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The KRASA LAW, Inc. Estate Planning Blog

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.”      


Friday, December 27, 2013

21st Century Estate Planning: Your Digital Self

The estate plans I draft are known to be long, comprehensive, and detailed.  When I present my clients with large binders that contain the various elements of their estate plans – a revocable living trust, wills, power of attorney documents, health care documents, and trust funding documents – they are surprised that their “simple” estates would require so much paperwork.  However, the necessary components to a complete estate plan are numerous and are constantly growing.

The most recent document I added to the estate planning binders I prepare for my clients is a document that often produces a chuckle: “Assignment of Online Assets and Digital Property.”  Although at first it might sound like a silly superfluous extra step, planning for digital property is the next frontier in estate planning and is becoming a bigger issue every day.

A case that brought attention to the obstacles of accessing the digital property of a decedent involved a young soldier who was killed in Iraq.  His parents attempted to access his email account and the email host denied access.  The parents were forced to bring the matter before court and eventually the email host agreed to provide a transcript of the soldier’s email account but never provided full access. 

In addition to email, digital property includes social networking accounts; information contained on computers, tablets, cell phones, hard drives, and cloud service providers; voicemail accounts; digital music accounts including iTunes; web pages and blogs; domain names; online sales accounts such as PayPal and eBay; and digital intellectual property rights.  The inability of successor trustees, executors, power of attorney agents, or other fiduciaries to access this digital property upon incapacity or death can cause major delay and expense and can frustrate the efficient management and settlement of an estate. 

Part of the problem is that technology is far more advanced than the law.  There does not yet exist an agreed upon set of legal rules to adequately deal with access to a decedent’s or incapacitated person’s digital property.  Every digital host has its own set of policies and laws regarding digital property that are in existence inadvertently provide road blocks to fiduciaries from accessing an incapacitated or deceased person’s digital property.  Although the disparate rules and policies produce a “wild west” of legal procedures, there are steps that can be taken to attempt to make the process smoother. 

First, it is important that both the revocable living trust and the durable general power of attorney include clauses that specifically give the successor trustee and power of attorney agent access to digital property.  The clauses should be detailed, provide examples of digital property, and describe the powers related to digital property with specificity.

Second, just as it is important to transfer bank accounts, stocks, bonds, and real property to a revocable living trust, it is also important to transfer digital property to the revocable living trust by executing an assignment.

Third, it is prudent to make a comprehensive list of your digital property including usernames and passwords.  This “master list” can be stored in a safe deposit box to which your successor trustees and power of attorney agents have access.  The “master list” will likely need to be constantly updated and it could be a full time job to ensure that the information is accurate.  An alternative is to use a website such as LegalVault which allows you to store all of your online passwords in a single database and allows you to name those persons who should have post-death access to such information.  In addition, there are online services such as Death Switch which will automatically email persons of your choice information necessary to access your digital property upon your death.

It might seem overwhelming to plan with such detail all the elements of your estate, including your digital property.  It is tempting to dismiss the need to address the issue of access to your digital property as unnecessary.  However, as digital property becomes a more significant aspect of a typical estate, the issue of access to such digital property will inevitably become a bigger problem.  Without a set of legal rules that adequately addresses this issue, assuming the responsibility to address these issues to the greatest extent possible through your estate planning is essential.


Friday, December 13, 2013

Calculating Your Survivorship Options

In my last article, entitled “What’s Your Contingency Plan?,” I mentioned the fact that many people do not give much thought to how they would like their estates to be distributed in the event that their beneficiaries pre-decease them.  Until they really start to unpack their estate planning options, it’s rare for most people to think about the possibility that their expectations of how things will play out might be thwarted by ephemeral nature of the world.  As I often say, people do not always die “in the right order.”  As difficult as it is to contemplate the possibility, it is important to have a thoughtful contingency plan in the event of such circumstances. 

Although the contingency plan options for people planning their estates are only limited by their imaginations, there exists a trio of common “survivorship” options in the event of a pre-deceased beneficiary.

(1)  Per Stirpes

Assume that Gwen has three children, Larry, Curly, and Moe. 

Upon her death, if all of them survived her, under a “per stirpes” model, they would each receive an equal 1/3 share of her estate. 

