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The KRASA LAW, Inc. Estate Planning Blog

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.  


Wednesday, July 24, 2013

The Ideal Attorney

As with all professional relationships, it is paramount that there be a good fit between an attorney and a client.  Personalities, expectations, and dynamics play an important role in determining whether the engagement is a success.  My last issue examined the “ideal client.”  This issue examines the “ideal attorney.”

A popular discount clothing store has famous commercials where one person will be shown on the left side of the screen to have purchased a jacket from a competitor for a certain price, and a second person will be shown on the right side of the screen to have purchased the exact same jacket at the discount store, plus three or four additional items of clothing, for the same price.  The message of the advertisement is that one can purchase the exact same product at the discount store for less and that therefore the discount store is naturally the better option.  

Searching for the right legal services is not as easy.  It is much more difficult to determine if a client would be able to get the same services from different attorneys.  Unlike shopping for a product, when searching for the ideal attorney, a client must look beyond the surface.  Below are key qualities that the ideal attorney possesses and that should be considered when searching for legal counsel.    

(1)  Accessibility  

One of the most common complaints about attorneys is that they are unable to create a comfortable rapport with their clients.  Attorneys spend years learning complex legal principles and are often unable to “translate” these ideas for non-attorneys.  As a result, they use language and concepts that are foreign to their clients.  The clients often do not feel comfortable enough to ask for clarification and do not fully understand the advice they are seeking.  

The ideal attorney removes all barriers by communicating in a manner that the client understands and creates a pleasant environment where the client does not hesitate to ask questions or request additional explanation.  Regardless of how much expertise the attorney possesses, there is no need to “put on airs” or try to “impress” the client with the attorney’s education.  Being helpful to the client should be the primary goal.    

(2)  Listens to the Client’s Concerns

Sometimes attorneys have the propensity to “force” a solution that does not seem to address the client’s concern.  While it may often be the case that an attorney will identify issues of which the client was not aware, it is of paramount importance that the attorney truly understands what is motivating the client to seek legal guidance.  Attorneys might have pre-conceived notions about what “should” be the client’s concerns and develop solutions to those issues that do not address the client’s actual needs.  

The ideal attorney balances the need to guide the client through the maze of legal issues while at the same time ensuring that the solutions proposed solve the client’s actual problems rather than solving parallel issues that might not be as important to the client.  

(3)  Expertise

The law is complex and it is impossible to be an expert in all of the hundreds of different legal practice areas.  “General practice” attorneys who handle legal matters as varied as criminal law, civil litigation, intellectual property, and estate planning most often do not have enough the depth of knowledge in any one area of the law to adequately counsel their clients.  

The California State Bar puts such an emphasis on the need for attorneys to focus on key areas of the law that it created the Board of Legal Specialization.  The Board of Legal Specialization creates a rigorous program to certify attorneys as “Legal Specialists” in several different practice areas.  The ideal attorney is a Certified Legal Specialist in the area of law in which the client seeks help.  To find a Certified Legal Specialist in California, you may visit the website listed below:  

http://ls.calbar.ca.gov/LegalSpecialization/BoardofLegalSpecialization.aspx

(4)  Fair, Reasonable, and Caring

The ideal attorney treats the client with respect, honesty, and integrity.  With regard to all aspects of the attorney / client relationship such as scheduling, communication, and billing, the ideal attorney is fair and reasonable and is primarily motivated with the desire to help solve the client’s issues.  Far too often attorneys are “slaves” to the billable hour, believing that every communication and interaction must be reduced to an invoice.  While the legal profession is a business, the ideal attorney has a holistic view of the relationship and understands that a basic “fairness component” must always be considered.         

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


Friday, June 28, 2013

The Ideal Client

As with all professional relationships, it is paramount that there be a good fit between an attorney and a client.  Personalities, expectations, and dynamics play an important role in determining whether the engagement is a success.  This “Part One” of a two-part series examines the “ideal client.”  Next issue’s “Part Two” will examine the “ideal attorney.”

