A Trust Is a Little Red Wagon

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A Trust Is a Little Red Wagon

This past Christmas, my children were given a Radio Flyer wagon by their Uncle Dan. My daughter is too young to enjoy it yet, but my 3 ½ year old son pulls it all over the place. As I watched him one day as he proudly trotted around pulling his stuffed animals in his wagon, it dawned a me: a trust is a little red wagon.

Your wagon is your rule book. Did you have a wagon growing up? What went in your little red wagon? Maybe your stuffed animals. Your stuff. Whatever you wanted. Where did the little red wagon go? Wherever you wanted it to go. When you were done playing with it, who got to play with it? Whoever you said. This is a trust! The trust dictates what goes in it, it says where it gets to go, and it says who gets to play with it if you die or become disabled. If you’ve named your spouse, then he or she can pick up the handle. Does he or she need to call the court? No, because the trust says that when you go down, she picks up the handle. She can do with it anything that you have allowed her to do, because you have already written your rules into the trust.

Just because you have created a great trust does not mean that you are all set. You may have a house, a car, and a brokerage account, and you own them all in your own name. So, you’re going through life pulling the wagon behind you and you die or become disabled – what hits the ground? All your stuff, because you didn’t put it in your wagon. How does someone pick it up for you? If you are disabled but still alive, then maybe your power of attorney can, and what does he or she do with it? Did you write any instructions into your power of attorney, or did you just you just grant blanket authority with no instructions? What if you hit the ground and you die, then how does all of your stuff get picked up? The family must go to court either to file a probate case or petition for it to be put inside the trust (in California called a Heggstad petition, which is a petition filed under Probate Code Section 850).

To avoid this, you must take things out of your own name and put them into the trust. This is called integration. Instead of Mary Smith owning everything, the owner becomes “Mary J. Smith, trustee of the MJS revocable trust”, or “Mary J. Smith, trustee of the MJS irrevocable trust”.

Now, if you fall and die or become disabled, everything is safe in the wagon because your successor trustee will pick up the handle and carry out the terms of the trust as you have directed.


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Planning For Those With Disabilities Or Special Needs

In the past, families would disinherit disabled family members and leave assets to someone else who agreed to “take care” of them. If assets are left to a disabled beneficiary, it could disqualify them from state or federal programs under which they are receiving benefits. In 1993 Congress enacted new laws that entitled disabled individuals to derive the same estate planning benefits as non-disabled individuals without affecting their eligibility for state or federal benefits. The law made provision for Supplemental Needs Trusts, which enable you to leave any amount of money to a loved one who has special needs without affecting their eligibility for the state or federal benefits they receive.

The law further provides the trust proceeds must be used to provide luxuries for the disabled individual he or she would not otherwise receive under the state and federal programs. Luxuries can include trips, computers, power wheel chairs, prosthetics, or other comforts not generally provided by the government.

A Supplemental Needs Trust (also known as a Special Needs Trust) can be created by an individual with their own funds or be created by someone other than the disabled individual, typically a parent or relative.

There are different rights and restrictions to each of these trusts, but both ensure immediate qualification for federal and state benefits (i.e. Medi-Cal) and provide luxuries to the disabled beneficiary they otherwise, most likely, would be unable to have.

Every trust plan prepared by Scott K. Maxwell contains special needs trust provisions, even if the client does not have a disabled or special needs beneficiary at the time of the creation of the estate plan. Families change and the estate plan, if not regularly updated, could become out of date and may not consider the then-current needs of beneficiaries. In some cases, a child could become disabled after the created of the plan. For this reason, any good trust plan should contain special needs trust provisions.

When Do I Need Conservatorship for my Special Needs Child?

As a parent of a special needs child, you are the child’s “natural guardian” and can make all decisions regarding the child. However, your rights as guardian do not allow you to have access or control of your child’s assets (i.e., proceeds from a lawsuit or gifts from a family member). In addition, when your child reaches the age of 18, you lose your rights as the natural guardian to make healthcare and other life decisions for them. To maintain these rights, you must commence a conservatorship proceeding or the State will assume legal authority over your disabled loved one. To avoid losing your authority, you should contact a qualified attorney to begin a guardianship proceeding at least four months prior to your child’s 18th birthday.


