There is various tax saving strategies that can be put into that will prevent finances in an estate from being depleted. Unfortunately, many people do not understand just how much taxes can affect one’s finances in the long-term.

These strategies can be somewhat complex because every investment is taxed in a different manner. Money that’s put into a Roth IRA, a taxable brokerage account or a 401(k) will require different handling. Helping boost the after-tax investment returns, however, is still a matter that we can retain some control. This can be done by placing the right kind of investments into the correct type of accounts to reduce or eliminate tax consequences.

However, while thinking out such a strategy we still need to make certain that we are putting money away.  Tax efficiency is only one portion of long-term financial planning.  The money that we place into an IRA could grow substantially in any case.  We just wish to have the money in the IRA grow with the least number of tax consequences.

The goal in estate planning is to maximize the amount we can give away to our heirs without subjecting that inheritance to taxation or penalties.  Protecting that money can be difficult, however, and subject to a number of regulations.  

Trusts that are properly drafted can allow assets within to avoid probate.  California residents can also avoid a number of legal requirements by having these trusts set up. Still, there are legal requirements that come along with trust administration and it’s good to consult with an experienced estate planning attorney to make certain the trust is structured correctly.

Source: NASDAQ, “Boost Your After-Tax Investment Returns,” April 15, 2014

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The U.S. Supreme Court’s decision in a bankruptcy case may have long-term implications on estate planning strategies. Essentially, the question before the court is whether a debtor who has sought bankruptcy protection and then inherits a loved one’s retirement account is compelled to turn over the proceeds from such an account to creditors.

There is a difference of opinion between federal appellate courts in regards to this question. The U.S. Court of Appeals for the Seventh Circuit held that inherited retirement accounts that are inherited do not have the same protections as the same accounts that are held by bankruptcy debtors themselves. Meanwhile, similar appeals courts in the Fifth and Eighth circuits have held that the status and protections that come with retirement accounts do not change simply because a debtor inherits them. As long as an inherited account is not disbursed, the protections remain in place.

As the U.S. Bankruptcy Code is currently construed, debtors must report inheritances received within six months of the meeting of creditors to the bankruptcy trustee. At that point, the trustee may seek to collect available funds to distribute them to creditors. This is especially important for retirement accounts that call for funds to be disbursed within a certain amount of time after the owner passes away.

With that, a comprehensive estate plan may help in protecting such assets so that beneficiaries may not be hamstrung by bankruptcy rules. Perhaps a provision to transfer retirement funds to a trust that calls for proceeds to be distributed in a way that protects beneficiaries in bankruptcy may be appropriate.

Source: WSJ.com “Shielding inherited IRAs from creditors,” Arden Dale, April 2, 2014

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Everyone should write a will. There is no doubt about that. A will can clarify your end-of-life wishes on a wide variety of matters, not the least of which is how you want your assets handled after you die. An attorney can help you prepare a will to make it most effective. However, depending on your particular situation, a will alone may not be the best way of ensuring that your assets are protected and ultimately distributed according to your wishes.

In terms of time-cost and fee-cost, probate can be a headache for some families. One way of largely avoiding probate is to establish a trust. Unlike a will, a trust isn’t overseen by the probate court. If a trust is properly funded and properly addressed in the will, then the trust beneficiaries can avoid probate fees and tax burdens.

A trust is also what we call a “living document,” meaning it can provide you with funds during your lifetime.

Of course, preserving assets for yourself and your loved ones is important, but assets are only one aspect of a comprehensive plan. Health care decisions also have to be made. In particular, it is important to ask what will happen if you become incapacitated and thus unable to made decisions on your own.

In California, we have a document called an advance health care directive, which allows you to name someone to make medical decisions on your behalf. In this document, you can address a range of issues, including whether you do or do not want to undergo particular treatments.

All in all, this sort of estate planning becomes less about planning for the future and more about creating it.

Source: FOX Business, “The Biggest Estate Planning Mistakes You Can Make,” Kelly Trageser, April 7, 2014

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Famed fashion designer L’Wren Scott reportedly has left her entire estate to her longtime boyfriend, Mick Jagger. Scott was found dead in her Manhattan apartment on March 17, and her death has been ruled a suicide. Her death was a traumatic surprise to those in the fashion industry.

According to court documents, Scott’s will indicated that she wanted to leave all of her “jewelry, clothing, household furniture and furnishings” to Jagger. It is estimated that her estate is worth $9 million. Arguably the most valuable asset is her Manhattan apartment.  Noticeably absent from her will were Scott’s two children, Randy Bambrough and Jan Shane. 

A CNN report reveals that Scott signed the will in May 2013 in Beverly Hills, California.

