When a loved one suffers from a mental illness, one small comfort can be knowing that your trust can take care of them through thick and thin. There are some ways this can happen, ranging from the funding of various types of treatment to providing structure and support during his or her times of greatest need.
When it comes to your family’s legacy, every dollar you can save from tax collection counts. One way to keep your assets out of the hands of the IRS is the formation of community property trusts.
How Does A Community Property Trust (CPT) Work?
Community Property Trusts (“CPT’s”) save you money on taxes by adjusting or “stepping up” the basis of the entire property after the death of one member of the couple. When you and your spouse invest in property jointly—be it real estate, stocks, or other assets—it becomes what’s called community property if you live within nine applicable states. However, there are two states, Alaska and Tennessee, where community property can be utilized via the creation of a community property trust, even if you do not live in Alaska or Tennessee.
When couples work with their estate planning attorneys to create these trusts, they can take advantage of a double step-up on the property’s basis. The basis of the property is stepped-up to its current value for both members of the couple’s halves. This is different from jointly owned property which only receives the step-up on one-half of the property. That means capital gains taxes are much lower because the taxed amount is reduced thanks to the stepped-up basis. Community property helps couples reduce their income taxes after the death of a spouse.
Getting To Know Your Basic CPT Terminology:
First, let’s start with a few quick definitions of the financial terms you will need to know to get a sense of whether a community property trust is right for you.
1. Community Property
Assets a married couple acquires by joint effort during marriage if they live in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
2. Community property trust:
A particular type of joint revocable trust designed for couples who own low-basis assets, enabling them to take advantage of a double step up. Tennessee or Alaska are the two places you can form these trusts.
What you paid for an asset. The value that is used to determine gain or loss for income tax purposes. A higher basis means less capital gains tax.
4. Stepped-up basis:
Assets are given a new basis when transferred by inheritance (through a will or trust) and are revalued as of the date of the owner’s death. The new basis is called a stepped-up basis. A stepped-up basis can save a considerable amount of capital gains tax when an asset is later sold by the new owner.
5. Double step-up:
Because of a tax loophole, community property receives a basis adjustment step-up on the entire property when one of the spouses dies. So, if a surviving spouse sells community property after the death of their spouse, the capital gain is based on the increase in value from the first spouse’s death (where the basis got adjusted on both spouses’ shares) to the value at the date of the sale. This allows the survivor to save money on capital gains tax liability.
One of the best parts of estate planning is that you get out so much more than you put in. In just a short amount of time, we can implement a community property trust that could save your spouse and family tens of thousands of dollars down the road. We are here to help make sure as little of your hard-earned property as possible ends up lost to taxation. Schedule your free consultation with us today, and set yourself up for a better tomorrow.
If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
Estate planning is the process of developing a strategy for the care and management of your estate if you become incapacitated or upon your death. One commonly known purpose of estate planning is to minimize taxes and costs, including taxes imposed on gifts, estates, generation skipping transfer and probate court costs. However, your plan must also name someone who will make medical and financial decisions for you if you cannot make decisions for yourself. You also need to consider how to leave your property and assets while considering your family’s circumstances and needs.
Since your family’s needs and circumstances are constantly changing, so too must your estate plan. Your plan must be updated when certain life changes occur. These include, but are not limited to the following Six: 1) Marriage, 2) The birth or adoption of a new family member, 3) Divorce, 4) The death of a loved one, 5) A significant change in assets, and 6) A move to a new state or country.
It is not uncommon for estate planning to be the last item on the list when a couple is about to be married - whether for the first time or not. On the contrary, marriage is an essential time to update an estate plan. You probably have already thought about updating emergency contacts and adding your spouse to existing health and insurance policies. There is another important reason to update an estate plan upon marriage. In the event of death, your money and assets may not automatically go to your spouse, especially if you have children of a prior marriage, a prenuptial agreement, or if your assets are jointly owned with someone else (like a sibling, parent, or other family member). A comprehensive estate review can ensure you and your new spouse can rest easy.
2. Birth Or Adoption Of Children Or Grandchildren:
When a new baby is born, it seems like everything changes—and so should your estate plan. For example, your trust may not “automatically” include your new child, depending on how it is written. So, it is always a good idea to check and add the new child as a beneficiary. As the children (or grandchildren) grow in age, your estate plan should adjust to ensure assets are distributed in a way that you deem proper. What seems like a good idea when your son or granddaughter is a four-year-old may no longer look like a good idea once their personality has developed and you know them as a 25-year-old college graduate, for example.
Some state and federal laws may remove a former spouse from an inheritance after the couple splits, however, this is not always the case, and it certainly should not be relied on as the foundation of your plan. After a divorce, you should immediately update beneficiary designations for all insurance policies and retirement accounts, any powers of attorney, and any existing health care proxy and HIPAA authorizations. It is also a good time to revamp your will and trust to make sure it does what you want (and likely leaves out your former spouse).
4. The Death Of A Loved One:
Sometimes those who are named in your estate plan pass away. If an appointed guardian of your children dies, it is imperative to designate a new person. Likewise, if your chosen executor, health care proxy or designated power of attorney dies, new ones should be named right away.
5. Significant Change In Assets:
Whether it is a sudden salary increase, inheritance, or the purchase of a large asset these scenarios should prompt an adjustment an existing estate plan. The bigger the estate, the more likely there will be issues over the disposition of the assets after you are gone. For this reason, it is best to see what changes, if any, are needed after a significant increase (or decrease) in your assets.
6. A Move To A New State Or Country:
For most individuals, it is a good idea to obtain a new set of estate planning documents that clearly meet the new state’s legal requirements. Estate planning for Americans living abroad or those who have assets located in numerous countries is even more complicated and requires professional assistance. It is always a good idea to learn what you need to do to completely protect yourself and your family when you move to a new state or country.
