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Why a Spendthrift Trust Can Be a Great Solution for Your Heirs

Why a Spendthrift Trust Can Be a Great Solution for Your Heirs

There are many tools that can be used when putting together your estate plan. One such tool is a trust.

A trust is a fiduciary arrangement, established by a grantor or trustor, which gives a third party (known as a trustee) the authority to manage assets on behalf of one or more persons (known as a beneficiaries). Since every situation is different, there are different types of trusts to ensure the best outcome for each beneficiary. One type of trust, known as a spendthrift trust, is commonly used to protect a beneficiary’s interest from creditors, a soon-to-be ex-spouse, or his or her own poor management of money. Generally, these trusts are created for the benefit of individuals who are not good with money, might easily fall into debt, may be easily defrauded or deceived, or have an addiction that may result in squandering of funds.

Spendthrift Trust Basics

Put simply, a spendthrift trust is for the benefit of someone who needs additional assistance managing or protecting his or her money.

The spendthrift trust gives an independent trustee complete control and authority to make decisions on how the funds in the trust may be spent and what payments to or for the benefit of the beneficiary are necessary according to the trust document. Under a spendthrift trust, the beneficiary is prohibited from spending the money before he or she actually receives distributions. These restrictions prevent the beneficiary from squandering their entire interest or having it garnished by the beneficiary’s creditors. The trustee controls the assets in the trust, including managing and investing the funds, once the trust is made irrevocable. Most trusts become irrevocable after the grantor has passed, but some are irrevocable from the start.

Creating a Spendthrift Trust

A spendthrift trust is created essentially in the exact same manner as any other trust. However, the vital difference of a spendthrift trust is that the trust instrument must contain the right language to invoke the law’s protection. A knowledgeable estate planning attorney like myself can provide guidance on how to best structure this provision, so it meets your family’s needs.

Like any trust, the benefits of a spendthrift trust can help avoid the delay and expense of probate as well as provide tax benefits and peace of mind. Of note, there are several states that limit a grantor from naming his or herself as a beneficiary under a spendthrift trust for the purposes of avoiding creditors.

Estate Planning Help

Creating a spendthrift trust is invaluable because it can give you peace of mind that your loved ones will be taken care of after your passing. If you are considering creating a spendthrift trust, or have any other estate planning questions, contact me today to explore your options.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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What is a Trust?

What is a Trust?

A trust is a legal creation set up to benefit someone or something. For example, some people set up trusts to benefit their children, their grandchildren, or even charities. It is easiest to understand if you think about three separate people being involved.

One person, called the grantor, funds the trust somehow, by placing money or other assets into it. Any type of asset may be used, such as money, bank accounts, cars, and even real estate.

The second person, who is known as the trustee, agrees to manage the assets. Once the assets are in this legally created trust, the trustee holds title to the assets. The third person, who is known as the beneficiary, receives the benefits of the trust. For example, the benefits might include interest paid on money in the trust, a monthly allowance, or even a place to live.

The use of trusts as a planning tool can provide many benefits, including the following:

  • Avoiding the formal probate process associated with transferring property using a will;
  • Protecting assets from creditors;
  • Caring for those who cannot care for themselves, such as minor children or those with special needs; and
  • Reducing tax liability.

Although it may seem confusing, a trust can even be set up to benefit the person who puts the assets into the trust. In other words, while there are three roles to be played, each role does not have to be played by separate and distinct people. One person can serve in more than one of the roles.

For instance, a person may place assets into a trust, select someone else to manage those assets, and then receive the benefits himself. To take that example one step further, the person who is both the grantor and the beneficiary could even be the trustee if the circumstances suited such a scenario.

How a trust is drafted and who plays each of these three roles depends on the goals of the person setting it up. Call my office today to schedule a Family Wealth Planning Session, where I can explain trusts further and help identify the best strategies for you and your family.

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Can I Benefit from a Reverse Mortgage?

Can I Benefit from a Reverse Mortgage?

It seems that we can’t turn on the television or radio without hearing an ad for a “reverse mortgage.” So what is a reverse mortgage exactly, and who can benefit from using one?

A reverse mortgage is a type of loan taken out against your home. With a reverse mortgage (as with a traditional mortgage) you are borrowing against your home equity which is the difference between your home’s market value and the amount you owe on your mortgage. The difference in a reverse mortgage is that you do not have to pay it back while you are alive. Instead, the loan is paid off after you pass away.

What Are Some of the Benefits of a Reverse Mortgage?

