San Diegans, you may have heard that the only foolproof way to avoid your loved ones having to pass through the time consuming (think 1.5 years if no contests and everything runs smoothly), public, and expensive San Diego Probate Court process is to set up a Living Trust.

This is correct, but ONLY if the Living Trust is “fully funded.”  A fully funded living trust means that all of the assets that can be owned (e.g. real estate including rental properties, bank accounts, stocks, bonds, brokerage accounts) are “owned” by the Trust.  The assets do not become “owned” by the Trust automatically!

Just because you list your assets on an attached “Schedule A” does not mean the assets are “owned” by the Trust.  You have to actually sign a deed transferring your real estate into your living trust.  You must sign new signature cards at the bank and re-title investment accounts in the name of your Trust.

And so what happens?

You set up a trust, perhaps your lawyer had you sign a deed putting your real estate into the Trust.

But then, a few years later, interest rates drop and so perhaps you refinance your home.  The mortgage lender requires you to take your home out of the trust in order to finance the loan on the property.

Bam!  You sign a deed transferring the home out of your trust and then you forget to put it back into the trust when the refinance is done.

So, what happens?

Maybe someone dies suddenly a few years later.  All of a sudden you have an unfunded trust.

The Living Trust that you set up to avoid probate court, must now go through a probate petition to put the house in the trust.

Granted this probate petition is less expensive and time consuming than a full blown Probate where there was no living trust, but it is still going to cause an additional expense, court involvement, time,  that could have been avoided.

Alternatively, perhaps you bought a rental property but did not list the rental property on your Schedule A and also did not put the rental property into the name of your Living Trust.

If you die, this house will have to go through the full probate process costing your heirs thousands and thousands of dollars.

We have seen this quite frequently.

So, yes, set up your living trust, but make sure your plan will work when the time comes by making sure your trust is fully funded and those assets are properly owned throughout time.

Make sure your plan will work when your loved one need it and your Trust doesn’t FAIL!

To your success,

Kristina Hess Haymes

San Diego Trust Attorney and

probate attorney

Interest rates continue to be low…. in this environment, there are certain estate planning strategies that could work for you.

The federal government requires the use of certain interest rates to value various items used in estate planning, such as an income, annuity, or remainder interest in a trust. The government also has interest rates that a taxpayer may be deemed to use in connection with certain installment sales or intra-family loans. These rates are currently at or near historic lows, presenting several estate planning opportunities.

Low interest rates favor certain estate planning strategies over others. For example, low interest rates are beneficial for a grantor retained annuity trust (GRAT), a charitable lead annuity trust (CLAT), an installment sale, and a low-interest loan. On the other hand, low interest rates have a detrimental effect on a qualified personal residence trust (QPRT) or a charitable gift annuity. But interest rates have little or no effect on a charitable remainder unitrust (CRUT).

Grantor retained annuity trust (GRAT)

In a GRAT, you transfer property to a trust, but retain a right to annuity payments for a term of years. After the trust term ends, the remaining trust property passes to your beneficiaries, such as family members. The value of the gift of a remainder interest is discounted for gift tax purposes to reflect that it will be received in the future. Also, if you survive the trust term, the trust property is not included in your gross estate for estate tax purposes. If the rate of appreciation is greater than the IRS interest rate, more of the value of trust assets escapes gift and estate taxation. Consequently, the lower the IRS interest rate, the more effective this technique is.

Charitable lead annuity trust (CLAT)

In a CLAT, you transfer property to a trust, giving a charity the right to annuity payments for a term of years. After the trust term ends, the remaining trust property passes to your beneficiaries, such as family members. This trust is similar to a GRAT, except that you get a gift tax charitable deduction. Also, if structured so that you are taxed on trust income, you receive an up-front income tax charitable deduction for the gift of the annuity interest. The lower the IRS interest rate, the more effective this technique is.

Installment sale

You may also wish to consider an installment sale to family members. With an installment sale, you can generally defer the taxation of any gain on the property sold until the installment payments are received. However, if the family member resells the property within two years of your installment sale, any deferred gain will generally be accelerated. The two-year limit does not apply to stocks that are sold on an established securities market.

