Estate Planning
Trusts are well suited for the passive management of money or property but are less well suited for active operations.
1) Power of Attorney for Health Care, Living Wills and HIPPA
HIPPA: Health Insurance Portability and Accountability Act of 1996
Creates new privacy standards for health care information. It penalizes for disclosure violations to unauthorized person.
2) Irrevocable Life Insurance Trust (ILIT)
Your family can have cash at your death to help pay estate taxes, liquidate debts or maintain their accustomed standard of living. Life Insurance proceeds pass to your heirs tax-free. The trust asset (the insurance proceeds) are distributed to the beneficiaries of the trust as directed by the terms of the trust document.
Disadvantage: Irrevocable, grantor cannot dissolve the trust. Grantor does not have any control over the policy nor can receive any benefit from the trust.
3) Buildup Equity Retirement Trust (BERT)
BERT is an irrevocable trust in which Donor-Spouse makes gifts to a Donee-Spouse utilizing the annual gifting exemption rather than the unlimited martial deduction. The benefits include:
· The assets are exempt from gift tax, estate tax free upon death of both spouses.
· Upon death of Donee-Spouse the assets are distributed to children or others gift tax, income tax and estate tax free.
· The assets within the trust are protected from the claims of the creditors of both donor and Donee-Spouse
4) Spendthrift Trust
This provision provides that a beneficiary’s interest in income or principal or both is not subject to voluntary or involuntary transfer. Spendthrift trusts also prevent the beneficiaries’ creditors from subjecting the beneficiaries’ interests to the payment of the creditors’ claims and therefore is not subject to enforcement of a money judgment against the trust property.
The tax treatment of the spendthrift trust depends on whether it is irrevocable or revocable.
5) Irrevocable Trust
Irrevocable trusts do not allow the settlor to revoke or modify the trust after the settlor establishes the trust. Irrevocable trusts are very effective asset protection tools. This results because, by transferring property into an irrevocable trust, the settlor completely transfers ownership of the property to another. Consequently, the settlor’s creditors cannot subsequently reach the transferred property because the settlor no longer owns the property. Generally, Irrevocable trusts provide the greatest benefit when the settlor does not need to retain control over the transferred property. Conversely, irrevocable trusts provide the least benefit when the settlor either needs or strongly desires to retain an interest in or control over the conveyed property.
To discuss the tax consequences please schedule a meeting.
6) Discretionary Trust
Discretionary trusts give the trustee the discretion to pay or apply to or for the beneficiary’s benefit, an, all or no trust income or principal as the trustee deems appropriate. Because the trust beneficiary has no right to any trust income or principal before the a trustee elects to pay or apply income or principal to or for the beneficiary’s benefit and because the creditors can only reach the interest that the beneficiary’s have legal right to, the beneficiary cannot assign her interest to creditors and her creditors cannot reach the beneficiary’s trust interest.
7) Revocable Trust
Revocable trusts are trusts that allow the settlor ( that is the person who intentionally causes the trust to come into existence) to revoke the trust during the settlor’s life. They may be funded or unfounded.
An unfounded revocable trust provides absolutely no asset protection benefits.
Revocable trusts are beneficial for two reasons. First, they allow the settlor to control the trust property during life and determine who receives the trust’s benefits after her death. Second, they provide for orderly transfer of the settlor’s property at death outside probate.
Revocable trusts offer less asset protection benefits than irrevocable trusts.
8) Asset Protection Planning by using Foreign Trusts
Offshore Asset Protection Trusts (OAPTs)
When properly used an OAPT provides a greater amount of asset protection than any other trust. These are the trusts that settlor establish in foreign jurisdiction that have enacted laws protecting the trust assets to a greater extent than US law does and among other things the following,
The foreign jurisdiction does not recognize foreign(US) judgments. This forces potential claimants to litigate their claim in the foreign jurisdiction, usually for the second time.
The foreign jurisdiction generally requires plaintiffs to use attorneys who are licensed in that jurisdiction, thus increasing the plaintiff’s costs and risk of prosecuting their cases.
The foreign jurisdiction generally prohibits contingency fee arrangements. This forces the plaintiff to finance the litigation himself instead of having a law firm finance the litigation through a contingency free arrangement.
The foreign jurisdiction’s substantive law is generally more favorable to the asset protection client.
However, an OAPT is more expensive and complex than the other trusts.
