Your car requires regular servicing in order to maintain its performance and reliability…and so does your estate plan.  Remember all those pamphlets that were sitting in your glove box along with an owners manual you never read, one of them was a recommended schedule for maintenance based on how many miles you drove your car.  At certain times or a specific number of miles, you need to change the oil, replace the brake pads, rotate the tires and so on.  With your car you know if you keep driving it without servicing it, it’s a sure bet your car will let you down (inevitably while it’s raining).  Well, your estate plan is no different.  You may not want to service it  (we all know taking you car in is a pain), but like your car your estate plan is sure to let you down if you do not service it (when your estate plan lets you down, you won’t care if it’s raining).

Your estate plan needs “servicing” or “updating” if it is going to perform the way you want when you need it.  Your estate plan is a snapshot of you, your family, your assets and the tax laws in effect at the time it was created. All of these change over time, thus your plan should change accordingly.  It is unreasonable to expect the simple will and trust written when you were a newlywed to be what you need it to be that you have a growing family, divorced from your former spouse or retired.  In the simplest terms, you cannot draft an estate plan one time to cover your family for all time.  Over the course of your lifetime, your estate plan will need check-ups, maintenance, tweaking and even full revision or replacement (the legal term is “restatement”).  However, if you have the right attorney to do this for you, the servicing will cost you a minimal amount as compared to having to redo a defective plan or far worse having to administer a plan that did not work in the first place.  (Yes that’s right, not only is probate court slow, painful and public, but also it can easily cost you many times over what it would cost to set up a basic living trust plan).

So, how do you know when it’s time to update or service your plan?  The simplest way is to think of it like servicing your car but instead of having more standard mileage checkpoints, your estate plan has event checkpoints.  Generally, any change in your personal, family, financial or health situation will prompt the need for a change.  Additionally any change in the tax laws could prompt a change in your estate plan, which is precisely why you need to be in continuous communication with your attorney!

It’s a good idea to review your estate plan every year.  Set aside a specific time every year (the week after you birthday or anniversary, any month without too many events, two weeks after tax season … you get the idea) to review it.  At Chhokar Law Group, P.C. we do that for you by reviewing your assets every year and restating your trust every two years to make sure no plan is left without “service” resulting in a breakdown of the plan when it’s needed most.

Here are some suggested check-points to alert you when your plan needs “servicing:”

• Marriage, divorce or separation;

• You or your spouse’s health declines;

• Your spouse dies;

• Value of assets changes dramatically;

• Change in business interests;

• You buy real estate;

• Birth or adoption;

• Finances change;

• Parent or relative becomes dependent on you;

• Minor becomes adult;

• Family member dies;

• Federal or state tax laws change;

• You plan to move to a different state;

• Your successor trustee, guardian or administrator moves, becomes ill or resigns; and/or,

• You change your mind – you are the creator of your living trust and can change it

whenever you want.

Remember, as convenient as it would be, you cannot buy a car, never have it serviced and expect it to run like new in ten to fifteen years.  Same with your estate plan, you cannot have it drafted once and then never look at it again expecting it to work exactly how you want when you pass away years down the road.

Choosing your executor is an important and necessary task, though potentially morbid and depressing. The executor is the person who carries out your wishes when you’re “gone” – yes, I mean no longer with us, you’ve left the building, entered a new plain of existence, etc.  Basically, you’re picking someone who will do all the things that you wanted done after your death regarding your assets and loved ones.

The responsibilities can be extraordinarily broad or limited.  As such, it’s important to select a person who’s trustworthy and capable of doing the job.  For example, you may trust your 97-year-old grandfather implicitly, but do you really think that he’ll have time to wrap up your affairs between games of bridge and bungee jumping excursions?  Yes, I’m stereo typing 97-year-old grandfathers, because I like to believe that at 97, I’ll have a full and rich social life and take up high-adrenalin sports.  Back to topic: depending on your estate, it may be helpful if the individual that you pick has business or investment experience.

