A Primer on Irrevocable Trusts

Most individuals are aware that a will is one way to plan for the distribution of their assets after death. However, frequently a will by itself is not sufficient to accomplish many people’s estate planning goals.  Thus, a comprehensive estate plan also should consider other objectives such as planning for long-term care, privacy, asset protection, and efficiency. For this reason, it is essential to consider utilizing an irrevocable trust.

An irrevocable trust is an estate planning tool that becomes effective during a person’s lifetime, but it cannot be amended or modified. The person making the trust, the grantor, transfers property into the trust permanently. In so doing, the grantor no longer owns the transferred property, and a designated trustee owns and manages the assets for the benefit of the beneficiaries.

In short, irrevocable trusts provide a number of advantages. First, the property is not subject to estate taxes because the grantor no longer owns it. Moreover, unlike a will, an irrevocable trust is not probated in court. Finally, the assets are protected from creditors.

Common Irrevocable Trusts

There are a variety of irrevocable trusts, including:

  • Bypass Trusts –  utilized by married couples to reduce estate taxes when the second spouse dies. In this arrangement, the property of the spouse who dies first is transferred into the trust for the benefit of the surviving spouse. Because he or she does not own it, the property does not become part of this spouse’s estate when he or she dies.
  • Charitable Trusts – created to reduce income and estate taxes through a combination of gifting and charitable donations.  For example, a charitable remainder trust transfers property into a trust and names a charity as the final beneficiary, but another individual receives income before its final distribution, for a certain time period.
  • Life Insurance Trusts – proceeds of life insurance are removed from the estate and ownership of the policy is transferred into the trust. While insurance passes outside of the estate, it is not factored into the value of the estate for tax purposes, so this vehicle is designed to minimize estate taxes.
  • Spendthrift Trusts – designed to protect those who may not be able to manage finances on their own. A trustee is named to manage and distribute the funds to the beneficiary or directly to creditors, depending on the terms of the trust.
  • Special needs trusts – designed to protect the public benefits that many special needs individuals receive. Since an inheritance could disqualify a beneficiary from Medicaid, for example, this estate planning tool provides money for additional day to day expenses while preserving government benefits.

The Takeaway

Irrevocable trusts are essential estate planning tools that can protect an individual’s assets, minimize taxes and provide for loved ones. Therefore, to properly employ these above tools to accomplish your estate planning objectives, it is crucial to seek the advice and counsel of an experienced estate planning attorney at Schneiders & Associates, L.L.P.

By: Eric A. Hirschberg, Esq.

How To Leave Gifts To Stepchildren

Today, blended families have become increasingly common, and many individuals have step-children, that is, children of a spouse or partner. In situations where step-children have not been legally adopted, however, they may not have a legal right to an inheritance from a step-parent.  However, California has a statute wherein a stepchild is to be treated as an intestate heir of the deceased stepparent so long as two requirements are met: (1) the stepparent relationship began during the stepchild’s minority and continued to the stepparent’s death, and (2) there is clear and convincing evidence that the stepparent would have adopted the child but for some legal impediment (such as the non-consent of some interested party). Cal. Prob. Code § 6454.  Leaving the issue of a step-child’s right to inheritance to statute is not the most efficient way to proceed.  It may create claims of pretermission (unintentionally left out of the will or trust and thus allowing the step-child to claim a share of the estate) or other litigation actions.

For those who wish to leave step-children part of their estate, it is best to include them in an estate plan, or if they are not to receive a share of the estate, to add clear language of disinheritance.

The easiest way to leave gifts to step-children is to name them in a will or trust. As with any other gift, they can be given a percentage of the estate, or specific gifts. If there are other children involved, it is important to avoid confusion by naming each child and step-child by using their individual names, rather than terms such as “descendants,” “heirs,” or “children.”

There are also a number of estate planning tools that can be utilized to include step-children in an inheritance. If the objective is to avoid probate, for example, a revocable living trust can be established in which a step-child is named as a beneficiary. Moreover, it may be necessary to provide for a disabled step-child who is eligible for public benefits by establishing a special needs trust. Lastly, a step-child can also be named as a beneficiary in a life insurance policy or a pay-on-death financial account.

While there is no legal obligation to leave step-children an inheritance, it may be the best choice for those who have a close relationship, or played a significant role, in raising them. However, this will reduce the amount of assets available to other children and beneficiaries. Because blended family relationships are complex and subject to emotional challenges, it is important to explain these decisions with all family members.