If Larry pre-deceased Gwen, the estate would still be divided into equal 1/3 shares.  However the 1/3 share that would have gone to Larry will go to Larry’s children equally.  If Larry had three children, those three children would take an equal 1/9 of Gwen’s estate.  If Curly and Moe survived Gwen, they would each receive their 1/3 share of the estate.  

If Curly also pre-deceased Gwen, his 1/3 would go to his children in equal shares.  If Larry only had one child, his entire 1/3 of the estate would go to his child.  If Moe survived Gwen, he would still get his 1/3 of the estate. 

If Moe also pre-deceased Gwen so that all three of Gwen’s children are pre-deceased, Gwen’s estate would still be divided into three equal shares – one share for each child that Gwen had.  Each child’s share would go to their children in equal shares.  Larry’s 1/3 would be divided equally between his three kids so they would each receive 1/9.  Curly’s 1/3 would go entirely to his only child and thus he would receive 1/3.  If Moe had two children, his 1/3 would go equally to his two children and thus each of them would receive 1/6.   

(2)  By Representation

Under a “by representation” model, the division would be the same as “per stirpes” above unless all three of Gwen’s children were pre-deceased.  In that case, the “by representation” model dictates that all of the grandchildren receive an equal share of Gwen’s estate, regardless of how many siblings they had.  Thus instead of Larry’s three children receiving 1/9 each, Curly’s only child receiving 1/3, and Moe’s two children each receiving 1/6, all six grandchildren would receive an equal 1/6 share. 

Unlike a “per stirpes” model where the division is based upon the number of children Gwen had regardless of whether any of them survived her, a “by representation” model bases the division on the first generation where there are living descendants.  This produces the result of not favoring those grandchildren who have fewer or no siblings.   

(3)  Per Capita at Each Generation     

A “per capita at each generation” model takes the logic of the “by representation” model one step further.  If all three of Gwen’s children survive her, the result is the same as it is for both “per stirpes” and “by representation above.”  If Gwen had one pre-deceased child, the results are again the same as both “per stirpes” and “by representation” above.  However, if Gwen had two pre-deceased children and one surviving child, the results are different.

Assume that both Larry and Curly pre-deceased Gwen but Moe survived her.  Moe will get his 1/3 of the estate.  However, Larry’s 1/3 of the estate and Curly’s 1/3 of the estate will be combined and will be divided equally among their four total children (three children of Larry and one child of Curly) and each of those children of a pre-deceased child will receive 1/6 of the entire estate.  “Per capita at each generation” treats all children of pre-deceased beneficiaries the same.   

Conclusion

If you find this confusing, consider the fact that I went to law school so I wouldn’t have to do math!  Regardless of your proficiency at determining fractions of fractions, understanding the basic concept behind these different survivorship options can help you determine how you would like your estate divided in the event of pre-deceased beneficiaries.  Although when planning your estate you are free to choose any of the three options above or any other option you develop through the power of your imagination, the default option under California law is “by representation.”

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.

Furthermore, although calculating fractions of fractions makes Mr. Krasa feel like maybe he wasn’t so bad at math after all, he realizes this is as sophisticated as he gets when it comes to numbers and even then it is a stretch.  Mr. Krasa therefore makes no warranty whatsoever about the accuracy of the “math lesson” presented in this article and advises that you consult a qualified mathematician licensed to practice math in your community before relying upon the accuracy of any of the calculations presented in this article.   


Tuesday, November 26, 2013

What's Your Contingency Plan?

Despite the fact that I grew up on the Monterey Peninsula, I am a diehard Green Bay Packers fan.  A few weeks ago, my wife and I took an excursion to Wisconsin to attend a Packers game at the house that Vince Lombardi built, the “frozen tundra” of Lambeau Field.  I was looking forward to seeing one of the premier quarterbacks in the league, Aaron Rodgers, put on an offensive masterpiece.  Unfortunately, seven plays into the Monday Night game against the rival Chicago Bears, Rodgers was injured and never returned.  Here we traveled halfway across the country only to watch backup quarterback Seneca Wallace struggle through the game.  A guy behind us kept saying, “This was not the game I expected.”  I agreed: things certainly did not go according to plan.  Sometimes football – as life – is unpredictable. 

