Opening up a joint bank account with a child is one way to help keep assets out of probate, but there are very real risks associated with doing so. One of them: it leaves your assets up for grabs to creditors.
]]> Most parents trust their children with their lives; literally. They will name them as an executor, health care proxy or power of attorney. So it seems like naming them as a joint account holder would be only natural, but trust or love often has nothing to do with financial issues. Whether of their own doing or as a result of unexpected events or hardships, a child may run into issues with debt. Naming them as a joint account holder leaves your assets unprotected to your child's creditors.Naming a child as a trustee is one way to grant similar power, but to ensure that a parent's assets aren't comingled with a child's financial estate. A plan such as this one certainly doesn't prevent a parent from helping their child when trouble arises, but it prevents unintended consequences. These unintended consequences are precisely why a discussion with a probate attorney is optimal.
Source: The Palm Beach Post, "Making child co-owner of accounts to avoid probate is risky," Joseph Karp, May 9, 2013
]]>With that thought in mind, there are a few things that a person can do to make carrying out those plans a little bit easier for the executor of the estate whether that be a loved one or an attorney in Orange County. The first helpful hint: name an executor and make sure that trusted person understands and accepts the responsibility.
]]> Next, make sure that all documents related to the administration of an estate are kept in a single place and have each of them clearly labeled. These documents include everything from life insurance policies and car titles to the will document itself.Some people may opt for a clearly labeled file in a file cabinet, but the best place is most often a safe deposit box that provides protection in the event of a disaster such as a fire in the home. It also provides an extra level of security during the time in which the documents are not necessary.
During this time, an individual can also prepare funeral arrangements. This is often something that can be difficult for family members if they are left to guess at what their loved one may have wanted. If there is a song you want played, a specific dress or sentimental item you want to be buried with, whether you want to be buried at all or anything else, set it out in a document. If burial is a choice, a loved one can even pre-purchase a plot and include the deed with the other necessary documents.
Last, you don't have to keep your estate planning attorney on speed dial, but it is incredibly important to regularly update the plans.
Source: The Huffington Post, "9 Ways To Make Things Easier For Your Survivors," April 20, 2013
]]>Disputes involving a trust most often arise in the administration of a trust. For example a trustee may be accused of failing in their fiduciary duty to the beneficiary, there may be a dispute over what the language of the terms means for administration or a government agency such as the IRS may raise an issue with the trust itself. Every choice made in structuring a trust matters. So what are some of the most common structures?
]]> The first is an AB trust that is most often used as a way to maximize Federal Estate tax exemptions for married taxpayers when transferring property. Although the current exemption level makes it seem as though only the wealthiest could benefit from this trust, it is important to remember that the exemption is never permanent and those who avoid estate tax one year could be hit the next. This is an irrevocable trust that often names the children as the beneficiaries.Another type is the ABC trust. This trust adds one level of interest to the AB trust. It is often utilized in situations where a child from a previous marriage may be involved. The structure allows for more protections for these beneficiaries. For example, say the biological parent is the first spouse to pass away, there may be a concern that the stepparent could change estate plans to eliminate the stepchild.
Under most life insurance policies, proceeds pass to the beneficiary tax free. This may be a general occurrence, but it is not always the case. An irrevocable life insurance trust helps pass the proceeds of these policies without including it in the gross estate.
Last is a charitable remainder. A grantor can donate assets to a trust but still allow those assets to provide income to a beneficiary for a period of time. When that period of time ends, the assets are transferred to the named charities.
As stated above, these are some of the most general descriptions of some common trust structures, but certainly not an inclusive list nor one that describes every aspect of these trust structures. Consult an attorney prior to making any trust decisions, because every choice could affect the administration of that trust.
Source: examiner.com, "Trusts," Craig Smalley, April 19, 2013
]]>When trusts are thoughtfully designed and managed well, they can achieve important goals and provide many advantages. When they are not, trust disputes between trustees and beneficiaries or between those depending on the trust and the IRS, state taxing authorities and even federal agencies such as Medicaid.
In this two-part post, we will give a simple description of the purpose of some trusts and their main purposes. This is not intended to be legal or tax advice; you should discuss your individual situation with an estate planning lawyer or financial advisor before making any decisions.
To begin, think of a trust as an agreement with three parties. The person who created and funded the trust is called a "settlor" in California, but you may also hear the terms "grantor" or "trustor." The second party is the beneficiary or beneficiaries of the trust. The third party is the trustee.
