| Rick | 0 Comments | Blog, Estate Planning, Living Trust

PROTECT YOUR PASSWORDS IN YOUR ESTATE PLAN

PROTECTING YOUR PASSWORDS

If you keep a mental inventory, use a password manager, or have a written record of your passwords (which is not recommended by anyone), take a quick count. You’re likely to find you may have some or all of the types of accounts listed below: 

  • Email accounts
  • Online bank accounts
  • Online brokerage accounts
  • Online shopping accounts
  • Online bill paying
  • Social media accounts
  • Photo and video sharing accounts
  • Gaming accounts
  • Online storage accounts
  • A website or blog
  • A domain name
  • Materials and coding that are copyrighted

These are digital assets. They are part of your virtual life, as is any digital property you own, such as computers, external drives, storage devices, smart phones, digital cameras, e-readers, and other devices.

Digital assets should be part of your estate plan

Unless you live off the grid, it’s likely your digital life will outlive you and become a part of your legacy. Your digital assets may have significant financial or personal value for your heirs. Consequently, you should give some thought to how these assets should be managed after your death.

The catch is digital estate planning can be tricky. Many digital accounts and assets cannot be transferred to a new owner because they are not your property. Assets that fall into this category are subject to contracts and licensing agreements established with a service provider.

For example, if you’ve spent significant sums accumulating a virtual music library, you may not be able to pass it on through a will or another estate planning tool because you do not own the digital music files, according to Nolo.com. This may also be true with other types of accounts.

“Social network accounts, domain name registrations, email accounts, and most other types of online accounts are ‘yours’ by license only. When you die, the contract is over and the business that administers the account controls what happens to it,” explained Betsy Simmons Hannibal on Nolo.com.

This doesn’t mean you have no control over what happens to these accounts. Your estate can leave instructions about account management and should provide a complete record for your executor. In an article on LegalZoom.com, attorney Jeffrey Salas offered an opinion about best practices. He recommended:

1.  Checking the account providers’ Terms of Service/Terms of Use. Work with your estate planning attorney and the digital executor you’ve appointed to review requirements for different types of accounts. For example:

  • Leave usernames and passwords for any online financial accounts – banking, utilities, brokerage, mortgage, retirement plan, life insurance, tax preparation, or others – to the executor as they will need this information to pay bills, close accounts, and administer your estate.
    • Social media companies have diverse policies regarding the management of digital assets upon the death of the user. Some delete or deactivate accounts after being notified of a death. Others put accounts into ‘memorial’ status.
    • In general, companies will not know about the death until they’re notified. As a result, a digital executor who is armed with passwords may be able to access your account to post final updates, delete items (per estate instructions), or delete/deactivate accounts.
    • Email accounts, online communities, and blog management may also be guided by provider agreements. However, your executor may be allowed to notify friends or followers of your death and then delete, print, or archive your communications.
    • Digital photos that are stored online may be passed on through a will or another estate planning tool.
    • If you have one or more websites, domain names  may have value and they may be transferrable.
    • If you have an online store, you may want to leave instructions about what should happen to the store, the items for sale, and any income or profits that may continue to arrive.

2.  Add language regarding digital assets to your will and/or trust. Currently, there is no uniform federal law to guide the management of digital assets. At the start of 2017, Kiplinger reported, “Federal law regulating access to digital property does not yet exist. At this time, 29 states have established legislation or laws to protect digital assets and to provide a deceased person’s family procedures and rights to manage those accounts and assets after death.”

Regardless, it can still be a good idea to include language that specifies your wishes for the treatment of each of your digital accounts.


 3. Check the law in your state. Talk with your attorney or advisor about whether any laws your state has that apply to digital assets, and make sure your estate plan is consistent with these laws.

While estate and inheritance laws are behind the curve when it comes to digital assets, it is important to inventory your digital assets and decide how they should be managed upon your death. If you would like additional information about estate planning, please give us a call

| Rick | 0 Comments | Blog

DIVORCE AND THE NEW TAX LAWS: WHAT YOU NEED TO KNOW

DIVORCE AND THE NEW TAX LAWS: WHAT YOU NEED TO KNOW

As if Divorce weren’t stressful enough, the GOP Tax Cuts and Jobs Act that was signed into law last December may be creating additional anxiety for divorcing couples. If you’re getting divorced or thinking about Divorce, you should absolutely be paying attention to these changes. Not understanding how they will affect your Divorce can be a very expensive mistake.

