Happy Thanksgiving to All

I want to wish my readers a very happy Thanksgiving.

Very Little to Do With Estate or Financial Planning...

I have been trying to figure out how to fit this into estate or financial planning. Here is one idea: Always lock your door to perhaps reduce insurance claims? That one is a stretch.

Perhaps I should just admit that this is just plain fun: Something I referred to in my monthly newsletter to clients and friends (not to imply that the two categories are mutually exclusive). My son made me aware of this short clip, entitled "Music for One Apartment and Six Drummers," on YouTube.



If you would like to be added to my mailing list (e-mail or snail-mail) please send me an e-mail at larry@strattonplanning.com.

A New Pet Trust Statute for Californians

The California Legislature recently enacted a new Pet Trust Statute. Delaware recently enacted a similar law. Here are some highlights of California's new law, which will be placed in the California Probate Code as section 15212 :

• Lawful for a non charitable purpose. The new law would make the creation of a pet trust lawful for purpose of caring for a domestic animal so long as the animal is alive.

• Principal and Income of the Trust. The principal and income of the trust may not be used for any purpose other than for the care of the animal, unless specified otherwise in the trust instrument.

• Enforcement of Principal and Income Provisions. The person authorized in the trust instrument to enforce the principal and income provisions has the authority to file an appropriate petition in the Superior Court, as may any person having an interest in the animal’s welfare. A charitable organization having as its principal activity the care of animals may enforce the trust provisions. Otherwise, the court may appoint a trust enforcer. Any such person (including the charitable organization) may inspect the animal, or see the books of the trust.

• Appointment of a Trustee. The Court may appoint a trustee if none is named in the trust instrument.

• Upon the Death of the Animal. The new law specifies a manner of distribution to remainder beneficiaries upon the death of the animal, unless otherwise provided in the trust instrument.

• Accountings. Usually, accountings are required for a trust. However, the animal obviously cannot evaluate an account. Thus, accounts are to be given to the remainder beneficiaries. However, accounts are not required of any pet trust having a value of less than $40,000.

(A hat tip to Professor Beyer for bringing this to my attention).

Confessions of a Southern California Estate Planning attorney, Part II (We are all business owners)

Last time I addressed the natural reaction most have when considering our estate plans. What I mean, of course, is the natural procrastination. Estate planning reminds us of our mortality -- something many of us simply do not wish to face.

However, there is another way of thinking about this subject. In point of fact, each one of us is a business owner. You might ask, "what do you mean that I am a business owner? I've never paid any one's salary, and I have always had a 'W-2.' I have never owned a business in my life."

Au contraire!

Each of us are business owners, believe it or not. All of us are. Some of our businesses are well run, while others are not. But our financial affairs constitute a business. Now, our household "business" plans might differ -- for example, a childless couple might have what is in effect a business plan to maintain a high standard of living, while also reserving funds to contribute to a religious group or church. On the other hand a couple with 4 children might have as their plan the goal of an average or "adequate" standard of living while helping their children as much as possible to go to college.

Now all of us want our businesses to profit (i.e., have savings and retirement funds). We of course want to maintain a high cash flow, and we sometimes even do marketing, by changing jobs. As in the case of a business-for-profit, some household "businesses" flourish, while others go bankrupt.

There is however another aspect of running our businesses. Whether we admit it or not, we all have a financial plan through our household budgeting. Like all businesses, we also have a succession plan. Our business plans necessarily affect those who follow us -- often it is children. Sometimes, it is our "significant other," or a bother or sister. Here are some common succession goals achieved on behalf of our household "business," through what is often called "estate planning":

Care of our "successors." Many with children do not realize that they forfeit control over appointing guardians for their children if they fail to make the designation in a will. A guardian will be chosen either way -- usually by a judge. Without a designation in a will, the care giver may be someone we would never want to have a hand in raising our children.

Saving the company's taxes. Taxes eat up a significant share of many estates. Proper estate planning can minimize these costs.

Distribution of the company's assets. Without a will or trust, estate assets will be distributed to those individuals designated by statute, under the so-called "law of intestacy." This may or may not be the desired result.

