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!

Often people will transfer title of their assets to their adult children while they are living, thinking it will make things easier for their children when something happens to them.  Doing this will prevent the court from controlling the assets if you become incapacitated and it will avoid probate when you die.  However, while there can be valid tax reasons to transfer some assets now, it can also create some serious problems.

Here’s the reality.  First, when you give away an asset, it’s gone. You may think your children will give it back to you if you change your mind, but they don’t have to and you can’t make them.  Also, we all know how family dynamics can drastically change when money is involved. They can do anything they want with the asset given to them: they could sell the asset against your wishes (e.g. a priceless family heirloom or jewelry with significant sentimental value). They could lose it to creditors or be influenced by a maliciously intentioned spouse (sorry, but they’re not a myth and have been know to exist in even the best of families).  If you outlive your children or they divorce, the ex-spouse could end up owning the asset and all of a sudden someone who you never intended to have it now owns your great grandmother’s one of a kind porcelain teapot collection.

Second, there could be tax problems with gifting to your kids. Currently, when you give someone other than your spouse more than $13,000 in one year, the gift tax may get involved.  That means if the gift has a value of more than $13,000, you must file a gift tax return and the IRS will be none too happy with you.  We all know how forgiving the IRS can be, so you may not need to worry about this failure to file.  Oh wait a second, I’m getting confused; it’s my mother who’s forgiving … not the IRS.  File the return.

One more big problem, when your children sell the asset, there will probably be a capital gains tax because, under current law, the asset would not receive a stepped-up basis.  The basis of an asset is the value used to determine gain or loss for income tax purposes; in other words, the basis is what you paid for the asset. If you give an appreciated asset to your children while you are living, it keeps your old basis (what you paid for it). However, if they receive it as an inheritance after you die, it receives a new stepped-up basis and is subsequently revalued as of the date of your death.  Not a fun topic to think about but let’s look at why you should pay attention.

Here’s an example.  Let’s say you purchased your home for $500,000 and it’s worth $1,000,000 when you die. If your children receive it as an inheritance after you die, the basis would be $1,000,000.  If they then sell it for $1,000,000 there would be no gain and thus no capital gains tax.

Part two of the example.  If you give the house to your kids while you are living, the basis would be $500,000 (what you paid for it). If they sold it for $1,000,000, they would have a $500,000 capital gain and would have to pay $75,000 in capital gains tax. Currently, the top capital gains rate on assets held longer than 12 months is 15%.  On one hand $0 and on the other $75,000 straight to the IRS.  Hmm, what to do?  What to do?

Substantial gifts may also disqualify you from receiving Medicaid and SSI (Supplemental Security Income) benefits for a significant period of time.  A good estate planning attorney can help ensure that your plan does not disqualify you from receiving these benefits through proper planning techniques.

Gifting can be a great way to reduce estate taxes if your estate is larger and you can afford to give away an asset.  Just remember to never give away an asset you may need later and make sure you consult with an experienced professional.  If you’ve still got question, give us a call at 858-384-5757 or check us out on the web at www.yourtotalestateplan.com.

Now that the Obama administration is in place, the uncertainty regarding the future of the federal estate tax may soon be resolved and that resolution almost certainly includes the estate tax being here to stay. If your estate exceeds the $3.5 million lifetime exclusion you need to be proactive and take steps that will minimize the impact of this tax on your estate or else your estate will be paying the government 45 cents for every dollar above $3.5 million. Certain strategies are particularly attractive when asset values have decreased and interest rates are low, as they are today.

One estate planning technique that can be very effective is the grantor retained annuity trust or GRAT. With this approach, you transfer investments, a business interest or other assets to an irrevocable trust. You then receive annuity payments from the trust for a specified period. At the end of that time, the assets remaining in the trust pass to your named trust beneficiaries. When you transfer assets to the GRAT, you are making a gift for tax purposes, however you are not taxed on the present value of the annuity interest since you are keeping those payments for yourself. Additionally you can use your lifetime gift-tax exclusion, currently $1 million, to avoid or reduce tax on the gift of the trust remainder.

