Tuesday, March 21, 2017

Divorced Business Owner Sets Up Estate Plan for Minor Children

I was working with a divorced business owner recently. His financial advisor recommended that he come see me. The business owner had been very successful in business, but he knew little and had no previous exposure to estate planning.

It was kind of funny when he said he wasn't sure what he needed from me, but he knew he needed to do something to protect his estate. I started a conversation by letting him know what would happen if he died with no legal plan in place.

I told him, "If you die with no legal program in place, then all of your assets left in your name alone will be frozen. Your ex-wife will hire an attorney to start the probate proceeding. Your ex-wife will kick your fiancé out of your house. After several months or years of court proceedings, your ex-wife will start to gain control over all of your assets, including your businesses. Your business partners will have to co-own your businesses with your ex-wife. Your ex-wife will have the right to hire another set of business attorneys to search and review all of your business records. One of our local elected judges will be in charge of over-seeing how your ex-wife is handling everything on behalf of your four minor children. Ultimately, if the court proceedings ever end, your ex-wife will gain complete control over your estate. If she does not pay the $1.5 million estate tax bill within nine months after you die, interest and penalties will accrue against your estate. Then, as your children reach their 18th birthday, they will sue your ex-wife who will be forced to dump roughly $2 million into your children's laps, likely spoiling any desire they may have to get a good college education."

He said, "That would not be good for my four kids, my fiancé, my business partners, or my ex-wife. I don't think my ex-wife would be the best person to handle my children's inheritance."

About an hour later, after much discussion about his family, he was anxious to put in place an estate plan so that, when he dies, the right people will be put in charge of managing his estate. Probate will be avoided so the courts and judges and lawyers would be kept out of his estate. He designated a trusted and responsible colleague to handle the trusts for his four children so nothing would be dumped into their laps at age 18. His children would have money available to them for their college education, and they would receive their inheritance in stages at later ages. Plus, we set up the trusts for his four kids so that if they get married and divorced, they will not have to split the inheritance with their spouse.

We also had a discussion about the estate and gift tax. He was surprised to learn that if he stayed single, then only $5.49 million of his estate would escape the 40% estate tax. But if he gets married, then through the appropriate use of the marital deduction and portability, he could protect $10.98 million from the 40% estate tax.

Bottom Line: If you are divorced with children, and you don't want your ex-spouse to control everything when you die, and if you'd prefer that what you've worked for doesn't get dumped into your kids' laps at age 18 (after being overseen by judge until then), then perhaps you should give us a call at 925-400-7753.  We can have a conversation so that you can sleep well at night knowing all of your estate legal affairs are in order.

Tuesday, March 7, 2017

How to Protect an Inheritance from Children’s Divorces

I am working with several couples right now who want to make sure that their children do not lose their inheritance if the children get divorced.

None of the children are are married yet, but some have "significant others", and the couples anticipates that a marriage may coming up in the near future. They fear that one of their children will continue to invest in their spouse's business.

We discussed the options that are available to the couple. We are setting up their estate plan so that when the children inherit, they will inherit in a trust - we often call this trust the Children's Inheritance Trust.

By having the couple leave their estate to an Inheritance Trust for the benefit of their children, they help ensure that the inheritance will be kept separate from any community property that the child may acquire with their spouse. If a child subsequently gets a divorce, the child will keep their trust truly separate - because the trust will not have been commingled with the assets that the child acquired with their spouse.

Many families these days have divorce circumstances. If you want to set up an estate plan so that your children's inheritance is protected, give us a call to start a conversation about the easiest ways to protect what you've worked so hard to build. You may also feel free and visit our website for a free report entitled California Legal Strategies to Protect Your Family’s Inheritance from Divorce, Creditors, and Lawsuits.”

Thursday, February 16, 2017

How to Leave the Family Business

I've been working with a California couple this week. They had five children; two of them worked in their business, and the other three children did not. They were very sensitive to the fact that the two sons "in the business" should inherit the business when Mom and Dad pass away.