By engaging in an open and honest dialogue, you can minimize the potential for strife and the possibility of a will contest. In particular, it is important to clarify why you gave each recipient a gift, the selection of your executor, and your thoughts about the family.  Lastly, you are well advised to engage the services of an estate planning attorney who can help ensure your wishes regarding step-children are carried out.

If you are considering establishing an estate plan, whether or not you have step-children, the attorneys at Schneiders & Associates, L.L.P. can help! Please contact us to complete an estate planning questionnaire and schedule a no fee consultation.

By: Roy Schneider, Esq. 

What is a Spendthrift Trust?

When it comes to estate planning, there are many factors to consider, not the least of which how to provide for loved ones. Although we like to believe that our heirs are deserving and capable of managing an inheritance, some beneficiaries may not be responsible or lack an understanding of financial matters. Fortunately, it is possible to leave assets to a troubled heir by creating a spendthrift trust.

This estate planning tool limits a beneficiary’s access to trust property in order to protect it from him or her as well as creditors. Rather than providing assets or funds directly to the beneficiary, the trust maker (or grantor), designates a trustee to manage the trust property and provide regular payments to, or purchase goods and services for, the beneficiary, either for a period of years, during periods of particular stress, such as alcohol or drug dependency, or for life.

Spendthrift trusts are typically created when an heir does not know how to manage money or is frequently delinquent with debt. In addition, a spendthrift trust can protect those who have drug, alcohol or gambling problems or who are at risk of being manipulated.

The role of the trustee

The trustee is responsible not only for managing the trust, but also protecting the assets from being squandered by the beneficiary. This requires the trustee to manage the trust in a manner that preserves the value of the assets while providing for the beneficiary.

In order to do so, the trustee should have the power to make set payments to the beneficiary on a regular basis. Similarly, the trustee must also be able to withhold payments under certain conditions, particularly if the beneficiary gambles or gets into debt. However, this would also require the trustee to monitor the beneficiary’s behavior, which could be problematic.

Finally, the grantor could also specify conditions under which payments should be released to the beneficiary. For example, the grantor could instruct payments be made directly to a landlord or a creditor rather than the beneficiary. In some cases, the beneficiary could also be required to undergo drug or alcohol testing before receiving a payment from the trustee.

In sum, a well-designed spendthrift trust must consider the unique relationship of all the parties. It is crucial for the grantor to name a trustee who is honest and capable, and who will fulfill his or her obligation to preserve the trust assets and provide for the beneficiary.

If you would like to learn more about spendthrift trusts and how they may be beneficial for your loved ones, please make an appointment to speak to a knowledgeable estate planning attorney at Schneiders & Associates, L.L.P.

By: Roy Schneider, Esq.

Estate Planning: Can I Include My Pet?

The basics of estate planning includes planning for the transfer of your estate to others during life, at death or after death, and planning for incapacity.  But can an estate plan include your pet?  YES!  However, assets cannot be left directly to pets, since animals are still considered property under the law, but you can care for your animal companions in a few different ways:

  • Designate an animal shelter that they are to go to upon your death and where they will be cared for their life or given to a nice family
  • Give them to a friend or family member and hope for the best
  • Designate a caregiver to care for them and a trustee to handle funds for their care which funds remain in trust for the life of your animal companion

In California, you can establish a trust for the care of your pet.  You may want to choose a caregiver and trustee that share your level of devotion and concern for your pets.  Under the law, your pet trust is enforceable by a person designated in the trust, a person appointed by the court, any person interested in the welfare of the animal, or any nonprofit charity that is involved with animal welfare.

Selecting a caregiver for your pet is analogous to selecting a guardian for your children.  The ideal candidate for selecting a caregiver for your pet is someone who knows and loves your pet, who can provide a stable home, and who is willing to assume the responsibilities of caring for your pet.  The trust terminates upon the death of the pet and the balance is distributed to the remainder beneficiaries.  You should carefully consider who the remainder beneficiaries should be and if the caregiver should also be one of those beneficiaries.

If you are considering establishing an estate plan for yourself, whether or not you wish to include a trust for your pet, the attorneys at Schneiders & Associates can help!  Please contact us today.

By: Roy Schneider, Esq.

Responsibilities and Obligations of the Executor or Administrator

When a person dies with a will in place and no trust, an executor is named as the responsible individual for winding down the decedent’s affairs. In situations in which a will has not been prepared, and there is no trust, the probate court will appoint an administrator. Whether you have been named as an executor or administrator, the role comes with certain responsibilities including taking charge of the decedent’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries.

