Posts under: Estate Planning

Creative Planning Options with a Revocable Living Trust

October 17, 2017 Business planning, Estate Planning, Uncategorized Comments Off on Creative Planning Options with a Revocable Living Trust

Estate planning is something most know they should do, but most American adults simply haven’t gotten it done.  In a survey available from AARP,  60% of American adults do not have an estate plan.  The number gets even higher for some minority populations.  In most cases, this is simply due to procrastination that “I just haven’t gotten around to it.”  Many people that I speak to as a lawyer simply don’t understand the consequences of passing away without an estate plan.

One of the primary reasons for a Trust is to avoid probate, which is a court supervised process for the distribution of a decedent’s assets (especially real estate) when a person dies without a trust.  However, the revocable living trust affords many creative planning opportunities that generally cannot be accomplished without a comprehensive estate plan.  Many individuals who have not consulted with a professional estate planner do not know the creative strategies that can be accomplished through a trust.  Examples of some creative planning opportunities include:

Planning for the Disabled

In general, eligibility for certain need based government benefits such as disability or SSI have restrictions based on income and assets.    Many people mistakenly assume that if they have a child or other dependent that is disabled or who otherwise relies on government benefits, that they should disinherit these disabled dependents in order to ensure that the dependents continue to qualify for disability benefits.  Disinheriting a dependent entirely just so they can continue to get disability represents a fundamental misunderstanding of the available options and often times simply indicates bad planning.  A “special needs trust” is a special type of trust that can allow a dependent to potentially receive funds and benefits from the trust without interfering with government benefits.    These types of trusts require very precise terms and conditions so that any benefits from the trust do not disqualify the dependent’s eligibility for the particular government benefit to which the dependent is or may be eligible.

Asset Protection for the Beneficiaries (Your Kids/Heirs)

A trust can provide significant asset protection for children who have difficulties handling money or who are otherwise high risk.  Most states allow trusts to contain “spendthrift” provisions which can restrict the ability of creditors of the beneficiary from reaching the beneficiary’s interest in the trust.  In general, a creditor can only reach assets from a debtor which the debtor himself/herself can reach.  Different states may have different rules and there may be exceptions for certain types of creditors (for example, claims by a spouse for alimony or child support may not be protected by a spendthrift clause).  In addition, the protection of the spendthrift provision general applies only to the beneficiary, not the original creator (i.e. the grantor) of the trust.  However, the spendthrift provision could be an effective planning tool to provide for your beneficiary without risking that the trust could be subject to that beneficiary’s creditors.

Planning for Blended or Non-traditional Families

Lets face it, our conception of the family unit from generations ago is constantly changing and evolving.   Many of us are now raised in blended families, or by individuals who were not our blood parents, or live in various types of family arrangements.  In most cases, the law has not evolved in recognition of these different family arrangements.   A primary purpose of the revocable living trust is to dictate how your loved ones will share in your legacy.  With a Trust, you can help ensure that certain individuals do (or don’t) share in your legacy.    Otherwise, leaving this decision up to the laws of the state could result in people you care for being cut off from your estate.   The most common example is someone who divorces and remarries but has children from the original marriage.  In many states, if that person passes without an estate plan (will or trust), the estate passes to the surviving spouse and the children from the first marriage are cut off.   Proper planning using the revocable living trust will help ensure that the people you wish to benefit will actually receive those benefits.

Planning and Supporting a Legacy

A trust is a very flexible document and can be drafted in different ways to support the ones you love but not allow the assets to be wasted.  Do you want to provide support to a grandchild, but not have it affect their eligibility for financial aide for college?  Do you want to help a child start a business, but not unless he/she first gets a college degree?   Do you want to assist your children to buy their first home, or finance their wedding?  A revocable living trust allows you to set terms and conditions for your generosity to ensure that your gift is used the way you wanted it to be used, and for nothing else.

Of course if you’re one of those people who feel that “I can’t take it with me so I’m going to spend it all now,” then perhaps these planning opportunities are not for you.  But for those who wish to leave a legacy behind for your loved ones (or loved causes) future and want it protected and preserved for this purpose, the revocable living trust can provide infinite possibilities to secure your legacy.

Estate Planning 101: 5 Tips to Avoid Mistakes

July 25, 2017 Estate Planning, Law, Litigation Comments Off on Estate Planning 101: 5 Tips to Avoid Mistakes

As I work with small business owners and investors throughout the year, I want them to see the big picture when it comes to Estate Planning. Many misunderstand what the Estate Plan is all about and think it’s simply an ‘asset protection’ strategy…that couldn’t be further from the truth.

An Estate Plan is about passing on your hard earned wealth to your loved ones, or a project/institution you love.  What a tragedy for a small business owner or investor to spend decades toiling to build wealth, only to have it crumble at the very end of their life because they don’t have an estate plan. YOUR wealth should go to what or who you love, NOT lawyers or to ungrateful and litigious family members fighting over who gets what.

Having said that, estate planning is not just for entrepreneurs or investors – anyone who has assets and/or a family should have an estate plan.  So here are 5 tips for avoiding mistakes when setting up an estate plan:

1. Putting It Off / Procrastination. Nobody likes thinking about dying.  But here’s a motivating factor to not put off your estate plan.  Imagine how you would feel if upon your death your assets went to your worst enemy (or at least someone you don’t like).  Although that’s an extreme thought, the reality is that if you don’t have an estate plan, you lose that control, that ability to decide who gets your assets upon your death.  So before you put off doing an estate plan, imagine your ex-spouse getting everything you own, and hopefully that is all the motivation you need to get your estate plan done.  The first step is to fill out an estate planning questionnaire.  Our questionnaire has all the basic questions you should be asking yourself when setting up an estate plan.  Then I would review those answers and we would schedule a consult to make sure everything is in order.

