Does a Dynasty Trust Make Sense for Your Family?

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living trust 91024In 2017, NBA team owner Gail Miller made headlines when she announced that she was effectively no longer the owner of the Utah Jazz or the Vivint Smart Home Arena. These assets, she said, were being placed into a family trust, therefore raising interest in an estate planning tool previously known only to the very wealthy­–the dynasty trust.

Dynasty Trusts Explained

A dynasty trust (also called a “legacy trust”) is a special irrevocable trust that is intended to survive for many generations. The beneficiaries may receive limited payments from the trust, but asset ownership remains with the trust as long as the trust is in effect. In some states, a legal rule known as the Rule Against Perpetuities limits how long a dynasty trust can last.

The rule against perpetuities is a common law concept that still applies in most states. It generally provides that a trust may not last longer than 21 years after the death of the last potential beneficiary to die who was living at the time the trust was established.

California has enacted the Uniform Statutory Rule Against Perpetuities (USRAP), which provides that a trust may last at least 90 years before the common law rule is applied. In fact, this 90-year “wait and see” approach in USRAP now applies in most other states, too.

Advantages and Disadvantages

Wealthy families often use dynasty trusts as a way of keeping the money “in the family” for many generations. Rather than distribute assets over the life of a beneficiary, dynasty trusts consolidate the ownership and management of family wealth. The design of these trusts makes them exempt from estate taxes and the generation-skipping transfer tax, at least under current laws, so that wealth has a better ability to grow over time, rather than having as much as a 40-50% haircut at the death of each generation.

However, these benefits also come at the expense of other advantages. For example, since dynasty trusts are irrevocable and rely on a complex interplay of tax rules and state law; changes to them are much more difficult, or even potentially impossible as a practical matter, compared to non-dynasty trusts. Because changes are so difficult (or impossible), the design of a dynasty trust needs to anticipate any and all changes in family structure (e.g. a divorce, a child’s adoption) and assets (e.g. stock valuation, land appraisals), decades before any such changes occur.

Is a Dynasty Trust Right for Your Family?

In the past, these kinds of trusts were usually only used by very wealthy families whose fortunes would be subject to large estate taxes. However, dynasty trusts are powerful tools for “regular” families today who which to protect estates not only from taxes, but also from divorces, creditors or the ill-advised spending habits of beneficiaries. To learn more about dynasty trusts other estate planning strategies, call our office today.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

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IRAs, Annuities and Guardianship: Providing for Your Minor Children if You Die Before They Reach Adulthood

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young-family 91024Deciding on a guardian for your minor children may very well be the most important decision you’ll make regarding your estate planning. Not only must you trust the appointed guardian to raise your children as you’d want them raised, but you also need that person to be financially responsible with your children’s inheritance. For example, if you have an IRA or an annuity that you wish to pass to your minor children, how can you ensure those funds will be used properly—especially if the person you trust most to raise your kids isn’t necessarily the best with finances?

This question is multifaceted, so let’s unravel one aspect at a time.

The Question of Guardianship

Here’s the good news: The person who raises your minor children and the person who handles their inheritance don’t have to be the same person. If necessary, you can appoint one guardian to serve each function, naming one as the guardian of the person and another as the guardian of the estate. In this arrangement, you entrust one person with your children’s assets and another with their care, while enabling each to interact with the other. This dual guardianship model gives many parents peace of mind—knowing they don’t necessarily have to risk their children’s inheritance while ensuring that they are raised according to the family’s values.

Although guardianship of the estate is an option, for many families the best strategy for financially providing for the children is to use a trust. In that case, a trustee fulfills the responsibility that would otherwise belong to the guardian of the estate. The trust assets can be released to the children or the caregiver incrementally according to age and needs. For example, the trustee could distribute money for the children’s needs until age 18 and then manage for the money until the child is a financially mature adult. Your trustee may also exercise discretion in investing and distributing the funds for the children’s support, education, etc., coordinating with their physical guardian to ensure the children’s needs are met until they come of age. This can ensure that the assets are there when they’re needed for your family.