If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
Earlier this year, NBA team owner Gail Miller made headlines when she announced that she was effectively no longer the owner of the Utah Jazz or the Vivint Smart Home Arena. These assets, she said, were being placed into a family trust, therefore raising interest in an estate planning tool previously known only to the very wealthy—the dynasty trust.
Dynasty Trusts Explained:
A dynasty trust (also called a “legacy trust”) is a special irrevocable trust that is intended to survive for many generations. The beneficiaries may receive limited payments from the trust, but asset ownership remains with the trust for the period that state law allows it to remain in effect. In some states, a legal rule known as the Rule Against Perpetuities forces the trust to end 21 years after the death of the last known beneficiary. However, some states have revoked this limitation so, in theory, a dynasty trust can last forever.
Advantages and Disadvantages:
Wealthy families often use dynasty trusts as a way of keeping the money “in the family” for many generations. Rather than distribute assets over the life of a beneficiary, dynasty trusts consolidate the ownership and management of family wealth. The design of these trusts makes them exempt from estate taxes and the generation-skipping transfer tax, at least under current laws, so that wealth has a better ability to grow over time, rather than having as much as a 40-50% haircut at the death of each generation.
However, these benefits also come at the expense of other advantages. For example, since dynasty trusts are irrevocable and rely on a complex interplay of tax rules and state law; changes to them are much more difficult, or even potentially impossible as a practical matter, compared to non-dynasty trusts. Because change is very difficult or even impossible as a practical matter, the design of the dynasty trust needs to anticipate all changes in family structure (e.g. a divorce, a child's adoption) and assets (e.g. stock valuation, land appraisals), even decades before any such changes occur.
Is a Dynasty Trust Right for Your Family?
This trust usually makes the most sense for very wealthy families whose fortunes would be subject to large estate taxes. For multiple generations, it can defend estates from taxes, divorces, creditors or ill-advised spending habits. That said, if you desire to give your descendants more flexibility with their inheritance, a dynasty trust may not be right for you. To learn more about the pros and cons of this and other estate planning strategies, contact our office today.
If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
There is no such uncertainty as a sure thing.
Even with an estate plan, things can always happen that may cause confusion for the estate–or threaten the plan altogether. Below are three examples of worst-case scenarios and ways to demonstrate how a carefully crafted plan can address issues, from the predictable to the total surprise.
Scenario 1: Family Members Battle One Another:
Despite your best intentions, what happens if the people you care about most get into a knockdown, drag-out fight over your estate? Disputes over who should get what assets, how to interpret an unclear instruction from you, or how loved ones should manage your business can open old wounds.
Lawsuits between family members can drain your estate and tarnish your legacy. Family infighting can lead to less obviously dramatic problems as well. For instance, let’s say you name your daughter as the executor, and she holds a deep grudge against your youngest son. Your daughter cannot do something as drastic as rewriting your will to leave him out. However, she could drag her feet with the probate court, interpret the will “poorly” (unfairly privileging herself and your other son over your youngest), or engage in other shenanigans. In each of these cases, your youngest son would have to hire a lawyer and potentially get involved in a protracted legal battle. This is a bad outcome for everyone.
To prevent such scenarios, consider using an impartial (e.g. third party) trustee or executor. Moreover, speak with a qualified estate planning attorney to prepare for likely future conflicts among family members.
Scenario 2: Both Spouses Die Simultaneously:
Many estate plans transfer assets to a surviving spouse, but what happens if both spouses die at or near the same time? This situation may be even more complicated if both spouses have separately owned assets or if the size of the estate is significant. In that case, asset distribution may depend on who predeceased whom, the amount of estate tax paid, and other factors. There are, however, ways to address this in an estate plan making it easier for your family to understand your intent, including, as recently discussed in Motley Fool:
· A simultaneous death clause that automatically names one spouse as the first to die;
· A survivorship deferral provision, delaying transfer of assets to a surviving spouse, thus preventing double probate and estate taxes; and
· A so-called “Titanic” clause that names a final beneficiary in the event all primary beneficiaries die at once.
Scenario 3: Passing Away Overseas:
Expatriates may require specific expertise when creating an estate plan. If a death occurs outside the U.S., foreign laws may conflict with provisions of an American-made estate plan. As such, a plan may need to be reviewed both for the US and other nations’ laws. If you intend to live abroad for an extended period, as discussed in this New York Times article, it may be smart to draw up a second will consistent with those nations' laws, too. However, the starting point is completing your estate planning (will, trust, and other documents) here in the United States first.
If you have concerns as to whether your current estate plan is safeguarded against these three worst-case scenarios or anything else you might be worried about, we are here to help.
Comprehensive estate planning is more than your legacy after death, avoiding probate, and saving on taxes. Good estate planning includes a plan in place to manage your affairs if you become incapacitated during your life and can no longer make decisions for yourself.
What happens without an incapacity plan?
Without a comprehensive incapacity plan in place, your family will have to go to court to get a judge to appoint a guardian or conservator to take control of your assets and health care decisions. This guardian or conservator will make all personal and medical decisions on your behalf as part of a court-supervised guardianship or conservatorship. Until you regain capacity or die, you and your loved ones will be faced with an expensive and time-consuming guardianship or conservatorship proceeding. There are two dimensions to decision making that need to be considered: financial decisions and healthcare decisions.
Finances During Incapacity:
If you are incapacitated, you are legally unable to make financial, investment, or tax decisions for yourself. Of course, bills still need to be paid, tax returns still need to be filed, and investments still need to be managed.
