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Use of Trusts for Asset Protection

Asset Protection, California TrustsNo Comments

trust pic e1378498532909 Use of Trusts for Asset ProtectionFamilies who don’t have over $10.5 million in assets that would make their wealth subject to federal estate taxes may think they don’t need trusts, but there is nothing better for protecting wealth for future generations than the strategic use of trusts.

Without the protection of trusts, assets left outright to heirs are exposed to creditors and future divorce actions that could seriously deplete the estate in just one generation.  If trusts have already been established, they should be examined to determine if they provide optimal asset protection.  If they do not, there could be opportunities to decant the old trust and pour it into a new, better trust to protect assets.

To properly protect your estate, new trusts should have long-term durations; some states allow perpetual trusts and your estate planning attorney can advise you on whether setting up a domestic asset protection trust in another state would be a good move for you.

Trusts should also have some flexibility built-in to overcome any objections by heirs, including the ability to change trustees and providing beneficiaries with some decision-making powers.

If you would like to learn more about how a trust can help you protect your assets, contact our Costa Mesa law firm.

10 Mistakes to Avoid When Naming a Beneficiary for Your Life Insurance Policy

Asset Protection, Estate PlanningNo Comments

life insurance 10 Mistakes to Avoid When Naming a Beneficiary for Your Life Insurance PolicyA recent Fox Business post provided some important information worth sharing here about the 10 mistakes you need to avoid when naming beneficiaries for a life insurance policy:

Leaving benefits to a minor.  By law, insurance companies cannot pay benefits to minor children, so you need to create a trust to funnel these funds or else a court will appoint a guardian – a time-consuming and costly process that is totally avoidable.

Leaving benefits to special needs person.  By leaving policy proceeds to a special needs person, you could be inadvertently making them ineligible for government benefits.  Again, setting up a trust will help avoid this.

Forgetting community property state rules.  California is a community property state, so if you want to leave your life insurance proceeds to someone other than your spouse, your spouse will have to sign a waiver.

Creating a tax trap.  If one spouse owns a life insurance policy on the other spouse’s life and names a child as beneficiary, the payout could be counted as a gift, creating tax problems for the beneficiary.

Using your will to change your beneficiary.  A life insurance policy is a contract, and thus trumps a will.  If you want to change your beneficiary, you need to contact your insurer.

Not updating.  Review your policy at least every three years to determine if you need to change beneficiaries because of a death, birth, divorce or remarriage.

Just naming one beneficiary.  If you only name one beneficiary and that person dies before you do, the proceeds will go to your estate and will be subject to taxation.  Always name a second and a final beneficiary.

For more asset protection and estate planning strategies, contact our Costa Mesa law firm.

Prenuptial Agreements Becoming More Popular as Estate Planning Tool

Asset Protection, Estate PlanningNo Comments

boomer couple1 150x150 Prenuptial Agreements Becoming More Popular as Estate Planning ToolA Wall Street Journal article last week examined the growing popularity of prenuptial agreements as estate planning tools, especially by baby boomers who are remarrying later and using prenups to secure assets accumulated prior to the marriage.

The American Academy of Matrimonial Lawyers says that about 80% of prenups deal with the protection of separate property, the division of property and inheritance rights.  For boomers seeking to protect accumulated wealth and provide for children from a prior marriage, prenups help separate and protect these assets for those purposes.

However, it is important to note that since a prenuptial agreement is a contract, it can take precedence over a will, so it is important to ensure that each spouse’s will aligns with the intentions set forth in the prenup.

Trusts can also be used as part of a prenuptial agreement.  As the article notes, primary or vacation homes can become a bone of contention between children from a prior marriage and a new spouse.  Creating a qualified personal residence trust (QPRT) enables a surviving spouse to stay in the home for a pre-established period of time (or lifetime), then passes the home on to the children after that time has expired.

As an alternative to a prenuptial agreement, those with assets to protect may want to consider using a domestic or foreign asset protection trust, which does not require the consent of a future spouse to be put into effect.  Transferring property or a small business to this kind of irrevocable trust enables those assets to remain separate property.

