Articles Posted in ESTATE PLANNING

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It is estimated that 70% of Americans make charitable donations in some form. It could be yearly donations to their favorite charities or it could be in the form of making a charity the beneficiary of their trust. American Association of Retired Persons (AARP) has some tips for donating to charities:

1. Avoid scams. If you are called on the phone by a charity, ask that they send you printed material so you can authenticate their organization. Be cautious about email solicitations and be aware of names that may sound like charities but in fact are not. If you want a gift to be tax deductible, make sure the entity is a qualified charity you can claim as a tax deduction. Never provide a credit card over the phone unless you have initiated the call. Checks are preferable rather than a credit card and dont use cash.

2. You can get information about a charity such as how much of your donation will go to administrative and marketing costs and how much to the charity’s purpose. In general reputable charities spend less than 35% on administrative costs. Two websites that review charities are Guide Star and Charity Navigator. Charity Navigator evaluates the financial health of over 5500 charities according to organization efficiency and organizational capacity as well as listing their annual revenue and what they spend their donations on.

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A prenuptial agreement is a written contract that is created by two people before marriage. Prenuptial agreements are on the rise according to divorce attorneys. 73% of divorce attorneys report that in the last 5 years, there has been a steady rise in prenuptial agreements. 52% of such attorneys founnd that there is a noticeable increase in women requesting a prenuptial agreement, not because of the woman wanting to protect her assets but because the woman wants to avoid her husband’s debt. With the recession leaving many people in debt, potential spouses want to avoid any possible financial obligation. There is also the issue of one of the spouses inheriting a large sum of money.

Trying to avoid a partner’s debt was not the case for actress Hilary Duff and her hockey player fiance Mike Comrie who signed a prenuptial agreement. Mike makes about $500,000 a year; Hilary is said to have a net worth of $25 million however Mike’s father, Bill Comrie, founder of The Brick, apparently is worth $500 million. Other celebrities who have prenuptial agreements are Nicole Kidman and Keith Urban whose agreement says Keith doesn’t get a penny if he uses illegal drugs. Michael Douglas and Catherine Zeta Jones and Martin Sheen and Denise Richard’s pre-nups both have provisions in case the husbands cheated.

Many financial planners advise that couples who have significant assets going into the marriage consider a prenuptial agreement as part of their estate plan. Such an agreement usually specifes the assets each person has coming into the marriage as well as what debt each are bringing into the marriage. In California everything that is earned or bought after marriage is presumed to be community property. A prenuptial agreement can provide for a different outcome. Other reasons to consider a prenuptial agreement can be to pass separate property to children from a prior marriage, to specify how debt should be handled, or to clarify what will occur in case of a divorce.

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If you are a client of a lawyer who dies, what happens to your file and the money that you may have in the attorney’s client trust account? Many attorneys keep their client’s original estate planning documents in their fireproof safe at their office. Maybe you are in the middle of having your matter handled and the attorney suddenly passes away. What do you do?

Currently what happens is that if a lawyer dies or becomes incapacitated and hasn’t made any arrangement for someone else to take over his or her practice, the State Bar can seek an order from the Superior Court to take over the lawyer’s files and return the files to the clients along with any funds that were being held in the clients’ trust account.

The State Bar has recently drafted a sample agreement available to all lawyers which allows a lawyer to designate a successor and sets out the responsibilities of the primary attorney and the successor attorney to take over the practice. The agreement provides that the successor attorney will go to court to be designated as the successor who can take over the practice. The responsibilities include the power to open mail, become a signatory on bank accounts, notify clients, transfer files, handle client trust accounts, and sell the practice. The agreement also provides that clients be notified by mail that a successor attorney has been designated.

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Many trusts created by married couples provide for the splitting of the trust into 2 subtrusts after the death of the first spouse. These types of trusts go by a variety of names: A/B trust, marital exemption trust, by pass trust, or disclaimer trusts. In these types of trusts, the joint assets must be allocated between the trust for the decedent and a trust for the surviving spouse or in the case of a disclaimer trust, a disclaimer must take place within nine months of the date of death.