Health Care During Incapacity:
If you become legally incapacitated, you won’t be able to make healthcare decisions for yourself. Because of patient privacy laws, your loved ones may even be denied access to medical information during a crisis and end up in court fighting over what medical treatment you should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 years).
You must have these five essential legal documents in place before becoming incapacitated so that your family is empowered to make decisions for you:
1. Durable Power of Attorney:
This legal document gives your agent [called your Attorney-in-Fact] the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters that are described in the document.
Financial Powers of Attorney come in two forms: “durable” and “springing.” A durable power of attorney goes into effect as soon as it is signed, while a springing power of attorney only goes into effect after you have been declared mentally incapacitated. There are advantages and disadvantages to each type, and we can help you decide which is best for your situation.
2. Revocable Family Trust:
This legal document has three parties to it: the person who creates the trust (you might see this written as “trustmaker,” “grantor,” or “settlor” — they all mean the same thing); the person who legally owns and manages the assets transferred into the trust (the “trustee”); and the person who benefits from the assets transferred into the trust (the “beneficiary”). In the typical situation, you will be the trustmaker, the trustee, and the beneficiary of your own revocable living trust. But if you ever become incapacitated, your designated successor trustee will step in to manage the trust assets for your benefit. Since the trust controls how your property is used, you can specify how your assets are to be used if you become incapacitated (for example, you can authorize the trustee to continue to make gifts or pay tuition for your grandchildren).
3. Advance Health Care Directive:
This legal document, also called a medical or Health Care Agent, gives your agent the authority to make healthcare decisions if you become incapacitated.
4. Living Will:
This legal document shares your wishes regarding end of life care if you become incapacitated. Although a living will isn’t necessarily enforceable in all states, it can provide meaningful information about your desires even if it isn’t strictly enforceable.
5. HIPAA authorization:
This legal document gives your doctor authority to disclose medical information to the agents selected by you. This is important because health privacy laws may make it very difficult for your agents or family to learn about your condition without this release. It is crucial that each fiduciary nominated in your estate plan that may need access to your HIPPA-protected health documents is granted such legal authority.
Is your incapacity plan up to date?
Once you get all of these legal documents for your incapacity plan in place, you cannot simply stick them in a drawer and forget about them. Instead, your incapacity plan must be reviewed and updated periodically and when certain life events occur such as moving to a new state or going through a divorce. If you keep your incapacity plan up to date and make the documents available to your loved ones and trusted helpers, it should work the way you expect it to if needed.
Much of estate planning relates to the way a person’s assets will be distributed upon their death. But 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 crucial factor to consider is asset protection.
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. The best way to take full advantage of estate planning concerning asset protection is to prepare proactively long before these things ever come to pass—and hopefully many of them won’t. First, let’s cover the two main types of asset protection:
Asset Protection For Yourself:
This is the kind that must be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgement. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to lean on your estate planning attorney’s expertise.
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 so-called ascertainable standards distributions. Don’t worry about the complexity - we are here to help you best protect your heirs and their inheritance.
This complex area of estate planning is full of potential miscalculation, so it's crucial to obtain qualified advice and not solely rely on common knowledge about what's possible and what isn't. But as a general outline, let’s 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.
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. But experiencing an unexpected illness or even a large-scale economic recession could mean you wind up bankrupt.
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.
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. 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 your assets in 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 several 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.
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, such as us as 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 to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Contact our office so we can determine the best asset protection strategies for your estate plan.
Most financially savvy individuals begin planning their estate when they’re in peak mental shape. The idea that this might change at some point in the distant future is an unpleasant one, and they would rather go about their estate planning as if they’ll be as sharp as a tack late into their golden years. Unfortunately, this common approach of ignoring a potential problem and hoping it simply won’t happen can leave a giant hole in your estate plan. Read on to find out that this common hole can be more easily filled than you might think.
Expect The Best, But Plan for The Worst:
The reality is that an individual’s chances of experiencing some form of cognitive impairment rise with age. While it’s never certain whether cognitive impairment will occur, smart estate planning means factoring it in as a very real possibility.
As the huge baby boomer generation transitions from the workforce and begins to make their way into retirement, cases of Alzheimer's are expected to spike from the current 5.1 million to 13.2 million as soon as 2050. Alzheimer’s is just one of several cognitive impairment conditions along with dementia and the much more common mild cognitive impairment, or MCI, which is often a precursor to those more serious ailments.
As U.S. life expectancies increase, the chances of living with cognitive impairment increase as well — with at least 9.5 percent of Americans over 70 experiencing it in one form or another.
No matter your age or family history, cognitive impairment can affect anyone although it’s widely acceptedto affect mostly older adults. As you implement or revise your estate plan, it is well worth the effort to plan for this potential. Luckily, estate planning attorneys have developed good solutions to handle this circumstance and can help guide you on the best way to protect yourself and your family.
An Easily-Avoidable Estate Planning Mistake:
Consider Ashley’s story. A successful real estate agent with a stellar career in her hometown of Kalamazoo, MI, Ashley begins planning her estate in her mid-thirties.
She partners with an estate planning attorney, and together they draft a revocable living trust with Ashley’s preferred beneficiaries and charities in mind, figure out guardianship for her two sons in case she and her husband pass suddenly, and settle on an appropriate beneficiary for her life insurance policy. Now that she knows where her assets will go after her death, Ashley rests easy assuming there’s nothing more that needs doing in her estate plan.
Save Your Family From Obstacles and Conundrums:
But forty years down the road, Ashley’s children realize her MCI is developing into Alzheimer’s. Although she’s occasionally visited with her attorney to adjust her plan, she never added any provisions for how she wanted her children and other guardians to handle a situation like this. Here’s where things get complicated.
