CA Estate Planning

Introducing Oliver, my chocolate labrador. Oliver's primary objective in life is chasing tennis balls and following me around for treats. He wants other dogs (OK, cats too) to know that I set up a pet trust for him so that if something happens to me he will be looked after in the manner to which he has become accustomed (living high off the hog!). He knows I love him, but his pet trust is proof positive.

So, dogs (OK, cats also) get your slave, er, master or mistress to get you a pet trust.

Now, I did make one big mistake: I told Oliver I was worth more dead than alive, so I'm watching out for those banana skins!

If you care for elderly parents or relatives, do you claim available tax breaks?

Taking care of your elderly loved ones is a difficult task. It can be emotionally difficult, as well as financially crippling.

In honor of tax season, SmartMoney offers some related articles about often-overlooked deductions that might help relieve some of your financial stress if you are providing such care. The first article is titled Tax Breaks for Helping Relatives and the sequel article is More Tax Breaks for Supporting Relatives.

For example, the most obvious way to realize some tax relief is to claim your elderly loved one as a “dependent.” In addition, do you pay for medical expenses? If yes, then there is a deduction for that.

As you might expect, the level of support available under the tax code depends on multiple factors, to include the level of support you provide, the support your elderly loved one needs, and even various programs available in your area.

It may be too late for you to pursue tax relief for tax year 2011. However, now is the perfect time to explore your options for tax year 2012 and then plan accordingly.

Regardless, I recommend taking time to read both articles. If this issue does not directly affect you now, it may in the future. 

Reference: SmartMoney (March 7, 2012) “Tax Breaks for Helping Relatives”

 

Check out a Charity before Cutting a Check!

If charitable giving is important to you, you may want to do some investigating to ensure that the charities you support are in good standing with the IRS. Fortunately, a new IRS search tool for tax exempt organizations can simplify this process for you.

While the tool (known as the Select Organizations Exempt Check) isn’t exhaustive, it does offer some helpful information, to include whether an organization:

• Is eligible to receive tax-deductible contributions.
• Had its tax exemption automatically revoked for failing to file a required Form 990, Return of Organization Exempt from Income Tax, for three consecutive years.
• Filed a Form 990-N, Annual Electronic Filing Requirement for Small Exempt Organizations, also called an e-Postcard.

Such information can help a potential donor see an organization as the IRS does. However, the tool is not without some glitches, as addressed in a recent article in the Journal of Accountancy. For example, once an organization is placed on the auto-revocation list (triggered when the organization fails to file a form) it won’t be removed from the list even if the organization re-applies and is re-admitted back into tax exempt status.

With that caveat, the tool provides an excellent means to check the status of a given charity. Nevertheless, if one of your favorite charities is on the auto-revocation list, then you may need to confirm the current standing directly with the charity itself.

For more information, read the original article in The Journal of Accountancy and the IRS news bulletin.

Reference: The Journal of Accountancy (March 15, 2012) “New online search tool makes it easier to find information about exempt organizations”

 

The funeral is not the end; it is only the beginning of what has to be done after the loved one dies. There is always a long list of tasks to be carried out, but what could be simple chores make for a major headache if the loved one was not well organize

Death and taxes, Benjamin Franklin aptly noted, are the only two certainties in life. Mr. Franklin perhaps should have added a footnote regarding the paperwork both certainties generate.

A New York Times blog (The New Old Age) recently published a “public service” announcement of sorts titled Death's Companion: Paperwork. The article showcases the experiences of the Foreman family as an object lesson for what one of the family members’ termed “administrivia.” This is in an appropriate one-word description for one family’s experience with the trials and tribulations of postmortem paperwork and minutiae.

Think about it. While we are living, we establish myriad relationships with bureaucracies. Whether the IRS, Social Security, Medicare, banks, hospitals, creditors, social media platforms, car companies or gym memberships. We all have long lists of identification numbers, account numbers, customers’ numbers, and user passwords. And the list goes on and on. So, what happens when you die? How do all of these relationships end? How many trees must die (in the form of paperwork) to achieve legal and financial closure?

It has been said that a shortcut to wisdom is to learn from the experiences of others. Accordingly, the experiences of the Foreman family provide excellent lessons and the original article provides important pointers for you to consider in your own estate planning.

In short, proper planning is about seeing both the forest and the trees. Be sure to seek competent probate counsel to help you with the big picture when it comes to your own estate planning. However, the difference between the success and failure of any estate plan hinges on careful attention to the details.

Reference: The New York Times – The New Old Age Blog (March 15, 2012) “Death’s Companion: Paperwork”

 

HORSES OFTEN OUTLIVE THEIR OWNERS. WHO WILL TAKE CARE OF “TRIGGER” IF HE OUTLIVES YOU? A PET TRUST CAN DO JUST THAT.

Trusts can be remarkably powerful tools to provide for all members of the family, especially the ones who are most in need of care. This includes four-legged family members that stand “16 hands tall” and are adept at dressage. Yes, trusts can be an essential part of your “horse care” plan, as recently highlighted in The Wall Street Journal article, Stable Value: Putting Your Horse In A Trust.