When it comes to estate planning, you might have a well-thought out plan as far as how your assets will be managed during your incapacity, how they will be distributed upon your death, who will carry out your wishes, and who will take care of your minor children.  However, it is often overlooked that your expectations might be thwarted by the unpredictable nature of our ephemeral world.  When I ask my clients about alternative plans should their expected beneficiaries pre-decease them, they often reply by stating that they never thought of the possibility.  One of the most common oversights of estate planning is the failure to drill down into possible contingencies should “Plan A” fail.  Below are some of the aspects of estate planning for which you should have a contingency plan.

Contingent Beneficiaries

As hard as it is to contemplate the possibility, there is a chance that your expected beneficiaries could pre-decease you.  While it is true that the nature of a revocable estate plan allows you to make changes in the future, you might not have the mental capacity or the opportunity to alter your estate plan in the event of a family death.  A comprehensive estate plan anticipates the possibility that your primary beneficiaries might pre-decease you and names secondary and even tertiary beneficiaries.  It can be agonizing to unpack these issues but doing so ensures that your wishes will be carried out in a variety of scenarios and saves your loved ones a family squabble or even a courtroom battle.

Alternate Successor Trustees / Power of Attorney Agents

Just as it is possible that your beneficiaries could pre-decease you, the person you name as your successor trustee or power of attorney agent might be unable or unwilling to act for you in the event of your death or incapacity.  Not only could the person be pre-deceased or mentally incapacitated, but when the time comes to act, the person might decide that the task is too burdensome or time-consuming and might decline to act.  A comprehensive estate plan names alternate successor trustees and/or alternate power of attorney agents to ensure that somebody whom you trust will execute your well-thought-out plan.  The best estate plans will further provide a procedure for filling a trustee / power of attorney agent vacancy should none of the persons you name be willing or able to act “when duty calls.”

Guardians for Minor Children

Failure to plan for contingencies is perhaps most problematic with regard to guardians for minor children.  In addition to the need to name alternate guardians should the first choice be unable or unwilling to take care of your minor children, a common mistake is to name a married couple as “joint guardians.”  Such a course of action does not account for the possibility that the couple could get divorced.  In such a situation, it will not be clear whether you intend the husband or the wife to be the guardian or whether you’d prefer to skip them all together and go to the next named guardians if any.

Furthermore, it often takes time for a court to officially appoint a guardian of minor children even if you properly named such guardians in your estate plan.  In the meantime, the children will likely be placed in the custody of child protective services as opposed to trusted family members or friends.  A prudent approach is to take a further step and name “temporary guardians” whereby law enforcement and child protective services are instructed and requested to place minor children in the custody of designated individuals until a permanent guardian can be appointed by the court.  A comprehensive plan will have alternate temporary guardians as well.

Comprehensive estate planning necessarily includes detailed contingencies should your primary vision of the sequence of events should you become incapacitated or pass away be thwarted by the unpredictable nature of the world.  


Monday, October 21, 2013

Will You Get a Second Stretch?

Defined contribution retirement plans such as IRA’s and 401(k) plans are governed under special, and sometimes complicated, tax rules.  Not being aware of these special rules can force you or your beneficiaries to pay taxes at an accelerated rate and miss out on the special investment opportunities that are the key features to these kinds of plans.  Conversely, understanding these unique rules can allow you or your loved ones to make smarter tax and investment decisions.

The general rule with regard to these kinds of plans is that you receive a tax deduction for the amount of money you put into the plan, the asset grows inside the plan in a tax-deferred manner allowing compound interest, and you only pay tax when you take a distribution from the plan. 

As my tax law professor taught me, the basic concept behind the rules governing IRA’s and 401(k) plans is the “Goldilocks Rule”: “not too soon; not too late; but just right.” 

If you take a distribution from your own plan too early (before the year after you reach age 59.5), with a few exceptions, you will be charged at 10% penalty as the purpose of the plan is to provide for retirement and taking an early distribution frustrates that intent. 

At the same time, the rules require that you take an annual minimum distribution from the plan after you reach age 70.5 because again the purpose of the plan is to use the assets for retirement.  These annual Required Minimum Distributions (“RMD’s”) are based upon your life expectancy as determined by IRS tables.

Keeping as much of the assets in the plan as possible and limiting distributions to the RMD’s to take advantage of the tax deferred compound interest the plan provides is known as “stretching the plan.”  Sometimes this is referred to as a “stretch IRA,” but the concept can often work for 401(k)’s and other similar plans as well.       

