10 Reasons It Is Time To Update Your Estate Plan - Reason 1

You have moved - its time to check in with your Estate Planning Attorney!

First check the jurisdiction to where you have moved. Most states have similar laws, but some differ greatly. For example some states allow hand written wills with out witnesses and others do not. Or some states require a spouse to inherit a minimal percentage of your estate and some do not. So if you have changed states, talk to an Estate Planning attorney ASAP.

Second, when you moved you probably bought a new home, perhaps opened new accounts. If you have a trust, did you put that new home or account into your trust? If not, do it. Further, did you leave specific gifts of property in your trust or will and has that changed? If so get an update.

Finally, State Estate Tax laws differ by state. Example California does not have a State Estate Tax, but Oregon does. So for example, if you have Oregon property it could effect your California property with their State Estate Tax and that could have been avoided with a properly drafted trust.

Estate Planning attorneys are like your primary care doctor, you should go in for a check up from time to time and especially if there is some major change in your financial or estate health.

The new tax law and what you need to know

The new tax law and what you need to know from the prospective of an Estate and Business Planning Attorney:

The below changes are generally effective January 1, 2018. The provisions relating to individual taxpayers all sunset after December 31, 2025, with the law reverting to prior law.

Estate & Gift Tax-related provisions:

  • The Estate and gift tax exemption is doubled. The basic exclusion amount increases from $5 million to $10 million, adjusted for inflation after 2011. In 2018, the exclusion will be $11.2 million per person. With a properly drafted trust, a couple could pass $22.4 million free from tax.
  • The Generation-Skipping Transfer tax exemption is still tied to the Estate and Gift tax exemption.  So, it too doubles from $5 million to $10 million with inflation adjustment after 2011. The GST exemption will be $11.2 million in 2018.

Individual Income Tax Provisions:

  • Same number of brackets, but some rates are lowering.

Here are the new brackets:

  • 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
  • 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
  • 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)
  • 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)
  • 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)
  • 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)
  • 37% (over $500,000; over $600,000 for couples)
  • The personal exemption, which would have been $4,150 per person in 2018, is eliminated. However, the child tax credit doubles from $1,000 to $2,000. Further the credit phases out at $400,000 instead of $110,000 for joint filers under prior law.
  • Alternative minimum tax remains for individuals, but the exemption increases. (The AMT is eliminated for corporations.)
  • The standard deduction amount for 2018 increases from $6,500 to $12,000 for an individual and from $13,000 to $24,000 for a married couple filing a joint return.
  • State and local taxes had been deductible in full. Beginning in 2018, state and local taxes are only deductible up to $10,000 in aggregate. This includes income taxes and property taxes. The limit is the same for individuals and married couples filing jointly. The limit for a married person filing separately is $5,000.
  • Interest on a home mortgage for a first or second residence had been deductible up to $1 million in debt (adjusted from inflation). Under the new law, the mortgage must be no larger than $750,000 for the interest to be deductible.
  • The penalty for not having health insurance is removed.
  • Various amounts in the tax code are indexed for inflation. The method of indexing has been changed to chained-CPI, which will raise levels more slowly than in the past.
  • Income from pass-through entities, such as S corporations, partnerships, sole proprietorships, etc., may now qualify for a 20% deduction. However, there are limits and phase-outs. For example, if the income is from a service business, the deduction is phased out if the taxpayer’s income is over $157,500 (or double that if married filing jointly).

Corporate Taxes:

  • Corporate taxes are changing the most. The rate of taxation for a C corporation changes from 35% to 21%.
  • A business may elect to expense property under Section 179 rather than depreciating it over years.  The amount of property which could be expensed had been $500,000. Now, the limit for expensing is doubled to $1 million.
  • An S Corp shareholder may be an Electing Small Business Trust. Under current law an ESBT beneficiary may not include a non-resident alien. Now it can.

Practical Estate Planning Tips Series 10 of 10

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".  With out these types of specific powers in your Power of Attorney document your agent generally can not 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.

Practical Estate Planning Tips Series 9 of 10

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 now 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 needs it.  Otherwise they may be digging through boxes, or worse the trash, looking for your trust.

Also, how are your agents suppose 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!

Practical Estate Planning Tips Series 8 of 10

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.

Practical Estate Planning Tips Series 7 of 10

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.

Practical Estate Planning Tips Series 6 of 10

Tip #6:  Consider a Restated Amendment.

Many times I will have a client come in and they will have 3, 4, 5... amendments to their trust.  Some times 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. 

Practical Estate Planning Tips Series 5 of 10

Tip #5:  Consolidate accounts.

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. 

Practical Estate Planning Tips Series 4 of 10

Tip #4: Amend your trust an 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) their creditors can come after the account because they are on it and 2) many times after death there is confusion as to who should get 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.