Often colleagues will ask me to describe the “ideal client.”  The expectation is that I will rattle off demographics and statistics describing objective attributes such as average net worth, level of education, age, and family profile.  However, what I look for in an ideal client has very little to do with such qualities.  My ideal client is someone who (1) has a need that I can address, (2) understands and appreciates the value of thorough legal services, (3) is cooperative and responsive, and (4) is polite, courteous, and a pleasure with whom to work. 

(1) Has a Need That I Can Address

Almost everyone has a need for estate planning.  Although the word, “estate,” is sometimes a loaded term, estate planning is simply about protecting and preserving your hard-earned assets for yourself and the ones you love, both in the event of incapacity and upon death.  Most people have an interest in these pursuits, whether their estates are large or small.  Statistics show that only 20% to 25% of people have any estate planning in place.  Not only is that a small percentage of the population, but most of the estate planning in place is rudimentary and inadequate.  As a result, most people need the services of an estate planning attorney.    

(2)  Understands and Appreciates the Value of Thorough Legal Services

Everybody who seeks the advice of an attorney knows that they have a need, otherwise they would not seek the services of an attorney in the first place.  However, some people seek a “quick fix” at a bargain fee, not understanding that the law often involves complex nuances that must be addressed with detail and measured counsel.  The stakes are high with regard to legal issues.  In any project I undertake, I want to make sure that it will be done correctly and completely, leaving no loose ends.  The ideal client has the same appreciation for a thorough approach to the law and is willing to make a congruous investment to achieve that end.       

(3)  Cooperative and Responsive

While it is true that the client hires the attorney to perform a service, there is always a give and take with an attorney/client relationship.  The attorney will need information from the client, might need the client to perform certain tasks, and will need to make follow-up telephone calls and schedule follow-up meetings.  The ideal client is committed to the work at hand and is responsive to the attorney’s reasonable requests. 

 

(4)  Polite, Courteous, and a Pleasure with Whom to Work   

As with any relationship, good manners go a long way.  A happy and friendly work environment is key to making sure that complex legal work is performed correctly.  The attorney and staff must feel comfortable and positive about the clients for whom they work.  The client must feel the same way about the attorney.  Life is too short to deal with the unnecessary angst that incivility creates. 

Conclusion

Far too often in identifying the ideal client, attorneys focus on tangible characteristics that do not adequately predict the success of the professional relationship.  The aforementioned characteristics are not universal – different attorneys will have different notions of the ideal client just as different clients will have different notions of the ideal attorney.  The key is to be able to match those characteristics to ensure a positive attorney/client experience.


Friday, June 14, 2013

Does Your Trust Need to Pay Taxes?

A trust is the most common estate planning document.  Many clients inquire as to whether their trusts are required to file their own tax returns.  As with all legal answers, “it depends.”  The nature and structure of a trust determines whether it is required to file a tax return.

 All trusts feature the same three roles: (1) a trust maker, who establishes the trust, dictates the terms of the trust, and transfers assets into the trust; (2) a trustee who manages the assets of the trust; and (3) a beneficiary who uses and enjoys the assets of the trust.

The most basic type of trust is often referred to as a “revocable living trust.”  At its inception, the same person (or the same married couple) occupies all three roles.  During the lifetime of the trust maker, the trust is completely revocable and amendable.  Because the trust maker has total control over all of the assets of the trust and may manage them however he or she sees fit, the IRS and the Franchise Tax Board do not recognize a difference between the trust maker and the trust.  As a result, the trust does not file a separate return.  The IRS and the Franchise Tax Board “look through” the trust and simply tax the trust maker on his or her 1040 and 540 under his or her Social Security Number.  

When the trust maker dies, the trust becomes irrevocable.  At this point, because the trust can no longer be changed and because the trust maker can no longer be taxed individually, the trust becomes a tax payer.  In general, the trustee obtains a Tax ID Number from the IRS which is essentially a Social Security Number for the trust.  If the trust has any income for the year, the trustee will likely be required to file a federal and state trust tax return, Form 1041 and Form 541 respectively.  

In obtaining the Tax ID Number, there is a question on the application that is often answered incorrectly: the “start date” of the trust.  Many people incorrectly understand this question to mean the original date the trust was executed.  However, because the IRS does not recognize the existence of a revocable living trust for tax purposes, the “start date” of the trust is not the date the trust was executed but instead the date of the trust maker’s death.  If the date the trust was executed is mistakenly entered on the Tax ID Number application, the trustee will receive a letter for the IRS asking why it hasn’t received years of trust tax returns that of course were not necessary.