The mother, in particular, was emotional about wanting to set up an estate plan that was "fair" to all of their five children. The couple knew that their business was valuable, and Mom felt that if they left the business to the two children who were in the business, and left everything else to the other three children, then that would not be "fair" because the children getting the business would be getting significantly more than their other three children.

They did not want to short change their other three children simply because those three children were not suited to work in the family business. One solution Dad had already created was to purchase life insurance that would go to the three children who were not in the business. But still, the life insurance death proceeds would not be enough to "compensate" the other three children for not getting any of the business value.

We discussed a number of alternatives. One of the alternatives we discussed was to structure the ownership of the business so that after Mom and Dad died, the business (it's actually three businesses) would be in a trust. The two children in the business would continue working in the business and would continue to collect salaries. However, when the business would later sell, the sales proceeds of the business would be shared by all five children.

Wednesday, January 25, 2017

How Bill Gates Can Completely Avoid the Estate Tax

It's no secret that Bill Gates is one of the wealthiest people on the planet. You would think that the IRS will mop up when he dies, collecting billions in estate tax to be redistributed in whatever way our government distributes it - that's another story.

However, there is little doubt that he will take advantage of two "often little known" tax rules to minimize or completely avoid federal estate tax. While I'm speculating that Bill has several trusts to avoid probate and make things simple, here are the two tax rules that Bill will take advantage of:

1.    The Unlimited Marital Deduction. If Bill dies before his wife, Melinda, he will leave his estate in a way so that $0 estate tax will be paid when Bill dies. You can leave an unlimited amount of assets to your surviving spouse when you die, and no estate tax will be due (the idea is that the tax is due after the surviving spouse dies);

2.    The Estate Tax Charitable Deduction. After both Bill and Melinda die, they will leave the bulk of their estate to the Bill & Melinda Gates Foundation. Anything you leave at your death to a charity escapes the federal estate tax.

Voila! No estate tax. The richest man in the world will take advantage of two often misunderstood tax principles to avoid a tax that is specifically designed to tax the rich.

If Bill ever calls, I'm sure we'll have a discussion about this. Moral of this story? Make sure you take the necessary actions to protect your estate from the government. Be like Bill!

Monday, February 3, 2014

Top 5 Reasons to Plan Your Estate

Let’s face it, we rarely believe that something will happen to us this year..but what if it did? Are you confident in what the outcome will be for the people that you love the most?

There are plenty of reasons to plan your estate now. I have listed five of the top reasons below. Although numbered, they are in no particular order of importance because everyone has different priorities and concerns.

If anything on this list strikes you as a concern, imagine the effect on your loved ones if you fail to take action. This should inspire you to make a firm to commitment to resolve this as soon as possible. Pick a date this year in which you will commit to competing your estate plan, and stick to it!

Okay, here are the top 5 reasons…

1)      Protect your family in the event of your incapacity. Without a properly drafted estate plan, your family will likely have challenges in managing any assets in your name, including your home. A court supervised conservatorship (otherwise referred to as a living probate) in which all of your transactions are recorded and affirmed through a series of court hearings will generally be required.  This public process goes on indefinitely, and requires your family to convince a judge (and in some cases even a jury) that you are unable to manage your own finances.

2)      Make your wishes known regarding distribution of your assets in the event of your death. Without an estate plan, any assets left in your name alone at your death will be left up to state law, and the probate court system, to determine who will receive those assets. 

3)      Avoid the delay and expenses of probate, and keep your affairs private with a living trust. Even if you have a valid will at the time you pass away, a court supervised process called probate will be required to inventory everything that you own and approve its distribution to your beneficiaries (spouse, children etc). The probate process is a public process in which anyone can review your probate file and determine what you have, who is scheduled to receive it, and when. Especially in today’s society, many people prefer to protect their loved ones by keeping their affairs private, which can only be accomplished through a properly drafted (and funded) living trust.

