Protecting Real Estate 91024As an estate planning attorney, I get that question all the time. And it’s a great question. You definitely want to make sure you hold title to your home correctly. Why?

If titled incorrectly:

  1. The home owner cannot control what happens to the property after s/he dies.
  2. The home owner’s heirs can lose the property to creditors, the government, or even an ex-spouse.
  3. The home owner’s heirs will have to pay capital gains tax on the sale of the property.
  4. The home (and the heirs) will have to endure the public, time-consuming, and very expensive probate process.

Common Ways to Hold Title

  1. Joint Tenancy (JT): Under JT, the owner who dies first cannot control what happens to the property after his or her death. JT ensures there will be a probate upon the death of the second joint tenant. Finally, the surviving joint tenant will pay capital gains taxes on one-half of the property after the death of the first joint tenant.
  2. Tenants in Common (TIC): A TIC does not provide any survivorship rights among the co-owners. When one tenant in common dies, that tenant’s interest in the property does not automatically pass to the surviving tenants in common. And each tenant’s interest does have to pass through probate upon each of their deaths. In California, a tenancy in common is presumed unless title is specifically taken in some other way.
  3. Community Property (CP): Possibly the most common way for married couples to own property, CP causes half of the property to be probated upon the first death, and the whole property to be probated upon the second death.
  4. Community Property with Right of Survivorship (CPw/ROS): Like joint tenancy, CPw/ROS is he-who-dies-last-wins situation, because only the surviving owner controls the disposition of the property upon death.

What eliminates all these potential problems? A Living Trust.

The best way to own your property is in a living trust.

  1. Owning property in a properly drafted and funded living trust avoids probate upon the death of both the initial and surviving spouses.
  2. Property received by heirs can be sold free of any capital gains tax and often avoids property tax reassessment.
  3. The trust will ensure the right people receive the property after the death of the owners.
  4. The property can be protected from creditors, predators, and even any future ex-spouses of the heirs.

Be one of the first five callers to mention this post and I’ll research and review the title of your primary residence free of charge. You’ll learn exactly how your title it is currently held, what that means to you and your loved ones, and how you can change the way you hold title if you’re not happy with the status quo.

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

Kids Protection 91024The longer I am a part of this community, the more I appreciate all it has to offer. Last weekend was my first Halloween in Sierra Madre. My kids are 6 and 4; perfect trick-or-treating age. And let me tell you, they had a blast! I love how Sierra Madre does Halloween. It was an amazing blend of cooperation between government, businesses, and residents. And as a parent, trick or treating in Sierra Madre with my kids gave me the opportunity to watch them enjoy themselves thoroughly, encourage them to be polite and use their manners, and talk to them about the down side of overindulging in candy. All in all, a win-win-win situation!

Speaking with my children about overindulgence got me thinking about my hopes and fears for them when my wife and I pass on our inheritance to them. How did I make that leap? Well, statistics show that most individuals who inherit IRAs completely deplete them within less than two years. My wife and I, and I imagine most of you, would prefer those assets not only benefit our children, but future generations as well. I don’t want my kids viewing their inheritance as “found money” to be squandered away and blown. Yet study after study says this is what’s most likely to happen.

The good news is, there’s an estate planning tool to keep beneficiaries from overindulging and wasting that type of inheritance. A trusteed IRA is like a traditional IRA but with some of the advantages of a trust. They are designed to provide a long-term distribution plan for withdrawals to benefit more than just one generation of beneficiaries. Trusteed IRAs are less expensive than setting up a trust, though generally a bit more expensive to administer than a traditional IRA.

Trusteed IRAs are a wonderful tool for those who want to control how their IRA assets are distributed after they’re gone. With traditional inherited IRAs, the beneficiary has full say over what happens to the IRA assets he or she inherits. And since most elect to completely deplete an inherited IRA, future generations will likely never benefit.

A trusteed IRA allows the original owner to dictate how withdrawals can be made. For example, by allowing only the minimum required distribution that the IRS requires heirs to take every year, you can stretch out your IRA over multiple generations since investments grow tax-deferred (traditional IRA) or tax-free (Roth IRA).

I don’t want my kids to be one of the statistics. I hope they respect what my wife and I are leaving them and work to grow those assets so they can pass an inheritance on to their own children. If you feel the same, let’s get together and talk.

To you family’s health, wealth, and happiness,
Signature - Marc

estate planning 91024A recent U.S. Supreme Court decision changes the way inherited IRAs are viewed when it comes to bankruptcy, which means those who inherit these retirement account assets must find new ways to protect that inheritance.