If you need advice on asset protection strategies, contact our Newport Beach law firm.

5 Reasons You Shouldn’t Rely on Portability Alone to Pass & Protect Assets

Asset Protection, Estate PlanningNo Comments

marriage and money 150x150 5 Reasons You Shouldn’t Rely on Portability Alone to Pass & Protect AssetsLast January’s fiscal cliff tax deal ushered in a great estate tax break for married couples: permanent portability. This allows surviving spouses to add any unused portion of a deceased spouse’s lifetime exemption to their own $5.25 million tax-free exemption.

However, married couples need to be aware that portability will not necessarily cover all the bases when it comes to passing and protecting assets.  A recent post at Wealth Strategies Journal outlined five reasons that failing to also integrate traditional estate planning methods into your plan could have adverse consequences:

1.  The surviving spouse that inherits may then distribute assets in a way that the deceased spouse have never intended or would not have approved.

2.  Creditors may gain access to the assets of the deceased spouse at some point.

3.  If a surviving spouse remarries, he or she will lost the first deceased spouse’s unused exemption amount if their second spouse predeceases them.

4.  The assets inherited by a surviving spouse could use up more of his or her estate tax exemption due to appreciation.

5.  The portability law could be changed or even eliminated.

If you need help with asset protection, contact our Costa Mesa law firm.

How to Protect Wealth for Future Generations

Asset Protection, Estate PlanningNo Comments

generations 150x150 How to Protect Wealth for Future GenerationsOne of the greatest benefits of accumulating wealth is to help ensure the financial stability of future generations.  This is also one of the greatest challenges wealth creators face.  Fortunately, there are several estate planning strategies you can employ as part of your wealth succession planning, including:

Spendthrift trust.  Bequeathing large sums of money outright increases the chances that it could go to creditors, ex-spouses or an irresponsible heir.  Creating a trust with a spendthrift clause helps guard against these potential calamities.

Dynasty trust.  Succession planning for your wealth means you need to think long-term.  The use of dynasty trusts allows you to provide for direct heirs throughout their lifetimes as well as their heirs.

Family office.  Using a business entity like an LLC allows you to manage and grow the famliy’s wealth over time.

Education.  Pass on your values as well as your wealth by educating your heirs on the family wealth and your wishes for its governance.

Philanthropy.  Having charitable giving as a family focus can help bind heirs together for a common purpose.

Advisors.  Create a trusted group of advisors to help you structure and administer your wealth plan.

For more information on wealth succession planning, contact our Newport Beach law firm.

7 Common Money Mistakes You Should Avoid

Asset ProtectionNo Comments

Oops 150x122 7 Common Money Mistakes You Should AvoidRecently, Consumer Reports Magazine singled out the 7 most common money mistakes based on data from their national survey about Americans’ money habits and provided the following advice on how to avoid them:

1.  Not updating wills and beneficiaries.  86% of those surveyed by Consumer Reports had not updated their wills or other estate planning documents for five years.  Recommendation:  Check your will and beneficiary designations for life insurance policies, investment and retirement accounts every year to ensure they reflect any changes in your life.

2.  Not sharing financial information with family members.  Only 30% of those surveyed said both spouses were equally knowledgeable about their financial information.  Recommendation: Designate a safe or file cabinet for all your estate planning documents and financial account information (including website log-in information) and tell your family.

3.  Screwing up your 401(k).  Just 40% of those surveyed said they take full advantage of defined-contribution retirement accounts, and 91% said they never reviewed the fund expenses for their plans.  Recommendation:  401(k) plan administrators are now required to send statements to investors outlining fees and these statements should be reviewed to see how fees compare with the recommended average of 0.2 percent or less.  Plan holders need to also contribute the necessary amount to get the full employer match.