4)      Protect assets and keep them in the family.  Many people are concerned that property left to a child will be inherited by his or her spouse if that child were to die prematurely, or if the couple were to divorce. Leaving property to a child in trust helps ensure that those assets are kept separate and pass according to your wishes (i.e. to grandchildren).  These trusts may also protect asset from creditors if a child is ever involved in a lawsuit (business or personal) or collections effort. 

5)      Protect minor children by designating a guardian. Parents with minor children must ensure that they can decide who will raise their children if they die before those children become adults. Without a proper estate plan, a judge will make that decision under his or her own discretion. 

Tuesday, October 15, 2013

Will My Family Have to Pay Estate Tax?

I get asked the following question often "will my family have to pay estate tax when I die?" For 99% of the population, the answer to that question is no. An individual can pass up to $5.25 million in 2013 Estate Tax Free. In 2014, each person has a credit of up to $5.34 million. Furthermore, as of last year,  spouses may combine their unused individual credit amounts and pass on up to $10.68 million at the death of the second spouse (In 2014, current law is $10.5 million), assuming none of the credits were used during their lifetimes.

To calculate the value of an estate to see if it is above or below that threshold (again, only about 1% of people exceed the threshold), take the fair market value of the items (generally at the date of death), not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests, and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses, and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify. 

Estates in excess of the exemption can utilize advanced planning techniques to address the potential estate tax liabilities.

For those of us that do not have potential estate tax problems the basic benefits of estate planning are as significant as ever, if not more so when considering the back log of probate courts. Probate is generally a very costly, inefficient and unnecessary way to transfer property. And don't even get me started on Conservatorships (living probates), which is what happens when someone loses mental capacity without having a proper disability plan documents (generally powers of attorneys and living trusts) in place. 

Basic Estate planning allows you to control your property while you are alive and well, provide for the handling of your affairs if you become disabled, and give your property at death to who you want, when and how you want to leave ot to them. It is a necessary part of any financial plan. If you have life insurance, or a home, or a child, your family needs and deserves a proper estate plan.

Friday, September 28, 2012

Why Not Just Repeal the Estate Tax?

In a Stanford Law Review Article, Professor  Edward J. McCaffery wrote an interesting piece discussing  Estate Tax (Death Tax) Reform and had the following to say:
"neither Obama nor any other Democrat is going to call for a stronger tax, for the simple reason that he or she would be tarred and feathered by the upper-middle class mobs who, in a time of falling stock markets and evaporating home equity, would suddenly be hearing from every business reporter that they just had to go see a lawyer or other planner to avoid this deadly tax. 
Why not just repeal the tax then, as Republicans have been seeking for decades by now? Because if that ever happened, the spigot would turn off, and the money from campaign contributions would dry up. It is important to understand that TRA 2010 had a very big winner—the financiers who perpetuate “Dynasty” and “Perpetual” trusts. A 2005 study estimated that such trusts held roughly $100 billion in assets, mainly in South Dakota, an early mover in eliminating the rule against perpetuities (okay, so some good might be coming from this story). These trusts are set up to limit distributions and to last for a very long time. Who benefits? For one, a very large class of trust companies and other financial intermediaries. Take a small piece of that enormous pie (say, 1% or 0.5% per year) in fees for assets under management, then lock the underlying assets up into perpetuity, and you will do very well for yourself. The increase in the current gift tax exemption to $5 million greatly helped this group of financiers. Wealthy families, like those of the Facebook founders, can get the dynasty-trust game going now, using their families’ $5 to $10 million in exemptions. The rich setting up dynasty trusts are willing to pay their advisers for the privilege of avoiding transfer taxes forever. Those advisers and financial intermediaries, in turn, are willing to pay Congress to keep the fear of a death tax—and hence their lucrative business model—alive (forever). Congress is happy to cash the checks.
On the estate tax, then, it is easy to predict what will happen: not much. We will not see a return to year 2000 levels, and we will not see repeal. The one cautionary note I must add is that, going back to the game, something has to happen sometime, or the parties paying Congress and lobbyists will wise up and stop paying to play. But that has not kicked in yet, decades into the story, and it may not kick in until more people read this Essay, and start to watch the watchdogs. Fat chance of that happening, too, I suppose. In the meantime, without a meaningful wealth-transfer tax (the gift and estate taxes raise a very minimal amount of revenue and may even lose money when the income tax savings of standard estate-planning techniques, such as charitable and life insurance trusts, are taken into account), one fundamental insight of the special interest model continue to obtain. Big groups with small stakes—that is, most of us—continue to pay through increasingly burdensome middle class taxes for most of what government does, including stringing along those “lucky” enough to be members of a special interest group. It’s a variant of a very old story, and it is time to stop keeping it secret."