Often the surviving spouse does not administer the trust after the death of his or her spouse for a variety of reasons. The surviving spouse may not want to go to the expense of paying attorney’s fees or it may be that the surviving spouse is not aware of the duty to do something after the first death. Whatever the reason, the delay in administering the trust can cause problems especially if the delay has been substantial.

Such a trust is called a “stale” trust. One of the problems that can occur with a “stale” trust is tax consequences. Often trusts that split into two trusts upon the death of the first spouse are created in order to take advantage of the federal tax exemption for estate taxes. Assets that are appreciating are usually allocated to the trust for the deceased spouse. If the trust is not split, there may be an important tax saving lost. Another problem with a “stale” trust may be the remainder beneficiaries instituting litigation because of the lack of funding of the decedent’s Trust at the time of the first death.

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If you have a revocable living trust, there may be questions that you have about the funding and operation of your trust. Here are a few frequently asked questions about your trust once it is in place.

1. How do I re-title assets into the name of my trust? If you are single, you are the sole Trustor (also called a Settlor) and the sole Trustee. To transfer your assets into your trust, you need to re-title the assets into your name as Trustee of your trust. As an example, if your trust is called the John M. Smith Trust dated 2/25/10, you would transfer the assets into the name of the John M. Smith Trust dated 2/25/10. If you are married, your trust might be called the John M. and Sally S. Smith Trust or maybe the Smith Family Trust. You will re-title your assets to John M. Smith and Sally S. Smith, Trustees of the Smith Family Trust dated 2/25/10. With bank accounts, the easiest way to take care of transferring your accounts is to go personally to the bank and advise them that you have a trust and want your accounts in the name of your trust. Other assets such as mutual funds, stocks and bonds, etc. can be re-titled by contacting the company or your broker to complete the necessary paperwork. Real property that you owned at the time you created the trust should be transferred into your trust by the attorney creating your trust, but if you acquire additional real property, remember to transfer it into your trust by a deed recorded with the county recorder.

2. Do I have to transfer all of my assets into my trust? It is not necessary to title all of your assets in the name of the trust. Some examples of property that is not usually titled in the name of your trust are automobiles, life insurance policies, and retirement plans. You also might own real property or other assets in joint tenancy with other individuals which you want to keep titled in that manner.

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A probate conservatorship often becomes necessary when an individual cannot take care of himself or handle his own finances. A petition has to be filed in the San Diego Probate Court, usually by a family member, seeking to become a conservator of the person or the estate. The conservator of a persons makes decisions about where the conservatee will live, health care, food and recreation. A conservator of the estate is the individual handling the financial affairs of the conservatee. Establishing a conservatorship is costly, sometimes contentious, and often not necessary.

There are several ways that a conservatorship can be avoided. One way a conservatorship can be avoided is to create a living trust. When you create a revocable living trust, you designate someone to act as successor trustee of your trust if you become incapacitated. You also execute a durable power of attorney and health care documents which designate someone you trust to act as your agent in case of incapacity. Even if you don’t have a trust, you should obtain a durable power of attorney and health care directive. Young adults, newly married individuals, and anyone else that can’t afford a trust or doesn’t have the assets to warrant a trust, should at least execute these two documents. These documents prepared in advance of any incapacity, can avoid court intervention.

If the only reason a conservator is needed is for a family member to have access to social security, disability benefits, etc. a family member can ask the agency to allow them to act as a representative payee and therefore a conservatorship is not needed. Federal agencies which allow this to be done are the Social Security Administration, VA, and Dept. of Defense. You must explain why a payee representative is necessary and provide a doctor’s statement explaining the incapacity.

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Some people think they do not have enough assets to need estate planning. The truth is even with a small to moderate estate, you may need an estate plan (will or trust) just as much as a wealthy person. An estate plan is a program for the distribution of your assets upon your death as well as planning for any periods of incapacity. It is also about having individuals designated to take care of your minor children should something happen to you. Planning for end of life decisions and financial planning are also concerns of estate planning.