In Clark v. Rameker, Heidi Heffron-Clark inherited an IRA from her mother. She received distributions from that inherited IRA for several years before filing Chapter 7 bankruptcy. Ms. Heffron-Clark relied on the Bankruptcy Code, which states that IRAs are exempt up to $1.245 million from bankruptcy, to claim her inherited IRA qualified for the retirement account exemption.

In a unanimous ruling, the Supreme Court disagreed, distinguishing inherited IRAs from other IRAs established by an individual for his or her own retirement. Because the beneficiary of an inherited IRA cannot make contributions to that IRA, an inherited IRA does not provide any tax incentives, which is an important purpose of other IRAs. Since the beneficiary of an inherited IRA has different rules for taking distributions than other IRA owners, this also establishes inherited IRAs as different from other IRAs. These differences, the Court reasoned, are enough to disqualify an inherited IRA from qualifying for the federal bankruptcy exemption.

Even though some states offer protection for inherited IRAs in bankruptcy, a move to another state that does not offer this protection can endanger inherited IRA assets. IRA owners who wish to provide their heirs with valuable protection should consider naming a trust as beneficiary of IRA assets instead of heirs, who could instead be designated as beneficiaries of that trust.

The Court did not address spousal inherited IRA beneficiaries; however, since a spouse is allowed to roll over an inherited IRA into his or her own account, this may qualify a spousal inherited IRA for the bankruptcy exemption for retirement funds.

Keep this in mind as you plan for the safe, successful transfer of your assets to the next generation.

To you family’s health, wealth, and happiness,
Signature - Marc

williams estate planning 91024One of the most eloquent responses to Robin Williams’ death came from his best friend Billy Crystal, who posted on Twitter simply: “No words.”

When someone close to us dies — especially in a sudden and tragic way — the grief is so deep that we truly don’t have words to describe it. And while Robin Williams may have lost the battle to take care of himself, it appears that he did take care of his family through various estate planning strategies that will at least spare them the pain and cost of a public probate court proceeding.

According to a Forbes article following Williams’ death, Williams had significant real estate holdings including a 653-acre Napa Valley estate and a waterfront home in Tiburon, California. The Napa Valley estate has been for sale since April with a price tag of $29.9 million; the Tiburon home has been valued at $6 million.

Both properties are held in the name of a real estate holding trust, which can remove the value of the properties from Williams’ estate and result in significant estate tax savings for his family.

Williams also set up a trust for his three children that splits the assets into equal distributions for each child once they reach the ages of 21, 25 and 30. This trust was established during his 2009 divorce from his second wife.

This is the one place Williams could have done better. Leaving assets to children outright when they reach specific ages is a common strategy of many estate planning attorneys, but it isn’t always the best strategy. Instead, Williams could have left the distributions in lifetime asset protection trusts that his children would have controlled as co-trustees, and then as they got older, sole trustees. This would have protected the trust assets from lawsuits, divorce, bankruptcy or any other type of creditor and future estate taxes, for generations to come.

While most of us do not have the wealth that Robin Williams enjoyed during his lifetime, we can all protect what we do have and ensure it passes to our loved ones using many of the same estate planning devices Williams did. For example, a trust allows our assets to pass outside of probate so our families will not have to endure a court proceeding or have assets frozen during the probate process. This can be a lifeline for grieving families in trying times.

One of the main goals of my law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generations. If you’d like to give your family the gift of a lasting legacy of love and financial security, call my office today so we can schedule a time to sit down and talk about your specific situation, needs, and goals.

All the best to you and your family,
Signature - Marc

Protecting Real Estate 91024If you own real estate, chances are you have purchased insurance to protect the property against damage or loss. But have you taken the necessary steps to protect your assets against lawsuits or probate?

If you own rental properties, there is likely a nagging fear in the back of your mind about being sued by one of your tenants. And if there isn’t, there should be. It’s a major risk.

And while it may be heartbreaking to think about, there is always a chance your death could trigger a family feud over your home, vacation home, or other real estate investments.

Two common estate planning tools for real estate asset protection include limited liability companies (LLCs) and trusts:

The LLC. If you have income-producing property, then an LLC probably makes sense for you, since it shields your personal assets from lawsuits or claims that result from your ownership of the real estate. LLCs may also offer owners privacy since the property can be listed in a company name, not in your name directly. However, you must be sure you maintain the LLC properly so the planned for protections remain intact. It’s not too difficult to accomplish that though, especially with the help of counsel.

The Trust. If you own property that you do not rent out on a regular basis, then a trust may be a better choice for you. There are several options: a Qualified Personal Residence Trust (QRPT) is an irrevocable trust (meaning it cannot be changed without the consent of the beneficiaries) that allows an owner to use the property for a fixed term, and then pass the property on to heirs. This is a commonly used structure to reduce the size of your estate for estate tax purposes.