Setting up a GRAT when interest rates are low results in a higher value being assigned to the annuity stream. That, in turn, results in a lower taxable gift of the remainder. An additional benefit occurs when asset values increase again because the future appreciation associated with the trust assets will not be subject to gift tax. As long as you survive the annuity term, the value of the assets you’ve transferred will not be included in your estate.

If you’re like me, you’d have to read that paragraph about 6 time to even comprehend what it means.  So let’s simplify: You take an asset, something you bought a long time ago for not a lot of money and today is worth a whole lot more than you got it for and put it into a special trust, the GRAT.   Now the point is that you want your beneficiaries to get it at some point in the future.  Well, we can give it to the GRAT, but the GRAT has to give you an income stream in return, the annuity.  At the end of the annuity term, the asset in the GRAT isn’t considered part of your estate and therefore not subject to the $3.5 million dollar exclusion.  Nice!

The easiest way to reduce your estate is to simply give pieces of it away.  The gifting strategy for reducing the value of your estate is to make gifts that are protected from tax by the gift-tax annual exclusion, currently $13,000 per recipient per year. Since many asset values have temporarily decreased, you should still look at the glass half-full because it enables you to give away more assets to loved ones on a tax-free basis. Another possibility you might consider is loaning your child money. You will have to charge interest at an IRS-prescribed rate, but that rate is currently low. And, to shrink your estate, you can forgive up to $13,000 of the loan each year, which is the extent of the gift-tax annual exclusion.

These are two of many ways to plan your estate in order to minimize the federal estate tax and prevent the federal government from taking 45% of everything you pass along to your loved ones that exceeds the $3.5 million lifetime exclusion.  To help avoid imposing such a significant tax burden on your family contact our office today (858-384-5757 or info@yourtotalestateplan.com) to schedule an appointment so we can discuss strategies that will work for your family.

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.

Much too often I speak to people and they tell me that estate planning is something for the wealthy.  After much contemplation, introspection and coffee, I came to a conclusion that now seems so obvious that I can’t believe I missed it.  People believe that estate planning is a concern for only the wealthy, because only the wealthy have estates.  Well that’s just plain silly.  An “estate plan” is nothing more than another term for “stuff plan.”  So, if we all started to call it stuff planning we’d all know it was for all of us!  We all have stuff, some good stuff and some bad stuff.  My stuff is important to me because it’s mine.  Your stuff might be better than mine because I don’t have it, but that’s a whole other posting.

In short, estate/stuff planning is simply a set of instructions that you are writing regarding your stuff and what you want to do with your stuff.  Normally, you want your stuff going to your family, sometimes friends and sometimes charities.  But, don’t you want to be the one that decides what happens to your stuff?  That’s an estate plan – your plan for what happens to your stuff.

Now there are a number of requirements that must be met in order to have a valid estate plan.  Your estate plan has to be written down, you must sign it and people have to see you sign it.  That’s the simple part.  Now the plans get more complex depending on how much stuff you have, how long you want to control your stuff (even after you’re gone) and where you want your stuff to go in the end.  Case in point, I love my son, but I think he should wait a few years before he gets my car – or at least until he can walk and is out of diapers.  So in the mean time, I’d need someone to look after my stuff for my son.  See how it gets a bit more complicated.

In order to make your estate plan, you’ll need to put down your wishes into a document called a will or a trust.  To make sure it actually does what you want, you’ll need to have an experienced attorney write up your plan.

Here’s something fun.  The first question you ask the lawyer who’s about to write your will or trust should be “How much of your practice is estate planning?”  If they tell you anything less than 100%, turn around and walk out of their office.  Lots of attorneys claim that they can take care of your estate plan, but if it’s my stuff, I want the guy who works on taking care of stuff all the time.