1. Tax rates got lowered and the standard deduction got higher

• The new tax law lowered the tax rate for most taxpayers–generally good news, right? It also doubled the standard deduction that every taxpayer who didn’t itemize deductions used to get. That may make you think your income taxes will drop in 2018, but like everything this Congress does, there’s more to the story, and it’s rarely good news.

• Fewer people are likely to itemize next year because the standard deduction–what you can subtract from your income before figuring out how much taxes you owe–is nearly doubling to $12,000 for single filers, $18,000 for heads of households and $24,000 for married couples that file jointly.

• Despite lower tax rates, some filers who usually itemize could see their taxes rise because many popular deductions are being reduced or eliminated. State and local income taxes, sales taxes and property taxes were fully deductible under the old tax law. Now they are capped at a combined $10,000 annually. There are also limits on how much interest homeowners can deduct on new mortgages.

2. Personal exemptions

• In the past, when you filed your taxes, you claimed yourself and each of your kids as dependents on your taxes. Known as “personal exemptions” or “dependency exemptions,” these tax breaks allowed you to subtract a certain amount of money from your taxable income for every dependent you claimed. The more dependents you claimed, the more money you could subtract.

• When couples divorced, they often argued over who got to claim the kids as dependents on their taxes. The new tax law has eliminated all of these personal exemptions. Beginning in 2018, and continuing through 2025, no one will get a tax exemption for claiming the kids as dependents.

3. Child tax credit

• Before 2018, the child tax credit lowered the amount of taxes that parents paid by $1,000.00 per “qualifying child.” In the new tax law, Congress increased the amount of the child tax credit to $2,000. They also dramatically increased the amount of money that parents could make before the child tax credit gets phased out. That’s the good news.

• A child only qualifies for the child tax credit for the parent who can claim him/her as a dependent. In your Divorce settlement you still need to negotiate which parent can claim each child as a dependent. If you don’t identify who can claim the child as a dependent, you risk losing the child tax credit. That can be a big deal because the child tax credit directly reduces the amount of income tax you pay. It doesn’t just reduce your taxable income. It reduces your taxes. And really, who wouldn’t want to pay $2,000 less in taxes per year?

4. Education expenses (529 Plans)

529 Plans are special tax-advantaged savings accounts that parents could create to save money for college educational expenses.

• In the past, 529 Plans could only be used to fund “Qualified Higher Education Costs”–college tuition and certain other college expenses.

• Now, if your kids are going to private school, you or your spouse could use the kids’ college money to pay for it. That will save you from having to pay the private-school tuition yourselves.

• Under the new tax laws, parents can take up to $10,000 per year out of a child’s 529 Plan and use it to pay for that child’s elementary or secondary school tuition.

• Deciding what to do with your kids’ 529 Plans is now one more thing you can negotiate in your Divorce.

5. Moving expenses

When a couple divorces, someone has to move out. In many cases, the person who moved out also gets a new job.

• Before this year, if you were moving because of a new job, you could deduct your moving expenses from your taxable income.

• Now, you can’t, and moving can be expensive—this may be something you negotiate in your Divorce settlement.

6. Mortgage interest and HELOC payments

Under the current tax law, you can deduct the interest you pay on your home mortgage. You could deduct that interest if it was on any kind of a mortgage or home equity loan. It didn’t matter if you actually used the money to pay for your home or pay off your credit cards.

• That’s all changed now. The new tax law limits the mortgage interest deduction to interest paid on the first $750,000 of your loan—not $1,000,000.

• To be deductible, the loan must also be used to buy, build, or substantially improve the home that secures the loan. That also applies to home equity loans and lines of credit.

• The IRS has now closed a potential means of cash flow that often made settling your Divorce easier.

7. Medical expenses

The changes to the medical expense deduction are positive. Before, you could only deduct medical expenses that exceeded 10% of your adjusted gross income. Now you can deduct medical expenses that exceed 7.5% of your income. There’s a bigger chance that you’ll be able to deduct medical expenses on your taxes. Congress made this change retroactive to 2017 so that you can take advantage of this tax deduction immediately. But before you get too excited about this, be aware that there’s an insidious component to this tax change.

• From 2019 on, the deduction threshold goes back up to 10%. But get this: Congress just gave us a two-year reprieve on the medical expense deduction.