Some examples of what your executor will be responsible for include making funeral arrangements, preparing final tax returns, distributing assets as defined by your will, paying final debts (no you can’t get out of this even after your gone), informing banks, initiating probate if necessary and a host of related actions.

Really any adult can be your executor; it can be a trusted friend, relative, or you can appoint a professional executor.  Although the executor is required to follow the directions left by the person who died, the executor may be forced to make judgment calls that were not planned for, so knowing that the appointed person would act according to your wishes is important. With more complicated estates, a professional executor would likely be better to able to handle the responsibilities.

Selecting a person who resides in the local area where probate proceedings will take place is also a good idea, as an out-of-state executor may find it more difficult to work with heirs and file paperwork in court. Also, certain states have strict rules regarding out-of-state executors.

Before appointing someone as your executor, remember to ask them if they are willing to accept the responsibility.  Just imagine all your effort in analyzing who will be your executor, naming them and then having them pass on the responsibility.  Naming an alternate executor, in the event that the primary executor cannot serve in the role, can also be helpful and will prevent the court from intervening and appointing the new executor for you.

In the end, any good estate planning attorney will walk you though the process of naming your executor while drafting your estate plan.  So once again when your decisions are this important, make sure you’re working with someone whose practice is completely and totally dedicated to estate planning and only estate planning.

The vast majority of people don’t even start thinking about planning their estates until they reach retirement age.  If that’s your plan then you’re making at least two mistakes:

1. (1) You are gambling that nothing will go wrong until you’re ready to plan; and
2. (2) You are severely limiting what you can accomplish with your estate planning.

We all know that we will eventually die but understandably it’s an uncomfortable subject for all but the most morbid among us.  The problem is that having the “I know it’s something I should do but I’m still young and I don’t want to think about it right now” or “I know I need it, but I don’t have time right now so I’ll just wait until next year” philosophies will leave you family in a world of pain after you’re gone.  Emotionally for all of the obvious reasons, but also financially and legally because of the probate procedures that anyone without a well executed estate plan has to go through.

Life rarely happens exactly as most people anticipate: people have children without getting married, people get divorced, they marry more than once, then again, they may never marry or have children.  Real life is full of options, choices and twists of fate.  In short, it’s life.

You have to be prepared for the unknown and provide for your loved ones who depend on you in case you’re not around.  Every time we leave our homes and get in our cars, we are at risk of being in a car accident.  Sorry, but that’s the reality.  The point is that nobody is immune from the unknown or unplanned; accidents can happen to anyone and you have to be prepared for those unknown eventualities.  So how do you plan for the unknown?  Well there’s always insurance - every insurance agent on the planet will tell you to buy their insurance to plan for the unknown.

Here’s the rub, insurance, in and of itself is limited.  My auto insurance isn’t going to do a thing for me when the next big earthquake hit’s California causing a Giant Redwood Tree to lose a gargantuan branch.  This branch will then hurtle to earth at astronomical speeds and land perfectly on the little toe on my left foot causing much pain and a trip to the emergency room. After reviewing my auto insurance policy, I will unfortunately confirm that I’m out of luck getting my insurance company to pay for an “act of God” never mind that I wasn’t in my car at the time of the incident.

Remember … life happens and no one can predict it. This is one of the reasons why estate planning is the best and most inexpensive long term insurance coverage that you can ever buy.  We can’t plan for everything specifically, but we can have a solid plan for every eventuality.  For example, if that tree hit my toe and I was in such unbelievable pain that I couldn’t communicate (as would likely be the case because I have a child like tolerance for pain), the person I’ve selected as my Health Care Agent could tell the doctors what to do about my toe!  Excellent, that’s one less worry keeping me up at night.  What would I have done without my little toe?  Which little piggy would have gone “wee, wee, wee all the way home?”  Thank goodness for estate planning.

We take precautions to try and extend our lives for as long as possible. We make sure our cars are in working order.  We eat healthier foods, exercise, and have regular checkups.  And as a result of certain global events we have all become more aware of our surroundings and any threats to our security.  There are no guarantees in life, but we are doing the best we can.