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How to Maintain the Estate Plan

Once an estate plan is created, in many estate planning attorneys’ experiences, clients tend to believe that their work is finished – a box is checked off the “to do” list and the estate plan is placed in a file cabinet to collect dust until a loved one finds it some years later. For an estate plan to be guaranteed to work, however, an estate plan requires regular review and updating. Some of the ways people maintain their estate plans include:

Enrollment in Law Firm Maintenance Program. Some law offices, including Scott K. Maxwell Professional Law Corporation, offer a maintenance program to ensure that clients’ estate plans remain up to date with both the clients’ life events and with outside forces that may affect their plans, such as changes in state or federal law. An effective maintenance program schedules meetings with clients at least annually to review the plan and make any appropriate changes, which would include word processing amendments requested by the client, advice on where to fund new assets, review of the estate plan to ensure that it still meets client goals, and law firm recommended legal changes based on changes in laws. Also included should be complimentary guidance to the client’s family members and financial professionals upon the client’s disability or death.

Self Maintenance. If clients opt not to enroll in a law firm maintenance program, clients may choose to self maintain, which should include calendaring a date at least annually to read through the existing estate plan and consider whether any life-changing events or newly acquired assets necessitate any changes in the existing plan. The clients should then schedule a meeting with their attorney to review the proposed changes and have the attorney draft and oversee the execution of amendments.

The client should never make changes to their estate plan without consulting an attorney. An estate plan

is a carefully crafted collection of legal documents, which all follow strict legal requirements. Many times client amendments to wills or trusts are ineffective or, perhaps worse, inadvertently invalidate the original document and the changes. For example, handwritten changes and cross-outs on a will could invalidate the entire will.

Wait Until Something Happens and See If It Works. Surprisingly, this is the strategy (if it can be called a strategy) that most people rely on after their estate plans are created. Estate planning, however, involves three important steps: (1) creating the plan; (2) integration (i.e. funding the trust); and (3) maintenance. Ignoring the third step could render the entire plan ineffective – so why did the client bother with creating an estate plan in the first place?

For example, a parent may create an estate plan that includes planning for several children. At some point later in time, a family fallout occurs and the parent no longer wishes to leave anything to the child. But if nothing is done to change the estate plan, what happens after the parent’s disability or death will not be what the parent wanted. Similar unintended consequences can result from births and deaths in the family, marriage and divorce, addiction, disability (the client’s or the beneficiary’s), and changes in state and federal law.

Conclusion. The most effective estate plan – that is, one that is sure to carry out the client’s objectives and goals – is continually updated with the constant oversight of an experienced estate planning attorney.


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Changes Affecting Estate Plans

Once an estate plan is created, in many estate planning attorneys’ experiences, clients tend to believe that their work is finished. For an estate plan to be guaranteed to work, however, an estate plan requires regular review and updating. Some of the forces that require updating include:

Birth. New children and grandchildren greatly affect the estate plan. While California provides certain protections for after-born children (called “pretermitted heirs”, those children can, with certain exceptions, only take their intestate shares – a problem that becomes especially apparent if the makers of the plans have intentionally made unequal distributions to other members of the family. Updating a plan to reflect the current family structure is of vital importance.

Death. Under California’s anti-lapse statute, a gift to a predeceased child will pass to that child’s heirs. This provides some protection that certain sides of a family will not be cut out completely when there is a death, but oftentimes one beneficiary’s death fundamentally alters a plan maker’s distribution plan. It is therefore essential to review the plan and update accordingly whenever there is a death in the family.

Fallout. Even the closest families are not like the Waltons. Family members or friends who are close when an estate plan is formed can become estranged later in life. Without updating the plan, a people may inherit even though the plan maker no longer wants them to be included in the plan. Simple but essential changes to the estate plan eliminate this risk.