Passing an Annuity to the Children

Annuities pay out regular income—which can make them convenient vehicles to cover ongoing expenses for minor children. If you have set up an annuity for yourself or a spouse, you can name the children as beneficiaries, or you can also name a trust for the benefit of your children. If you are still paying into the annuity at the time of death, your children may receive the balance, or you may give a trustee the option of rolling the balance into another annuity to be paid out to the children at a later maturity date. If you are already receiving annuity payments yourself, the children may simply continue receiving these payments for the remainder of the term. Depending on your annuity contract, payouts may also be made lump sum. Annuities are a very flexible financial product with many different options. If you have annuity now, or if you are considering purchasing one, bring it up with us as we work on your estate plan so we can make sure it meshes with your will or trust seamlessly.

Transferring an IRA to the Children

Individual Retirement Accounts (IRAs) are also excellent vehicles to pass along wealth for minor children’s welfare—because, unlike most annuities, they have the ability to grow over time and can provide a lifetime of financial benefit to your children.

When you name the next generation as beneficiaries on an IRA, you effectively extend the IRA’s life expectancy. While the required minimum distribution payments to the children will be smaller than they would have been for you (since, according to the IRS’s rules, they have a longer life expectancy), the account balance can remain invested for growth over time. Your financial and tax advisor can evaluate your situation to help you decide which type of IRA (Roth or traditional) is the best option for your goals. And we can work with you to set up a trust which fully protects your IRA against your child’s creditors, predators, future ex-spouses, and immature financial decision making.

Planning for the welfare of minor children after your death is neither simple nor pleasant to consider, but it’s absolutely necessary for peace of mind. Determining the right person(s) to be the guardian of your children requires careful thought, but you don’t have to sacrifice your children’s inheritance for their proper care. With the right financial plan, you can manage both facets successfully. As always, we’re here to provide assistance and explain your options. Call our offices for an appointment today.

Dedicated to building your wealth, empowering your family and securing your legacy,

Marc Garlett 91024

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Doesn’t Everything Automatically Go To My Spouse And Kids When I Die Anyway?

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Probate-court-hearingMany people think that if they die while they are married, the law dictates everything they own goes directly to their spouse or children. They’re thinking of state rules that apply if someone dies without leaving a will. In legal jargon, this is referred to as dying “intestate.” In California’s case, the specifics will vary depending on the type of property held and the number of children you have, if any. However, the general rule is that your spouse will receive a certain share and the rest will be divided among your children.

Now that may seem like, “So far, so good,” right? Your spouse is getting an inheritance and so are the kids. But wait. Here are some examples of how the intestacy laws can – and do – fail many common family situations.

First off, if both parents of minor-aged children die intestate, then the children are almost always left without a legal guardian. Kids won’t automatically go to a godparent, even if that’s what everyone knew the parents had intended. Instead, a court will appoint someone to be the children’s guardian. In such situations, the judge may not make the decision that you, as a parent, would have made. In fact, sometimes the judge appoints the last person you would have wanted to have custody of your children.

It’s important to note that when it comes to asset division, in most cases, state intestacy law presumes that a family consists of a husband, wife, and their natural-born children. But, that’s not the way all families are structured, and things can become legally complicated for those other families quickly.

According to Wealth Management, one analysis counted 50 different types of family structures in American households – 50! Almost 18% of Americans have been remarried, and through adoption and stepfamilies, millions of children are living in blended families. The laws just haven’t kept up, and absurd results often occur for these types of families if they’ve relied on intestacy as their estate plan. For example, stepchildren that you helped raise (but didn’t legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may inherit everything from you.

Of course, with proactive estate planning, you can control your assets and essentially eliminate the risk of these crazy results.

Also, keep in mind that intestacy provides no asset protection or preservation benefits. Without any protections in place, an estate’s assets are vulnerable to creditors, lawsuits, and others who may claim entitlement to the property. These claims would take precedence over the statutory requirements for inheritance. In other words, the family won’t be first in line; they’ll be last. They’d only be able to inherit the scraps and leftovers.

