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The KRASA LAW, Inc. Estate Planning Blog

Friday, June 13, 2014

A Proustian Stanley Cup Final

Marcel Proust’s protagonist in his epic work, Remembrances of Things Past, bites into a cake dipped in tea which instantly “reveals” volumes of childhood memories containing the “essence of the past.”  I had a similar experience a few days ago at Staples Center in Los Angeles.  Instead of a delicious treat, the trigger of my “involuntary memory” was watching the New York Rangers in an intense, close Stanley Cup Final game.
 
I will never be as emotionally invested in any sports team as I was in the 1994 New York Rangers.  Although I grew up in the temperate climate of the Monterey Peninsula, before the San Jose Sharks existed, and when there were no local television broadcasts of the sport, I was a hockey fanatic.  My grandfather, Karel A. Krasa, was a prominent hockey player, coach, and manager in pre-WWII Europe and he would tell me stories about playing on outdoor frozen ponds in what is now the Czech Republic.  Since we did not have a local NHL team, I picked the New York Rangers as I had loved the city when I first visited the metropolis as an impressionable 9-year-old boy.
 
At the time, the Rangers had not won the Stanley Cup since 1940 – the longest Cup drought in the NHL.  Most fans attributed the Cup drought to a curse that was placed on the Rangers, either because the team burned the mortgage to the old Madison Square Garden in the bowl of the Stanley Cup, thus desecrating a sacred object, or because Red Dutton, the former owner of the rival New York Americans, was furious that the Rangers essentially froze his team out of the league.  Regardless of the curse’s origin, the Rangers were always taunted on the road with mocking jeers of “1940!”
 
My mother ordered my first hockey sweater (real hockey fans refer to “jerseys” as “sweaters”) from a catalog when I was in 6th Grade.  I wore my red, white, and blue Rangers sweater proudly to Pacific Grove Middle School.  None of my fellow students were hockey fans and most of them had probably never even heard of the New York Rangers.
 
The following year, 1991-1992, the Sharks began their inaugural season and their games were televised.  I remember watching my first Rangers game on television when they played the Sharks at Madison Square Garden in the fall.  Adam Graves won the game for the Rangers with an overtime goal.  In January of that year, I saw the Rangers in person for the first time when they played the Sharks at the Cow Palace in Daly City.

With five-time Stanley Cup champion Mark Messier joining the team as its captain, the Rangers were favored to win the Stanley Cup that year.  They had the best regular season record in the NHL but were eliminated in the second round of the playoffs by the eventual champion Pittsburgh Penguins. 

The next year, their second-best player, Brian Leetch, ironically injured himself while slipping on ice getting out of a taxi cab and they missed the playoffs.  The curse was in full force and effect.

In 1993-1994, the Rangers were hot again.  With a new head coach and a more disciplined system, the Rangers once again finished the regular season with the best record in the NHL.  In the first two rounds of the playoffs, they were unstoppable.  They defeated their cross-town rivals, the New York Islanders in four games, and defeated the Washington Capitals in five games. 

In the third round, they faced trouble against the New Jersey Devils.  Several games went into nail-biting overtimes.  They were down 3 games to 2 with Game 6 in New Jersey.  Facing elimination, Captain Mark Messier guaranteed a Rangers victory, causing the Big Apple media to compare the comment to Joe Namath's Super Bowl III guarantee and Babe Ruth's called shot in the 1932 World Series.  The Rangers were losing 2-0.  Some of my friends called to mock me claiming that the Rangers were going to be eliminated.  Mark Messier ended up scoring a hat trick to lead the Rangers to a 4-2 victory. 

In Game 7, the Rangers were nursing a 1-0 lead when the Devils tied the game with less than 8 seconds left.  That sudden death overtime was one of the most intense games of any sport that I had ever watched.  Each Devils shot was frightening and each Rangers shot was exhilarating.  In double overtime, Stephane Matteau scored to send the Rangers to the Stanley Cup Final.

In the Stanley Cup Final against the Vancouver Canucks, the Rangers were again pushed to a Game 7, after blowing a 3 games to 1 series lead.  They were leading late in the game by only one goal.  With 10 minutes to go in the game, I told myself that the Rangers might really be cursed, that the Canucks might come back, that they might never win the Stanley Cup, but the Rangers "version" of winning the Cup might be to see how close they can get.  Then the Rangers were 5 minutes away!  Then 3 minutes away!  The last minute was torture.  They took face-off after face-off in the Rangers zone.  With less than ten seconds to go in the game, they cleared the puck and players jumped off the bench in celebration.  I thought they had won the Cup but with less than 2 seconds to go, play was stopped on an icing call.  It seemed the anticipation would never end!  Finally, Craig MacTavish took the final face-off and the wait was over!  The Rangers had won the Stanley Cup, ending a 54-year drought and breaking the curse! 

This year the Rangers returned to the Stanley Cup Final for the first time since 1994.  I drove down to Los Angeles to attend Game 2 against the Los Angeles Kings.  I happened to sit with several other Rangers fans and we reminisced about 1994, cheered for every Rangers goal, and consoled each other for every Kings goal.  The game went into double overtime.  I hadn't felt that level of intensity watching a hockey game in 20 years. 

Excitedly watching the Rangers in the Stanley Cup Final this year with fellow Rangers fans instantly brought me back to my 15-year-old self.  Then I thought of my 4-year-old son who has become quite the hockey fanatic, both as a fan and a player, and who has thoroughly enjoyed the Stanley Cup Playoffs this year, especially the Sharks and Rangers games.  The past, present, and future coalesced.