• In order to deduct medical expenses at all, you must itemize your deductions. Since fewer people will be able to itemize their deductions in 2018, fewer people will be eligible to use this deduction.

8. A repeal of the deduction for alimony payments

The repeal of a deduction for alimony payments, effective 2019. Potential divorcees have the rest of 2018 to use the alimony deduction as a bargaining chip in their negotiations with estranged spouses. Many believe that removing this deduction will make Divorces more acrimonious, that people won’t be willing to pay as much alimony. Since it is women who tend to earn less and are most often the recipients of alimony, many believe this tax change could disproportionately hurt women.
Consulting a tax professional

Even if you are just thinking about Divorce, it’s wise to consult an accountant or financial planner who can identify problems and opportunities for deductions that may not be apparent to you.

| Rick | 0 Comments | Blog

Can an LLC be taxed as an S-Corp?

Can an LLC Be Taxed as an S Corp.? 

LLC taxes can vary, depending on how you structure your business tax arrangement with the Internal Revenue Service (IRS). Choosing to have your LLC taxed as an S corp. is one of the options. 

LLCs and the IRS 

You can choose how your limited liability company (LLC) will be taxed. An LLC may be taxed as a sole proprietorship, a partnership, a C corporation, or an S corporation. The IRS classifies an LLC in one of the following categories: 

  • An entity disregarded as separate from its owner. This applies to a single member LLC, and is essentially the same as a sole proprietorship. The income and expenses of the LLC are the income and expenses of the business owner. 
  • A partnership. This applies to an LLC with two or more members. The LLC itself is not taxed, but the profits of the LLC are taxed to the members. 
  • A C corporation. This applies to both single member and multi-member LLCs. An LLC taxed as a C corporation is taxed on its profits, then any profits passed on to the members are taxed to the members. 
  • An S corporation. There are no separate S corp. taxes. A multi-member or single member LLC taxed as an S corporation is not taxed on its profits, but the profits are taxed to the individual members (even if the profits are not actually distributed to the members). 

What If You Do Nothing? 

If you do not file any special forms with the IRS, your LLC will be taxed as either a sole proprietorship (if you are the only member) or as a partnership (if your LLC has two or more members). 

Federal Taxes 

If your LLC is taxed as a sole proprietorship, you will report the income and expenses of the business on your individual Form 1040, along with Schedule C, Profit or Loss From Business (Sole Proprietorship), Schedule E, Supplemental Income and Loss, or Schedule F, Profit or Loss From Farming. 

If your LLC is taxed as a partnership, the LLC will file IRS Form 1065, U.S. Return of Partnership Income, which will show each member’s share of the profit or loss. Each member will report his or her share of the profits or losses on their individual Form 1040, along with Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. 

An LLC taxed as a C corporation will file Form 1120, U.S. Corporation Income Tax Return. The corporate tax rate will be applied to any profits. If any shares of the profits are passed on to the members, each member will report his or her share on their individual Form 1040, along with Schedule B, Interest and Ordinary Dividends. 

An LLC taxed as an S corporation will file Form 1120S, U.S. Income Tax Return for an S Corporation. Each member will need to report his or her share of the profits on their individual Form 1040, along with Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. 

Regardless of how the LLC is taxed, each member will be responsible for paying any quarterly estimated taxes, and self-employment tax, that may be required. 

Should Your LLC Elect S Corp. Status? 

The decision as to how to have your LLC taxed will take a number of factors into consideration, including the amount of anticipated profits, whether profits will be distributed to the member or retained by the business, whether you have employees, the benefits offered to employees and members, and how your state will tax the entity. 

How to Elect S Corp. Status 

If you want your LLC to be taxed as an S corporation, you need to file IRS Form 2553, Election by a Small Business Corporation. If you file Form 2553, you do not need to file Form 8832, Entity Classification Election, as you would for a C corporation. You may use online tax filing or can file by fax or mail. More information about S corp. status for your LLC can be found at www.irs.gov, including Publication 3402, Taxation of Limited Liability Companies. 

 

| Rick | 0 Comments | Blog

Now is the time to Amend your AB Trust

Estate Tax Law Changes Make it Time to Amend Dated AB Trust

Many of our clients are coming in to simplify their old AB Trusts. The AB Trust was originally designed to create estate tax savings by keeping the deceased spouse’s property out of the estate of the surviving spouse. In 2011, however, a dramatic change in the federal estate tax laws exempted most estates from paying any estate taxes. For 2017, for example, the exemption is $5.49 million, which quickly eliminates the vast majority of Americans.

