and antique automobiles, international automotive luminaries and motorcar enthusiasts from around the globe,” according to the event’s official website.  Car shows, auctions, rallies, and soirees attract car lovers from around the world.  

For my dad and I who are obsessed with “rolling art,” this week each year is a very special time.  When I was a kid, my dad found old BMW and Volkswagen steering wheels from various junkyards and attached them to the wall in my room so I could pretend to drive. He even commissioned a custom dashboard with a BMW steering wheel, gear shift, speedometer, exhaust pipe, working headlights and signal lights, key, and key slot, allowing me to vividly imagine racing on the Autobahn or cruising through the German Alpine Road in the comfort and safety of my room.

I worked at a classic car consignment when I was in high school. I had always enjoyed 50’s music and pop culture and dreamed of owning a vintage car of my own. My dad was originally against the idea, primarily because older cars lack safety features such as crumple zones, airbags, and ABS brakes. I had my eye on a light blue and white 1953 Chevy Bel Air and I convinced him to give me the green light by telling him that we would bond over working on the car together.  However, while we know how to operate cars, we have no idea how they work. We lifted the hood, I pointed to a part of the engine and asked, “What’s that?” He responded, “I don’t know.” That was the end of our bonding through working on the car.

I named my Chevy “Maybellene” after the Chuck Berry song, wore a bowling shirt and a fedora hat, and cruised around listening to oldies music and made frequent trips to Reggie Jackson’s Dugout Diner, a 50’s restaurant that used to be located in downtown Monterey. Country music star Allan Jackson sings, “My first love was an older woman,” in reference to his first car – I can certainly relate to that sentiment.

Twenty-one years later, I still drive around in Maybellene on a daily basis. My dad and I have successfully molded my six-year-old son into a fellow car aficionado. One morning, as my son and I were sitting in Maybellene waiting for her to warm-up, my son said: “Dada, when you die, I’m going to get Maybellene, right?” I was quite stunned by the question.  I told him, “That’s not going to happen for a long time so get that idea out of your head!” Apparently, my first grader has a keener understanding of estate planning than I had imagined . . . for better or worse.

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 and 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.

Estate planning is a fluid process.  What might be the perfect plan today could be outdated tomorrow due to changes in the law, changes in the size and nature of the estate, and changes in the personal circumstances of various family members or other beneficiaries.  This is why you should periodically review your estate plan documents to ensure that they continue to express your wishes in the most efficient manner possible.  A review also serves as a “proofread” to help identify any typos or other mistakes in the documents that should be addressed.   

In general, while you are living and have capacity, you are free to change your estate plan in any manner that you wish.  However, once you lose capacity or pass away, your estate plan becomes irrevocable, “locked-in” to the way it was last drafted.  What happens if your loved ones discover an outdated clause or mistake that needs to be addressed after you have lost capacity or passed away and you are no longer are able to change it?  

Fortunately, the California Probate Code provides many avenues to address the need to make changes to an estate plan even if it is technically irrevocable.

Modification of an Irrevocable Trust

Although the Probate Code tries to protect the wishes of a Trust-Maker, the law has long recognized the need to update an outdated trust in a variety of circumstances.  

California Probate Code Section 15403 allows for the modification of an otherwise irrevocable trust upon petition to the court if all the beneficiaries consent to such modification as long as the proposed modification either does not interfere with a material purpose of the trust or as long as the reason for the proposed modification outweighs the interest in accomplishing the material purpose of the trust.

California Probate Code Section 15409 allows for the modification of an otherwise irrevocable trust upon petition to the court if it can be shown that there was a “change in circumstances” that was not anticipated by the Trust-Maker which would defeat or substantially impair the accomplishment of the purposes of the trust.  

These two Code Sections can be used in a variety of circumstances such as modifying a trust to eliminate outdated tax clauses, adding or removing certain beneficiaries, and taking advantage of new estate planning strategies that weren’t available when the trust was written.

Filling Trustee Vacancies

A trust will typically name an initial trustee, or “trust manager,” and one or more successor trustees in the event that the initial trustee becomes unable to serve.  In addition to including several alternate successor trustees to cover contingencies, a well-written and comprehensive trust should include a procedure for filling a trustee vacancy.  For example, the trust might provide that if no one named to serve as successor trustee is able to serve, then a majority of the beneficiaries may elect a successor trustee.

