Decanting: How to Fix a Trust That Is NOT Getting Better With Age

While many wines get better with age, the same cannot be said for some irrevocable trusts.  Maybe you’re the beneficiary of trust created by your great grandfather over seventy years ago, and that trust no longer makes sense.  Or, perhaps you created an irrevocable trust over twenty years ago, and it no longer makes sense.  Wine sommeliers may ask: ‘Is there any way to fix an irrevocable trust that has turned from a fine wine into vinegar?’  You may be surprised to learn that under certain circumstances the answer is yes. How? By “decanting” the old fragmented trust into a brand new one.

What Does It Mean to “Decant” a Trust?

Wine lovers know that the term “decant” means to pour wine from one container into another to open up the aromas and flavors of the wine.  In the world of irrevocable trusts, “decant” refers to the transfer of some or all of the property held in an existing trust into a brand new trust with different and more favorable terms.

When Does It Make Sense to Decant a Trust?

Decanting a trust makes sense under a myriad of different circumstances, including the following examples:

1. Tweak the trustee provisions to clarify who can or cannot serve as the trustee.

2. Expand or limit the powers of the trustee.

3. Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust.

4. Change a support trust into a full discretionary trust to protect the trust assets from the beneficiary’s creditors.

5. Clarify ambiguous provisions or drafting errors in the existing trust.

6. Change the governing law or trust situs to a less taxing or more beneficiary friendly state.

7. Add, modify, or remove powers of appointment for tax or other reasons.

8. Merge similar trusts into a single trust for the same beneficiary.

9. Create separate trusts from a single trust to address the differing needs of multiple beneficiaries.

10. Provide for and protect a special needs beneficiary.  

What is the Process for Decanting a Trust?

Decanting must be allowed under applicable state case law or statutory law.  Aside from this, the trust agreement may contain specific instructions with regard to when or how a trust may be decanted.

Once it is determined that a trust can and should be decanted, the next step is for the trustee to create the new trust agreement with the desired provisions.  The trustee must then transfer some or all of the property from the existing trust into the new trust.  Any assets remaining in the existing trust will continue to be administered under its terms; and, an empty trust will be terminated.

WARNING:  Decanting is Not the Only Solution to Fix a Broken Trust

While decanting may work under certain circumstances, fortunately, it is not the only way to fix a “broken” irrevocable trust.  Our firm can help you evaluate options available to fix your broken trust and determine which method will work the best for your situation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Marlon Brando’s Story— The Perils of Promises…

Legendary Oscar-winning actor Marlon Brando left the bulk of his estate [worth approximately $26 million] to his producer and other associates. 

Brando created a valid last will and testament. However, he did not include his longtime housekeeper Angela Borlaza—who later sued alleging that Brando promised that she would inherit a home from him, when he died.

A Promise Is A Promise…

While a promise is a promise, not all promises are legally equal.  In the courtroom, an oral promise is usually not treated the same as a written promise. In this case, Brando either never promised Borlaza anything or promised to give her the home, but never got around to putting it in his will [or in a written contract].  Borlaza claimed a promise about a home was made and sued his estate for $627,000. 

However, the alleged promise was oral. The law generally favors written evidence when it comes to estate planning matters, so the court examined only what was written in Brando’s will on the assumption that he made all of his wishes known. Borlaza eventually settled the matter for $125,000, but she was lucky to get even that. 

Oral promises about inheritances are typically not legally valid and usually only introduce confusion and uncertainty about formal estate planning documents (such as a will or trust). Courts can – and reasonably must – rely upon the documents, like a will, when probating an estate. Although you might be trying to save money or time by promising inheritances to family members, friends, or others, but you aren’t doing anyone a favor. Luckily, there is a way to make your promises and wishes legally valid.

Put It in Writing - The Key to Making Promises Work:

Make sure that your loved ones receive everything you promised them by putting your wishes in writing through a last will and testament, a trust, or other estate planning tool. Don’t rest on your laurels. It is imperative to update your estate planning documents when any significant or life changing events occur such as:

1. A new oral promise you made to someone;

2. Adoption;

3. Birth;

4. Change In Circumstance [change in health, wealth, or state of residence];

5. Divorce;

6. Income Changes;

7. Marriage;

8. Divorce; or

9. Re-marriage.

Need help putting your wishes in writing? You’re in the right place. Contact our office today and let us help you decide what type of estate plan might work best for your situation. It’s easier than you think and will give you the peace of mind that your loved ones aren’t forgotten.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

The IRS Took Half of Tony Soprano’s Estate: Not The Greatest Result

Actor and producer, James Gandolfini, was famously known as the likeable mafia man Tony Soprano on the long running cable television series, The Sopranos. On the show, family meant everything. Well, sort of, anyway. In real life, Gandolfini’s family really did mean everything and he had the best intentions when it came to providing for them. 