Another factor to consider is whether a Tax ID Number is even required after the death of a trust maker.  If the trust does not contain any income producing assets, then a Tax ID Number might not even be necessary.  For example, a trust might only contain the decedent’s residence or small non-interest bearing checking account.  The trustee would be able to distribute the assets to the beneficiaries without having to file a trust tax return at all.

For more advanced estate planning purposes such as tax planning, asset protection, and Medi-Cal planning, a trust maker might choose to establish a trust that is irrevocable at its inception.  Based upon how many powers the trust maker retains, the irrevocable trust might or might not require its own Tax ID Number.  

As with most legal issues, the specific circumstances dictate whether a trust is required to file its own tax return.  A qualified attorney can help a trustee navigate these rules to ensure that his or her duties are carried out appropriately. 


Monday, June 3, 2013

The Pushback

Lawyers provide a wide array of services and skills.  Above all, lawyers are problem solvers: the client is faced with a legal obstacle or policy hurdle and needs a knowledgeable advocate who can navigate the circumstances.  A common myth is that the law is “automatic,” that somehow third parties will always do what the law requires.  However, enforcement of the law sometimes requires an experienced mind and a strong arm.

Sometimes third parties only have marginal knowledge of an area of the law and insist upon a specific course of action, not even realizing that alternatives exist.  A common example is a bank or other financial institution insisting that a probate proceeding be initiated when an asset is titled to a decedent’s individual name rather than a living trust.  A probate proceeding is expensive and time consuming and unnecessary if certain conditions exist such as when the total value of the assets titled to the decedent’s individual name is $150,000 or less or when there is a surviving spouse.  Often it takes an attorney to educate the financial institution about the legal alternatives – such as a “small estate affidavit” or a “spousal petition” – and insist that they be accepted. 

In other situations, a company might have stricter policies than the law requires.  The policies are designed to protect the institutions from liability rather than provide service to the client.  Often, financial institutions will balk at accepting the authority of a power of attorney agent, even when the agent’s authority is granted under a properly drafted and executed power of attorney document.  It becomes a matter of arm-twisting.  The problem is so prevalent that a popular legal practice manual even provides a sample letter for the attorney to convince third parties to accept a power of attorney with references to the Probate Code.  It’s amazing what a difference a stern letter from an attorney can make.

Accepting information at face value can often cause unnecessary expense, delay, and hardship.  However, without sufficient knowledge of the law or the various additional options that might be available, there is no ability to pushback and insist upon alternative solutions.  This is where the assistance of an attorney can be of great value.  Not only do attorneys have knowledge of the law and the experience to suggest creative alternatives, but they also are trained to question the information presented and hold firm with conviction. 


Thursday, May 30, 2013

When You Need a Little Help From Your Friends

Upon creating your estate plan, you have the capacity to not only formalize your wishes, but you also have the capacity to manage your finances.  The original intent of your estate plan is to ensure that your affairs can be handled efficiently by the persons of your choice in case of a future invent such as incapacity or death.  As a result, you typically name third parties who will have the legal power to handle your affairs in the future, while retaining sole control over your finances and personal decisions in the meantime.  However, at some point, you may decide that you need a trusted person to have legal authority to help you with your finances such as writing checks and dealing with financial institutions on your behalf.

When you are ready to give a third party current authority to handle your finances, you have to make sure that you execute the correct documents for the appropriate situation.  Most laypersons – and even many attorneys – simply think of executing a power of attorney document.  It seems simple enough and many people assume that a general durable power of attorney will give the agent authority over all assets.  However, if your estate plan includes a living trust, your power attorney alone will not be sufficient.

With a trust-based plan, most of your assets are titled to the trust and are not held in your individual name.  Technically, you do not actually own the assets – your trust is the owner.  However, you are the trustee and the beneficiary and thus you have the power to manage your assets for your own benefit.  Most trusts do not allow a trustee to delegate authority to a power of attorney agent and most power of attorney documents specifically do not apply to trust actions.  As a result, a general durable power of attorney will not give any legal authority to the power of attorney agent over trust assets.  If most assets are titled to the trust, the general durable power of attorney will not accomplish the goal of giving a third party the legal authority to manage the majority of your assets.

