Business Succession Planning

Some business owners refer to their business as their “baby,” and with the amount of time and money spent on one’s own business, I can see why.  While much of my time as an estate
planning attorney is spent helping my clients care for their human families, I can help many of my clients care for their business “babies” as well.  The two biggest areas of concern are the same as with human families: 1) what happens if clients lose the capacity to care for them, and 2) what happens on the client’s death?

Generally speaking, the complexity of the business determines the complexity of the succession planning necessary.  If your business has very little value apart from the business owner, you may need to simply grant a trusted person the decision-making authority in case you become incapable of attending to your business and then include any assets in your family revocable trust.  This may be appropriate if your business does not have employees, has limited overhead and the value really depends on the services you provide.

However, if you have employees, produce a product, own inventory or valuable equipment, have commitments under long-term contracts, own real estate or other large assets, then a Limited Liability Corporation, Family Limited Partnership or S Corporation may be more appropriate.  The type of structure may depend on the tax treatment and your family situation.  Either way, it is crucial that your CPA and your estate attorney collaborate to build the appropriate safe-guards, as well as incapacity and succession planning.

As a business owner, your day-to-day activities may consume the majority of your attention.  However, as a business leader, long-term planning (including planning for your potential incapacity and death) are crucial to the continuation of your business “baby.”  If other people depend on you for goods and services or for employment, you have an obligation to consider how your business will continue without you at the helm.

Originally posted by Susan on January 27, 2014.

Estate Planning With Foreign Assets

Owning assets, especially real estate, in another country may affect your estate planning needs.  I have heard that the IRS considers foreign tax evasion and asset protection a high priority concern.  While you may legitimately own assets outside of the United States, do so in order to avoid taxation may violate US law and subject you to penalties.  It is a delicate area to navigate, and it is best to consult with experts in the field if you own assets outside of the US.

As a Californian attorney, I need to consider both state probate laws and federal tax laws as well as your personal wishes when I discuss your legal options with you.  If you own
real estate in another state, or if you have executed estate documents in another state, most likely California courts will honor the out-of-state title and documents.  In return, most likely
other states will honor any estate planning that you have done in California.

However, if you own assets in other countries, the foreign countries may not honor documents executed here in the United States that try to affect those foreign assets.  So, what do you do if you own assets outside of California or outside of the United States?  First, it is best to consult a local attorney to determine whether your California documents will be honored by the other state or countries’ courts.  Secondly, it is wise to ask a local attorney whether there are better
options available to you concerning those out-of-state or out-of-country assets.  Even if the other jurisdiction honors California documents, you may be able to save money or transfer assets more effectively by using methods not available here in California.  It can’t hurt to ask and is probably well worth the cost of a consultation with a local attorney.

If the foreign country will honor your US documents, then you may be able to write one estate plan to cover all of your assets-both foreign and domestic.  This would be considered a multi-jurisdictional trust or will.  However, if the foreign country will not honor your US documents, you may have to prepare two separate estate plans—one for each country.  If you are in a position to have two (or more) estate plans, I urge you to consider your entire estate distribution plan to make sure that it accurately reflects your over-all wishes.  I also recommend that your estate planners (legal and financial) work together as a team to make sure that all of the various parts of your estate plan work together to accomplish your over-all goals.

Regardless of whether you have one estate plan that covers all of your estate or if you have two (or more) estate plans that cover your assets in each country, I recommend that you nominate local fiduciaries to administer your estate in each country.  So, if you have a trust that governs California assets and one that governs Canadian assets, I recommend that you nominate a California resident as trustee to administer your California assets and a Canadian resident as trustee to administer your Canadian assets.  I recommend the same for executors named in wills and agents named in powers of attorney.

The most important consideration in foreign estate planning is to make sure that no aspect of your plan interferes with any other aspect of your plan and that all of the pieces work together to create a coherent, effective strategy to protect you and your family.  If you would like to discuss this topic further, please make a comment below or contact me.

Originally posted by Susan on October 6, 2013.

Avoiding Elder Abuse

The term “elder abuse” sounds so shocking that it might lull us into believing that it will never happen to us or to our loved ones, but it is probably happening more than we’d like to admit.  Many times seniors don’t recognize a slow deterioration in their mental acuteness, and family members might wish to allow seniors as much independence as possible and so might be unaware of the deterioration as well. Here is one way to help catch potential abuse and several tips to help avoid it altogether.