Reverse mortgages can be a fantastic tool, depending on your goals. They can provide additional income and improve your cash flow, particularly if you have already paid off your home. Here are some reasons to consider a reverse mortgage:

  • They can help you maintain your financial independence by providing additional income;
  • They can allow you to stay in your home until you die;
  • For most people, the risk of default is low; and
  • They are not taxed.

One of the best things about a reverse mortgage is that the amount paid back will not exceed your home’s value.

What Are Some of the Disadvantages of a Reverse Mortgage?

As with any financial tool, reverse mortgages are not for everyone or every situation. Before you decide to take out a reverse mortgage on your home, you should consider the following potential disadvantages:

  • Interest costs are higher because you are making no payments;
  • The amount paid back after your death will cut into the estate left for your family or heirs; and
  • Because they are based on a formula, the amount you can borrow is lower than with traditional home equity loans.

Reverse mortgages can also be complicated and rather difficult to understand.

The bottom line is this: A reverse mortgage is one financial tool you can use to achieve your goals. However, before you commit to a large loan, you should make sure you understand all aspects of the loan. If you are not sure whether or not a reverse mortgage is right for you, talk with a trusted financial adviser or attorney.

This article is a service of Tara Cheever, Personal Family Lawyer.® I believe in developing trusting relationships with families for life. That’s why I offer a Family Wealth Planning Session,™ where I can explain financial management techniques and help identify the best strategies for you and your family. Normally, a Family Wealth Planning Session™ is $750, but when you mention this article and are one of the first three families to book an appointment this month, I’ll waive that fee. Call now to get started!

 

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Planning for the Future (Without a Crystal Ball)

Planning for the Future (Without a Crystal Ball)

Creating a will, trust, or any type of estate plan has always involved dealing with an uncertain future. Consider that just 20 years ago in 1997, the estate tax had an astonishing 55% rate with only a $600,000 exemption. Back then, tax-driven estate planning was a mathematical necessity for a large segment of the population.

Fast forward to 2017. Not only do we now have a generous $5.49 million exemption and a lower 40% rate, we also have renewed emphasis and action from the President and Congress on repealing the estate tax, as evidenced by the September 27, 2017 Unified Framework for Fixing Our Broken Tax Code. So what does this mean for you, as you’re planning for the future?

Estate Tax Repeal Means No Need to Plan…Right?

Nothing could be further from the truth! Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.

And, for those with high net worth, it’s also worth mentioning that estate tax repeal isn’t a foregone conclusion at this point either. The Unified Framework still must be crafted into legislation that must pass both houses of Congress and then be signed by the President. Given the political division the country faces (and the likely stiff opposition to the President’s tax proposal from Congressional Democrats), this will be no small feat.

While we wait for Congress to act on the Unified Framework, it’s also worth noting that the estate tax was already effectively repealed for more than 99% of American estates when the exemption was raised to $5 million (and indexed for inflation) in 2010. The vast majority of estates fall below this threshold and need no special planning to avoid the estate tax. But don’t think you’re out of the woods because you have less than $5 million.

Today, the focus of estate planning has shifted away from death taxes to other concerns that affect most families. Estate planners, like me, can now work with you to protect you and your family against costly, public probate, guardianship, or conservatorship court proceedings and also further your legacy goals.

You might be worried about some of these things happening to your family:

  • A financially irresponsible child or grandchild wasting their inheritance simply because they lack the financial maturity to handle wealth.
  • A divorcing spouse of one of your heirs taking advantage of family wealth.
  • Family discord lurking under the surface that tears your family apart, especially after the death of the patriarch or matriarch.
  • A lawsuit, judgment, or bankruptcy that causes your family to lose their inheritance.
  • Alzheimer’s or another cognitive impairment affecting you or someone else in your family.

Luckily, I have well-developed, flexible legal strategies (such as lifetime trusts, standby special needs trusts, and robust incapacity planning, to name a few) for overcoming these issues. Although estate planning can’t necessarily repair a damaged family relationship, proper planning can help make sure it does not get any worse. But these strategies only work when we have a chance to work with you to implement or refresh your will, trust, and estate plan.

So, there’s no crystal ball. Where should I go from here?

According to WealthCounsel’s 2016 Estate Planning Literacy Survey, about 74% of Americans find estate planning to be a confusing topic. So, you’re not alone if you’re unsure about your next steps. I’m here to help.

If you don’t yet have a will or trust, now is the time to explore getting one. If you have an “old” will or trust, now is the time to talk with me about whether you need an update. Modern families need modern estate planning solutions, and I am ready to help you create a flexible estate plan that works now, and will work in the future, even if the current tax laws change (even though no one has the proverbial crystal ball).