Ashley did not work with her estate planning attorney to put disability provisions into her trust and never worked with an insurance professional to purchase adequate income insurance or long-term care insurance. The care she requires to live her best life possible with cognitive impairment doesn’t come cheap. Those mounting care costs will likely quickly erode Ashley’s estate. As a result, her estate plan may no longer work as intended, since it no longer lines up with her actual asset portfolio.
But since Ashley does not have the ability to rework her estate plan in her current mental state, her family is left with the burden of figuring out what to do while navigating a complex and bureaucratic legal system in the guardianship or conservatorship court. No one in the family really knows what Ashley’s wishes are regarding both serious medical decisions and financial changes. All Ashley’s family wants is to see her enjoying her remaining years in peace and security, but they are now tasked with using guesswork to make difficult choices on her behalf while a guardianship or conservatorship court watches every move.
Give Us a Call Today:
Factoring the potential for cognitive impairment into your estate plan doesn’t have to be a headache. In fact, a little effort now by legally designating who you want to be in charge and what you want them to do can have a wonderful impact on you and your family later on. We can work together to ensure your estate plan is ready for whatever life throws your way. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
George Carlin would have been a great pitchman for estate planning. You may remember his stand-up routine on “stuff.” We all have stuff, and we're quite particular about our stuff. We move it around with us, it's hard for some of us to get rid of it, and some of us don't like our stuff mixed up with other people's stuff.
During your lifetime, you collect a lot of stuff, some of it valuable and some of it not. But because it's your stuff, it means something to you. You already know you can't take it with you when you die, so there must be some way of distributing your stuff to other people.
Normally, you want your stuff to go to people you care about—your family and special friends, sometimes a worthwhile cause. And you may want certain people to have certain things to remember you by.
Document Instructions for Your Stuff:
When you die, all your stuff, no matter how valuable or invaluable it is, is called your "estate." In the simplest terms, an “estate plan” is your instructions for getting your stuff to the people you want to have it after you die.
Important Legal Mumbo Jumbo:
An estate plan must meet certain legal requirements, including that it must be written down, it must be signed by you, and it must be witnessed by other people who see you sign it. Your estate plan may be very simple, or it may be more complex, depending on how much stuff you have, how long you want your stuff to provide for the people you care about, and when you want them to receive your stuff. For example, you'd probably want to wait a few years before that cute two-year-old receives grandpa's antique pocket watch.
How Do You Get an Estate Plan?
You decide who you want to get your stuff and when you want them to get it. Your attorney then puts your instructions into a legal document called a will or trust. (There are distinct advantages to using a trust, but we'll save that discussion for another time.) Also, while you can legally write your own, you have a much better chance of your estate plan working if you have an experienced attorney do it for you. To be frank, laypersons mess it up all the time.
What Happens if I Just Don’t Get Around to It?
What if you die and you don't have an estate plan? Well, there still must be a way to get your stuff to other people, so the state in which you live has a plan waiting if you don't have one. The only problem is that you won't have any say in who gets your stuff, and someone might get left out, and, your stuff may go to a stranger—some “heir at law”—that you don’t even know.
Example 1: If more than one of your relatives want the same part of your stuff, that can get messy and expensive… and a lot of your stuff will be used to pay the courts and attorneys to sort it all out. (Happens all the time.)
Example 2: If you're not married and you want your significant other to get some of your stuff when you die, you'd better get your plan in place, or it just won't happen. Under the state's plan, your stuff will go to your blood relatives. Period.
Example 3: If you're married and you've got kids, don't be too sure that your spouse is going to get all your stuff. Your kids will probably get their share of your stuff, which means your spouse may not get enough of your stuff to live on.
By the way, if your stuff includes kids, then you've got to have a plan. Otherwise, the court will decide wh will raise them if something happens to both parents.
Scary thoughts? You bet!
The Bottom Line:
If you're responsible enough to have your own stuff, you need to be responsible for making sure what will happen to it after you're gone. Let’s make sure you do it right; call the office now and we’ll help you translate your plans for your stuff into a legally binding document. To ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
For most people, thinking about estate planning means focusing on what will happen to their money after they pass away. But that misses one pretty significant consideration: the need to plan for long-term care.
The last thing any of us want to contend with when a health issue arises later in life is having to throw together a hasty estate planning solution in the face of mounting medical costs. Your best defense is careful planning with the help of a trusted expert.
Why it’s so important to plan for long-term care:
While only about 19 percent of current U.S. residents will need to reside under long-term care for a period of over three years, that number sharply increases when factoring in nursing home stays of a shorter duration — which will still have a substantial impact on your estate.
Whether the care you need takes place in a nursing home, assisted living facility, or with an in-home provider, the costs can mount with alarming speed. For example, national average rates for assisted living hover around $3,500 per month. As those costs add up, you could see your assets dwindle much sooner than you’d hoped. Luckily, estate planning attorneys can help in several ways.
What to go over with your estate attorney:
If long-term care isn’t factored into your estate plan, you are probably not looking at a truly realistic and accurate representation of your assets. Talk to your estate planning attorney about the following factors in order to get on the right track:
Set reasonable expectations for long-term care:
It’s impossible to know what life will bring, but we can certainly make educated guesses. For example, are there any major diseases that run in your family? There is a chance you will have the good fortune of staying healthy well into your golden years, but estate planning is an aspect of your financial life in which it’s helpful to protect yourself against worst-case scenarios.
In the estimated likelihood that you will require such care, at what age could you reasonably predict you’ll need it? Do you have any current health conditions to consider? Exploring these possibilities may not be the most enjoyable exercise, but it’s far better than facing the reality of long-term care with no plans in place.