Practical Estate Planning Tips Series 3 of 10

Tip 3:  Regarding Power of Attorney(s) - 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 Power of Attorneys 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 agents 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)

Practical Estate Planning Tips Series 2 of 10

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 with out 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.

Practical Estate Planning Tips Series 1 of 10

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 assest.

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 the all tools available in a properly drafted trust!

Judge allows service of process via Twitter

ere is one for the techie in you -  A federal judge in San Francisco approved service of a lawsuit via Twitter a Kuwaiti national Al-Ajmi accused of helping fund ISIS.

The Judge said service via Twitter is not barred by any international agreement with Kuwait, and it is reasonably calculate to give notice. “Al-Ajmi has a large following on Twitter,” Beeler wrote, “and has used the social-media platform to fundraise large sums of money for terrorist organizations by providing bank-account numbers to make donations.” His Twitter account is active and he continues to use it, the Judge added.

 

 

Executives accused of Elder Abuse

Billionaire media mogul Sumner Redstone accused two ex-girlfriends of isolating him from his family and abusing him until he signed over more than $150 million of his estate, or the bulk of what he had to leave for his children, in a suit filed Tuesday in California state court. Google the story for more information.

 

Common Reasons the California Secretary of State Rejects Corporate Filings - Part Three

Common Reasons the California Secretary of State Rejects Corporate Filings - Part Three – Conversions

Issues frequently arise when converting a limited liability company (“LLC”) into a corporation, particularly when filers ignore the new requirements established by the Revised Uniform Limited Liability Company Act (“RULLCA”), which took effect on January 1, 2014. The three most common mistakes are:

Citing to the former LLC Act in the conversion statement: An LLC converting into a corporation must include a statement of conversion within the articles of incorporation of the converted entity (a sample is available here). (RULLCA §17710.06(a)(3)). Many filers continue to mistakenly reference the former LLC statute (the Beverly-Killea Limited Liability Company Act) in the conversion statement, rather than RULLCA.

Managers mistakenly signing the statement or certificate of conversion: A statement or certificate of conversion must be signed or acknowledged by all members—not managers—of the LLC unless a lesser number is provided in the articles of organization or operating agreement. (RULLCA §17710.06(b)).

Failing to include the initial street address of the converted corporation: A certificate of conversion must be filed to convert a California LLC into a foreign LLC. (RULLCA §17710.06(a)(4)). The certification of conversion can be found here and must include:

(1) The name, form, and jurisdiction of organization of the converted entity.

(2) The name, street, and mailing address of the converted entity’s agent for service of process.

(3) The street address of the converted entity’s chief executive office. (RULLCA §17710.06(c)).

(4) The name of the converting limited liability company and the Secretary of State’s file number of the converting limited liability company.

(5) A statement that the principal terms of the plan of conversion were approved by a vote of the members, that equaled or exceeded the vote required under Section 17710.03, specifying each class entitled to vote and the percentage vote required of each class.

Though all of the foregoing items are equally required, the street address of the converted entity’s chief executive office (Section 5 of the certificate of conversion) is most often omitted. Note that Section 5 must be completed even if the address is duplicative of another section.

Daniel H. Alexander, Attorney www.dalexander.com

Common Reasons the California Secretary of State Rejects Corporate Filings - Part Four

Common Reasons the California Secretary of State Rejects Corporate Filings - Part Four – Dissolutions

This is the final installment in a four-part series, and examines a few of the most common reasons that filings for entity dissolutions are rejected.

Dissolving a California domestic stock corporation is initiated by an election to dissolve. The corporation must then file certain documents with the Secretary of State, including a certificate of dissolution. The certificate is available at:http://bpd.cdn.sos.ca.gov/corp/pdf/dissolutions/corp_stkdiss.pdf

Common reasons why the certificate of dissolution is rejected include:

1. Failing to describe, in an attachment, the provision made for the corporation’s known debts and liabilities: When selecting “The corporation’s known debts and liabilities have been adequately provided for as far as its assets permitted” (the fourth option in Section 3 of the certificate of dissolution), a filer must specify in an attachment the provision made and one of the following: (a) the address of the corporation, person, or government agency that assumed or guaranteed the payment, (b) the depositary with which the deposit has been made, or (c) other information necessary to enable creditors or others to whom payment is to be made to appear and claim payment. The format may be an attached page that contains the information listed above, the address of the assumer or the bank where the deposit was made or other information to help creditors claim payment. Attaching a bankruptcy judgment instead of the required attachment is generally insufficient.

2. Making contradictory statements regarding corporate assets: Filers who select that “debts and liabilities have been paid as far as assets permitted” in Section 3 cannot also state that the corporation has never acquired assets in Section 4. If the corporation is paying its debts and liabilities with its own assets, it must have acquired assets. If the corporation has in fact never acquired assets, then the most likely answer for Section 3 is that (a) another entity is assuming the debts and liabilities (the third option in Section 3) or (b) the corporation never incurred any known debts or liabilities (the fifth option in Section 3.

