Trusts and Estates Blog

What responsibilities will I have as a trustee?

The most important thing to remember when you step in as trustee is that these are not your assets. You are safeguarding them for others: for the grantor (if living) and for the beneficiaries, who will receive them after the grantor dies.

As a trustee, you have certain responsibilities. For example:

• You must follow the instructions in the trust document.

• You cannot mix trust assets with your own. You must keep separate checking accounts and investments.

• You cannot use trust assets for your own benefit (unless the trust authorizes it).

• You must treat trust beneficiaries the same; you cannot favor one over another (unless the trust says you can).

• Trust assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.

• You are responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires.

Summary of Living Trust Benefits

* Avoids probate at death, including multiple probates if you own property in other states
* Prevents court control of assets at incapacity
* Brings all your assets together under one plan
* Provides maximum privacy
* Quicker distribution of assets to beneficiaries
* Assets can remain in trust until you want beneficiaries to inherit
* Can reduce or eliminate estate taxes
* Inexpensive, easy to set up and maintain
* Can be changed or cancelled at any time
* Difficult to contest
* Prevents court control of minors’ inheritances
* Can protect dependents with special needs
* Prevents unintentional disinheriting and other problems of joint ownership
* Professional management with corporate trustee
* Peace of mind

©1989-2010 by Schumacher Publishing, Inc.

Make Gifts to Reduce Your Estate

One thing you can do to save estate taxes, whether you are married or single, is to start giving away some of your assets now to the people or organizations who will eventually receive them after you die.

This is an excellent way to reduce estate taxes because you are reducing the size of your taxable estate. (Just make sure you don’t give away any assets you may need later.) But what may be even more satisfying is that you can see the results of something that may not have happened without your help.

You can currently make annual tax-free gifts of up to $13,000 per recipient. If you are married, you and your spouse together can give $26,000 per recipient per year. (You can either give $13,000 each, or one spouse can make a $26,000 gift with the consent of the other spouse on a timely-filed gift tax return.) You can also give an unlimited amount for tuition and medical expenses if you make the gifts directly to the educational organization or health care provider.

You do not have to give cash. For example, if you want to give some land worth $52,000 to your child, you can give your child a $13,000 “interest” in the property each year for four years.

As long as the gift is within these limits, you don’t have to report it to Uncle Sam. Just the same, it’s a good idea to get appraisals (especially for real estate) and document these gifts in case the IRS later tries to challenge the values.

What if you want to give someone more than $13,000? You can, it just starts using up your $1 million federal gift tax exemption. If your gift exceeds the annual tax-free limit, you’ll need to let Uncle Sam know by filing an informational gift tax return (Form 709) for the year in which the gift is made. After you have used up your exemption, you’ll have to pay a gift tax on any gifts over $13,000 (or whatever the annual tax-free amount is at that time). The gift tax rate is equal to the highest estate tax rate in effect at the time the gift is made. In 2009, it is 45%.

Making gifts now can reduce your estate taxes later.

Note: The amount allowed for annual tax-free gifts has been tied to inflation since 1999. However, it will only increase in increments of $1,000 and it will be rounded down instead of up. So, for example, if adjustments for inflation would increase the amount to $13,999, it would remain at $13,000.

Pay The Tax Now – And Save

Remember, once your federal gift tax exemption is completely used, you will have to pay a gift tax if you make any taxable gifts (currently, those more than $13,000) while you are living. Or, you could wait until after you die and have your estate pay an estate tax. (If the transfer is made while you are living, the tax is a gift tax; if the transfer occurs after you die, the tax is an estate tax.)

The tax rate is the same, whether you pay it now or after you die. But it costs you less to pay the gift tax now than to pay the estate tax after you die.

As explained in Part Three of “Understanding Living Trusts,®” after you die, taxable gifts you have made since 1976 are added back into your estate before estate taxes are calculated. (This is so Uncle Sam can calculate your estate taxes at the highest tax rate.) The amount you have paid in gift taxes is then subtracted from the estate taxes due. (Think of the gift tax as a prepayment of the estate taxes you will owe.)

But the amount you’ve already paid in gift taxes is not in your taxable estate when you die. You’ve already paid it to Uncle Sam. Making the gift now lets you forever remove the amount paid in gift tax from your taxable estate.