Marriage and Divorce. As children grow from adolescence to adulthood, many things change in their own lives that may affect and could possibly frustrate their parents’ estate plans. One such possibility is a child’s marriage and/or divorce. Under California’s community property laws, inheritance is separate property and therefore safe from divorce. However, if the inheritance is commingled with community property in such a way that it cannot be fairly distinguished, then the entire inheritance will be considered community property and thus subject to a spouse’s recovery through divorce. Proper planning at the outset and proper maintenance can help avoid the predator of divorce.

Addiction. Tragically, approximately one in every ten Americans over the age of 12 suffers from addiction to alcohol or drugs. When parents create estate plans with their children as beneficiaries, few foresee that their children may suffer from addiction later in life. An outright distribution to a person with addiction can have devastating effects, and thus it is of paramount importance to make changes as soon as the issue arises.  Parents do not have to cut their children out of their plans completely to protect the children from themselves. Trusts can be created to provide the trustee the power to withhold distributions if the trustee has concerns about a beneficiary’s addictions.

Disability. In this author’s workshops, he always asks his audience, “who here has disabled beneficiaries?” Usually, no one raises their hand. However, the reality is that no one knows whether their beneficiaries will be disabled at the time of their death. If a disabled beneficiary were to receive an outright distribution, he or she may be disqualified from any need-based care he or she is receiving (such as Medi-Cal). A properly formed estate plan will already have so-called “special needs planning” built in (note: but if the plan is written by a general practitioner attorney, then it probably won’t), but all plans should be reviewed and updated accordingly upon any event of disability.

Changes in State and Federal Law. Wills and trusts are controlled by both state and federal law, and are always subject to change based on shifting political climates. One major political party may want to abolish the estate tax completely, whereas the other may want to lower the exemption threshold. Recently, the Supreme Court held that inherited IRAs are not protected from creditors (Clark v. Rameker (2014)). Changes in law can greatly affect an estate plan. For example, a carefully crafted trust can shield an inherited IRA from creditors. Without regular review by a dedicated estate planning attorney, people may not even know that some of their underlying assumptions have been altered by changes in law.

In an upcoming post, I will discuss the all-important how to maintain the estate plan.


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The IPUG Trust: Your New Best Friend In Asset Protection

In today’s turbulent world, Americans have been riding an economic rollercoaster. Many are beset by fear and even more have lost all confidence in the economy. The burning question on their minds is: what will the future bring? Some say that it is anyone’s guess. But, what if it could be more than a guess? What if you had a way to replace uncertainty with certainty? What if you had a means to find solutions for your family, regardless of your wealth or status, to create a win-win scenario? What if you could utilize a brand new tool in planning for your and your family’s future?

There is certainty in our uncertain times. The groundbreaking tool that will rocket estate planning to the next level is the IPUG – a whole new approach to estate planning.

So, just what is an IPUG? The Irrevocable Pure Grantor Trust, or IPUG, is a Self-Settled Asset Protection Trust for everyday folk, which is Medi-Cal compliant. It protects client assets from creditors, predators and nursing homes, while permitting the grantor to be trustee and have customized access. The IPUG was created by utilizing universal, fundamental trust and common law principles dating back to the English Statute of Uses of 1529 and is compliant with California and federal asset protection laws. In essence, the IPUG is, for income and estate tax purposes, an Irrevocable Grantor trust. (It is not an intentionally defective grantor trust, for those readers who know their trusts.) It not only provides advantageous tax benefits, including a full step-up in basis, but it also provides asset protection, while retaining Grantor control. With the increase in the estate tax exemption to $5.45 million ($5.5 million anticipated in 2017), IPUG will be applicable to 99.7% of Americans.