The key issue then becomes: what if that is not enough?  What if you don’t make it to the end of the “normal” road of life?  What would happen to your loved ones if you died today?  Will there be enough money to provide for them the way you would want?  Will they even be able to get to the assets you leave behind or will your assets be tied up in courts, held ransom by the painfully slow probate process that can take up to 12-16 months or more (keeping in mind your assets are tied up in the probate court this entire time)?  How much will they really get (probate in CA can cost up to 5% of the entire value of your estate)?

Wouldn’t it be better to make sure that the people you care about will be taken care of the way you want no matter what happens during your life?  Of course it would.

You could gamble and wait until the last possible minute to plan your estate.  You could be like those people who make estate-planning decisions from their deathbeds in the hospital.  But do you really want to be making some of the most important decisions of your life that will affect your family’s future, potentially for generations, in that kind of condition?  Wouldn’t it be better to put a plan in place now and then have the rest of your life to think about it, polish and fine tune it until it’s exactly what you want?  Remember, estate planning is a process and not an event; you can always make changes to your plan whenever you want.  Frankly having any plan in place is better than having no plan in place.

Planning your estate now doesn’t mean you will die tomorrow, just as buying life insurance doesn’t mean you’re getting ready to die nor does buying homeowner’s insurance mean your house will burn down tomorrow.  So if you act now, you won’t have to worry about what could happen to your family if your life doesn’t follow the normal progression…or about making bad decisions at the last second when you’ve run out of time.

It’s called peace of mind…and you can have it and you certainly deserve it.  So, when’s the best time to plan your estate? Now!

Living trusts enable you to control the distribution of your estate.  Furthermore, certain trusts may enable you to reduce or avoid many of the taxes and fees that may be imposed upon your death.

In short, a trust is a legal arrangement under which one person, the trustee, controls property given by another person, the trustor, for the benefit of a third person, the beneficiary.  The fun part is that when you establish a revocable living trust, you are allowed to be the trustor, the trustee, and the beneficiary of that trust.  Simply you get to play all the parts in the play.

When you set up a living trust, you transfer ownership of all the assets you’d like to place in the trust from yourself to the trust. Think of it as if you took all your possessions and put them into a box. Legally, you no longer own any of the assets in your trust. Instead, your trust now owns your assets. But, as the trustee, you maintain complete control. You can buy or sell assets as you see fit. You can even give assets away. Effectively, you can have all the same control over your assets as you did before you put them into trust.  So you may ask: “what’s the point of setting up a trust?”  Well keep reading.

Upon your death, assuming that you have transferred all your assets to the revocable trust, there isn’t anything to probate because the assets are held in the trust. Therefore, properly established and funded living trusts completely avoid probate.  So, you get to skip a lot of the fees and costs associated with probate.  Also, by establishing a living trust you also get to avoid the 12 to 16 months that probate requires.  This is a huge benefit.  Effectively, if you use a living trust, your estate will be available to your heirs upon your death, without any of the delays or expensive court proceedings that accompany the probate process.

There are some trust strategies that serve very specific estate needs. One of the most widely used is a living trust with an A-B provision. An A-B trust enables you to pass on up to double the “exemption amount” to your heirs free of estate taxes.  The exemption amount is the amount of money that Uncle Sam allows you to pass on without him taxing it.

When an A-B trust is implemented, two subsequent trusts are created upon the death of the first spouse. The assets will be allocated between the survivor’s trust, or “A” trust, and the decedent’s trust, or “B” trust.  Sometimes these are referred to as the Marital Trust and Family Trust.  Don’t worry about naming protocols.  Let’s just stick with A and B for now.

This will create two taxable entities, each of which will be entitled to use a personal exemption.

The surviving spouse retains full control of his or her trust. He or she can also receive income from the deceased spouse’s trust and can even withdraw principal from it when necessary for health, education or maintenance.