9) Trust Administration
We help the trustees in managing the trust which includes but is not limited to Represent the trustee if the litigation arise
Give a over overview of trustee's duties, standards, and powers
Help in investments and management of assets, environmental issues in trust administration, record keeping and accounting, income taxation of trusts, estate tax returns, sub trust allocation and funding on the death of the first spouse, other court proceedings, and modification, revocation, and termination of trust
We also administer single-person trust after settlor's death
10) Charitable Trusts
A charitable remainder trust is a form of trust that provides payments to one or more non-charitable recipients for their lifetimes or a term of years. On the death of the final recipient or at the end of the term, the trust terminates and the balance of the principal is distributed to charity. A trust remainder interest passing to charity will be deductible for federal and California income, federal estate, and federal gift tax purposes only if it is made in the form of a charitable remainder annuity trust or a charitable remainder unitrust or its alternative, a charitable remainder income-only unitrust
11) Probate:
Please see the section of Living Trusts vs. Wills
12) Credit Shelter Trust (Bypass Trust)
So called because assets bypass or are sheltered from inclusion in the surviving spouse’s estate. This Trust may enable a married couple to protect upto two times the estate tax applicable exclusion amount. The trust can provide benefits to the surviving spouse and still be excluded from his or her estate. This trust can have beneficiaries other than surviving spouse.
Business Formation and Operations
1) Limited Liability Company
Generally, when available and properly used, LLCs offer advantage of both the corporations and partnerships. First, they offer the limited liability of the corporations. Second, they offer the tax benefits of partnerships. In particular, they do not involve the double taxation aspects of corporations. Third, they are more advantageous than limited partnerships because they do not require a general partner subject to unlimited liability.
2) Family Limited Partnership
These are limited partnerships that families use to manage family enterprise and other family investments. They are very valuable from an asset protection standpoint because they are very flexible and because they protect the family enterprise from the creditors of individual family members who hold interests in the partnership.
3) Corporation versus FLP or FLLC
The choice for a family business entity usually is narrowed down to the FLP or FLLC relatively easily. The corporate form tends to be less popular for several reasons:
* A corporation is not a pass-through entity for income tax purposes unless the S corporation election is made. Even if the S corporation election is made, an S corporation is still not as flexible for income tax purposes as the LP or LLC, and there are limits on who may be a shareholder (certain trusts may not qualify or may have to make elections that subject them to higher tax rates).
* A corporation is subject to capital gains taxes on dissolution. IRC §336. (If an S corporation is going to sell the corporate assets, the dissolution tax can be minimized or eliminated).
* The corporate entity has less organizational flexibility than does either the LP or LLC. A corporation must comply with the required corporate formalities under state law, such as annual shareholders' and directors' meetings and written minutes, to ensure that the entity is not disregarded for tax, liability, or other purposes. Neither the LP nor the LLC is required to observe such formalities.
4) Business Taxation
Please schedule an appointment to discuss Business Taxation.
5) Non Profit Corporations :
Private and Family Foundations Trusts:
Client often needs a nonprofit enterprise. Client can form an enterprise which has a manifest charitable, religious, or mutual benefit purpose, or if tax-exempt status is necessary to attract funds. Many activities, however, can be carried on by a for-profit or nonprofit entity, such as scientific research enterprises, private schools, or hospitals. Private family foundation trusts avoids the arbitrary 49-percent restriction of Corp C §5227(a) that would prevent a board from being composed solely of family members if even one member of the family is to be employed by the foundation.
Charitable corporations, (a) are required to file reports with the Attorney General under Govt. C §12583 (b) have annual revenue in excess of $ 2 million and (c) must prepare annual financial statements that are audited by an independent certified public accountant in conformity with generally accepted accounting standards.
6) Selection of Business Entity
Attorneys generally advise clients to avoid general partnerships because of the unlimited liability that each partner has for the obligations of the partnership and for acts of other partners committed within the scope of the partnership business.
Family business entities may accomplish a number of goals, including (1) income, gift, and estate tax planning and tax savings through valuation discounts; (2) centralized management of assets; (3) pooling of assets; (4) asset protection; and (5) training younger generations in management of assets. The ability to meet multiple goals has contributed to the popularity of these entities. However, family business entities can be complex and expensive to implement. They are often treated by the IRS as aggressive for gift and estate tax planning and therefore subject to heightened scrutiny.
If you have a question please call our office 310.577.9104 or Email: Art@LawWithASmile.com