In some cases, an executor may also be a beneficiary of the will, however he or she must act fairly and in accordance with the provisions of the will. An executor is specifically responsible for:

  • Finding a copy of the will and filing it with the appropriate state court
  • Informing third parties, such as banks and other account holders, of the person’s death
  • Locating assets and identifying debts
  • Providing the court with an inventory of these assets and debts
  • Maintaining any assets until they are disposed of
  • Disposing of assets either through distribution or sale
  • Satisfying any debts
  • Appearing in court on behalf of the estate

By filing for probate of a will or if there is not will, the executor or administrator, as the case may be, can then pay all of the decedent’s outstanding debts and distribute the property to the beneficiaries according to the terms of the will or, if there is no will, according to the laws of intestacy. The executor or administrator is also is also responsible for filing all federal and state tax returns for the deceased person as well as estate taxes, if any. Lastly, an executor or administrator may be entitled to compensation for the time he or she served the estate. In the end, being name an executor or appointed as an administrator ultimately means supporting the overall goal of distributing the estate assets according to wishes of the deceased or state law.  If you are named as an executor of a will, or if you feel that you are the responsible party to probate an estate without a will, contact an experienced probate or estate planning attorney at Scheniders & Associates, L.L.P. to help you carry out these duties.

By: Roy Schneider, Esq. 

Estate Planning and the New Trump Administration – What Does the Future Look Like?

President-elect Donald Trump’s tax reform plan includes the elimination of federal transfer taxes. Although this move has been backed by many congressional Republicans, and some Democrats, as well as many in the general public, estate planners and tax advisors are preparing for the possible impact the proposed reform will have on estate planning.

Estate planners are preparing for the possible consequences, even though there are still unanswered questions. For example, if the Trump plan is enacted, what happens to stepped up basis at death?  Generally, as a trade-off to the estate or death tax, the heirs receive a step up in the basis of inherited appreciated property equal to the date of death fair market value.  Such a step up has been a valuable benefit to middle class taxpayers who don’t pay estate tax, but inherit property.  With a step up in basis, the inherited property can usually be sold without any capital gains tax.

Will the gift tax be repealed and will we see the return of carryover basis? Will the capital gains tax apply to all unrealized gains at death?  This is a plan adopted in Canada where there is no estate tax, but a tax at capital gains rates on the appreciation between the time the decedent acquired the property and the date of death.  What happens to formula funding clauses in existing instruments which were set up to maximize the amount of gifts on death before reaching the estate tax level? How will spousal trusts be drafted when there is no longer a need to meet requirements for a marital deduction? Also, will the same rules dealing with capital gains and stepped up basis that apply to large estates, also apply to smaller estates?   What will happen to QDOTS which are used to avoid the estate tax when a non-citizen inherits property?  There are many more questions, but these are just a few.

Until we know what type of reform will actually be enacted, these are questions that estate planners and their clients are preparing for in 2017. Generally, the estate planning attorneys at Schneiders & Associates, L.L.P. are advising clients to wait and see a bit before undertaking irreversible estate tax saving techniques.  If you have questions about the possible impact of the Trump plan, please feel free to make an appointment with the estate planning attorneys at Schneiders & Associates, L.L.P.

If you have any questions regarding estate planning, please do not hesitate to contact an estate planning attorney at Schneiders & Associates, LLP for advice and counsel.

The Revocable Living Trust

By Roy Schneider, Esq.

There are many benefits to a revocable living trust that are not available in a will.  An individual can choose to have one or a combination of both, and an attorney can best clarify the advantages of each.  If the person engaged in planning his or her estate wants to retain the ability to change or rescind the document, the living trust is probably the best option since it is revocable.

The document is called a “living” trust because it is applicable throughout one’s lifetime.  Another individual or entity, such as a bank, or private fiduciary, can be appointed as trustee to manage and protect assets and to distribute assets to beneficiaries upon one’s death.

A living trust may also be designed to protect certain assets following the death of the settlor (the person who created the trust) by maintaining them within the trust for a specified time or upon the occurrence of some event, such as a beneficiary reaching a certain age.  The provisions for a continued trust after death can be used, not only to protect assets against creditors, but also from a beneficiary’s own improvidence, such as drug or alcohol dependency.