By placing seniors’ checking and savings accounts into a trust and then naming a co-trustee with the senior (such as an adult daughter or son), the co-trustee can monitor the seniors’ spending while still allowing the senior to write his own checks.  The co-trustee should have either online access to the account or have the paper statements sent to them and should then monitor the account on a regular basis.  This way if a senior writes a check for an unusually large amount or to a payee that the co-trustee doesn’t recognize, the co-trustee can inquire about the unusual expense and follow up if necessary.

However, the best way to keep seniors safe is to avoid those questionable transactions in the first place.

Often the predatory salesperson gains entrance to seniors’ homes and then gains their trust by playing to seniors’ sympathies.  The best and easiest way to avoid this predicament is to simply not allow the salesperson into the seniors’ home or to get them off the phone at the earliest sign of a sales pitch.  If the senior truly may be interested in whatever the salesperson is selling, they can send the information by US mail or email.  This allows the senior to mull over the purchase more carefully and hopefully avoid any undue influence that a salesperson might impose on the senior. My elderly mother regularly refused to open the door to people she did not know or was not expecting.  True, one time a city inspector had to call me to convince my mom to open the door for him, but this one practice may have protected her from harm on several occasions.

If seniors are truly interested in the product or service that the salesperson is selling, the senior should take his time to decide whether to hire them or purchase the product.  Be wary of any sales deadlines and any contract offers.  Contract offers sometimes include interest that can double the cost of the product or service.  Read all contracts carefully and have someone you trust read over it as well before signing.  It is also important to understand that one can “sign” a contract online by simply clicking the appropriate box.  To many seniors who are used to paper and pen contracts, they may not understand the implications of “signing” online.

If a senior finds that he or she has signed a contract that they regret, and if the salesperson contacted the senior at his or her home, the senior can cancel the contract within three days without repercussions.  (This law applies to all purchasers, regardless of age.)

None of these tips are foolproof, but hopefully they can help keep seniors safe from harm.

Originally published by Susan on June 17, 2013.

Trustees' Duties

So, your parents named you as the Trustee of the family revocable Trust.  Now what?  It doesn’t mean that they like you more than your siblings, it simply means that they trust you to provide for them when they can no longer do it for themselves and to wind up their affairs after their deaths.  In short, your job is (or will be) to gather all of their assets, inventory them, appraise them as necessary, provide an accounting to the beneficiaries and distribute the assets according to the Trust terms.  If a tax return needs to be prepared and filed, it is your responsibility.  If any court actions need to be taken, they are your responsibility.  Although every estate is different, here is a very brief overview of what to expect when your duties begin.

How you gather the assets will depend on what assets you are dealing with and how they are titled.  As Trustee, your duties extend only to those assets in the Trust estate.  If there is real property in the Trust estate, you will need to make sure that it is maintained and secure, that it is fully insured and that property taxes are paid.  If the house is occupied by someone other than your parents, you will be expected to collect rent even if it is occupied by another family member.  On your parents’ deaths, you should consider having the property appraised.

If there are bank accounts in the Trust estate, contact the financial institution and obtain statements.  Personal property should be inventoried, which may include photographing
them and itemizing them on a list.  Any valuable jewelry, collections and vehicles should be appraised.  Forward both US mail and email to your address so that you are fully informed. 
Any money paid to you as Trustee should be put into a bank account in the name of the Trust, not in your own personal account.

Within one year of the date of death, you should provide each beneficiary with a written accounting that shows the value of the Trust assets when you took over your duties as Trustee, every expense you incurred on behalf of the Trust and the amount on hand at the time of the accounting.

Prior to distribution of the assets and especially if you anticipate problems between the beneficiaries, you might consider providing a proposed distribution and ask each beneficiary for their approval.  Once you have all of the Beneficiaries’ approval, you distribute the assets according to the agreement.