Save your company's assets. Probate is expensive. In California, probate attorney's fees are set forth in a schedule and are based upon the assets of an estate. Given fairly high property values (yes, even now, values are still at historical highs) the cost of administration can easily exceed $10,000 or $15,000 in major metropolitan areas. Choosing a trust can significantly reduce the cost to your estate. Of course, the lower the payment to an attorney for his or her fees means more money to distribute to heirs.

Next time, I will provide some "tips" for choosing an attorney -- and how to plan for the visit.

Confessions of a Southern California Estate Planning Attorney, Part I

I have been a lawyer in Southern California for over 20 years, but I have a confession: I didn’t have my own estate plan until very recently. I once heard an attorney tell his client that attorneys are the worst when it comes to preparing their own estate plans. I can relate to this.I have noticed this pattern with my own clients and potential clients.

The issues involved are highlighted by a very common initial telephone conversation with a potential client which might start out like this:

“Hello. Nancy referred me over to you. I have a very simple need, as I have never had a will. I don’t think that it should be a very big deal. Is there anything that you can send me?”

I reply: “Yes. I will be more than happy to send you a client questionnaire. It may require some research on your part when filling it out; please send it over when you can complete it. Then, we can set up a meeting.”

“Oh. Okay.”

At this point in the conversation, I already feel the tension. So, I might add, “And there is no charge for the initial consultation. I’ll be more than happy to work through the questionnaire with you.”

I might receive a phone call in a week or two. Eventually, I will probably hear back, or I might receive a message through a mutual acquaintance, something like: “Nancy is still working on the questionnaire.” Sometimes, I don’t hear back at all.

When a client is served with a lawsuit in a California Superior Court, he or she has 30 days to file a pleading in response (or, locally, 20 days in federal court). The unpleasant visit with the attorney is something that is forced by the calendar.

But estate planning is different because many clients and potential clients – even those with a law degree – figure that it can be done tomorrow, or the day after. There is always “tomorrow.” And I fully understand that.

In my next installment I will talk about a different way to think when retaining an attorney for estate planning services.

The Maze of Estate Planning

In a brand new revenue ruling (Revenue Ruling 2008-41), the IRS now recognizes that Charitable Remainder Trusts may be split up on a pro-rata basis and still preserve their tax advantaged status under the Internal Revenue Code.

A Charitable Remainder Trust (known as a CRT in estate planning lingo) allows the charitable give to receive an annuity (under a Charitable Remainder Annuity Trust, or CRAT) or a fixed percentage of the amount in the trust (Charitable Remainder Unitrust, or CRUT) to a noncharitable beneficiary for life, with the remainder to go to a charitable beneficiary. CRTs are highly regulated in various rulings and regulations propounded by the IRS. Under Revenue Ruling 2008-41, trusts can now split up into subtrusts, and still retain their tax advantaged status.

Practically speaking, this shows the intricacies of tax law and how uncertainty prevails over even what is seemingly the most minute of details. One would think, for example, that the IRS would (of course!) look at the overall transaction in interpreting a specific tax approach. But, not necessarily! This small case is a window into tax law, and oftentimes conflicting court cases, Revenue Rulings, and Private Letter Rulings on specific cases. This is "food for thought" for those who would go it alone. Not even the lawyers can figure out this stuff!

The Maze of Tax Law

In a brand new revenue ruling (Revenue Ruling 2008-41), the IRS now recognizes that Charitable Remainder Trusts may be split up on a pro-rata basis and still preserve their tax advantaged status under the Internal Revenue Code.

A Charitable Remainder Trust (known as a CRT in estate planning lingo) allows the charitable give to receive an annuity (under a Charitable Remainder Annuity Trust, or CRAT) or a fixed percentage of the amount in the trust (Charitable Remainder Unitrust, or CRUT) to a noncharitable beneficiary for life, with the remainder to go to a charitable beneficiary. CRTs are highly regulated in various rulings and regulations propounded by the IRS. Under Revenue Ruling 2008-41, trusts can now split up into subtrusts, and still retain their tax advantaged status.

Practically speaking, this shows the intricacies of tax law and how uncertainty prevails over even what is seemingly the most minute of details. One would think, for example, that the IRS would (of course!) look at the overall transaction in interpreting a specific tax approach. But, not so! This small case is a window into tax law, and often times conflicting court cases, Revenue Rulings, and Private Letter Rulings on specific cases. This is "food for thought" for those who would go it alone. Not even the lawyers can figure out this stuff!