It should be noted, that the revocable power that comes with the trust may involve taxation. Usually, a trust is considered a part of the decedent’s estate, and therefore, an estate tax applies, should the assets on death be above the applicable exemption amount.  One cannot escape liability via a trust because the assets are still subject to debts upon death.  On the upside, the trust may not need to go through probate, which could save months of time and attorneys’ fees.

The revocable living trust is contrary to the irrevocable living trust, in that the latter cannot be rescinded or altered during one’s lifetime.  It does, however, if properly set up, avoid the tax consequences of a revocable trust.  An estate planning attorney at Schneiders & Associates, L.L.P. can explain the intricacies of other protections an irrevocable living trust provides.

Anyone who wants to keep certain information or assets private, will likely want to create a living trust.  A trust is not normally made public, whereas a will is put into the public record once it passes through probate.   Consulting with an attorney can help determine the best methods to ensure protection of assets in individual cases. Contact our office today to receive our Estate Planning Questionnaire and to schedule a no charge estate planning consultation.


Inheritance Laws Involving Legal Rights to Property After a Death

By Roy Schneider, Esq.

Inheritance laws involve legal rights to property after a death and such laws differ from state-to-state.   Heirs usually consist of close family members and exclude estranged relatives.  Depending on the wording of a will or trust, an individual can be intentionally, or even unintentionally, disinherited.

In most cases, spouses may not be legally disinherited from his or her share of the community property and, even in some cases, from the deceased spouses separate property.  Certain contracts, however, may allow for a legitimate disinheritance, such as prenuptial agreements or post-nuptial agreements.  These contracts are typically valid methods of disinheritance because the presumed-to-be inheriting spouse has agreed to the arrangement by signing the document.  Usually, the spouse to be disinherited receives other consideration in exchange for giving up spousal rights.

If there is no prenuptial arrangement, then some states have elective share statutes or “equitable distribution” laws that are designed to protect the surviving spouse.  Pursuant to the elective share statutes, he or she may collect a certain percentage of the estate.

In states like California that follow “community property” rules, however, the outcome may be different.  An experienced Estate Planning attorney at Schneiders & Associates, LLP, should be consulted for clarification of the differences in the law in California and how community property laws affect the rights of spouses on death. Divorces affect spousal inheritance rights.  Post-divorce, it is prudent to consult an attorney to draft a fresh will or trust, in order to prevent confusion and unintentional dissemination of assets.  Keep in mind that if you have a trust or will and then get married, but don’t make changes subsequent to marriage, the spouse may be entitled to his or her intestate share upon death, which may not be what the deceased spouse intended.

If the will or trust is unambiguous, it is usually possible for a child to be disinherited.  It is never a good idea to simply fail to mention such child.  Children born after the will or trust is made, and is not mentioned or disinherited by a latter instrument, will be entitled to his or her intestate share.   It should be noted, however, that it is highly likely that close relatives will challenge or contest a will or trust in which they have been disinherited.  Fighting such a lawsuit may put a great financial strain on the estate’s assets.  Depending on how time-consuming and expensive it is to defend the will, less money may be available for distribution to the intended beneficiaries.

There are ways to protect estate assets from such problems, for example through well drafted trusts.  It is essential for an individual to receive the counsel of an experienced estate planning lawyer in order to effectively protect his or her estate as inexpensively as possible.  If you have questions or wish to discuss your estate planning needs, please contact Schneiders & Associates, LLP for an appointment.

Planning Your Estate- Episode 2: Trusts

Attorney Roy Schneider speaks about Estate Planning and Trusts. Subscribe to our channel to keep seeing tips like these.

Schneiders & Associates, LLP is a premier Ventura County law firm successfully counseling individual and business clients in matters relating to business transactions, business litigation, employment law, estate planning, real estate law, bankruptcy, homeowners associations, non-profit law, family law, intellectual property, land use and entitlements.

(805) 764-6370
300 E Esplanade Drive Suite 1980
Oxnard, CA 93036

Planning Your Estate- Episode 1: Durable Power of Attorney

Here is a tip from Attorney Roy Schneider on Planning Your Estate. In this episode, Roy speaks about Durable Power of Attorney. Subscribe to our YouTube channel to keep seeing tips like these.

Schneiders & Associates, LLP is a premier Ventura County law firm successfully counseling individual and business clients in matters relating to business transactions, business litigation, employment law, estate planning, real estate law, bankruptcy, homeowners associations, non-profit law, family law, intellectual property, land use and entitlements.

(805) 764-6370
300 E Esplanade Drive Suite 1980
Oxnard, CA 93036