This blog is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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New Baby? Time to Create Your Estate Plan

New Baby? Time to Create Your Estate Plan

Estate planning is often one item that gets pushed back on nearly everyone’s to-do list. The reasons you might be delaying vary: lack of time, not thinking you have enough assets, not knowing how to start, or fear of contemplating death. Whatever the reason for not putting an estate plan together, it is important to understand that if you just had a baby or have minor children – now is the time to meet with me to implement an estate plan.

In general terms, an estate plan is a set of legal documents that outline your wishes on how your assets should be distributed and who is responsible for your dependents, in the event of your death or legal incapacity. An estate plan should be developed with a qualified estate planning attorney to ensure that it will work as intended and fully protect your family. Here’s how an estate plan can you protect the newest addition to your family.

Protect Your Children

Perhaps to top reason to put together an estate plan is to dictate who will care for your children in the event you and your spouse die early or become legally incapacitated and therefore unable to care for your kids. Your estate plan can designate someone you trust and who shares your values as a guardian of your minor children.  This is the person who will essentially be a surrogate parent and raise the children through adulthood. When selecting a guardian, it is important to choose people who will be willing participants in your estate plan, who share your values and parenting philosophy, and who you trust to raise your children.

Distribute Your Things

While some assets have purely financial value, others have deep emotional attachments. Not only will a properly funded trust-based estate will eliminate probate, it will promote family harmony and save time and money. As you may already know, probate is the court-supervised process of wrapping up a deceased person’s affairs. This consists of multiple steps, including presenting a deceased’s last will and testament (if they had one – otherwise the probate court uses the government’s default plan known as intestacy), gathering assets, paying off debts, and distributing what’s left over to the deceased’s heirs.  Essentially, a probate proceeding is a lawsuit against the estate for the benefit of the creditors.  Using a trust to provide specific instructions on distribution of assets can help ward off fights among surviving relatives and will keep your affairs private.  Additionally, special features in your trust, sometimes called lifetime trusts, also allow you provide long-term financial stability and support for your children. These lifetime trusts can prevent a financially immature young child from using up their inheritance.

Provide for Your Loved Ones

Beyond your children, creating an estate plan will inform your loved ones what final health care decisions should be made on your behalf in the event you become incapacitated and are unable to make decisions. Serving as healthcare proxy is an enormous responsibility for the person you name, but you can help lessen the burden by communicating your wishes about medical decisions. One significant advantage of properly planning is that your intentions can be clearly stated so that your surviving family members do not have to guess what your desires are.

Complete your Estate Planning

If you have experienced a recent life-event – such as a new baby, a work promotion, purchasing a home, moving to a new state, or any other milestone – you should discuss your situation with me, your Family Business Lawyer. If you already have a will or trust in place, it may make sense to update it to ensure it provides for your family and loved ones and ensure that your Trust is properly and fully funded, which is the legal term for transferring assets into you Trust.  To learn how estate planning can protect you, your newborn, and the rest of your family, contact me today.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

 

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The Perils of Joint Property

The Perils of Joint Property

People often set up bank accounts or real estate so that they own it jointly with a spouse or other family member. The appeal of joint tenancy is that when one owner dies, the other will automatically inherit the property without it having to go through probate. Joint property is all perceived to be easy to setup since it can be done at the bank when opening an account or title company when buying real estate.

That’s all well and good, but joint ownership can also cause unintended consequences and complications. And it’s worth considering some of these, before deciding that joint ownership is the best way to pass on assets to your heirs.

So let’s explore some of the common problems that can arise.

The other owner’s debts become your problem.

Any debt or obligation incurred by the other owner could affect you. If the joint owner files bankruptcy, has a tax lien, or has a judgment against them, it could cause you to end up with a new co-owner – your old co-owner’s creditors! For example, if you add your adult child to the deed on your home, and he has debt you don’t know about, your property could be seized to collect that debt. Although “your” equity of the property won’t necessarily be taken, that’s little relief when the house you live in is put up on the auction block!

Your property could end up belonging to someone you don’t intend.

Some of the most difficult situations come from blended families. If you own your property jointly with your spouse and you die, your spouse gets the property. On the surface, that may seem like what you intended, but what if your surviving spouse remarries? Your home could become shared between your spouse and her second spouse. And this gets especially complicated if there are children involved: Your property could conceivably go to children of the second marriage, rather than to your own.

You could accidentally disinherit family members.

If you designate someone as a joint owner and you die, you can’t control what she does with your property after your death. Perhaps you and an adult child co-owned a business. You may state in your will that the business should be equally shared with your spouse or divided between all of your kids; however, ownership goes to the survivor – regardless of what you put in your will.