However, he made a classic mistake by failing to take advantage of tax incentives, legal protections and opportunities. The Internal Revenue Service (IRS) ended up taking half of his estate. Don’t fall into the same trap.

An Estate Planning Attorney Could Have Saved Gandolfini Millions

When James Gandolfini died suddenly in 2013, his estate was an estimated $70 million. In addition to leaving $1.6 million to friends and relatives and bequeathing properties and land in Italy to his kids, his will was fairly straight forward. He provided:

A.   30% to one sister;

B.   30% to another sister;

C.   20% to his wife;

D.   20% to his daughter; and

E.   Separate trusts for his wife and his 13-year-old son.

Although he was very generous to his two sisters, his plan failed to take advantage of some key tax incentives and opportunities. Shockingly, the IRS ended up taking over half of his total net worth. An estate planning attorney could have saved millions of dollars that would have gone to his family instead of Uncle Sam. 

3 Ways an Estate Planning Attorney Can Help You:

It’s clear that anyone with an estate value equal to that of Gandolfini should have a knowledgeable estate planning attorney. However, you need a good estate planning attorney, too. Here are three ways an estate planning attorney can help you:

1. Assess your current financial situation. Many people don’t fully understand what they have – or how to valuate it. A good planner always starts by reviewing your tax returns, income sources, liquid and illiquid assets, wills, insurance policies, and estate and retirement planning documents;

2. Identify your goals. Identifying your goals and taking your current needs into account provides the foundation for a solid estate plan structure;

3. Develop a plan. Developing an estate plan is where we can really make a difference – especially in:

 a. Explaining how estate planning documents work;

 b. Weighing the pros and cons of each of those documents;

 c. Identifying tax issues and taking advantage of incentives and opportunities; and

 d. Creating a “network” with other professionals such as CPAs, insurance professionals, and financial advisors.

Best of all, an estate planning attorney can keep you on track by periodically reviewing your estate plan, advising you when to update your estate planning documents, and steer you in the right direction to avoid having your assets taken by the IRS.

Don’t fall into the same trap as Gandolfini.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Sonny Bono’s Procrastination in Creating His Estate Plan Causes Years Of Estate Litigation

Sonny Bono, the singer, songwriter, restauranteur, and former Congressman, died in a tragic ski accident in 1998 at the age of 62. His net worth was just under $2 million at the time of his death, yet Bono did not have a Will. Apparently, he meant to have one drawn up, but simply never got around to it. 

Sadly, his fourth wife and surviving spouse, former Representative Mary Bono, spent years battling to be the executor of his estate. She also faced lawsuits filed by anyone and everyone who wanted a piece of the pie – some of whom you wouldn’t believe...

Cher & Secret Love Child Want Piece of Sonny’s Estate:

Having died intestate (without a Will), Sonny Bono’s estate was seemingly up for grabs. His surviving spouse had to specifically fend off two people whose demands on the estate made headlines:

1.Cher. Yes, THE Cher, Sonny’s second wife, sued for a share of his estate seeking $1.6 million in unpaid alimony. When the couple   divorced in 1974, Sonny was allegedly ordered to pay Cher $25,000 per month for six months, $1,500 per month child support, and $41,000 in attorneys’ fees.

a. Apparently, he never did. While it’s odd that someone with their own net worth of over $300 million would even bother taking the time, it’s nonetheless true. Whether she collected is anyone’s guess, but not likely.

2. Secret Love Child. As if Cher’s lawsuit wasn’t odd enough, a secret love child made his own claim on Sonny’s estate. Then 35-year-old Sean Machu came forward claiming to be Bono’s illegitimate son. 

 b.  Although Bono admitted to having an affair with Machu’s mother in his autobiography, The Beat Goes On, and Machu's birth certificate lists Salvatore Bono (aka Sonny) as the father, Machu later withdrew the lawsuit when a DNA test was required.

