Attorney, Daniel H. Alexander has over 20 years of experience in Estate Planning, Probate and Business Planning.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
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Tip #10: Give your agent power to help you and your trustee power to help your heirs
Many times, I will see a Power of Attorney that does not give your agent the ability to do necessary planning if you become incapacitated such as making necessary gifts to an irrevocable trust, so you qualify for long term care or being able to get property into your trust that was left out called "funding your trust". Without these types of specific powers in your Power of Attorney document your agent generally cannot do help. Make the powers broad.
Further, many times I will see a trust that did not give the trustee the ability to hold property in a Special Needs Trust for a disabled beneficiary. Maybe you don't have a disabled beneficiary now and don't think you need to plan, but what about in the future. Can you tell the future?
Like I always say, I can get hit by a bus as easily as you or your beneficiaries. So do the advanced planning while you are setting up or amending your trust. If you don't have a disabled beneficiary then good and the clause will not be used, but if you do in the future, they will be thankful that you did so they don't lose their benefits.
Finally, put a Trust Protector provision in your trust. When you are gone your trust generally becomes irrevocable (e.g., non-changeable). So, what happens if circumstances changed but you did not change your trust. Well, a Trust Protector is a non-paid 3rd party that can update your trust to meet your wishes or needs. Perhaps you forgot to plan for a disabled beneficiary - a Trust Protector could amend the trust to put in a Special Needs Trust provision to help. Or what happens if your successor trustees are unable to act? Your Trust Protector could appoint someone to act and keep it out of court.
The basics here is while you are doing the planning do it well. Plan for the unknown.
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Tip #9: Let them know
Many times, I will have clients simply say that they don't want to tell their trustee about the trust or provide them information.
In most cases I just don't understand this. If you don't trust them then don't put them down as a trustee. Put someone in there that you trust and provide them information, so they know that they are to act.
In general, I suggest providing your trustees a copy of your trust and other related documents so they will have it when they need it. Otherwise, they may be digging through boxes, or worse the trash, looking for your trust.
Also, how are your agents supposed to help you with health and finances if you don't provide them the Power of Attorney document? Again, if you don't trust them then don't appoint them.
Let them know!
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Tip #8: Get organized.
Many times, I will have clients come in with a stack of envelopes and papers that they got from their retiring attorney. What a mess, help they say.
That is why I prefer to put all estate planning documents in a binder that is tabbed out and then to shred all unnecessary documents (such as a power of attorney that was revoked and replaced).
I then advise my client(s) to make copies of at least the first page of their financial statements, hole punch them, and put them in the back of the binder (I have a tab called location lists in the back). These statements have account numbers and contact information. They also should stae they are in your trust, if they are. If not, get them in your trust or be sure the trust is the beneficiary.
Then every 3 to 5 years, review the binder for accuracy, make changes as needed and replace the statements in the back with new ones.
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Tip #7: Beneficiary Simplicity.
People like to leave a legacy, I get that. People like to have control, even beyond the grave, I get that too. However, many people will take this too far by coming up with a complicated beneficiary distribution. You need to weight the purpose of the give against the practicality of administering the gift. Basically, a burden / benefit analysis. Keeping it fairly basic will make it easier and less expensive to administer and will make the trustee job more desirable.
Many times, when there are complex distributions, or when we hold the assets for many years, the trustee loses interest in being trustee. Keep in mind, it can become a burden and can effect relationships.
So, reserve the complex planning for those beneficiaries that really need it, such as a disabled beneficiary. And if such complex planning is needed, be sure to pick a trustee that is willing to administer it - perhaps even a professional fiduciary instead of a family member.
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Tip #6: Consider a Restated Amendment to Your Trust.
Many times, I will have a client come in and they will have 3, 4, 5... amendments to their trust. Sometimes they will have them all, many times they will be missing one in the middle, and most of the time they are confused as to what all the amendments say.
Further, many times such trust and amendments will be many years old and the amendments addressed specific concerns of the client, such as successor trustees or beneficiaries, but they did not address the change in laws.
Usually a restated amendment (or a restatement of trust) provides one trust document to look at and follow. This is because the restatement replaces the original trust and all amendments with one document, yet you keep the same trust name and original date of signing so you don't have to go re-title assets already in your trust. It should also update the trust to the current laws.
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Tip #5: Consolidate accounts, diversify and reduce risk.
The fewer accounts you have the easier it will be for you to manage as you get older and the easier it will be for your successor trustee. However, be aware of the FDIC rules regarding amounts protected in banks. Currently, each depositor is insured to at least $250,000 per insured bank. That's per bank, not per account.
Additionally, you need to be sure your accounts are diversified, especially if we are of retirement age or older. Diversified accounts can weather the storm better and help to ensure the funds will be there when needed.
Finally, at retirement age or older, reduce your investment risk. Again, so that the funds will be there when needed. Riskier investments usually have a potential for higher returns, but they also have a higher likelihood of losing. We want to make sure your funds are there for you when you need them!