You could have difficulty selling or refinancing your home.

All joint owners must sign off on a property sale. Depending on whether the other joint owners agree, you could end up at a standstill from the sales perspective. That is unless you’re willing to take the joint owner to court to force a sale of the property. (No one wants to sue their family members, not to mention the cost of the lawsuit.)

And what if your co-owner somehow becomes incapacitated, through accident or illness? In that case, you may have to petition a court to appoint a guardian or conservator to represent the co-owner’s interest in the sale. While you and your co-owner always worked together, an appointed guardian may see his responsibility as protecting the other owner’s interest–which might mean going against you.

You might trigger unnecessary capital gains taxes.

When you sell a home for more than you paid for it, you usually pay capital gains taxes–based on the increase in value. Therefore, if you make an adult child a co-owner of your property, and you sell the property, you’re both responsible for the taxes. Your adult child may not be able to afford a tax bill based on decades of appreciation.

On the other hand, heirs only pay capital gains taxes based on the increase in value from when they inherited the asset, not from the day you first acquired it. So often, while people worry about estate taxes, in this case–inheriting a property (rather than jointly owning it) could save your heirs a fortune in income tax. And with today’s generous $5.49 million estate tax exemption, most of us don’t have to worry about the estate tax (but the income tax and capital gains tax hits almost everyone).

You could cause your unmarried partner to have to pay a gift tax.

If you buy property and place it in joint tenancy with an unmarried partner, the IRS will consider that to be a taxable gift to your partner. This can create needless paperwork and taxes.

So what can you do? These decisions are too important and complex to be left to chance.  Contact me, a Family Business Lawyer like myself who specializes in estate planning.  I will help you decide the best way to manage your property to meet your needs and goals.

I can assist you in planning to reduce estate taxes, avoid potential legal pitfalls, and set up a trust to protect your loved ones. I understand not only the legal issues but the complex layers of relationships involved in estate planning. I’ll listen to your concerns and help you develop a plan that gives you peace of mind while achieving all of your goals you have for your family. Contact me and mention this blog article and I can share with you how to obtain a Life & Legacy Planning Session valued at $750 free of charge.

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Do I really need an Estate Plan?

Do I really need an Estate Plan?

It is often a misconception that only the ultra-wealthy have an estate, which requires planning.  In fact, virtually anyone who owns anything has an “estate” in the eyes of the law. Although the term may conjure images of expansive country properties, expensive cars, or other symbols of high wealth, for the purposes of estate planning law, the term “estate” covers a whole lot more.

What constitutes as an estate

Ordinary possessions like homes, jewelry collections, bank accounts, cars, furniture — basically anything you can own — are also under the purview of your estate, meaning estate planning is something that profoundly impacts virtually everyone.

So even if you wouldn’t ordinarily consider yourself the owner of an estate, it’s quite likely that you are. The answer to the question “I don’t have an estate. Do I really need an estate plan?” is, “Yes, virtually everyone who owns property could benefit from estate planning.” Plus estate planning covers more than just property, too: It’s also about ensuring someone you trust can make critical medical and financial decisions for you if you’re unable to do so due to incapacity.

4 key advantages of estate planning

Estate planning may seem overwhelming, but it doesn’t have to be – you are not alone. I know what it takes to create a comprehensive estate plan tailored to your exact needs and can make the process easier for you. Here are the core tenets of what’s involved in estate planning and how you stand to benefit from the process:

  1. It allows you to remain in complete control of your property while you’re still alive and well.
  2. It helps you provide for yourself and your loved ones if you become incapacitated or disabled – without expensive and distracting court hearings.
  3. It minimizes the impact of professional fees, court costs, and taxes.
  4. It provides a framework so you can give what you have to whom you want, the way you want, when you want.

Are you ready to sit down with a qualified estate planning attorney to see how you can ensure a better future for yourself and your family? There’s no time to waste — the sooner you take stock of your estate and get critical documents like wills and trusts completed, the better. Give me a call today to find out how I can keep your health and wealth in the right hands for good.

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How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

Parents who develop an estate plan often do so to provide for their heirs financially. Many want to make sure hard-earned assets, family heirlooms, or closely held businesses stay within the family. Indeed, a common question is what cost effective options are available to protect one’s child’s inheritance from a spouse in the event of untrustworthiness or divorce. Thankfully, there are many ways to structure your child’s inheritance to help ensure it will remain in the family for future generations. Let’s look at a few of the options now.