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


Thursday, June 12, 2014

Anatomy of a Trust

The revocable living trust is the most common estate planning instrument.  While trusts accomplish many goals, one basic purpose of a revocable living trust is to solve the problem of title to an asset being held in the name of someone who is unable to act due to mental incapacity or death.  In general, without proper planning, the only way for a third party to gain access to an asset that is titled to a person who is mentally incapacitated or who has died is to seek authority from the Court, either through a conservatorship process (in the case of mental incapacity) or through the probate process (in the case of death).  A properly drafted trust can bypass both a conservatorship and a probate.

Every trust has three distinct roles.  They are as follows:

1.  Grantor

The “Grantor,” sometimes also referred to as a “Settlor” or a “Trustor,” is the “Trust Maker.”  The Grantor creates the trust, decides what is going to happen to the trust’s assets in a variety of scenarios, and then transfers title of his/her assets to the trust. 

2.  Trustee     

The “Trustee” is the “Trust Manager.”  The Trustee has all of the powers over the assets of the trust to invest, sell, purchase, borrow, loan, gift, and spend the trust’s assets in accordance with the terms of the trust. 

3.  Beneficiary

The Trustee uses his/her powers to manage the assets that the Grantor placed into the trust under the terms that the Grantor established for the benefit of the “Beneficiary.” 

Creating a Living Trust

If you were to create a revocable living trust, you would act as the Grantor.  You would establish the trust, decide what is going to happen in a variety of scenarios, and then transfer title of your assets to the trust.

You would also be the Trustee.  You would manage the assets of the trust under the terms of the trust that you created.  You would retain all the powers over the assets that you had before you put them into the trust.

You would also be the beneficiary.  You would manage the assets for your own benefit. 

You therefore initially occupy all three roles of the trust.  With a revocable living trust, you are making a contract with yourself whereby you manage your own assets for your own benefit under terms that you establish.  This is essentially what everybody does with their own assets informally. 

While you are living and have capacity, everything is pretty much the same: you have complete control over your assets and your taxes are the same: you continue to report your income on your 1040 and 540.  The only difference is that title to your assets – with a few exceptions – should be held in your name as trustee of the trust.  As I often tell my clients, your “new last name” for titling purposes is “trustee.” 

While it would be “business as usual” while you are living and have capacity, the trust would enable agents of your choice to gain access to your assets in the event of incapacity or death. 

If you no longer had the mental capacity to manage your finances, your trust would name a “Successor Trustee” who, after demonstrating your incapacity through a method that you established, would have access to your finances.  Although you would no longer be the Trustee of your trust, you would still be the beneficiary and the Trustee would be legally obligated to manage your assets for your benefit.  This solves the problem of assets being held in the name of a person who is incapacitated and avoids a Court conservatorship.

Upon death, your trust would also name “Successor Beneficiaries” who would have an interest in the trust’s assets per the terms that you established.  The Successor Trustee would be obligated to either manage the assets on behalf of the Successor Beneficiaries or to distribute the assets directly to the Successor Beneficiaries and then terminate the trust.  This solves the problem of assets being held in the name of a person who is deceased and avoids a Court probate.

KRASA LAW is located at 704-D Forest Avenue, Pacific Grove, CA, and Kyle can be reached at 831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney/client relationship.  Because of the complexity of the law, you should consult with a qualified attorney licensed to practice law in your community before acting upon any of the information contained within this article. 


Wednesday, May 21, 2014

The Answer Book

When I first started practicing law, one of my supervisors told me, “If you have a question, chances are the answer is in the Probate Code.”  The California Probate Code is the section of law that controls almost all aspects of estate planning, from the creation and interpretation of trusts to the default inheritance rules when someone dies without an estate plan.  California’s Probate Code has long been held in high esteem for its precise detail and its ability to address almost any issue that might arise in the context of estate planning.  Many other states have used the California Probate Code as a model for the creation and revision of their own Probate Codes. 

Below are some sample provisions that illustrate its comprehensive nature.

1.  Rules of Language Construction and Definitions

As someone who holds a degree in English Literature, I appreciate grammar and vocabulary.  A large section of the California Probate Code is dedicated to providing special grammar rules and definitions of specific terms.

Section 9 of the Probate Code entitled, “Verb Tense Meaning,” states: “The present tense includes the past and future tenses, and the future, the present.”  I never knew it was possible to completely re-write grammar rules!  This is pretty bold for the authors of his section to take this position.  I wonder how an English teacher would react if a student who had weak grammar skills used this disclaimer at the top of an essay.

Section 10 of the Probate Code is even bolder: “The singular number includes the plural, and the plural, the singular.”  Not only do I question the comma placement of this section, but this completely unravels everything I learned in elementary school.

Section 12 of the Probate Code brings us back to reality: ‘“Shall’ is mandatory and ‘may’ is permissive.”  I shall accept that rule of construction. 

Section 45 provides a definition for the word, “instrument”: “a will, trust, deed, or other writing that designates a beneficiary or makes a donative transfer of property.”  Sorry polka fans, accordions are not included in this definition.   

Section 56 states that the word, “person,” includes “an individual, corporation, government or governmental subdivision, or other agency, business trust, estate, trust, partnership, limited liability company, association, or other entity.”  Should this section be re-written to the more succinct, “Corporations are people, my friend”?  