How the AB Trust works

When the first spouse dies, the Trust is divided into two Trusts: Trust A and Trust B. Trust A receives half of the couple’s community property and the surviving spouse’s separate property. Trust B receives the other half of the community property, and the separate property of the deceased spouse, but with the surviving spouse named as life beneficiary of the Trust. The surviving spouse can receive all income from Trust B and may also receive some principal, if Trust A is exhausted.

Results of the estate tax laws changes

The results of the estate tax law changes mean that an estimated 1% of the US population now pays any estate tax at all. This makes the old AB Trusts dated and cumbersome for the vast majority of Americans.

Limitations of the AB Trust

• Restrictions on what the surviving spouse can do with AB Trust property can make it difficult to sell assts.
• The surviving spouse cannot make gifts of the AB Trust’s property to anyone.
• There can be substantial costs involved in managing the AB Trust after the death of the first spouse—preparing taxes and ensuring that this property is kept separate from that of the surviving spouse.

The reality is that the AB Trust is no longer necessary or advisable for estate planning. We are helping many of our clients amend or restate their Trusts to remove the AB Trust provisions.

| Rick | 1 Comment | Blog | , , , , ,

Calculating Child Support Under California Guidelines

In California, child support is based on a complex calculation that takes into consideration the parents’ incomes, how much time each parent spends with the child, and any tax deductions that are available to either parent. This formula is applied whenever the support of a minor child is to be determined, including in dissolutions (divorces), paternity, and domestic partnership cases. The Statewide Child Support Guideline can be found at California Family Code Section 4050. Below, we explain how California’s child support guidelines work.

Purposes of the Guideline

There are two purposes for the guideline: to provide for a minimum level of child support for a child; and to provide for uniformity in the calculation of child support. To achieve these purposes, state law requires judges to follow the guideline, with deviations allowed only in limited and specified situations.

Underlying Principles

The guideline statute begins by setting forth the principles that courts are to follow in applying the rules. Among those principles are the following:

  • A parent’s first and principal obligation is to support his or her minor children according to the parent’s situation and station in life.
  • Both parents are mutually responsible to support their children.
  • The guideline is presumed to be correct in all cases, and only under special circumstances should child support orders fall below the child support mandated by the guideline formula.
  • Child support orders must ensure that children actually receive fair, timely, and sufficient support, which reflects the state’s high standard of living and high costs of raising children compared to other states.

Applying the Guideline

The guideline itself is a very complex algebraic formula that uses the parents’ income, deductions, and time spent with the child to come up with a dollar amount for child support. Like other states, California has an online child support calculator you can use to come up with the applicable amount in your case. To determine child support, you must have:

  • the gross incomes of each parent
  • the percentage of time each child spends with each parent
  • any available income tax deductions that the parents can claim, such as mortgage interest
  • mandatory payroll deductions, such as health insurance, pensions, and union dues, and
  • child care costs incurred by either parent.

Once you plug this basic information into the calculator, it will generate an amount.

The Formula

Just in case you didn’t believe it was complicated, here is the formula California uses to calculate child support:

CS = K (HN – (H%) (TN)).

Here’s what the letters mean:

  • CS is the child support amount. This is what the formula will calculate once you’ve plugged in all of your information. The amount will be for one child. If a couple has more children, they must multiply the CS amount by a figure set out in the law, which depends on the number of children.
  • K is the combined total of both parents’ income to be allocated for child support. (The amount of the parents’ combined income that must be devoted to child support, in turn, depends on how much the parents earn and on how much time the higher-earning parent spends with the child.)
  • HN stands for high net: The net monthly disposable income of the parent who earns more.
  • H% is the approximate percentage of time that the high earner has or will have primary physical responsibility for the children compared to the other parent. (For example, that parent might have the children 25% of the time, while the other parent has them 75% of the time.) In cases in which parents have different time-sharing arrangements for different children, H% equals the average of the approximate percentages of time the high earner parent spends with each child.
  • TN is the combined total net monthly disposable income of both parents.

Now you can see why everyone — including lawyers and judges — uses a calculator! Generally speaking, though, the greater the disparity between the two parents’ income and the less time the higher earning parent spends with the children, the more child support that parent will owe.