Create a Trust

A trust involves three parties: (1) the person creating the trust (you might see this written as the “settlor,” “trustmaker,” or “grantor.”), (2) the person or entity holding the trust property for the benefit of the beneficiary, known as the “trustee”, and (3) the person(s) that benefit from the creation of the trust, known as the “beneficiaries.” Choosing a trustee who is independent can be a great way to eliminate any arguments that one beneficiary has more control to receive assets than what is actually provided in the trust documents than other beneficiaries, a helpful situation when you have an untrustworthy son- or daughter-in-law.

A lifetime trust is a type of trust that – as is evident from its name – lasts for the lifetime of the beneficiary and passes to the next generation of beneficiaries upon his or her death. It is commonly referred to as a “generation-skipping trust” and can also dramatically reduce or eliminate estate taxes. Assets in a lifetime trust are protected against commingling in the marriage and, therefore, cannot be pursued by a spouse. When assets are held by a trust your children – and, by extension, their spouses – cannot access these assets. Therefore, even in the event of a divorce, an ex-spouse cannot pursue them.

Use Prenuptial Agreements

In addition to creating a trust to protect your children’s inheritance from an untrustworthy spouse, your children can use a prenuptial agreement as a tool for asset protection. A prenuptial agreement is a document that details an agreement between your child and his or her spouse about the characterization of assets owned at the time of marriage and those earned after marriage. This legal document also provides the couple to agree upon the division of assets in the event there is a divorce. Because enforceability of prenuptial agreements varies by state, it is important to seek the advice of an attorney like myself before drafting and signing the contract. It may be an uncomfortable suggestion to bring up with your children, but it can be an incredible benefit in the event of a later divorce.

Other Planning Ideas

Beyond the actual legal tools, it is important for you to let your wishes be known to the family. One way to do this is to have a family discussion about your estate plan, explaining your intentions and reasons as to why it is set up in this manner. Additionally, using clear language in your estate planning documents that specify the intent or purpose in leaving the inheritance to benefit descendants – and not their spouses – can further solidify your wishes are followed. Finally, choosing a trustee that is independent will keep control over the funds in the trustee’s hands and not your child’s untrustworthy spouse. This will also allow you to manage or overcome any conflict that you may not have been expecting.

Bottom Line: Seek Out Estate Planning Help

If you wish to make sure your descendants receive a portion of your estate, discuss these intentions with your children and devise an estate plan that will guarantee this desire is fulfilled after your passing. Whether you have no estate plan, or have one that more than a few years old, sit down with me to create or update this plan to suit your goals.  Contact me for more information. I look forward to being of service to you!

 

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“I Love You” Wills don’t really say “I Love You”

“I Love You” Wills don’t really say “I Love You”

Here, I’m going to discuss the drawbacks of “I love you” wills and introduce you to the estate planning move that’s actually going to ensure you do well by your loved ones: a lifetime beneficiary trust.

Rise above the misconceptions

No aspect of estate planning brings out as much emotional decision-making as the division of assets. Many people think, “I love you,” so I’ll leave you everything. In order to understand why “I love you” wills are, contrary to their name, not the most caring of estate planning gestures, it’s important to understand the risks of “I love you” wills.

Simply, an “I love you” will is a common name for a will in which the Grantor leaves all of his or her assets outright to his or her surviving spouse.  Many people consider or even use this approach because they think that leaving assets in trust shows they don’t trust their spouse. They may also think that a lack of federal estate taxes protects their assets from getting into the wrong hands. Sadly, many people also think that a will can be used to avoid probate. Unfortunately, none of these things are true.

Understand why “I love you” wills aren’t effective 

Let’s assume for a moment that you want to ensure your spouse gets access to your wealth upon your death.  If all you have completed is a simple “I Love You” will, your spouse (or whomever you designated as your Personal Representative) will have to open a court proceeding, called, Probate, in order to validate your will and transfer your assets.  Depending on how your will was written, your Personal Representative may have to post bond.  Obtaining a Bond requires credit worthiness so if your Personal Representative has a credit problem, the Court may not allow that person to act and will appoint a Professional Fiduciary to act as your Personal Representative if a successor was not named.  In such case, that Personal Representative may not act according to what you had ultimately wanted if it wasn’t spelled out.

Once your spouse receives the assets, which could take years in the Probate Court, the assets are distributed outright.  An outright distribution of assets has many disadvantages, which are listed below.  With your spouse holding all of the assets outright, his/her estate plan will eventually control the distribution of whatever assets are left at her death – assuming proper estate planning was done, otherwise, an additional probate would be opened at his/her death.  If estate planning was completed, s/he has the right to alter his/her plan at any time and any verbal agreements that you two may have had are not enforceable and your wealth may end up in the hands of someone else, rather than your children or other beneficiaries.