]]> The trustee's job is to manage the trust assets and distribute them according to the terms of the trust document. The trustee may be a friend or family member, an attorney or professional trust administrator or, in the case of many living trusts, the settlor him- or herself. Trustees have a fiduciary duty toward beneficiaries, meaning that they have a legal duty to act in the beneficiaries' best interest.Trusts are divided into various types based on their purposes, whether they are revocable by the settlor, and whether they go into effect while the settlor is alive or only after death.
A very common trust is called a living trust. This is created and funded while the settlor is alive. In many living trusts, during the settlors' lifetimes, the settlors are also the beneficiaries and often the trustees. At death, a successor trustee takes over and either manages it or distributes the remaining assets to beneficiaries. This allows people to continue to use their assets while they live, then pass the remainder to their beneficiaries outside probate.
On the opposite end of the trust spectrum is a testamentary trust. This is typically created by the terms of the settlor's will, and it goes into effect only after the settlor's death. When created through the will and not previously funded, however, it does not allow beneficiaries to avoid probate.
In our next post, we will discuss the basic definitions and purposes of survivor's trusts, AB trusts, and ABC trusts for married couples, irrevocable life insurance trusts and charitable remainder trusts.
Source: Examiner.com, "Trusts," Craig Smalley, April 19, 2013
]]>In California, if a parent dies unexpectedly, children don't automatically receive the parent's retirement savings or life insurance payments. Those funds, if not otherwise determined in a comprehensive estate plan, have to be accessed by an executor with the permission of a court. If you create a trust, though, the named trustee can access the money without having to get court approval.
]]> In most cases, the problems with dealing with a probate court are time and money. There is the process of submitting requests for the court's approval, and weeks, sometimes months, could pass before any headway is made. And a properly administered estate requires legal assistance, which is another cost.Preparing for these matters in advance can preclude your loved ones' need to jump through hoops to get estate assets (or debts) distributed.
Troubles of this kind are amplified if a deceased parent's children are minors. Unless a trust or other estate planning instrument provides a different arrangement, California courts will not let minor children receive an estate until they become legal adults at age 18. Creating a trust cuts out some of the court's oversight.
Parents should also name a guardian for their children, and not just verbally.
To learn more about trusts and other estate planning tools, Orange County residents are encouraged to visit our trust and probate page. Our firm represents clients throughout Southern California.
Source: lifehealthpro.com, "No estate plan? 3 reasons your clients' children are at risk," Erik Hartstrom, April 10, 2013
]]>In 2011, the issue embroiled the neighbors in a lawsuit, which hadn't been concluded when the actor died in Nov. 2012 at the age of 81. It then continued as a probate dispute between Hagman's estate and the Meher Baba nonprofit.
]]> Hagman had filed the 2011 quiet title action in order to legally settle their respective rights to the 0.44-acre section of land. Hagman claimed he had held the fenced-in land for so long and in such a way that it should now be considered legally his own under California's adverse possession law.The nonprofit argued that Hagman hadn't paid the taxes and required mosquito control for the tiny parcel and therefore couldn't be considered its adverse owner. Moreover, the nonprofit claimed it was a "public entity" and therefore immune to adverse possession claims.
A Ventura County judge ruled for Hagman's estate and the Appellate District court in Los Angeles just affirmed that decision. With the probate dispute settled, Hagman's heirs and beneficiaries can now enjoy the lawsuit-provoking .44 acres -- or at least the end of the litigation.
Source: Courthouse News Service, "Nonprofit Loses Bit of Land to Larry Hagman," Jeff D. Gorman, April 5, 2013
]]>Including the 41-year-old, Sassoon had four children, one of whom predeceased him. His wife and the two other children, a boy and a girl, are expected to be his main beneficiaries.
According to the Daily Mail, Sassoon left a fortune estimated at £100 million, or about $151 million. Approximately $7.85 million of that fortune is located in Great Britain, which is why the details of his estate plan were released there. The remainder is still in probate in Los Angeles, where he lived with his fourth wife.
]]> In his 2010 autobiography, Sassoon described his relationship with his son as challenging and difficult, although with great highlights. Over time, however, the father and son grew so far apart that Sassoon had not seen him for 18 months when the book was written."There's a certain point in my character where if I feel a situation is hopeless -- walk away," he told reporters after the book was published. "Don't torment yourself constantly. I walked away."