For a non-spouse beneficiary of a plan, provided that the beneficiary was properly designated within the IRS rules, the beneficiary will be able to delay full distribution of the plan and base RMD’s on his/her own life expectancy.  The younger the beneficiary is, the lower the RMD’s will be, the longer he/she will be able to keep the plan, delay unnecessary income taxes, and keep as much in the plan as possible to enjoy the tax-deferred compound interest.  This is a significant benefit. 

The beneficiary will also be able to name his/her own successor beneficiary.  The successor beneficiary will be able to stretch the distributions from the plan based upon the first beneficiary’s life expectancy, but will not be able to base RMD’s on his/her own life expectancy. 

A spouse beneficiary can elect to be treated as a non-spouse beneficiary and follow the exact same rules as above, which means that the spouse’s successor beneficiaries (in many cases the children) will not be able to base their RMD’s on their own life expectancies after they inherit from the surviving spouse.  Instead, the children would have to base RMD’s on the parent’s life expectancy, which would be much shorter than the children’s life expectancy and would require distributions from the plan to occur at a much more rapid rate.   

However, the surviving spouse has a special option that is not available to any other beneficiary: the surviving spouse can elect a “spousal rollover” which means that the surviving spouse will be treated as if he/she owned the plan from the very beginning.  In this scenario, when the surviving spouse designates his/her own successor beneficiaries, those beneficiaries will be able to stretch distributions from the plan based upon their own life expectancies.  This gives a “second stretch” to the plan: the first stretch for the surviving spouse and the second stretch for the children. 

This difference of whether the children are permitted to base RMD’s from the plan on their own life expectancies or are forced to base RMD’s on their parent’s life expectancy can sometimes be a very stark contrast with significant financial impact. 

Most retirement plan custodians automatically treat a spouse as any other beneficiary and do not alert the surviving spouse to the possibility of the spousal rollover.  While there might be some unique circumstances that do not make the spousal rollover the optimum choice for everyone, it is always worth considering whether electing to take a spousal rollover would be appropriate. 

A qualified attorney can help you decide whether the spousal rollover option is the right course of action given the situation.

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. 

Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, any tax advice contained in this communication, including attachments thereto, was not written to be used and cannot be used for the purpose of (a) avoiding tax-related penalties under the Internal Revenue Code or (b) promoting, marketing or recommending to another party any tax-related matters addressed herein.


Thursday, October 17, 2013

Is That Really Illegal?

The study of law can sometimes be methodical and tedious.  Occasionally it is a nice change of pace to take a tongue-in-cheek look at some of the more colorful laws that are on the books in various places.  When it comes to unusual laws, Clint Eastwood’s crusade against Carmel’s now repealed law forbidding the eating of ice cream while standing on the sidewalk comes to mind.  Below is a list of other bizarre laws, most of which are still on the books.  These laws are all courtesy of www.dumblaws.com.

California Statewide Laws:

•    Sunshine is guaranteed to the masses.


•    It is a misdemeanor to shoot at any kind of game from a moving vehicle, unless the target is a whale.


•    No vehicle without a driver may exceed 60 miles per hour.

Local California Laws:

•    In Los Angeles County, you may only throw a frisbee at the beach with the lifeguard’s permission.


•    In Baldwin Park, nobody is allowed to ride a bicycle in a swimming pool.


•    In addition to the ice cream rule mentioned above, in Carmel, a man can’t go outside while wearing a jacket and pants that do not match and women may not wear high heels while in the city limits without a city permit. 


•    In Chico, bowling on the sidewalk is illegal.


•    In Fresno, elementary schools may not host poker tournaments. 


•    In Glendale, it is illegal to jump into a passing car.


•    In Indian Wells, it is illegal for a trumpet player to play his instrument with the intention of luring someone to a store.


•    In Pacific Grove, it is illegal to molest butterflies.


•    In Prunedale, two bathtubs may not be installed in the same house.


•    In Walnut, children may not wear a halloween mask unless they get a special permit from the sheriff.

Foreign Laws:

•    In England, placing a postage stamp that bears the Queen (or King) upside down is considered treason.


•    In Finland, taxi drivers must pay royalties if they play music in their cars for paying customers.


•    In France, between the hours of 8AM and 8PM, 70% of music on the radio must be by French artists.