If, on the other hand, you keep the asset in your estate until you die, the amount you would have paid in gift taxes is still in your estate. This makes your taxable estate larger and increases the amount of estate taxes your estate will have to pay. Keeping the asset in your estate until after you die forces you to pay estate taxes on the amount you would have paid in gift tax. In effect, you’re paying a tax on the tax!

This is best explained with an example. Let’s assume you have completely used your federal gift tax exemption through prior gifts and, as a result, you are now in a 45% gift and estate tax bracket.

If you give your children $1 million as a gift (while you are living), the gift tax will be $450,000 ($1 million times .45 = $450,000). You, the donor, pay the gift tax. So your children would receive the full $1 million, and an additional $450,000 would be removed from your taxable estate to pay the gift tax. In other words, it would cost you $450,000 to give your children $1 million.

If, on the other hand, you wait until after you die, it would take $1,818,182 to leave them $1 million (45% of $1,818,182 = $818,182 in taxes, leaving a net of $1 million for your children). That’s $368,182 more than if you gave them the $1 million while you were living!

Which Assets Are The Best To Gift?

It can be especially smart to give away assets that are appreciating in value, because any income and appreciation that occur after the gift is made are also removed from your taxable estate.

But you also have to look at the estate tax savings compared to what the recipient may have to pay in capital gains tax if the asset is later sold. Remember, when you give away an appreciated asset, it keeps your original cost basis (plus any gift tax paid). And if the recipient decides to sell it, he/she will have to pay capital gains tax on the difference between the selling price and what you paid for it.

If, on the other hand, you don’t give it away and it stays in your estate, the asset will receive a full step up in basis as of the date of your death (saving capital gains tax on the subsequent sale of the asset). But, depending on the size of your estate when you die, there may be estate taxes. So it’s a trade off.

Currently, the maximum federal long term capital gains rate (for assets held longer than 12 months) is 15%, while the estate tax in 2009 is 45%. But it isn’t always better to give away an asset and let the recipient pay the lower capital gains tax. Among other things, you have to consider what you paid for the asset, what it’s worth now, what you think it will be worth when you die and if the recipient plans to sell or keep it.

Making Gifts From Your Living Trust

You may have heard that you should remove an asset from your living trust before making the gift. For example, if you wanted to give your son a $5,000 gift in cash and your checking account is titled in the name of your trust, you would make the check payable to yourself, cash it, then make the gift in cash or use a cashier’s check.

That’s because, in the past, if the grantor died within three years of making a gift directly from his/her living trust, the IRS tried to include the gift – -even annual tax-free gifts — in the grantor’s taxable estate.

You don’t have to play this shell game anymore. Gifts made directly from a revocable living trust are now considered the same as if they were made directly from you, even if they are made within three years of your death.

Antelope Valley Estate Planning Law Firm Thompson Von Tungeln Advises California Residents to Review Their Power of Attorney Options

Antelope Valley estate planning law firm Thompson Von Tungeln advises California residents to review the different power of attorney options available to them. The power of attorney options include the General Power of Attorney, the Durable Power of Attorney, the Non-Durable Power of Attorney, and an Advanced Health Care Directive. Each has its uses, and a combination of them is essential to good estate planning.

Lancaster, California (PRWEB) January 5, 2010 — Antelope Valley estate planning law firm Thompson Von Tungeln recommends that California residents review the different power of attorney options available to them as part of their estate planning process.

“There are a number of different types of power of attorney vehicles available for use in estate plans,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “Each type has its uses, and can provide protection in the event of incapacitation. You should consult with your estate planning attorney to determine, which, if any, are necessary for your estate plan.”

A General Power of Attorney designates a person to handle the business, financial and legal affairs of another person, either for a specific function or for overall day-to-day needs. This basic estate planning document is necessary in the event you become incapacitated or unable to make decisions for yourself. A Durable Power of Attorney comes in two forms for estate planning purposes. It can be effective immediately or upon disability. Estate planning attorneys utilize the Durable Power of Attorney to designate someone to make financial, housing and other care decisions for someone who can no longer make them for his or her self.

An Advanced Healthcare Directive is an estate planning document that allows you to designate someone to make medical decisions on your behalf. Your estate planning attorney can help you include your wishes on life-saving measures, end-of-life care, organ donation and choice of a physician into your directive. Another, less commonly used vehicle is the Non-Durable Power of Attorney.

“The time to review these with your estate planning attorney is when you are healthy and in the process of creating your estate plan,” said Von Tungeln. “Directives that are signed when a person is seriously ill are prone to being challenged in court if one of your loved ones believes you were not of sound mind and body when you signed the Power of Attorney form. Your estate planning attorney can review your options on which of these Power of Attorney forms to include in your estate plan.”