Disadvantages of outright distributions include:

  • You could inadvertently disinherit your children. If you use an “I love you” will, your assets are now in your spouse’s hands for him/her to leave however s/he wants. For example, your spouse could leave the assets to his/her own kids, a charity, a lover, or a new spouse.  Likewise, assets left outright to children could be lost in a divorce.
  • Basic planning with outright inheritance sets your heirs up for asset protection issues. Once your assets are owned outright by your beneficiaries through a direct inheritance, those assets can be seized by creditors, divorcing spouses, or lost in bankruptcy. Even if your estate is below the exemption for the death tax, predatory creditors and lawsuits could still spell trouble.
  • These wills still have to go through probate. Surviving spouses do not receive an exemption from probate. Even a simple will still has to go through the process, which you may not be anticipating — especially if you had hoped to keep the details of the will private. If you end up in Probate, the matter becomes public record.  Trusts, however, don’t need to go through probate and all of your assets will pass according to the Trust as long as those assets are titled to your Trust.
  • An “I love you” will does not protect against guardianship or conservatorship court involvement for you or for your beneficiaries. For example, if you leave all of your assets to your spouse and s/he develops dementia, the entire estate (existing assets plus the inheritance s/he received from you) could be under the control of a guardianship or conservatorship court.
  • Basic plans pile more assets into survivors’ estates. Although portability between spouses can help, it still doesn’t prove useful with the generation-skipping transfer tax (GSTT). Portability isn’t available for non-spouse beneficiaries. While at this point in time, having a taxable estate affect a very narrow group of people with very high net worth; however, we don’t know yet what will happen with tax policy under the new Trump presidency. In a changing tax policy landscape, keeping yourself as informed as possible is an important tactic for ongoing success.

Explore lifetime beneficiary directed trusts

Comprehensive, trust-based estate planning with lifetime beneficiary trusts is a better option than outright inheritance for surviving spouses, children, grandchildren, or other beneficiaries. If you leave your assets in lifetime beneficiary trusts, you retain control over where assets end up in the long run. Plus, your beneficiaries obtain robust asset protection features that can keep wealth safe from courts, creditors, and divorcing spouses. Your family’s private information can stay out of public record. You can also take advantage of more sophisticated tax planning than you can with a basic will or trust with outright distributions.

With proper planning now, you can focus on enjoying your life without worry about what could happen in the future.  Now that’s something to love and truly expresses “I love you” to your beneficiaries.  Feel free to contact me and I can share some stories about people who neglected to plan and you can let me know if that is something that you want your family to experience.  I look forward to working for your best interests now as well as down the road.

 

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How You Can Build an Estate Plan that Includes Asset Protection

How You Can Build an Estate Plan that Includes Asset Protection

Yes, estate planning has to do with the way a person’s assets will be distributed upon their death; however, that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is asset protection.

Asset protection helps protect assets in a legal manner without engaging in the illegal acts of concealment, contempt, fraudulent transfer, tax evasion or bankruptcy fraud. One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce – at that point, it is too late. The only way to take full advantage of estate planning in regards to asset protection is to prepare proactively long before these things ever come to pass.

There are two main types of asset protection:

Asset protection for yourself:

This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgment. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to seek advice from your estate planning attorney.

Asset protection for your heirs:

This type of asset protection involves setting up discretionary lifetime trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example, a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for “ascertainable standards” distributions. While all of this may sound complex, I am here to help you best protect your heirs and their inheritance.

This complex area of estate planning is full of potential misconceptions, so it’s crucial to obtain qualified advice and not solely rely on common knowledge about what’s possible and what isn’t. As a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.

Bankruptcy

It’s entirely possible that you’ll never need asset protection, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. If you experience an unexpected illness or even a large-scale economic recession, you could result in bankruptcy.

Bankruptcy asset protection strategy: Asset protection trusts

Asset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person.

 

Divorce

One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.

 Divorce asset protection strategy: Discretionary trusts

When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect assets from a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.

Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.

 

Judgment

When an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.

Judgment asset protection strategy: Incorporation

Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, including your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.

 These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Give me a call at 858-432-3923 today to discuss your estate plan’s asset protection strategies.