You are generally required to charge an adequate interest rate in return for the opportunity to pay in installments, or interest will be deemed to be charged for income tax and gift tax purposes. However, with the current low interest rates, your family members can effectively keep any earnings in excess of the interest they are required to pay you.

Here we are on the eve of a new year.  I love this time of year.  I am particularly compelled by the newness of the new year.  I am drawn in by the endless possibilities, a time to begin again, start over, maybe even have a bit of a blank slate.  Leave behind anything painful or negative in the old year.

Truth be told, though, before we can fully leap into the new year with gusto, it is important to look back over 2012 and take an inventory.

I was running on my favorite Torrey Pines trail this morning, and a nice gentleman said to me, “Look at you!  Finishing 2012 strong!”  Indeed, let us finish 2012 strong!

My tendency is to brush the old away and move right into the new, shiny year with its endless possibilities.   Optimist that I am, I don’t ever doubt that the new year is going to be better than the last one!

As we look back over 2012, it is important to recognize all that you accomplished.  Perhaps you are like me and the tendency is to focus on all that is still yet to be done!  Perhaps your portfolio is not yet where you want it to be, your health, your wealth, your business, your relationships, there are probably areas of your lives that are still very much in process of becoming.  Perhaps you are still in the process of becoming who you want to be.  We are all works in progress after all.

But when we take the time to look back over the year, you may be amazed at how much progress you made!  This was a very encouraging and useful exercise for me.  As I looked back over the year in business, in my personal life,  in many areas I could find a sense of satisfaction and accomplishment.

It is with this awareness and gratitude that we can complete 2012 and finish strong.  Then, we can turn the page on the endless possibilities of the new year. Take the time to dream new dreams, write new plans, and continue to press on toward living a life by design.

Perhaps in 2012 you want to be more passionate and committed to:

1.  Building Wealth

2.  Grooming the Next Generation for Success

3.  Being healthy in mind, body and spirit

4.  Have satisfying loving relationships

5.  Making a contribution to the world

These are broad categories.  You will want to fill in the details that pertain to you.  But you get the idea.

As we close 2012, there were many who took advantage of the unique opportunity to make a lifetime gift while the credit was $5.12 million.  Many others began taking better advantage of the $13,000 tax free annual exclusion.

Yes, as of right now we are set to go to an estate tax credit of $1 million tomorrow!

A great strategy is to fund irrevocable trusts for children and grandchildren.  You give them the gift of asset protection and it provides a mechanism to manage and control the assets until they are distributed to the beneficiaries.

Finish 2012 strong and many blessings for health, wealth, and happiness in 2013.

Create Legacies that Last!

San Diego trust attorney,

Kristina R. Hess

Estate planning dilemma of the day: What do you do if your spouse will not, absolutely refuses to do any estate planning?  You own a home, you have children, you know that you know that you need to get this done!  You want your loved ones to avoid the long drawn out, expensive probate court process.

You do not want to give Uncle Sam over one-half of every dollar over $1 million if the estate tax credit (death tax) goes to $1 million as it is currently scheduled to on January 1, 2013.

California is a community property state.

If you attempted to do a living trust and you had jointly owned property or community property, and your spouse refuses to plan, your plan might not work.

Even if your spouse refuses to plan, if you can get him or her to CONSENT to what you would like to do with your half of the assets IN WRITING, you may be able to at least take care of your piece.  However, each member of the couple is deemed to own an undivided 50% interest in each asset, so consent is key.

Here is one of the relevant Probate Code sections…

The general rule concerning spousal consent for nonprobate transfers is set forth in Prob C §5020, which states that:

[a] provision for a nonprobate transfer of community property on death executed by a married person without the written consent of the person’s spouse (1) is not effective as to the nonconsenting spouse’s interest in the property and (2) does not affect the nonconsenting spouse’s disposition on death of the nonconsenting spouse’s interest in the community property by will, intestate succession, or nonprobate transfer.

The best thing to do is to see if you and your spouse can come to an agreement.  Sometimes, all the other person needs is some good old fashioned EDUCATION about the PARADE of HORRIBLES — all the bad things that result from failing to PLAN.   e.g. paying avoidable probate costs — thousands and thousands of dollars, potentially paying avoidable estate taxes, thousands and thousands of dollars, time delay, public court process, etc.  Children getting assets OUTRIGHT at 18, and so on.