Scott’s will, and the transfer to Jagger, brings up a number of estate tax issues. Given the value of the estate, there could be significant taxes to be paid, if there is no applicable exemption to help in saving money that would otherwise be paid to the federal government. Estates with a value of less than $5 million can avoid federal taxation, which could be as much as 40 percent. Since she and Jagger were not married, he would not be able to take advantage of the unlimited exemption afforded to married parties.

Additionally, the State of New York may seek its share of the estate, where taxes apply on estates worth more than $1 million. It remains to be seen whether Jagger will argue that a particular exemption applies, or whether California law controls.

Source: CNN.com “L’Wren Scott leaves $9 million estate to Mick Jagger,” Rande Iaboni, March 28, 2014

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The overriding purpose of a will is for someone to communicate their wishes as to how their assets will be distributed after they pass away. Essentially, a will establishes the rules for distribution, including who is responsible for administering the estate, and it identifies beneficiaries. Without such a document, a person’s belongings may be distributed according to California law, which may prevent a person’s preferred beneficiaries from being able to receive them.

The importance of a person’s intent cannot be overstated. After all, a will is a manifestation of a person’s wishes. A story out of London, England is a prime example of the critical nature of a will. A 98-year-old woman reportedly left her fortune to her window washer, while leaving out her estranged nephew who had previously been slated to receive it. Through his counsel, the nephew claimed that he and his aunt had a “long-established understanding” that he would receive her fortune. However, a falling out between the aunt and nephew reportedly led to her changing her will.

Despite the story being based in England, will challenges are common in California, especially among family members or caretakers who may not be specifically denoted to receive something after a person passes. Because of this, it is prudent to have an estate planning attorney draft the will so that the proper questions can be asked of the testator (the person for whom the will is established) and accurate language can be incorporated to ensure that the proper beneficiaries are accounted for.

Source: Telegraph.co.uk “Woman, 98, leaves fortune to window cleaner – not nephew,” James Edgar, Feb. 17, 2014

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Not long ago, a world record was broken in the state of California. No, it wasn’t something as flashy as a land-speed record, but it is a smart one according to observers. By purchasing a life insurance policy worth $201 million, a California tech mogul smashed the previous record by $101 million.

Even though the specific identity of the insurance policy holder hasn’t been revealed, observers have been able to offer some insight. Including an insurance policy in a trust can prove to be a very effective estate planning tool, as it provides financial assets to beneficiaries while minimizing the tax burden.

There may be a perception that trusts are an estate planning instrument only useful for wealthy individuals and their beneficiaries. The reality, however, is that anyone could potentially stand to gain from including a trust funded by a life insurance policy in his or her estate plan. Beyond tax advantages, trusts also allow individuals to administer assets to loved ones in a specific, controlled manner.

It’s worth noting that a life insurance policy might be among a person’s most valuable assets. In fact, this might be true for people who aren’t considered to be “wealthy.” Keeping this in mind, people may want to make sure this type of asset is protected for the benefit of loved ones who are named in an estate plan.

Setting up a life insurance trust certainly might be good idea, but it can also be very complicated to arrange. As such, it may be helpful to discuss this option with an experienced attorney and ensure that it’s created in the most effective and clear way possible.

Source: CNBC, “Tech billionaire buys $201 million insurance policy,” Robert Frank, March 17, 2014

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Michael Jackson’s estate is embroiled in more controversy. It was recently revealed that the King of Pop could have fathered a child, who is now 31 years old. Brandon Howard, who is the son of famed R&B singer Miki Howard, is rumored to be the son that Jackson sung about in his 1983 hit “Billie Jean.” Miki Howard apparently went by the nickname “Billy”, and in an example of art potentially imitating life,  Jackson’s song, interestingly enough, has the lyrics, “Billie Jean’s not my lover, she’s just a girl who claims that I am the one, but the kid is not my son.”

According to the International Business Times, Brandon Howard’s DNA is a 99.9 percent match to Michael Jackson. A Beverly Hills dental surgeon allegedly had a sample of Jackson’s DNA from an earlier procedure, then conducted a test with Howard. According to a video Howard released on his Facebook page, Howard wanted to end speculation about his connection to Jackson.

Nevertheless, the test reportedly has proved otherwise. Now speculation abounds as to the real reason behind this latest revelation. Most believe that Howard is angling at a piece of the King of Pop’s fortune. However, Jackson’s will, which has been hotly contested, specifically denotes who is heirs are, as well as who is entitled to his fortune. In essence, his children, Paris, Prince and Blanket were the only heirs mentioned besides his mother. Also, the will had the language, “Except as otherwise provided in this will…I have intentionally omitted.”

Source: Ibtimes.com, “Michael Jackson has a secret child? DNA test of singer Brandon Howard is a 99.9% match to the King of Pop,” Suman Varandani, Mar. 7, 2014

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A probate judge will decide what’s best for your estate assets and minor children should you die intestate. Dying without a will means you forfeit control over the distribution of possessions and child guardianship. California succession laws, Probate Code sections 6400-6414, define what happens when you ignore estate planning.

