San Fernando Valley Los Angeles Attorneys
Navigation Two
Phone Number

Entries in avoiding probate (4)

Thursday
Apr202017

Accidental Disinheritance: Update Wills, Estate Plans Annually

Gift Tax, Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

So you have an estate plan? Good for you. You funded it? Even better. But have you updated it and your will in the last year? If you haven’t, your loved ones or favorite charities may be in for an unpleasant surprise. Your ex-spouses, step-children, ex-partners or someone else you hadn’t considered may find themselves receiving a windfall.

Designate Beneficiaries AnnuallyDon’t subject your loved ones to accidental disinheritance. This commonly happens when clients fail to update their beneficiary list, particularly upon:

  • Divorce
  • Remarriage
  • Death of a Beneficiary
  • Birth of a Child

Divorce is one of the more common events to cause rancor (and potential litigation) among surviving family members when a decedent hasn’t updated designations.

In Hillman v. Maretta for example, the Supreme Court of the United States decided Judy Maretta, the ex-wife of Warren Hillman, was entitled to Hillman’s nearly $125K life insurance policy proceeds. Hillman and Maretta were divorced for a decade before Hillman passed – but he never updated his policy beneficiary designee. His widow and ex-spouse battled in court for five years before the Supreme Court ultimately decided the case.

There’s more to this story however, as Hillman lived in Virginia which has laws to protect subsequent spouses (California Probate Code §6122, also protects subsequent spouses). Under state law, Hillman’s widow/current spouse would have received the proceeds.

But since Hillman was a federal employee, his life insurance policy was governed by the Employees’ Group Life Insurance Act of 1954. Under this Act, the beneficiary designation prevailed over Virginia regulations.

Similarly, consider Egelhoff v. Egelhoff. In this case, David Egelhoff named his wife Donna Rae as beneficiary of his pension plan and life insurance policy – both of which were governed by the Employment Retirement Income Security Act of 1974 (ERISA).

Shortly after their divorce, David died in a car accident. David’s children challenged Donna Rae’s status as beneficiary, citing Washington state law which would have revoked benefits for her upon divorce. The trial court found for the children, but an appellate decision found for the ex-spouse, and was upheld by the Supreme Court.

Laws in many states will revoke an ex-spouse’s claims. However, we see that federal laws will often trump state regulations. Even when no federal legislation applies, it just doesn’t make sense to make your preferred beneficiaries fight for their inheritances in court, should some question arise as to your intentions. Why put them through the expense and aggravation?

Beneficiary Designation Gone Bad

Here’s one more scenario that isn’t clouded by laws governing federal employees – in other words, this could happen to anyone:

We are currently dealing with a situation in which a wife was insured under two separate life insurance policies, and then passed away. Her husband was the designated beneficiary for both policies. Unfortunately, he became very ill just before his wife passed.

When she did pass, the husband was unable to manage his financial affairs, and never collected the life insurance proceeds due to him when his spouse died.

Death benefits from both life insurance policies are now going through probate (of the husband’s estate) before being distributed to the surviving children. If the parents’ living trust had been named as the beneficiary of the policies, the Trustee could have collected the life insurance benefits either when the husband was alive or after his death, without a Probate proceeding. 

Getting sound advice regarding how to complete beneficiary designations is AS IMPORTANT as completing them.

To be clear regarding your estate planning objectives, ensure these assets’ designations are all up to date:

  • Bank & Brokerage Accounts – Trust

  • Life Insurance Policies – Designate Trust or Tax Planning Life Insurance Trust

  • Trusts – check who you named as beneficiaries and who you appointed as trustees each year

  • Retirement Accounts – Beneficiary designation form

  • Company Benefit Plans - Beneficiary designation form

  • 529 College Accounts - Beneficiary designation form

  • Transfer on Death Accounts - Beneficiary designation form 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Tuesday
Aug132013

Creating a Living Trust Makes (Dollars and) Sense

 

by Robert A. Hull

“How much will it cost?"

For estate planning attorneys, this is usually the follow-up question we’re asked after “Do I need a Trust or Will?" After discussing a prospective client’s estate planning needs, some are surprised and a bit bothered at the approximate cost.  

Rightfully so. It is a fair amount of money for most of us. But, when you actually break down the potential costs to the beneficiaries of your estate without having a trust in place, that amount becomes much less daunting (also, the cost includes so much more than a trust – namely, a complete estate plan including wills, financial powers of attorney, health care powers of attorney, an assignment, deed, document summaries, etc.).