2. Consider a long-term care insurance policy:
As Medicare or standard health insurance may not cover your costs, a long-term care insurance policy is one way to protect yourself against draining your financial assets. Ask for resources for finding an affordable premium that isn’t likely to increase prohibitively over time. Begin this process as soon as possible, as your premium will be lower the younger you are when you apply.
Another potential oversight is assuming your long-term care will be covered by Medicaid. Discuss it as an option to determine your qualifications and get authoritative insights about the specificities of your unique financial situation in terms of Medicaid benefits.
3. Get Smart About Living Wills and Trusts:
To best prepare your loved ones for complex medical decisions, go over advance directives. In addition, discuss options for setting a revocable living trust, and possibly one or more irrevocable trusts, like a life insurance trust or a charitable remainder trust, as part of your long-term care planning.
It’s also important to create a plan that allows someone you trust to access and utilize your financial resources for your benefit in the event of unforeseen medical circumstances. One common mistake is tying up assets in investments that lack liquidity when you need them most. For example, money locked into annuities can result in a fee for early withdrawal. Working with a team of that includes an estate planning attorney, financial advisor, and insurance professional can provide you and your family with the best overall solution.
Take the time now to talk to an estate planning attorney about the best ways to maintain financial security in tandem with the demands of long-term care. Even if you don’t end up needing long-term care in you lifetime, you can enjoy the peace of mind knowing you’ll be covered.
The process of completing a long-term care plan may sound daunting, but we’re here to help you by making it a streamlined experience—simply get in touch with us today and let us put you in a more secure position for the future. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
If you want to leave a robust financial legacy for your family, a financial plan alone is like trying to guide a boat with just one oar. It’s only part of the big picture for your overall monetary health. A well-informed financial plan is worth your time for several reasons, but let’s look at how financial and estate planning can work in tandem to create the best possible future for you and your family in the years to come.
What’s included in a financial plan:
Financial planners take stock of an individual’s fiscal landscape and come up with approaches to maximize his or her overall financial well-being. Take Emily for instance, an energetic project manager in her late-twenties. She’s found a successful career track after graduating with her bachelor’s and now has the steady income necessary to start daydreaming about buying a house with bay windows like the one she passes on her morning commute.
But before she can take such a big leap, Emily tracks down a skilled financial planner who will take an honest look at her foreseeable cash flow and her spending and saving habits. People from all walks of life use thehelp of financial planners to make sure they’re in good shape for making big purchases, saving for their children’s education, and ensuring a comfortable retirement. This also includes developing an investment portfolio, which the financial planner monitors and manages.
But financial planning only goes so far. To have a comprehensive approach, Emily also must also consider her estate and the wills and trusts she should put in place so her assets go where she wants them to in the long run. That’s where a trusts and estates attorney comes in.
What’s included in an estate plan:
Estate planning attorneys are lawyers who give sound advice about what will happen to a person’s assets if he or she becomes mentally incapacitated or when he or she dies. While this may not sound like the sunniest of topics, knowing that what you pass on to your family will be legally protected lets you focus on enjoying the best things in life without worrying about your loved ones’ futures. Estate planning includes defining how you want your loved ones to benefit from the financial legacy you leave behind, implementing tactics to protect your assets from creditors down the road, providing a framework so your loved ones can make medical decisions on your behalf when you can’t, developing strategies to help you reduce estate taxes, and more.
And at the end of the day, your attorney is a teacher. He or she should be equipped to clearly explain your legal options. Even though estate planning can be highly technical, your professional bond with your attorney can and should feel like a friendly partnership since it involves taking an honest look at many personal wishes and priorities. There is no one-size-fits-all estate plan, so choose an attorney whom you trust and enjoy working with and who is responsive to questions and needs.
Remember Emily? While financial planning helped, her get from point A to point B with some pretty big money milestones, she now knows she needs an estates and trusts attorney to make sure her wishes are carried out and her money stays in the right hands—her family’s.
How these two efforts work together:
There are several ways these two components of your financial wellness work in harmony. Asking your financial planner and estate planning attorney to collaborate is common practice, so don’t be concerned that what you’re asking is outside their regular scope of work. Knowing who else advises you will help both parties get the information they need do their jobs at peak effectiveness. For example, your estate planning attorney may prepare a living trust for you, but your financial planner may help you transfer certain assets into that trust.
What are you waiting for?
If you already have a financial planner and are thinking about working with a trusts and estates attorney, you’re in an excellent position. We can often collaborate with your advisor to begin working on your estate plan. This might save you time and money, as we’ll get up to speed with the help of your financial planner.
The right time to plan your estate is right now. The sooner you put yourself and your family able to rest easy knowing a solid plan is in place, the better. And now that you know your financial plan is a wonderful start—but not a complete solution—you’re ready to take the first step on the path to total financial security.
While it is an honor to be named as an executor of a will or estate, it can also be a sobering and daunting responsibility. Being a personal representative requires a high level of organization, foresight, and attention to detail to meet all responsibilities and ensure that all beneficiaries receive the assets to which they are entitled. If you’ve found yourself in the position of “overwhelmed executor,” here are some tips to lighten the load.
1. Get professional help from an experienced attorney:
The caveat to being an executor is that once you accept the responsibility, you also accept the liability if something goes wrong. To protect yourself and make sure you’re crossing all the “i’s” and dotting all the “t’s,” consider hiring an experienced estate planning attorney at the beginning. Having a legal professional in your corner not only helps you avoid pitfalls and blind spots, but it will also give you greater peace of mind during the process.