In addition to executing a general durable power of attorney that gives an agent immediate authority, you must also amend your trust to add the third party as a current co-trustee.  Once the amendment is executed, you must deliver a copy of the amendment to each financial institution and have the new co-trustee added to the signature cards.  Although this is basic estate planning knowledge, it is astounding how often the step of amending a trust to add the third party as a co-trustee is overlooked.  Often, the power of attorney agent will go to the financial institution assuming that the general durable power of attorney document will be sufficient, only to get turned down by the bank.  
Even with an amended trust that adds the third party as a co-trustee, a general durable power of attorney document is still prudent.  First, there are assets that are not titled to your trust during your lifetime such as retirement plans, annuities, and life insurance policies.  Second, there are other tasks that might need to be performed on your behalf that can only be handled through a general durable power of attorney such as having the ability to access your mail, signing your tax returns, and entering into contracts on your behalf. 

What seems to be a very simple task is more complicated than it first appears.  As with all legal issues, it is important to make sure that the goals you are trying to accomplish are addressed comprehensively by an attorney who has the expertise to navigate the various legal rules and technicalities to ensure that you avoid unnecessary delays and hurdles due to a misunderstanding of the law. 


Friday, May 3, 2013

Safeguarding Your Estate Plan Documents

You finally got around to establishing your estate plan, consisting of a revocable living trust, pour-over will, power of attorney, an advance health care directive, and other important documents.  You are proud of yourself that you finally took the very important step of executing a plan that will help your trusted loved ones manage your assets in the event of incapacity or death.  However, you suddenly realize that the estate plan will only be useful if your trusted loved ones have access to your estate plan documents upon your incapacity or death, otherwise, it would be as if you never executed your estate plan in the first place.  You wonder where to keep your documents to ensure that they will be available in case of an emergency.

Historically, the drafting attorney customarily would offer to keep the clients’ original estate planning documents.   In addition to being a service to the client, many attorneys figured that the client or the client’s loved ones would almost be “compelled” to go back to the same attorney for future business.  Although there is nothing that requires the client or the client’s family to use the same drafting attorney for future business, the fact that the attorney held all the originals strongly encouraged the client’s or the client’s family to use the same attorney. 

However, today most attorneys realize that holding all of their clients’ original documents creates a significant liability.  Most law firms do not have fireproof storage and one office disaster, such as a fire or a flood, could destroy thousands of original estate planning documents.  Furthermore, most attorneys realize that holding clients’ documents is a futile way to encourage future business.  Good client service, availability, and periodic contact with information that might be useful to the clients is a much better way to encourage future business than to “hold hostage” original estate planning documents.  If your law firm will not hold your original estate planning documents, where should you safeguard them?

One idea is to keep your original estate planning documents in a safe in your home.  Many safes are fire-resistant, though nothing is foolproof.  I distinctly remember my grandfather’s “fireproof” safe was destroyed in the Oakland Hills fire of 1992 – it melted in the heat.  In addition, the tsunami in Japan a few years ago washed many household safes hundreds of miles away from their original locations.

Another idea is to keep your original estate planning documents in a safe deposit box at your bank.  Often estate planning documents are too thick to fit into a standard safe deposit box.  As a compromise, you might simply keep your original signature pages in your safe deposit box and keep photocopies or electronic copies of the rest of your estate planning documents in other locations.

Liza Horvath, a trust management professional in Monterey, decided to solve this storage problem herself – she installed a vault at her office!  The vault, ordered online (yes, you really can order anything online), resembles what you might see in a bank.  Through her program, EstateDoc Vault, anybody may keep original estate planning documents in her vault for an annual fee.  “I always felt that the storage of original estate planning was a dilemma for most clients,” said Liza. “When I opened my own trust management business last year, I knew that offering a safe place and reliable storage place for original estate planning documents that are too large for a standard safe deposit box would be a valuable service.” 