 

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Estate Planning for Women

Estate Planning for Women

While everyone is in need of estate planning, women especially need to understand estate planning and have their own plan in place. The following describes why having a estate planning portfolio, which includes a Trust, Will, Durable Power of Attorney and healthcare documentation is so important for women:

Incapacity. On average women live longer than men, which means there is an increased need to plan for physical and/or mental incapacity. When long-term care insurance is purchased in advance it can help cover the costs of incapacity and can even help women remain in their homes should that be their wish. Planning ahead prevents the court from taking control of finances and of personal care at incapacity – a court action called a Conservatorship or “Living Probate.” Incapacity planning includes having a properly drafted General Durable Powers of Attorney naming a trustworthy person to act as Agent in the event of incapacity. Additionally, healthcare documents, including an Advance Health Care Directive and HIPAA release are crucial. A properly drafted Revocable Living Trust will provide excellent protection for assets at incapacity and contains dispositive instructions for administering the estate after death.

Children, Grandchildren, Parents and Pets. Regardless of wealth, estate planning is so important because women raising minor children need to name a guardian in their Will. If no guardian is named, a judge may have to decide who will raise them, which may be contrary to your wishes. Provisions need to be included for children, parents or relative with special needs, pets and anyone that is dependent on you for support. If one of the beneficiaries has special needs, additional planning is necessary and the need for a Special Needs Trust can provide the care they need without jeopardizing government benefits they are otherwise entitled to. A gifting program or a trust can provide for grandchildren and future generations.

Charitable Causes. Women who want to leave a legacy by donating to a favorite charitable, religious or educational organization must complete an estate plan. Without a valid Trust and Will in place, assets will be distributed by the California Probate Code. A charity will not be considered because a charity is not an heir. With proper planning in place proceeds from a life insurance policy can be used to fund various types of charitable giving at your death.

Protecting a Business and Other Assets. Professional women in law, real estate and medicine must be concerned about limiting their liability and protecting their assets from lawsuits. Women who are business owners need to plan for what will happen to their business in the event of incapacity or retirement and death. Due to these issues, asset protection planning and business succession planning can and should be included in the estate planning process.

Married Women. While not always the case, it is common for woman in a traditional marriage to marry a husband who is older, which means they are more likely to become widowed. Without proper estate planning while married, many will see their standard of living reduced during their retirement years. Those in second marriages have an increased need for estate planning, which may include providing for the surviving spouse while preserving distributions to their children from a previous marriage. Without proper estate planning, children from a previous marriage may become disinherited. Also, because most married women survive their husbands, they often have final say over who will ultimately receive the couple’s assets. Women must take an active role in the couple’s estate planning in order to understand the process and be prepared. If there was no participation in the planning process, the widow will likely be confused and uncertain; however, if she completed her planning and/or was involved during the planning during marriage, she will easily understand it and feel empowered.

Unmarried Women. Without a proper estate plan in place at death, her estate will end up in the Probate Court for California law to be applied. Persons who you may have wanted to provide for at death, including friends, charities and unmarried partners will not be among your heirs. For woman who are divorced or separated, there is an important need to update documents (including beneficiary designations) as soon as possible to prevent your ex-spouse from making life and death decisions for you or inheriting your assets.

Should you have questions regarding the need for estate planning and how these issues may affect you, please give my office a call to schedule your Life and Legacy Planning Session.  Thank you!

Estate Planning Mistakes to Avoid

Estate Planning Mistakes to Avoid

From time to time, it’s good to review why having a complete, up-to-date estate plan is so important. In addition to confirming our own actions, it can provide us with valuable information to pass along to friends and family who need estate planning. Here we discuss two common mistakes:

  1. Not having a plan. Every state has laws for distributing the property of someone who dies without an estate plan—but not very many people would be pleased with the results. This process is called probate. By having a plan in place, your family will be able to avoid probate when you pass away. State laws vary, but generally they leave a percentage of the deceased’s assets to family members. Non-family members will not receive any assets so it is crucial for same-sex partners and non-married partners to have a plan in place if it is your intention to provide for a partner. It is common for the surviving spouse and children to each receive a share during a probate proceeding, which often means the surviving spouse will not have enough money to live on. In addition, probate fees and costs diminish the estate. If the children are minors, the court will control their inheritances until they reach legal age (usually 18), at which time they will receive the full amount. This may be contrary to what parents prefer, who may want to have some restrictions on their inheritance until they are more mature. By having a plan in place, you make the decisions and keep your affairs private by avoiding government intervention and government involvement.
  2. Not naming a guardian for minor children. A guardian for minor children can only be named through a Will. If the parents have not done this, and both die before the children reach legal age, the court will have to name someone to raise them without knowing whom the parents would have chosen. Equally tragic would be that the minor children might end up in protective custody while the court gets around to hearing the case to nominate a guardian. By seeing me, a San Diego Estate Planning lawyer, you can have the peace of mind knowing an estate plan is in place, which includes naming a guardian, for the short term and long term, for your minor children.