Horses are not “pets” in the classical sense, as their needs are far greater than those of the family dog or cat. Not only does a horse enjoy a longer life-span, but horses require more wide open spaces, exercise, care, grooming and food. The upkeep on a horse can be rather high.

Through a pet trust you can set aside sufficient funds to provide for your horse’s unique needs and ensure his care and safety should you predecease him. Even more significant, you can establish important safeguards to ensure proper deployment of those funds.

Of course, one of the biggest challenges is selecting the proper caretaker of your horse. Would a trusted loved one be willing to serve? Do not assume that charities, shelters or “rescues” would step in to care for your horse. Recent financial difficulties affecting the broader economy have likewise strained the ability for charities and horse shelters to care for horses currently under their care.

Fortunately, pet trusts are now recognized in California, so if you are a horse owner, your horse is an important member of your family and you must plan accordingly.

To learn more about how to set up a pet trust for your horse, or any of your other pets, be sure to seek competent estate-planning counsel.

For more information and ideas I recommend reading the original Wall Street Journal article. Be sure to share it with your equestrian friends, also.

Stable Value: Putting Your Horse in a Trust

Giving to Charity Is One Important Way to Create Your Own Legacy

Perhaps the most powerful and prevalent reason why the rich give to charity is to create what is most commonly referred to as a “legacy.”

At some point in many people’s lives, there comes a moment when it becomes important – vital, in fact – to focus their energies on a cause that impels them to give to charity with all the passion that went into amassing their wealth in the first place.  But what drives so many generous givers to this moment?  

A recent Wall Street Journal article points out that it’s the age-old, if hackneyed, idea: Creating a legacy.

Beyond doubt, there are certain tax advantages to well-timed and well-planned charity; the tax code is designed  to encourage what is a human urge to leave a legacy.

 Planning for your estate and your wealth, in life and after death, is usually about “legacy” in one form or another. Your family is part of your legacy, that is oftentimes a given, but the missions you held dear in life are just as much a part of your legacy. In fact, they are an extension of your ideas, dreams and hopes for the world, or some small corner of it.

So, what will your legacy be, and what do you want to leave for the world? If there is something that you care about, perhaps it is worth acting upon, either in life or as a bequest.  This could be something to discuss with your estate planning attorney.

Reference: The Wall Street Journal (March 8, 2012) “Why the Rich Give to Charity”

 

HAVE YOU CONSIDERED DISINHERITING YOUR KIDS? THIS AUSTRALIAN BILLIONAIRE DID JUST THAT!

Wealthy parents often face an unenviable decision: Whether to leave boatloads of money to kids who never learned the value of money.  Disinheriting them might seem heartless or unjust punishment for the parents’ own mistakes,  but sometimes it may be the only choice as this case illustrates.

It is commonly said that money is the root of all evil. Unfortunately, what estate planners see only too often is that great wealth can be the “toxic soil” that nurtures spendthrifts who don’t understand the value of money and quickly dissipate a fortune that was the product of much hard work, careful investment and prudent use.

Leaving a large inheritance outright to a child can be a matter of great concern to a parent.  While there are many ways to prevent a child from squandering an inheritance, some wealthy parents have decided instead to disinherit a child or other beneficiary, as was pointed out recently in a Forbes article.

 

That’s right!  You may actually decide simply to not leave your wealth to your children. Often kids surrounded by great wealth are not taught the value of money by their parents who probably worked very hard to make their fortune, and do not understand how their children can be “spoiled” when they are used to the advantages of all that money can buy. In some circumstances, it may seem that the children are being punished for the omissions of their parents who did not teach them the value of money.

 

Bitter heirs are very likely to challenge their disinheritance as is well illustrated by a case going through the Australian courts involving none other than Gina Reinhart, the mining billionaire (and an heiress herself).  

 

It seems that Ms. Reinhart came to the conclusion that her children weren’t fit to run the group of family-owned companies and therefore shut them out of any  ownership in them, although the children were already beneficiaries of the family trust:

Court documents cited in the Australian media show that Ms. Reinhart believed the kids weren’t fit to manage their fortune. She said none had ever held a real job, unless it was given to them by the family. “None of the plaintiffs (her children) has the requisite capacity or skill, nor the knowledge, experience, judgment or responsible work ethic to administer (the businesses,” she claimed in court papers.

This is of course an Australian case and courts in a US state might decide the issues differently but it still makes for interesting reading. Without touching on the merits of this case, it does illustrate that planning to give and planning to withhold can be two sides of the same coin:  Both involve decisions that, if wrong, can destroy a family and its members.

Reference: Forbes (March 13, 2012) “Billionaire Says Her Kids Aren’t Fit for Inheritance

 

IS IT SAFE TO MAXIMIZE GIFTS IN 2012 WITHOUT RISK OF A TAX “CLAWBACK” IN 2013 OR LATER?