Absent such a procedure, California Probate Code Section 15660 allows an interested party to petition the court to fill the trustee vacancy.  

Heggstad Petition

It is essential to transfer title on most assets to your trust.  This process, known as “trust funding,” can often be overlooked.  If it is discovered that you owned assets outside of your trust after your death, your family might be required to endure an expensive and time-consuming probate, the very procedure your trust intended to avoid.  However, if you left a writing that lists the assets you intend to title to the trust, your successor trustee can often obtain a court order stating that the assets are trust property despite the fact that they are titled to your individual name.  This procedure is known as a “Heggstad petition” after a famous case involving such a circumstance.

Heggstad petitions are unique to California and can often save a family thousands of dollars, months of time, and a lot of headache.  Because of this procedure, many attorneys include a “schedule of assets” as an attachment to a trust in the event that a Heggstad petition becomes necessary.   

Petition to Determine Whether a Power of Attorney is Effective

A Durable General Power of Attorney grants an agent authority to make financial decisions for you in your individual capacity in the event of your incapacity.  Like trusts, Power of Attorney documents can contain outdated clauses or typos that create confusion.  California Probate Code Section 4541 allows an interested party to petition the court to determine various aspects of a Power of Attorney such as whether the Power of Attorney is in effect, approving the acts of the Power of Attorney agent, and compelling third parties such as banks to honor the authority of the Power of Attorney agent.

Trust Protector:

Although there are often specific court procedures that might be available to address a particular problem in an estate plan, any court procedure often involves additional time and expense.  Savvy attorneys often draft provisions for a “Trust Protector” to allow for the modification of a trust without the need for court intervention under certain circumstances.  The Trust Protector’s powers can be very broad or can be limited to a few specific powers, depending upon how the trust is drafted.  

Once only reserved for sophisticated estate plans, the use of Trust Protector provisions for even basic estate planning is becoming more common as clients and their attorneys recognize the wisdom of providing an efficient method to address changes in the law or drafting ambiguities in certain situations. 

Conclusion:

While it is important to periodically review your estate planning documents, even the most meticulous person can leave an estate plan with problems that need to be addressed.  It is important to understand that in many cases, there is likely to be an avenue through the law to fix a broken estate plan.  

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.     

Many clients ask me whether I always wanted to be an attorney.  The truth is that I considered many professions growing up until deciding on law school while I was in college.  As with most kids, the first profession that I planned for was “super hero.”  I had it all worked out: I’d have a cool car with all kinds of gadgets, a secret base hidden in the Pebble Beach woods, and of course, a costume with a flowing cape.

In pre-school, I was Superman for Halloween.  My mother made me the Halloween costume and I wore it for years afterward.  Sometimes I’d just wear it around the house.  Other times I would wear it to the grocery school or to restaurants for dinner.  Occasionally, I’d even take it a step further and wear it under my regular clothes like Clark Kent just in case a super hero was needed while I was out and about.  The cape was my favorite part of the costume.

The Pixar cartoon movie, The Incredibles, points out the dangers of super heroes wearing capes.  In a scene where the protagonist is working with his tailor to design a new super hero costume, his tailor recounts several previous super hero accidents involving capes and then declares: “no capes.”  As much as I like capes, the movie makes a good argument against super heroes implementing the fashion.  However, capes can still be appropriate for a certain kind of profession, at least according to a popular television sitcom from the 1990s.  

An episode of Seinfeld features George and Jerry spotting George’s dad talking to a man in a 19th century cape.  They decide not to approach him because they can’t make any sense of the situation.  Later, George’s dad reveals that the man in the cape was his lawyer.  George asks: “Why does your lawyer wear a cape?”  His father responds that his lawyer is very independent-minded.  The episode ends with the lawyer saving a man’s life on the Brooklyn Bridge and when asked who he was, he responds: “I’m Frank Costanza’s lawyer.”  

I’m not saying that I decided against a career as a super hero and for a career in the practice of law based solely on the cape issue, but I can’t say for sure whether the fashion accessory was at least a sub-conscious motivation.  However, as a young lawyer, I noticed that contrary to what I learned from Seinfeld, none of my colleagues wore capes.  I mused that maybe not just any lawyer could get away with wearing a cape; perhaps it would have to be a special kind of lawyer.  I wondered what it would take and I soon discovered the answer when I received my first copy of the annual publication, Super Lawyers Magazine.