As Trustee, you have a fiduciary duty to each Beneficiary.  This duty applies regardless of whether you like all of the Beneficiaries, whether they are your closest allies, half-siblings or distant relations, whether they teased you as a kid, whether they converted to another religion, and whether they moved out of state and left you to care for your aging parents.  As a fiduciary, you owe them a duty to keep them informed (providing them with copies of the Trust and any amendments and restatements, to give them notice of any court actions and to provide them with an accounting.)  You owe them a duty not to take any more than the share you are given under the terms of the Trust.  I urge you to take this duty seriously because an interested party can sue you for breach of your fiduciary duty and a court can fine you for not fulfilling it.  If you cannot meet this obligation, it is better to resign and let the next named Trustee act instead.

While being a Trustee may seem like an honor, it can become a large responsibility, and one that should not be accepted lightly.  If you have any questions, please feel free to call my office.

Originally published by Susan on September 9, 2013.

Steps to Resolving Disputes

Last week I posted about beneficiaries’ rights and promised to post this week about how to protect those rights.  The steps that I recommend here are the same basic steps that I recommend for anyone in a dispute, but I will tailor this discussion to trust disputes.

The first step is the cheapest and easiest solution.  So, if it resolves your dispute, you are done
without any attorney involvement: approach the trustee on your own.  State your concerns clearly and ask for a specific solution.  Depending on your relationship with the trustee, you may want to start with an oral conversation, but if your dispute is not resolved after that conversation, I strongly recommend you put your request in writing: either in a letter or in an email.  Send the letter or email to the trustee, but KEEP A PRINTED COPY for yourself, preferably with the date and time sent.

If you are convinced that you cannot resolve your dispute on your own, you may wish to consult an attorney about sending a letter to the trustee on your behalf.  Often in family situations, a family member will not take your requests as seriously as they will an attorney’s requests.  Sometimes there are simple miscommunications or misunderstandings that keep you from resolving your disagreements, and a well-drafted letter from an attorney may be able to avoid both of these deterrences.  Keep in mind that the attorney will require you to formally retain him or her as your attorney, and there will be a charge for the time involved in meeting with you, reviewing papers and in preparing the letter.  However, if this resolves your dispute, it is well worth the investment.  When I draft these kinds of letters for clients, I always include a deadline for compliance so that I know when it’s time to take the next step.

If you cannot resolve the dispute out of court, beneficiaries can ask the court for an order that the trustee meet his or her responsibilities to the beneficiary.  Often a beneficiary wants
information from the trustee in the form of copies of documents or an accounting.  The beneficiary may also want the trustee to manage the assets more prudently.  Sometimes the beneficiary believes that the trustee is using trust money for the trustee’s benefit rather than for its intended purpose.  If the trustee’s actions are egregious, the beneficiary may be entitled to receive money from the trustee for the trustee’s transgressions. The beneficiary may also be entitled to a new trustee.  As a beneficiary you are entitled to ask the court for any of these things.

If you would like more information about protecting your rights as a beneficiary, or about any of my blog topics, please feel free to contact me.

Originally published by Susan on October 21, 2013

Beneficiaries' Rights

What rights do you have as the beneficiary of a trust?  If you are a contingent or successor beneficiary, you probably do not have many rights unless and until you become a current
.  So, if you are not currently entitled to receive anything from a trust, you may have to wait until such time as you are entitled to receive in order to assert your rights.  However, if you are currently entitled to receive from a trust, or if you believe that you are currently entitled to receive from a trust, the three most important rights that you have are 1) to examine the current estate documents, 2) to receive regular accountings of the estate, and 3) to challenge the trustee in court if he or she is not performing the job satisfactorily.

If you do not have a copy of the most current estate documents, you cannot answer the threshold question of whether you are entitled to anything more.  So, before you know
where you stand, you need to obtain copies of the most current estate documents.  Keep in mind that people often amend, revoke or restate their documents over the course of their lives, and you want the most current ones in order to analyze your position in the estate.  If you have copies of documents, but you think that there may be more current ones, remember to look for (or ask for) amendments, revocations and restatements of trusts and codicils, revocations and revisions of wills.

The trustee of a trust has a duty to “keep the beneficiaries of the trust reasonably informed of the trust and its administration.”  One way to keep beneficiaries informed is by rendering accountings of the trust assets.  So, once you have established that you are currently entitled to benefit from a trust, you are entitled to regular accountings from the trustee so long as the trust was written after 1987 when this law came into effect.  If the trustee became trustee on the death of the settlor (the person who initiated the trust), the trustee must furnish an accounting to the beneficiaries within one year of the settlor’s death.  Under other circumstances, you may be entitled to an accounting within 60 days or “on reasonable notice.”