Deviations from the Guideline Amount

California Family Code §4057(a) states that the guideline amount of child support, as determined by the formula, is “presumed to be the correct amount of child support to be ordered.” This means that the judge is required to order the guideline level of child support, unless there is a good reason why a different amount of child support would be appropriate.

In creating the child support guideline, the California legislature understood that there may be situations when the mechanical application of the guideline would not be fair or reasonable. Family Code §4057(b) contains a list of factors which, if present, can justify a judge’s decision to award child support that is higher or lower than the amount generated by the guideline formula. Among those factors are:

  • The parent being ordered to pay child support has an extraordinarily high income and the amount determined under the formula would exceed the needs of the children.
  • A parent is not contributing to the needs of the children at a level commensurate with that parent’s custodial time.
  • Both parents have substantially equal time with the children and one parent has a much lower or higher percentage of income used for housing than the other parent.
  • The children have special medical or other needs that could require child support greater than the formula amount.

Child Support Add-Ons

In addition to the basic child support guideline amount, a parent can be ordered to contribute to specified expenses that are for the benefit of the children. Family Code §4062 lists two types of child support add-ons:

  • Mandatory add-ons: The judge is required to order a contribution to the following as additional child support: (1) child care costs related to employment or to reasonably necessary education or training for employment skills; and (2) the reasonable uninsured health care costs for the children.
  • Discretionary add-ons: The judge can also order a parent to contribute to: (1) costs related to the educational or other special needs of the children; and (2) travel expenses for visitation (this appears to refer only to travel expenses incurred by the custodial parent).

If the judge orders any child support add-ons, such expenses are to be equally shared by the parents. However, where an equal allocation of these expenses is not reasonable, the court is authorized to allocate them between the parents in proportion to their net spendable incomes. Family Code §4061(b) provides that the following three-step procedure is to be followed to determine the parents’ respective net spendable incomes for purposes of allocating the child support add-ons:

  • First, the guideline child support amount is to be calculated.
  • Second, the amount of guideline child support is to be deducted from the income of the paying parent but not added to the income of the receiving parent.
  • Third, if one parent is paying spousal support to the other parent, the amount of spousal support is to be deducted from the income of the paying parent and added to the income of the receiving parent.
| Rick | 0 Comments | Blog, Estate Planning | , , , ,

Estate Planning Checklist

Everyone needs some degree of estate planning. Estate plans need to be tailored to the needs of the individual. The following estate plan checklist will explain various types of estate planning documents, and help you evaluate those that will be of value to you. Even if you decide to turn the matter over to an estate planning attorney, you should still have a basic understanding of what is involved.

1. Cover Estate Planning Basics

A comprehensive estate plan should consider what happens in the event of both death and disability. It should take into consideration what you want to happen to your property upon your death, the financial well-being of your family, the degree to which probate can be avoided, and how to eliminate or minimize estate taxes. These goals can be accomplished through various means, including properly setting up ownership of assets, designating beneficiaries where possible, and executing one or more estate planning forms. In addition to financial matters, an estate planning checklist should also consider the guardianship of any minor children, and medical treatment planning.

2. Plan Your Asset Ownership

Any asset that has title documents (real estate, motor vehicles, etc.) can be set up so that upon your death the title automatically passes to a co-owner. Most often this is a spouse. The title document must clearly indicate that ownership is held as joint tenants with rights of survivorship, as tenants by the entireties, or as community property.

There are two potential downsides to adding someone as a joint owner. First, you will need the joint owner to agree to any sale of, or loan secured by, the property. Second, if the value of the property exceeds a certain amount, it could trigger the federal gift tax.

3. Determine Beneficiary Designations

For some assets you can designate someone to receive the property upon your death, without giving them any current ownership rights. This is often done with bank and other financial accounts (usually called pay-on-death or POD). Designating a beneficiary is available in almost all states for brokerage accounts, and in some states for real estate, motor vehicles, and other assets with title documents (usually called transfer-on-death or TOD).

3. Cover Your Debts With Insurance

One way to ensure that all of your debts (including burial expenses) are paid in the event of death or disability, and that your loved ones are provided for, is through auto, homeowners, disability, and life insurance.

4. Get A Last Will and Testament

A last will and testament takes care of any property that must be probated. A last will can also deal with the care of any minor children (or adult children with disabilities). You designate who will get any property that hasn’t been handled through joint ownership or a beneficiary designation, appoint someone you trust as the executor of your estate, and appoint someone you trust to be the guardian or conservator of your minor or disabled children.