2. Making Sure the Estate Plan Fits You / Your Situation. It doesn’t make sense to have an elaborate expensive estate plan if that’s not necessary.  It also doesn’t make for a successful business owner or investor to pay $99 for a boilerplate estate plan off the internet.  The key is making sure your estate plan is a good fit for your  You don’t want it bigger and more expensive than it needs to be, but you also want to make sure it is comprehensive and custom-fitting to your circumstances.  Our office can assist with making sure it’s a good fit for your situation.

3. Not Knowing the Difference Between Creating a Trust and Funding a Trust. One of the biggest tragedies is when someone finally gets an estate plan with a revocable living trust but they fail to FUND the trust i.e. put assets into the trust.  Certainly the trust can’t own assets until it is created, but simply creating the trust without funding it is insufficient.  Creating your revocable living trust is a matter of getting the documents drafted and properly executed/signed.  Funding your trust is a matter of actually putting your assets into the trust.  The manner in which this is accomplished depends on the asset.  Some assets require having ownership re-titled into the name of the trust.  Other assets simply require having the trust listed as the beneficiary.  But if you create the trust but don’t fund it, you’re missing arguably the most important step in the process of estate planning.  If you created a trust but are unsure if it’s been funded appropriately, our office can assist with this.

Here is a video by our senior partner here at KKOS lawyers, Mark J Kohler, explaining 4 reasons why you might need a trust. Understanding the role and purpose of a trust can help you fund it and maintain it properly.


4. Understanding that Estate Planning is Not Just About Death. If death isn’t reason enough to have an estate plan, what about incapacity?  Imagine the impact on your business and your life if you lost your mental capacity either because of a coma or something less dramatic.  You would no longer be able to make important decisions about your business and your life.  A good estate plan will include documents that address this.  So make sure your estate plan has the appropriate documents for death AND disability/incapacity.

5. Knowing When to Make Changes / Take Ownership of Your Estate Plan. Your estate plan is meant to be a living, breathing thing that should probably be changed as your life circumstances change.  If you plan to setup an estate plan and hope to leave it alone until you die, there’s a good chance either the applicable law will have drastically changed or your intent will be completely different than it was when you first set it up.  So if you put your best friend as a beneficiary of your trust and then you guys become worst enemies, it’s a good idea to update to your trust.  If your trust was written when your kids were little and they’re now adults, it’s probably a good idea to update your trust.  If you put your brother as the successor trustee of your trust with no backup and he died 5 years ago, you need to update your trust.  Basically, if the nature of your relationship with anyone you’ve listed in your estate plan has materially changed, it’s time to update your trust.  Now if someone’s address changes or something minor, you don’t necessarily need an overhaul of your estate plan.  The other part of this tip is making sure you take ownership of your estate plan.  Hopefully you get an attorney to draft it but even so, you should know the basics of your estate plan such as who the trustee(s) is/are and who are the beneficiaries, so that as your life changes and your relationship with these people change, you know if a change needs to be made to your estate plan.  For example, I have talked to many people who obtained an estate plan previously and they don’t know who the beneficiaries are or who the trustee(s) is/are or what the trust owns.  While you don’t need to know the legal jargon you should know these basics about your estate plan.

Hopefully these tips will get you thinking about setting up your estate plan or updating it if you already have one and your situation has changed from when you set it up originally.  Our estate plans come include a one hour consultation so you’re getting sound legal advice tailored to your situation, and not just boilerplate paperwork. Please contact our office at 888-801-0010 to book a consultation with an attorney to start the process. Any retainer will be applied to the cost of setting up the entire estate plan.

How to Donate to Charity and Beat the Tax Man

June 20, 2017 Estate Planning, Real Estate, Tax Planning Comments Off on How to Donate to Charity and Beat the Tax Man

I have a close relative who works in fund-raising for a fairly large university.  While he loves receiving large charitable donations in the form of immediately available cash or other marketable assets (such as real estate and publicly-traded stock), he knows that such donations are often simply not possible or practical for the average person.  This is why a huge buzzword in the world of fund-raising for non-profits is “Planned Giving.”

What Is “Planned Giving”?

Planned Giving is the present day legal commitment by a donor to give some assets or property to a charitable organization or institution at a future date. The future date is usually the death of the donor.

There are several types of planned gifts. Some people make outright gifts of assets such as appreciated securities or real estate.  Some planned gifts are payable upon the donor’s death such as a life insurance policy where the beneficiary is a charitable organization.  Still other planned gifts provide a financial benefit, as well as a tax deduction, for the donor.  Examples of this are: 1) Charitable Remainder Trusts, which provide an income stream for the donor, and at the death of the donor, the charity receives what is left in the trust; and 2) Charitable Lead Trusts, which essentially do the opposite and produce a stream of income for a charity, and the donor’s heirs receive what remains in the trust when the donor passes away.

What Is a Charitable Remainder Trust (“CRT”)?

A CRT is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to a designated charity. If you have a highly appreciated asset (e.g. real estate), the CRT will avoid capital gains taxes that would otherwise be due if you or your company sold the asset.

Who Should Be Thinking About a CRT?

People who:

  • Have a highly appreciated marketable asset (usually real estate or stock);
  • Want to save on taxes (i.e. they don’t want to take the capital gains tax hit);
  • Want an income stream over the rest of their life or over a certain number of years;
  • Want to make a donation to charity; and
  • Want to totally or partially disinherit their children. This isn’t the case if you structure it correctly!

How Does a CRT Work?

The diagram below goes through the steps involved in a CRT.  However, in a nutshell:

1)   A tax-exempt trust is created with the help of a professional.

2)   The donor places the asset in the CRT.  Are taxes due here?  No – and the donor gets a charitable deduction for making the donation that he/she can carry forward for up to five years!

3)   The property is sold to a third party and the proceeds are deposited into a CRT-owned account.  Are taxes due here?  Not if the property is owned free and clear!  These proceeds are then invested, and no taxes are owned when those investments appreciate in value!