If you have not received what you are entitled to, as a current beneficiary you have the authority to petition the court to order the trustee to give it to you.  Trustees have a fiduciary duty to beneficiaries, which means that they are expected to act in good faith with respect to the beneficiary’s interest.  They should not take money that is not due to them or spend money foolishly.  They should keep beneficiaries reasonably well informed of their actions.  If you believe that the trustee is not performing his job up to this standard, you have the strength of the court behind you to order him perform his duties satisfactorily, to recover money from him and to replace him as trustee.

Next week, I will post about the steps to take if you believe that you have not received what you are entitled to as the current beneficiary of a trust.

Originally published by Susan on October 14, 2013

If You Don't Have an Estate Plan

Do you know what happens after your death when you have not completed an estate plan or the estate plan that you have is not effective?  If you don’t have an estate plan, the State of California has one for you. It’s called intestacy, and it is governed by a series of laws in the
California Probate Code.

In this case, unless your total estate is worth less than $150,000, your loved ones will have to file a petition in the Probate Court.  If you have questions about what specific assets would be included in this calculation, please consult an attorney or financial advisor with knowledge in this area.

Administering an intestate estate (one with no estate planning or ineffective estate planning) is much like administering a probate estate where there is a simple Will (no trust.) 
Your loved ones will have to go through the court process which takes typically six months to one year in Southern California currently.  The Petition will ask the judge to appoint someone as the administrator of your estate, to collect your estate assets, to pay off your debts and then distribute the remainder to the beneficiaries outright at the end of the court case.  Your administrator will have very little authority to take actions without the judge’s approval.

The biggest difference between an estate with no Will and one with a simple Will is that if you have written a Will, you have the opportunity to choose who will inherit your assets and who will manage your estate.  In an intestate estate, the people who inherit your assets are called your beneficiaries, and the people who manage your assets are called your administrators. 
If you are married when you die, your spouse would be your beneficiary and your administrator.  If you do not have a spouse when you die, your children would be your beneficiaries (in equal shares), and one would be your administrator. If you have neither spouse nor children, your parents would be your beneficiaries and your administrators, and if you have none of those when you die, your siblings would be your beneficiaries and one would be your
administrator.  The scheme continues from there.

A properly drafted and executed estate plan allows you to name your chosen beneficiaries.  It
allows you to determine the amount of your estate that goes to each chose beneficiary.  It allows you to choose who will best manage your estate and whether they will receive a fee for doing so.  Most importantly, though, a proper estate plan can help in emergency situations or during your senior years if you are no longer able to manage your affairs on your own.

Originally published by Susan on March 6, 2013.

Where There's a Will...

Leonardo da Vinci said, “Simplicity is the ultimate sophistication,” and Albert Einstein said, in effect, “Everything should be made as simple as possible, but not simpler.”  I try to embrace this sentiment when drafting any document whether it be a motion or other court filing, revocable living Trust, a petition, or even these humble blog posts.  I also try to apply this philosophy when designing an estate plan.  Although the vast majority of my clients need a revocable living trust, sometimes clients simply need a Will without the accompanying Trust.

 A Will may be sufficient for young clients who have not yet acquired many assets, but still want to direct the transfer of those few assets on their death.  Because Wills take less
attorney time to draft, they cost less to prepare, which is another benefit for young clients with few assets.

 Clients can nominate a person to manage their estate and design their own distribution plan in a Will.  For clients with minor children, they can nominate a guardian for their children and give the guardian some guidance.  A Trust can be embedded into a Will to prolong the distribution of assets if necessary.

 If someone dies without a living Trust, there will often need to be probate.  Probate is the
court-supervised administration of a decedent’s estate.  A judge will appoint someone to notify creditors, gather and value the assets, and distribute them.  Although slow and public, probate provides stability and certainty.  When family members resort to courts to sort out estate issues, they file in the probate court.  So, if a client believes that their family members will fight about the distribution of their estate, using a Will without a trust may protect the client’s wishes because family members with selfish motives may not have access to assets without court approval.

 What I try to design for my clients is the most appropriate estate plan for them.  While a revocable living Trust is the most appropriate tool for the vast majority of my clients, sometimes a simple Will is the best tool available under the circumstances.