Bono’s estate was eventually divided between his surviving spouse and his two children, Chastity (now Chaz) Bono and Christy Bono Fasce (a child from his first marriage).

Don’t Leave Your Wealth Up For Grabs – Take Action Now:

As Sonny Bono’s case shows, not having a Will, trust, or other estate planning documents in place gives others the sense that your wealth is up for grabs.  Most of us don’t relish the idea of creating a plan for what will happen when we die.  However, it’s a necessity in order to avoid having your spouse and children go through court battles and heartache.

It’s imperative that you take action now.  We have the tools you need to put your estate plan into place so that procrastination is not an issue. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Kaley Cuoco’s “Ironclad” Prenup Challenged: Can A Prenup Be Bulletproof?

The Big Bang Theory actress Kaley Cuoco, is one of the highest paid actresses on television. She earns one million dollars per episode and has a net worth of Forty-four million dollars ($44 Million). Before she married tennis star Ryan Sweeting in 2013, Cuoco asked him to sign a prenuptial agreement (generally referred to as a “Prenup”). 

After less than two years of marriage, Cuoco filed for divorce. She assumed the prenup would be valid. However, Sweeting alleges that the prenup shouldn’t be enforced and he wants spousal support. So, is The Big Bang Theory star’s Prenup ironclad? A better question might be—is it possible to create a Prenup that is bulletproof?

Cuoco Was Smart, But…

Cuoco was certainly smart to have Sweeting sign a prenuptial agreement as his net worth was only about two million dollars versus her 44 million. However, while a well-written prenup generally addresses asset division and support issues, they are not always ironclad. 

In this case, Sweeting alleges that his circumstances have substantially changed due to numerous sports injuries and an addiction to pain killers which have prevented him from earning a living as a tennis player. So, while he didn’t need support when the prenup was signed, he does now. 

3 Ways to Invalidate a Prenup:

There are generally three ways to invalidate a prenup, by proving:

1. Unconscionability. This is a legal term of art meaning that, under the circumstances, it would be grossly unfair to enforce the document. To overcome it, Cuoco would likely have to prove that Sweeting was represented by an independent attorney who advised him of the consequences before signing.  

2. Coercion. Legal contracts can be deemed void when one party was coerced into signing it. In its harshest terms, that equates to being forced to sign something at gunpoint. In this case, it means that either Sweeting wasn’t given enough time to read it or didn’t voluntarily sign it. 

3. Fraud. Sweeting could also allege that Cuoco lied about her net worth and that, based on her fraudulent activity, the prenup shouldn’t be enforced.

If Cuoco’s attorney did his or her job correctly, which seems to be the case, it’s most likely that she’ll prevail.

Don’t Risk Your Wealth:

Prenuptial agreements, part of a strong estate plan, should always be prepared by experienced attorneys (a different one for each party) who know how to comply with the laws of that particular state and take into account what changes in the relationship might affect the validity of the prenup. 

Today, 50% of all first marriages end in divorce; more than 70% of all second marriages do so. It makes sense to plan for the worst and hope for the best. Certainly, don’t risk your wealth and future by failing to have as ironclad a Prenup (or “Postnup” – an agreement made after marriage) as possible. It’s easier to accomplish than you would think and we can provide you with the tools you need to do just that.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Investment, Insurance, Annuity, and Retirement Planning Considerations

If your clients choose to use a Standalone Retirement Trust (SRT) to provide asset protection benefits for their beneficiaries, then the tax-related asset allocation strategy would be essentially the same as without an SRT, with one small exception.

 Consider skewing your investment plan toward: 

1. Loading retirement accounts and inherited retirement accounts with bonds, Real Estate Investment Trusts (“REITs”), and other assets that produce income taxed as ordinary income;

2. Housing stocks, Exchange-Traded Funds (“ETFs”), and other qualified-dividend generating investments in taxable accounts; and

3. Placing any high-growth assets in Roth or inherited Roth IRAs.

WARNING: SRT Tax Consequences:

That one small exception is that if your SRT is designed as an accumulation trust (necessary for asset protection), then the undistributed Required Minimum Distributions (RMDs) accumulating in the trust will face tightly compressed trust tax rates. If the undistributed annual RMDs exceed $12,400 (2016), the SRT is hit with a 39.6% marginal tax rate, possibly much higher than a beneficiary's personal income tax rates. For this reason, you might select very low-growth assets you believe belong in a client’s total portfolio for the accumulation SRT. Examples of these assets might be cash, short-term bonds, etc.