According to the Super Lawyers website: “Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement.  This selection process includes independent research, peer nominations, and peer evaluations.”  Each year, a magazine is published featuring the updated list of “Super Lawyers.”  I imagined that if I ever landed on the cover of Super Lawyers Magazine, it would be appropriate for me to stand in a Superman pose while wearing a long, bright cape!

Although I have yet to achieve the dream of posing on the cover of Super Lawyers Magazine, I am honored to have been named by Super Lawyers as a “Rising Star” for the fourth year in a row.  The “Rising Star” category is reserved for lawyers who are under the age of 40 and only 2.5% of attorneys are selected to the “Rising Stars” category.  I’ll probably have to reserve the cape for the possibility of attaining the “Super Lawyer” status after attaining age 40!  In the meantime, I’ll have to find something else to represent the “Rising Star” category.  Perhaps a special ascot?

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.
 

For the fourth consecutive year, Pacific Grove estate planning attorney Kyle A. Krasa has been named as a “Rising Star” by Super Lawyers.  According to the Super Lawyers website, “Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The patented selection process includes independent research, peer nominations and peer evaluations.”

Super Lawyers ranks attorneys in two different categories: “Rising Stars,” for attorneys who are 40 years of age and younger, and “Super Lawyers.”  Both categories are determined by the same process.  Again, from the Super Lawyers website:

“Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with independent research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. Since Super Lawyers is intended to be used as an aid in selecting a lawyer, we limit the lawyer ratings to those who can be hired and retained by the public, i.e., lawyers in private practice and Legal Aid attorneys.”

Only 2.5% of attorneys who are evaluated through the rigorous process receive the “Rising Star” status.  “I am deeply honored and proud to have been selected as a ‘Rising Star’ by Super Lawyers for the fourth year in a row,” said Mr. Krasa.  “I know that I did not achieve this honor alone.  I have my family, employees, clients, and colleagues to thank for this recognition.”

Mr. Krasa is the owner of KRASA LAW, Inc. and he is certified by the State Bar of California Board of Legal Specialization as a Legal Specialist in Estate Planning, Trust, and Probate Law.  KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205.  His websites, www.krasalaw.com and www.lawyerplaybook.com, provide a wealth of helpful and easy-to-understand estate planning information. 

Even though I grew up on the Monterey Peninsula in California, I have been a Green Bay Packers fan since I was a kid.  My short answer for why I’m a Packers fan is: “I have good taste.”  My long answer for why I am a Packers involves the appeal of the team representing the roots of football that started in small Midwestern towns, the fascination I have with watching the game being played in the elements – especially on the “frozen tundra” of famous Lambeau Field – and the legend of Vince Lombardi.  Also: I really like cheese.

Another interesting aspect of the Green Bay Packers is that the team is unique among the major four North American team sports in that it is community-owned.  The Packers incorporated to raise funds for the team in 1922.  Local business leaders who were fans pitched in money to keep their favorite team in town.  The Packers offered additional stock sales to raise additional money from fans in 1935, 1950, 1997, and finally in 2011.  I purchased a share in 2011 and am a proud owner of one share in my favorite team.

Many ask me about the privileges I have as an owner of a professional football team.  I have no access to box seats or season tickets.  I do have the right to access a special section of the Packers online store to purchase merchandise that says “Packers Owner.”  Yes, for $250 per share, plus a $25 transaction fee, I bought the right to buy more merchandise from the Packers.  It’s quite a clever business model indeed!  

Another right I have as a shareholder is to vote for directors of the Green Bay Packers Corporation and to attend the annual shareholders meeting each July at Lambeau Field.  Because the Green Bay Packers team is a corporation, the team is required by law to have at least one annual shareholders meeting and one annual board of directors meeting.  All corporations must have annual meetings and keep minutes of their meetings, whether they are large organizations like the Green Bay Packers or small “mom and pop” local businesses.

There are many reasons to form a corporation for a business.  One reason is to raise money like the Green Bay Packers.  Other reasons include tax benefits, the ability to create certain retirement plans, the ability to transfer shares of a business to partners or to sell the entire business to third parties, the ability to obtain financing from a bank, and liability protection.  

