May 13th, 2009

The State Bar of California has created a panel of volunteer attorneys, called the Speakers Panel, to elevate the public’s awareness of financial scams targeting the elderly.

The panel’s objective is to help prevent financial elder abuse, a big problem, by educating seniors. One type of scam, discussed in this article, is the so-called “trust mill” living trust scam. The trust mill scam is a major nationwide problem that has cost many elderly persons dearly, not to mention disturbing their peace of mind. Let us see how the “trust mill” scam works.

Trust mills are NOT legitimate law firms. Some may have attorneys on staff, in order to say that they are not illegally practicing law; however, providing legitimate legal services is NOT the trust mill’s true objective. Rather, the trust mill offers one thing (living trusts) in order to later-on try to sell something else altogether (financial services).

Like a traveling circus, the trust mill goes from town to town advertising free seminars in order to draw in the public. Trust mills entice people by advertising “living trust” packages at “low costs” – far less than what legitimate legal services cost.

The trusts provided are basically just a one-size fits all, i.e., fill-in the blanks form, and should not be confused with personalized legal services. As such they may or may not be drafted by a licensed attorney, and certainly are not what the public has in mind in regards to professional legal services.

These salesmen will often use phony titles like “certified trust advisor” to make themselves appear legitimate and knowledgeable about estate planning, when they are neither. Such so-called titles are deceitful as they are not certified by any state regulatory agency and were merely issued by the trust mill itself to their sales persons.

Once the trust mill has the elder’s trust and financial information, they then try to sell annuities, life insurance, and reverse mortgages – usually in the privacy of the elder’s own home. The sales tactics used are unscrupulous and predatory, to say the least. That is, the salesmen are often trained to manipulate the elderly person into believing that the elderly person’s money is not safe the way it is, and that they have a solution.

The salesman’s ulterior motive is a substantial sales commission, and not the estate planning fee for the trust. Ultimately, therefore, the trust mill experience is far from a “bargain,” as the trust mill experience winds up costing the elderly far in excess of the legal fees charged by a legitimate attorney.

Qualified, ethical attorneys, on the one hand, offer the public a legitimate professional service that they are both licensed and educated to provide – for that sake only. Attorneys develop a one-on-one personal relationship with their client for the purpose of creating an appropriate, individualized estate plan based on client meetings; and will review documents with their clients and answer legal questions. They are not going to use the relationship later-on to try to sell you financial products.

There is some good news. Trust mills are being sued and prosecuted at various levels.

The California Attorney General’s Office sued the Family First Advanced Estate Planning, Family First Insurance Services and American Life Insurance Co. The case was settled for $7.2 million, including $5.5 million for defrauded consumers.

Lastly, if you believe that you were a victim, you can call the National Fraud Hotline (1-800-876-7060), your local district attorney’s office, and (when relevant) the California Department of Insurance (www.insurance.ca.gov).

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Proper use of a revocable living trust

January 21st, 2009
The Manchester Tiara

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One of the most popular estate planning instruments today is the revocable living trust.

Trusts are used to maintain control and disposition of assets after death, and some can be used to minimize the estate tax impact of property transfers.

The difference between a revocable and irrevocable trust is whether the trust creator can change or terminate the trust. In the revocable trust, the creator can change the terms and conditions of the trust, or even eliminate the trust altogether. An irrevocable trust, on the other hand, cannot be altered once established.

When used and implemented correctly, a revocable living trust offers many benefits.

Using a Living Trust for Financial Protection

A revocable living trust provides financial protection in the event you are no longer able to manage your financial affairs yourself. You can be trustee while you are healthy, but if you have a stroke or become otherwise incapacitated, your successor trustee would manage your assets in the trust.

Using a Living Trust for Privacy

Another benefit of revocable living trusts is continued privacy because the instrument will bypass probate. The trust can function like a will, dictating at what age children are to receive trust assets and the percentage shares of the distribution. The trust can be linked to a pour-over will, a short document that names the executor and that determines how taxes, creditors, and final expenses will be paid. The pour-over will directs the executor to gather all assets not included in the trust and pour them over into the trust. Once that happens, the trustee will follow the directions included in the trust. The pour-over will must be filed with the probate court, but because it doesn’t say much, it doesn’t reveal much.

Using a Living Trust to Reduce Probate

Regarding probate, living trusts offer another useful feature — if you own property in a state other than your state of residence, when you die, that property must go through what’s known as an ancillary probate. Many people think it’s worth setting up the trust just to avoid the out-of-state probate hassle, which necessitates hiring a lawyer in that other state.