The Daily Mail quoted Sassoon's estate plan as saying, "My son David Sassoon and his issue are hereby disinherited and shall take nothing under this will, and for the purposes of the will, shall be deemed to have predeceased me, leaving no surviving issue."
As for his three ex-wives, it is unclear they were ever beneficiaries of his estate, but he apparently took active steps to exclude them from any inheritance at the same time he disinherited his son.
So far, there has been no news of any challenge to the validity of the will, although wouldn't be uncommon when a will has been changed shortly before death. California probate law does allow adult children to be disinherited, but if there was a sudden change in his intentions it could be wise to ensure there was no evidence of fraud, duress, undue influence of incapacity.
Source: The Daily Mail, "The £5m cut: Vidal Sassoon leaves adopted son out of will after failing to heal rift before his death," Nick Craven and Andrew Young, March 23, 2013
]]>As you may recall, in Sept. 2011, Rooney and his attorney accused a different stepson and his wife of verbal and financial abuse and of withholding food and medicine from the actor. The couple is accused of fraud and breach of fiduciary duty related to the alleged abuse, during which Rooney claims they misappropriated his name and likeness, took control of his finances, and left him powerless. His attorney has now been granted conservatorship over the actor and is seeking a permanent injunction against the couple in order to protect him.
]]> Because Rooney is under conservatorship, the sale of his Westlake Village home had to be approved by the probate court. This month, a probate judge approved the sale to a real estate investment firm for $1.03 million. Since Rooney and his current wife intend to separate, the proceeds will be divided, with Rooney receiving $500,000 and his wife $525,000.No legal proceedings have been initiated regarding the separation, but his wife's attorney said it was simply because "things change and it was time to move on." The stepson accused of abusing Rooney is his wife's biological son.
The fraud and breach of fiduciary duty lawsuit is still pending, although the accused couple has declared bankruptcy.
Rooney has continued to make public appearances, his lawyer says, and his goal is to resume his career in entertainment.
"Mickey wants to work," he told reporters.
Source: Daily News Los Angeles, "Mickey Rooney's home to be sold for $1.3M to West Hills firm," Bill Hetherman, March 4, 2013
]]>Depending on income, certain California taxpayers may receive breaks in one particular area whereas they may get hit with tax hikes in others. A worker's share in federal payroll taxes that was reduced in 2011 and 2012 will be returning to pre 2011 levels. Federal income tax rates for top earners have increased significantly, and capital gains taxes have increased as well. Investment income will also be taxed under new healthcare provisions.
]]> Estate taxes in particular will be affected. Despite efforts by the federal government to reduce the threshold to $3.5 million, the threshold for paying estate taxes will remain at $5 million. However, the tax rate on inheritance will rise from 35 to 40 percent.Where taxpayers are really like to feel a hit is under new California laws. Significant tax rates hikes on top earners will be retroactive going back to 2012. However, all taxpayers will likely see their tax rates go up as well.
Taxpayers will likely require the assistance of attorneys that have experience in the estate planning area, and that understand state and federal tax laws. Since it is highly unlikely that the tax situation will improve to a significant degree during the next few years for families, families would do well do consult with these attorneys.
Such attorneys can advise about investments, investment properties, where to focus upon when paying taxes or particular debts, tax shelters and other financial strategies to consider.
Source: Orange County Register, "Navigating a season of tax changes," by Richard Clough, March 13, 2013
The Godfather of Soul wanted to leave most of his money to charity. Unfortunately, when he died in Christmas Day, 2006, it rapidly became apparent that no one knew how much money that would be, because the three trustees in charge of his trust had mismanaged it, apparently severely. Even the state supreme court couldn't determine how much the estate was worth. Its best guess was that it was somewhere between $5 million and $100 million.
When the attorney general brokered a settlement in 2009 between his widow, adult children and charitable interests, it was one of the ousted trustees, ironically, who called foul on the deal.
]]> The settlement directed a little more than half of Brown's estate to be divided between his widow and his children. Just less than half, which apparently included rights to Brown's music, was put into a charitable trust controlled by a professional manager. There's no question the manager did a great job, obtaining lucrative deals to feature Brown's music in commercials and wiping out over $20 million in debt. The funds were set aside for college scholarships for the needy, a cause to which Brown was devoted.The now-former attorney general commented, "I believe we took the correct legal steps to make the very best of a bad situation....We worked hard to see that Mr. Brown's wishes were effectuated to the furthest extent they could be."