Friday, September 20, 2013

Putting Your Eggs in Your Basket

Most comprehensive estate plans center around a revocable living trust.  A key aspect of a trust is to make sure your assets are titled to the trust.  If your assets are not properly titled to your trust, your entire estate planning can be in jeopardy, subjecting your estate to unnecessary tax, delay, expense, exposure to your beneficiaries’ creditors or divorcing spouses, and in some cases, even transferring your estate to unintended beneficiaries. 

Picture your trust as an empty basket and all of your assets as eggs.  Creating an empty basket without taking the extra step of transferring your eggs into the basket can undermine your entire estate plan.

Below are some general comments about how to put your eggs in your basket.  

Titling Your Assets

With a few key exceptions, generally you should title all of your currently owned and newly acquired assets in the name of your trust.  For example, instead of holding title as, “Bing Crosby,” title should be changed to, “Bing Crosby, Trustee of the Bing Crosby Living Trust, dated June 20, 2013.” 

Social Security Number

For basic revocable living trusts, while you are living, the tax identification number for your trust is your Social Security Number.  In general, because you have complete control over your trust, the IRS does not recognize the existence of your trust for tax purposes.  As a result, you will continue to file your tax returns on your 1040 and your 540 under your Social Security Number as you always have.

Upon your death, your trust will become irrevocable and at that point will require its own tax identification number.   

Cash Accounts

You should sign new signature and ownership cards to re-title all bank accounts or cash equivalents, including treasury bills, money market accounts, and certificates of deposit, to name yourself as Trustee of those accounts. 

Before you re-title your certificates of deposit, consult with a bank officer to make sure that the institution does not consider the change in account name to be an early withdrawal that incurs a penalty.  Generally, this should not be a problem because your tax identification number for the account will remain the same.

Instruct your financial institution by letter or in person to change the title to your trust.  The tax identification number (your Social Security number) on the account for withholding and reporting purposes will remain the same. 

Re-titling the account records should have no effect on the name you wish to have printed on your checks.  There is no reason to have the name of your trust on your printed checks. Ask your bank to continue to print your individual name on the checks.

Investment Accounts

If you hold publicly traded stocks and bonds that are already in brokerage or investment accounts, contact your brokers or custodians and direct them to change the title of the accounts to the name of your trust.  The procedure for doing so is the same as the procedure for re-titling cash accounts explained above. 

Stocks and Bonds Not Held in Investment Accounts

If you possess original stock or bond certificates, there are two ways to transfer the certificates to your trust.

(a) Open a brokerage or investment account in the name of your Revocable Living Trust and deposit your original certificates in the account. 

(b)  Work directly with the transfer agent for the stock or bond and direct the agent to reissue your stock with your Revocable Living Trust named as the new owner.

Mortgage, Notes, and Other Receivables

If you have loaned money to anyone, you should assign your interest as lender to your Revocable Living Trust by a written document and notify your debtor of the assignment. 

Real Property

Transferring your real property to your trust will require attention to ownership and tax issues based on the nature of the current title to the property.  Ultimately, the transfer will require preparing, executing, and recording new deeds for each property.

Personal Effects

Tangible personal property such as furniture, works of art, jewelry, clothing, tools, artifacts related to your hobbies, and electronics are transferred to your trust by a written document stating your intent to hold such assets in your trust.

Non-Trust Assets

Three categories of assets are generally not transferred to your trust while you are living but instead are controlled by separate beneficiary designations with the financial institution.  These categories include (1) Retirement Plans, (2) Life Insurance, and (3) Annuities.  It is important to make sure that the beneficiary designations on such assets are coordinated with your overall estate plan. 

In many circumstances, it might make sense to name your trust as the designated beneficiary, though special care is required when it comes to retirement plans and certain annuities.  In general, the trust must have special provisions to help navigate tricky tax issues and the beneficiary designations must be written in a very specific way.  Naming a trust as a beneficiary of retirement plans or annuities should NEVER be done without the guidance of a qualified attorney.  

Conclusion     

Putting your eggs in the basket is essential to proper trust-based estate planning.  While many attorneys leave this critical part of the estate plan to their clients to complete, the task can be overwhelming and can easily lead to major mistakes with devastating consequences.  The best procedure is for your attorney to help guide you through this onerous process. 

Although it may appear that the information contained in this article is enough of a guide to help you with the trust funding process, there are far too many caveats and other "hidden traps" than can be fully expressed in a forum such as a blog.  Be sure to work with a qualified attorney who is licensed to practice law in your community before acting upon any of the information contained in this article.  