The best way to safeguard and pass along what you’ve worked so hard to build is to do your own estate planning rather than leave things to the laws of intestacy. Protect yourself, your family and your assets by talking to a qualified estate planning attorney today.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024

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How to Protect Your Child’s Inheritance from a Future Untrustworthy Spouse

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Kids Protection 91024A big reason parents develop an estate plan is to provide for their children financially. It’s not the only reason. And if you’ve heard me talk about “legacy” you know I don’t think it’s the most important reason. But it is important! Most of us want to make sure hard-earned assets, family heirlooms, or closely held businesses stay within the family. Within that context I’m often asked how to protect children’s inheritance from a future spouse in the event of untrustworthiness or divorce. It’s a thoughtful and significant question. And thankfully, there are many ways to structure your child’s inheritance to help ensure it will remain in the family for future generations. Let’s look at a few of the options.

Create a Trust
A trust involves three parties: (1) the person creating the trust (you might see this written as the “settlor,” “trustor,” or “grantor.”), (2) the person or entity holding the trust property for the benefit of the beneficiary, known as the “trustee”, and (3) the person(s) that benefit from the creation of the trust, known as the “beneficiaries.” Choosing a trustee who is independent can be a great way to eliminate any arguments that one beneficiary has more control to receive assets than what is actually provided in the trust documents than other beneficiaries, a helpful situation when you have an untrustworthy son- or daughter-in-law.

A lifetime trust is a type of trust that – as is evident from its name – lasts for the lifetime of the beneficiary and passes to the next generation of beneficiaries upon his or her death. It is commonly referred to as a “generation-skipping trust” and can also dramatically reduce or eliminate estate taxes. Assets in a lifetime trust are protected against commingling in the marriage and, therefore, cannot be pursued by a spouse. When assets are held by a trust your children – and, by extension, their spouses – cannot access these assets. Therefore, even in the event of a divorce, an ex-spouse cannot pursue them.

Use Prenuptial Agreements
In addition to creating a trust to protect your children’s inheritance from an untrustworthy spouse, your children can use a prenuptial agreement as a tool for asset protection. A prenuptial agreement is a document that details an agreement between your child and his or her spouse about the characterization of assets owned at the time of marriage and those earned after marriage. This legal document also provides the couple to agree upon the division of assets in the event there is a divorce. This may be an uncomfortable suggestion to bring up with your children, but it can be an huge benefit in the event of a later divorce.

Other Planning Ideas
Beyond the actual legal tools, it is important for you to let your wishes be known to the family. One way to do this is to have a family discussion about your estate plan, explaining your intentions and reasons as to why it is set up in this manner. Additionally, using clear language in your estate planning documents that specify the intent or purpose in leaving the inheritance to benefit descendants – and not their spouses – can further solidify your wishes are followed. Finally, choosing a trustee that is independent will keep control over the funds in the trustee’s hands and not your child’s untrustworthy spouse. This will also allow you to manage or overcome any conflict that you may not have been expecting.

Bottom Line: Be Proactive
If you wish to make sure your descendants receive a portion of your estate, discuss these intentions with your children and devise an estate plan that will guarantee this desire is fulfilled after your passing. Whether you have no estate plan, or have one that’s more than a few years old, sit down with a trusted estate planning professional to create or update this plan to suit your goals.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024

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Are You Leaving Your Retirement Account at Risk Due to Poor Planning?

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Retirement 91024You’ve spent your entire life building up your retirement account. It may even be the biggest asset you’ll leave behind for the people you love.

If that’s the case, you may want to consider creating a special trust designed specifically to receive your retirement account assets in the event of your death.