In order to keep these many benefits, it is essential to hold certain meetings and to keep minutes of those meetings, even if there is only one owner of the corporation.  The owners of a corporation are shareholders.  They elect a board of directors who have the authority to direct the corporation’s affairs and business path and they have the ultimate legal responsibility for the actions of the corporation.  The directors elect officers such as a President, Treasurer, and Secretary who oversee the corporation’s daily operations in their various roles.

A sole owner of a small business that is incorporated might be the sole shareholder and the sole director as well as hold the offices of President, Treasurer, and Secretary.  Nevertheless, the corporation needs to have annual meetings and occasionally special meetings and needs to keep records of those meetings.

Annual Shareholders Meeting.  At the annual shareholders meeting, the shareholders typically elect directors for the following year.  After the meeting, there is typically a brief presentation about the business and operations followed by a question and answer session.  

For the Green Bay Packers, the team has so many shareholders that it needs to hold this annual meeting at Lambeau Field and the meeting is often streamed live online for shareholders who are unable to be physically present.  The team’s shareholders will elect a slate of directors for a specified term.  For a small corporation with a sole owner, the corporation is still required to hold an annual shareholders meeting and to keep records (or “minutes”) of the meeting.  The sole shareholder might elect himself or herself as the sole director but nevertheless must keep a record of the meeting.

Annual Board of Directors Meeting.  The primary purpose of the annual board of directors meeting is to elect officers of the corporation.  Furthermore, the annual board of directors meeting will also often include a treasurer’s report from the prior tax year.  For a large corporation like the Green Bay Packers, this could be a lengthy process.  For a sole owner corporation, it could just be a matter of the owner electing himself or herself to the key officer positions and making a record of the financial condition of the company.

Other agenda items for the annual board of directors meeting might include discussing the need to obtain financing, substantial changes to officers’ salaries, the decision to issue shareholder or dividend distributions, and major changes in the operation of the business including application for trademark protection of the company name and a change in the company’s principal business.  

Special Board of Directors Meeting.  Periodically, the need to address typical board of directors meeting agenda issues other than electing officers comes up during the fiscal year, many months away from the next annual board of directors meeting.  In such a circumstance, it might be necessary to call a special board of directors meeting to discuss and to act upon such issues.    

While it might seem silly for a sole owner of a small corporation to hold annual and special meetings with himself or herself, in order to maintain the integrity of the corporate structure, it is important for all corporations – large and small – to regularly hold such meetings and to keep minutes of those meetings in the corporate record book.  If the owner is ever faced with the need to demonstrate the legitimacy of a business’s corporate structure for tax or liability protection, the owner will be relieved to have a corporate record book that contains minutes from years of annual and special shareholder and director meetings.

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

I was very close to my paternal grandfather who lived only two miles away from me.  He often told me stories of how he played hockey in the Czech Republic before World War II.  He shared articles from The Hockey News and other publications about his exploits on the ice.  When I was introduced to street hockey during P.E. in Sixth Grade, I became hooked on the sport.

At the time, there were no NHL teams in our local area.  I adopted the New York Rangers as my favorite team because I enjoyed a family vacation to the city a few years earlier.   However, I could not watch the Rangers because the NHL was only broadcast on a special TV station, SportsChannel, which was not available in our area.  I was limited to waiting for clips on ESPN’s SportsCenter, reading box scores in The Monterey Herald, and watching the VHS tape my mother bought for me, Hockey’s Hardest Hitters, over and over again.  

My father told me that he heard the Bay Area was going to get a new NHL team, “the Sharks.”  My friend said that his dad told him the same thing but we both were skeptical.  What do our dads know anyway?  As it turned out, we later found out that the rumors were true!  Hockey was coming to our area!  We were going to be able to go to games and watch them on TV!  It was truly a dream come true!

I remember my parents taking me to a Sharks store in San Jose about six months before the very first Sharks game.  I was impressed with the teal color and the creative logo featuring a shark biting through a hockey stick.  I was already sold on the Rangers but I adopted the Sharks as a secondary team.  My dad also took me to a “hockey fest” at the Fairmont Hotel in downtown San Jose prior to the Sharks inaugural game.  The event featured two NHL veterans putting on a “hockey demonstration” on a portable rink that was set up inside the hotel ballroom! My parents took me to several Sharks games during the inaugural season.  