2. Get organized:
One of the biggest reasons for feeling overwhelmed as an executor is when the details are coming at you from all directions. Proper organization helps you conquer this problem and regain control. Your attorney will help advise you of what to do when, but in general, you’ll need to gather several pieces of important paperwork to get started. It’s a good idea to create a file or binder so you can keep track of the original estate planning documents, death certificates, bills, financial statements, insurance policies, and contact information of beneficiaries. Bringing all this information to your first meeting will be a great start.
3. Establish lines of communication:
As an executor, you are effectively a liaison between multiple parties related to the estate: namely, the courts, the creditors, the IRS, and the heirs. Create and maintain an up-to-date list of everyone’s contact information. You’ll also want to retain records, such as copies of correspondence or notes about phone calls for all the contact you make as executor. Open and honest communication helps keeps the process flowing smoothly and reduces the risk of disputes. It’s worth repeating because it’s so important -- keep records of all communications, so you can always recall what was said to whom.
If you have been appointed as an executor, and you are feeling overwhelmed, we can provide skilled counsel and advice to help you through the process. We can also help you set your own estate plan, so your family can avoid the stress of probate. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
As we build wealth, we naturally desire to pass that financial stability to our offspring. With the grandkids, especially, we often share a special bond that makes us want to provide well for their future. However, that bond can become a weakness if proper precautions aren’t set in place. If you’re planning to include the grandchildren in your will, here are five potential dangers to watch for, and ways you can avoid them.
1. Including no age stipulation:
We have no idea how old the grandchildren will be when we pass on. If they are under 18, or if they are financially immature when you die, they could receive a large inheritance before they know how to handle it, and it could be easily wasted.
Avoiding this pitfall: Create a long-term trust for your grandchildren that provides continued management of assets regardless of their age when you pass away.
2. Too much, too soon:
Even if your grandkids are legally old enough to receive an inheritance when you pass on, if they haven’t learned enough about handling large sums of money properly, the inheritance could still be quickly squandered.
Avoiding this pitfall: Outright or lump-sum distributions are usually not advisable. Luckily, there are many options available, from staggered distributions to leaving their inheritance in a lifetime, “beneficiary-controlled” trust. An experienced estate planning attorney can help you decide the best way to leave your assets.
3. Not communicating how you’d like them to use the inheritance:
You might trust your grandchildren implicitly to handle their inheritance, but if you have specific intentions for what you want that inheritance to do for them (e.g., put them through college, buy them a house, help them start a business, or something else entirely), you can’t expect it to happen if you don’t communicate it to them in your will or trust.
Avoiding this pitfall: Stipulate specific things or activities that the money should be used for in your estate plan. Clarify your intentions and wishes.
4. Being ambiguous in your language:
Money can make people act in unusual ways. If there is any ambiguity in your will or trust as to how much you’re leaving each grandchild, and in what capacity, the door could be opened for greedy relatives to contest your plan.
Avoiding this pitfall: Be crystal clear in every detail concerning your grandchildren’s inheritance. An experienced estate planning attorney can help you clarify any ambiguous points in your will or trust.
5. Touching your retirement:
Many misguided grandparents make the mistake of forfeiting some or all of their retirement money to the kids or grandkids, especially when a family member is going through some sort of financial crisis. Trying to get the money back when you need might be difficult to impossible.
Avoiding this pitfall: Resist the temptation to jeopardize your future by trying to “fix it” for your grandchildren. If you want to help them now, consider giving them part of their inheritance in advance, or setting up a trust for them. But, always make sure any lifetime giving you make doesn’t leave you high and dry.
If you’re planning to put your grandchildren in your will or trust, we’re here to help with every detail you need to consider. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
Media mogul Sumner Redstone—owner of CBS and Viacom, among other holdings – allegedly created quite an estate planning mess, according to a recent report in the New York Times. An article dated June 2ndreports that “with a fortune estimated at over $5 billion, Sumner M. Redstone could afford the best estate planning that money could buy. What he ended up with is a mess—no matter the outcome of the welter of lawsuits swirling around him.”
Here are five lessons from the business titan’s problems:
1. Avoid making decisions that could complicate both your public image and your business situation. The New York Times reported that “A lawsuit brought by Manuela Herzer, one of Mr. Redstone’s late-in-life romantic partners, stripped him of whatever dignity he might have hoped to retain by publicly revealing humiliating details about his physical and sexual appetites and his diminishing mental capacity.”
2. Define “incapacity.” Mr. Redstone did (smartly) establish an irrevocable trust. However, his case is also a cautionary tale: if you're going to tie asset transfers or succession plans to your own mental state, you must define “incapacity.” If you don't, the state will. A seemingly trivial semantic argument like that could tie your estate up in court for years, pitting family members against one another in an embarrassing public battle.
3. Create a clear succession plan. Leave no doubt. Clarify how your businesses will be managed and by whom. Step down from leadership while you are mentally capable of making that decision, and give a safe and clear hand off to your successor. If you can, it’s much better to be deliberate and thoughtful about handoffs of authority, rather than waiting until things become unmanageable.
4. Make crystal clear what role your children will play once you are gone. Disenfranchised or estranged family members can wreak havoc on your fortune if you don't clarify what roles they will play in your business, your trusts, and your legacy after you are gone. If you don't spell out those roles, a court will. If you really want to, you can disinherit someone. But, you need to make sure you do it the right way for it to be legally effective.
5. Hire a qualified lawyer to troubleshoot your plan and help you game out contingencies. A lawyer with significant estate planning experience can help you deal both with the “known unknowns” and the “unknown unknowns” that can throw your estate planning strategy off course. The more complex your estate is, the more involved your attorney should be.