5. Consider A Living Trust

Especially if you have a large estate, or many beneficiaries, a living trust is usually the best choice for handling distribution of property, avoiding probate, and minimizing estate taxes. To avoid probate, most people create a revocable living trust (“revocable” since you may revoke the trust at any time). Property title is transferred from you to the living trust, and you become the trustee. While you are still alive, you control the property. You manage the property the same as if it was still in your name (sell or mortgage it, for example), and may acquire more property and add it to the trust. Upon death, a person you appoint as your successor trustee assures that the property is transferred to those you designate as trust beneficiaries. This transfer does not require probate. The successor trustee would also manage the trust if you become mentally incapacitated. People sometimes create an irrevocable living trust (most often for Medicaid planning), which also avoids probate, but requires the person creating it to give up the right to revoke it.

6. Consider A Financial Power of Attorney

A financial power of attorney authorizes someone you trust to act on your behalf in financial matters. The person who gives the authority is called the principal, and the person who has the authority to act for the principal is called the agent or the attorney-in-fact. Many states have an official financial power of attorney form.

Depending upon how it is worded, a power of attorney (or POA) can either become effective immediately, or upon the occurrence of a future event (such as your mental incapacity). If effective immediately, your agent may act even if you are available and not incapacitated. If a POA becomes effective upon the occurrence of a future event, it is called a springing power of attorney, because it “springs” into effect if the event occurs. The authority conferred by a POA always ends upon the death of the principal.

7. Consider A Health Care Power of Attorney

A health care power of attorney designates someone you trust to make decisions regarding your health care in the event you are mentally or physically unable to make decisions for yourself. You should discuss your desires for medical treatment with your health care agent (sometimes called a surrogate).

8. Get A Living Will

A living will, also known as an advance directive, sets forth your wishes regarding what types of life-prolonging medical treatment you do, or do not, want in the event you become terminally ill or injured and are unable to communicate your wishes. A living will goes along with a health care power of attorney, as it can serve as a guide to your agent, or can express your wishes in the event your agent is unavailable at a crucial moment.

9. Leave Information for Executor and Statement of Desires

This is not a legally binding document, but gives valuable information and guidance to your executor. It should include the information needed to clearly identify and locate all of your financial accounts, insurance policies, credit cards, vehicle loans, and mortgages. It should include contact information for relatives and close friends to be notified of your death; where assets are located (safe deposit boxes, storage units, etc.); and instructions regarding your desires for burial, cremation, funeral ceremonies, organ donation, etc.

| Rick | 0 Comments | Blog | , , , ,

No-Contest Clauses in Wills and Trusts

 

No-Contest Clauses in Wills and Trusts

Is there a chance that any of your beneficiaries could be so disgruntled about what you’ve left them in your last will and testament or trust that they would bring a legal challenge against it?

If so, you may consider adding a “no-contest clause” to your will, which provides that anyone who disputes the validity of the document in court will end up inheriting nothing at all.

What exactly happens in the case of a contested will or trust, and can a no-contest clause really help you avoid that whole mess? Read on.

The Process of Contesting a Will or Living Trust

A last will and testament communicates your wishes regarding the distribution of your property after your death. A living trust holds your assets for your benefit during your lifetime and for transferring to your chosen beneficiaries at your death by the person you have designated as your “successor trustee.”

So what happens if someone wants to contest a will or trust?

Contesting a will requires that a beneficiary file a formal legal challenge against the validity of the will. A person must have standing to bring a will contest, which means he or she must have a financial interest in the estate, usually as a named beneficiary or someone who is entitled to inherit based on existing law.

Grounds for a will contest may focus on the testator’s capacity—that he or she was not of sound mind when the document was executed—or external forces such as undue influence, fraud, or duress, all of which allege that someone had forced the hand, so to speak, of the testator in drawing up the will.

Additionally, a will contest may seek to present a newer version of the document, alleging that it is the valid one.

Challenges to the validity of a trust are similar in nature and generally call into question whether the trust accurately reflects the trust creator’s wishes. As with a will, duress, fraud, undue influence, and even ambiguity in the trust’s terms may be alleged.

The process for disputing a will or trust can mean additional costs for the estate—and less inheritance for beneficiaries. And since we’re talking about court processes, it’s no surprise that all of this can take quite a bit of time—years even—to sort out.