If you leave your retirement account to the people you love outright, simply by naming them as beneficiaries on your retirement account rather than through a special trust, here are the risks:

  1. Some studies indicate 80% of retirement account beneficiaries immediately liquidate the account and frivolously spend the assets (and on top of using the assets in ways you may not agree with, they also lose significant tax benefits for these assets you worked so hard to create);
  2. If your beneficiary is married and does not properly handle the retirement assets you leave behind, and then gets divorced, your hard-earned assets could end up in the hands of the future ex-spouse of your beneficiary;
  3. If you are in a second marriage situation with children from a prior marriage, you may be setting your spouse and children up for conflict after you are gone, due to the way you have planned (or not planned) for the passage of your retirement account.
  4. If your beneficiary is ever in a situation where he or she has creditors or may have to file bankruptcy, and you’ve left your retirement account to him or her without a special trust, your retirement account would go to satisfy those creditors first.

Here’s the good news, it’s not hard to protect your retirement account for your beneficiaries with the right planning. We use a variety of special trusts to ensure the retirement assets you’ve worked so hard to build up throughout your life are passed on to the people you love so they are totally protected from a future divorce, creditors, bankruptcy and so that they do not create conflict for your loved ones.

If you have a significant retirement account whose designated beneficiary is your spouse or children, or even your regular revocable living trust, call us to have your planning reviewed immediately.

Dedicated to your family’s health, wealth, and happiness,
Marc Garlett 91024

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Wearable Technology: What Does It Mean for You?

Digital Asset Protection 91024Recent headlines have been replete with data breach stories in the last few years. The number of companies and government agencies that have had their systems hacked is staggering. Names, addresses, Social Security numbers, credit card numbers, and other personal information have all been stolen by hackers from companies like Target, J.P. Morgan, Home Depot, and Sony, not to mention government agencies like the Internal Revenue Service and the United States Army.

What many people do not know is that they may be providing sensitive personal information to data miners on a regular basis through wearable technology. There is currently an explosion of activity in the development and marketing of electronic gadgets that people can wear to provide information on the go or to keep track of things.

Activity trackers are a popular item for the fitness conscious. The Apple Watch and other brands of smart watches are gaining popularity. Google briefly marketed a test version of “Google Glass,” Internet-capable eyeglasses with display technology, but it has since discontinued production. Other companies are still selling similar devices.

Many people buy and use these devices because of what they can do: measure heart rate or calories, provide reminders throughout the day, or provide progress reports on goals. What they may not realize, however, is what these devices can do without their knowledge.

Wearable technology is embedded with electronics, software, sensors, and Internet connectivity; it can therefore transfer data to others. A problem with that, according to Symantec Corporation, a major technology security company, is that one in five wearable devices moves data without encryption. That makes it easy for hackers, or even legitimate data-gathering businesses, to obtain information provided to any particular application.

Security experts say that the lack of security associated with many wearable devices puts people at risk for dangers such as identity theft, profiling, and home burglary or invasion. Most devices have location-tracking capability and can therefore allow the tracking of a person’s movements, enabling someone to know or predict where that person might be at any given time. Personal information such as name, address, and Social Security number can allow false bank transactions. Sleep tracking devices can tell a hacker when a person is asleep or awake in his or her home.

Technology and the free market moves so fast that consumers cannot assume that security and privacy are assured in the use of wearable technology. If you decide to buy wearable technology, find out whether the marketer has an accompanying privacy policy. Learn about the security of the device, especially about whether it is Internet-capable and whether it encrypts data. And be cognizant of the personal information that you input when setting up the device.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

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Is it Possible to Inherit Debt?

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Inherited Debt 91024In general, when a loved one passes, his or her debts fall to the estate to be paid. However, in situations where debt is shared — for example, jointly owned credit cards or shared student loans — the debt can pass to the account co-owner, even if he or she was unaware of the debt.

This is why it is important to consider debt planning as part of your overall estate planning process. Here are some tips on dealing with the debt of a deceased loved one:

Get informed. By law, everyone is entitled to one free credit report every year from the three major credit reporting agencies: Equifax, Experian and TransUnion. Spouses should obtain and share their credit reports with each other so they are informed about any debt issues that could impact their estates. If debt will potentially impact adult children, be honest with them about your financial situation as well.