The IRS recently released proposed regulations which effectively end valuation discounts that have been relied upon for over 20 years. If the IRS’s current timetable holds, these regulations may become final as early as January 1, 2017. Although that date isn’t set in stone, I expect that the regulations will be final around that time or shortly thereafter.
With New Regulations Looming, What Should You Do Now?
As I mentioned before, the timetable isn’t set in stone. Luckily, there’s still a narrow window of time to implement “freezing” techniques under current, more favorable law, to save taxes and protect your family’s inheritance.
Depending on your circumstances, some options are going to be a better fit than others, and I want to make sure you get the best outcome possible. Some of these “freezing” techniques involve the use of a family business entity to own and operate your family fortune, in combination with one or more special tax-saving trusts. These plans provide numerous benefits including asset protection, divorce protection, centralized management of assets, and more – in addition to the tax savings.
Unfortunately, these types of plans can take 2-3 months to fully implement and time is running short.
So, here’s your action plan:
First, schedule an appointment with me as soon as possible. I’d like to get a time on the calendar so that I can take a look at the options that are available to you under current law between now and the end of this year.
Second, find your estate planning portfolio and take a look at it. If I prepared your plan, you’ll have a graphic that represents your current plan, making it easy to review. (If you can’t find it, let me know and I will send you another one.) If someone else prepared your plan, you might have a graphic summary or some other type of summary. Regardless of who prepared your plan, now’s a great time to review your plan. When we meet, I want to make sure that anything we do to help you protect your family’s inheritance from the IRS still achieves your overall planning goals - and not just the tax-saving goals.
Our firm is available to assist you with the immediate implementation of your wealth transfer plan using valuation discounts that are still available under current law.
In short, the answer is yes. It’s unrealistic to think that a piece of paper you draft, reflecting your life at a certain time, will work when your life has completely changed some years later. We’ll use the Thompson family as an example.
Meet the Thompson’s:
Meet Bill and Karen Thompson. They got their first estate plan in place when their daughter, Jessica was born 30 years ago. They updated it when their son Steve came along 4 years later. They attended one of our living trust seminars 10 years ago and got a fantastic trust-based plan in place, protecting themselves, their children, grandchildren, and dog, Beacon.
Unfortunately, the Thompson’s didn’t join a client maintenance program; instead, they elected to take on the responsibility of calling for updates themselves. Life got busy and, as you might guess, that didn’t happen.
Here’s what’s changed in their lives in the last 10 years. Jessica and Steve are now adults and through college.
1. Jessica has married and now had two daughters. One of the girls may have autism.
2. Steve is also married and is expecting his first child.
3. Karen’s mother is now living with them.
4. They bought a vacation home in Florida.
Do you think their estate plan will still work the way they want it to?
Changes in Your Own Life:
The Thompson’s have experienced a lot of changes, but those changes might be typical of what 10 years brings. Think about the changes in your life over the past 10 years—or—since you last updated your estate plan.
Here are some questions that if answered yes, should lead you towards updating your estate plan.
1. Have you moved?
2. Do you have more children or grandchildren?
3. Have you started a business, suffered health problems, or purchased a new home? Do you have new accounts and investments?
4. Do you now care for a parent, pets, or dependent children?
5. Have you remarried, gotten divorced, or retired?
6. Has someone you loved died?
7. Have friends named in your plan as trusted helpers moved away or has your relationship changed?
8. Are your children now adults and able to help you?
9. Do you want to help with grandchildren’s college or dance lessons?
10. Do you see the world in a different way?
Many things have happened in the past 10 years. Your estate plan needs to reflect the changes in your personal life, financial situation, and goals. There have also been changes in the law and we continuously learn to protect our clients in better and better ways, so the way we do things has changed.
Is Your Estate Plan Out-of-Date?
If you’ve experienced changes like the Thompsons or it’s been more than 3 to 5 years since you updated your estate plan, it’s time to come in. We’ll review your plan and chat with you about what’s been happening in your life, so we can get you and your estate plan up-to-date, reflecting where your life is now.
Trust protectors are a fairly new and commonly used protection in the United States. To summarize, a trust protector is someone who serves as an appointed authority over a trust that will be in existence for a long period of time. Trust protectors ensure that trustees: 1) maintain the integrity of the trust, 2) make solid distribution and investment decisions, and 3) adapt the trust to changes in law and circumstance.
Whenever changes occur, as they naturally do, the trust protector has the power modify the trust to carry out the Grantor’s intent. Significantly, the trust protector has the power to act without going to court—a key benefit which saves time and money and honors family privacy.
Here are 6 Key Ways a Trust Protector Can Protect You:
Your trust protector can:
Remove or replace a difficult trustee or one who is no longer able or willing to serve.
Amend the trust to reflect changes in the law.
Resolve conflicts between beneficiaries and trustee(s) or between multiple trustees.
Modify distributions from the trust because of changes in beneficiaries' lives such as premature death, divorce, drug addiction, disability, or lawsuit.
Allow new beneficiaries to be added when new descendants are born.
Veto investment decisions which might be unwise.
The key to making a trust protector work for you is being very specific about the powers available to that person. It’s important to authorize that person, and any future trust protectors, to fulfill their duty to carry out the trust maker’s intent - not their own.
Can You Benefit from a Trust Protector?
Generally speaking, the answer is yes. Trust protectors provide flexibility and an extra layer of protection for trust maker intent as well as trust assets and beneficiaries. Trust protector provisions are easily added into a new trust and older trusts can be reformed (re-drafted) to add a trust protector. If you have trusts you’ve created or are the beneficiary of a trust that feels outdated, we can help. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.