Section 59 defines a “predeceased spouse” as “a person who died before the decedent while married to the decedent.”  I often use the term “predeceased” when discussing estate planning.  For example, I might say, “Have you thought about what should happen if Kelly is predeceased?”  One time a client who is a doctor asked me, “Aren’t we all predeceased?”  He had a point.

Section 74 defines “state” as “any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession subject to the legislative authority of the United States.”  Contrary to what you learned in school, Washington, D.C. and Puerto Rico are states!    

2.  Rules to Avoid Mischief

The California Probate Code includes many rules intended to protect against would be mischief.  For example, Section 250 states: “A person who feloniously and intentionally kills the decedent is not entitled [to inherit from that person].”  This is often referred to as the “anti-slayer’s rule: you don’t get to inherit from the person you murder.  This makes sense, though most people who plot to murder someone for the purpose of receiving an inheritance don’t think they will get caught!

Not to compare murderers with lawyers, but Section 21380 prohibits the attorney who drafted an estate plan from inheriting from that estate plan unless certain conditions are met.  The genesis of this rule stemmed from a Los Angeles Times report about an estate planning attorney who was named as a beneficiary in most of his clients’ estate plans!  Either he was very well-loved or he was very sneaky.  In any case, the Probate Code now attempts to guard against cases that involve sneakiness on the part of the drafting attorney.

3.  Rules that Keep Up with Science

In my last article, I wrote about the estate planning impact of cryonics which demonstrated how laws must adapt to scientific changes.  Sections 249.5 through 249.8 address “posthumously conceived children.”  The fact that modern science allows children to be conceived after the parent’s death creates scores of new estate planning questions and issues and the California Probate Code is on top of these developments!

The California Probate Code is indeed a comprehensive text and, as many of the above examples illustrate, estate planning can create so many complex issues that a detailed “guidebook” is necessary.  

KRASA LAW  is located at 704-D Forest Avenue, PG, 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 acting on any of the information provided in this article, you should consult with a qualified attorney licensed to practice law in your community.             


Friday, May 2, 2014

Captain America's Estate Planning Dilemma

I was never a big comic book fan.  However, when I was fourteen I spent the entire summer in Central Oregon.  In search of entertainment, I discovered Captain America at a local comic book shop.  I declared Captain America to be my favorite comic.  Although at the time there was a Captain America movie, it was a “B-List” movie at best and it was impossible to predict the enormous appeal and box office success that the current Captain America series of movies has become today.  Yes, I’m claiming to have been on the “Captain America bandwagon” before it was “cool.”  Once again, I’m a trendsetter.

As with many subjects, I view Captain America as an adult with a different prism than when I was a teenager.  In particular, the storyline where Captain America heroically crashes the airplane carrying nuclear weapons bound for the United States into the ice, is frozen, and is regenerated seventy years later causes me to think about the unique estate planning dilemmas that Captain America would face.  This might sound like a classic, absurd theoretical comic book debate from an episode of The Big Bang Theory, but there are actually thousands of people who hope to become real life “Captain Americas.”

According to Wikipedia, “cryogenics” refers to the branches of physics and engineering that involve the study of very low temperatures, how to produce them, and how materials behave at those temperatures.  “Cryonics” is the emerging medical technology of “cryopreserving” humans and animals with the intention of future revival, i.e., the attempt to “Captain America” one’s self, if we may use “Captain America” as a verb.  The dispute over Hall of Fame Red Sox slugger Ted Williams’ estate brought a national spotlight to this concept.  As some estate planning attorneys have realized, this relatively new idea could have a profound impact upon estate planning.

Traditionally we take the view that once we die, we no longer need our assets.  We therefore take the time and effort to establish legally recognized plans that will distribute any assets that we might have remaining at the time of our deaths to our loved ones or for the benefit of our favorite charitable causes.  There is often a joke about estate planning that in the ideal world, you would spend your last penny as you take your last breath and therefore wouldn’t need any estate planning!  However, with cryonics, you might need your assets long after you pass away.

First, there are costs necessary to initiate and maintain the cryopreservation process.  Such expenses include medical supplies, chemicals, facilities, electricity, and staffing.  It is necessary that these expenses are paid for years after your death.  Relying on your surviving loved ones to continue to fund these costs long after your death is not a practical solution, especially if future technology will not permit the hope of future revival for decades or even centuries.  At least one organization, ALCOR, has developed a method for financing the cryopreservation process after one’s death.

In the early 1990s, ALCOR consulted numerous estate planning experts to determine if it were possible to create a common trust what would be used to fund the cryopreservation process for cryonics patients long after their deaths.  ALCOR finally found an attorney in Arizona who created the “ALCOR Patient Care Trust.”  The idea is that a person interested in cryopreservation through ALCOR will transfer a specified amount of assets into the Patient Care Trust, either during life or upon death – most commonly through a life insurance policy.  The Patient Care Trust will then use those assets to fund the expenses of the cryopreservation process until the person is revived, presumably years into the future.  Although none of my legal drafting materials feature such a trust, you can read the ALCOR Patient Care Trust on its website, www.alcor.org.  ALCOR claims that it invests the trust assets in such a way as to use the income off of its investments to fund the cryopreservation process. 