None of these side effects of a will or trust contest are desirable for your beneficiaries, so it’s likely something you’ll want to try to avoid.

Enter the no-contest clause.

What Does a No-Contest Clause in a Will Do?

A no-contest will clause uses the threat of no inheritance at all—even what is bequeathed to the person within the document—to dissuade beneficiaries from challenging the validity of a will.

A sample no-contest clause in a will looks something like this:

“Notwithstanding anything herein to the contrary, if any beneficiary contests the terms of this Will, including, without limitation, filing a contest of admission of this Will to probate under [applicable section of the state Probate Code], that beneficiary shall not be entitled to any property under the terms of this Will, and for all purposes of this Will, that beneficiary shall then be deemed to have predeceased me.”

A no-contest clause in a trust would contain similar language, but remember that your state may have specific requirements, so it’s always best to consult a professional when incorporating legal language into your will or trust.

Pros and Cons of No-Contest Will Clauses

The main “pro” to including a no-contest clause is that it often does effectively deter beneficiaries from bringing a legal challenge to the will. On the flip side, however, if there actually were any errors in the will or trust, the existence of the no-contest clause leaves no recourse for that beneficiary.

Something else to keep in mind is that a no-contest clause doesn’t automatically mean there will be no issues or disagreements over the estate. One big caveat, for example, is that some states actually allow a beneficiary to bring a will contest—even in the presence of a no-contest clause—so long as she has probable cause to do so. And some states, such as Florida, will not enforce no-contest clauses at all.

Another important limitation of no-contest clauses is that they don’t apply to a person who is not a named beneficiary in the will. That is, even if there is a no-contest clause, a person omitted from the will who brings a contest will have no fear of repercussions of non-inheritance. He or she simply isn’t covered by the clause.

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How to Ensure Your Estate Plan Is Executed Properly

How to Ensure Your Estate Plan Is Executed Properly

by Brette Sember, Esq.

Jun 2016

You’ve completed a will or living trust because planning your estate is important to you, but have you done everything necessary to make sure your documents are legal? Some people start preparing the documents but can’t quite finish.

Your estate plan won’t do what you want it to do if you don’t take all the steps necessary to make sure it will go into effect when you need it to. Don’t leave your heirs hanging!

Making the Tough Decisions

One of hardest parts about creating a will or living trust is deciding how you’re going to distribute your assets. This can be a very emotional decision for some people. Once you’ve worked through this, completing your estate plan can become much easier.

Completing Your Will

You’ve decided who’s in and who’s out. You’ve divvied up your belongings, but you’re not done yet!

To make sure your will is valid, it’s a good idea to complete a self-proving affidavit if your state allows it. This is signed in front of a notary and is attached to the will, basically swearing that you meet your state’s requirements to complete a will.

Signing Your Life Away

Your will is not valid until it is signed in front of two witnesses. You’ll sign the will while the witnesses watch and then ask the witnesses to sign as well. This is a crucial step, because a will that is signed without witnesses is generally not valid.

Storage Matters

It’s important that the completed will is kept in a safe place because it does you no good to have a will that no one can find after your death. Your home safe can be a good place. Your attorney also can keep the will. Make sure your beneficiaries and family know that you have a will and where to locate it.

Completing a Living Trust

Your living trust allows you to use your assets during your life and control their distribution after your death when your successor trustee takes over. After you complete and sign your trust document, there is more work to be done. Your trust is not functional until you actually transfer your assets into it, which is called funding the trust.

This means you will need to change legal ownership of every asset you want to place into the trust, including bank accounts, real estate, investments, and more. These assets will now be owned by “(Your Name), Trustee of the (Your Name) Living Trust.”

An additional document you may need is a Certificate of Trust. This is basically a summary of the trust that you can use to show that the trust exists and how title to trust assets is to be held.

Transferring Assets to Your Trust

Follow these steps to transfer assets to your living trust:

  • Transfer real estate with a quitclaim deed, and also change your homeowner’s insurance to reflect the name change.
  • To transfer bank accounts and investments, you will need to complete a form from the financial institution and will likely need to provide a Certificate of Trust as proof of the trust’s existence.
  • You should create a list of the assets that you want to transfer into the trust, including personal property, such as jewelry and furniture, and attach this as a property schedule to the trust., indicating that ownership of these items is being transferred to the trust. Also, prepare and sign a document assigning the property to the trust.