4.  Underinsuring your home and life.  Only 36% of those surveyed had the necessary homeowners insurance to cover the full replacement value of personal property, and just 20% of respondents had sufficient coverage to protect against liability lawsuits.  Recommendation:  If you need to economize with your homeowners insurance, choose a higher deductible rather than going without the necessary coverage to protect your personal property and to cover liability issues.  Look into disability and life insurance as well to protect your family against loss of income.

5.  No emergency fund.  Just 29% of survey respondents said they had an emergency fund to cover 3-6 months of living expenses.  Recommendation:  Saving just a small amount at a time – even $20 per week – can help build that important emergency fund.

6.  Not checking your credit report.  81% of survey respondents said they don’t ever bother to check their credit reports, even through identity theft is the fastest growing crime in the U.S.  Recommendation:  You can obtain a free credit report every year from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion) at  Get one report every four months to make sure your record is clean.

7.  Not managing debt.  About 20% of those surveyed said they had credit card debt of more than $10,000.   With the average interest rate on credit cards at over 14 percent, that debt can stretch for decades.  Recommendation:  Focus on retiring debt by paying more than the minimum each month.

For additional strategies on protecting your financial future, contact our Orange County law firm.

Top 10 Financial Benefits for Military Families

Asset Protection, Estate PlanningNo Comments

american flag e1352756079869 Top 10 Financial Benefits for Military FamiliesIn honor of Veteran’s Day, we are happy to share with our readers the top 10 financial benefits for military families from Kiplinger:

1.  Low cost retirement savings plan.  Members of the military can park their retirement savings in a Thrift Savings Plan (TSP) that only charges an annual fee of 0.027% of assets (versus typical annual fees of between 1% and 2% for regular 401(k) plans).  You also have access to a Roth TSP, which is like a Roth IRA without the income restrictions.

2.  Guaranteed return on savings of 10%.  Servicemembers can invest up to $10,000 in the Savings Deposit Program each time you are deployed.  You receive 10% annual interest, compounded quarterly, up to three months after your return.

3.  Tax-free Roth deposits.  For servicemembers who are receiving tax-free combat-zone pay, you can put your money into a Roth IRA tax-free and your contributions as well as your earnings are also tax-free whenever you make a withdrawal.

4.  Free college for you or a spouse or a child.  The Post 9/11 GI Bill covers full in-state tuition and fees for undergraduate or graduate programs at public colleges for up to 36 months (four academic years), or up to $18,077 per year for private colleges or foreign schools.  You also receive a housing stipend and money for books and tutoring.  Vocational and trade schools are also eligible.

5.  Cheap life insurance.  Servicemembers’ Group Life Insurance costs only 6.5 cents per $1,000 of life insurance coverage, or $312 per year for the maximum benefit of $400,000.  You can be covered regardless of your age, health or likelihood of being deployed.  Spouses under the age of 35 can get $100,000 of coverage for about $60/year.

6.  State tax breaks.  If your legal residence is in a state that has no income tax and you have to move to another state while on active duty, you can maintain your domicile in the no-tax state for income tax purposes.

7.  Special legal benefits.  Thanks for the Servicemembers Civil Relief Act, you can get a 6% cap on any loans you took out before you were called to active duty.  You also have the right to terminate an apartment lease without penalty if you are deployed to a new location for over 90 days.

8.  No-down mortgages.  VA loans are now one of the only ways to get a mortgage with no money down.

9.  Tax-free housing allowance.  Servicemembers are eligible for a tax-free housing allowance, which is a monthly subsidy that covers all or part of your monthly rent or mortgage payment as long as you are in the military.

10.  Low-interest loans.  Every branch of the military has a fund that offers servicemembers low-interest small loans for emergencies.

To current and former members of our nation’s armed forces, we thank you for your service.  If we can ever be of service to you, please contact our Orange County law firm.

Warning Signs Your Aging Parent Needs Help With Finances

Asset Protection, Estate PlanningNo Comments

caregiver e1354228604294 Warning Signs Your Aging Parent Needs Help With FinancesAccording to the Alzheimer’s Association, one in three seniors die with some form of dementia.  As baby boomers age, the prevalence of dementia is only increasing with time – in another 35 years, it is estimated that the number of Americans with Alzheimer’s will triple.