Second, although Captain America was financially supported by the government upon his revival, you might not be so lucky.  If you are to be revived decades or centuries into the future, you probably want to make sure that you maintain a nest egg of assets so that you do not wake up to poverty, hunger, and homelessness.  Should your estate plan leave all or a portion of your estate to your future self?  There are various organizations that claim if you invest a portion of your estate in a certain manner, with the magic of compound interest, by the time you are revived you will have more than enough money to support yourself! 

Both of these aforementioned kinds of trusts raise another interesting issue: can a trust last indefinitely?  Under the common law, there is a limit as to how long a trust may last.  This limit is known as the “Rule Against Perpetuities” (“RAP”) and has confused law students for generations.  Some states, such as Alaska, have eliminated the RAP and allow trusts to continue forever.  Other states, such as Arizona, allow exceptions to the RAP under certain conditions.  The ALCOR Patient Care Trust was drafted under Arizona law and was cleverly structured in such a way as to fall within Arizona’s exception to the RAP.  California, on the other hand, does in fact have a RAP and thus would not be the ideal jurisdiction to govern cryonics trusts. 

Whether or not you believe in the merits of cryonics, the topic does demonstrate the impact of science on estate planning and the unique practical and legal challenges that certain medical issues or concepts can create.

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle may be reached at 831-920-0205.

This article is for general information only.  Reading this article does not create an attorney / client relationship.  Before acting on any of the information presented in this article, you should consult a qualified attorney licensed to practice law in your community.


Friday, April 18, 2014

An “E-Z Legal Form” Turned Out to Be Not so Easy

An article that recently appeared in the ABA Journal described yet another disastrous consequence of a “do-it-yourself” estate plan.  In the Florida Supreme Court case of Basile v. Aldrich, the decedent drafted her own will with the “guidance” of an “E-Z Legal Form,” an online service that allows consumers to draft their own legal documents.  The decedent left several specific items to specified beneficiaries but failed to include a “residuary clause.” 

The purpose of a “residuary clause” is to dictate how any assets that are not specifically identified are to be distributed.  A “residuary clause” is a basic estate planning concept that is fundamental to any will or trust.  It often serves as a “catch all” clause to address any assets that are not specifically identified by the estate planning document. 

In the Aldrich case, the decedent acquired certain assets after she drafted her will but never updated her will to specify to whom those additional assets should be distributed.  Because there was no “residuary clause” to control the distribution of such non-specified assets, the Florida Supreme Court ruled that such assets should be distributed to the decedent’s “intestate heirs,” those persons who would inherit had the decedent not established a will in the first place.  The decedent’s intestate heirs were never mentioned in her will and it was readily apparent that the decedent did not intend for those heirs to inherit from her. 

In the opinion, Florida Supreme Court Justice Barbara Pariente stated:

While I appreciate that there are many individuals in this state who might have difficulty affording a lawyer, this case does remind me of the old adage “penny-wise and pound-foolish.”

I therefore take this opportunity to highlight a cautionary tale of the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance. As this case illustrates, that decision can ultimately result in the frustration of the testator’s intent, in addition to the payment of extensive attorney’s fees—the precise results the testator sought to avoid in the first place.

This story illustrates two common ironies with respect to “do-it-yourself” legal services. 

First, as is noted in the Justice’s comments, it is likely that the decedent was attempting to save legal fees by using the E-Z Legal Form.  However, the poorly drafted will forced her beneficiaries to battle her intestate heirs in the court system, presumably for years.  The will likely resulted in tens of thousands of dollars in legal fees for the decedent’s family.  I am reminded of a sign I once saw in a TV repair shop showing three tiers of fees: “Standard Rate: $40 per hour; “Rush Job: $70 per hour; “You Already Tried to Fix It: $140 per hour.”  I am also reminded of the old slogan for Fram Oil Filters: “You can pay me now, or pay me later.”  In this case, the decedent’s family certainly had to pay their lawyers later, much more than a properly drafted estate plan would have cost.    

Second, in establishing her will, the decedent attempted to override Florida’s intestate rules by giving her assets to individuals who would not inherit from her by operation of law if she did not create an estate plan.  Because her will failed to include a residuary clause, a significant portion of her estate was distributed to her intestate heirs nevertheless.  

It is not clear why the decedent’s will did not include the basic concept of a “residuary clause.”  It could have been that the will form was poorly drafted or it could have been the fact that the decedent failed to select that option, not comprehending the nature of such a clause.  In either case, this story reinforces the notion that complex legal tasks should be performed with the aid of a knowledgeable attorney. 

(Source: ABA Journal,“Estate dispute caused by ‘E-Z Legal Form’ is a ‘cautionary tale,’ says justice,” by Debra Cassens Weiss.)

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle may be reached at 831-920-0205831-920-0205.

Disclaimer: This article is for general information purposes only.  Reading this article does not create an attorney-client relationship.  Because the law is so complex and everybody’s situation is unique, you should consult with a qualified attorney licensed to practice law in your community before acting upon any of the information contained within this article. 


Monday, April 7, 2014

Stepping Into Your Shoes

The purpose of a financial Power of Attorney is to allow a third party to step into your shoes with regard to the management of your assets.  If you are unable or unwilling to handle certain financial tasks, you might want a legal mechanism to be able to delegate that authority to an agent.  Although the original idea was of limited scope, the concept of a Power of Attorney has expanded into many different renditions that serve a myriad of purposes.      

Special v. General

A “Special” Power of Attorney gives your agent limited authority to only perform certain specified tasks.  For example, if you need to sign a loan document by a certain date but you know that you will be on vacation during that time, you might execute a Special Power of Attorney that only gives your agent the power to sign that specified loan document on your behalf.  The Special Power of Attorney will not give your agent any other authority over your financial affairs.