Get advice. Seek the counsel of trusted attorney or other financial professional on your debt issues and learn how to resolve them. Deal with personal debt before it spirals out of control and becomes a potential issue for your family.

Get organized. Ideally, all of your estate and financial planning documents should be kept together in one place where your family knows where to find them. Among these documents should be an updated list of current assets and debts, including financial institution information, account numbers and passwords.

Get educated. Heirs should educate themselves about what types of debt will need to be repaid and what types may be cancelled or forgiven. Generally, any unsecured debt held in the deceased person’s name alone (such as credit cards, student loans, etc.) will be discharged. Be aware, however, debt collectors do have the right to attempt to collect on these kinds of debt — and may contact survivors to try to “guilt” them into paying. Being educated about liability for debts after the death of a loved one will arm you with the knowledge you need to respond to each situation appropriately.

If you’d like to learn about protecting yourself and your family, call us to schedule a Family Estate Planning Session so we can help you identify the best strategies to provide for and protect the financial security of your loved ones.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

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How to Avoid Probate by Properly Funding Your Trust

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probate court 91024A common estate planning mistake made by many people – including celebrities and the wealthy – is not ensuring the trust you have created actually holds all your assets. This process of transferring your personal assets into your trust is called “funding.”

Unfortunately, most lawyers do not make sure this is properly handled for their clients, so even if you’ve worked with an attorney you need to double check this critical issue. If you do not transfer your assets into your trust correctly, it is nothing more than an empty shell and will not accomplish the objectives (such as avoiding probate) you had in mind when you established it.

Here is a basic rundown of the proper procedures for funding your trust:

Real estate – a new deed in the name of the trust must be drawn and recorded at the county clerk’s office. For properties with mortgages there may be additional issues to consider so always seek legal counsel before recording a new deed.

Stocks, bonds, mutual funds – to transfer the ownership of these assets into your trust, you need to contact your broker, investment counselor or transfer agent for the proper paperwork and complete those documents as instructed.

Savings bonds – you will need to obtain a reissue form from the Federal Reserve Bank and re-title the bonds in the name of the trust.

Brokerage accounts – contact your broker for the proper forms that will enable the broker to close the existing accounts and transfer the assets into a new trust account.

Stock certificates – you will need to send a completed “stock power” form as well as a W-9 form with your tax ID number with the original stock certificates to the company’s transfer agent.

Bank accounts, CDs – new accounts will need to be established in the name of the trust. If your bank cannot transfer CDs until the maturity date, then mark them “in trust for” a beneficiary until the CDs mature and you can transfer them to the trust.

Life insurance, retirement plans – these assets cannot be owned by a living trust but it may be appropriate to name your trust as beneficiary. Seek legal counsel before changing the primary or contingent beneficiary on these types of assets.

Written confirmation – don’t just assume everything has been transferred correctly because you submitted the paperwork. Always ask for and keep a copy of a written confirmation indicating your assets have been moved into your trust.

As your partner in planning for the financial security of yourself and your family, we would never let your trust go unfunded. That’s because our concern for you doesn’t stop with the signing of your legal documents — we always follow up with clients to ensure everything has been done properly so they are fully protected.

If you’d like to learn more about how a trust might benefit you and your family, call us to schedule a Family Estate Planning Session and get educated about your options. There’s no obligation and if you mention this article there will be no fee.

To your family’s health, wealth, and happiness,

Marc Garlett 91024

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Is a Will All You Need? Probably Not

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inheritance 91024One of the most prevalent misconceptions when it comes to estate planning is that a Will is all most people need. But before you fall into this trap with your own estate plan, consider these five circumstances where a will simply doesn’t work:

Avoiding Court. To take effect, a will must go through the probate process at your death (or a conservatorship if you become incapacitated while still living), which can be lengthy and deny your heirs (or family while you are incapacitated) a quick resolution to the distribution of your estate (or the ability to pay your bills while you are incapacitated). There are also situations which complicate probate even further such as having minor children or owning property in another state.