On the death of the second spouse, the assets of both trusts pass directly to the heirs, completely avoiding probate. If each of these trusts contains less than the exemption amount, these assets will pass to the heirs free of federal estate taxes.

Sound like a good deal.  Well for most people it makes a lot of sense to establish a trust. I’ll be covering some of the other benefits of these types of trusts in later posting, including asset protection benefits.  But, if you need more information right now, you can always go to www.yourtotalestateplan.com.

What are you planning to give your teenager when he or she turns 18 and legally becomes an adult? A new watch? A car? A deposit for an apartment? A trip to Europe?

Those are all fine gifts, if you can afford to spend for them. But here’s one you may not have thought of … and it won’t cost you a bundle. Take your son or daughter to your attorney’s office and have them prepare a trio of documents: a simple trust or will, a durable power of attorney, and an advanced healthcare directive. Actually, it’s a gift for both of you, because once your child reaches legal age of adulthood, you will no longer be able to automatically make medical and legal decisions for him or her without the appropriate legal documents authorizing you to do so.

If your son becomes ill or injured and cannot handle his own financial affairs, you will not be able to step in for him and conduct business (sign checks, sell assets, etc.) unless he has a trust or a durable power of attorney and has named you as his successor or agent. If he hasn’t, you’ll have to go through the courts … and that will take time, cost money, and restrict you in ways you cannot imagine. (Some financial institutions also require their own forms; make sure you and your child check with each bank, etc.).

If your daughter cannot make her own medical decisions, it will be much easier for you to make them if she has already named you as her agent. And what if she should be so ill or injured that she is placed on life support before you get to the hospital? Unless she has made her wishes known through a legal document, you may not be able to abide by her wishes and have the life support equipment removed without court approval.

Finally, if your adult child should die without a will, the court will distribute his or her assets according to the laws of the state in which they lived … regardless of what you (or they) would have wanted.

Make sure your new adult understands that all of these documents will need to be changed as their life changes including: accumulating more assets, getting married, buying property, having children, etc.

Helping your child get started with this adult responsibility at the moment when he or she becomes an adult is just one more responsibility we have as parents. It fits right in there with how to balance a checkbook, how to handle a credit card, and how to buy insurance.

Chances are that it will be a long time before any of these documents will be needed. But you’ll be sending your child out of the nest with a full layer of protection … just in case.

Most people have some idea what estate planning is about, but much of what they “know” is actually false. Prior to working with clients, we want them to recognize that the “truth” about estate planning is probably different from their preconceived notions. Take a look at the following information and see if it changes your way of thinking about estate planning. Our “Truth About Estate Planning” presentations go into the details behind these issues so please feel free to check in for these events. (Please sign-up for email updates to receive event specific details)

Estate planning is a Process, not an event. Every estate plan goes through three steps:

(1) Your plan is developed and written;

(2) Time will pass until your plan is needed, during which changes in your assets and the law often cause my plan to fall out of date; and

(3) Administration of your plan at your death or incapacity.

Creating Your Total Estate Plan™ allows you to stay in control throughout the estate planning process. At a minimum you need to have a solid working relationship with a counseling oriented attorney.  This relationship lets you learn what is possible and then develop your plan to do whatever you want. Your attorney’s formal updating program will assure that you keep it current, and that you and your family stay in touch with it. Also remember that getting a settlement fee disclosure and commitments now keeps your family from losing control at your death.

There is no Magic Bullet that will free you from ever working with an attorney again.  Unfortunately many people have the viewpoint of never wanting to work with an attorney. The fact is you need to have a comfortable relationship with an attorney who you know will continue to work with you on an ongoing basis. “Call if you need to update” will fail in the long run as a way of keeping your plan up-to-date. Just leaving your family to “call the attorney” after your death would put the attorney in control of your plan and the costs at that point, so you need an attorney who will fully disclose and limit those costs.  This is one of the reasons why everything we do at Chhokar Law Group, P.C. is done on a flat fee basis explained fully to the client before ever signing anything.