Thursday, August 26, 2010

Succession Planning in Uncertain Times

These are challenging times for analyzing potential estate tax burdens. Last year, individuals could pass $3.5 million in assets upon their death free of federal estate taxes. Now in 2010, there is no federal estate tax whatsoever (maybe). Next year, current law would revert the exemption back to $1 million.

The impact of a $1-million estate tax exemption is significant. Many more Americans will potentially be faced with a maximum estate tax rate of 55%. Whether the law will change at this point is uncertain. A bill was recently introduced that would increase the exemption to $3.5 million retroactively back to Jan. 1. Unfortunately, the reality is that we simply do not know what will happen.

Whether a new estate tax law is enacted, or we revert to a $1 million exemption, the best approach is to put a sound, well thought-out estate plan in place now. This article outlines various tools available to reduce or even eliminate the estate tax burden, regardless of the exemption amount.

1. Properly drafted living trusts

Living Trusts have become an increasingly popular technique for avoiding lengthy, expensive and public court processes such as probates and conservatorships in the event of a person’s death or mental incapacity. Probate avoidance alone can mean large savings in the cost of estate administration.

Beyond saving estate administration costs and maintaining privacy, a properly drafted Living Trust can also mean substantial estate tax savings. For example, suppose Husband and Wife, with a taxable estate of $2 million, have a simple Living Trust that directs the transfer of all of their property to the other upon the first spouse’s death, and equally to their children thereafter. Assume Husband dies first, leaving everything to Wife. On Husband’s death, no estate tax will be owed because of the unlimited marital deduction, which defers estate taxes until a surviving spouse’s death. When Wife dies, however, she will only be able to pass the exemption amount in the year of her death before triggering an estate tax. Therefore, assuming an exemption of only $1 million when Wife dies, the children would receive approximately 50 cents on the dollar for all assets in excess of $1 million.
A better plan for Husband and Wife would have provided that an amount up to the exemption would be left in a tax-sheltered trust, frequently referred to as a “bypass trust,” for Wife’s benefit. Wife could then use the bypass trust to support herself during her lifetime, with the bypass trust going to the children free of estate taxes upon Wife’s death.

2. Planned gifting beyond the living trust

For wealthier individuals, basic Living Trust-based tax planning is not enough. In those situations, consider reducing the size of the estate through techniques such as those discussed below.

A. Irrevocable Life Insurance Trust

Suppose Husband and Wife were unable to totally avoid estate taxes despite the use of a bypass trust. In those cases, serious consideration should be given to preparing a specially designed trust commonly known as an Irrevocable Life Insurance Trust, or “ILIT.” If an ILIT is used to purchase life insurance, death benefits are kept out of the estates of both Husband and Wife (and therefore not subject to estate tax). The difference between having Husband or Wife own the policy, as opposed to having it owned by an ILIT, is staggering. For example, a $1 million life insurance policy kept out of the parents’ estates can prevent the children from having to pay roughly $500,000 of those proceeds for estate taxes. That means the full $1 million can pass to the children income and estate tax free.