Why Do You Need an Estate Plan?

Some background: If you die with only a will – including those cheapies you can get online, or without any will at all – your assets can pass to beneficiaries in generally two ways: 

1. Via non-probate or probate transfers (more on “probate” in a minute). Non-probate assets include assets in a living trust, proceeds from life insurance, assets held in joint tenancy/community property with a survivorship right, payable/transferable on death accounts or retirement accounts with beneficiary designations.

Non-probate assets can generally be transferred without court supervision and approval. Contact the bank, insurance company, etc. and provide the death certificate/fill out a short form and bingo, assets transferred.

2. Your other assets are generally probate assets. Transferring probate assets requires Court confirmation that the correct assets are to be transferred to the correct beneficiaries (i.e., those named in the will or those listed in the intestacy statutes, if there was no will).

But, before those assets can be transferred, you must first open a “probate” with the Court, publish the probate with a newspaper of record, appraise the assets, send notice to the decedent’s creditors and pay any outstanding debts, file one or more accountings of the assets subject to probate, etc. ALL of these actions are performed under scrutiny by the court.

 

The Costs of Probate in California

 

Probate attorney’s fees are statutory, meaning they are set by California law. Absent any unusual circumstances, the normal fees paid by the decedent’s estate for the probate will be a pre-set percentage of the assets probated. This percentage is 4% of the first $100,000 of the value of the probate assets; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9 million (we’ll stop at the $10 million estate, for now).

So, if you die with probate assets worth $1,000,000, which is easier to reach than one might think given Southern California home values, your estate would pay $23,000 in statutory attorney’s fees to probate those assets – and all with the extra hassle of being supervised by the court, on the court’s timetable.   If your home is being probated and has a mortgage, the mortgage balance will not be considered when calculating statutory attorney’s fees (such fees for a home valued at $500,000 with a $400,000 mortgage will be calculated using the full $500,000 value).

The cost of an average estate plan is NOWHERE NEAR this amount – not in the same ballpark or even in the same universe. And, as mentioned, you can generally administer the estate generally without court supervision if your assets are in a trust.

Also, in a probate the Executor of the estate may claim an additional $23,000 in statutory fees, leaving that much less to the beneficiaries.  If you die with probate assets worth $500,000, your estate would incur $13,000 in statutory attorney’s fees plus, another potential $13,000 in executor fees (the executor may choose to waive those fees).

If you had your assets in a trust, the trustee could handle all of the property transfers per the terms of the trust, without court supervision, and perhaps with only some small attorney’s fees for assisting with deeds or other transfers, if desired.

If there’s a legal dispute, that could increase the attorney fees significantly, but would also increase the statutory fees in a probate significantly because such fees would be “extraordinary”, and the attorneys are entitled to such fees as long as they’re reasonable. Attorneys are also entitled to extraordinary fees in probate for activities not in the normal course of a probate, such as buying/selling real property or running a business.

So, is the cost of a trust and estate plan money well spent? Significantly smaller out-of-pocket costs now and perhaps some small attorney’s fees at your death.  Versus, a percentage of your entire probate estate (cash out of your beneficiaries’ pockets) later?

Seen in this light, getting a complete estate plan sure makes dollars and sense. How much will your estate plan cost, and what else can having an estate plan do for you? It all depends on how you want your estate handled, and the complexity of what you want done. 

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
Thursday
Jan122012

Funding a Living Trust -- Estate Planning Advice

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

The most common reason for establishing a living trust is to avoid probate and take advantage of estate tax exemptions.

If you don’t have a revocable trust, your heirs could spend months or even years waiting for the California court to approve the administration of your assets, the payment of your debts, and the distribution of whatever is left of your money/property to your family, friends, charitable organizations or other heirs.

Properly executed Trusts avoid probate. Wills do not avoid probate.

A revocable trust simply means that your trust can be changed or even revoked whenever you like during your life; while a living trust means it goes into effect while you are still alive, unlike a Will, which is not effective until your death. A revocable living Trust avoids probate and can avoid a Conservatorship proceeding while you are living in the event you are unable to manage your own affairs.

Depending on the value of your estate and what type of assets you have, you will decide with your estate planning attorney whether or not the use of a revocable living trust is for you.

Upon executing your revocable living trust, you will need to “fund” your trust. Establishing the trust without putting your assets into the trust defeats the purpose of having a trust in the first place.