Did you know that irrevocable trusts can be modified? If you didn’t, you’re not alone. The name lends itself to that very belief. However, the truth is that changes in the law, family, trustees, and finances sometimes frustrate the trust maker’s original intent. Or, sometimes, an error in the trust document itself is identified. When this happens, it’s wise to consider trust modification, even if that trust is irrevocable.
Here are three examples of when an irrevocable trust can, and should, be modified or terminated:
1. Changing Tax Law. Adam created an irrevocable trust in 1980 which held a life insurance policy excluding proceeds from his estate for federal estate tax purposes. Today, the federal estate tax exemption has significantly increased making the trust unnecessary.
2. Changing Family Circumstances. Barbara created an irrevocable trust for her grandchild, Christine. Now an adult, Christine suffers from a disability and would benefit from government assistance. Barbara’s trust would disqualify Christine from receiving that assistance.
3. Discovering Errors. David created an irrevocable trust to provide for his numerous children and grandchildren. However, after the trust was created, his son (Jack) discovered that his son (Frank) had been mistakenly omitted from the document.
Are You Sure Your Trust is Still Working for You?
If you’re not sure an irrevocable trust is still a good fit or if you wonder whether you can receive more benefit from a trust, we’ll analyze the trust. Perhaps irrevocable trust modification or termination is a good option. Making that determination simply requires a conversation with us and a look at the document itself.
We all need a “do over” from time to time. Life changes, the law changes, and professionals learn to do things in better ways. Change is a fact of life - and the law. Unfortunately, many folks think they’re stuck with an irrevocable trust. After all, if the trust can be revoked, why call it “irrevocable”? Good question.
Fortunately, irrevocable trusts can be changed and one way to make that change is to decant the original trust. Decanting is a “do over.” Funds from an existing trust (with less favorable terms) are distributed to a new trust (with more favorable terms).
As the name may suggest, decanting a trust is similar to decanting wine: you take wine from one bottle and transfer it to another (decanter)—leaving the unwanted wine sediment / trust terms in the original bottle / document. Just like pouring wine from one bottle to another, decanting is relatively straight-forward and consists of these four steps:
1. Determine Whether Your State Has a Decanting Statute.
Nearly half of US states currently have decanting laws. If yours does, determine whether the trustee is permitted to make the specific changes desired. If so, omit step 2 and move directly to step 3.
If your state does not have a decanting statute, the answer isn’t as clear cut. While attempting to decant a trust in a state without a statute certainly can be done, it’s risky. Consider step 2.
2. Move the Trust.
If the trust’s current jurisdiction does not have a decanting statute or the existing statute is either not user friendly or does not allow for the desired modifications, it’s time to review the trust and determine if it can be moved to another jurisdiction.
If so, we can make that happen, including adding a trustee or co-trustee, and taking advantage of that jurisdiction’s laws. If not, we can petition the local court to move the trust.
3. Decant the Trust.
We’ll prepare whatever documents are necessary to decant the trust by “pouring” the assets into a trust with more favorable terms. All statutory requirements must be followed and state decanting statutes referenced.
4. Transfer the Assets.
The final step is simply transferring assets from the old trust into the new trust. While this can be effectuated in many different ways, the most common are by deed, assignment, change of owner / beneficiary forms, and the creation of new accounts.
Get the Most from Your Trust
Although irrevocable trusts are commonly thought of as documents which cannot be revoked or changed, that isn’t quite true. If you feel stuck with a less than optional trust, we’d love to review the trust and your goals to determine whether decanting or other trust modification would help.
When a bottle of wine is decanted, it’s poured from one container into another. When a trust is decanted, trust assets are poured from an old trust into a new trust with more favorable terms.
Why Should a Trust Be Decanted?
Trusts are decanted to escape from a bad trust and provide beneficiaries with more favorable trust provisions and benefits.
Here are 5 compelling reasons to decant your trust:
1. To clarify ambiguities or drafting errors in the trust agreement. As trust beneficiaries die and younger generations become the new heirs, vague provisions or mistakes in the original trust agreement may become apparent. Decanting can be used to correct these problems.
2. To provide for a special needs beneficiary. A trust that is not tailored to provide for a special needs beneficiary will cause the beneficiary to lose government benefits. Decanting can be used to turn a support trust into a supplemental needs trust, thereby supplementing, but not supplanting, what government benefits cover.
3. To protect trust assets from the beneficiary’s creditors. A trust that is not designed to protect the trust assets from being snatched by beneficiary’s creditors can be rapidly depleted if the beneficiary is sued, gets divorced, goes bankrupt, succumbs to business failure, or suffers a health crisis. Decanting can be used to convert a support trust into a full discretionary trust that beneficiary’s creditors will not be able to reach.
4. To merge similar trusts into a single trust or create separate trusts from a single trust. An individual may be the beneficiary of multiple trusts with similar terms. Decanting can be used to combine trusts into one trust thereby reducing administrative costs and oversight responsibilities. And, on the other hand, a single trust that has multiple beneficiaries with differing needs can be decanted into separate trusts tailored to each individual beneficiary.
5. To change the governing law or situs to a different state. Changes in state and federal laws can adversely affect the administration and taxation of a multi-generational trust. Decanting can be used to take a trust, governed by laws that have become unfavorable, and convert it into a trust that is governed by different and more advantageous laws.
You’re Not Stuck With Your Trust: We’ll Help You Escape:
We include trust decanting provisions in the trusts we create. Including trust decanting provisions in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust. Such provisions will help to ensure that the trust agreement has the flexibility necessary to avoid court intervention to fix a trust that no longer makes practical or economic sense.
You and your loved ones don’t need to muddle through with outdated and inappropriate trust provisions. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.