B. Family Limited Partnerships (FLP’s) and Family Limited Liability Companies (FLLC’s)

Think of these entities just as you would any business, except they are owned by members of the same family. Parents initially contribute certain assets into a partnership or LLC in a manner that allows them to retain full control over those assets (just as any general partner or managing member would). The power for estate tax reduction comes from giving interests in these entities to the next generation during the parents’ lifetime. Since the gifts typically involve minority interests, the gift tax value can be discounted to reflect lack of marketability and control.
In many cases, these types of gifts have been discounted 40% or more. A 40% discount on a family entity could potentially provide for a gift-tax-free transfer of over $1.3 million more than could be achieved without the use of such an entity. Further, all income and appreciation flowing from the gifted property escapes both income and estate taxation at the parents’ generation. It may be important to act quickly with this type of gifting strategy, as there is a significant threat of legislation greatly reducing or even eliminating these discounts.

C. Charitable Giving

Where one has true donative intent, charitable contributions through gifts made outright or in trust may reduce the taxable estate. Private foundations are also becoming a popular tool for charitable giving. These arrangements are beyond the scope of this article, but merit consideration for the charitably inclined.


Planning for the worst in these uncertain times is critical. Regardless of estate size, proper planning will reduce both time and expense in estate administration, and leave loved ones with the clarity they deserve.

Thursday, September 17, 2009

Celebrity Deaths Remind Us of the Need for Estate Planning

Funny how the "unthinkable" gets a bit closer to home when we learn about celebrities who fail to properly plan. This video points out how these issues impact all of us. It also explains the difference between a will and a trust with a nice twist that helps it make sense.

View more news videos at: http://www.nbcsandiego.com/video.

Wednesday, July 29, 2009

Estate Planning to Protect the Kids

This Wall Street Journal video highlights a couple of reasons why parents with minor children need a will, and should consider a trust. It also provides support concerning the need for life insurance as income replacement to fund the children's needs through young adulthood. Excuse the brief commercial at the beginning.

Tuesday, June 23, 2009

Eliminating Capital Gain on Real Estate Owned By Married Couples: A Simple Yet Critical Strategy

How do you hold title to your home? Odds are, if you are married and purchased real estate with your spouse, you elected to hold the property as Joint Tenants. This has been the common practice recommended by many real estate agents, lenders, and attorneys for quite some time. The advantage to holding property in Joint Tenancy is that when the first spouse passes away, the deceased spouse’s one-half interest in the property automatically passes to the surviving spouse with little to no transfer cost. Provided that such a transfer of ownership was the couples’ objective upon the first spouse’s death, holding property as Joint Tenants seems like a no brainer.

Here’s the downside: If you hold real estate in Joint Tenancy with your spouse, you are missing out on significant tax benefits that are available under another method of holding title (which has all of the benefits of Joint Tenancy discussed above) that we’ll discuss in just a moment. First however, we need to understand the basics of calculating capital gain for tax purposes under the traditional Joint Tenancy method. Here’s how it works … when the first spouse passes away, the surviving spouse receives a “step up” in cost basis equal to 50% of the market value of the property at the time of the first spouse’s death (cost basis is, essentially, what you paid to purchase the property). The remaining 50% of the property retains the surviving spouse’s original basis. This concept is best illustrated through an example:

Max and Marge bought a house and took title as Joint Tenants. They paid $200,000 for the home (their cost basis for the purposes of calculating capital gain is therefore $200,000). Thirty years later, Max passes away. At the time of Max’s death, the property has increased in value to $1,150,000 (this assumes an annual appreciation of 6% over a 30 year period). Since Marge gets a “step up” in cost basis to 50% of that amount ($575,000), her new cost basis is $775,000 (her initial basis of $200,000 + Max’s stepped up basis of $575,000). Assuming that Marge chooses to downsize and sell the family home immediately, she will have capital gain in the amount of $375,000 ($1,150,000 sales price – her new $775,000 cost basis). At best (assuming Marge had lived in the home for 2 out of the last 5 years), she will have $250,000 of that $375,000 exempt from capital gains tax. But she’s still left subject to capital gains tax on $125,000 when she sells. This will result in a pretty hefty tax bill.