A revocable trust (which can be changed without consent of the beneficiaries) is more flexible and, if you choose a dynasty trust, can last for multiple generations. The major benefit of the revocable trust, besides control of what happens to the assets after the death of the grantors, is that it keeps your assets out of the hands of the Court after your death, and totally within the control of your family.

You can also use a combination of LLCs and trusts to protect real estate assets if you have a combination of primary residence and rental properties. We can help you determine the best course of action for your individual circumstances.

Call my office today to schedule a time for us to sit down and talk about your situation, where we can identify the best strategies for you and your family to ensure you leave a legacy of love and financial security, no matter what.

Asset Protection 91024The perfect gift for your child or grandchild on the occasion of their birth, Bar or Bat Mitzvah, Sweet 16 or Quinceañera cannot be found in any store. Instead, the hopes and wishes you have for your child’s (or grandchild’s) future can best be expressed with a gift of security, resources and a foundation of love – the establishment of a wealth creation trust.

When a new child is welcomed into the family or a child turns 13 , 16, graduates from college or has another milestone event, it is not uncommon for grandparents or other family members to want to give that child a monetary gift.

In most cases, a check written to the parents, or perhaps to the child, and put into a custodial account at the bank. The problems with this type of gifting are several:

1. Often, the parents cash the check, commingle the funds into the family accounts, and even though intentions are good, the child never gets to see the benefit (you’d be surprised how often this happens);

2. The money is put into a custodial account, the child accesses the account at 18 (or perhaps 21) and uses it to buy a car, fund a backpacking trip, or even buy a house; but the decision about how to utilize the money is made without thought or foresight for the future and oftentimes the money is squandered;

3. The money is used to pay for college, counting against the child for purposes of financial aid, effectively squandering the money;

4. The money is used by the child after he or she is married, commingled with the assets of a spouse and lost in a divorce, squandered.

But, there is a far better way, which is good for your family members who want to make gifts, good for you as the parents of your child, good for your child, and great for the world.

Establish a Wealth Creation Trust for your child (or grandchild) as a birthday (or birth) gift and let everyone in your family know that all gifts for the child should be made out to the Trustee of the [Name of Child} Wealth Creation Trust.

Then, when your child gets to be an age specified in the Trust, he or she can step into the role of Co-Trustee, learning how to operate the Trust and best utilize the funds in the Trust. He or she will be trained on the best types of investments for the Trust (my recommendation is first and foremost self-care, well-being programs and entrepreneurial training for the child, and then one or more entrepreneurial ventures the child is involved in) which have the possibility of doing a lot of good in the world and earning a healthy return on investment in the form of appreciation and purposeful, aligned work by the child.

Your child will learn the purpose of the Trust (to encourage the creation of wealth from one generation to the next, rather than the squandering or wasting of assets); how to protect it (keep the investments in the name of the Trust, regardless of how funds are used, so always title investments properly and sign on behalf of the Trust); and how to create more wealth in the future using the Trust assets.

Now, the gift you created when your child was just born, or achieved a specific life milestone becomes not just a vehicle of financial security, but education and impact for a lifetime and beyond.

Gifts up to $14,000 per year (in 2014) per person can be made into such a Trust for your child without the need to file a gift tax return.

If you would like to learn more about how to establish a wealth creation trust to secure the financial future of your children, grandchildren and beyond while encouraging and educating them to create more wealth in the world (rather than squandering what you’ve worked so hard to create), contact my office for a Family Wealth Planning Session.

money3Asset protection is not at the forefront of most people’s minds. Most of us spend the majority of our time working to accumulate assets rather than considering the importance of protecting what we have. A recent article on The Motley Fool notes there are many things that can harm an investor more than a big return on an investment can help, and recommends we take the following four steps to protect our assets:

Get the right insurance coverage. Life insurance, disability insurance, auto insurance, homeowners insurance, health insurance and long-term care insurance all help protect your financial security by shifting the burden of an accident or unplanned event to your insurance company. This mitigates your risk.

Delay Social Security benefits. One of the major benefits of Social Security is that it is one of the few sources of revenue that can withstand inflation and downturns in the stock market. Delaying benefits at least until you are at full retirement age — and up to age 70 if possible – will maximize your payout and that of a surviving spouse.

Have an estate plan in place. Creating an estate plan helps you provide for your family after you are gone in the most tax-advantaged way. Use tools like trusts to minimize taxes while avoiding probate, allowing you to pass assets automatically to your heirs without added expense, time, and court involvement. Another important aspect of estate planning is assigning powers of attorney and drawing up an advance medical directive so your wishes are respected when it comes to your own health care.

Choose the right structure for your business (if applicable). If you own a business, choosing the right business structure for personal liability protection and taxation can dramatically affect your financial circumstances.

If you would like guidance and counsel on protecting your wealth, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.