I played ice hockey informally and sporadically in middle school and high school.  My dad drove me all the way up to San Jose from Monterey so I could try the sport that I loved so much.  One winter, my dad and I even played on a frozen golf course water hazard in Oregon just so I could experience the sport.  

By the time I was a father, the Sharks had become an established franchise, making the playoffs on a regular basis and often being discussed as a favorite to win the Stanley Cup.  When my son, Jonah, was two years old, I started taking him to the Sharks practice facility in San Jose to go ice skating.  I then enrolled him in a parent/tot skating class on Wednesday evenings and I took him up there on a weekly basis.  He really enjoyed it and started moving up to higher level skating classes and eventually hockey classes.

Now, at six years old, I still take Jonah up to San Jose, once a week in the summer and twice a week in the winter.  This past season, he was put on a team with several children of Sharks star players.  The players often came to the practices and the games just like all the other parents and occasionally even skated with the kids.  

Even though the closest ice rink is 80 miles from our house, I constantly marvel at how much more accessible hockey is to Jonah than it was to me before the Sharks existence and when the Sharks were a struggling expansion franchise.  I feel grateful to the organization for sustaining hockey in Northern California.  As a result, the Sharks overtook the Rangers as my favorite hockey team.   

This past season was made even more special with the Sharks deepest playoff run in franchise history on the 25th anniversary of the team’s existence.  My wife and I took Jonah to a couple of playoff games.  However, when the Sharks reached the Stanley Cup Final for the first time, I felt that I had to take Jonah to a game.  

I surprised Jonah with a pair of tickets to Game 6.  I told him that we were either going to see the greatest win in Sharks history (which would force a Game 7 in Pittsburgh), or we’d see the presentation of the Stanley Cup, albeit to the wrong team.  Either way, it will be a great experience!  We enjoyed the festivities outside the arena before the game.  My wife even saw us on TV in the background of the live pre-game show.  The game turned out to be very close and exciting.  When the Sharks scored in the second period to tie the game, the building was the loudest I ever heard it.  I held Jonah close to me, gave him a kiss, and thought to myself how lucky we were to experience a Sharks Stanley Cup Final goal in person together.

Alas, the Penguins ended up being victorious.  Jonah started crying his eyes out as the Penguins celebrated their victory.  During the presentation of the Stanley Cup, some fans in front of us told Jonah not to worry: in a few years, he’ll be the one on the ice lifting the Cup for the Sharks.      

I’m a retro guy.  Almost daily, I drive a 1953 Chevy Bel Air that I’ve had for over 20 years.  I enjoy listening to Chuck Berry, Bing Crosby, the Andrews Sisters, the Ink Spots, and Amos Milburn.  I would love to wander the 18th Century Lake District in England with poet William Wordsworth or hang out with writers Ralph Waldo Emerson and Henry David Thoreau in 19th Century Concord, Massachusetts.  In addition to preferring my Packers and Sharks gear to sport the old logos instead of the modern ones, I also love wearing gear of defunct sports teams such as baseball’s Montreal Expos and hockey’s Quebec Nordiques and Hartford Whalers.

The Hartford Whalers – Connecticut’s only major professional sports team and New England’s alternative to the Boston Bruins – broke the hearts of millions of hockey fans when the team’s owner, Peter Karmanos, Jr., moved the team to North Carolina in 1997 and changed the name to the Carolina Hurricanes.  Whalers fans’ hearts were broken a second time when the team appeared in the Stanley Cup Final in 2002 and a third time when the team won its first and only Stanley Cup in 2006 after so many years of futility in Hartford.  

Of course without this sad history, my Whalers attire would not be the nostalgic tribute that it is today.  I’m certainly not alone: Whalers garb can be spotted all over the world, the team still has a booster club which meets in Connecticut on a regular basis, and several minor league hockey / professional women’s hockey teams have been named after the beloved franchise.    

According to reports, it appears the heartbreak associated with the team is not limited to its fans.

Peter Karmanos, Jr.’s sons recently filed a lawsuit against him in excess of $100 million over estate planning he put in place nearly twenty years ago.  According to a complaint filed in a Michigan court, in 1996 Karmanos irrevocably transferred stock in the company he founded, Compuware Corporation, to a family partnership owned by irrevocable trusts set up for his three sons as part of an estate planning strategy.  