Fortunately, there is a better option. Since July 1, 2001, married couples have been able to take title to real estate as Community Property with Right of Survivorship. The “Community Property” designation will entitle the surviving spouse to a “double step up” in cost basis equal to 100% of the market value of the property at the time of the first spouse’s death. Therefore, in the example above, Marge’s new cost basis will be the full market value of $1,150,000, and she will be able to sell the property for zero capital gain. Moreover, if she chooses to remain in the residence (or even rent it out for a few years), she will still be able to rack up an additional $250,000 in appreciation and sell it tax free down the line.

It is important to note the significance adding the of the “with Right of Survivorship” language to the Community Property designation. That is what enables the surviving spouse to automatically inherit the deceased spouse’s one-half interest in the property with little to no transfer cost (the same benefit of Joint Tenancy that is often so appealing to married couples). If the property were only taken as Community Property without the “with Right of Survivorship” language, a court process would be required to transfer the deceased spouse’s one-half interest over to the surviving spouse. Therefore, if the couples’ objective is for the survivor to receive full ownership and control over property, opting for the “with Right of Survivorship” designation makes perfect sense.

If you are buying a new home or refinancing and would like to take advantage of taking title as Community Property with Right of Survivorship, it is as simple as checking the appropriate box in your closing documents. If you already own a home in Joint Tenancy and would like to change how you hold title, no problem. You can simply sign a new deed transferring your property from yourselves as Joint Tenants, to yourselves as Community Property with Right of Survivorship. Ask your title company or a competent attorney to assist you.

Saturday, February 28, 2009

What is Estate Planning?

Let me start by describing what estate planning is not. I was having lunch with a financial advisor last week, who shared with me a great story about an event that occurred during his career in the military. Before troops were being deployed into hostile territory, they were summarily interviewed by a base attorney who filled in Will documents for them. The substance of the discussion was getting a response to the question, “How do you want to leave your stuff?”

Although that story certiainly (and bluntly) illustrates one element of one of the issues addressed in developing an estate plan, proper estate planning accomplishes so much more than just that.

Essentially, proper estate planning is taking responsibility for your finances, your person, and the well being of your loved ones at three critical times:

(1) Now, During Your Lifetime:
  • What do you own? All that “stuff” (along with everything that you acquire in the future) is “your estate.” However you perceive the size and nature of your estate is irrelevant to whether or not planning should be done. It is simply a factor to help determine what type of plan will best suit your present situation and future goals.
  • Is your estate exposed to unnecessary financial liability by the way that you hold title to real estate and other important assets?
  • Who is on your team? Do you have an attorney you can trust to guide you through these important matters? How about complimentary professionals like insurance, financial and tax advisors? Bottom line, are you receiving the service that you need and deserve?

(2) If You Become Physically or Mentally Disabled:

  • Who will manage your finances (i.e. pay expenses, endorse a check, withdraw funds, reallocate investments, sell property, etc) if you cannot do it yourself? Someone else must have legal authority to do it on your behalf.
  • Who will make medical decisions for you if you can’t communicate? Will they have legal authority to do that? Will medical information privacy laws like HIPPA put them in a “catch 22” by preventing them from accessing medical information they might need?
  • Who will take care of minor children if you (or a spouse) cannot? Again, someone else must have legal authority to act as a guardian. You have two choices here: You can name someone that you want, or you can leave it for a court to determine. Who knows your children and the people closest to you the best .... you, or a judge you have never met?
(3) When You Pass Away:
  • What will happen to your property if you do no planning?
  • What if you write a Will? Does that cover all of your assets? Hint: It probably controls very few of them.
  • Do you want a court to have to approve the transfer your assets, or would you prefer to keep matters private?
  • Who will be given the authority to care for minor children?
  • How should you leave property to your children and other loved ones?