With the proliferation of cloud storage today, another simple solution is to keep electronic copies of estate plans in an online backup storage plan such as Dropbox, Carbonite, Barracuda, or LegalVault.  Furthermore, cloud storage is so inexpensive today that it often makes sense to backup important legal documents in multiple cloud storage programs as a “belt and suspenders” approach.  Although you cannot store the original “wet signatures” of your estate planning documents in an electronic storage program, the original “wet signatures” are not really necessary as long as you have an electronic copy or a photocopy of your signatures. 

In addition, you might put electronic copies of your estate plan on a disk that can be stored in a safe deposit box and you might give physical or electronic copies of your estate plan to your loved ones.

Regardless of which storage solution you prefer, you want to take steps to ensure that your loved ones have easy access to copies of your signed estate planning documents in case of emergency.


Friday, April 19, 2013

No Handwriting Please!

Most people understand the importance of seeking the counsel of a qualified attorney to draft their estate plans.  The law is complex and estate planning involves everybody they love and all the assets they own.  Furthermore, after death, family members might get into disagreements about the intent of the plan.  It is therefore definitely worthwhile to make sure the estate plan is drafted clearly and correctly, carefully navigating tax, legal, and practical pitfalls.  

Most estate plans are revocable, meaning that the testator can make changes to the plan at any time, provided that he or she is living and has mental capacity.  After investing a significant amount of time, expense, and effort into creating the estate plan, it might be tempting to simply write in “a simple change,” such as switching the designation of a trustee, altering the amount of a cash gift to a particular beneficiary, or even removing a beneficiary all together.  One might reason that while it was important to initially seek the counsel of an attorney in drafting the original estate plan, it is not worthwhile to invest additional time, expense, and effort to make a minor modification to the plan.  However, writing in a change – even if it appears to be simple and straightforward – can create a whole host of problems and litigation after death.

“Interlineations” is the legal term for handwritten notes or modifications to an existing estate plan.  The quickest way to a lawsuit over the interpretation of an estate plan is to make interlineations in a document.  

The first question to be explored would be whether or not the testator was actually the person who made the interlineations.  There are hundreds of examples of disgruntled beneficiaries who – after the death or incapacity of a testator – attempted to make changes to estate plans to better suit their wishes or expectations.  While the handwriting might look like that of the testator’s, it might not be clear whether that handwriting was forged or not.

Second, even if it is clear that the testator in fact made the interlineations, the next question will be whether or not the testator intended that the interlineations be legally binding.  Often, people will examine their existing estate plans and think about possible future changes, but never make the final decision to actually effect the proposed change.  The interlineations could simply be the notes of a brainstorming session but the requisite intent to actually make those notes legally binding might be absent.  If the testator did not take the notes into an estate planning attorney for review and final drafting, it is reasonable to doubt whether the testator intended for the proposed changes to be legally binding.

Third, an additional question will be whether the testator was under duress, menace, fraud, or undue influence when making the interlineations, or whether the testator was even of sound mind at all.  If a testator makes changes on his or her own, it is not clear what the circumstances were.  Was the testator alone when he or she made the interlineations?  Was the testator influenced by a mischievous third party?  However, if a testator met privately with an attorney, there is less chance that the testator was not acting of his or her own free will and volition as the circumstances of the execution of the modification are clear and controlled.  

In addition to the aforementioned uncertainties that interlineations often cause, meeting with a qualified attorney to make changes to an estate plan can ensure that the testator has covered all bases.  Often an estate plan includes many varied parts that work together.  The testator might recognize the need to change one part of the plan, but fail to identify other parts of the plan that are related, which can cause discrepancies or unintended consequences.  A qualified attorney can help identify all aspects of an estate plan that might be affected by the testator’s desired changes.  Furthermore, a qualified attorney can also suggest other changes of which the testator might not be aware.  

Although a testator might have a “simple change,” making that change without the guidance of a qualified attorney can turn a “simple” idea into a complex problem.  It is definitely worth the time, effort, and expense to seek the counsel of a qualified attorney when addressing changes to an estate plan.  


Monday, April 15, 2013

A Kinder, Gentler Attorney

When I went to law school, I knew that I wanted to practice estate planning.  I usually joke that the reason it is unusual for law students to focus upon this subject matter is because there are no TV shows about estate planning attorneys: it’s not the flashiest area of the law.  Most people’s impressions of the law and lawyers are shaped by the entertainment industry which focuses on litigation or criminal law which is adversarial by nature.