4)   Payments in a set amount or set percentage are made from the CRT account to the donor on a regular basis (quarterly, annually, etc.).  Payments are either made for the life of the grantor or for a term of years.  Are taxes due on this income?  Yes, but the charitable deduction gained when the donation is made can be used to offset at least some of this income!

5)   The donor can use some of the income from the trust to buy a life insurance policy in order to make sure their heirs aren’t left out in the cold.  Do beneficiaries owe tax when they receive life insurance proceeds?  No!

6)   In some cases, the life insurance proceeds may be in the multiple millions of dollars, and could cause an estate tax problem for the heirs.  This issue can be taken care of by the proper use of an Irrevocable Life Insurance Trust (“ILIT”) – which is another subject for another day.

7)   At the death of the donor, or at the end of the term of years, whatever remains in the CRT is donated to the charity.  Does anyone owe taxes here?  No!



Who Are the Winners and Losers in a Properly-Structured CRT?

1)   The Donor – Winner!  Because he or she gets to avoid the capital gains hit on selling a highly appreciated asset, gets a tax advantaged stream of income, and gets to make a charitable donation that gives them warm fuzzies – and may end up helping to get their name on a building at their favorite university!

2)   The Charity – Winner!  The charity gets an irrevocable promise from the donor to donate assets at some point in the future.  With good investment of the funds in the CRT, the final donation to the CRT can end up being significant.

3)   The Donor’s Heirs – Winners!  Instead of inheriting a piece of appreciated real estate that they need to market and sell, they get tax-free life insurance proceeds, and will avoid possible estate tax issues if an ILIT is used.

4)   The IRS – Loser (for once)!  When properly structured, the only taxes paid in all of these transactions are those owed by the donor when they receive payments from the trust.  However, the charitable deduction will offset at least some of this income.

Now, there are plenty of details to sort through, but please give me a call if you’d like to discuss the CRT further and find out if it is something that might make sense for you.

What You Should Know about Administering a Family Member’s Estate

May 23, 2017 Estate Planning, Law, Retirement Planning Comments Off on What You Should Know about Administering a Family Member’s Estate

Most of us will, at some point in our lives, be called upon to administer the estate of a departed family member or loved one. While it may seem like an honor to have been entrusted with this responsibility, the reality is often it is a thankless, time consuming job, and even more so if there are disagreements and disputes among the heirs or beneficiaries of the deceased.

Being asked to shoulder the responsibility of administering a decedent’s affairs while still mourning their loss can be challenging. The precise rules and procedures that apply will depend on whether the decedent had a trust that was fully funded, whether probate will be necessary because the either decedent did not have a trust or did not fully transfer all relevant assets into the trust.

It will also depend on which state laws apply as well as the value of the estate. Keep in mind that it is impossible to provide an all-encompassing checklist that applies to each family situation and the procedures may vary greatly depending on if the decedent had a will or a trust. However, here are some general guidelines to keep in mind, some of which may or may not apply depending on the situation:

  1. Seek Professional Advice.   This is something you may only do once in your lifetime and Google is not going to give you all the answers you need.  Also, keep in mind you do not have to go at this alone. Depending on the value of the estate and its complexity, you may want to employ the services of professionals such as attorneys, CPAs, appraisers, etc. to assist in navigating your responsibilities. Typically this would entail an estate attorney, a CPA knowledgeable in estate and income taxes, and a financial advisor, although additional professionals may be needed depending on the situation. Usually, these fees would be paid from the decedent’s estate and so there should be no financial disincentive to seek help if needed. There may be certain actions, decisions, procedures or deadlines that need to be met in a timely manner, which could impact the ability of heirs or creditors to make claims or challenges to the estate. Most people are not aware of these rules and deadlines and so getting the right advice from the start may be good protection for both you and the estate.
  2. Inventory and Secure the Decedent’s Assets & Important Documents. A trustee or administrator of an estate is charged with the duty to assemble, inventory and safeguard the decedent’s assets and important documents. In the immediate aftermath of a death, it could be a chaotic situation with visitors and relatives coming and going and, as the representative of the estate or trust, it is incumbent on you to safeguard the important assets and documents. You will need to determine whether the decedent had a will or trust, and assemble all important documents, contracts, bank accounts, financial accounts, safe deposit boxes, investment accounts, unpaid wages or other income sources, mortgages, insurance policies, retirement accounts, social security or other government benefits, pensions, real estate, businesses, prior tax returns, digital assets (email, social media accounts), etc. of the decedent. It may take some investigation into the files of decedent or interviewing the family members to uncover all potential assets and liabilities, and don’t assume decedent told you everything there was to know. A separate bank account will likely need to be set up for the estate or trust, and never comingle your personal finances with the estate/trust finances. You will need to obtain several certified copies of the death certificate in order to establish control over certain accounts held by third party custodians/banks. Some assets such as real estate may need to be appraised to determine the fair market value for purposes of estate taxes, reporting, or for distribution.
  3. Gather and Assemble a List of Decedent’s Creditors. This does not necessarily mean that you will immediately pay every bill as soon as it arrives. Rather, there could be other expenses that take priority such as funeral expenses or federal and state taxes. As a trustee or administrator of the estate, you could get into trouble by paying expenses that then leaves the estate unable to meet its tax or other priority obligations.   It is important to try and get a broad picture of the Decedent’s overall financial situation, including factoring in potential tax liabilities, in order to establish a game plan for administering the estate or trust and paying creditors. Of course, some debts such as mortgages or car payments need to be timely made to prevent the account from going to default, but have a concerted strategy for handling Decedent’s creditors. If it appears that the estate may not have sufficient assets to cover all liabilities, then professional assistance or assistance from the courts may be needed to determine how to prioritize payments.
  4. Notify Decedent’s Heirs and Beneficiaries. Some states have time requirements on when heirs and beneficiaries should be notified and whether they are entitled to receive a copy of Decedent’s will or trust. Their ability to bring challenges to the trust or estate may depend on when they were first notified and so seek help to determine the requirements in your situation and document your communications with heirs and beneficiaries.
  5. Manage the Assets of the Estate Prudently and Obtain the Consent of Heirs or Beneficiaries for any Major Actions. As the trustee or administrator, you are a fiduciary and must act in the best interests of the beneficiaries or heirs. You generally have a duty to manage and invest the assets as a reasonably prudent investor would and can be held personally responsible for failing to do so. Therefore, seek the advice of legal and/or financial counsel regarding any issues with managing or investing the assets of the estate, and if a decision needs to be made regarding an important asset (such as selling the asset, making significant improvements to real estate, etc.), consider obtaining the written consent of all beneficiaries before authorizing such action.
  6. Distribute the Assets to the Heirs/Beneficiaries. Once all the creditors and taxes have been paid and the estate is in a position to be distributed to the beneficiaries, an accounting may need to be performed and approved by the heirs/beneficiaries, and then the assets of the estate/trust may be distributed and estate or trust closed.