Finally, if you don’t come up with a plan regarding your stuff, don’t worry.  There’s a plan out there for all your stuff.  It’s the government’s plan and they hope you like it.  Then again, it doesn’t matter if you like it.  This plan will happen if you don’t make one of your own.  The problem with the government’s plan is that someone might be left out of the plan that you would have made and that person now misses out on getting some of your stuff.  Here are some examples:

Example 1: If more than one of your relatives want the same part of your stuff, that can get messy and expensive…and a lot of your stuff will be used to pay the courts and attorneys to sort it all out.  (Fun for the lawyer, but that’s about it).

Example 2: If you’re not married and you want your significant other to get some of your stuff when you die, you’d better get your plan in place, or it just won’t happen.  Under some states’ plans, your stuff will go to your blood relatives.  Period.

Example 3: If you’re married and you’ve got kids, don’t be too sure that your spouse is going to get all your stuff.  Your kids will probably get their share of your assets, which means your spouse may not get enough of your stuff to live on.

In short, if you have stuff and it matters to you, be responsible enough to decide what you want to do with your stuff.

One last thought: if your stuff includes kids, you’ve really got to have a plan in place.  If you don’t do you really think that the government is going to make the same decisions regarding your kids you would have if you were still making the decisions?

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.

When you start a new job, you sign a lot of forms.  Tax forms, health care forms and retirement beneficiary designation forms.  Your first few days on the job you take the forms and read them, think about them, sign them and turn them back in to your boss or human resources department.  After that you probably never think about them again.  Big mistake.

One of the most poignant examples of this mistake comes out in a New York Post story back in 2001.  The story “Pension Pickle!” tells a twisted tail of Anne Friedman’s nearly million-dollar pension.  Anne was a lifelong New York City school system employee.  In 1974, Anne named her mother, uncle and sister on her beneficiary form with the Teachers’ Retirement System.  A year later, Ann met and married Bruce Friedman to whom she was happily married for the next two decades.

During her entire marriage, Anne never updated her beneficiary designation.  So after her death, Anne’s sister was the sole surviving beneficiary of Anne’s retirement plan and only her sister had the right to receive Anne’s pension money.  Anne’s sister exercised her right, took nearly a million dollars of Ann’s pension and left Bruce with nothing.  Bruce sued, lost, appealed and lost.

The moral of this tale, don’t be like Anne.  Always update your retirement plan beneficiary designation form, especially after a life-changing event, such as marriage, divorce or the birth of a child.  If you don’t you may end up leaving your loved ones with a broken heart and nothing else.

Unfortunately, not updating your beneficiary designation forms isn’t the only mistake that people make.  Many people assume that if they have a Will, the Will takes care of all the details.  Sorry, it just doesn’t work this way.  Beneficiary designations always trump what’s in a Will.  Even if Anne’s Will stated that all of her pension money is to go to Bruce, Anne’s sister would still end up with the money.  Sorry Bruce.

Alternatively, if you fail to name a beneficiary for an IRA, you are robbing your heirs (excluding your spouse) the right to maintain the same tax advantages that you derived from having the IRA in the first place.  That’s a tax bill that I’d just as soon have my heirs avoid for as long as possible.  For that matter, you’re also going to want to name multiple primary and secondary beneficiaries.  Again, if you don’t pick them yourself, the court will and you won’t have any control over how much goes to who or when it gets to them.

In the end, we all have to come to terms with the reality that each and everyone of us started our estate plans on the very first day of our very first jobs.  We may not think of them as estate plans because the words Will and Trust are nowhere to be seen, but these plans are deciding what happens to our stuff after were gone.  Wouldn’t you call that estate planning?  Just like a formal estate plan put in place by a qualified attorney, these plans need to be looked at and updated over and over.  Remember that estate planning is a lifetime process for the benefit of you during your lifetime and your heirs after you’re gone.

Pay attention to what you’re signing.

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.