Some Los Angeles residents choose an alternative to a lawyer-assisted document by handwriting a will, known as a holographic will, or downloading a generic form from a website. According to the California Bar, holographic and statutory wills are valid when they conform to state guidelines, but any disputes over them may require costly legal actions.

Wills appoint an executor to manage and distribute estate assets. A will’s secondary but equally important purpose is to name a guardian for children under 18, should both parents die. Casual family agreements will not influence a judge’s guardianship decision the way a legal document can.

Another often-ignored area of estate planning is a health care proxy. The document designates a person to make medical choices for you, if you are incapacitated. A health care proxy is as much protection for you as it is a relief for loved ones, who otherwise may be excluded from critical care decisions.

Some estate plans are expanded to include a trust, which offers enhanced control over estate assets before and after death. Among other benefits, trusts may help preserve assets for beneficiaries through tax savings. Trusts are either revocable or irrevocable, with each providing distinct advantages depending upon individual circumstances.

Legal decisions are made for you, when you can’t or won’t make them for yourself. Doctors may prescribe an undesirable medical treatment, because no patient instructions in legal documents prevented it. A judge could send your children to live with a guardian you would never choose, unless you and your spouse provide the court with guidance through a valid will.

Source: CNBC, “Where there’s a will, there’s a way” David Mendel, Mar. 02, 2014

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California community property laws influence how estate assets are divided. A Los Angeles spouse cannot be disinherited involuntarily, and children or other relatives are not automatic heirs. According to California Probate Code Section 6400-6414, a will cannot prevent a surviving spouse from claiming half an estate, but the protection does not cover an unmarried partner.

When actor Philip Seymour Hoffman died in early February, he left behind assets reported to be worth $35 million. Hoffman was not married to Marianne O’Donnell, the mother of his three children, although he named her as the primary beneficiary. Hoffman set up a trust for his first child, a son who will receive an inheritance at age 30.

Legal observers say Hoffman drew up his will 10 years before his death, before the births of his two younger children. Critics said Hoffman erred by using a real estate attorney to draw up estate planning documents and never updated the will. Beneficiaries may suffer financially as a result.

Hoffman’s companion cannot take advantage of spousal estate tax benefits. There are no special considerations for common law marriages in the state where the couple lived. Estimated combined state and federal estate taxes could wipe out from $11.9 million to $15 million or more of the Hoffman estate.

The actor’s assets could have been funneled into individual trusts and out of his taxable estate as a way to preserve property. The two younger children may inherit some of their father’s assets, despite their absence from the will. Some state laws would assume, since Hoffman provided for his son, the actor eventually intended to leave assets for his other children.

Observers found fault with the son’s lump sum inheritance. Hoffman could have structured the trust to give his son eventual trustee control, without losing the tax and other protections provided for trust assets. Estate planning documents can customize the distribution of assets but only when you take advantage of them.

Source: CNBC, “Why Philip Seymour Hoffman’s will is ‘a mess’” Kelley Holland, Feb. 21, 2014

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On Behalf of The Probate House L.C. | Feb 20, 2014 | Trustees Executors & Fiduciaries |

Trusts can have significant benefits for Los Angeles individuals with defined goals for estate assets. During estate planning, the creation of a trust must be balanced with the costs of establishing the document and maintaining the trust, in the present and the future.

Let’s say you’ve set aside assets in a California trust to fund the education of your grandchildren. The trust may require management for years, even decades after your death. When you calculate the costs of the trust, you must include any fees to carry the trust forward including anticipated trustee, legal and tax professional expenses.

Over time, the trust may be depleted to the point where annual maintenance costs are no longer worth the expense. The California Probate Code contains provisions for terminating trusts with principal values lower than $40,000. By dissolving the trust, the extra expenses are eliminated and beneficiaries receive the maximum benefit of the remaining assets.

All trusts are geared toward the interests of beneficiaries. A living trust is one you draft during your lifetime, as opposed to a trust attached to a will that becomes effective only upon death. The trustee or manager of assets owned by the living trust can be you, although you’re free to name someone else to handle the fiduciary duties.

Trusts can be as custom designed as the trustor, the name for a trust creator, desires. Many people choose to place assets in trusts to reduce estate taxes or to keep the assets from passing through probate. Sometimes, a trust is about controlling assets and the ways beneficiaries receive them.

Trusts are not replacements for wills, which are the foundations of estate plans. Trusts act outside what wills are made to do. Whether or not a trust works to achieve your goals depends upon individual circumstances but if you imagine a unique estate plan, there’s probably a trust to help you realize it.

Source: The Herald, “Ending a trust when principal runs low” Lisa Horvath, Feb. 17, 2014

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