Nevertheless, the court found the settlement to impermissibly disregard Brown's actual wishes, because it gave more than half of the estate to his family, who had not been given anywhere near that in Brown's original estate plan.
Ultimately, the problem with leaving the settlement in place came down to policy, suggested the chief justice. It could discourage people from leaving large sums to charity in estate plans if it appeared that such plans could easily be overturned. While this case may not be an example of an estate being overturned easily, it's a fair point.
Source: The Huffington Post, "James Brown Estate: South Carolina Supreme Court Nixes Settlement," Meg Kinnard, Feb. 27, 2013
]]>Here's a typical scenario. A couple is married, and each has two grown children from previous relationships. As is the case for most spouses, they jointly own the family home. Their savings are in a joint bank account. Each has life insurance and assigned the other as beneficiary. They have substantial, but not extraordinary, retirement savings, and each has named the other as the death beneficiary for that, as well.
]]> Whether they have discussed the issue or not, each spouse is probably counting on the other to be fair to both the biological and stepchildren. But what if that doesn't happen?Let's say that the wife dies. Because the house was jointly owned, it passes directly to the husband. The husband also receives the insurance proceeds and ownership of the retirement savings. Unless there was a will in place, probate might not even be required. The wife's children receive nothing -- they rely entirely on the discretion of their stepfather.
If there was no will, the remainder of the estate -- if there was anything besides the house, savings and insurance proceeds -- will be divided under the California Probate Code. The stepfather will get a third, and the other two thirds will be divided among the wife's biological children. If the children's portion exceeds $150,000, they will have to open a probate.
So, how can you ensure that doesn't happen? A good solution for her might be to set up a trust with instructions on precisely how the trust assets are to be distributed. Important considerations include whether the husband should be granted a life estate, how to avoid the stepparent and stepchildren co-owning property, and whether a stepparent is the best choice as trustee.
Meeting with a knowledgeable estate planning professional is the first step toward avoiding probate litigation. Barring that, your heirs and beneficiaries may be at risk of being left out of your estate, or having to fight for their rightful share in probate court.
Source: Lake County News, "Estate Planning: Disentangling stepparents and stepchildren," Dennis Fordham, Feb. 2, 2013
Our thanks to Mr. Fordham.
]]>It had generally been thought that, as long as the trustee followed the written instructions of the settlor (the person who funded the trust) and managed the assets reasonably, the trustee had no liability to the beneficiaries. A recent ruling by the California Supreme Court, however, determined instead that beneficiaries do have the right to sue trustees if they believe he or she committed a breach of trust during the settlor's lifetime.
]]> A period of incapacity is common at the end of life, and many trustees find themselves faced with the issue of what to do during that period. Family emotions may be high, and trust beneficiaries may challenge the trustee's management of assets they are on the verge of receiving. Legally, the trustee's duty is to work solely for the benefit of the settlor as long as he or she is alive. Immediately upon the settlor's death, however, the trustee's duty becomes to work for the benefit of the trust's beneficiaries.The ruling appears to be limited to situations in which there was a breach of the settlor's trust. A breach of trust, essentially, is a broken promise. The trustee promises to follow the settlor's written instructions and to manage the trust funds for the settlor's benefit. If the trustee breaks those promises, a breach of trust has occurred. However, the promise was made to the settlor, not the beneficiaries, so they typically could intervene during incapacity by petitioning for a supervised conservatorship.
With this new ruling, the high court has put trustees in an awkward position during any period of the settlor's incapacity. Families and trustees may disagree on how the trust should be managed during this period, which could later lead to lawsuits. If the trustee resigns, however, any potential successor trustees might be hesitant to agree, knowing they could easily be swept up in the litigation.
There are a lot of complex issues in this new ruling, but the basic point is this: trustees can now be sued by beneficiaries if those beneficiaries believe the trustee broke promises during the settlor's lifetime. Furthermore, a successor trustee who takes over administration of a trust while the settlor is still alive is opening the door to litigation. This ruling is likely to make traditional trustees like friends and family members hesitate and increase the costs of professional trust administration.
Source: Lake County News, "Estate Planning: Landmark decision makes incapacity trustee accountable to death beneficiaries," Dennis Fordham, Feb. 16, 2013
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