A “General” Power of Attorney gives your agent expansive authority to perform numerous or all financial tasks on your behalf.  Many common General Power of Attorney documents use vague broad terms such as “Real Estate Powers” and “Banking Powers.”  It is increasingly important to specifically spell-out what you mean by such broad terms.  For example, does “Real Estate Powers” include the power to refinance?  Does “Banking Powers” include the ability to open or close a safe deposit box?  It is better to flesh out such powers in detail to make sure that financial institutions and other third parties will be comfortable in giving access to your agent to carry out a wide array of tasks on your behalf.

Regular v. Durable

Historically, the concept of a Power of Attorney was to give an agent the authority to act essentially as your clone: a person who can pretend to be you.  The original concept was that if you were to ever lose the mental capacity to make financial decisions, the Power of Attorney would necessarily cease to exist.  The original thinking was that you would not want someone to be able to act on your behalf if you did not have the ability to monitor what your agent was doing and if you did not have the ability to revoke the power should you change your mind.

However, as the Power of Attorney concept developed, it became clear that there is a benefit to allowing somebody to act on your behalf should you become mentally incapacitated.  In fact, this might be the most crucial time to give an agent the authority to manage your financial assets, otherwise your bank accounts and other assets would “freeze” and would be very difficult for your loved ones to access.  The concept of a Power of Attorney that continues to be effective after your incapacity is referred to as a “Durable” Power of Attorney.     

Immediate v. Springing

A Power of Attorney that gives your agent the authority to manage your assets as soon as you sign the document is referred to as an “Immediate” Power of Attorney.  However, you might decide that you like the idea of allowing an agent to act on your behalf if you become incapacitated, but you do not have the need or inclination to allow the agent to have authority over your financial assets right now, when you still have capacity. 

A Power of Attorney that only becomes effective upon your incapacity is known as a “Springing” Power of Attorney.  The agent’s authority “springs” into action upon your loss of capacity.  Unless and until you lose capacity, your agent has no authority over your assets.  A good Springing Power of Attorney should outline a specific procedure for demonstrating your incapacity such as obtaining a letter from your attending physician that states that you do not have the mental ability to manage your financial affairs.    

A “Hybrid” Power of Attorney will start off as a Springing Power of Attorney, but will allow you to sign an additional page that converts the Springing Power of Attorney into an Immediate Power of Attorney.  This hybrid option allows you to hedge your bets: right now you might not be comfortable in giving your agent immediate authority to act, but in the future, upon getting older or ill, for example, you might change your mind and decide to give your agent immediate authority to act on your behalf.  The idea behind the Hybrid Power of Attorney is to give you an additional option. 

Conclusion

Many of these types of Power of Attorney concepts are combined.  For example, you might execute a Special Immediate Power of attorney if you want to give someone a (1) specific power (2) to act immediately but only (3) during your capacity.  Or you might want to execute a General Durable Springing Power of Attorney if you want your agent to have (1) expansive powers (2) that endure after your lose capacity and that (3) only give your agent the authority to act upon your incapacity. 

Although Power of Attorney documents can be quite helpful, it is often more efficient if you bestow such powers upon your agents through a Revocable Living Trust.  If you have an asset that is titled to a Revocable Living Trust and you want to give an agent immediate authority over such an asset, you might need to amend your Trust in addition to executing a Power of Attorney.

A Health Care Power of Attorney, which is often part of an Advance Health Care Directive, gives an agent the authority to make health care decisions on your behalf.  This is a different concept than a financial Power of Attorney and requires a separate document. 

A qualified attorney can help you navigate these various options for appointing an agent to step into your shoes.
 
KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle can be reached at 831-920-0205831-920-0205.
This article is intended for general information only. 

Reading this article does not create an attorney-client relationship.  You should consult an attorney licensed to practice law in your community before acting upon any of the information contained within this article.  

Tuesday, March 25, 2014

How Planning and Technology Created a Ghost

One of the primary purposes of estate planning is to make sure that your loved ones are able to manage your finances in the event of your incapacity or death in an efficient manner, free of unnecessary obstacles.  The last thing you want to do is to leave a “mess” that entangles your family or friends when trying to administer or settle your estate.  Basic estate planning includes establishing trusts, power of attorney documents, wills, and other legally recognized instruments that give trusted individuals the authority to act on your behalf in the event that you are unable to do so.

Further planning could include consolidating accounts, creating online passwords that are accessible by your loved ones, leaving detailed instructions, and establishing systems in place that automatically handle routine, mundane tasks so that your loved ones can focus on more challenging tasks in the weeks and months after your incapacity or death.  Examples of such “systems” include automatic bill pay and friends or employees who manage your property. 

However, as CNN reported earlier this month, for one Michigan woman, efficient planning and technology turned her into a ghost by masking her death for at least six years.

According to the report, years after the woman died, her automatic bill pay continued to pay all of her bills, including her mortgage.  She kept to herself and often traveled to Europe for months at a time.  Because of her frequent long absences from her Michigan home, her neighbor was in the habit of mowing her lawn in order to ensure that the neighborhood maintained its curb appeal.  Because she traveled so frequently, she did not receive paper mail at her home.  These unique facts created a perfect storm whereby nobody realized that she had died. 