As you can see, estate planning involves very real and delicate issues that affect everything that you have, and everyone you love most. This planning is not automatic. You must choose to take control. If you are working with the right people, it’s a process that will empower you.

Wednesday, February 11, 2009

Where Do I Start?

You start by simply making a decision to complete your estate plan. Give yourself a firm deadline that you believe you will stick to. Make sure the deadline is early enough to cause you to stretch, as doing so creates urgency that will propel you through your planning. Once you have made that commitment, follow the 2 steps below to get started on the right foot with your initial appointment:
  • Decide which estate planning attorney you'd like to work with. You should meet and feel a sense of trust and rapport with your attorney before you ever get "on the clock." In fact, you should be able to get a flat-fee quote during your initial meeting (i.e. there is no "clock"). Fees quoted may or may not be indicative of the attorney's ability or quality of service (you have to trust your gut and / or your referring source's endorsements). In any case, you'll want to hold the initial meeting with your attorney at least four weeks before your deadline. Beware: Not all attorneys will have your documents prepared for signature in a prompt manner. Some attorneys and firms get must very busy in order to meet revenue demands and can have a tendency to let files "sit in the office" for literally months before something is actually done with them (long after the details of the plan have faded in memory or been passed on to an associate to piece together). With our process,you documents are guaranteed to be prepared within four weeks, and its usually more like two or three. The details of your plan are arranged in our system within 48 hours of meeting with you, when details are fresh.
  • Show up to your meeting having prepared in advance. Request a questionnaire from your attorney early on, and set yourself up to have it filled out and submitted to the law office three days before the meeting. You don't need to provide account numbers if you aren't comfortable doing so. Just the name of the financial institution, who's name it's in, and the approximate balance will suffice. You don't need to provide a copy of the deed to your home, but you should bring in a property tax statement so we can identify the property for you legally.
Once you have accomplished the above, you will be well positioned for an effective attorney-client meeting where you can actually design and understand your estate plan.

Tuesday, February 10, 2009

Estate Planning Should be an Easy Process

Today has been a good example of why I like what I do:
  • I had a meeting with Jesse Lichaa this morning, a Fresno realtor I've come to know and respect this year. In the meeting, when he asked me an open ended question about my business, I responded (pretty much instinctively) that I have a passion for making estate planning easy for people.
  • My afternoon primarily involved preparing for and attending a meeting with a new client. At the end of the meeting, one of the spouses said "thank you for making this process easy and enjoyable."
Estate planning is not a complex animal when broken down into its core components. It truly is rewarding to see people engage in the process and feel so much peace of mind as a result.

Wills in 3 Minutes (Video)

You've probably heard that everyone needs a will. Here is an explanation of what wills do, and why they are important.


Trusts in 1 Minute (Video)

The video below provides a helpful overview of how trusts differ from wills and demonstrates how they are superior planning vehicles.


Estate Planning Video for Parents

This interview with a colleague of mine was featured on the Today Show last spring. It is a worthwhile 4 minutes for any parent.

Nicely done Alexis!

Monday, February 9, 2009

LegalZoom, Etc. Can You Do It Yourself?

The short answer is, yes. There are numerous products and online services available to create your estate plan in a do-it-yourself type of fashion. In most, if not all cases, you can create documents that will be legally binding. That is actually where the concern comes in. I've experimented with many of the big name document generation programs available including LegalZoom, Nolo, Rapidocs, US Legal Forms, Suze Orman, and Living Trusts on the Web. In my opinion as an estate planning attorney, the processes in these programs (and consequently, the documents they produce) all contain one or more of the following challenges:
  • No legal advice
  • The questions posed in the interviews can be ambiguous and confusing
  • There are few options provided
  • The wheels can fall off the wagon on the issues of contingent beneficiaries (if the person you named passes away before you) and trustee selection
  • The issue of afterborn or adopted children is ignored in the interview process
  • Poor incapacity planning (although that was less of an issue than I'd expected)