Friday, September 6, 2013

It’s All in the Execution

You can have the best plan in the world, but if it is not executed correctly, it will fail. This is literally true when it comes to following the proper procedures for signing estate planning documents and thus making them legally valid. To make matters more complicated, each specific type of estate planning document has its own execution requirements.

1. Formal Will

A formal will must be in writing and is generally a typed document. It must be (a) either signed by the testator or signed by a third party in the testator’s presence at the direction of the testator, (b) signed in the presence of two witnesses, and (c) signed by the two witnesses with the understanding that they are signing the testator’s will.

The witnesses should be “disinterested” meaning that they are not named as beneficiaries in the will and are not natural heirs of the testator.

Notarization of the will is not required and is also irrelevant: notarization does not take the place of the two-witness requirement.

2. Holographic Will

If the “material” terms of a will are written in the testator’s handwriting, it might be considered a holographic will. In such a case, the will does not have to be witnessed but must be signed by the testator. Although, if properly executed, holographic wills are valid, it is generally not recommended to execute a holographic will because there is a lot of room for error.

Just as with a formal will, notarization of the holographic will is not required and is in fact irrelevant.

3. Trust

Most estate plans are “trust-based,” meaning that the key document is a revocable living trust. A trust is a type of contract that, when properly drafted and funded, supersedes a will. The trust must express a declaration by the trust-maker indicating an intent to hold the property in trust. If the trust involves real property, it must be signed by the trust-maker.

Although it is not legally required, it is often wise to have the trust-maker’s signature notarized in case there is any dispute as to the authenticity of the trust-maker’s signature.

A trust does not have to be witnessed in most states but doing so does not make the trust invalid and might add an extra layer of protection.

4. Durable General Power of Attorney

A durable general power of attorney is a document that gives an agent the power to manage the principal’s financial affairs. In order for a durable general power of attorney to be valid, it must (a) contain the date of the document, (b) be signed by the principal or signed by a third party at the principal’s direction; (c) and either be notarized or be signed by two witnesses who are adults, who are not named as agents under the durable general power of attorney, and who were present when the principal signed the durable general power of attorney.

5. Advance Health Care Directive

An Advance Health Care Directive is a power of attorney for health care decisions as well as an expression of how the principal would like the health care agent to make his/her health care decisions. Just like a durable general power of attorney, an Advance Health Care Directive must (a) contain the date of the document, (b) be signed by the principal or signed by a third party at the principal’s direction; (c) and either be notarized or be signed by two witnesses who are adults, who are not named as agents under the advance health care directive, and who were present when the principal signed the durable general power of attorney.

In addition, if the principal is a resident in a skilled nursing facility, the Advance Health Care Directive must also be signed by a patient advocate or ombudsman designated by the Department of Aging. This is a precautionary measure meant to ensure that the skilled nursing facility patient is making a truly voluntary decision by signing the Advance Health Care Directive.


Thursday, September 5, 2013

Celebrity Estate Planning Blunders

Prominent figures such as musicians, athletes, and actors have many talents and characteristics that are to be admired and enjoyed. There is no better live singer than Gwen Stefani. Witnessing Aaron Rodgers throw a perfect pass at legendary Lambeau Field is awe-inspiring. Tina Fey’s wit and dry sense of humor is insightful. However, many celebrities do not make the best decisions with respect to their estate planning. As William Shakespeare famously said, “past is prologue.” Do not repeat these celebrity estate planning blunders!

Marilyn Monroe

Actress Marilyn Monroe took the time to draft a will, but she did not put enough effort into her planning to make her wishes legally binding. She left the bulk of her estate to her acting coach with the “hope” that he would donate it to charity. Her acting coach never did donate her estate to charity and later married a woman whom Marilyn never met. Upon his death in the early 1980s, he left Marilyn’s estate to his wife who some estimate earned more than $30 million over the years from Marilyn’s image. If Marilyn had simply taken the time to draft a comprehensive trust, this colossal mistake would have been avoided. (Source: Insurance News Net.)

Amy Winehouse

Singer Amy Winehouse died “intestate,” meaning that she did not leave any estate planning document. At the time of her death, she was divorced however most of her friends, family members, and acquaintances confirm that she was still very close to her ex-husband and still viewed him as her “soul mate.” Because she did not take control of her estate by creating a will or a trust, her estate passed by law to her “natural heirs” as determined by law which did not include her ex-husband. If she had simply drafted a will or a trust, her estate would have passed to the person of her choice rather than leaving it up to the default rules of the legislature. (Source: Insurance News Net.)