After several years, her automatic bill pay brought her bank account’s value to zero and the mortgage payments stopped.  After some time, the bank foreclosed upon the home and sent an employee to perform an inspection.  Upon entering the home, he found the woman’s body in her car which was parked in the garage.  Authorities believe that she had been dead for at least six years. 

Clearly this episode is an aberration.  The woman’s unique habits and arrangements are what hid her death for many years.  While this scenario is not likely to be common and this is not something that most people should be worried about, the report demonstrates how “automatic” modern conveniences such as automatic bill pay truly are.  Furthermore, the report also demonstrates the limitation of such modern conveniences.  While administrative tasks such as bill pay and home maintenance can be set to “auto pilot,” there is no substitute for having family members, friends, or acquaintances who can be relied upon to check on your welfare.  Establishing and maintaining personal relationships is just as important as creating an efficient plan. 

(Source: “Woman’s Auto-Payments Hid Her Death for Six Years,” by Jethro Mullen and Kevin Conlon, CNN Wires (http://fox2now.com/author/cnn-wires/), March 7, 2014, 9:23 am.) 

This article is intended for informational purposes only.  Reading this article does not establish an attorney / client relationship.  Consult with an attorney licensed to practice law in your community before acting upon any of the information presented in this article.

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle may be reached at 831-920-0205831-920-0205.


Wednesday, March 5, 2014

Michael Jackson's Estate Versus the IRS

I am always interested in celebrity estate planning blunders as they illustrate common pitfalls that a thorough and complete estate plan can avoid.  I have several posters in my office entitled, “Estate Planning Mistakes of the Rich and Famous.”  There are so many celebrity “counter-examples” that they keep printing new editions of that poster!

Most of these estate planning mistakes center on the celebrity’s failure to plan properly.  However, a recent battle between Michael Jackson’s Estate and the IRS demonstrates that there are just as many potential pitfalls in the settlement of an estate as there are in the planning stages.

Earlier this month, the Los Angeles Times reported that the IRS dramatically disagrees with the valuation of Michael Jackson’s Estate as set forth by the estate’s fiduciaries and advisors.  The disagreement over the value of various assets of the estate is so great that it is almost comical. 

Below are a few of the examples of the extreme disparities in valuation:

(1)  Executors place the value of Jackson’s entire estate at $7 Million.  The IRS values it at $1.125 Billion (no, the “B” is not a typo).

(2)  Executors place the value of Jackson’s likeness at $2,105.  The IRS values it at $434.264 Million.

(3)  Executors place the value of the Beatles catalog of songs which Jackson owned at the time of his death at zero.  The IRS values it at $469 Million.

(4)  Executors place the value of Jackson’s automobiles, which include a Rolls Royce and a Bentley, at $91,600.  The IRS values the automobiles at $250,000.

(5)  Executors place the value of Jackson’s other tangible personal property at zero.  The IRS values the tangible personal property at $47.467 Million. 

According to the Los Angeles Times, Jackson’s estate faces $505 Million in taxes and an additional $197 Million in penalties for being grossly inaccurate with the appraisals of the assets.

An executor’s duty is to take inventory of an estate’s assets and appraise them as of the date of death.  While this is an extreme example, the battle between Michael Jackson’s estate and the IRS demonstrates the importance of accurately carrying out this duty and the consequences that could arise if third parties such as the IRS or the beneficiaries disagree with the appraisals.

Because of the dramatic disparity in valuation between the Jackson Estate and the IRS, it appears that one of the parties must be unreasonable in its assessment.  However, it is not readily apparent which party is the unreasonable one.  After all, Jackson’s estate consists of assets that are hard to value due their unique qualities and the lack of comparable assets which leaves room for subjectivity, speculation, and assumptions. For most estates, it is easier to find a value that most parties would consider “reasonable” if proper care is taken in obtaining appraisals.   

The lesson of this case is that executors should take care in their responsibilities of valuing a decedent’s estate.  When I counsel executors on the duty to take inventory and appraise the assets of a decedent’s estate, sometimes the executors or the beneficiaries question the need for accurate appraisals and look for ways to cut corners believing that they are saving costs.  However, taking the time and effort to thoroughly and completely carry out the duties of an executor can avoid disagreement, litigation, much greater future expense, and unnecessary anxiety.

(Source: Jeff Gottlieb, “Michael Jackson Estate Embroiled in Tax Fight with IRS,” Los Angeles Times, February 7, 2014.)

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle may be reached at 831-920-0205831-920-0205.

This article is for general information only.  Reading this article does not create an attorney/client relationship.  You should consult with an attorney licensed to practice law in your community before acting upon any of the information presented in this article.

IRS Circular 230 Notice: The information in this article is not intended to be used and cannot be used by a taxpayer for the purposes of avoiding penalties that may be imposed by law.


Monday, February 24, 2014

The Power of Knowledge

      Estate Planning is about everything you have and everybody who is important to you.  It is therefore important that your estate plan is comprehensive and addresses your needs.  Although many people believe that their situations are “simple” and that they do not need a “complicated” estate plan to effectively carry out their wishes in the event of mental incapacity or upon death, the amount of knowledge and detail that must go into a complete estate plan is astounding.

