How to Title Trust Assets

After you have properly signed your trust, it’s up to you to make sure that the property you want to be governed by your trust is in your trust estate.  Your trust estate is the collection of assets that will be managed by the trustee, distributed to the beneficiaries and subject to the restrictions you have placed in your trust document.  To check what property is in your trust estate, you can check the title to your assets which will be the name on your accounts or the name on any ownership documents such as a deed.

If the title to your asset is “Name of trustee, trustee of the Name of Trust,” then your asset is a part of your trust estate.  So, where Minnie Mouse is the trustee of the Minnie and Mickey Mouse Family Trust that they signed on January 1, 2010, and their stock account is titled as” Minnie Mouse, trustee of the Minnie and Mickey Mouse Family Trust, udt January 1, 2010,” that stock account would be subject to the terms of the trust document.  If the stock account is titled as “Minnie Mouse,” it is not subject to the trust terms of the trust document.

There are many factors to consider when deciding which assets to put into your trust estate.  Most of my clients want as many assets as possible to be governed by their trust in order to gain the most benefit from setting up the trust.  However, what you put into your trust is a matter of your personal wishes.  Some assets cannot be place into a trust estate, and some can be but it may not make the most financial sense to put them into your trust estate.  In order to make your distribution scheme work the way you would like, you may need to name one beneficiary on one account and give another a larger portion of the trust distribution.  Some clients want a particular piece of real property to go to one beneficiary and then balance the rest of the distribution accordingly.  The main objective is to balance your entire estate (trust assets and non-trust assets) so that you give the percentages to your beneficiaries that you plan to.

 Every time you open a new account or acquire a valuable asset (such as a house, stock account, collectible art, etc.), and if you want that asset to be governed by the terms of your trust, you need to take the title as trustee of your trust.  I recommend that you check over your trust document and your financial accounts on an annual basis to make sure that they reflect your current wishes.

This area of estate planning is a mine field for problems.   While I am happy to give you direction and advice, please remember that it is your responsibility to make sure that the titles to your assets reflect your wishes.

Originally posted by Susan on February 18, 2013. 

Weddings and Executions

Execution of documents, that is.  Execution of prenuptial agreements (“prenups’), specifically.  While many may look at prenups as unromantic, unnecessary or even insulting, I believe that there are six situations when a formal prenup may lead to more a more harmonious relationship.

A prenup is simply an agreement between fiancés or newly-weds that lists what each one owns and explains how they intend to distribute those assets on death and on divorce.  One of the biggest benefits of making a prenup is the discussion that the couple must have in order to arrive at an agreement.  This discussion can help spouses understand each other’s values, financial attitudes and expectations.  It can be the beginning of a long and fruitful discussion of money.

The first situation where a prenup would be advisable is when one fiancé owns disproportionately more assets than the other.  A formal prenup lists the assets of both parties in detail and characterizes each asset as separate or community property so that each party can see exactly what they are gaining or declining.

Often, however, younger newly-weds fall into my second category of when a prenup is advisable: when one party has disproportionately more debt than the other party.  If one party has a large credit card debt and the couple is considering purchasing a marital house, they might not qualify for a mortgage.  Both parties should be aware of the debts and obligations of the other before entangling their credit scores.

If one party has substantially more income than the other party, or if one is expected to stop work in order to care for minor children, a prenup can protect the spouses from misunderstandings.  Income during marriage is generally considered to be community property, but parties can agree to characterize it as separate property if they wish.  A prenup can specify that no alimony will be awarded on divorce if the parties wish.  Having this spelled out prior to marriage can help parties manage expectations and make decisions during marriage.

If this is the second wedding for either party, a prenup can clarify how money will be given to children from a prior relationship for exceptional expenses (such as college or purchase of a home) and on death of the parent spouse.  It can help specify who will be able to continue living in a marital home after death of one spouse.  It can also help specify how money will be distributed to the surviving spouse on the death of the first spouse.

If one spouse owns a business, a prenup can protect the business-owning spouse and any other business owners.  It can also help protect the non-business owning spouse from business liabilities.

Lastly, if one spouse has inherited a large sum, it may be wise to disclose those assets and to characterize them as separate or community property as the parties decide so that there is no confusion in the future.  It is also helpful to characterize the income from such assets as separate or community so that when those assets are divided and distributed on death or divorce, there is no question as to how the parties intended to distribute them.

While a prenup won’t solve all the financial issues that might arise between spouses, it can be the basis for solving them.  It can be the vehicle for the fiancés to explore and to define their values, goals and expectations.  If you have more questions, please call.

Originally posted by Susan on May 6, 2013.

Courting for Non-Lawyers

Your lawyer has just told you that you have to attend a court hearing.  Do you know what to expect?  Going to court can be a nerve-wracking experience even if you know what to expect!  If you don’t know what to expect, it’s even worse!  Here are a few tips to help take the pressure off so that you can focus on your hearing.

First, wear business attire to show respect to the judge and to show that you take the proceeding seriously.  Arrive early because it may take time to find a parking place and you may need to wait in line to get through the metal detector.  Make sure that you have the right address and department number, and take your attorney’s cell phone number with you just in case you get lost.  Most court clerks post a list of cases to be heard that day in the hallway just outside the courtroom—check it to make sure that your case is on the list and get the number of your case on the list.  If your attorney is going to be with you, he or she will check in with the court clerk for you.  If you don’t have an attorney with you that day or if your attorney is running late, wait in line to check in with the court clerk who will need your name and the name of your case (and the number from that list posted in the hallway.)  Sit in the “audience” seats and wait for your case to be called; with a few exceptions, the judge will call the cases in the order from the list posted in the hallway.