Most people realize that the entertainment industry is more interested in creating drama and interesting story lines rather than accurate portrayals of the legal profession.  In fact, when preparing for the Bar Exam, we were actually advised to watch “any TV show or movie about lawyers” as a way to study legal ethics by identifying all the ethical or procedural rules that are constantly broken by the characters.  This proved to be an effective study method!  

Nevertheless, our popular culture strongly influences the way people view lawyers and their expectations of the law.  As a result, many people might feel uncomfortable with the idea of visiting an attorney for estate planning.  Not only are they already hesitant to discuss topics such as death, disability, and taxes, they are not sure if they will be able to get along with an aloof and abrasive attorney.  However, most people are presently surprised at the process as estate planning is a very different area of the law than what some expect.

Unlike the adversarial litigation attorney from a favorite TV show, an estate planning attorney acts as the clients’ trusted adviser, helps the clients identify their concerns, and develops a plan that accomplishes their goals and navigates the complex law.  Rather than a stuffy corporate environment, most estate planning attorneys strive to create a warm and friendly setting that makes clients comfortable to discuss these otherwise uncomfortable topics.  Most clients find the process to be a pleasant surprise. When the plan is complete, most clients express a sense of accomplishment and the feeling that a great weight has been lifted off their shoulders.  

There are probably good reasons why there are no TV shows about estate planning attorneys: no drama, no scandal, and no legal ethics rules being broken on a regular basis.  These same reasons, however, make estate planning accessible, comfortable, and rewarding, not only for the clients but also for the attorney.

Most people realize that they should address their estate planning but are hesitant to do so for a variety of reasons.  It is important to know that the process is not nearly as intimidating as one might think.  A qualified estate planning attorney can act as a trusted adviser to help clients navigate the law and plan for their loved ones.


Friday, March 22, 2013

Does Your Business Have an Estate Plan?

Most people are aware of the fact that they should have a personal estate plan that provides an efficient mechanism for the management of their assets during incapacity and the transfer of their assets upon death.  However, entrepreneurs who run their own businesses must seriously consider a business succession plan in addition to a personal estate plan.  Owning a private business presents unique challenges that those who work for third parties do not face.  At the same time, with proper planning, a private business may also present unique opportunities for transferring wealth to the next generation.

Often, the owner of a private business is essential to the operation.  The founder might have unique skills, goodwill, or a professional license that cannot easily be transferred or taught to a successor.  Upon the death or incapacity of the owner, the same profitable business that the owner’s family relied upon for steady income suddenly falls into chaos.  The owner’s family does not have the expertise or the authority to run the business.  Key employees may execute their own “plan b” and hang up their own shingles, taking customers/clients, goodwill, and other resources of the business with them.  Furthermore, they likely will become competitors with a head start.  

Most entrepreneurs do not want to think about the need for business succession planning because they are too busy running the day-to-day operations of the company, working on the vision for the company, do not view their business as an asset, or simply do not want to face their own mortality.  Furthermore, developing a comprehensive business succession plan takes a lot of time and requires the business owner to face tough decisions.  The best way to start is to identify the most realistic goals of a succession plan.

The three most common goals of a business succession plan are (1) owner’s exit strategy; (2) wealth transfer; and (3) business continuity.  

For some owners, the most important objective is to allow the owner to maintain a stream of income while scaling back on his or her involvement in the business.  To achieve this goal, the plan might involve a sale of the business or a transfer of company stock to the owner in exchange for goodwill, expertise, or business secrets.

Some owners might be more concerned about transferring wealth to their loved ones (i.e., spouses or children).  In this situation, the owner is not concerned about the business continuing after death but rather “harvesting” the company’s assets or wealth for his or her family.  

Still other owners might view their business as more than just a job or a source of wealth but rather a legacy.  They might have an interest in making sure that the business thrives long after their involvement or their death.  The plan in this case might focus on identifying key employees who can be groomed to succeed in running the company’s operations and provide a mechanism for the key employees to buy interests in the business from the owner or the owner’s family.     