Again, keep in mind these are only general guidelines for administering trusts and estates and there may be specific state or federal requirements and deadlines that will apply to your situation. If you have a particularly large estate that may implicate state or federal estate taxes, there are likely additional requirements and deadlines and so it is recommended that you check with appropriate professionals as soon as possible for large estates.

For smaller estates or assets with lower value that are not held in trust, there may be other options for distributing those assets without the need for probate.   The rules and procedures can be rather complex depending on the state and the situation and so make sure you consult with appropriate professionals to ensure you are complying with your responsibilities as a fiduciary for the estate/trust.

Business Succession: When Corporate Governance and Estate Planning Converge: Are You Setup Properly?

March 28, 2017 Business planning, Corporations, Estate Planning Comments Off on Business Succession: When Corporate Governance and Estate Planning Converge: Are You Setup Properly?

You may have heard in the news recently that there’s been some fighting among the ownership team of the Los Angeles Lakers. When Dr. Jerry Buss, the majority owner, died in 2012, his ownership passed to his six children via a trust, with each child receiving an equal vote/share.

His succession plan had his daughter Jeanie take over his position as the Lakers’ governor as well as its team representative at NBA Board of Governors meetings. This last month, there’s been a fight between her and certain of her brothers that has become a power struggle filled with plenty of contention and legal fees. They appear to have settled this particular dispute but there were a lot of moving parts to their particular situation especially because of NBA rules, etc., so in that sense, what happened with the Buss family is unique.

However, what is not unique is that every business owner faces the same dilemma that Dr. Buss faced before he died – how to pass their business to their loved ones properly and effectively through corporate documents and estate planning. We have many clients who are confronted with this. With that in mind, here are a few tips and items to consider:

  1. Make Sure You Have the Right Entity and the Right Trust. There are a number of different entity structures you might have for your business and there are just as many, if not more, different type of trusts. If you aren’t properly setup, it’s going to make your business succession plan very difficult. In the case of Dr. Buss, at least he had a trust, and what turned out to be a month long dispute might very well have turned into a much longer dispute but for the trust. However, just having a trust is not the end-all be-all, rather, you need to make sure it’s the right type of trust and also that it contains the appropriate provisions for your circumstances.
  1. Have Your Corporate Documents Reviewed and Amended if Necessary. This is critical especially when you have business partners. Hopefully you have something in place currently in terms of corporate governance documents, whether it’s an operating agreement, partnership agreement, bylaws, and/or a shareholder agreement. If so, don’t assume it covers this issue and/or that is covers this issue in the best way for you based on your circumstances. The provisions you’ll want reviewed include but are not limited decision-making, ownership rights, transfer of ownership, etc.
  1. Consider A Plan To Transfer Some or All of Your Business Ownership To Your Loved Ones During Your Lifetime. You can wait until you die to have your business ownership transfer to your loved ones, or during your lifetime, you can strategically phase the transfer of ownership in your business to your loved ones over time. There are pros and cons to both approaches. With the former approach, it could increase the likelihood of estate tax liability. With the latter approach, you can be directly involved in the transfer of ownership and if handled carefully, it can decrease the likelihood of estate tax liability. This is where meeting with a professional can help you make a good decision here.
  1. Don’t forget to plan for incapacity. If your estate plan and business documents properly transfer your ownership to your loved ones, then you’re ahead of the game, but that is only half the battle. You also need to plan for incapacity. Such an event, if not properly planned for, can have a devastating effect on your business. You may recall back in 2014 another NBA owner, Donald Sterling, of the Los Angeles Clippers was ruled mentally incompetent and it affected his rights as owner of that team.

In summary, don’t own an NBA team from Los Angeles, but if you do, or if you own any other business, make sure you have a coordinated set of documents in terms of the corporate documents that govern your business and your estate plan documents, and that you’ve addressed not only death in said documents, but disability as well.

You’ve worked hard to build your business and when your intent was for the business to provide peace and stability for your family, the last thing you want is fighting and instability. If you are a business owner, please call our office so we can assist with this critical topic.

Estate Planning After a Spouse’s Death

December 28, 2016 Estate Planning Comments Off on Estate Planning After a Spouse’s Death

It’s hard to consider the grief and sorrow that comes when a spouse passes. However, the year following the death of a spouse is an important one for the surviving spouse as there are number estate planning considerations and decisions to be made. This article is primarily concerned with those who survive the deceased, specifically the “surviving spouse”.  Here are a few estate planning items for the surviving spouse to consider:

  • Take care of your deceased spouse’s estate. Hopefully the deceased spouse had all of his/her assets inside a trust or through other means of avoiding probate court, such as joint tenancy or using beneficiary designations.  If not, then the deceased spouse’s estate will need to be administered via the probate court process.  This is a state-specific process and one that should be handled by a licensed probate attorney in the state where the deceased spouse was living at the time of their death.  Often times this responsibility falls on the surviving spouse to oversee this process, unless the deceased spouse had a will and appointed someone else to be the Executor/Personal Representative of the state.  If the surviving spouse is tasked with this responsibility, since there are typically deadlines that need to be met (again, state specific) and because the surviving spouse will likely be in mourning, I strongly recommend engaging a licensed probate attorney to handle this.
  • Comply with the provisions of the family trust, if one is setup, as it pertains to your spouse’s death. Hopefully you and your spouse have a trust (either a joint family trust or some version wherein sub-trusts are created, or a separate trust for each spouse depending on the circumstances).  If so, then such a trust very likely provides instructions as to what needs to happen upon the death of the first spouse.  The surviving spouse is probably the trustee who has the legal responsibility to carry out the provisions of the trust, in which case, like #1 above, it is strongly recommended to receive legal advice on how to accomplish this.  But sometimes the surviving spouse is intentionally not selected as the successor trustee in which case if the surviving spouse is the beneficiary of such a trust, they should make sure they have a copy of the trust reviewed by an attorney to ensure that their rights as beneficiary are recognized by the trustee.
  • Make the portability election as needed. As you may have heard, there is the dreaded estate tax. Well, actually, similar to income tax, there is an exemption amount.  In the case of estate tax, the exemption amount is currently $5.45M.  That is per individual, so with a married couple, it’s $5.45M x 2 = $10.9M!  That’s a fairly large exemption so it’s not as common as it once was for estate tax to be due.  Portability is when the surviving spouse claims the deceased spouse’s unused portion of the deceased spouse’s estate tax exemption limit.  For example, assume the deceased spouse dies with a taxable estate of $1.5M.  The deceased spouse still has $3.95M ($5.45M-$1.5M) available that is not used.  The surviving spouse, unless the law changes, still has $5.45M available as an estate tax exemption but by making the portability election on the deceased spouse’s estate tax return, they can claim the deceased spouse’s unused portion as well thereby increasing the available exemption amount for the surviving spouse to $9.4M ($5.45M + $3.95M).  Although it might not be necessary in all situations, this can be very helpful to a surviving spouse, particularly one who has taken over the family business and/or real estate, which value could appreciate significantly over their lifetime.  The surviving spouse should talk with a competent estate planning professional as soon as possible following the death of the deceased spouse because there are deadlines to make the portability election (typically 9 months from the death of the first spouse).
  • Make any disclaimers as appropriate. Although most of us wouldn’t intentionally pass up our inheritance, there are many, who for various reasons choose to do so.  A surviving spouse for example, particularly one who is well-off or has significant assets, may decide to disclaim a certain portion of the assets that would otherwise transfer to them from the deceased spouse as a way to mitigate the estate tax liability that might confront the surviving spouse upon their death.  Like the portability election, there are deadlines to make disclaimers (no later than 9 months following the death of the deceased spouse).
  • Revise your estate plan as needed. If you and your spouse had an estate plan before his/her death, the chances are likely that some updates will need to be made now that it’s just the surviving spouse.  If no estate plan was created before the death of the deceased spouse, it is critical that the surviving spouse meet with a competent estate planning professional to setup an estate plan because, unless the surviving spouse re-marries, there is no way to take advantage of the unlimited marital deduction (under estate tax law, a spouse can give un unlimited amount to their spouse as a deduction against any estate tax that would otherwise be due).  In reality, a lot of the nuts and bolts of estate planning occurs once it’s just the surviving spouse because now we’re inevitably looking for the most efficient way to transfer the assets to the next generation.
  • Revise Beneficiary Designations. If the surviving spouse receives a retirement account from the deceased spouse such as an IRA, the surviving spouse can elect to rollover that account to an IRA in their own name.  The surviving spouse should counsel with their attorney and tax professional regarding the best manner to receive the retirement account from the deceased spouse, but regardless of which manner is preferable, the surviving spouse should revise/update beneficiary designations on such accounts.

It can be a very stressful and sad time when someone has recently lost their spouse, and unfortunately, it’s not a good time to put your head in the sand when it comes to these matters.    If you would like to schedule a consult to discuss these matters, please contact our office at 602-761-9798.

Estate Planning: Recent Questions from our Clients

October 1, 2016 Estate Planning, Real Estate, Retirement Planning Comments Off on Estate Planning: Recent Questions from our Clients

In my experience, estate planning is one of the most important, and simultaneously least understood, areas of the law. Perhaps this is because none of us ever see how our own estate plan (or lack thereof) plays out after we are gone. Maybe it’s because there’s just a certain amount of mystery associated with death. Or it might be because people just don’t want to deal with death or the consequences thereof. Whatever it is, there just seem to be a lot of myths and half-truths circulating around this area of the law, and when clients actually get started with their estate plans, they tend to have a lot of questions.

At KKOS, the first line of defense on many of those questions is our fantastic estate planning paralegal, Julie Deck. Julie and I came up with a list of some of the most frequently asked estate planning questions, and I will answer them below:

Do I need a will if I have a trust?

The answer to this is a pretty emphatic YES! In a comprehensive estate plan, the trust is definitely going to be the star player. The trust is where you name beneficiaries as divide up assets owned by the trust. If you have done your estate plan correctly, you have “funded” the trust with the vast majority of your assets – things like real estate, interests in LLC’s and corporations, bank and brokerage accounts, and beneficiary designations for retirement accounts and life insurance policies.

However, the trust only deals with assets it owns. If for some reason you fail to “fund” the trust with the correct assets, then your will kicks in to deal with these assets. When you have a trust, your will will essentially say “distribute my assets as my trust directs,” but having the will in place is crucial to make sure the decisions you make in your trust are honored. If you have a trust, but no will, and you die with assets titled in your own name, then those assets may end up being distributed according to your state’s intestacy laws – instead of how your trust directs.

The will is also where you designate a guardian for your minor children and/or adult children with special needs. This makes sense because the trust only deals with assets it owns – and it doesn’t own your kids! Making this guardian designation is an absolutely crucial step for parents. Without a will, the question of who will be your children’s guardian is left to the courts, and I have personally seen the bitterness that can ensue when in-laws fight over who is supposed to watch after the children left behind when parents die.

