Estate Planning Practice Blog

That Home Of Yours? Make Sure It Is In Your Trust.

Time and time again I hear from potential clients inquiring about trust administration of their loved one's estate. It all starts out innocently enough. There's a Living Trust. Great. There's a home. Even better. But is the home in the Living Trust? It has to be deeded or transferred into the home for it to be effectively in the Living Trust.

In other words, the successor trustee, the person nominated to manage the assets, can only manage assets in the Living Trust. If the assets, like your home, are not in the Living Trust, there's no way the successor trustee can manage those assets.

What happens is this... you set up a Living Trust. Your home and other real property are transferred into the Living Trust by a grant deed and recorded with the County Recorder.  And later on, maybe a few years later, you refinance your home, take out an additional construction loan, obtain a reverse mortgage or purchase a new home.

When you do these kinds of financial transactions involving your home, lenders and title companies will take the property out of the Living Trust.

It is up to you to make sure it is back into the Living Trust once the financial transaction involving your home has been completed. This is where most people get stuck. You have to remember to check on this and ensure that the property is transferred back by recording another grant deed.

A Little Humor About Child Custody and Sports Teams.

A funny joke circulating the internet about child custody. Be sure to insert your favorite losing sports team at the end.  Read this and you will see what I mean.

A seven-year-old boy was at the center of a Boston courtroom drama yesterday when he challenged a court ruling over who should have custody of him. The boy has a history of being beaten by his parents and the judge initially awarded custody to his aunt, in keeping with child custody law and regulations requiring that family unity be maintained to the degree possible.The boy surprised the court when he proclaimed that his aunt beat him more than his parents and he adamantly refused to live with her.  When the judge then suggested that he live with his grandparents, the boy cried out that they also beat him.

After considering the remainder of the immediate family and learning that domestic violence was apparently a way of life among them, the judge took the unprecedented step of allowing the boy to propose who should have custody of him. 

After two recesses to check legal references and confer with child welfare officials, the judge granted temporary custody to the Boston Red Sox, whom the boy firmly believes is not capable of beating anyone.

Naming Charities In Your Estate Plan.

Ever watch a telethon on public broadcasting television like PBS or KCET? Ever hear a pitch from a local hospital about leaving a legacy? Charitable giving is something you can pursue with your estate planning attorney and the charity to leave a gift of your choosing.

The easiest way to implement charitable giving as part of your estate plan is a charitable bequest.

Charitable bequests are testamentary gifts made through a will or other estate planning device like a trust. This planning may provide significant estate and gift tax benefits. Charitable bequests take on many forms depending on the intent of the donor.

The most common form is an outright bequest of virtually all kinds of property (stocks, bonds, real property, and royalties) listed in an estate plan to be given upon the death to the charitable organizations of your choosing.

Other strategies for charitable bequests can take many forms including these described below.

Percentage bequest used to carry out decedent’s wishes. Say you have a current estate of $1,000,000. Rather than a dollar amount, a percentage bequest, say 30%, would allow for participation in estate growth or depletion.

Specific bequest for a particular item or items of property. "I bequeath 1,000 shares of IBM stock to my Hospital."

Conditional bequest is where “I give X, providing the Hospital builds a building with my name on it.” This type of gift may cause problems. They are deductible only if, at the time of the decedent’s death, "the possibility that the bequest will fail is so remote as to be negligible."

Finding An Attorney In Your Area.

If you need to locate an attorney in your area, one good resource is to look at the Solosez 411 directory.

Solosez is the name given to an email group of solo and small firm legal practioners across the United States and even other countries.  This email group receives alot of daily traffic in the upwards of 150 to 200 messages per day on various legal and other newsworthy topics.

As a member of Solosez, I have gotten to know and trust many attorneys across the country in various practice areas.  When I need a referral, I look to Solosez 411 directory first. Now you can too.

Who Needs A Living Trust?

I can almost say that all property owners in California need a Living Trust without any exceptions. But what if you do not own property in California?

Do you need a Living Trust? Maybe.

If you are single, have no children and do not own property in California -- at first glance you probably do not need a Living Trust.

Your assets will have a payable on death feature or beneficiary designations for you to transfer bank accounts, retirement accounts and life insurance policy death benefits to your loved ones upon your death. This is usually sufficient and will only require a Will to name who should manage your estate and get your personal belongings. Yes, a Will goes through probate, but only if your estate is worth more than $100,000. To recap, if your assets have beneficiaries designated and your other assets are not worth more than a $100,000 -- you might squeak by with no estate planning documents. Cool.

But say you are working for a Fortune 500 company. You have significant retirement savings, a nice executive life insurance policy and stock options. Sure, you don't own property. So at first glance, you would think you do not need a Living Trust.

But what if you want to give your entire estate to fund your three favorite nieces' college education? What if you want to hold your money in trust until the nieces collectively reach age 30 before making a final distribution of your assets? This would be a perfect reason to set up a Living Trust even though you do not own a home, not married or have no kids.

Entity Formation as a Form of Asset Protection.