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Tip #4: If your account(s) are in your trust, amend your trust and add a co-trustee with you while you are alive instead of adding someone to your account(s).
Many people will add a child to their bank account so they have easy access to it to help, but the problem is that 1) the child’s creditors can come after the account because they are on it as an owner and 2) many times after death there is confusion as to who should receive that account. Was it a gift to that specific child, or did you mean for it to go to all beneficiaries?
Adding a co-trustee while you are alive can avoid these problems. Once that is done then you update your accounts with both trustees on the account. The co-Trustee then has access to the account(s) so they can assist you easily, it remains part of the trust, so it is not subject to the child's / co-Trustee's creditors, and it is subject to distribution as stated in the trust. Also, the co-Trustee is already on the account(s) at your death, so they have immediate access.
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Tip 3: Regarding Powers of Attorney - If you trust your agent under your Power of Attorney, then make their power EFFECTIVE IMMEDIATELY. (side note - if you don't trust them then don't have them as your agent)
When it comes to being able to use a Power of Attorney there are basically 2 types: 1) effective immediately or 2) a springing power that springs into effect at a certain time, such as incapacity.
Believe it or not, many Powers of Attorney are drafted having a "springing" power. This means that they spring into effect when a person becomes incapacitated. Usually, the problem here is that incapacity has to be proven by one, or many times, by two physicians before the agent's authority becomes effective. This can sometime be difficult to get.
Also, many time you may want your agent to go do something for you even though you have capacity. Perhaps you can't leave the house, or it is just something you don't want to deal with at that time. With a springing power they could not go and do it.
Therefore, in my opinion, your Power of Attorney for Finances, and your Advanced Health Care Directive, should state that the powers of the agent are EFFECTIVE IMMEDIATELY (it will actually say that - effective immediately).
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Tip #2 - Fund Your Trust! What does this mean in non-legal ease - put your stuff into the name of your trust.
When I meet with a client initially, I discuss this, when we sign the trust, we discuss this, and I provide all the documentation to actually do it. I send letters and emails telling them to fund the trust. I make phone calls telling them to fund their trust and, in my advertising, I tell everyone to fund their trust.
What happens? Clients go on with life and don't fully fund their trust!! Why, because they acquire other property and forget about the trust, or they refinance and their property comes out of the trust without them really knowing, or life happens, and they just don't take the time to get it properly titled.
Basically, here it is in short, if you have people as beneficiaries of your trust (children, grandchildren, friends, etc.) (and not entities such as a charity), then everything should either be titled in your trust, or the trust should be the beneficiary or pay on death beneficiary. Once that is done then just be sure that your trustees and trust beneficiaries are correct. If you want your oldest son to have your Fidelity account, then state that in the trust.
Conversely, if you name your oldest son as the beneficiary of the Fidelity account on a beneficiary designation form with Fidelity (and not in your trust), the gift could be opened up to problems such as: 1) what if he is deceased, did you name a correct contingent beneficiary; 2) you lose control over the distribution in situations of disability, divorce, bankruptcy, etc., 3) and I could go on.
Again, and I'm talking to you, FUND YOUR TRUST!
People, and this means you, GET YOUR ASSETS PROPERLY TIED TO YOUR TRUST. There are some exceptions (retirement assets) but most assets should be tied to your trust. Your house should be deeded to your trust. Your banks and investment accounts should actually be held in the name of the trust in the financial institution’s records.
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Tip #1: Living Trusts are the Way to Go. There are many article stating wills, joint tenancy and beneficiary designations are good enough. I disagree. In this post I am not going into the details of the pitfalls with wills, joint tenancy and beneficiary designations. The point is a Revocable Living Trust, if done correctly, is the way to go in almost situations where clients have assets.
Here is why: 1) Trusts avoid probate if funded properly, saving time and money; 2) Trusts help take care of you upon incapacity (successor trustee steps in or co-trustee is already acting) and take care of your estate at your death, 3) Trusts can help manage assets for beneficiaries, such as minors, or for those who just cant handle money, and for the unknown and unpredictable situation your beneficiaries may find themselves in such as divorce, bankruptcy, disability, incapacity, etc.; 4) if the trust has a Trust Protector provision, a 3rd party Trust Protector can make necessary changes to be sure the purpose of the trust is met and help protect the trust, and; 5) Estate Tax planning can be done without the need of a Court.
Basically, I really like all the tools available in a properly drafted trust!
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Relying on the government's estate plan. If you do nothing to set up an estate plan, your property will be distributed according to the laws of the state where you live. The laws may require the judge to give your property to someone other than the person you would have chosen.
Relying on a Will. If you have only a Will, your heirs will face serious and costly problems, one of which is probate. True, a will is the most common estate planning tool, but it is not a good tool for you to use.
Relying on joint tenancy. Almost everybody owns their home and bank accounts in joint tenancy. Yet joint tenancy often causes families horrible legal nightmares. You have many options better than owning property in joint tenancy, and they come with substantially less risk.
Relying on conservatorships and guardianships. These court-supervised methods of dealing with a person's incapacity are costly, time-consuming and horribly burdensome. By setting up a living trust, you avoid the need for conservatorships and guardianships.