Continue to read Part 2 Of This Series

Top 10 Reasons for Estate Planning

Top 10 Reasons for Estate Planning

There are many reasons why estate planning is important for everyone, regardless of age. With the proper plan in place, you can:

1.   Protect your Loved Ones. 
Only with proper planning can you be assured that your loved ones will not be subjected to unexpected disasters due to your failure to plan.

2.  Avoid Probate. 
Without a trust, your estate will be supervised by the Probate Court and there are high legal fees associated with court control.  A Trust avoids the expensive, lengthy, emotionally draining and public probate process.

3.  Guardians for Minor Children.  
Who do you choose to raise your children if you pass prematurely? It is crucial that you name a legal guardian in your will so YOU make the decision about who will care for your children.

4.  Manage Affairs in the Event of Incapacity.
In the event that you are unable to make decisions for yourself, who will make those decisions on your behalf?  By creating a durable power of attorney and an advanced healthcare directive can you be sure that your financial and personal affairs will be handled according to your instruction.

5.  Business Planning.  
If you own a business, proper planning can ensure that the business survives and continues on in accordance with your plan.

6.  Minimize or Eliminate Estate Taxes. 
You can prevent your assets from being subject to estate tax, which will allow more of your estate to be enjoyed by your loved ones.

7.  Charitable Giving. 
You can make gifts to your favorite charity or other worthwhile causes, while potentially getting income and estate tax benefits.

8.  Provide for Spouse.  
Without a proper plan, your spouse or partner may not receive the property you intended to provide.  For example, unknowingly holding property in joint ownership with someone other than your designated recipient may have undesired results down the road.

9.  Establishing Trusts for Minor Children. 
A good plan can preserve your assets for your children’s use and prevent those inherited assets from being wasted or lost by careless habits and harmful addictions.

10.  Designate Beneficiaries. 
By creating an estate plan you have wide latitude to choose who will receive your estate, what they will receive and when they will receive it.  You may distribute among your children equally or you may choose to eliminate one or all of them.  You have complete control over your estate, rather than allowing the legal system to do it for you.

8 Estate Planning Things to Do before you Travel

8 Estate Planning Things to Do before you Travel

Before any trip, most of us create a “to-do list” of things we have put off and want to take care of before we leave. Here is a checklist of estate planning things to do before you take your next trip. Taking care of these will help you travel with peace of mind, knowing that if you don’t return due to serious illness or death, you have made things much easier for those you love.

1. Have your estate planning done. If you have been procrastinating about your estate planning, use your next trip as your deadline to finally get this done. Be sure to allow adequate time to get your estate plan completed in advance of your trip.

2. Review and update your existing estate plan. Revisions should be made any time there are changes in family (birth, death, marriage, divorce, remarriage), finances, tax laws, or if a trustee or executor can no longer serve. Again, be sure to allow enough time to have the changes made.

3. Review titles and beneficiary designations. If you have a living trust and did not finish changing titles and/or beneficiary designations, now is the time to do so. If a beneficiary has died or if you are divorced, change these immediately. If a beneficiary is incapacitated or a minor, set up a trust for this person and name the trust as beneficiary to prevent the court from taking control of the proceeds.

4. Review your plan for minor children. If you haven’t named a guardian who is able and willing to serve and something happens to you, the court will decide who will raise your kids without your input. If you have named a guardian, consider if this person is still the best choice. Name a back-up in case your first choice cannot serve. Select someone responsible to manage the inheritance.

5. Secure or review incapacity documents. Everyone over the age of 18 needs to have these: 1) Durable Power of Attorney for Heath Care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and 2) HIPPA Authorizations, which give written consent for doctors to discuss your medical situation with others, including family members.

6. Review your insurance. Check the amount of your life insurance coverage and see if it still meets your family’s needs. Consider getting long-term care insurance to help pay for the costs of long-term care (and preserve your assets for your family) in the event you and/or your spouse should need it due to illness or injury.

7. Organize your accounts and documents. It used to be that we could just point to a file cabinet and say everything was “in there.” But now so much is done online that there may not even be a paper trail. Make a list of ALL of your accounts, where they are located, and the user names and passwords, then review and update it before each trip. Print a hard copy in case your computer is stolen or crashes and let someone you trust know where to find it. Clean up your computer desktop and put your financial and other important files where they can be easily found. Make a back-up copy in case your computer is stolen or crashes, and let someone know where to find it. Be sure to include on your master list any passwords that might be needed to access your computer and files.

8. Talk to your children about your plan. You don’t have to show them financial statements, but you can discuss in general terms what you are planning and why, especially when any changes are made. The more they understand your plan, the more likely they are to accept it—and that will help to avoid discord after you are gone.