Heath Ledger

Actor Heath Ledger executed a will three years before he died. However, the will pre-dated his relationship with actress Michele Williams with whom he had a daughter. As a result, legally his estate passed to his parents per the terms of his will instead of to his daughter. Luckily his parents agreed to take care of their granddaughter financially but the anecdote demonstrates the importance of making sure that one’s estate plan is up-to-date. (Source: Forbes.)

Ted Williams

Baseball great Ted Williams died with an estate plan that stated he wished to be cremated. However, two of his children from a second marriage produced a handwritten document that stated he wished that his body be cryogenically frozen. It was unclear whether the handwritten document was really written by Ted or whether he had sufficient capacity to make such a change to his wishes with regard to the disposition of his remains. Sometimes people think that it is “easy” to amend their estate plans on their own but this case demonstrates the importance of formally making changes with the aid and guidance of a qualified attorney. (Source: Forbes.)

Elvis Presley

Due to a lack of proper planning, singer Elvis Presley’s estate was reduced by a whopping 73% due to probate fees, settlement costs, and avoidable taxes. His case is often cited as an example of why avoiding probate and addressing estate tax planning by utilizing a revocable living trust can be crucial to protecting one’s hard-earned assets from being lost unnecessarily. (Source: Asset Protection Wealth Management.)

Chief Justice Warren Burger

Former U.S. Supreme Court Chief Justice Warren Burger took the law into his own hands by typing up his own will. However, the Justice made several key mistakes including subjecting his estate to probate and neglecting to give his executor the power to sell real estate without court approval. As a result, his family paid hundreds of thousands of dollars in taxes and fees that could have been avoided by a properly drafted estate plan. This demonstrates that even brilliant legal minds can make major estate planning mistakes if they are not proficient in the highly specialized practice area of estate planning.

Conclusion

No matter how much talent, intelligence, money, or fame a person might have, failure to take the time and effort to plan your estate properly will lead to unintended consequences that could have a dire impact on your loved ones. Learn from these bad examples and be sure to properly address your estate planning.


Monday, August 12, 2013

"Maybellene, Why Can't You Be True?"

To paraphrase country music singer Allan Jackson, my first love was an “older woman.” I was sixteen and she was forty-two. Despite the age difference, she was the prettiest I had ever seen. Although my parents were skeptical at first, they became very supportive of our relationship. My friends had their doubts at first as well, but they grew to truly adore her. She was born in Michigan in 1953. She is teal/blue and white and originally had a Powerglide transmission. I’m speaking of course about “Maybellene,” my 1953 Chevy Bel Air, named after the Chuck Berry song.

Recently, my mechanic suggested that I purchase taller and narrower wheels and tires to better accommodate the custom frame. I was excited to outfit Maybellene with “saddle shoes” (white wall tires), but I realized that beyond starting the car and steering the wheel, I know next to nothing about cars. My mechanic made it sound easy, “Just go taller and narrower.” The mechanic said that he was “not a tire guy,” but that the tire shop of my choice should be able to help me.

I visited my tire shop and was informed that in order to purchase white wall tires, I should go directly through a tire distributor on the east coast. The tire shop gave me dimensions on the height and width of the wheels and tires, but advised that when it comes to hot rods, they defer to the mechanic. The tire shop agreed to install my new tires and wheels after I ordered them through the distributor.

I called the tire distributor to sort through its catalog and finally settled on specific wheels and tires. Again, the focus was solely on the height and width. Before placing my order, I reviewed the potential purchase one more time with my mechanic and the tire shop. Both stated, “That sounds right.” Finally, not completely sure of what I was doing, I placed the order.

As feared, something indeed went wrong. Even though everybody only focused on the height and width of the wheels and tires, nobody mentioned to me the existence of a third measurement: “inset measurement,” that is, how far in or out the wheels sit. As it turned out, the wheels sat too far out, hitting the fenders, and rendering Maybellene non-operational. To make matters worse, because the wheels were mounted to the car, they were considered “used” and the tire distributor refused to accept a return. As far as finding a solution, it only got worse from there.