If you have not used up your 2012 gift tax exemption yet, there’s a pretty compelling case to do so this year.

Lately, writing about estate tax law is a lot like writing commentary on a monster movie. This estate tax law “monster” should be known as the dreaded “Unknown 2013.” It’s the unseen and unknowable creature that lurks just after the upcoming election,  before or after the fall of the globe in New York’s  Times Square on the last day of 2012: What’s going to happen to the “death” taxes in 2013? But that’s not the only monster on the loose this year. No, there is a terrible twin, known as the dreaded “Clawback” that could prey on your 2012 gifts in 2013 and beyond.

The legal community itself is entirely uncertain whether Clawback will rear its ugly head, but to be “rather safe than sorry” estate planners are suggesting ways to protect 2012  gifts from the Clawback, that is if you heed the latest warning from Forbes and utilize whatever means are available to you. I thought it was worth sharing.

As a monster, the Clawback is something of a ghost in that it haunts people from the grave and does so because of decisions made during life.“Clawback” could arise if the estate tax laws which unify the gift tax and estate tax exemptions (known as the “unified credit”) lower the unified credit below $5 million during the next Congressional cycle or later.For example, if you made a mega gift in 2012 the unified lifetime gift and estate tax exemption is $5 million this year), but then died in 2013 and under 2013 laws the unified credit is $1 million (the “default”), or a unified exemption less than $5 million, then you may have used up your entire unified credit simply because the tax laws have been changed!

To make matters worse, the gift and estate taxes will kick in and “clawback” those assets that were gifted upon the beneficiaries of your largesse to pay for the gift tax on your mega gift because the exemption is lower at the time of your death. That’s bad enough, but what if yours is a blended family? What if the beneficiary inheriting your estate, who has to pay the gift tax on your mega gift “clawed” back into your estate for tax purposes, was not the same beneficiary who received your mega gift while you were alive? What if your “inheriting” beneficiary and your “gifting” beneficiary don’t like one another? That’s an unfortunate tinder box.

It is hard to pin down whether these twin monsters will show up and, if they do, what form they will take (they are master “shape-shifters”).

The point is that there are ways to help avoid the “Clawback,” whether it raises its ugly head, or not. If you’re savvy enough to want to take advantage of 2012 gift tax law, then make sure you’re savvy enough to see your estate planning attorney and ensure you avoid the monster as far as possible!

Reference: Forbes (March 12, 2012) “Should Threat of Clawback Discourage 2012 Mega Gifts ?”

YOUR TRUSTEES CAN ONLY DO SO MUCH TO IMPLEMENT YOUR TRUST BUT A “TRUST PROTECTOR” CAN DO SO MUCH MORE

It used to be that you would write out your will, name some trustees and hope for the best for all of eternity. But, increasingly, folks aren't leaving it to luck. They're appointing a trust protector, someone given broad powers to reshape your trust over time. 

Acting as a trustee of a trust can be a tough gig as many will know, especially if events unforeseen by the trust maker arise, or the trust is not well written. There is only so much a trustee can do without having to go to court for the trust to be modified, and that could prove to be a major and expensive headache.  However, a Trust Protector or Advisor has the power to cut through almost all problems without recourse to the courts.

A trustee has the power to uphold the trust document as it was written, and this can mean being stuck between a rock and a hard place but valiantly working with what you were given.  Sometimes, however, a trustee must resort to the courts to interpret, modify or enforce a trust provision.

So, what can a Trust Protector do that a trustee cannot?  Essentially, a Trust Protector is not restricted by the terms of the trust and can exercise broad and discretionary “super powers” to modify a trust when necessary, usually to ensure that the grantor’s (the trust maker) overall objectives are accomplished in unforeseen or changed circumstances.  

Appointing a Trust Protector, also called a Trust Advisor, is a relatively new concept gradually introduced over the last twenty years or so, and it was in the limelight recently in an article in Barron’s. How might such super powers be used?  It may be necessary to reduce or stop benefits for an existing beneficiary who has acquired a drug habit, to  replace a ineffective trustee, move the trust from one state to another for tax reasons, and a host of other super powers that a grantor can provide a Trust Protector.

It is critical that a grantor selects aTrust Protector carefully: It is important that a Trust Protector exercises super powers judiciously and wisely, and only when truly necessary.  Constantly interfering with a trustee’s administration of a trust can be self-defeating.

A particularly good use of a Trust Protector is in an irrevocable trust where the grantor and trustee cannot change the terms of the trust but a Trust Protector can. The Trust Protector is not a recognized concept in every state – only about half of them have legislation in place regarding the role.  However, they are also used in other states, like California for example. Usually Trust Protectors are not fiduciaries, unlike Trustees, and while the responsibilities and liabilities are well understood, there is little to no case law that addresses the extent of liability of Trust Protectors for their actions at this time.

In the end, a good estate planner advising a client about the appointing a Trust Protector must both emphasize the benefits and risks of the role.

Reference: Barron’s (March 3, 2012) “Why You May Need A ‘Trust Protector’”