What makes IPUG unique? These trusts are easily understood. Whether you are a schoolteacher, an investment-savvy business owner or a busy professional, you can look to IPUG to protect your personal planning goals and objectives. People who want to protect their assets without giving up control or use of those assets are primary prospects, but IPUG is also exceptionally useful for individuals and couples who want to protect their personal assets, now and from lawsuits, predators, and nursing homes. The key element clients appreciate about IPUG is that they remain in control. They can have full access to income and indirect access to principal depending on individual goals and objectives. Since everything is reported on a 1040, the flexibility of these trusts ensures no separate income or gift tax returns are required.

The IPUG is immune to market conditions. In times of fear and anxiety, such as we are currently experiencing, many people’s level of fear of losing what they have is heightened and they are more likely to engage in this form of asset protection planning because it enables them to remain in control and have customized access. A decrease in the value of their portfolios actually has a positive result when planning for Medi-Cal eligibility, because it enables it to be accomplished in less time and creates a ‘Medi-Cal freeze,’ ensuring no additional penalties will be incurred when the full value of their stocks returns. People need nursing homes regardless of market conditions. This creates an immediate need that far outweighs those of a wavering stock market. People see IPUG as a solution in these uncertain times, rather than a condition of these uncertain times.

How does IPUG offer security for future generations? In addition to asset protection during a client’s lifetime, IPUG allows clients to pass assets on to their children in a manner that protects their children from lawsuits, divorce, nursing home expenses, and, if necessary their children’s indiscretions. The IPUG also allows clients to preserve their personal values by creating family standards that have a direct bearing on access to assets bequeathed to their heirs.


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Fictitious Business Name Statements for Professional Corporations

Many people already know that if a corporation, LLC, sole proprietorship, or partnership does business under a name not containing its own legal name, then a fictitious business statement must be on file with the local county clerk. For example, if Scott K. Maxwell Professional Law Corporation actually conducted business under the name “Speedy Legal Services,” then I would have to file a fictitious business name statement with the Napa County Clerk (my office is in Napa County). This post is not to discuss the details of obtaining a fictitious business name statement (which will be discussed another time) but rather to discuss certain distinct requirements for the category of California corporations known as professional corporations.

California law provides that certain professions must file as “professional corporations” (and not as regular corporations or LLCs) if incorporation is desired. Scott K. Maxwell Professional Law Corporation is, as the reader may guess, a professional law corporation. Professions that must be incorporated as professional corporations include physicians, attorneys, dentists, certified public accountants, veterinarians, optometrists, and psychologists. (This list is not exhaustive.)

Most, if not all, of these professions have state licensing boards of some kind. Depending on the licensing board’s requirements, a fictitious business name is required to be filed with the board itself. For example, both the Medical Board of California (which licenses MD’s) and Osteopathic Medical Board of California (which licenses DO’s) require that fictitious business name statements be on file with them (of course, with a filing fee).

This begs the question, if a professional corporation has a fictitious business name statement on file with its licensing board, does it also need a fictitious business name statement on file with the local county clerk? The short answer is yes.

Business and Profession Code sections 17900-17930, the statute that governs fictitious business name statement requirements, makes no mention of any interplay with professional licensing boards’ requirements. So why am I even writing this? Because there is conflicting information floating all over the internet. I have read websites that say that some county clerks do not require a fictitious business name statement to be on file with their office if the corporation has one on file with is professional licensing board. I have yet to come across any such county in California, and the law certainly does not provide for this. Even the Medical Board of California equivocates, stating:

Q: “If an FNP is issued by the Medical Board, am I still required to file for a fictitious name with my local county and city agencies?”

A: “Contact your local county and city agencies. The Medical Board is a state agency and, as such, cannot provide an answer regarding local requirements. The answer may be different, depending upon where the physician is practicing medicine.”

(source: http://www.mbc.ca.gov/Applicants/Fictitious_Name/Fictitious_Name_FAQ.aspx)

There is no leeway in California law to make any determination other than that which is provided for in Business and Profession Code sections 17900-17930, so the Medical Board’s answer is nonsensical. Do not be fooled — a fictitious business name statement would most definitely be required by California law to be on file with both the professional licensing board and the local county clerk.


