Understanding Life Insurance Trusts: Can I be my own trustee?

This is part 2 of the blog series discussing life insurance trusts and estate taxes

6. What if my estate is larger than this?

 I) If the trust buys the insurance, it will not be included in your estate. So the proceeds, which are not subject to probate or income taxes, will also be free from estate taxes.

II) Insurance proceeds are available right after you die. So your assets will not have to be liquidated to pay estate taxes.

III) Life insurance can be an inexpensive way to pay estate taxes and other expenses. So you can leave more to your loved ones.

7. How does an irrevocable insurance trust work?

An insurance trust has three components. The grantor is the person creating the trust – that’s you. The trustee you select manages the trust. And the trust beneficiaries you name will receive the trust assets after you die.

The trustee purchases an insurance policy, with you as the insured, and the trust as owner and (usually) beneficiary. When the insurance benefit is paid after your death, the trustee will collect the funds, make them available to pay estate taxes and/or other expenses (including debts, legal fees, probate costs, and income taxes that may be due on IRAs and other retirement benefits), and then distribute them to the trust beneficiaries as you have instructed.

8. Can I be my own trustee?

Not if you want the tax advantages we’ve explained. Some people name their spouse and/or adult children as trustee(s), but often they don’t have enough time or experience. Many people choose a corporate trustee (bank or trust company) because they are experienced with these trusts. A corporate trustee will make sure the trust is properly administered and the insurance premiums promptly paid.

9. Why not just name someone else as owner of my insurance policy?

If someone else, like your spouse or adult child, owns a policy on your life and dies first, the cash/termination value will be in his/her taxable estate. That doesn’t help much.

But, more importantly, if someone else owns the policy, you lose control. This person could change the beneficiary, take the cash value, or even cancel the policy, leaving you with no insurance. You may trust this person now, but you could have problems later on. The policy could even be garnished to help satisfy the other person’s creditors. An insurance trust is safer – it lets you reduce estate taxes and keep control.

For additional questions on life insurance trusts and estate taxes, please contact our Estate Planning Lawyer in Woodland Hills, Ca today.

6 Tips on How to Handle the Responsibility and Potential Liability of Being a Trustee (Part 2) by Rob Cohen

Here are the additional tips continued from “BEING A TRUSTEE IS A THANKLESS JOB: Six Tips on How to Handle the Responsibility and Potential Liability (Part 1)” that might help make your trustee-ship progress more smoothly.

4) Examine the inventory. It is not uncommon for people to set up trusts and then do nothing, assuming that since the documents have been signed the trust is effective. This is not accurate; not only must the trust document be executed, but then the assets must be transferred into the trust, (you must “fund the trust”). Failure to fund the trust is especially common with do-it-yourself websites and computer programs; people mistakenly believe that just having a trust is sufficient. Before a trustee can administer the trust, he or she needs to have assets to administer. When examining the assets, here are some action items to consider.

• If the decedent had a safe deposit box, take possession of it and its contents.
• Consult with banking institutions in the area to find all accounts of the deceased.
• Check for cash and other valuables that may be hidden around the home.
• Locate and inventory all real estate deeds, mortgages, leases, and tax information.
• Provide immediate management for rental properties.
• Locate all household and personal effects and other personal property in order to inventory and protect them.
• Collect all life insurance proceeds payable to the estate.
• Find and safeguard all business interests, valuables, personal property, and important papers.

Ultimately, do your best to make sure that the trust’s assets are actually in the trust. If you identify assets that were not transferred to the trust, ascertain whether they should have been.

5) Take emotion out of the equation.In many situations you can be asked to be a trustee for clients, parents, brothers, sisters, and other family members or friends. When the emotional ties are close, you cannot play favorites. As a trustee you have a huge responsibility and significant exposure. Your actions will be scrutinized and challenged by those beneficiaries who feel they were treated unfairly. Your best bet to avoid personal liability is to be unbiased when dealing with trust matters. If you are not sure about your actions and whether they reflect any bias, ask your attorney.

6) Obtain adequate liability and fidelity insurance. No one is immune to lawsuits, and that includes you in your role as a trustee. To protect yourself, obtain errors and omissions insurance, which protects against claims by beneficiaries that you failed to fulfill your fiduciary duty in the management and administration of the trust. Without the protection of errors and omissions insurance, your personal assets could be “exposed” if a disgruntled beneficiary sues you. It is better to have insurance to protect you and your assets.