You get the idea.

If you fail to plan, you plan to FAIL…

Please consult with a lawyer in your area.  This is not something you want to do yourself.

The above is not intended to provide you with legal advice.  I am not your lawyer and you should consult with one in your area before attempting any estate planning with or without spousal consent.

Create Legacies that Last and get that spouse on board!

Kristina

On May 1, 2012, Facebook asked FB users to sign up to donate organs.  There is a shortage of available organs for people in desperate need of life-saving organs.  Over 100,000 people in the United States alone are waiting for organs. Facebook has used its reach to help close the gap.

You can read an article from the San Jose Mercury News here.   Californians are being encouraged to register to donate organs with Donate Life California.

As part of your estate plan in California you can indicate your preference to donate your organs on your Advance Health Care Directive.  All of our clients are able to make this election on their Health Care Directives.

Not only is an Advance Health Care Directive useful for indicating your desire to donate your organs, you will also nominate your Health Care Power of Attorney, the person to make health care decisions for you if you are unable to make decisions for yourself.

And perhaps even more importantly, you can turn your wishes about your end of life into directives.  A directive whether you want life sustaining treatment if you are unconscious with little chance of survival or not.  Some people want to qualify their directives with time periods and scenarios.  The important point is that you avoid a situation where your loved ones fight, or do not know what to do and your wishes can be carried out.

Health Care Directives are important legal documents that everyone should have.  Whether you donate your organs through your directive, or by registering with an agency, this is another choice that can potentially save someone’s life.

Thanks Facebook for doing your part to spread the word.

Estate Planning is an important piece to make sure that your wishes regarding your health care and organs are taken care of.

Create Your Legacy Today!

Kristina Hess Haymes

San Diego Estate Lawyer

Ideals are good.  Standards are Good.  Excellence is Good.  We are called to do well and be excellent.  For sure!

But sometimes our desire to have things “just right” or “perfect” can be a real hindrance.

Can we be real?

In preparing estate plans for San Diego families, I see this frequently in my office.  I am going to use the collective “us” and “we,” because I can certainly identify with these scenarios.

Sometimes our desire to have it just right might hold us back from having it at all…

What if you like the idea of recording a video to begin leaving a library behind of your intangible wealth for your children and (perhaps future?) grandchildren… but you don’t look quite right.  Or, you don’t quite know what to say? Or, maybe you don’t want to record anything that personal (and potentially emotion inducing) in front of someone you don’t know that well.

I get that.   But are you really going to do it on your own at home?

Or, maybe you and your spouse really know that you need to nominate guardians for your children (people who could raise your child or children in the event that you are unable to) but there just isn’t that perfect person or couple.

The truth is there is no perfect person that is not you!  There just isn’t.  Parents can be pretty difficult, if not impossible, to replace.  But, the alternative to not legally nominating long term guardians for you children, is that you are taking a huge chance that nothing happens to you and your spouse before your child or children are adults!  Are you willing to play the odds with the lives of your children?  I mean, if you are gone, there is a default plan — a judge will decide who will raise your children.

But wouldn’t you rather have an imperfect plan then leave it up to a judge?

When it comes to back up parents for our children, perfect probably isn’t an option.

In this case, an imperfect plan is hands down better than no plan.  Who knows in your circle of family memberswho would step forward to volunteer to raise your children?  And, who knows how good someone may look on paper when the reality can be far different.  Maybe you are assuming that both sides of the family would handle a difficult situation with grace and love, but that is often not the case.

Again I say, this is a situation where an imperfect plan is better than no plan.

Are there other ways that a desire for perfection is holding you back?  Sometimes, we just have to get over ourselves and get something done.  Sometimes imperfect is much better than waiting for perfection.  Perfection doesn’t even really exist anyway.

I ran across an interesting book not to long ago called Wabi Sabi Love: the Ancient Art of Finding Perfect Love in Imperfect Relationships.   The author’s work is based upon “the ancient Japanese aesthetic known as wabi sabi which honors all things old, worn, weathered, imperfect, and impermanent. In fact, it seeks to find “beauty and perfection in the imperfections.