Always Use an SRT?

1. Of course not. No planning is one-size-fits all. There may be cases where your client’s circumstances do not warrant the hassle and expense of creating an SRT. An example might be if the inherited IRA is quite small in relation to all the other assets your client is protecting. In such cases, here are some other approaches to consider:

2. For clients who are still working but not fully funding their workplace retirement plan (e.g. 401(k), 403(b), 457, SIMPLE IRA, SEP IRA, etc.) accelerate the depletion of the beneficiary IRA and use the extra taxable cash flow to max out tax-deferrals into the workplace plan. If for every dollar pulled from the inherited IRA an additional dollar is contributed to the workplace plan, the tax impact is neutral but the assets are now easily consolidated into a single account.

3. For clients who are in retirement, if the optimal liquidation strategy in their case is to consume qualified assets first (as might be the case for those who enjoy a window of low income tax rates between retirement and deliberately delayed Social Security benefits), then consider consuming the inherited IRAs first of all.

4.       Depending on the circumstances, it may make sense for the client to hasten withdrawals from the inherited IRA to fund 529 plan contributions, to fund life insurance premiums, to fund Roth IRA conversions, HSA contributions, etc., in order to pass assets to heirs through those sorts of channels instead.

As a note to insurance agents or annuity-oriented brokers, though qualified longevity annuity contracts (QLACs) were approved in 2014 for a portion of the assets in one’s own IRA, they are not allowed in inherited IRAs.  And while life insurance is allowable in ERISA plans, it is not allowable in inherited IRAs any more than in one’s own IRA.

Team Up with Us:

We’d be happy to answer all SRT and retirement protection questions.  Please feel free to call with questions or if you’d like help planning for a client.  It takes a village.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Caution: Creditors Now Have Easy Access to Inherited IRAs

Do you have IRAs or other retirement accounts that you plan to leave to your loved ones?  If so, proceed with caution.  Most people don’t know the law has changed: inherited retirement accounts no longer have asset protection, meaning they can be seized by strangers.

How Can Inherited IRAs Be Protected?  Enter the Standalone Retirement Trust

Fortunately, retirement account protection still exists but only if you take action.  Many people like you are using Standalone Retirement Trusts (SRT) to protect retirement assets.  The SRT is a special type of revocable trust just for retirement accounts. 

A properly drafted SRT:

●       Protects the inherited retirement accounts from creditors as well as predators and lawsuits

●       Ensures that inherited retirement accounts remain in your bloodline and out of the hands of a daughter-in-law or son-in-law or former daughter-in-law or son-in-law

●       Allows for experienced investment management and oversight of the assets by a professional trustee

●       Prevents the beneficiary from gambling away the inherited retirement account or blowing it all on exotic vacations, expensive jewelry, designer shoes, and fast cars

●       Enables proper planning for a special needs beneficiary

●       Permits you to name minor beneficiaries such as grandchildren without the need for a court-supervised guardianship

●       Facilitates generation-skipping transfer tax planning to ensure that estate taxes are minimized or even eliminated at each generation of your family

 The Bottom Line on Protecting Inherited IRAs

Unfortunately, the Supreme Court decision has made outright beneficiary designations for IRAs and other retirement accounts risky business.  However, we are here to help you decide whether an SRT is a good fit for you and to answer your questions about protecting your retirement accounts.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

5 Reasons to Protect Your Retirement Accounts Now

During your lifetime, your retirement account has asset protection, but as soon as you pass that account to a loved one, that protection evaporates. This means one lawsuit and POOF! Your life long, hard earned savings could be gone.

Fortunately, there is an answer.  A special trust called a “Standalone Retirement Trust” (SRT) can protect inherited assets from your beneficiaries’ creditors.  We’ll show you what we mean.

When your spouse, child, or other loved one inherits your retirement account, their creditors have the power to seize it and take it as their own.

If you’re like most people, you’re thinking of protecting your retirement account?  Here are 5 reasons we think you’re right.

1. You have substantial combined retirement plans.  Spouses can use an SRT to shield one or the other from creditors. 

2. You believe your beneficiary may be “less than frugal” with the funds.  Anyone concerned about how their beneficiary will spend the inheritance should absolutely consider an SRT as you can provide oversight and instruction on how much they receive – and when. 