Using a Living Trust as a Management Tool

The living trust can be used as a tool to manage your property, and can be especially helpful if you become incapacitated because the successor trustee can manage your property, rather than a court-appointed trustee, which takes time. The benefit of having an immediate successor can be especially important if you own a business or other assets that need to be managed seamlessly.

Other Benefits of a Living Trust

Finally, you can include provisions in the trust that preserve the use of your estate and use the gift tax exclusion to set up other trusts that will help reduce estate taxes.

Disadvantages of a Living Trust

There are disadvantages to using a revocable living trust as well. You must re-title assets into the trust name, which entails a lot of paperwork. And, although creditors only have a limited time after your death to make claims against your estate while it’s being probated, there is no time limit within which creditors may go after assets in a living trust.

Conclusions

If your goal in using a revocable living trust is only to avoid probate, there are easier ways to accomplish this task. However, the revocable living trust can provide a wide variety of estate planning benefits that are difficult to achieve with any other estate planning tool.

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LLCs And Liability Protection

January 21st, 2009

An affordable and very effective method to shield your assets from attack is to transfer your rental property to a Limited Liability Company (LLC). Holding title to investment property through an LLC limits the liabilities of the business to only those assets held within the LLC. In the same way as shareholders of a corporation are shielded from liability, a properly formed LLC will guard its owners from lawsuit liability, including liability from acts of its employees and agents.

There are several significant benefits the California LLC can provide to you or your investors. The LLC creates a risk barrier which encourages apartment ownership, yet shields the owner’s personal assets from lawsuits and seizure. The double taxation and extensive formalities inherent with traditional corporations are eliminated. When legal action such as an eviction is required against a tenant, it is the LLC, rather than the individual owner, that pursues the claim. In addition, the landlord’s privacy is enhanced because rent checks are made payable to the LLC, lease agreements are between the LLC and the tenant, and correspondence comes from the LLC.

While high limit liability insurance is important, it is still not adequate to protect the property owner(s) from loss of assets. Most insurance policies contain exclusions for mold, lead-based paint and other environmental hazards. Additionally, they rarely cover judgments arising out of discrimination claims. Even with expensive high-limit insurance coverage, a major incident such as a fire or balcony collapse resulting in numerous claims, could create liability far exceeding your policy limit. Even with the best of intentions regarding your tenants, the LLC has become a necessary tool in limiting liability not only for legitimate claims, but also for those in which only a brainwashed jury could see merit. The deductible $800 annual State franchise tax on LLCs is small compared to the huge benefit provided.

In recent years, the State of Nevada LLC has been touted as an asset protection alternative to the California LLC, since the annual tax is relatively small compared to California. However, in most cases there is little or no financial benefit to forming a Nevada LLC for your California rental property, because the ownership of the California property necessarily means business is transacted in California. As such, the Nevada LLC also must be registered with the California Secretary of State and pay the initial California registration fee and $800 annual franchise tax, along with California income tax. (Ca. Rev & Tax Code Sec. 17941, Ca. Corp. Code Sec. 17050). For business ventures other than California real estate, where the principal business is not transacted in California, the Nevada LLC/Corporation may be an attractive option for investors.

Additional benefits of the LLC include the ability of LLCs to utilize 1031 exchanges and exemption from the 3 1/3 withholding on sale of real estate for multi-member LLCs. Furthermore, a separate federal tax return is usually not required for single-member LLCs, including those owned by a husband-wife or living trust, and the property transfer to the LLC is almost always exempt from tax reassessment. And the LLC will work very well in conjunction with a living trust to simultaneously protect and preserve estate assets.

Many apartment owners have executed a living trust in order to provide for the distribution of their assets after they die, as well as to avoid huge probate costs, reduce or eliminate estate taxes when they die, and prevent court control of their assets should they become incapacitated. The living trust, however, will not protect against lawsuits. If an apartment building is held directly by a living trust, then all other assets in the trust will be exposed to lawsuit liabilities generated by the building. A much better approach is to place your apartment in an LLC, creating a liability barrier in order to protect all of the other trust assets. The LLC membership interests may then be safely added to the trust.