3. Making contradictory statements between the certificate of dissolution and the certificate of election: If fewer than all of the outstanding shares vote to dissolve a corporation, a certificate of election to wind up and dissolve is additionally required. If a filer indicates in the certificate of dissolution that all of the shares voted to dissolve the corporation (Section 5), the certificate of election cannot state that the corporation has no shares outstanding (the second option in Section 3). If the corporation has no shares outstanding, then the certificate of election should state that no shares are outstanding (the second option in Section 3) and the certificate of dissolution should state that the election to dissolve was not made by the vote of all outstanding shares (“No” in Section 5), as outstanding shares cannot vote if they do not exist. Note that if this is the only filing deficiency with the certificate of dissolution, the Secretary of State will return the certificate of election and file the certificate of dissolution by itself since on its face, the latter complies with law and no election is needed. If there are additional deficiencies, then the certificate of dissolution and the certificate of election will both be returned and will need to be fixed.

Daniel H. Alexander, Attorney www.dalexander.com

Demystifying Trusts as an IRA Beneficary

I have heard many myths about IRA beneficiaries, such as: Trusts can not be beneficiaries of an IRA, or if the Trust is the beneficiary of an IRA it destroy the IRA and it will not be able to be stretched into an inherited IRA for the beneficiaries of the trust.

Usually these are not true if the trust is done properly.

Your revocable living trust or irrevocable trust can be named as a beneficiary of your IRA and it does not trigger the 5 year withdrawal provision if your trust meets the requirements of Treasury Regulation 1.401(a)(9)-4a and is a "look-throught" or "see-through" trust. (explained in detail below) e.g. - It passes through to your named beneficiaries.

Many times people will say that IRA's avoid Probate and therefore the beneficiary does not need to be a Trust. Yes in most cases that may be true; However, naming individual beneficiaries on your IRA(instead of your trust) does not necessarily mean probate would be avoided because the named contingent beneficiaries could be gone leaving no beneficiaries and therefore it would have to be probated through the IRA owners Estate.

Many times the he main reasons for having the trust as beneficiary of an IRA is 1) so all assets are controlled by the trust; 2) so the IRA will be distributed pursuant to your trust and 3) so the IRA can be managed if necessary for a minor or disabled beneficiary if such a case was applicable. The Trustee could see to it that the IRA is stretched for the beneficiary or if necessary cashed in and held in trust for the benefit of the beneficiary depending on what is needed.

A trust can absolutely become eligible for designated beneficiary treatment, qualifying as a “see-through” trust where the post-death RMDs are calculated based on the life expectancy of the oldest of the trust’s underlying beneficiaries. In order to qualify as a designated beneficiary, though, the trust must meet four very specific requirements (which yours does), as stipulated in Treasury Regulation 1.401(a)(9)-4, Q&A-5:

1) The trust must be a valid trust under state law. Generally this just means the trust is not a handwritten trust (not permitted in many/most states), has been properly signed and executed as a trust (witnessed, notarized, etc., as required under state law), and does not contain any provisions that would outright invalidate the trust under state law. For virtually any trust drafted by a competent attorney that was legally signed and executed in the first place, this requirement should be a non-issue.

2) The trust must be irrevocable, or by its terms become irrevocable upon the death of the original IRA owner. A revocable living trust that becomes irrevocable upon the death of the owner qualifies under this provision, as would any irrevocable trust that was simply drafted to be irrevocable from the moment it was executed.

3) The trust’s underlying beneficiaries must [all] be identifiable as being eligible to be designated beneficiaries themselves. Not surprisingly, the Treasury Regulations require that if distributions are going to be stretched over the life expectancy of trust beneficiaries, that the trust beneficiaries must be identifiable in the first place, which generally means they should either be identified by name, or identified as members of a “class” of beneficiaries that could be identifiable when the time comes (e.g., “my children” or “my grandchildren” "my issue", etc.) and they must be individual, living, breathing human beings as beneficiaries; if a charity or some other non-living entity is a trust beneficiary, then the trust will not be able to do a stretch over the life expectancy of the underlying beneficiaries because not all the underlying beneficiaries as designated beneficiaries with a life expectancy in the first place!

4) A copy of “trust documentation” must be provided to the IRA custodian by October 31st of the year following the year of the IRA owner’s death (Your Successor Trustee will do this).

Under supporting Treasury Regulation 1.401(a)(9), Q&A-6, the “documentation” requirement stipulates that the IRA custodian must be provided with either a final list of all trust beneficiaries as of the September-30th-of-year-after-death beneficiary determination date (including contingent and remainder beneficiaries and the conditions under which they would be entitled to payments) along with a certification by the trustee that all of the requirements for stretch distribution are met under the trust, or the trustee can simply provide a copy of the actual (irrevocable) trust document itself to the IRA company.

Daniel H. Alexander
www.dalexander.com

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