3. You are concerned about lawsuits, divorce, or other possible legal actions.  If your beneficiary is part of a lawsuit, is about to divorce, file for bankruptcy, or is involved in any type of legal action, an SRT can protect the assets they inherit from those creditors. 

4. You have beneficiaries who receive assistance.  If one of your beneficiaries receives, or may qualify for, a need-based governmental assistance program, it’s important to know that inheriting from an IRA may cause them to lose those benefits. An SRT can avoid disqualification. 

5. You are remarried with children from a previous marriage.  If you are remarried and have children from a previous marriage, your spouse could intentionally (or even unintentionally) disinherit your children.  You can avoid this by naming the spouse as a lifetime beneficiary of the trust and then having assets pass onto your children after his or her death.

 You’ve Worked Hard To Protect & Grow Your Wealth – Let’s Keep It That Way

You worked hard to save the money in those retirement accounts and your beneficiaries’ creditors shouldn’t be able take it from them. Let us show you how an SRT can help you protect your assets as well as provide tax deferred growth. NOW is the best time.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

How To Avoid Creditors Inheriting from You

Most people plan to leave a retirement account, such as an Individual Retirement Account (“IRA”), Roth IRA, 401 (k) Plan, 403 (b) plan, Employee Stock Ownership Plan (“ESOPs”), for their surviving spouse to live on when he or she passes away.

Surprisingly, this oft used planning device can be nullified—because it can be seized in a divorce, lawsuit, or bankruptcy. As such, your spouse can end up lacking the resources he or she planned on having as a source of retirement income.

3 Options Available To Surviving Spouses:

When your surviving spouse inherits your IRA, he or she generally has three options:

 1. Cash out the inherited IRA and pay the associated income tax. 

 WARNING: The cashed-out IRA will not have creditor protection and accelerates taxation.

 2. Maintain the IRA as an inherited IRA. 

  WARNING: The cashed-out IRA will not have creditor protection.

 3. Roll over the inherited IRA and treat it as his or her own.

  WARNING: The cashed-out IRA will not have creditor protection.

It is understandable why man become frustrated when realizing that a predator can swoop in and take their hard earned money; fortunately, there’s a solution and that solution is a retirement trust.

 Standalone Retirement Trusts Provide Protection:

A Standalone Retirement Trust (“SRT”) is a special type of trust designed to be the beneficiary of your retirement accounts after you die. It can protect your assets from creditors.  In fact, we can include trust provisions which specifically benefit your spouse in situations such as:

1.      Second marriages

2.      Divorce

3.      Lawsuits from car accidents, malpractice, or tenants

4.      Business failure

5.      Bankruptcy

6.      Medicaid qualification 

 Want To Know More? 

The bottom line is that a properly drafted SRT is often your best option for protecting your retirement assets (and providing the bonus of tax deferred growth). Want to know more?  Contact us today to schedule a conversation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

3 Simple Ways to Avoid Probate Costs

The Bad News:

Probated estates are subject to a variety of costs from attorneys, executors, appraisers, accountants, courts, and state law. Depending on the probate's complexity, fees can run into tens of thousands of dollars.

The Good News:

Probate costs can be reduced by avoiding probate. It’s really that simple.

Here are three simple ways to avoid probate costs by avoiding probate:

       1.Name a Beneficiary:

The probate process determines who gets what when there is no beneficiary designation.  So, naming a beneficiary is the easiest way to avoid probate. Common beneficiary designation assets include: 

A. Life insurance

B. Annuities

C. Retirement plans

        2. Create and Fund a Revocable Living Trust: 

A revocable living trust owns your property, yet you remain in charge of all legal decisions until your death. After your death, your named trustee manages your assets—according to your wishes. A trust works well if properly created and funded by an experienced estate planning attorney.

        3. Own Property Jointly:

Probate can be avoided if the property you own is held jointly with a right of survivorship. There are several ways that you can establish joint ownership of property such as:

A. Joint tenancy with right of survivorship – ownership simply transfers to other tenants upon your death;

B.     Tenancy by its entirety—is a form of joint tenancy with right of survivorship, but only for married couples in some states;

C.     Community property—property obtained during a marriage in some states;

State laws play an important role here. We can help you determine which form of joint ownership, if any, is a good fit for you. 

We Have the Tools to Help You:

Contact our office today.  We’ll help you decide whether it makes sense to avoid probate in your particular case and, if so, the best way to do so.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.