Yesterday I posted about umbrella liability insurance policies as being a good start towards a complete asset protection strategy. Today's post deals with entity formation as another measure of asset protection.

The most commonly used entity formations including corporations, limited partnerships and limited liability companies. Entity formation can offer some degree of asset protection. 

A corporation can protect personal assets from a business liability. Personal assets of a shareholder in a corporation are not subject to liabilities arising from the corporation. However, for many small business owners who form corporations, the business owner still signs contracts, loans and other documents stating that he or she will be personally liable if the corporation cannot absorb the liability.

A limited partnership is a partnership formed by two or more persons and having one or more general partners and one or more limited partners. The asset protection features of a limited partnership include protection of limited partners from liability for the business. The general partner remains liable. Also, creditors may be restricted from touching the partnership assets for a debt of a limited partner. The creditor can only stand in the shoes of the limited partner and receive whatever distributions a limited partner is entitled to receive. The creditor puts him or herself at risk because it can be liable for income taxes on the partnership income even though no distributions have been made. A limited partnership agreement must be properly drafted to afford this type of asset protection.

A limited liability company is very similar to a limited partnership except that there is no general partner and all members have limited liability. The type of asset protection offered is similar to that of a limited partnership. The major difference is that a general partnership in a limited partnership is personally liable. A limited liability company has a different taxation structure so to consider forming this type of entity, taxation matters should be considered.

Two Truisms.

Yesterday I was one of three presenters at Lorman's Top 10 Estate Planning, Wealth Preservation and Asset Protection Techniques seminar hosted downtown Long Beach. As I was speaking, one of the other presenters wrote down two truisms for my pleasure when I returned to my seat:

1. The only uncontested divorce case is a probate case.

2. In a divorce case, the parents fight about the kids. In a probate case, the kids fight about the parents.

How about that!

How About Insurance First?

Asset protection is always a hot topic. It's very dynamic too as the legislature is trying to get one step ahead of current asset protection techniques. But before  getting into asset protection protection measures, clients must be counseled that having adequate insurance coverage is the best form of asset protection. 

This includes insurance for real and personal property, vehicles, umbrella insurance policies, malpractice insurance, commercial and other business insurance policies. 

Clients should discuss with their insurance agent or company whether their assets are covered and specifically add other assets needing coverage.

An umbrella liability insurance policy gives added liability protection beyond the limits on homeowners and other vehicle personal insurance policies.  Umbrella policies typically add an additional one to five million dollars in liability protection designed to come into force when the liability on other current policies has been exhausted.  

From personal experience, umbrella liability insurance premiums are very inexpensive considering the amount of insurance coverage added.  Further, in most cases, umbrella liability insurance covers non-business related activities wherever they may occur.

Homesteads Redux.

I've posted about homesteads before, but I thought I'd blog about it again as it is really an interesting concept.

Homestead exemptions refer to the protection given against a home from creditor claims. Some states have very generous homestead exemptions including Florida and Texas.

In California, every homeowner has an automatic homestead exemption of at least $50,000 for his or her residence. This protection does not require the signing or filing of any papers or documents.

The amount of the exemption increases to $75,000 if at least one member of the family unit living in the house owns no interest in the house, as, for example, when a homeowner lives with his or her minor children. If a homeowner is 65 years of age or older, or is physically or mentally disabled, the amount of the exemption is $150,000. The $150,000 exemption also applies to persons 55 years of age and older if the person is (1) single and has a gross annual income of not more than $15,000, or (2) married and the individual and his/her spouse have a combined annual income of less than $20,000, and the sale is involuntary. See the code here.

Homesteads can also be declared by filing a one-page document in the County Recorder where the property is located, but this does not offer added protection in California.

Because California offers a limited exemption, a creditor can force the property be sold to satisfy the debt.

Asset protection could include moving to a more favorable homestead exemption state. Texas and Florida both offer a more generous homestead exemption and can become a part of a client’s asset protection planning.

Florida exempts the entire value of the primary residence, whether a condo, mobile home or single family home, as a homestead from a forced sale by creditors both during the lifetime and after death of the Florida real property owner. Florida defines homestead as one’s principal place of residence up to one-half acre within a municipality and up to 160 contiguous acres in any county in Florida. See Florida Statute Sections 222.01 and 222.05. 

It Is The Same No Matter How Old You Are.

Divorce is part of my practice as well as estate planning. I share my divorce practice with my law partner, Michelle Drake. But when it comes to estate planning, no one else handles that aspect including client interaction and preparing documents. Anyway, back to divorces...

I met a rather nice young lady yesterday. I also met a rather nice older lady today. The young lady was about 29. The older lady was 84. They were both meeting with me with regarding their rights in filing for divorce.

The young lady complained that her husband, drank, smoked and was having an affair. She also said he was verbally abusive.

The older lady complained that her husband drank, gambled, had too many women in his time. She also said he was very verbally abusive.

They also both spoke of that other woman...

Some things never change, eh? Interesting that their similarities were so striking despite their 50 plus year age gap.