Since that time, the value of the stock appreciated to more than $100 million.  However, reports indicate that in recent years his personal wealth plummeted due in part to financial losses associated with the Carolina Hurricanes.  In an effort to find liquidity, he borrowed from the family partnership, promising to repay the loan at specified rates.  According to the complaint, he stopped payment on the loans and his sons claim that payment in full is due immediately.  

It will be interesting to see how Karmanos responds to the complaint and how the case will proceed through the judicial system.  In any event, several lessons can be drawn from this unfortunate family squabble.

First, it is important to understand that if you transfer assets to your children or other loved ones for estate planning purposes, you have truly parted with those assets irrevocably.  In such a situation, it can be tempting to believe that you have made such transfers only for tax purposes but that you still retain “unofficial” control.  This lawsuit indicates that once a gift is given, you can’t just take it back when your circumstances change.

Second, because circumstances can change, before executing an estate planning strategy that involves irrevocably transferring assets immediately, you should consider building in possible exit strategies that would be legally viable and would avoid future disputes.

Third, and perhaps most importantly, you never know how even the closest of loved ones will react when money is involved.  From Karmanos’ perspective, he probably never could have imagined that his owns sons would file a lawsuit against him for a gift that he made to them when his financial portfolio was more promising.  From the sons’ perspective, they probably felt it was no risk to make a loan to their dad.

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 contained within this article, it is important that you consult a competent attorney who is licensed to practice law in your community.    

I often use analogies to help explain legal concepts to my clients.  It is often easier to understand abstract ideas when one can relate to them in a familiar way.  Some of the analogies I use are common to the estate planning profession while others I invented myself.  Below is a list of my most common analogies along with explanations of the legal concepts that they convey.

Eggs in the Basket

A Revocable Living Trust can be very beneficial in avoiding conservatorship in the event of incapacity and probate upon death.  However, in order for a Revocable Living Trust to be effective, it is essential that your assets are properly titled to it.  Imagine your trust as a basket and all of your assets – real properties, bank accounts, brokerage accounts, and personal property – as eggs.  It is essential that you place your eggs in your basket.  If there are any “loose eggs” – assets that are not properly titled to your trust – then your loved ones might be forced to unnecessarily endure an expensive and time-consuming court procedure.

Russian Dolls

Some clients own real property through an entity such as a Limited Liability Company (“LLC”).  Typically, the real property is owned by the LLC and the LLC is owned by the clients.  When establishing a Revocable Living Trust, clients should leave the real property titled to the LLC but should title their ownership of the LLC into their Revocable Living Trust.  As a result, the real property will be inside the LLC which will be inside the Revocable Living Trust.  I often compare this concept to Russian “matryoshka dolls,” a set of wooden dolls of decreasing size placed one inside another.  

The Cashier

Clients will often name a Trustee, or a “trust manager,” to manage their assets in the event of their incapacity, to settle their estates upon death, and sometimes to manage the inheritance of third party beneficiaries who lack the maturity or the responsibility to manage the inheritance themselves.  While the Trustee has access to the assets, the Trustee is given certain parameters and may not use the trust assets for personal gain.  I often compare a Trustee to a cashier.  Like a Trustee, a cashier has access to money but only for a limited purpose.  While a cashier has the opportunity to take the cash out of the register and put it in his/her pocket, such an action would be outside the scope of authority and in violation of the law.  Although a cashier is not allowed to abuse the access to the cash, you generally only want to hire cashiers who are trustworthy and responsible.   

The Gatekeeper

When a Trustee is acting for a third party beneficiary who is too immature or irresponsible to manage money, the Trustee often acts as a gatekeeper.  While the Trustee is permitted to make distributions to the beneficiary, the Trustee is tasked with the responsibility of determining whether the proposed use of the money is prudent and reasonable.  If the beneficiary asks for a distribution to buy an Aston Martin or go on a wild weekend trip to Las Vegas, the gatekeeper can say “no.”  If the beneficiary asks for a distribution to pay for college tuition or a down payment on a house, the gatekeeper can say “yes.”