      A good Estate Planning attorney should be knowledgeable in a variety of legal disciplines such as:  

    1.  Creating and drafting estate plans which consist of living trusts, wills, financial power of attorney documents, advance health care directives, HIPAA Waivers, and trust funding (i.e., changing title of assets to the living trust and updating beneficiary designations on retirement plans and life insurance policies);

    2.  Medi-Cal Planning (also referred to as "Elder Law") to help people qualify for public benefits to pay for long term care when financial resources are low;

    3.  Asset Protection Planning (better described as "Risk Management Planning") by establishing LLC's and certain irrevocable trusts to help protect assets from creditors in certain situations (and sometimes by incorporating these ideas into a client's living trust);

    4.  Tax Planning, such as mitigating or eliminating the application of the federal estate tax, capital gains tax, and preserving the California Proposition 13 Property Tax base;

    5.  Trust Administration to help settle a decedent's estate when a living trust was established; and

    6.  Probate to help settle a decedent's estate when no living trust was established or when the living trust was poorly written or poorly executed. 

      I take pride in being well-versed in all of these areas.  Most people do not appreciate all the work and knowledge that goes into a detailed and comprehensive estate plan until they are able to see the end result.  When I meet with my clients to review and sign their estate plans and they see all of the detail, they often ask in amazement: "How did you learn all of this stuff?"  I have a four-part answer: 

    1.  I have such a passion for knowledge (most likely because my parents were both educators) that I often complete quadruple the amount of continuing legal education hours that are required to maintain my license to practice law. 

    2.  I belong to WealthCounsel, a national organization of attorneys who are dedicated to estate planning.  My WealthCounsel membership gives me sophisticated software, access to the top estate planning minds throughout the country, access to ground-breaking  symposiums on estate planning, and access to cutting edge estate planning ideas.  I am also involved with other organizations to help deepen my knowledge such as California Advocates for Nursing Home Reform, NAIPC, Compassionate Care Alliance, and Meals on Wheels of the Monterey Peninsula.

    3.  I am always happy to give presentations on estate planning or provide advice to colleagues such as financial planners, tax preparers, or other professionals who have estate planning questions.  By teaching and explaining the law to others, it allows me to view my practice from a different perspective and to identify issues that I would not otherwise recognize.

    4.  I limit my practice to the areas described above.  I think depth of a legal practice is far more important than breadth.  The law is too complex to "dabble" in various practice areas.  A good attorney knows and appreciates the limits of his or her practice.  I have no problem in declining a case if I feel that it is outside my area of expertise and I am more than happy to refer such cases to other attorneys.  This allows me to concentrate and further develop my practice areas, ensuring that any project I agree to handle will be a project in which I can provide value to my clients.

      A qualified estate planning attorney is knowledgeable in a wide variety of practice areas and ensures that your Estate Plan addresses many different needs. 
   
      KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle may be reached at 831-920-0205.

    This article is for general information only.  Reading this article does not create an attorney/client relationship.  You should consult a qualified attorney licensed to practice law in your community before acting on any of the information presented in this article. 

    IRS Circular 230 Notice: To the extent that the videos below or any of the information on this website concern tax matters, the information is not intended to be used and cannot be used by a taxpayer for the purposes of avoiding penalties that may be imposed by law. 


Tuesday, February 4, 2014

What a Deal!

Everybody appreciates a good deal.  However, some deals are easier to recognize than others.  When it comes to commodities such as automobiles, clothing, and groceries, it is rather easy to compare “apples to apples” in order to determine whether one supplier’s offer is better than another’s.  But when it comes to professional services, it is much more difficult to distinguish “apples” from “oranges.”  This phenomenon is readily apparent with regard to legal services.

It is common to see “legal kits” advertised for a fraction of the cost of a private attorney.  Several years ago, a very famous trial lawyer was a spokesperson for one such online “legal kit” and he implied that he was sharing the “secrets” of the legal profession in the name of public service! 

On the surface, it is a compelling argument to use a “legal shortcut” rather than spending thousands of dollars more by hiring a private attorney.  But once you drill down to the specifics, you quickly realize that “discounted” shortcuts are no substitute for comprehensive, detailed, and competent legal services.  To illustrate these stark differences, take the example of an LLC.  

An LLC, or a “Limited Liability Company,” is often formed to provide centralized management, to enable gifts for estate tax purposes, and to provide a degree of lawsuit protection for business assets such as renal real property.  A quick search of the Internet reveals that an online “legal kit” to establish an LLC can be purchased for as little as $350.  A private attorney, on the other hand, would likely charge between $2,500 and $3,500 to form an LLC.  Why is there such a great disparity in fees and is the attorney really worth $2,000+ more?

Probably every attorney would agree that the actual formation of the LLC is not very complicated or time-consuming.  All that is necessary is to file a simple document with the Secretary of State and pay a minimal fee.  However, this is where the “legal kits” will stop.  As you will see, this is only the first step of many to ensure that the LLC is structured properly to carry out its purposes effectively.

First, you have to decide in which state to form your LLC.  The answer is not necessarily the state in which you live.  Every state has its own set of rules governing the internal operations of an LLC.  For example, some states such as Wyoming and Nevada provide a great degree of lawsuit protection while other states are more geared toward creditors.  The “legal kits” leave this critical first decision up to you without providing adequate guidance. 

Another key decision is whether to form a single-member LLC or a multi-member LLC.  Single-member LLC’s are simpler to administer, but in many cases multi-member LLC’s can provide a greater degree of lawsuit protection.  Again, the “legal kits” are silent on this issue and in many cases pretend that no such choice exists.