Being a trustee is not always an appreciated job, but it certainly is a job with tremendous responsibility. Just remember to be mindful of your duties and ask for advice when in doubt. Trusts contain valuable assets, and as dysfunctional families do not get better when someone passes away, trustees easily can become embroiled in nasty litigation. You may not be able to avoid it, but at least you’ll be able to protect yourself.

For more information on trusts, wills, probate, and the role of trustees, contact Rob Cohen at (818) 501-5800 or emal him at rcohen@ahslawyers.com.

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What if the Mobilehome Owner Dies Without a Will and No one Comes Forward on Behalf of the Deceased Homeowner?

If the homeowner dies without a will, then as the community owner, the situation is not any different than that described above. You might be presented with a “Small Estates Affidavit”. In the absence of that, a representative of the estate still needs to be appointed. The process is essentially the same as that described above in that a petition is filed with the court by the person who seeks appointment as the legal representative. And if that person is approved by the court, he or she will be issued “Letters of Administration” as discussed previously.

In the situation where you have actual knowledge that the resident has died, but no one has come forward on that person’s behalf, then complicated issues of the proper service of notices necessary under the MRL arise. The proper steps or action to take in such situation will depend on the particular factual circumstances involved. As a result, it is recommended that you specifically consult with your legal counsel about the proper course of conduct in this situation, so you as the owner, can protect yourself from potential liability.

The death of a resident can present many potential “traps” for the mobilehome community owner or manager and it is recommended that you consult with legal counsel to determine the proper steps to take so you can avoid unnecessary liability.

After all, particularly when it comes to legal expense, “an ounce of prevention is worth a pound of cure”.

This Mobilehome Blog Series was co-written by Los Angeles Attorney Doug Schreiber and San Diego Attorney Tamara Cross

To go back to the beginning of the blog series…
Death of a Resident in Your Mobilehome Community: What You Need to Know

For more information on mobilehome community law, please contact our Mobilehome Park Attorney in Los Angeles today.

What Should You (as the Mobilehome Community Owner) Request From an Heir to Protect Yourself?

As mentioned above, you might be presented with a Small Estates Affidavit which would contain certain declarations under oath about:

1. The death of the resident
2. The legal heirs
3. The value of the estate
4. Other items required by the probate code section that authorizes its use

However, if an heir has been appointed as a representative of the estate by the court, he or she will receive a document, issued by the court, described above as “Letters of Administration”. That document will, among other things, contain the signature of a judge and a stamp from the court showing it has been issued and filed. Most importantly, it will identify the individual(s) who have been given the authority by the court to act on behalf of the estate, and the powers granted to that individual.

Then, and only then, can you rest assured that you are now dealing with the proper person(s) who have the authority to act on behalf of the estate.

Continue reading …
What if the Mobilehome Owner Dies Without a Will and No one Comes Forward on Behalf of the Deceased Homeowner?

Who Should You (as the Mobilehome Community Owner) Deal With Regarding the Decedent’s Estate?

While there are an innumerable number of ways to die, when someone dies, it is either with a will (“testate”) or without a will (“intestate”). In the first instance, the dearly departed has executed a writing which identifies someone whom they want to manage their affairs upon death and what they want to happen with their property. In the latter, they have left that up to the laws of the state they are in.

From your perspective as the mobilehome community owner, the obligation to establish the death of the resident is that of the person(s) seeking to take some action regarding the mobilehome or its contents. This person(s) should be able to present you with a certified copy of a death certificate which will verify the identity and death of the resident. Depending on the county, this certificate will contain an official stamp, typically in purple ink, reflecting that it is an official record of that county.

To determine if a mobilehome is owned in joint tenancy, you can look at the Housing and Community Development (HCD) issued title of the mobilehome and it should indicate that the owners are “joint tenants.” If title is held in joint tenancy, then the verification of the resident’s death (and in some situations an accompanying “Affidavit of Death of Joint Tenant”), as well as confirming the identity of the joint tenant should be enough to establish that the individual has authority to take control over the mobilehome.

However, in the case of a supposed heir or personal representative, your inquiry does not stop upon mere verification of death. Once you have verified or established that the resident is dead, the question for you as the owner, regardless of whether the person has died with or without a will, is does that individual have authority to act or not. This would generally require an official court document, typically known as “Letters of Administration”, depending on the particular county. A possible exception to this, is something frequently referred to as a “Small Estates Affidavit”. This document, which is executed under oath, can be used in certain situations (which are specified in the probate code) and can allow for the release of personal property of the deceased pursuant to the statements in that declaration. There are specific requirements with regard to such affidavits, so it is recommended that you consult with legal counsel if you are presented with such a document.