As a result of the challenges noted above, I do not recommend using any do-it-yourself program currently available as the only source of counsel you receive when creating your estate plan. They can, however, create a good starting point to build upon when you meet with your attorney, which might save you money. In all cases, they are good learning tools, and all of the programs noted above have their individual strengths and weaknesses. If I had to pick a winner, I would definitely say that Living Trusts on the Web produces the best state specific documents available. The options on the program are also more robust than the other candidates. That process, however, should not be completed without an attorney consultation and review. Technology has not made it far enough to replace the need for advice, which is what all these programs specifically disclaim. 

A Trust is Like a Business

For many people (and myself for a period of time), understanding the concept of a trust can be difficult. It need not be. Think of a trust as being a business. You are creating a new legal entity. If you create it during your lifetime, you don't even have even get a separate tax id number for your trust. Instead, much like a sole proprietorship or partnership, your trust will be treated as an extension of you as an individual (or individuals in the case of a joint trust).
  • Business Plan: Your trust document will contain your business plan. This plan will include important components to ensure its success both now and into the future. For example, your plan will probably provide that you will be in full control of your property while you are alive and well. It will also provide for a seamless transfer of control over your affairs should you become disabled at any point in your life (and that trasnsfer should be structured in a way that excludes lengthy and expensive court involvement). Finally, you'll have instructions that give whatever property you have in your trust to whom you want, when you want, and in the way you want. Some people even take the extra step of documenting some of the key values and principals they want to pass on, including how they feel about their loved ones.
  • Finances & Management: Once your trust is established (either now by signing it in front of a notary in the case of a living trust-based plan, or upon your death upon order of the probate court in the case of a will-based plan), you start funding your trust with of all of your assets (except for retirement accounts). For example, your trust will own the interest in your your house, land, bank accounts, investments, and life insurance. Again, remember that while you are alive and well you have full control to manage your trust assets just as you're used to doing right now. You can also change the terms of your trust document (or business plan) anytime that you want to while you are alive and well. Regardless of whether or not you make any changes, it is important to briefly review your plan every year to make sure it stays on track with your life situation.
  • Succession & Transfer: If you become disabled during your life, your successor trustee (the person you named in your business plan to succeed you) will be able to manage your affairs on your behalf. When you pass away, your trust doesn't die, but lives on to provide for the transfer of your assets in any way or over any length of time that you desire. Children's inheritances are protected from creditors as long as their property stays in the trust as opposed to being owned in their own name (kind of like a corporation or an LLC). My trust by the way, provides that my children's shares will remain in their trusts until they are 40 years old. I've drafted many that gave it all outright, and many that included lifetime trusts for each child. There is no right or wrong way to do it, just find the way that suits your values and your personality.
That's pretty much all there is to it. Trusts are really pretty simple creatures when compared to a well organized business.

Sunday, February 8, 2009

Asset Protection For Your Loved Ones

There are two ways to leave property to your loved ones. You can leave it: (1) Outright; or (2) In Trust.
  • When you leave property outright to your spouse or children, you leave it to them with "no protection" from: Creditors (a lawsuit brought against them or a business partner, a bankruptcy), Predators (a divorce), or Themselves (youth, lack of financial responsibility, etc.).
  • The best way to provide asset protection for your loved ones is to leave your property to them in a trust. These trusts can be structured to be very simple and flexible (leaving the beneficiary with full control), can contain significant detail to accomplish certain legacy goals (such as helping children learn to manage money well by providing them with structured distributions), or do just about anything in between.
  • Trusts can be created through will-based estate planning, or living trust-based estate planning. There are advantages and disadvantages to both types of plans, and a qualified estate planning attorney will assist you with finding the right fit based on your individual situation. The only wrong decision is the decision not to plan.
With a proper estate plan, you can have full control over your assets during life (nothing changes) and give your beneficiaries the gift of asset protection by leaving their property in an ongoing Trust after you pass on.