Business succession planning often involves the owner’s attorney, accountant, and financial advisor meeting with the family and key employees to identify realistic goals and to develop an appropriate plan.  It often takes several months to develop an appropriate plan and the business succession plan will be separate from – and in addition to – a personal estate plan.  Although it is a time-consuming process that forces the owner and the owner’s family to face stark realities and choices, a comprehensive business succession plan can protect the owner and his or her family when he or she inevitably is no longer able to run the business.   


Wednesday, March 20, 2013

How to Stretch Your Retirement Savings

A significant degree of wealth is currently held in Individual Retirement Arrangements (“IRA’s”).  Most people focus on accumulating wealth in IRA’s – saving, contributing, and investing.  However, very few people contemplate the best methods for transferring IRA’s to the next generation.  The tax rules regarding IRA’s are unique and complex.  Failure to properly address IRA’s in your estate planning often causes unnecessary tax and loss of opportunities for your beneficiaries.  Conversely, understanding how to properly navigate the unique IRA taxation rules increases their value for your loved ones.

IRA’s are savings / investment vehicles that have special tax treatment which allows the assets to grow in a tax-free or tax-deferred manner.  A Traditional IRA offers a tax deduction for contributions made but requires income tax to be paid on every dollar withdrawn from the plan.  Roth IRA’s offer the reverse approach: no tax deduction for contributions made but no tax on amounts withdrawn from the plan.  Both types of IRA’s provide compound interest which allows the investments to grow at a rapid rate.

The purpose of these special tax rules with regard to IRA’s is to encourage retirement savings.  Both Traditional IRA’s and Roth IRA’s prevent you from withdrawing funds without penalty before attaining age 59.5 except under certain specified conditions.  The idea behind this rule is to ensure that, in general, the IRA funds are being used for retirement and not for vacations, boats, cars, etc.  With regard to Traditional IRA’s, the rules require the IRA owner to begin making Required Minimum Distributions (“RMD’s”) by the year after the year in which the IRA owner attains age 70.5.  The RMD’s are based upon the IRA owner’s life expectancy according to tables published by the IRS.  The idea behind this rule is to once again ensure that the IRA funds are being used for retirement and not to create a legacy for the next generation.  With regard to Roth IRA’s, the IRA owner does not have to begin taking RMD’s, but the beneficiaries of a Roth IRA will have to take RMD’s.  

When it comes to inheriting IRA’s, it is advantageous for your beneficiaries to leave as much of the assets in the IRA’s as possible in order to take advantage of the compound interest.  If your beneficiaries simply cashed out their inherited IRA’s, they would pay significant income tax immediately on Traditional IRA’s and with regard to both Traditional IRA’s and Roth IRA’s, would sacrifice the opportunity for compound interest years into the future.  Under certain circumstances and with careful planning, beneficiaries of IRA’s may “stretch out” IRA distributions over their lifetimes.  

The key is to make sure that you have a “designated beneficiary” of your IRA’s.  First, failure to name any beneficiary at all will force your beneficiaries to liquidate the IRA’s at a very rapid rate, realizing immediate taxation and foregoing years of compound interest.  Secondly, failure to name the “correct” beneficiary might produce the same result.  A “designated beneficiary” is a defined term that generally means a living individual (as opposed to an estate) or a trust under certain specified conditions.  

Even if you set up the beneficiary designations correctly to allow your beneficiaries to stretch out their inherited IRA’s, your beneficiaries must be educated on the benefits of keeping as much of the assets within the IRA vehicle as possible, otherwise they might liquidate the IRA’s immediately or more rapidly than necessary without realizing what they are sacrificing.  

Furthermore, if you have concerns that your beneficiaries might not have the financial discipline or wisdom to limit distributions from their inherited IRA’s, you might want to consider establishing an estate plan that encourages or even forces your beneficiaries to limit withdrawals from inherited IRA’s to allow the compound interest to continue.

Focusing on accumulating wealth in IRA’s is only half the battle.  The other half is to focus on how you can transfer your IRA’s to the next generation in the most advantageous manner.  If you have a significant amount of wealth in IRA’s, it would be prudent to work with a qualified attorney to ensure that this important part of your IRA planning is addressed properly.


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