Of course, like anything, the application of the concept is context specific.  But there is something really powerful about love and acceptance of our humanity in all of its imperfections.  You can apply this to your relationships (when they are not harmful of course) and the people in your lives.  You can apply this to tackling something that may seem overwhelming like legal planning for life and death.

Is your desire or need for perfection standing in your way?  Is it blocking your path to getting your estate planning done, loving those around you, making sure you show your love by making things as easy as possible for those you care deeply about if you are no longer here?

hmmm, love, acceptance, honor … imperfect people.

Create Your Legacy Today!

San Diego Probate and Trust Attorney, Kristina Hess Haymes

Polly and Sam from Del Mar, California want to know how to change their revocable living trust.  They created a joint trust over 10 years ago and their life has changed.

They had another child, and the persons they selected as their successor trustees need to be updated (trustees are the ones who manage your trust when you no longer can).

Some people want to know if they can just write a piece of paper and attach it to their trust.  Or, can they just mark up the trust, crossing out the names and writing in new ones?

A recent case decided by a California Appellate Court has reminded us all that the most important thing to do when changing an existing trust is to follow the directions for making an amendment contained in the original trust.  In the recent case, a party had followed the California Probate Code on how to amend a trust, which differed from what the trust instrument provided.

California law gives deference to legally binding written agreements.

Follow your Trust.

Don’t make handwritten changes.

Make sure you execute a proper amendment.

Here at Haymes Law Group we have a membership program in place, where for a monthly or flat annual fee, you can get unlimited changes or updates to your estate plan.  That way you can be sure that your plan is up to date, and that your amendments are all done properly.

Create Your Legacy!

Kristina Hess Haymes

San Diego Estate Lawyer

Wills, Trusts, and Businesses

Hey San Diegans,

It has been awhile since I’ve recorded a new video on an educational topic about wills, trusts, living trusts, estate taxes, probate, and child guardianship…. I’m wondering if there is a topic that you have a question about?

Is there something you would like me to address?

Oh, and have you gone to check out my free videos on estate planning?

Be sure to go to http://sandiegoestateplanningvideos.com and get access to my free videos.

I would love to hear from you and answer your questions.

I recently did a radio show about asset protection, and there were a lot of good questions on that topic.

Maybe that’s the next video?

Tell me what you think.

Create Legacies,

Kristina Hess Haymes, San Diego Estate Lawyer

www.krhess.com

I heard this story on the radio this morning about a man in Montana who was stuck in his car for three days!  His car got stranded in a snow storm.

Every hour he played 15 minutes of angry birds and ran his car’s heater to stay alive.

He also drafted a will!

You can read about his story here.

Don’t wait until your stranded in your car in a snow storm to put a will or living trust in place.

Make sure you legal house is in order today!

A friend died recently leaving two small children, and I’m reminded that no one is promised tomorrow.  We all think we will live until our old age, but there are no guarantees in life.

Notwithstanding the fact that I assist people in planning for their eventual death, we always hope it is eventual.

I am still shocked by news of those dying young, before we thought it was their time.

So, learn from the guy in his car in the mountains… stranded in a storm and get your legal affairs in order now.

Everyone needs a will,  a power of attorney, health care directive, living will, HIPAA authorization.

If you own your own home in San Diego or Southern California, then, you likely will need a living trust to avoid San Diego Probate Court.

Create your legacy today!

Kristina Hess Haymes

San Diego Probate and Trust Attorney

Last week I was writing about 2012 being the year to make big gifts… for some.

But maybe you are saying to yourself, that’s great, but I’m not in the multi-million dollar estate range and so the opportunity to gift millions this year and pay the gift tax as opposed to the estate tax doesn’t really help or inspire me.

But fear not, there is something even more valuable that you can gift each and every day and that my friends, is the gift of grace.

I’m not talking about grace of movement — you know those graceful people that seem to glide across the dance floor or across the playing field.

I’m talking about the grace of favor that may not be earned.

Giving someone something like forgiveness when they do not deserve it.

You can leave a legacy with money, but you know you can also live your life each day giving others the gift of your love, the gift of forgiveness — gifts of intangible value.

Gifts that create a life that will matter to those who are in your circle of influence.

Create your legacy today!

Kristina Hess Haymes

San Diego Trust and Probate Attorney