Furthermore, the HCD allows an heir, after 40-days from the death of the resident, to fill out and file a form called “Certificate for Transfer Without Probate”. With this form, the heir signs an affidavit under oath, and if all requirements are met, the HCD will transfer title of the mobilehome into the individual’s name. Documentation reflecting that the HCD has transferred (or is transferring) title of the mobilehome to the heir/personal representation should also be suffi cient to prove authority to act.

In the absence of documents showing title has been transferred to the heir, joint tenant or personal representative, only the legally appointed representative of the estate with specific court ordered powers has the authority to act on behalf of the deceased. This includes the authority to sell the mobilehome or to enter the home and remove its contents.

Depending on the location of your community or where the resident died, the process whereby someone becomes appointed as the representative of the decedent’s estate can take several months. During that time, you as the community owner or manager, need to proceed cautiously:

1. DO NOT be persuaded into allowing family members access to the mobilehome if you have a key

2. DO NOT enter the mobilehome at their request to obtain clothing or documents

3. DO NOT sign contracts with heirs who have not presented proper documentation that they in fact have the legal authority to act on behalf of the deceased resident.

Continue reading …
What Should You (as the Mobilehome Community Owner) Request From an Heir to Protect Yourself?

Tax-Free Gifts and the Irrevocable Life Insurance Trust (ILIT) : Reducing the Estate Tax

Tax-Free Gifts

This is easy and it doesn’t cost anything. Each year, you can give up to $12,000 ($24,000 if married) to as many people as you wish. So if you give $12,000 to each of your two children and five grandchildren, you will reduce your estate by $84,000 (7 x $12,000) a year – $168,000 if your spouse joins you. (This amount is now tied to inflation and may increase every few years.)

If you give more than this, the excess will be considered a taxable gift and will be applied to your $1 million gift tax exemption. Charitable gifts are unlimited. So are gifts for tuition and medical expenses if you give directly to the institution.

Irrevocable Life Insurance Trust (ILIT)

An easy way to remove life insurance from your estate is to make an ILIT the owner of the policies. As long as you live three years after the transfer of an existing policy, the death benefits will not be included in your estate.

Usually the ILIT is also beneficiary of the policy, giving you the option of keeping the proceeds in the trust for years, with periodic distributions to your spouse, children and grandchildren. Proceeds kept in the trust are protected from irresponsible spending and creditors, even ex-spouses.

For more information on-free gifts, irrevocable life insurance trusts and reducing your estate tax, please contact our experienced Estate Planning Attorney in Woodland Hills.

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Understanding Estate Taxes: Net Value, Reduction/Elimination and Exemptions

Signing of tax exemptions for 2014 FIFA World ...

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How is the net value of my estate determined?

To determine the current net value, add your assets, then subtract your debts. Include your home, business interests, bank accounts, investments, personal property, IRAs, retirement plans and death benefits from your life insurance.

How can I reduce or eliminate my estate taxes?

In the simplest terms, there are three ways:

1. If you are married, use both estate tax exemptions

2. Remove assets from your estate before you die

3. Buy life insurance to replace assets given to charity and/or pay any remaining estate taxes

Using Both Exemptions

If your spouse is a U.S. citizen, you can leave him or her an unlimited amount when you die with no estate tax. But this can be a tax trap, because it wastes an exemption.

Let’s say, for example, that Bob and Sue together have a net estate of $4 million and they both die in 2006. Bob dies first. He leaves everything to Sue, so no estate taxes are due then. When Sue dies, her estate of $4 million uses her $2 million exemption. The tax bill on the remaining $2 million is $920,000! ($900,000 in 2007 and 2008.)

But if, instead, Bob and Sue plan ahead, they can use both their exemptions and pay no estate taxes. A tax planning provision in their living trust splits their $4 million estate into two trusts of $2 million each. When Bob dies, his trust uses his $2 million exemption. When Sue dies, her trust uses her $2 million exemption. This reduces their taxable estate to $0, so the full $4 million can go to their loved ones.

This planning can also be done in a will, but you would not avoid probate or enjoy the other benefits of a living trust.  Speak with an experienced Estate Planning Attorney in Los Angeles today to plan for your estate taxes.

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Summary of Living Trust Benefits

The Main Benefits of a Living Trust:

• 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

For additional questions about living trust, please review our blog series entitled “Understanding Living Trusts: How you can Avoid Probate, Save Taxes and More FAQ” or speak with our Living Trust Attorney in Los Angeles.

Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 4)

This is part 4 of the blog series entitled “Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ” discussing frequently asked questions about living trusts, probate, taxes and more.

What does a successor trustee do?

If you become incapacitated, your successor trustee looks after your care and manages your financial affairs for as long as needed, using your assets to pay your expenses. If you recover, you automatically resume control. When you die, your successor trustee pays your debts and distributes your assets. All this is done quickly and privately, according to instructions in your trust, without court interference.

Who can be successor trustees?

Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. If you choose an individual, you should name more than one in case your first choice is unable to act.

Does my trust end when I die?

Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the person or corporate trustee you selected, until your beneficiaries reach the age(s) you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, ex-spouses and future death taxes.

How can a living trust save on estate taxes?

If you die in 2006 and the net value of your estate (assets minus debts) is more than $2 million, federal estate taxes must be paid on the excess at a rate of 46%. If you are married, your living trust can include a provision that will let you and your spouse leave up to $4 million estate tax-free to your loved ones, saving up to $920,000 in taxes.

Doesn’t a trust in a will do the same thing?

Not quite. A will can contain wording to create a testamentary trust to save estate taxes, care for minors, etc. But, because it’s part of your will, this trust cannot go into effect until after you die and the will is probated. So it does not avoid probate and provides no protection at incapacity.

Is a living trust expensive?

Not when compared to all the costs of court interference at incapacity and death. How much you pay will depend on how complicated your plan is.

How long does it take to get a living trust?

It should only take a few weeks to prepare the legal documents after you make the basic decisions.

Should I have an attorney do my trust?

Yes, but you need the right attorney. A local attorney who has considerable experience in living trusts will be able to give you valuable guidance and peace of mind that your trust is prepared properly. In some states, qualified paralegals can now also prepare trust documents; however, they cannot give you legal advice.

If I have a living trust, do I still need a will?

Yes, you need a “pour-over” will that acts as a safety net if you forget to transfer an asset to your trust. When you die, the will “catches” the forgotten asset and sends it into your trust. The asset may have to go through probate first, but it can then be distributed as part of your living trust plan.

Is a “living will” the same as a living trust?

No. A living trust is for financial affairs. A living will is for medical affairs; it lets others know how you feel about life support in terminal situations.

Are living trusts new?

No, they’ve been used successfully for hundreds of years.

Who should have a living trust?

Age, marital status and wealth don’t really matter. If you own titled assets and want your loved ones (spouse, children or parents) to avoid court interference at your death or incapacity, consider a living trust. You may also want to encourage other family members to have one so you won’t have to deal with the courts at their incapacity or death.

For additional questions about trust law, speak with our experienced Living Trust Lawyer in Los Angeles today.

Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 3)

This is part 3 of the blog series entitled “Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ” discussing frequently asked questions about living trusts, probate, taxes and more.

Do I lose control of the assets in my trust?
Absolutely not. You keep full control. As trustee of your trust, you can do anything you could do before — buy/sell assets, change or even cancel your trust (that’s why it’s called a revocable living trust). You even file the same tax returns. Nothing changes but the names on the titles.
Is it hard to transfer assets into my trust?
No, and your attorney, trust officer, financial adviser and insurance agent can help. You need to change titles on real estate (in- and out-of-state) and other titled assets (stocks, CDs, bank accounts, other investments, insurance, etc.). Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.

Also, beneficiary designations on some assets (like insurance) should be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die. (IRA, 401(k), etc. can be exceptions.)
Doesn’t this take a lot of time?
It will take some time — but you can do it now, or you can pay the courts and attorneys to do it for you later. One of the benefits of a living trust is that all your assets are brought together under one plan. Don’t delay “funding” your trust. It can only protect assets that have been transferred into it.
Should I consider a corporate trustee?
You may decide to be the trustee of your trust. However, some people select a corporate trustee (bank or trust company) to act as trustee or co-trustee now, especially if they don’t have the time, ability or desire to manage their trusts, or if one or both spouses are ill. Corporate trustees are experienced investment managers, they are objective and reliable, and their fees are usually very reasonable.
If something happens to me, who has control?
If you and your spouse are co-trustees, either can act and have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, the successor trustee you personally selected will step in. If a corporate trustee is already your trustee or co-trustee, they will continue to manage your trust for you.

For additional questions about trust law, speak with our experienced Trust Attorney in Los Angeles today.

Continue to: Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 4)

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