Estate Planning Practice Blog

Mandatory Trust Allocations.

Ever hear of an A|B Trust? It is a living trust designed to preserve the estate tax exemption amount when the first spouse dies. Without getting into why one might have an A|B Trust, please know that if you *have* an A|B Trust already that when the first spouse dies, the surviving spouse is required to allocate or divide the existing trust assets according to the trust document.

Say the trust document requires that upon the first spouse's death that the trust assets be divided into Trust A and Trust B where Trust A is called the Survivor's Trust and Trust B is called the Exemption Trust. Different trusts call these sub-Trusts different names, but they are the same.

This means following a host of procedures and legal maneuvers to ensure that the  original Trust is  divided into two sub-Trusts. This means that Trust A belongs to the surviving spouse and Trust B belongs to the spouse who died. Trust A is still revocable, but Trust B isn't.  This allocation is mandatory when you read the existing trust document.

It's a complicated thing. This allocation. This division. This A|B Trust. It's hard to explain in a post. The best things to understand are the following:

1. If your estate is worth less than $2 million, which is the current federal estate tax exemption amount, and you have an A|B Trust *and* you and your spouse are alive and well -- it is a good idea to talk to your attorney about restating and amending this Trust to get rid of the A|B component and draft a disclaimer trust that doesn't require this split upon the death of the first spouse. There are caveats though because an A|B Trust works well for blended families.

2. If you have an A|B Trust and have lost your spouse, please see your attorney to determine if an allocation is required and complete the allocation process.

3. If you don't understand how this works, and this post isn't designed to explain it to you, please see your attorney for an in-depth conversation of how these trusts work so you understand.

4. The trust document controls the terms of the Trust and how it works. If you can't sleep, read your Trust and see if it makes sense. Despite the legalese, if you read it -- it just might make sense and you will get it. But in reading it, if you notice something that seems wrong, should be changed or is a mistake outright... see your attorney right away to make the necessary amendments where allowed.

As always, when in doubt, consult with your estate planning attorney.

Obituary Joke.

The newspaper obituary operator received a phone call.

The elderly woman on the other end asked, "How much do funeral notices cost?"

"Five dollars per word, ma'am," came the response.

"Good, do you have a paper and pencil handy?"

"Yes, ma'am."

"Okay, write this:  'Bill died.' "

"I'm sorry, ma'am, I forgot to tell you there's a five-word minimum."

"Hmmph," came the reply. "You certainly did forget to tell me that."

After a moment of silence, the woman continued, "Got your pencil and paper?"

"Yes, ma'am."

"Okay, print this:  'Bill died, Car for sale.' "

Estate Planning In Time.

Estate Planning must be done in time. Meaning before you pass away.

Recently I was called to consult on two cases where the potential clients were diagnosed with the same type of serious cancer.

One person wanted to wait because he was going to fight it. He is still fighting it. He may make it. But he refused to see the value of a power of attorney, at least for his closest friend who happens to be his ex-wife or even the value of doing a trust to capture his home, his boat and his business in case he needs the help managing these assets while fighting the cancer.

Too late is what happened to the other person. After the initial consultation and agreement that estate planning documents were in order, I was poised to have the documents done in a rush and within the week for this person to sign. From exactly a week from when we met, the person died suddenly and so unexpectedly. My heart just reaches out to that person's family. Luckily, since most of the assets were held in joint tenancy, probate should not be much of an issue, but there were other outstanding issues that warranted a need for a Trust.

Consult with your estate planning attorney about getting your estate planning affairs in order.

Sharing the Latest Money Makeover From Delia.

Delia Fernandez is a guest poster on this blog. Her posts are always very thorough and informational on financial matters. Click here to see her other posts.

Delia was featured in last Sunday's Los Angeles Times as the featured planner for a money makeover involving an AIDS survivor.

Delia Fernandez is a guest poster on this blog. Her posts are always very thorough and informational on financial matters. Click here to see her other posts.

Delia was featured in last Sunday's Los Angeles Times as the featured planner for a money makeover involving an AIDS survivor.

Tell Me In 2 Sentences Why I Should Have a Trust.

In an estate planning signing this week, an inquisitive client asked me before he signed his trust -- tell me again in two sentences why I need this.

It was an interesting inquiry.

He understood why, but wanted it boiled down in concrete terms.

My reply was rather long winded. But I did boil it down to two sentences initially.

My "on the spot" two sentence reply: In California, a Trust is important to avoid probate. Probate proceedings in California are costly in terms of attorneys fees and emotional costs to your loved ones.

What would be your two sentence reply? Post a comment!

Delia Says: Packing for a Trip? Be Sure to Pay Your Child Support.

From time to time, Delia Fernandez will author a guest post on our blog. [Disclosure:  There is no express or implied relationship or financial ties between Delia's practice and Tredway, Lumsdaine & Doyle, LLP.]

I just learned that if you are in arrears of child support payments in excess of $2,500, you won’t be issued a passport. And since it will take 2-3 weeks for the Department of Health and Human Services to update their records and notify Passport Services, be sure to take care of this well before your trip. For more details, see this link here.

I want to thank Kate Rupley, one of my students in this quarter’s Survey of Personal Financial Planning class at UCI Extension, for this interesting tip.

Delia Fernandez, MBA, CFP®
Fernandez Financial Advisory, LLC
delia@fernandezllc.com
562-594-4454

How Many Pages Are In A Living Trust?

After meeting with some wonderful clients a few weeks ago, I was asked a slew of questions to see if they wanted to hire our firm to draw up their estate plan. They had a list of questions to ask an estate planning attorney. So they asked me some questions. One that I remember is how many pages is your Living Trust?

It was an interesting question. My answer was it depends on the kind of trust you have and whether we are including trust language for minors, separate share trusts or other special distribution provisions.

A trust for a single person was 29 pages for one I did a few weeks ago. A trust for a married couple with tax saving provisions -- called a three-way marital in attorney lingo -- that I did a month ago was 43 pages.

I wasn't insulted by the question, but I wasn't sure what it measured. So I added to my answer that our firm and our estate planning attorneys are not a trust mill. We don't turn them out by the day. Typically I prepare one estate plan a week with a three to four week turnaround from start to finish if this is what the client wants or we can take even more time if they need to gather more information and think about things after our initial meeting. In between drafting trusts, I handle a variety of probate and other litigation tasks on a day to day basis. We also handle other issues as well such as trust administration and conservatorships.

Knowing the Law and the Issues are Important!

I am simply amazed.

Attorneys will often to talk to each other about interesting or tough issues as they come in their practice areas. Sometimes I get an inquiry from an estate planning colleague about an issue that really makes wonder if they know what they are doing.

A few days ago one attorney asked about estate planning for a non-U.S. citizen spouse and how to handle. He asked if anyone had any samples of trust documents to include for this situation. This question was alarming for a few reasons -- it indicated that the attorney did not have practice area books with sample forms and languages in his office, did not have online access to such forms or samples and could not get the gist of the issue to handle the research on their own without asking on a general forum to all attorneys.

Sure, general forums are helpful for the interesting cases or to talk strategy, but for what I thought was an experienced attorney and has been practicing in a certain area for many years -- some of the basic issue questions can be scary and really show lack of knowledge.

The scarier part is how can a client tell this? As a client, how can you gauge how respected your attorney is? How knowledgeable he or she is? It's a tough one.