A Properly Funded Revocable Living Trust

 

Estate planning does not end with the execution of the trust document. You actually have to transfer title of your assets into the name of the trust (i.e., John Doe, Trustee of The John Doe Family Trust). If you leave an asset out of your trust, that asset could wind up going through probate.

So which assets should be used for funding a trust? Here are some important ones:

▪ Bank Accounts
▪ Brokerage Accounts
▪ Business Interests, i.e. professional corporations, partnerships, sole  proprietorships, etc.
▪ Certificates of Deposit
▪ Investments
▪ Life Insurance
▪ Real Property, i.e. home, land, commercial buildings, etc.
▪ Recreational and Other Vehicles, i.e. cars, motor homes, boats, planes, motorcyles, etc.
▪ Time Share Ownerships

*Note: Retirement assets, annuities and life insurance do not get transferred into your trust. You will work with your estate planning attorney to determine how to name the beneficiaries of these assets so that they are in alignment with your estate and tax planning objectives.

Let’s say you have a lot of assets, and are not sure where to begin when funding your trust. The first step is to make a complete list of all of your interests, property, and investments. You can check off items on this list as you start funding.

Next, I always recommend that my clients check their mail. Every time you get a monthly statement from your bank or brokerage company, make sure the name on your statement is listed with your name as Trustee of your Trust Name. If it isn’t, call that institution to get that particular asset transferred to your living trust, rather than leaving it in your individual name.

Your estate planning attorney will change the title to your real property by recording a Deed with the County. Your real property in other states should also be titled in the name of your trust so that these assets will not go through probate. You will save your heirs a lot of time, money and headaches by properly funding your trust, not to mention utilize all of the estate tax planning exemptions available.

If you have questions about how a particular asset should be handled, ask the professionals. Talk to your estate planning attorney or accountant.

Last, don’t forget to provide copies of your list to the Trustee, your accountant, and your attorney. Establishing a revocable living trust avoids probate court, but filing your list of assets and keeping good records will make handling your estate a lot easier for your beneficiaries.

Kira S. Masteller is a California Trust and Estate Planning Attorney. Call her at 818.990.2120 if you have questions regarding funding a trust, probate or estate planning for yourself or your business interests.

 

 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Thursday
Sep152011

Buy Sell Agreements – Protecting Your Interests From the Four Ds

Trusts & Estate Planning

 

by Kira S. Masteller
818.907.3244

 

Buy sell agreements are common estate planning tools for people with business partners. They ensure the continuity of the business in the event of the death, disability, retirement or withdrawal of one or more of the principles.

If you run a successful company with a business partner, you should consider executing a buy sell agreement to protect your own interests, as well as those of your family. Here are some scenarios to consider:

1. Death

▪ When a principle dies, will that person’s stock be repurchased, or can he or she leave that stock to a person of his or her choice? To assure the continuity of the business, it is usually best to repurchase the stock.

▪ Will the repurchase, if any, be done by the corporation or the other shareholders? This involves business and tax issues which will need to be discussed one on one with your attorney, since individual situations vary.

▪ A proper repurchase arrangement requires the use of life insurance, which also needs to be discussed in person to address your unique needs. For example, in a corporate redemption situation, if there is a $500,000 purchase price, the corporation will likely not have sufficient assets to pay that purchase price. Generally, life insurance is used for these purposes. (Be sure to read my previous blog, “Your Life Insurance Review” to understand why it’s important to keep your policies up to date.)

2. Disability

▪ If a principle becomes disabled, will s/he continue to receive salary and benefits? If yes, for how long? That person cannot receive salary payments indefinitely, because at some point those payments will be deemed to be dividends, which is subject to double tax.

▪ Will a disabled shareholder’s stock be repurchased? If so, we will have to discuss how the payments will be made, since life insurance will not be available for this purpose.

▪ Some of these issues can be addressed in employment agreements.

3. Departure or Retirement

▪ Will a shareholder’s stock be repurchased in the event s/he retires or withdraws? Typically, this does not happen because it places an economic drain on the corporation.

4. Divorce

▪ If your partner separates or divorces, will that put your interests in the company at risk? A buy sell agreement can protect you or your partner from unforeseen events like this.

If you co-own a business, it might be time for you to consider the future of your company and maintaining financial interests for yourself and your family. Buy sell agreements are one of the best ways to protect those interests from unforeseen events.

Kira S. Masteller is a California Trust Attorney and Shareholder in our Tax and Estate Planning Practice Group. You can reach her at 818.990.2120.

 

 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120