Protecting privacy. Once a will is open to probate, it is a matter of public record and open to everyone — meaning that anyone can get access to it and learn the details on everything you owned and exactly where it is going. Wills can also contain personal information that is attractive to identity thieves.

Protecting you in case of incapacity. Since a will only goes into effect upon death, it provides zero protection for you if you should become incapacitated and no longer able to handle your own financial affairs or make decisions about your health care. If that were the case, your family would have to go through the stress and expense of petitioning the court to appoint a guardian or conservator to handle your affairs. This is costly and can even drain your entire estate. This can easily be avoided by having advance medical directives and a financial power of attorney drawn as part of your comprehensive estate plan.

Protecting your assets. Passing assets to heirs via a will does not provide any protection for those assets. Once they are distributed, they become vulnerable to a divorce actions, civil lawsuits, creditors, and even bad financial decisions by your beneficiaries. Placing your assets in a trust gives you control over how and when they are distributed, and protects them from creditors and judgments. This is one of the most powerful aspects of a living trust.

Passing real estate. When your home passes to your heirs through Probate (which it will do without a trust in place) it loses the step up in tax basis that a trust can provide. That means your heirs (who are most likely your family) will have to pay capital gains tax on the difference between the value of the home when you bought it versus the value of the home now. This can be another huge financial burden to bear on top of the already expensive cost of Probate.

See, trusts aren’t just for the wealthy because wills aren’t always the best way to protect and pass on even modest financial assets. Comprehensive estate planning should use living trusts and other legal tools to preserve your assets and make things as easy as possible on your family. Taking care of your family, after all, is really what it’s all about.

To you family’s health, wealth, and happiness,
Marc Garlett 91024

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Preserving Your Digital Legacy Just Got Easier

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Digital Asset Protection 91024As our lives become increasingly intertwined with the internet, more and more of our assets are developing in, or converting to, the digital world. We own email accounts, domain names, hosting accounts, blogs, social media accounts, cloud storage, apps, ebook libraries, and more. As such, a big part of my job is educating clients on how to preserve and manage the digital assets of their loved ones when they die or become incapacitated.

It’s no surprise Facebook also understands the emerging importance of digital assets and just released an exciting new tool to help friends and family manage the wall and profile of a deceased Facebook user. Before this change there were only two options: 1) Keep the page public, in which case anyone could post on the user’s wall, or 2) have the page “memorialized” so only “friends” of the user could post on the wall. But either way, without the user’s password loved ones could not accept new friend requests, update pictures, or pin important information on the user’s wall.

Last week, however, Facebook announced they will begin to allow a designated agent to manage a deceased user’s page, wall, and profile. From now on all Facebook user’s will have the option to choose a “legacy contact” – a family member or friend the user wants to be able to manage their account after they pass away. Alternately, a user can opt to have their Facebook account deleted immediately after they die.

This is what Facebook had to say:

Today we’re introducing a new feature that lets people choose a legacy
contact-a family member or friend who can manage their account
when they pass away. Once someone lets us know that a person has
passed away, we will memorialize the account and the legacy contact
will be able to:

  • Write a post to display at the top of the memorialized Timeline (for
    example, to announce a memorial service or share a special message)
  • Respond to new friend requests from family members and friends
    who were not yet connected on Facebook
  • Update the profile picture and cover photo

If someone chooses, they may give their legacy contact permission to
download an archive of the photos, posts and profile information they
shared on Facebook. Other settings will remain the same as before the
account was memorialized. The legacy contact will not be able to log in
as the person who passed away or see that person’s private messages.

Alternatively, people can let us know if they’d prefer to have their Facebook
account permanently deleted after death.

If you are a Facebook user, you can make a loved one your legacy contact by following these simple steps:

  1. Log into your Facebook account and open Settings.
  2. Choose Securityand then Legacy Contact at the bottom of the page.
  3. After naming your legacy contact, you’ll have the option to send them a personal message.

To you family’s health, wealth, and happiness,
Marc Garlett 91024

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