How Should You Hold Title to Real Estate?

family in front of homeYour home is probably the most valuable asset you own. Yet most people don’t think about how to hold title until the title company poses the question when you buy or refinance. But this deserves careful consideration, because how you hold title to real estate has far-reaching effects. Let’s look at some common ways to hold title.

Individual Name: You can hold title in just your name even if you are married. However, there are some drawbacks you should know about.

First, what would happen if you become mentally or physically incapacitated due to illness or injury and the property needs to be refinanced, or a line of credit needs to be opened or increased? If you are unable to conduct business, the court will need to appoint someone to act for you.

“But, I have a will,” you say. A will can’t help; it only goes into effect after you die, not if you are incapacitated.

“But, I have a power of attorney,” you say. Most powers of attorney end at incapacity. A durable power of attorney is valid at incapacity. However, many financial institutions will not accept one unless it is on their form. And if accepted, it may work too well, giving the person the ability to do whatever he or she wants with your assets. You could recover to find the property mismanaged or even sold and the proceeds gone.

The court’s job is to provide supervision to protect your assets. But once the court gets involved, it will stay involved until you recover or die. The court, not your family or friends, will control how your assets are used to care for you. It is a public process that can be expensive, embarrassing, time consuming and difficult to end if you recover.

Next, what happens when you die? If yours is the only name on the title, the property will almost certainly have to go through the probate court system before it can be distributed to your heirs, even if you have a will. Think about it: if your name is the only one on the title, and you have died, you can’t sign your name to transfer title. While there can be exceptions, in most cases the only way to remove your name and put the new owner’s name on is through the probate court.

Joint Tenants with Right of Survivorship: This is how most married couples hold title, because it seems fair, it’s easy and it’s free. Parents and their adult children also often hold title this way, as do unmarried couples.

Indeed, when one owner dies, full ownership does transfer automatically to the surviving owner without probate. But usually this just postpones probate. If the surviving owner dies without adding another owner (which often happens), or if both owners die at the same time, the property will almost certainly have to go through probate before it can go to the heirs.

There are other problems, too. When you add a co-owner, you lose control. With real estate, all owners must sign to sell or refinance. If your co-owner disagrees with you, you could end up in court. If your co-owner is incapacitated, the court will probably get involved to protect your co-owner’s interest…even if the ill owner is your spouse.

You expose the property to your co-owner’s debts and obligations; you could even lose your home to your co-owner’s creditors if he or she is successfully sued. There could also be gift and/or income tax problems if your co-owner is not your spouse.

Finally, because a will does not control jointly owned assets, you could disinherit your family when your co-owner inherits your share. Sadly, and all too often, children from a previous marriage are disinherited when a new spouse is the surviving owner.

Tenants-In-Common: With this kind of ownership, each owner’s share will be distributed as directed in his or her will. If there is no will, the property will go to the owner’s heirs.

Community Property: Nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) have a form of joint ownership between spouses commonly called community property. When you die, your share of community property automatically goes to your surviving spouse, unless your will says otherwise.

The problem with both tenants-in-common and community property is that you could find yourself with several new co-owners when your co-owner dies and the heirs inherit the property. Imagine how difficult it could be to get several owners to reach an agreement, especially if you are trying to sell the property.

You can also run into the other problems (incapacity, lawsuits, etc.) as explained under joint tenants with right of survivorship, but with several owners involved, your risks and problems are multiplied.

Tenants-by-the-Entirety: This form of joint ownership, available between spouses in some states, is similar to joint tenants with right of survivorship in that when one spouse dies, his/her share automatically goes to the surviving spouse, even if the will says otherwise. So you have many of the same risks, including unintentional disinheriting and court interference if one spouse becomes incapacitated.

However, as tenants-by-the-entirety, neither spouse can transfer his/her half to someone else without the other’s approval – something joint tenants with right of survivorship and tenants-in-common can both do.

Revocable Living Trust: When you have a living trust, the title of your real estate can be held in the name of the trustee of your trust. Usually you will be your own trustee, so you keep full control of the property. You can buy, sell and refinance real estate just as you can when the property is not in your trust.

If you become incapacitated, the successor trustee you named when you set up your trust will be able to step in and act for you. Because the title is no longer in your individual name (or joint names if married), there will be no need for court interference. (If you are married, you and your spouse can be co-trustees, in which case your successor trustee would step in only after you have both become incapacitated or have died.)

