... continued from Cover If you research this on Google, you will find several articles warning against naming a Trust as a beneficiary. If the article you find is referring to Living Trust, that warning is legitimate. If the article is referring to Retirement Trusts, the article is giving you bad information. The Truth: If you want to know who the beneficiary of your qualified plan should be, read the funding instructions contained in your three-ring maroon binder. Lie No. 4: ‘Tax planning is no longer necessary.” If you’re married, you may have heard that Federal Estate Taxes are dead (no pun intended). This is because the maximum amount you can have in your estate and avoid taxes if you die this year is $12.06 million. However, there’s a catch: You must die this year for that number to apply, because it will change next year and every year after that. Furthermore, a big part of tax planning is eliminating the capital gains on the growth that has occurred in your estate over the years — and everyone has experienced growth on their estate, even if it’s only your house that has gained value. The problem is that if a Trust is designed to avoid or reduce the impact of the Federal Estate Tax, that will expose the estate to capital gains tax and vice versa. These are all reasons why Google is wrong. The Truth: Tax planning is still needed, but you don’t have to worry about it. We have included a capital gains election provision that addresses the problem, so you are covered no matter when you die or what the Federal Estate Tax Exemption is. Lie No. 5: ‘You should transfer assets to your children while you are still alive.’ Articles on Google may suggest you transfer your assets to your children before you pass away as part of their “advanced inheritance.” To be clear, there is no such thing as an “advanced inheritance” — it’s called a gift, and there are limitations on how much you can gift per year without filing a gift tax return ($16,000). In addition, there are also income tax capital gains issues when you gift an asset. There are also no benefits to prematurely transferring your assets. In fact, a transfer will prevent you from accessing the assets. The Truth: You shouldn’t transfer your assets early. Lie No. 6: ‘You can sign a Power of Attorney even if you are disabled.’ I don’t mean to be unkind, but it makes no sense to have someone who is incompetent sign a Power of Attorney. Yet we receive this request almost weekly from well-meaning children who are simply trying to help. A Power of Attorney allows someone to sign your name when you are no longer able to sign it yourself, so you must complete it while you are legally qualified. The Truth: You have already signed a Power of Attorney as part of your Trust portfolio, so there is no need to worry about this. If your family is concerned, let the person you appointed know you have executed the Power of Attorney. Lie No. 7: ‘You need two doctors’ signatures to be declared incompetent and removed as a Trustee.’ There is an old method of removing a Trustee when they are deemed incompetent. It requires two doctors’ written opinions as to the Trustee’s incompetency. For numerous legal and practical reasons, we don’t use this method and haven’t done so for years. In the Trusts, we include a “Disability Panel” consisting of people (chosen by you ahead of any illness or injury) that will determine whether or not you should serve as a Trustee. This method is very efficient and respectful, and it
does not violate any medical privacy laws. However, people who haven’t read your Trust may assume it is written with the old method. This is not true. The Truth: You do not need two doctors’ signatures because of the way your Trust is structured. Make sure you are familiar with the terms of your Trust. Don’t assume Google knows more about your document than you do. Lie No. 8: ‘You do not need to consult a lawyer before signing Irrevocable Trust documents.’ Never sign an Irrevocable Trust until you have had a chance to speak to an attorney who is familiar with these documents and can discuss their ramifications with you. Irrevocable Trusts are extremely effective in certain situations, and in those situations, nothing else works as well. However, if used inappropriately, they can be a nightmare to undo. Remember, they are irrevocable (unchangeable). The Truth: You should make sure you receive good legal advice before you execute Irrevocable Trust documents. Lie No. 9: ‘Your child and their long-term partner are common law married.’ Many of our clients have told us their children are not married but have been living with another person for quite some time. Often the client will ask how many years until “common law marriage” kicks in. Many clients will simply tell us when it kicks in (after all, that’s what Google says). The problem is that while many states recognize a common law marriage, California does not. In California, the law is quite clear: You are either married or you’re not. However, there is a unique problem with those who are living together, but unmarried. This problem occurred when a famous actor by the name of Lee Marvin (remember him from “Paint Your Wagon”?) told his girlfriend of many years to leave. Thanks to Mr. Marvin, we have the infamous “Marvin” case. In a nutshell, the message from this case is if you are “cohabiting” and have been doing so for a long time (no time frame is given), and you decide to go your separate ways, the court can issue an order requiring that the two partners’ assets be divided equally — or at least the way they would have been divided had the couple been married. The Truth: If your child and their partner live in California, they are not common law married. However, you don’t need to worry about their status because your Trust continues after you pass away, providing asset protection for the beneficiary for life, whether they are cohabiting or married. Bonus lesson: You may want to suggest to your children who are cohabiting in California to seriously consider a “Cohabitation Agreement,” just so there are no surprises. I hope reading this article has cleared a few things up for you — and showed you why I was so concerned about my plumbers Googling my faucet installation! While they bickered, I stepped away to call the faucet company, Moen, and in minutes, I learned the answer to the question the plumbers were looking for. Sometimes Google is OK, but with complicated faucets, as with estate plans, going directly to the source and consulting the experts (rather than Google or YouTube) might be a smarter move. –John Preston
2 PrestonEstatePlanning.com
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