Managing Your Trust

It’s important to stay on top of your trust. As you buy things, be sure to do so in the name of the trust and to update the property schedule. It is also a good idea to create a simple will (called a pour-over will) that will take anything you’ve forgotten and transfer it to your trust when you die.

Carefully completing your estate plan will keep things organized and give you greater peace of mind.

| Rick | 0 Comments | Blog | , , , , , , ,

A Lesson in Estate Planning

A Lesson in Estate Planning from David Bowie

Few pop stars have endured or left a legacy as diverse and successful as that of David Bowie. He died last week of liver cancer, just two days after his 69th birthday and the release of his latest album, Blackstar. He was inventive and cutting edge; the fans who transcended generations adored him. Those who didn’t know what to make of the androgynous pop star nevertheless remained fascinated by his ever-evolving, iconic personas. Over more than 50 years, he produced an extraordinary body of work that spanned music and film.

Bowie amassed considerable wealth

Bowie died a very wealthy man—his estate is worth an estimated $100M—and that’s before the inevitable spike in sales that will continue with his death. (In the 6 years since Michael Jackson’s death, his estate has grossed nearly $2B.) Yet in the 70s and 80s, Bowie struggled financially, reportedly nearing bankruptcy.

A brilliant plan for creating—and sustaining–wealth: Bowie Bonds

With the help of an investment banker, Bowie developed a brilliant plan for creating and sustaining wealth: Bowie sold a stake in his catalog of music. Instead of outright selling his songwriting, performance and licensing rights to his many successful songs, Bowie created “Bowie Bonds.” These allowed him to sell – for $55M– a 10-year investment, which operated like an annuity, providing a fixed-rate of return of 7.9%. The payouts were secured by all of his royalties and copyrights from the music. Prudential Insurance purchased the Bowie Bonds and was paid off in full during the 10-year timeframe. The Bowie Bonds transaction provided tax savings and ensured that his estate would benefit from his music catalogue.

Apparently Bowie was motivated by the desire to protect his family—his wife, Iman, their daughter, and a son from a former marriage. He had apparently always been interested in estate planning and wanted to make sure his assets passed on to his loved ones.

Bowie likely used one or more Revocable or Irrevocable Trusts

Given Bowie’s careful attention to financial planning, it’s likely that he used one or more Revocable or Irrevocable Trusts. In this way, he could have maximized the value of assets with the lowest tax consequences, but his assets could also pass privately, without the public scrutiny that accompanies Probate Court, which is the case with those who do not create a Living Trust.

Bowie’s final wishes

It was just revealed that Bowie’s $100M fortune will be distributed among his family and several loyal employees. Iman will receive half of his fortune as well as their Soho apartment; his children will each receive an estimated $25M. Bowie was a longtime Buddhist and requested that he be cremated in Bali in accordance with Buddhist rituals. He noted that if that was not practical, he could be cremated elsewhere, with his ashes scattered in Bali. The Bali cremation may have been problematic, for Bowie was cremated in New Jersey, but we can assume that his family scattered his ashes in Bali, according to Bowie’s final wishes.

A Living Trust ensures that your heirs will not have to deal with Probate and that your estate will remain a private matter. We assist our clients through every step of the Living Trust process.

| Rick | 0 Comments | Blog

Corporation, LLC & Partnership Books and Records

MAINTAINING YOUR ENTITY RECORDS

Avoid Late Penalty Fees and possible loss of your entity name.

Now is the perfect time to avoid possible late penalty fees and to start thinking about the maintenance of your entity records. With the new year beginning; Corporations, LLC’s and Partnerships formed in previous years will be filing annual reports, biennial reports and or making annual tax payments.

Many important due dates and deadlines depend on the Corporation, LLC or Partnership’s state of formation, fiscal or calendar year and your entity’s formation date.

We can assist you with your Minute Book, Corporate Seal, or any other necessary report or document relating to your entity.

CORPORATION OR LLC REINSTATEMENT

Reinstating a company is the process of returning a company that is in default or revoked status back to good standing within the entities state. Reinstatement is an option for owners that want to continue using the same entity and it’s bank accounts and Federal Tax ID number.

In addition, by reinstating your entity, you will continue to have the liability protection of a Corporation or LLC.

TEAM Legal Document Services can assist you with the reinstatement process.