Assuming you can avoid probate because your estate is small. Most people assume their estates are worth far less than they actually are. The small estate exemption that avoids probate is permitted only for estates with a value of less than $166,250 in personal property. However, Real Estate of any value must go through some type of Probate process if part of an Estate (not in a trust, not in joint tenancy, no transfer on death)
Relying on a form kit for your living trust. No two personal situations are the same. That's why no two living trusts should be written the same way. The only estate plan you can depend on is one that is custom prepared by a qualified attorney.
Relying on the wrong attorney. Most attorneys know very little about estate planning. And some estate planning attorneys earn a substantial part of their income from probating estates. Make sure you hire an estate planning attorney who wants to help to avoid probate.
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An entrepreneur hopes to pass on the family business to his child. It's a simple goal, but the process requires careful planning.
Can an S-corporation be placed into a revocable living trust without losing its S-Corp status? Is this a good way to pass our company on to our children?
Yes, S-Corp. stock can be placed into a revocable living trust. In fact, such trusts are a standard estate-planning technique commonly used in states with high probate costs. Experts say that the revocable trust is useful because assets can be put in and taken out as the trust holder wishes and at his or her death, the fees, expenses, and potential complications of probate court are not incurred.
After the owner's death, the trust is permitted to own S-Corp stock for up to two years, during which time the trustee may be responsible for collecting assets, paying funeral bills, settling debts, and filing income- and estate-tax returns. After such administrative business is completed, the trustee is free to transfer the stock to your heirs.
If you choose a revocable trust as a vehicle for family business succession, keep a few things in mind:
You may want to make your child or children the trustee after you so that they can vote the stock of the corporation immediately and keep the company operating without a hitch. These tasks can be complex if the value of your business and other trust assets is large. Having your child take charge may make administration of the trust, and the business, that much easier.
Additionally put together a plan for transferring the company gradually over your lifetime. Generally speaking, transfers during your lifetime are the best way to leave a business to a child. If you hold all the stock until your death, it will be at full value when your child inherits it, and the estate taxes will be high. If you've been retired for a number of years, and your child has been running the company, they will wind up paying estate tax on all the value they created.
An estate planner will help you plan to make gifts of stock during your lifetime and invest in life insurance that will help cover the estate tax bill. Essentially, gift taxes are cheaper than estate taxes, so most of my clients give away pieces of their company gradually, and by the time they die, they've given all or most of it away so the inheritors will not have to pay estate tax at all.
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Do you buckle your seat belt when you get in your vehicle? It's simple, doesn't take much time, and you know you'll be protected in the event of an accident.
Do you figure that since things are fine now, you'll wait to buckle your seat belt until you feel the car start spinning out of control? Unless you have the reflexes of Superman, you probably won't have enough time.
Or do you just never buckle your seat belt and figure that your family and professionals can handle things in the event of an accident, because you are just too busy to do it now.
What does this have to do with estate planning? Well, other than the fact that you hopefully have your plan in place in the event of an accident; it seems that may people fall into one of these categories when it comes to planning for the future.
There are those who want to be prepared, and who get their plan done in a few visits. They don't have to worry about what will happen to them or their loved ones in the event of a crisis. They have had time to carefully think through their decisions, and make sure everything is just how they want it. They are calm when they discuss Estate Planning, and relieved when the plan is finalized. They have their seatbelts securely fastened and can enjoy the ride.
Then there are those who put off planning until it is almost too late. They are leaving the country in this weekend and only have time to do the bare minimum and not the comprehensive and complete plan they wanted to do. Or their mental capacity is slipping and the time they have to plan, before someone else needs to handle their affairs, is very limited. What they have is better than nothing, but it will leave some complications for their loved ones to deal with in the event of their death or incapacity (ie they do not have a trust or powers of attorney). The expenses are higher; the risk of running out of time is greater. They are stressed out when they come to plan, but mostly relieved when they are done.
Then there are those who make no plan. These are the saddest cases. There has been a crisis in the family and instead of being able to concentrate on their parents or other loved ones, the children are visiting the attorney to try to sort out the legal mess. They are trying to figure out what their parents have so that they can pay for their care or apply for Medicaid or MediCal for them.
Maybe they are having to go to Court to get a conservatorship over their parents so that they can sell the house or handle the finances. Maybe there are siblings who don't get along and can't agree over who should do what, and its back to Court to let the judge decide. Things that could have been decided when the parents were competent, are now being fought over. Adult children who have their own lives and families to think about are having to jump through many hoops to accomplish what would have been completed with a simple task had their parents or relative taken the time to plan for their estate and for themselves.
We buy car insurance, but no health life insurance. We tuck our kids in at night and lock the doors, but they do not plan for their demise. These clients are sad, stressed, worried, angry and scared when they come to see me. As we work through the issues burden starts to lift, but the feeling of relief comes at a higher price and possibly with less satisfaction and relief as if there had been a plan put in place when there was time. All I can say is make the time.