Estate Planning requires teamwork. You can trust and follow the advice you will get from your different professionals if you get them to confer and agree on the advice they are giving you.  Your attorney should have solid professional networks with financial advisors to be able to meet your needs as well as have the ability to coordinate with your personal financial advisors so everyone is on the same page.

Your estate plan won’t work without proper asset titling. Proper asset titling is crucial to the success of your estate plan, whether your plan is designed as a will or a trust. The will or trust is your set of instructions to your family. You need to review all asset titles and make sure the assets will follow your instructions.  This is one of the driving forces behind Your Total Estate Plan™ - we make absolutely sure every one of your assets is titled appropriately and your trust is funded properly.

Estate Planning is about your personal goals more than avoiding probate and taxes. Personal goals can include things like: how you want to live your life; how you want your spouse and children cared for; how your children should be raised even if you die early; what priorities you have for your heirs’ education; protecting your spouse (and your assets for your children) from a new spouse after your death; keeping control of your assets and your care within the family in the event of your incapacity; protecting your estate from nursing home costs; protecting assets from divorces or creditors of the children even after they inherit; and promoting your family’s intangible and spiritual values.

You understand how attorneys charge. Attorney fees for estate planning are always some percentage of the estate, no matter how they are calculated. Our allocation of the fees allows you to explore all planning options by reducing your costs and eliminating hourly fees that often far exceed the initial estimate given to the client at the outset by the attorney.  A good estate planning attorney will make known to the client in advance exactly how much you are going to be charged and exactly what services are provided with that fee.

You can have peace of mind, knowing that your Estate Plan will work!

You can do it through the proactive and systematic process utilized by Chhokar Law Group, P.C. that is specifically designed to develop customized plans for each client in order to satisfy the particular needs of our clients.

For additional information we invite you to check out our website, www.yourtotalestateplan.com. Also, we invite you to set up a consultation with us; bring your family members and your professional advisors.

Estate planning is not just about reducing taxes.  Estate Planning is also about making sure your assets are distributed as you want both during your lifetime and after you’re gone. The fact is that when most people think about their assets they include not only the obvious tangible wealth they have accumulated (house, cars, bank accounts, stock, retirement accounts, etc.), but also their intangible wealth (their hopes, dreams and personal values), which they want to pass on to the next generation.  In order to ensure these goals are met you need to consider a number of questions.

It would be nice to start with the first questions in everyone’s mind – “Who should inherit my assets and how much should they get?”  But, before you can even think about that issue, you need to consider your marital status and where you live.  Here in California we are a community property state.  Regarding your material assets the term community property means that everything you or your spouse earn during your marriage is shared between the two of you 50/50.  For example you earn $100,000 a year and purchase a $500,000 house.  (Granted, I know that these numbers are impossible in California because you could never buy a house for $500,000 even with the decline in real estate prices.)  Your spouse is entitled not only to half the money you have earned, but also half the value of the house.  Regardless of whether or not your spouse has ever earned a penny during your marriage.

Most people think community property applies only to divorces.  Not true, we also have to look at it in regard to estate planning.  What can you give away with your estate plan?  Simple answer: only half of the community property.  Also, should you die without a will your surviving spouse is not only entitled to half of the community property, but also one third of your separate property, e.g., property you had before you got married or which you received by gift or bequest.  Even with a will or living trust, if you provide less for your spouse than state law deems appropriate, the law will allow the survivor to elect to receive the greater amount.

Once you’ve settled on a method of distribution for your spouse you should then ask yourself a few more questions.

Do you want your children/beneficiaries to share equally in your estate?

Do you wish to include grandchildren or others as beneficiaries?

Would you like to leave any assets to charity?

Do you have a method for passing on your intangible wealth?  Here at Chhokar Law Group, P.C. we offer “Priceless Conversations” which allow you to pass on your values, hopes and dreams to your family and friends.  You can learn more about our methods of passing on your intangible wealth at www.yourtotalestateplan.com.

Which assets should the beneficiaries in the questions above inherit?