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The Apple iPhone Privacy Dispute

This is my two cents on the Apple court dispute currently in the news.

Picture this:

There is a locked safe inside the home of a criminal who committed heinous crimes. In fact, he is no longer even alive. The police obtain a warrant for everything inside the house, including the safe, which there is good reason to believe contains very valuable evidence of criminal activity and could even lead to other subjects. But it’s a safe with a really incredible lock that the government can’t crack without the entire safe self-destructing and the essential contents destroyed. The company that built the age may be able to open it. But when law enforcement asks for the safe company’s help, the safe company refuses, citing “privacy concerns.”

I find this to be outrageous. The government’s request is not dissimilar from all sorts of requests commonly made. Phone companies are forced to turn over records all the time. Without also providing interpretations of raw data, the evidence would be useless. So of course they do not just provide billions of strings of encrypted code, even if their own servers are encrypted. The safe company itself chose to build a super sophisticated lock that it of course knew could be used to conceal, aid, and abet criminal activity. If they chose to build such a sophisticated encryption, it is not unreasonable to ask them to open it up, if it is possible to do so.

The slippery slope argument commonly made (i.e. if one safe is opened then none are safe (pardon the pun)) is fallacious in that it does not give law enforcement carte blanche to open up everyone’s safes. It gives law enforcement legal precedent to obtain evidence through valid legal process. The argument could just as easily be applied to phone records, yet it is settled law that one does not have an absolute right to keep one’s phone conversations private. Nobody has an absolute right to privacy and it’s quite egotistical for a private company to try to be the arbiter of what rights to privacy American citizens have. The dead criminal has no legal rights whatsoever, let alone some vague “privacy right” granted to him by a private company. The drug dealer has no absolute right to keep the information on his encrypted phone out of law enforcement’s hands. That has never been an accepted interpretation of privacy or the 4th Amendment in this country, nor should it be.


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California Wills and Notarization

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Being an estate planning attorney as well as a notary, I’ve found that many people do not understand the requirements to sign a will.  Many people find me by looking for a notary in the Vallejo/American Canyon/Napa area, and contact me because they’ve created a will (usually they wrote the will themselves using a form they found online or a will-making program) that they think needs to be notarized.

It’s a little peculiar to most people, but the person creating the will does not need to have his or her signature notarized.  For a California will to be valid, among other requirements, the person signing the will (known as the “Testator”) must sign it in the presence of two witnesses.  The witnesses must sign the will as having witnessed Testator sign (witnesses can do this at any time in the future during Testator’s lifetime).  The witnesses must understand that the document they’re signing is Testator’s will.

To avoid complications when the will is submitted to the probate court after the Testator dies, the witnesses should sign a statement swearing under penalty of perjury that they did in fact witness the signing of the will.  You should consult an attorney to make sure the will contains the proper language because there are very specific statements the witnesses must swear to, and if any are missing or worded incorrectly, it could tie things up years later in the probate court.

And that’s it for signatures!  No notarization necessary!


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Notary Services Now Available

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I’m pleased to announce that I am now a California Notary Public.  The notary certification process was new to me since I’d never had to go through it before.  You see, in Connecticut, attorneys are automatically able to notarize documents without additional notary training.  I’m not sure how many states are like this, but since Connecticut was the first state in which I practiced law, I thought this was the norm.

In 2010, I moved to and practiced law in New York, where, I discovered, attorneys were not automatically notaries.  I learned the same thing upon being admitted to practice in California in 2012.

My decision to seek a notary certification was primarily to provide an additional service as a courtesy my existing clients — if I were to draw up a power of attorney during the estate planning process, I want to be able to notarize that document as well.

I came to learn that notaries provide additional valuable services to the public, as notary signing agents for loan closings.  As a paralegal and attorney in Connecticut, I participated frequently in real estate closings and loan signings, because Connecticut attorneys customarily conduct closings.  In California, this vital service is frequently performed by notaries.  I am pleased and excited to participate in the loan closing process in California, as I used to in Connecticut.