Once the LLC is formed, it is crucial to fund it with the appropriate assets.  For example, you might be motivated to form an LLC in order to attain a degree of lawsuit protection for your rental property.  However, if you fail to transfer your rental property into your LLC, the LLC will provide you zero protection.  When it comes to transferring real property into an LLC in California, special care must be taken to ensure that you do not accidentally trigger a property tax reassessment, in many cases unnecessarily increasing your annual property taxes dramatically.  Furthermore, all existing leases on the rental property should be assigned to the LLC, the business bank account should be transferred into the LLC, and tenants should be instructed to make payments to the LLC moving forward.  

Although the internal operations of an LLC are largely controlled by state statute, a comprehensive and thoughtful operating agreement is nevertheless critical in ensuring that the owners of the LLC relate to each other in an agreed upon manner and in ensuring the highest degree of lawsuit protection.  A “legal kit” will either provide a very basic and often problematic operating agreement or will not provide an operating agreement at all.

If there is an operating agreement, the procedures outlined in the operating agreement for admitting new members, making business decisions, raising capital, and making distributions should be followed.  If the integrity of the LLC is not respected, a plaintiff’s attorney will argue that the lawsuit protections afforded by the LLC should not be respected either.  

These are just some of the issues that a private attorney would likely address with you that the “legal kits” ignore altogether or pretend are not really important.  Most people come to realize that “legal shortcuts” are not the deal they appear to be once they understand the critical details that they ignore.   

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle may be reached at 831-920-0205.

This article is for general information only.  Reading this article does not create an attorney/client relationship.  You should consult a qualified attorney licensed to practice law in your community before acting on any of the information presented in this article.

IRS Circular 230 Notice: To the extent that the videos below or any of the information on this website concern tax matters, the information is not intended to be used and cannot be used by a taxpayer for the purposes of avoiding penalties that may be imposed by law.


Tuesday, January 14, 2014

Revealing Motivations

I am currently President of the Board of Directors for Meals on Wheels of the Monterey Peninsula.  With so many dedicated board members, employees, donors, and volunteers, who make the organization what it is, I’m always curious as to why people decide to dedicate so much time to the agency.  I am a firm believer that one’s motivations for dedicating a significant amount of time and energy to an endeavor reveal a insightful information about the endeavor itself.  In order to share new insights about Meals on Wheels of the Monterey Peninsula, I asked the Board members to provide a statement for the agency’s website (www.MOWMP.org) about why they decided to serve on the board.  Their answers indeed taught me new aspects about the agency and role is in the community that I hadn’t previously considered. 

I started to think that the motivations for pursuing a particular career similarly reveal a great deal of insight about various vocations.  I started to think about my own motivations for becoming an estate planning attorney and thought by sharing them in this article, it might reveal unique aspects of the practice that the general public might not have considered. 

When I started college, I didn’t know what I wanted for a career.  I was very idealistic – I simply wanted to be an English major for four years and I figured I’d worry about a vocation later.  I viewed the common utilitarian approach to higher education as merely a stepping stone to a “good job” with disdain.  I felt that college should be about expanding horizons and developing the self. 

My father was a school principal and my mother was an elementary school teacher so education was always important to me.  I loved college so much that I seriously contemplated obtaining a Ph.D. in English and becoming an English professor.  I liked the idea of continuing my parents’ legacy of teaching.

At the same time, my father always had an interest in the law and he would encourage me to think about becoming an attorney.  Although the reading, writing, and analytical skills of an English major are transferable to the practice of law, I was hesitant as I knew that I wasn’t interested in being adversarial in a courtroom.  

My grandmother and I were very close.  In high school, as soon as I got my learner’s permit, I would chauffeur her around all the time as she didn’t like to drive.  I took her to the grocery store, the bank, and doctor appointments.  Years later, while on a break from college, one day she asked me to drive her to her estate planning attorney because she wanted to make some updates to her estate plan. 

At that meeting, I had the opportunity to observe my grandmother’s estate planning attorney and I got the sense of what his daily routine was like.  I discovered that law wasn’t necessarily how it was portrayed in the media.  Naturally, television shows and movies focus on areas of the law that involve a lot of conflict such as civil litigation and criminal law in order to produce drama.  There aren’t too many shows about estate planning attorneys!  But, from my observations during that meeting, I realized that the legal profession could be a good fit for me if I found the right practice area.  I later decided to go to law school and to focus upon estate planning.

After more than nine years in practice focusing on estate planning, I can’t think of a better profession (other than perhaps a game show host!) than being an estate planning attorney.  I’m a trusted advisor who finds solutions for my clients.  In addition to the reading, writing, and analytical skills, my English degree also helps me understand how to relate to a wide variety of people which allows me to identify their wishes and concerns and develop a plan that suites their needs.  An unexpected bonus is that I am indeed continuing my parents’ legacy of teaching as a large part of my job is giving presentations to my clients and at various public and private seminars about estate planning.  You can see this “teaching aspect” in action by going to my website, www.krasalaw.com, and clicking on “Kyle’s Legal Lessons.”      


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KRASA LAW assists clients with Estate Planning, Elder Law, Pet Trusts, Asset Protection, Special Needs Planning and Probate / Estate Administration in Pacific Grove, CA(93950), Monterey (93944, 93940, 93943, 93942), Salinas (93901, 93905, 93906, 93907), Hollister (95023,95023) Pebble Beach (93953), Carmel By The Sea (93921), Seaside (93955) and Carmel (93923, 93922) in Monterey County and San Benito California.

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