Originally published by Susan on January 6, 2014.

Honoring Your Healthcare Wishes

The key to having your wishes honored is to put them in writing.  In California there are three
documents that may be appropriate for you to put your health care wishes into writing.

The most personal document that I prepare for the majority of my clients is their Advance Health Care Directive.  Other documents deal almost exclusively with finances; the Advance Health Care Directive deals with the treatment of your body.  What type of health care do you want and what type of health care do you not want?  Do you want pain relief?  What are your feelings about nutrition and hydration?  All of these issues (and more) can be addressed in this one document. 

The Advance Health Care Directive is a powerful tool for you to accomplish your health care goals.  It gives you the opportunity to name an agent who can advocate for you in those
moments when you are not able to do so for yourself.  In the Advance Health Care Directive you can instruct your agent how to make decisions regarding your health care and regarding the treatment of your bodily remains on your death.  You can also grant your agent the right to sue a third party for not honoring your instructions, and you can relieve third parties from liability for honoring your instructions.

Two other documents that may be appropriate for you to have are a Pre-hospital Do Not Resuscitate Form and a Physician’s Order for Life Sustaining Treatment.  The Do Not Resuscitate form (also called a “DNR”) is appropriate if you do not want CPR or any other resuscitative measures taken.  It requires a physician’s signature and is limited to resuscitative measures only.  The Physician’s Order for Life Sustaining Treatment (also called a “POLST”) also requires a physician’s signature, but it is appropriate whether you would like resuscitative measures taken or not.  It deals with additional questions such as pain relief and nutrition and hydration, and for each of these questions, you can choose to accept or reject the options. This is a relatively new form, designed by physicians and recognized by emergency medical technicians and emergency room staff.  It was designed for patients who are chronically ill or who have a life-expectancy of 18 months or less.  However, if you feel strongly about these
end-of-life issues, I recommend you discuss this form with your physician.

Once your health care wishes are in writing, make sure to discuss them with your loved ones whether they will be the ones making decisions for you or not, and then provide them with copies of all your relevant documents.  If you have a treating physician, provide him or her with a copy as well.  Lastly, make your documents accessible to any emergency responders by posting them in your home or providing them to your residential facility staff.

Knowing what tools are available to you and taking advantage of them can help ensure that you receive the kind of treatment that you want.

Originally published by Susan on December 16, 2013.

What to Tell Your Attorney

Humans naturally want to look good to others, and I don’t mean just dropping ten pounds or changing your hair style.  Sometimes it’s hard to admit that there are problems in our lives such as a child who is fighting alcohol addiction or a parent with Alzheimer’s.  However, for your attorney to do her best job for you, she needs to know these things about you and your

Just like Las Vegas, things that you tell your attorney stay with your attorney.  In order to protect your privacy and to encourage full disclosure of information, ethically your attorney may not disclose confidential communications between you and the attorney in the course of the attorney-client relationship.  Generally, the client is the one who controls the release of the
information by either asserting or waiving the right to keep the information confidential.  For instance, I once drafted estate documents for a woman who had a child in a foreign country that no one here knew about; I was not able to release that information.  If a mutual friend asks me about your documents, I cannot tell them whom you have chosen as your trustee, how you
plan to distribute your estate or anything else about them.

There are several exceptions to this rule of confidentiality.  I once prepared an estate plan for a woman who then died, and the grandchildren contested the validity of the documents.  Even though I owed my client a duty of confidentiality during her lifetime, after her death
and in order to help honor her wishes, I was able to talk about her condition and intentions to support the documents that I had drafted for her.  If you tell your attorney about a crime or
fraud you intend to commit or harm you intend to bestow on someone else, that communication is not privileged, and your attorney has the right to inform the appropriate authorities about the imminent harm to others.

Also, if you and your spouse hire one lawyer to prepare your estate plan, there is no confidentiality between you and your attorney with respect to your spouse.  So, if there is
something about your estate planning that you do not wish your spouse to know about, don’t tell your attorney because that information is not confidential between you two.

However, exceptions rarely arise to an attorney’s duty to protect your confidentiality.  So, tell
your attorney all the relevant information, including the embarrassing or unfortunate things.  It may help her help you, and that’s what you pay for.

Originally published by Susan on July 1, 2013.