If your attorney is with you, ask him or her whether you should stay in your seat or go with him or her for oral argument.  If your attorney wants you to go with him or her or if you don’t have an attorney with you that day, when the judge calls your case, go to the table in front of the judge and take all of your papers, briefcase, purse, etc. with you.  If the judge asks you to “state your name for the record,” just say your name slowly and spell it if it’s not a typical name.  When you are talking to the judge, call him or her “Your Honor;” try not to interrupt even if your opponent is not being completely forthcoming; and always address the judge, not your opponent.  If there is anything that you don’t understand, ask for it to be repeated or for an explanation.  Before you leave the table, make sure that you know what you are supposed to do and if you’re supposed to come back to court on another day and when and where.  When you are all done, THANK the judge—yes, even if you just lost.

Knowing what to expect may not soothe all of your nerves, but at least now you can concentrate on the subject of your hearing.  See you in court!

Originally posted by Susan on August 27, 2012

Special Concerns for Business Owners

As a small business owner myself, I know that when you own a business, you wear many hats.  Have you ever asked yourself who would wear those hats (or what would happen to your business) if you were unable to run it, even for a few weeks or months?  Here are seven steps to consider taking that would help your loved ones, colleagues or successors to keep alive the business you have worked so hard to build.

 1.  Business contacts.  Do you have a list of business contacts that would help someone else to run your business?  If you’re keeping all of this information in your head or on your phone or even mixed in with your personal contacts, it will be very difficult for someone else to know whom to contact to continue running your business.  Depending on your business, you may need a list of clients, community connections, suppliers, mentors or advisors, product representatives, employees and the like.  I suggest you build this list on a continuing basis as your contacts change.

 2.  Bank accounts.  Does anyone else know where you bank and what your account numbers are?  With online banking and ATM’s, it can be nearly impossible to locate a bank account number for anything other than a checking account.  Have those numbers stored somewhere safe.

 3.  Business licenses.  If you operate your business under a license, most likely the person stepping in for you would need to have the same type of license.  If you operate under a seller’s permit or other registration, make sure that the information is accessible to the ones stepping in to help in your absence.

 4.  Online presence.  Does anyone else know how to access your LinkedIn, Facebook, Yelp, Twitter, Etsy and Ebay accounts?  Does anyone else know how to update your website?  If this information is key to maintaining your business, make sure someone else knows the keys.

 5.  Proof of ownership.  If you own a company car, or any other tangible items, make it clear where the proof of ownership documents are so that someone else can easily find them if necessary.

 6.  Benefit accounts.  If you offer benefits for your employees (or even if you just have them for yourself), does someone else know how to access them?  A file with your insurance agent or retirement representative’s contact information may be crucial in an emergency.

 7.  Succession planning.  Needless to say, all of this organized information will not be helpful to anyone unless you have designated someone else to step in to take your place in an emergency.  If you are a DBA, Durable Powers of Attorney can be limited to the authority to run your business.  If you are incorporated, an LLC or a partnership, make sure that the others on your team have access to the information that they may need to keep your business thriving until you are able to return to wearing all those hats!

Originally posted by Susan on November 19, 2012.

Divorce and Estate Planning

If you or someone you know is contemplating divorce, here are a few more considerations to contemplate.  On the date of separation of the spouses, acquisition of community property stops, but the spouses’ fiduciary obligations to each other remain in effect and unchanged until the final divorce judgment is entered.  This obligation of highest good faith and fair dealing owed to one’s spouse relates to both community property and separate property of either spouse.  There are also temporary restraining orders (TRO’s) that take effect automatically when a Petition for Dissolution (divorce) is filed.  So, spouses are constrained on how much they can do to protect themselves against the interests of the other spouse until the divorce judgment is final.  However, spouses still have certain rights with respect to their half of the community property and all of their separate property as long as their actions don’t violate these obligations.

This is a very fine line to walk, but even a spouse in the midst of a divorce can take some actions to protect his or her interests.  For instance, a spouse has the right to create, modify or revoke his or her Will at any time.  It is advisable to do this as soon as filing the Petition for Dissolution because the automatic revocation of devises to former spouses does not take effect until the final divorce judgment is entered, which can be years after filing the Petition.

A spouse can also amend or revoke a trust according to its terms.  One modification to a trust that will not violate the family law TRO’s is a change in trustee or successor trustee.  This change does not affect the disposition of the property, and as long as it is performed according to the terms of the trust instrument is completely valid.

A spouse may sever a joint tenancy with right of survivorship as long as notice is given to the other spouse without violating the spouse’s obligations to the other spouse.  If spouses are holding real property as Joint Tenants, this may be an option to consider.

In my opinion, the most interesting and flexible option is to create an unfunded or irrevocable trust that will be the receptacle for a newly executed pour-over Will.  This option does not avoid probate like the typical estate planning revocable trust, but it does ensure that the spouse’s estate is given to his or her loved ones rather than to the estranged spouse.  Under certain circumstances, it may be appropriate to obtain an order from the family law court approving this unfunded trust option.

Timing is crucial to the analysis of what actions are enforceable and which are not.  If a Marital Settlement Agreement has been reached, the terms of the agreement may be considered a disclaimer of certain rights and therefore valid even if the final judgment has not been entered.  This is a very tricky area of law to negotiate, and I highly recommend that you approach both your divorce attorney and your estate planning attorney before you take actions to transfer any assets if you are contemplating divorce or are in the midst of a divorce.  However, if significant assets are involved, it may be worth the time and effort to ensure that they are protected for you and your loved ones.

Originally posted by Susan on June 3, 2013.

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