You may also want to consider special questions when transferring certain types of assets. For example: If you own a business, should the business pass only to your children who are active in the business?  Should you compensate the other children not involved in the business with assets of equal value?  How do we solve this problem?

If you own rental property, should all beneficiaries inherit?  If so, should they all inherit in equal shares?  How should they inherit the rental property, as joint tenants or tenants in common?  Do they all have the ability to manage the property?

How much do the particular financial needs of each beneficiary play a part in what they inherit?

When and how should they inherit the assets?  In determining the answer as to how your beneficiaries should inherit your assets, at a minimum you should focus on the following factors: (1) The potential age and maturity of the beneficiaries; (2) The financial needs of you and your spouse during your lifetimes; and (3) The tax implications at every level considering Income Tax, Gift Tax, Estate Tax and Generation Skipping Tax.

Outright bequests offer simplicity, flexibility and potentially some tax advantages, but you have no control over what the recipient does with the assets once they are transferred. Trusts are advantageous when the beneficiaries are young or immature, when your estate is large, and especially for tax planning reasons. Also, trusts can provide for professional asset management capabilities an individual beneficiary may lack while allowing for the trust maker to set up his or her own terms for how and when the beneficiaries are to receive inheritances.

Trusts can even keep all of your assets held in trust private and away from the court system and potential predators; unlike a will which requires you to go through the public process of probate in which fees and court costs can be as high 5% of the total value of your estate.

In the end remember that one of the simplest and best ways to define probate is as follows.  “Probate” is the filing of a lawsuit, against yourself, with your own money, in order to notify your creditors of their potential claims against you.

Let’s just avoid all of these issues and use a properly drafted and maintained trust designed for you and only you!

People often tell me that they don’t need a Will or Trust because they own all of their property in joint tenancy.  This idea seems to have gained a foothold in recent years, so much so that joint tenancy is sometimes referred to as the “Poor Man’s Will.”  Unfortunately, holding property in joint tenancy at the expense of not having an Estate Plan can wind up being an extremely expensive proposition (monetarily and otherwise).

Admittedly, holding property in joint tenancy (or tenancy by the entirety) with your husband or wife is an effective substitute for a Will at the death of the first spouse to die.   At that point, probate is avoided, and all jointly owned property automatically becomes the sole property of the surviving spouse.

The problem arises when the surviving spouse dies — at this spouse’s death, his or her property (if still owned in his or her own name) will become subject to probate. Furthermore, if the surviving spouse died without a Will (i.e. intestate), then all of this property will be distributed according to California law rather than according to the surviving spouse’s wishes.  For example: you may be estranged from your son because of his alcohol or drug problem, but if he is your only heir under California law at the time of your death if you die intestate, he’ll receive your entire probate estate.  No protections for your estate or for your son.

Probate and intestacy can be avoided if the surviving spouse does some estate planning after the death of the first spouse to die, but we simply cannot assume that this will happen.  Sometimes spouses die simultaneously, or soon after each after, and there’s simply no time to do estate planning.  Sometimes the surviving spouse becomes disabled, and doesn’t have the capacity to execute estate-planning documents.  Or sometimes the surviving spouse just doesn’t know enough about financial matters to think about seeing an estate-planning attorney.

Even bigger problems can arise if the surviving spouse places property in joint tenancy with one of his or her children.  Besides having potentially negative gift tax ramifications, making your child a co-owner of a bank account or home can greatly increase family strife.  In many cases, the surviving spouse does not realize the nature of the property interest that he or she has given the child.  What if the child empties out the joint bank account, or refuses to consent to the sale of the jointly owned home?  To the surprise of many people, both of these actions would be entirely within the child/joint tenant’s rights.  In addition, placing property in joint tenancy with a child can cause problems even after the surviving spouse’s death.  At that point, the surviving spouse’s other children may attempt to argue that the joint tenancy was established only for convenience (instead of for gift purposes), or that the child improperly influenced the surviving spouse’s decision to name the child as a joint tenant.

In the end, all of these issues can be avoided by simply talking to a professional estate planning attorney.