Can a beneficiary of my trust also be my Successor Trustee when I die?

Absolutely, although it certainly isn’t required. This is actually usually what people choose to do. They typically name all their children as equal trust beneficiaries, and then designate one or more of those children as the Successor Trustee(s). However, this can open up the Successor Trustee to claims of bias or conflict of interest – especially in highly emotional situations or situations where the beneficiaries don’t necessarily get along. To avoid claims of bias, someone who is both a beneficiary and a trustee may want to take measures to safeguard his position. Such steps include: choosing an estate planning attorney to mediate or oversee the process, using fair methods for dividing unassigned personal property with emotional value, and involving an impartial appraiser if real property is involved. If an individual feels he cannot impartially act in both positions, an independent third-party can always be appointed to serve as trustee.

How do my assets actually get into my trust?

This is a very important question, because as I mentioned above, your trust only deals with assets it owns. If the trust doesn’t own any assets, then it’s really nothing more than a very expensive paperweight. Some people seem to think that assets magically get poured into the trust upon execution. Obviously, that isn’t the case. Different assets are transferred into a trust in different ways. Here is how the most common trust assets make their way into a trust:

  • Real Estate – must be deeded into the name of the trust by executing and recording a deed.
  • Corporation, LLC, and Partnership Interests – a formal stock, membership interest, or partnership interest agreement is executed and kept in the corporate book of the company involved.
  • Bank and Brokerage Accounts – you can speak with the financial institution(s) where you hold your accounts and they will help you execute documents to change ownership of those accounts into the name of the trust.
  • Retirement Accounts – the trust doesn’t actually become the owner of any retirement account during your lifetime. However, it can be named as a death beneficiary of any such accounts. You can make the necessary changes by requesting a beneficiary designation form from your account administrator.
  • Life Insurance Policies – you can name the trust as a beneficiary on life insurance policies as well.

How do I know the trustee I select isn’t just going to do whatever they want with my assets after I die?

You don’t know for sure! This is why it is very important to select responsible and trustworthy people to serve as trustees. It can also be a reason to select co-trustees who are required to act together. This ensures there are always two sets of eyes on every transaction. Another option is to name a third-party trust company, attorney, or accountant to serve as trustee (of course, these people will also charge for their time in acting as a trustee). Additionally, trustees are bound by a fiduciary duty to execute the trust as you direct. If they fail to do so, they can be sued by the beneficiaries, and the penalties can be steep.

In summary, these are just a few of the most common questions we get when helping clients with their estate plans. There are many others, and you may have specific questions that may not pertain to anyone else’s situation. That is why it is so important to get a knowledgeable estate planning attorney involved when you are making these important decisions.

Go for the Gold…and Keep It – What to Do If You Receive a Financial Windfall

August 9, 2016 Business planning, Estate Planning, Retirement Planning, Tax Planning Comments Off on Go for the Gold…and Keep It – What to Do If You Receive a Financial Windfall

I don’t know about you, but right now, every evening, I find myself riveted to the screen, breathlessly taking in action in synchronized diving, archery, water polo, and even rhythmic gymnastics!  This can only mean one thing (because I would never otherwise watch any of these sports) – it must be time for the Summer Olympics!

Every four years, the world gathers for this ultimate showcase of athletic talent, and almost without fail, each Olympics produces a singular performance from an individual who wins at least one gold medal and becomes a superstar practically overnight.  For these lucky few (I’m thinking of people like Mary Lou Retton and Michael Phelps), an Olympic gold medal truly does change their life.

They come home to millions in endorsement deals and other sources of income.  Their gold medal basically becomes a winning lottery ticket, and they’re not the only ones.  Most countries actually hand out bonuses for Olympic triumphs.  American competitors who bring home the gold will also bring home $25,000 in cash for each first place finish.  While that’s certainly nothing to sneeze at, Vladimir Putin is a little more generous, dishing out roughly $61,000 for each Russian gold medal.

However, according to Forbes, the real big money comes from a few countries that are a bit more starved for Olympic glory.  Azerbaijan is handing out $255,000 for each Olympic gold. Indonesia will shell out $383,000.  And the gold medal for gold medal payments goes to Singapore, which will make its athletes $753,000 richer for striding to the top of the medal stand to the strains of Majulah Singapura – the Singaporean National Anthem.

Both the American Olympic-made superstars, and any Singaporean or Indonesian who wins gold, will return home to a world filled with very different financial realities than the one they left on their way to Rio.  The same can be said for everyday folks who come into a financial windfall.  Whether the money comes from winning the lottery, winning or settling a lawsuit, an inheritance, or an investment paying off in a huge way, there are several important steps you should take to make sure you are able to keep (and perhaps even grow) what has come your way.Put Together