Your successor is legally obligated to follow the instructions you put in your trust. If you recover, your successor simply steps aside and lets you resume control. When you die, the property will be distributed without probate according to the instructions in your trust, so you don’t have to worry about unintentionally disinheriting someone.

SUMMARY: How you hold title to real estate should be given careful consideration. Check your titles and make any changes now while you can.

If you would like more information concerning holding titile to real estate, or any other aspect of estate planning, visit today. is a comprehensive online resource for estate planning and related issues. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve clients with the creative, effective and custom solutions they demand.

Business Owners: Have You Planned Your Exit?

You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?

According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.

Who could take over your business? You may have more choices than you think.

Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.

Depending on your financial needs, you can gift and/or or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.

Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.

Business partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.

Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.

How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.

Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.

A good business succession (exit) plan should also provide for the possibility of a long-term illness or disability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.

“Make this go away”: Corporate America’s New Take On Litigation

August 17, 2009 | This was first posted By Patrick J. Lamb | His blog is at

“Make this go away”: Corporate America’s New Take On Litigation

The online version of National Law Journal contains an interesting analysis of the impact the recession is having on how corporate America looks at litigation. In For Litigators, A Different Kind Of Recession,author Karen Sloan analyzes various data and surveys and reaches some interesting conclusions. Here is the critical part for me:

A survey of general counsel by Altman Weil, which is owned by The National Law Journal’s parent company, in late 2008 found that 75% of general counsel had their budgets cut in 2009. The average decrease was 11.5%. “It’s not down 2 or 3%. It’s double digits,” said Susan Hackett, senior vice president and general counsel for the Association of Corporate Counsel. “They can’t afford litigation. There’s a real sense of, ‘Make this go away quickly and quietly.’ ”

Hackett has observed a greater reluctance by companies to initiate litigation or defend themselves in court. Instead, they are “looking to apply the least expensive Band-Aid” to their legal problems. “I’m seeing a greater focus on saying, ‘We will try to make you whole somehow. What can we do? What do you want?’ Sometimes money isn’t the ultimate goal,” Hackett said.

Hackett’s point was echoed by Peter Sloane, a litigation partner at Cahill Gordon & Reindel in New York: “I see clients who are much more focused on the cost-benefit analysis before starting litigation. There’s a much greater emphasis on thinking outside the box in approaching legal disputes.”

About time. I am left to wonder what the hell people were thinking about before. Did they think litigation was like Madden NFL 2010, some computer game to play to satisfy some competitive urge?

Litigation should always be the very last resort. You are taking a business problem and asking someone else to solve it for you. “Hey you, dude on the street, solve this problem for me.” We call that dude a judge. And sometime we don’t trust the one dude, so we go even further and look for 12 (or 6) perfectly average strangers with no special skill or expertise to decide how to solve a problem. We call those strangers jurors. This form of problem-solving is very costly, and places a tremendous load on the gladiators who stand in front of the dude or strangers.

I am a lawyer whose favorite part of being a lawyer is trying cases. But having stood in the well so many times and looked into the eyes of so many dudes and strangers (by the way, dude is not gender specific), I have come to know that trials represent, in many but not every case, a fundamental failure of imagination. It’s good to know that the economy appears to have stimulated imaginations so that businesses are finding ways to solve problems in different ways.

Mentally disabled seniors suffer in group home prison camp

SAN BERNARDINO, Calif. (KABC) — Authorities in San Bernardino uncovered what are described as prison camp conditions at a group home. Investigators say seniors, some mentally disabled, were abused, crammed into chicken coops and forced to go to the bathroom in buckets.

Authorities say the facility was an illegal adult group home that was not licensed by the city or the state.

The home owner, 61-year-old Pensri Sophar Dalton, was arrested Friday. She’s accused of forcing mentally ill adults to live in prison camp-like conditions; housing them in converted chicken coops with razor wire fences surrounding the facility and padlocked gates.

City Attorney James Penman says 22 people were living in three dilapidated buildings – none of them with indoor plumbing. He says residents used buckets as toilets.

“The house has been converted. We believe there may be some illegal conversions in the bedrooms. People were living in rooms as small as 6 to 15 feet, two beds and a mattress to the room,” said Penman.

He says the conditions were amongst the worst he’s ever seen.

Dalton was charged with 16 counts of causing harm to elderly adults. She was booked at the West Valley Detention Center, where she remains in custody.