As far as multiple investments are concerned, it is better to have a separate LLC for each rental property so that liability arising from one property cannot attach to any other properties. Even single-family homes with tenants should be held by their own LLC. If paying $800 annually each for multiple LLCs is not a viable option, then properties could be grouped together. Owning a total of six investment properties with three in one LLC and three in the other would afford significantly more protection than owning all the properties in one’s personal name. For those investors wishing to transfer multiple properties with annual gross rental receipts totaling more than $500,000 into a single entity, the use of a limited partnership should be considered. Both the limited partnership and the LLC must pay the $800 franchise tax, but the LLC must pay an additional gross receipts tax if the gross annual receipts exceed $250,000.

Because landlords are subject to virtually unlimited lawsuit exposure and financial liability arising out of ownership of their rental property, they must take advantage of every lawful means to protect their assets. Once a competent attorney prepares and files the array of legal documents required for the initial formation of the LLC, personal assets will no longer be reachable to satisfy any debts or judgments against the LLC.

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From the Daily Herald - Question and Answer regarding living trusts

December 30th, 2008

Q. We own our home, but we also own a house in another state that we inherited from our late uncle. If we create the type of basic living trust that you recently wrote about, would we have to form one trust for the home we own here and a second trust for our out-of-state property?

A. No, only one trust would be needed. Forming a trust and putting both your personal residence and the out-of-state house that you inherited into it probably would be a good financial and estate-planning move.

Millions of people around the United States have purchased or inherited a home, land or other property in a different state. When they die, their estate usually must go through two probate proceedings - one in the state where they lived, and a second in the state where their other property is located. The twin proceedings are costly and time-consuming for heirs.

People who wisely create a basic living trust, however, can spare their heirs from the probate process altogether. That’s because a trust is considered a private document, and therefore is not subject to a probate court’s review. By creating an inexpensive trust and putting both houses into it now, you will save your designated heirs the hassle of going through probate later and help to ensure that they inherit the property quickly, without paying lots of money for attorney’s fees and court costs.

Author: David Myer

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What is Estate Planning?

December 30th, 2008
The Supreme Court of the United States

Image by FrogMiller via Flickr

Credit for the article below belongs to author Robert Thatcher.  Sometimes it’s helpful to just back up and say ‘what is estate planning, anyway?”  If you begin with the end in mind, it’s more likely you will end up with precisely what you want from the start.

Estate Planning may be a word that is encountered by many citizens especially the elderly. What is Estate Planning? What benefits does it provide to people?

Estate Planning is a method of arranging and considering alternatives that will satisfy specific wishes and goals to prepare for things that may happen to a person and the people he finds special to him.

Estate Planning includes organizing properties and not just putting them in a simple Will. It also lessens the taxes and fees that may possibly be charged to these properties. Estate Planning also includes contingency preparation to ensure that ones wishes regarding health care and medications will be followed.

An estate plan may be described as good if it financially coordinates with the future of the home, business, investments, insurance and other benefits if ever the person becomes sick or will pass away. A good estate plan also sets directions to bring about personal wishes regarding health care in preparation for the when the person becomes disabled.

It is very important to identify the real definition of the term “estate” before someone can really perform estate planning. Estate means all the properties a person owns or has control of. This is regardless whether if the property is solely named after him or is in managed in a partnership. This may include real properties, accounts, bonds and stocks, cash, buildings and establishments, jewelry, collections, all types of businesses and even retirement benefits.

Typically, those who really need to have an estate plan are parents who have minor children, people who have valuable properties and have sentimental values for them, and also people who are concerned about their medications and health care. However, people can still acquire an estate plan whether they have these categories or not. As long as they have all the things that are covered by an estate plan, then they can avail of it.

While a person is alive, it is important to prepare an estate plan and at the same time implement it. This is the perfect time for a person to perform and have legal capacity to come up with a contract. There may be challenges that could occur if an estate plan is implemented when a person is already disabled. Others may judge the lack of capacity and the person may be prone to fraud, abuse and coercion.

Estate Plans may include wills, power of attorney for health care, living wills, living trusts and limited partnerships. When entering into a contract, it is very important to make use of the services of a lawyer. Lawyers are the only certified people who practice these fields. They are also the only ones who can supply a person with all the legal requirements and advice needed in the estate plan. An attorney will be able to answer legal questions regarding the estate and they will also be able prepare the person on the cost of the estate plan and other finances the come with it.

Estate Planning involves sensitive decisions and legal matters. It would only be beneficial if the person will always consult with legal advisors and also seek financial and medical advice. It is important that before a person will enter into estate planning, he should already have a strong understanding of the process so that things will not be difficult for those who will be left behind.