  1. Your Own Financial “Dream Team”. This is especially important if you’re unaccustomed to dealing with large sums of money.  You will be well-served to bring on board an experienced and honest financial planner/advisor, as well as a CPA, an attorney, and an insurance professional to help you deal with the tax and legal issues that will (not may) come up.
  2. Take Your Time. Be wary of those who will almost certainly come out of the woodwork with investment opportunities that are a “can’t miss” but that require you to “strike while the iron is hot.”  Your windfall should afford you the time to sit down with your advisors and family members about what your priorities are for the money.  Is paying off your mortgage the most important thing?  Maybe it’s paying for your children’s college education.  These are decisions that need to be made before making any particular investments.
  3. Review and (If Necessary) Revise Your Estate Plan. That will you had drawn up when you first got married and had no kids may be woefully inadequate (not to mention inaccurate) now that you have children and have experienced a financial windfall.  The extra assets may significantly increase the complexity of your estate.  If it’s large enough, the windfall may also put you in a situation where you need to start thinking about, and planning to negate, the effects of estate taxes.  If you are in this situation, please go talk to your estate planning attorney (or hire one) as soon as possible.
  4. Think Twice Before You Quit Your Day Job. You may be tempted to quit your job, but quitting may actually be a really bad idea. What if your tax burden is higher than you anticipated?  In addition to the obvious loss of wages, you might also miss many of the workplace benefits, such as tax-advantaged retirement accounts, health insurance, or even the sense of purpose and well-being that comes from going to work.  If you do quit your day job, think about replacing it with something entrepreneurial in nature.  Being self-employed can give you that sense of purpose, and can provide you ways (such as a Solo 401k) to continue to receive benefits similar to those of being someone else’s employee.
  5. Don’t Forget About Taxes. It is vitally important to ascertain as quickly as possible what the net after-tax value of your windfall will be, keeping in mind that you will need to keep enough cash on hand to actually pay those taxes. In making this determination, you’ll likely need to take into account income, gift, and estate taxes, on both the federal and state levels.  There are also legitimate strategies that may help you put a dent in your tax bill.  However, be very cautious of anyone who says they have a strategy to eliminate taxes completely – especially if that strategy involves going off-shore.  A good CPA will help you make sure you are paying Uncle Sam everything he is owed, and not a penny more, without the risk of going to jail.

If fortune smiles upon you and a financial windfall comes your way (whether by inheritance or by winning a gold medal for Singapore), please take the necessary steps to avoid losing it, and to avoid losing things that are even more important – like your family and friends.  It seems crazy, but statistics show that 44% of lottery winners are broke within five years of winning their jackpot.  Studies also show that lottery winners frequently become estranged from family and friends, and incur a greater incidence of depression, drug and alcohol abuse, divorce, and suicide than the average American.  While not a guarantee of anything, taking the steps laid out above can help you avoid becoming a part of those sad statistics.

5 Important Reasons to Avoid Probate

May 31, 2016 Estate Planning, Law Comments Off on 5 Important Reasons to Avoid Probate

Anyone with a basic understanding of estate planning knows that one of the primary benefits of having a living trust is to avoid probate. Nevertheless, unless you are an attorney or have been personally involved in a probate proceeding in the past, few people have an understanding of what probate really is and why it is not recommended for most estates.

Probate is a court supervised process for administering and (hopefully) distributing a person’s estate after their death. When a person dies leaving property (especially real estate) in their name, the only way to transfer ownership from the deceased owner’s name to the name of their heirs is for a court to order the transfer through the probate process. In other words, since a deceased owner of property is no longer around to execute deeds, only a court can effectuate the transfer of real property after the owner dies, and probate is the legal process by which this would occur.

Many people have the misconception that having a will alone avoids the probate process. A will merely informs the world where you want your property to go, but probate is still needed to carry out the wishes expressed in the will (since even with a will, property stays in the name of decedent). Only a trust can avoid probate because once you have a trust, all of your assets are then transferred to the trust during your lifetime thereby avoiding the need for a court to do so.

There are plenty of stories of heirs for high profile individuals who have had to suffer through the probate process, from Jimi Hendrix to Heath Ledger, and now most recently Prince. For some estates, probate might be a good alternative, but consider these five reasons why you would want to avoid having your estate pass through probate:

  1. Probate is a public proceeding. As with any court proceeding, the court hearings and documents in probate are completely open to the public. For example, anyone who is curious about James Gandolfini’s (aka Tony Soprano) will can easily find this online, which contains detailed information on his finances, property, and his family members. In fact, probate courts typically require filing an inventory and accounting of the entire estate with the court. Anyone can simply visit the probate court and view or copy probate records, and some courts even make this information available online. If you have any interest in keeping your finances, property or family members secret upon your death, you want to avoid the probate process.
  1. The personal representative has to formally notify all your creditors of your death. One of the primary purposes of probate is to afford creditors the opportunity to have their debts with the decedent settled through the probate process. In fact, one of the first steps in the probate process is to specifically notify all known or reasonably ascertainable creditors that decedent has died, and therefore, if they want anything, they need to act now. Once a creditor has been notified, they merely need to file a claim with the probate court within the time allowed and will be entitled to payment from the probate estate (assuming it is not contested and there are assets are available to pay).
  1. Probate is a court supervised process. In many cases in probate, court approval is required at every step in the process, from appointing the initial personal representative for the estate, proving the will (if any), confirming dispositions of property, approving the inventory and accounting of the estate, settling disputes between creditors or beneficiaries of the estate, and final distributions of the estate. The process is fraught with rules and procedures that must be followed in order to obtain court approval. For example, selling real estate through the probate process may entail securing formal appraisals, offering the property for sale through a court bidding process, and ultimately obtaining court approval for the final sale. By contrast, since a trust is usually administered without any involvement of a court, the makers of the trust can be very flexible in how their property will be distributed without the need for a lot of formalities that a court would require.
  1. Probate involves time and delay in administering and distributing the estate. Given all the court procedures and requirements of administering a probate estate, even the most simple and uncontested probate proceedings can take many months to a year. If there are claims, disputes, or other complications in the proceedings, the process can take much longer. As an example, it was reported that probate estate for country singer John Denver lasted over six (6) years, meaning that his heirs had to experience years of delay before they were able to receive what was their rightful inheritance. As courts continue to report reduced funding and large caseloads, increasing delays will likely continue to be part of the probate process.
  1. Probate usually involve significant attorney’s fees. Although parties certainly have the option to represent themselves in probate, due to all the procedural requirements in probate, which is usually quite different from the procedures in a typical lawsuit, attorneys are usually recommended in all but the most simple of probate estates. Attorney’s fees are usually paid from the estate based on a percentage of the value of the estate. For example, in California, the fees to administer an estate with a single property valued at $300,000 would be approximately $9,000. If there are complications in the estate administration that requires extraordinary services, the fees would be even more. Compare this with our typical estate planning services whereby we can usually set up the entire estate plan for around $1,500 and avoid these unnecessary attorneys’ fees for a probate.