My mechanic suggested the solution was to order new wheels with different inset measurements. My tire shop dealer told me that getting new custom wheels would be too expensive and suggested instead to have a body shop roll the fender to create more space between the tires and the fender. I therefore visited a body shop. The body shop (predictably) advised me that rolling the fender will not work and suggested that I might need a smaller front clip.

In a few short hours, I went from having a drivable classic car that was going to be fitted with new and improved wheels and tires to a non-operational disaster with three different and contradicting opinions as to the best solution! Thankfully my mechanic offered to solve the problem for me, which ended up with my purchase of five new custom wheels with the proper inset measurement. Between the original wheels, the wheels I purchased from the east coast, and the custom wheels, at one point I had 15 wheels (including the spares) for one car!

This anecdote offers lessons that can be applied to estate planning.

1. Communication between expert and client is essential. Just as I do not expect my clients to know about conduit provisions, generation skipping tax, spendthrift clauses, and the rule against perpetuities, I should not have been expected to know or to inquire about inset measurement. The best attorneys are those who have a keen appreciation of what their clients should not be expected to know and effectively communicate that information in an easy-to-understand manner.

2. Communication among advisors is also important. Often, a client will have an attorney, an accountant, a financial advisor, and in some cases a realtor and a mortgage broker. If the parties are not on the same page, advice is bound to get muddled and the client suffers. Advisors must acknowledge that the client cannot be “stuck in the middle” and should put their egos aside and reach out to their colleagues to make sure that the plan is comprehensive from all perspectives.

3. Client care and service is necessary. When I had three different advisors giving me three different and contradicting solutions, I felt lost and frustrated. Thankfully my mechanic offered to lift the burden off of my shoulders by finding a solution himself. There is truly a benefit to having an expert who will accept the responsibility to address the client’s needs.


Friday, July 26, 2013

Kyle A. Krasa Named as a "Rising Star" by Super Lawyers

Local attorney Kyle A. Krasa was recently named by Super Lawyers as a “Rising Star.”  From the Super Lawyers website (www.superlawyers.com):

“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 selection process is multi-phased and includes independent research, peer nominations and peer evaluations.

Super Lawyers Magazine features the list and profiles of selected attorneys and is distributed to attorneys in the state or region and the ABA-accredited law school libraries.”

The selection process for Super Lawyers is rigorous and is typically a year-long endeavor.  Once again, from the Super Lawyers website:

“Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with third party 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.

The Super Lawyers patented selection process involves three basic steps: creation of the candidate pool; evaluation of candidates by the research department; and peer evaluation by practice area.”

The final published list of Super Lawyers represents no more than 5 percent of the lawyers in each state.  With regard to the “Rising Star” designation, the selection process is the same except that a “Rising Star” must be either 40 years or younger or in practice 10 years or less.  No more than 2.5% of the lawyers in each state are selected as “Rising Stars.”

Mr. Krasa is very appreciative of his selection by Super Lawyers.  “I am very honored and humbled by this prestigious recognition,” said Mr. Krasa.  “Even before I passed the Bar and became an attorney, I remember seeing Super Lawyers Magazine each year and thinking that it would be an incredible achievement to be selected.  Now that it has happened, it is quite surreal.”  He quipped, “Now that I am part of the Super Lawyers community, perhaps I need to go shopping for a cape!” 

In addition to being selected by Super Lawyers as a “Rising Star,” Mr. Krasa is certified by the State Bar of California Board of Legal Specialization as a Legal Specialist in Estate Planning, Trust, and Probate Law. 

Mr. Krasa believes that his accessible, comprehensive, and friendly approach sets him apart and aided in his selection as a “Rising Star.”  “I believe that it is important for attorneys to first remember that ultimately the goal is to address the needs of our clients and to solve their problems,” said Mr. Krasa.  “We are not academics in ivory towers discussing legal theories.  Our clients have real needs and our task is to help them in a comfortable and understandable manner.”     

Mr. Krasa expressed his gratitude to his family (in particular his wife Amanda, his three-year-old son, Jonah Bing, and his father Peter Krasa), his staff (Marilyn Beans, Caroline McMillin, and Rachel Hunter), his professional colleagues, his friends, and most of all his clients for their support.  “This is certainly a joint effort and although I am a solo attorney, this honor would not have been possible without scores of other individuals,” said Mr. Krasa. 

KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle can be reached at 831-2240-0594.  


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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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