Here are some aspects of estate planning that are important regardless of the size of your estate:

1. Protecting minor beneficiaries. This is a critical aspect of estate planning if you have minor children. If your minor child inherits assets from you without a will or a trust, it will be necessary for someone to petition the probate court to be appointed guardian of the child’s estate and a guardian of the child’s person. By having a revocable living trust, you can specify who should manage the child’s inheritance and how distributions should be made. You can stretch out the distributions over a number of years rather than have the child receive their inheritance at age 18.

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The Wall Street Journal recently reported that as many as 1/3 of American households have not taken out life insurance personally and are not covered at work. Life insurance can be an important tool in estate planning. There are several ways in which life insurance may play a role in your estate plan.

One of the ways life insurance can be used is to provide immediate cash so that the debts of the decedent can be paid; funeral or burial costs covered; and costs of administration paid. Insurance proceeds keep trust assets from having to be liquidated right away in order to pay these expenses.

If the decedent was in a partnership or small business, often special life insurance policies called “Key Man” or “Key Person”policies can be useful. Such insurance is insurance on the owners,partners, or other key people to cover such expenses as lost revenue, hiring a new person, or buying out the decedent’s interest in the company.

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Remember when hotel magnate Leona Helmsley left $12 million to her dog Trouble? It’s happened again! The late Miami heiress Gail Posner who recently died in Miami left $3 million to her dog Conchita and 2 other dogs who will live in her 7 bedroom $8.3 million mansion cared for by housekeepers, bodyguards, and other staff members who themselves were left a total of $26 million. Mrs. Posner’s son Bret received a mere $1 million. He has challenged the trust alleging undue influence and fraud on the part of the staff memers and the attorney who drafted the trust.

If you want to provide for your pet after your death, there are several ways you can do it with a lot less money. The most common way is to leave a designated amount to a friend or family member to care for your pet. This would be a non-enforceable bequest so you need to be sure that the person you choose will follow through. You could also leave a monetary gift to a charity that will keep your pet for a fixed fee. Apet trust is another way to provide for a pet and it is enforceable by the court. You leave a certain amount of money or percentage of your estate to fund a pet trust for your pet(s). The trust is enforceable by a person named in the trust or by a person appointed by the probate court, any other person interested in the welfare of animals, or a nonprofit charity who cares for animals. The pet’s care is taken care of and after the pet dies, there are remainder beneficiaries who inherit the balance of your estate.

Often clients care as much about their pet as they do about the rest of their personal property. We can draft provisions for your pets in your own revocable living trust or we can create a “stand alone” trust for your pets. Contact us at Scott C. Soady, A Professional Corporation for a complimentary consultation.

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If someone dies without a will or a trust, they are said to have died intestate. According to the Probate Code sections on intestacy ( Sections 6400 et seq.), that person’s estate will be distributed to the persons specified in the Code. For example, if you die without a will and have a spouse and children, your estate will be distributed to them. If you have no spouse or children, it will go to your parents. If your parents are deceased, then it will go to your brothers and sisters, and on down the line until a relative is found.

But what happens if no heirs can be found? If someone dies with no living relatives, their assets will go the State of California who will auction off the property. Personal property is usually auctioned in the county where the decedent died. An interesting article in the LA Times recently told about the auctions held there several times a year. They are held in the City of Industry in the L A area. Huge crates contain the personal property divided into various categories.

Some of the interesting articles that have gone to auction include a 200 year old German violin, autographed memorabelia from the drummer for the rock bank Buffalo Springfield, classic Batman comics, and artwork claimed to be by Picasso. Sometimes the property which goes to the State can be of significant value. LA county had to dispose of an approximately $3.5 million estate, including homes in Malibu and Palm Springs, and a Rolls Royce alledgedly belonging to a Persian princess.

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