This is not to say that probate is undesirable in every case. Indeed, since probate is a court process, it might be a good idea in some cases especially if the estate wishes to have the finality that a court order provides.   For example, if an estate wishes to reduce the timeline for which creditors can pursue the estate, a probate may be advantageous since creditors have only a limited time window to file their claims. If heirs having an interest in the estate fear the possibility of ongoing disputes over assets in the estate, a probate could be the ideal forum for having those disputes decided once and for all by a binding court decision. However, in most cases, the time, expense, complexity, delay and emotions from having to deal with attorneys and courts is not the type of legacy that we would like to impose on our family members who are still mourning the loss of a loved one, and one just needs to google all the celebrity estates that had to go through probate as testament to why probate court is not where you would want your loved ones to have to go after you die.

Minor Children and Guardianship Designation Decision-Making

May 24, 2016 Estate Planning Comments Off on Minor Children and Guardianship Designation Decision-Making

Is there any decision more important than, who will raise your children if you were to pass away? Every person with minor children should consider this question and should take a simple estate planning step to answer it.


The decision on who will raise your children upon your death is called a guardianship designation. This decision is made as part of your Will. Even if you have a Revocable Living Trust, you still must make the guardianship designation in your Will. Most people will choose their spouse (or the child’s other parent, as the case may be) to serve as the sole guardian in the event of their death while the child is still a minor. But what if you there other parent is unable or unfit and what about the situation that unfortunately happens where both parents pass aware while your children are still minors? Who should be their guardian in that situation?

Choosing a guardian is often one of the most difficult decisions made in planning an estate. However, it is critical that this decision is made as the Courts and feuding families will decide if you don’t. Consider your own family, even if they are great people, and how they would handle the situation if you were to pass away leaving minor children? Would they be motivated to care for your children? Would they do it only if no one else stepped up? Who would step forward? Would they expect to be paid or to have their expenses reimbursed by your estate? Would they provide funds for your children in a manner you would approve? Would they pay for college or church of volunteer service from your estate? Would they instill the values you want for your children (religious or otherwise)? There are so many important considerations. Here’s a quick list of tips to consider when making a guardianship designation.


  1. Decide Now. Don’t wait and don’t get hung up on the decision that you end up making no decision. Make a decision on who would be best and remember that this can be changed at any time by signing a simple amendment.
  2. Love. Of course, it goes without saying that whomever you choose must genuinely love your children. This is something that may seem obvious but is something you’re going to know and appreciate far better than a Court or feuding family members left to figure this out without you. Does your child love them? Think of your children and their relationship with your family or other loved ones you make choose as guardian. Do they love the family member? Could they rely on them and have a strong and meaningful relationship with them?
  3. Ability and Practical Considerations. Does the person you’re considering have the ability to raise your children? Perhaps they are your child’s grandparents, are they physically and emotionally able to raise your children until they are 18-19? Maybe it’s your brother or sister or close friend, would their home accommodate your children? Would they be able to financially make arrangements so that they’d be able to rise your children?
  4. Should You Separate the Money? What about the money? Well, it’s likely that if you and your spouse pass away (as applicable), that your minor child(ren) will be the heirs to your estate and would be entitled to your assets. Now, we’re assuming that as part of your estate plan that you included provisions so that your children don’t get an outright inheritance when they are 18. Also, a well drafted trust will have certain conditions on the funds and when they can be used by the guardian for the child(ren). These conditions would allow the trustee of the trust to distribute funds to the guardian for educational, support, and medical expenses and maybe for church service or a first-time home purchase. But, should the guardian of your children also be the trustee of your trust and thereby have control of the trust assets. While it’s entirely possible that someone can adequately serve both roles, it may be more prudent to select someone who is better financially (and more secure themselves) as the trustee of the trust and then to select someone else who would better serve in the role as guardian. I had one recent client choose their father as the trustee of their estate (we picked a back-up too), and then the client chose their sister as the guardian of their children. Their father would oversee the trust and the funds while the sister would care for the children and would request funds from the father for expenses as may be needed for the children.
  5. Choosing One Person over a Couple. Do you choose a couple (say brother and sister-in-law) or do you just choose one person to be the guardian (e.g. brother). Some people will choose their sibling and their sibling’s spouse as the guardians when they really just want their sibling to be the guardian. If that’s the case, just specify the specific person. There’s no need to list both people and it can cause issues if the couple fights over issues or if they themselves split.
  6. Do you Have any Specific Instructions? It is common to place restrictions on your assets in your Trust during times when you children are minors or are in early adult-hood. These are excellent things to consider and will be part of a well-drafted Trust. However, you can also provide some instructions to your guardian in a separate writing or in the designation itself. This doesn’t need to be lengthy and it usually isn’t legally binding but you can outline certain issues that are important on how your children are raised. For example, you can emphasize that you want the guardian to encourage certain religious, artistic, family-activity, or personal endeavors. Warning though, don’t get bogged down in this. Just make some short and definitive directions.
  7. Inform Whomever You Select? It is very helpful to inform the person you selected that you chose them to be the guardian of your child(ren). They don’t need to formally accept but it is nice that they know and it is an opportunity for them to decline if they aren’t willing. I had one client who was named as guardian for a family member’s children. The family member passed away and my client (the grandparent) learned they were to become the guardian. The client was older and didn’t feel fit or otherwise able to serve as guardian and thought other family members would better serve in this role. As a result, an aunt to the minor child was appointed by the Court and ended up serving as guardian for the child. This situation isn’t the norm but informing someone that you want to list them as guardian gives you an opportunity to address this issue and to also let the person you selected know why you chose them with the most important role you can ask someone to take.

While this list is meant to help you make an informed decision on who should be listed as guardian to your minor children, don’t get bogged down and over-analyze this decision. Consider the points, make a decision, get the estate plan done, and remember that it can always be changed and amended.