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Why your family and business should have an estate plan

December 23rd, 2008
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Living Trusts: For Your Home and Your Business

As many people know, creating a living trust is the preferred method for ensuring that your heirs can avoid the costly and lengthy process of probate in the event of your passing. As an example, if your home or business has a gross value of $1 million dollars and both joint owners have passed on, your heirs may have to pay up to $50,000 in probate, attorney and executor fees and may have to wait 12-24 months for the probate to be resolved. Even with a valid will, the estates of homeowners and/or business owners, with a gross value over $100,000, will be subject to the probate process if those assets are being passed to someone other than your spouse. These types of assets are subject to probate because, unlike a financial account of life insurance, an heir can’t be named for these assets beyond any joint owners. If you create a living trust to own these assets, you can save your heirs the costs and delays of probate.

A living trust is similar to a will in the sense that you, as creator of the trust, decide upon your passing who and under what conditions your heirs will take ownership of your assets. You may place conditions that your heirs must meet in order to receive assets from your estate. At the time of your passing, your appointed trustee will use the living trust document to transfer your estates assets to your heirs or will oversee your assets on behalf of your heirs. Your trustee does not need to hire an attorney or go to court to affect the transfers and thus the trust can be wrapped up in weeks instead of years. During your lifetime, you maintain full control of the assets owned by the trust and you can revoke or change the terms of the trust at anytime. Ownership of assets by your living trust, changes very little in the way you deal with these assets on a day to day basis and will not trigger any additional taxes.

If you are a business owner, placing your ownership interests into a living trust can ensure a timely transfer of your interests to your heirs upon your passing. If your heirs plan to takeover the business, they can act to quickly transfer ownership to themselves and keep your business up and running. If your business can not continue, your heirs can sell the business in a timely manner before much of its value has been dissipated. Either way, a living trust can help ensure that your business is not tied up in probate for years as well as avoiding the significant cost of probate.

The key to drafting a good living trust is not only setting up the trust so that your assets will pass to your heirs without the need for probate is to make sure that your trust addresses potential issues that may arise upon your passing. These contingencies include what happens to the family home (will it be sold or kept), how will personal assets be divided up amongst the heirs, what happens if a beneficiary has a substance abuse problem, or how to make sure your heir’s inheritance does more good than harm. Your trust can be designed not only to continue to impart your values on to your heirs by encouraging certain types of behavior ( i.e. getting a college education) but can also protect the assets you designate for your heirs from their creditors, divorces and lawsuits. Hiring a good estate planning attorney is key to creating these contingencies in your trust.

A living trust is the core component of a good estate plan which typically also includes a pour-over will, a durable power of attorney and an advanced health directive. By properly creating these documents ahead of time, you can save your loved ones the costs and hassles of having to hire an attorney or going to court to manage or transfer your assets if you pass on or become incapacitated. Unfortunately we often don’t know when something might happen but with a little advance planning, your heirs will not be burden with the hassles of not having a plan.

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Book on living trusts

December 23rd, 2008
Cover of

Cover of The Living Trust

Living Trusts, by Henry Abts, is a book that is known as a classic in the estate planning world.  The following is an excerpt, and you can typically find this book on Amazon.com, or through Ebay.