“I was wondering if that’s illegal or not ‘cuz that comes over on our property too and it’s razor wire like they use in prisons,” said Kevin Milner, a neighbor.
The facility has been shut down. A city attorney investigator says most of the 22 residents were picked up by family members or taken to licensed care facilities.

Watch the video here:

How can we make sure this doesn’t happen to us or our parents?

(1) Make sure an estate plan is in place, and that the plan names who will take care us or our loved ones if incapacity strikes.

(2) Make sure the person given the authority to determine where you or your loved one lives is the correct person to do the job. Making sure the right person is: (a) paying your bills; and (b) determining where you live is the most important decision you will make regarding your estate plan. Don’t pick a child just because they are your child, and don’t pick a neighbor just because they are your neighbor. Watch closely how a person conducts their own affairs and how they treat other people. If the person you want to pick doesn’t treat others with respect, odds are they won’t treat you well, especially if you are incapacitated.

(3) Finally, consult a competent attorney to review your selections with you. An attorney who specializes in this area will be able to give you their experience and wisdom on picking the right person so that you don’t end up living in a chicken coop when you can’t speak for yourself.

I’m not dead yet! Why do I need Estate Planning? Part 2

You may be under the assumption that a durable power of attorney will prevent the court’s involvement at incapacity- A durable power of attorney lets you name someone to manage your financial affairs if you are unable to do so. However, many financial institutions will not honor one unless it is on their form – even though such a requirement is against the law. And, if accepted, it may work too well — giving someone a “blank check” to do whatever he/she wants with your assets. Court action could be needed to stop someone from abusing their authority. A power of attorney can be very effective when used with a living trust, but risky when used alone. Under either scenario, your agent could end up going to court to get the necessary authority to handle your affairs.

More information on “Power of Attorney”- A power of attorney is a document that allows you to appoint a person or organization to handle your affairs while you’re unavailable or unable to do so. The person or organization you appoint is referred to as an “Attorney-in-Fact” or “Agent.” A “Durable” Power of Attorney – makes it so that the general, special and health care powers of attorney can all be made “durable” by adding certain text to the document. This means that the document will remain in effect or take effect if you become mentally incompetent.

Another important part of your estate planning should include an “advance health care directive”- which lets your physician, family and friends know your health care preferences, including the types of special treatment you want or don’t want at the end of life, your desire for diagnostic testing, surgical procedures, cardiopulmonary resuscitation and organ donation. By considering your options early, you can ensure the quality of life that is important to you and avoid having your family “guess” your wishes or having to make critical medical care decisions for you under stress or in emotional turmoil.

In considering this it is important to understand the HIPAA Privacy Rules-
HIPAA provides federal protections for personal health information held by medical entities and gives patients an array of powerful privacy rights with respect to that information. HIPAA’s privacy protections are so powerful that they interfere with estate planning. As a result, you need to give your loved ones a written HIPAA authorization that gives them access to your medical records.

I’m not dead yet! Why do I need Estate Planning? – Part 1

Although Estate Planning is generally thought of in the context of what happens after your death, there are several instances when comprehensive Estate Planning can be crucial while you are still alive.

If you can’t conduct business due to mental or physical incapacity (Alzheimer’s, stroke, heart attack, etc.), and you do not have a comprehensive estate plan, only a court appointee can make decisions for you – even if you have a will. (Remember, a will only goes into effect after you die.) In California, this is known as a conservatorship. Once the court gets involved, it usually stays involved for the rest of your life and the court, not your family, will ultimately control how your assets are used to care for you. This public court process can be expensive, time consuming and is very difficult to end. It does not replace probate at death, so your family may still have to go through the court system twice! Once for a conservatorship, and the second time to probate your estate.

A comprehensive Estate Plan in California has four documents that assist you while you are alive but incapacitated. A Trust, a Durable Power of Attorney, an Advanced Health Care Directive, and a HIPAA authorization are all very important documents that you need in order to keep your affairs out of court while you are alive.

A Trust can be a very important part of your incapacity plan. All too often, we focus on who will be the trustee of my trust after I am gone – who will pay my bills and distribute my assets? However, the vast majority of us will become incapacitated before we die. Your successor trustee (think of your successor trustee as a manager) will manage your assets that are named in your trust when you cannot manage them yourself. Financial institutions and title companies are much more comfortable working with a successor trustee than they are with an agent under a power of attorney.

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