Toothpaste in the Tube

When a Trust-Maker dies, the assets can either be distributed “outright” to a beneficiary or can be further held in trust for the benefit of the beneficiary.  To explain the concept of an “outright” distribution, I often use the analogy of toothpaste in a tube.  Picture your trust as a tube of toothpaste and your assets as the toothpaste itself.  With an “outright” distribution, after settlement of the decedent’s estate, the Trustee will “squeeze” the toothpaste out to each beneficiary and the trust will end up being an empty tube of toothpaste to discard.  

Chapters in a Book

Many trusts “give birth” to “baby trusts,” or “sub-trusts,” upon the occurrence of certain events such as the death of a trust-maker or a beneficiary attaining a certain age.  Indeed, just as with the Russian dolls analogy above, there can often be trusts created within other trusts.  Clients often assume that each trust is its own separate document.  However, one trust instrument can contain several sub-trusts.  I often tell my clients to picture their overall trust as a book and the sub-trusts as different chapters within the same book.  There are not separate documents for each sub-trust but rather separate sections within the same “master trust” that dictate the terms of each sub-trust.

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.

After music legend Prince died last month, it was revealed that he did not have an estate plan.  Reports indicated that he did not trust professional advisors such as attorneys and accountants because he felt betrayed as a young artist after entering into agreements that did not benefit him as well as they should have.  At least one report indicated that the only people he trusted for advice were his female companions who were in their twenties.  Apparently they did not believe in the importance of establishing a comprehensive estate plan.  

The repercussions from Prince’s decision to neglect his estate planning are starting to become clear.  His estate will have to be administered through the Minnesota probate court.  His estate will be divided among his “intestate heirs,” those individuals who are most closely related to him by blood as determined by Minnesota statute.  This may or may not be what Prince would have wanted if he had chosen to take control of his estate plan.  Furthermore, although Prince did not have any surviving children that he publically acknowledged, reports have indicated that at least one person claims to be his son and therefore entitled to the entire $300 million fortune.  The probate court will have to sort out this situation which will involve excessive time and expense.

Unfortunately, Prince is just the latest example of a famous musician who did not adequately address his estate planning.  

Although fellow musician Amy Winehouse was divorced at the time of her death, her friends indicate that she still had strong feelings for her ex-husband, that they were “soulmates,” and that she would have wanted him to inherit from her.  However, because she did not leave a will or trust, he was not included as an heir of her estate.

Country singer John Denver failed to name a beneficiary on his pension plan.  As a result, upon his death, his retirement plans were required to be cashed out within a short period of time which accelerated substantial tax unnecessarily.

Rock and roll legend Elvis Presley has 73% of his estate eaten up in taxes due to poor tax planning.  His heirs were forced to sell many of his memorabilia in order to create liquidly to pay the taxes which were due to the IRS within soon after his death.

One wonders how many famous counter-examples have to occur before celebrities and non-celebrities alike learn to take charge of their estate plans.  I’m sure that rock goddess Gwen Stefani – with three young children – is well-prepared and has a comprehensive estate plan in place.  If not, she might want to take a weekend trip up to Pacific Grove so a debonair attorney/Cedar Street Times columnist can help her.  

There is at least one famous musician who stated that the adverse consequences of Prince’s failure to establish an estate plan have not motivated him in the least: Cordozar Calvin Broadus, Jr., otherwise known as “Snoop Dog.”

Mr. Snoop Dog had some colorful comments when asked whether he had an estate plan in place in the wake of Prince’s death.  To paraphrase in a more genteel manner, Snoop Dog said that it was of no concern to him as to what happens to his money after he dies.  He went on to say that he hopes to be reincarnated.  “Hopefully, I’m a butterfly.  I come back and fly around and look at all these [fools] fighting over my money.”

Snoop Dog is at least 50% correct: if he does not leave a comprehensive estate plan, there will be people fighting over his estate.  As to whether he will be able to come back as a butterfly to observe the turmoil from above, that is unknowable.  In any event, I have never written a “reincarnate-me-as-a-butterfly” clause into an estate planning instrument and that certainly would not be an effective, legally-binging instruction.  

The choice is clear.  If you don’t care whether you leave a mess for your loved ones upon your death and you plan to gleefully observe the chaos from above through metempsychosis, then you probably do not need to establish an estate plan.  However, if you want to take charge of your estate to ensure that everything you have will be distributed to everyone you love in the most efficient manner possible, you should make an appointment to consult a competent attorney to help you avoid the problems associated with the estates of some of the most successful musicians.  

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.