Here are 7 warning signs to look for that your aging parent could use help managing their finances:

1.  Shut-off and overdraft notices.   They may no longer be able to keep track of the due dates of their bills or balance a checkbook.

2.  Credits on recurring bills.  Large credits on recurring bills may indicate they have forgotten they have already made a payment, so they keep sending checks.

3.  Empty bank account.  Points to a problem with managing their money on a monthly basis.

4.  Unopened mail.  Stacks of unopened mail can be a red flag.

5.  Unusual purchases.  If a usually frugal parent makes extravagant purchases, it may be an indication of eroding financial management skills.

6.  Gambling.  A senior who starts gambling regularly or does it more often than normal can signal trouble.

7.  Unusual mail and phone calls.  Could be an indication they have fallen victim to financial scams or abuse.

Children of aging parents with financial management issues should consider setting up a trust and/or durable power of attorney.  Sometimes, a guardianship or conservatorship may be in order in the absence of a power of attorney or trust.  Contact our Costa Mesa law firm for assistance.

These Asset Protection Strategies Can Help You Protect Your Wealth

Asset ProtectionNo Comments

golden eggs 150x150 These Asset Protection Strategies Can Help You Protect Your WealthPeople with substantial assets, and those who are about to receive them, are wise to look for ways to protect those assets.  A recent article explores several asset protections strategies that can help you preserve your wealth:

Liability insurance increase.  If you come into sudden wealth or have already accumulated it, you are a more likely target for a lawsuit, simply by the virtue of having wealth.  You should have umbrella liability insurance coverage for an amount that is at least equal to your net worth.

Keep assets separate.  In a community property state like California, it may be best to keep assets from an inheritance or business sale separate.  While this may not be an issue for many, it could be for some who have children from a previous marriage or those contemplating a divorce.

Review joint accounts.  Any assets held in a joint account are at risk if the joint owner files for divorce or incurs a legal judgment or tax lien.

Formalize partnerships.  Informal business partnerships can be recipes for disaster when it comes to asset protection.  Form an LLC or other corporate entity to provide you legal protection for your personal assets.

Use corporate entities to shield assets.  If you own rental property, you should create a LLC or corporation to protect your assets from unhappy renters.  If you run a small business, create a corporate entity to keep your personal assets protected from legal action against the business.

For more asset protection strategies, contact our Orange County law firm.

IRA Rules Change for the Better for Same-Sex Married Couples

Asset Protection, Estate Planning, Retirement PlanningNo Comments

ira e1346184593476 IRA Rules Change for the Better for Same Sex Married CouplesThanks to the U.S. Supreme Court decision last June that struck down key provisions of the Defense of Marriage Act (DOMA), there have been some significant changes to the rules governing tax-deferred retirement accounts.

The IRS announced last month that it will now recognize same-sex marriages for federal tax purposes.  So the rules that used to apply just for opposite-sex married couples now apply for ALL legally married couples, regardless of sexual orientation.

When it comes to tax-deferred retirement accounts like IRAs, this means that same-sex married couples have the same spousal IRA benefits as other married couples, including the right for a working spouse to fund an IRA on behalf of a nonworking spouse and for a surviving spouse to inherit a deceased spouse’s IRA and roll it into their own IRA, deferring withdrawals until age 70 ½.

The same goes for 401(k)s – a surviving spouse in a same-sex marriage can roll over an inherited IRA into their own instead of dealing with it as an inherited IRA, and are also entitled to full spousal 401(k) benefits.

In case of a divorce, same-sex married couples are also treated as other married couples when it comes to the division of retirement benefits, including being able to use a QDRO (qualified domestic relations order) to more equitably divvy up the assets.

For more information on how same-sex married couples can now benefit from recent changes in the law, contact our Orange County law firm.

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