“. . . is unquestionably the layman’s most nearly complete source on living trusts. . . . Recommended reading for anyone who wants to maximize his net estate left to heirs, speed asset distribution after death, avoid will challenges, minimize estate costs, and maintain privacy.” — Robert Bruss, Esq., and Nationally Syndicated Real Estate Columnist Chicago Tribune “. . . presents in clear, concise, and readable language what every person needs to know. I heartily recommend it as required reading for every caring husband, wife, parent–all those with an estate to pass along to heirs.” — Byron Countryman, Esq. Countryman and McDaniel Attorneys at Law, Los Angeles Why The Living Trust Is So Important You may think your heirs have been well provided for, but did you know that: Your loved ones may have to wait more than two years before receiving a penny from your estate–even though you have left a legally valid will? Costs of probating your will may eat up more than 10 percent of your estate-money your heirs will never receive? The specific instructions of your bequest may be contested or changed completely–even though clearly spelled out in your will? Once a will is probated, it becomes a matter of public record–anyone can access the information just by going to the courthouse and asking for your tile? A will cannot help you in life? If you become incapacitated or your judgment comes into question, it becomes a matter for the courts to decide and is, again, a very public process. A Living Trust is a simple, inexpensive legal alternative that eliminates the costs and delays of probate and ensures that your loved ones will receive their inheritance promptly and exactly as you intended. It is also the only estate planning tool that allows you to plan for your own incapacity or for avoiding competency hearings. When The Living Trust was published in 1989, it quickly became the bible on how to avoid probate. This updated edition includes information on the new IRA Q-TIP Trust, the Spousal and Family Support Trust, and the Family Limited Partnership. In addition, there is new material on the Charitable Remainder Trust (to preserve a large estate), the Gift Trust (to reduce the impact of inflation), protection for the handicapped, and a checklist of more than 150 “must” provisions that separate a good Living Trust from a bad one. Also included is up-to-date information about trusts for unmarried couples, placing assets in your trust, what should never be placed in your trust, and much, much more. A nationally recognized authority on Living Trusts, Henry W. Abts III is chairman and founder of The Estate Plan, the nation’s oldest and largest Living Trust production corporation, responsible for creating more than 25,000 Living Trusts. A graduate of the University of Southern California, Abts holds a master’s degree from the Stanford University Graduate School of Business.

From the Back Cover

The Bible on How to Avoid Probate, Revised and Updated

“[The Living Trust] is unquestionably the layman’s most nearly complete source on living trusts. . . . Recommended reading for anyone who wants to maximize his net estate left to heirs, speed asset distribution after death, avoid will challenges, minimize estate costs, and maintain privacy.”
—Robert Bruss, Esq., and nationally syndicated real estate columnist, Chicago Tribune

You may think your heirs have been well provided for, but did you know that:

  • Your loved ones may have to wait more than two years before receiving a penny from your estate—even though you have left a legally valid will?
  • Costs of probating your will may eat up more than 10 percent of your estate—money your heirs will never receive?
  • The specific instructions of your bequest may be contested or changed completely—even though clearly spelled out in your will?
  • A will cannot help you in life? If you become incapacitated or your judgment comes into question, it becomes a matter for the courts to decide and is a very public process.

A living trust is a simple, inexpensive legal alternative that eliminates the costs and delays of probate and ensures that your loved ones will receive their inheritance promptly and exactly as you intended. The Living Trust—the bible of how to avoid probate—will show you how to take full advantage of this critical estate-planning tool. This updated edition of The Living Trust includes the latest information on trust formations, tax changes, distribution rules, and more. It also offers:

  • Insight into abuses within the probate system
  • Advice on how to protect your business, savings, and retirement funds from frivolous lawsuits
  • The effects of the Economic Growth and Tax Reconciliation Act of 2001 on estate tax, gift tax, the generation-skipping tax, and stepped-up valuation
  • Sample and ancillary documents, including the estate preservation and tax-saving documents, the living will, and costs of living trust, all updated to reflect the latest tax changes and living trust requirements

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What is a living trust?

December 22nd, 2008
Detail from United States Supreme Court building

Image by FrogMiller via Flickr

What is a living trust and why is it attracting the interest of a growing number of people? Do the benefits really outweigh the expense of setting up such a trust?

It may be advisable to know the answers to these questions before you make the decision to set up your own living trust. After all, you wouldn’t want to get into something you do not fully understand.

A living trust is commonly known as a trust set up by an individual in order to plan for an unforeseen event such as incapacity, disability or death. It can be revoked by the person who set it up and is most often used as a means to avoid going through probate court in the event of death.

The main benefit of living trusts is that is saves the grantor and his heirs a considerable amount of money and time, since they would not have to go through the probate process. In a probate process in Valencia, California for instance, one would have to pay probate fess of 4-8% of his estate’s gross value. On the other hand, if your assets are held in a trust, your trustee — either an attorney or your bank’s representative are among the best choices to be a trustee — will simply pay your remaining bills then distribute your property according to the stipulations of your trust. The trustee does not have to report to the probate court to do this.

Probate normally takes six months or more whereas the distribution of properties held in a living trust only takes a few weeks. A living trust also protects your privacy, since the records are held privately as opposed to records that go through probate court, which are open to the public.

If you are planning to set up your own living trust, it is most advisable to consult a probate lawyer or an attorney who specializes in setting up these kinds of trust so that you can get the best advise on how to go about the process. It is best to safe, especially since your future is what’s at stake.

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