Tag Archives: estate planning

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Pretty young lady in her 20s with white blouse is sitting reading a book. Perhaps her parents are helping support her now. But what will happen in the future after her parents have passed away?

Will my kids be able to enjoy the same lifestyle?

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“Will my kids be able to enjoy the same lifestyle as me?” That’s a question that many people worth $10 million U.S. or less have. How do I know this? Because I’ve been an estate planning attorney since 2001. A number of my clients are worth around $10 million. If your net worth is around $10 million, you’re pretty well off. But you’re not quite well off enough to put your children in a position that they will never have to work. (This is mentioned in a 2014 article in The Telegraph.) Also, if you’re living off investments, you realize that there’s always a risk that your investments could shrink in value.

But here’s the good news. There is something you can do. At least help your kids get the most benefit from their inheritance. The fact is that most kids of wealthy families squander their inheritance. However, I do have a couple of practical suggestions for you. Now I’m not a fan of quick fixes because usually they don’t work. But here are a number of specific things you can do to help ensure that your kids will be able to enjoy a good lifestyle after you’re gone:

Don’t give the money to your kids immediately when you’re gone.

It’s so common to have a will or trust that says something like “After I have died, I want everything to go to my children equally.” This might work for a very modest estate. But if your estate is worth over $500,000 I would draft the will or trust so that your wealth remains in trust for your kids’ benefit. They can receive discretionary distributions. You will have a neutral trustee to administer the trust. The trust language will encourage your kids to continue to be productive. This will help make the money last as long as possible. WHY IS THIS IMPORTANT?  Because this is the only way to ensure that your kids don’t (a) squander their inheritance right away or (b) fight over how things are divided.

Be careful of Powers of Appointment.

One such potential landmine is what’s called a power of appointment. These are added to trusts for tax purposes. But they also allow the person with the power to change the beneficiaries. The result is it the love ones you want wanted to receive everything after you’re gone may end up getting nothing. (Obviously, your ability to help your kids enjoy the same lifestyle in the future is hampered if your wealth somehow gets transferred to someone else. You’d be surprised at how often this actually happens.) It’s probably best to have an estate planning attorney who also does probate litigation. Such an attorney is going to have a better idea of what actually works in the real world (in terms of drafting your trust and other estate plan documents).

Third, have an alternative dispute resolution provision in the trust and other documents.

Require that anyone who is to receive any benefits from the estate or trust agrees to at least attempt resolving issues without going to court. This will greatly reduce the likelihood of your loved ones having to hire attorneys to sort out legal issues after you’re gone.

Finally, make sure your trust appoints a trust protector.

his is a neutral person who can make changes as necessary. This is another way of preventing your loved ones from going to court to resolve conflicts. For example, if you choose one child to be trustee, maybe that child will make self-serving choices about dividing personal property (family heirlooms, etc.). This can cause enormous tension in the family. A trust protector can remove that child as trustee and insert a neutral trustee to dissolve the conflict.

This is just a short list of things you can do to help ensure that your kids will enjoy your same lifestyle after you’re gone. Having a neutral trustee is very important. People who suddenly come into money and up usually squandering it. There’s no perfect solution that fits every situation. But these are some steps that I have seen work time after time.

If you have any questions, call us at 602-443-4888 or email me at paul@magellanlawfirm.com.


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Business Owners Need Estate Plans

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Business owners need estate plans in order to ensure their businesses survive once they pass away. Here is why. Let’s say you own a successful business. It has lots of employees and ongoing business. There are contracts that need to be completed, and staff that needs to be paid. Then you die. You have a Will that names your spouse as the Personal Representative (executor). However, Wills need to be probated, and normally the soonest that can happen is one week from the date of death. Assuming there aren’t any hangups (such as the Will failing to waive bond), the surviving spouse can be appointed as Personal Representative right away.

But a week can be an eternity in the business world. Employment laws dictate that payroll needs to be paid within a certain time after the pay period ends. And what if there are employees in the field who need expenses covered?

Also, who is going to manage the business until it gets sold? Selling a business can’t be done in a matter of days. It takes time. Can your business last the months is normally takes to find a buyer and arrange a sale?

Here is the best way to plan ahead of time. The best way to plan ahead is to have a revocable trust that names a responsible (and business savvy) trustee to take over if you can no longer manage your business. Then make sure that your trust owns the business. If your business is an LLC, the member of the business needs to be the trust. (In other words, you will file Articles of Amendment for your LLC that replaces you as the member with, for example, “John Doe, Trustee of the ABC Trust, dated January 1, 2014.”) Make sure the trust language permits the trustee to manage an ongoing business, and that it permits the trustee to delegate the responsibility of managing the business to a replacement business manager.

NOTE: The word “manager” is used in two different ways here, and it can be confusing. The “manager” of an LLC is the person listed with the Secretary of State as the person in charge of the LLC. However, in terms of managing a business, that may be completely different people. I normally assist clients in this regard by having the LLC Manager (the person named as the official manager on the Articles of Organization) sign a Resolution naming one or more assistant managers. These assistant managers are the people who are actually on the ground running the business: making sure that paychecks get signed, continuing marketing efforts, meeting with clients, etc.

You can read more on this topic at an enterprise.com article here.

Have you heard of situations in which the business owner died and the business struggled as a result? Do you have any insights? Please share below.


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Life and Estate-Planning: What Is a Conservatorship?

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Life and Estate Planning What Is a ConservatorshipWhen an adult is no longer able to care for himself or herself, the court can appoint another person to take over responsibility of managing finances and other everyday affairs. The person appointed (usually a spouse, family member, relative or hired professional) would serve as conservator and collect income and pay expenses on behalf of the protected person.

It can be difficult for an adult child to let a parent know that a conservator is needed. A parent with dementia or Alzheimer’s, for example, may not be aware of a problem. The parent can also become confused in thinking that the child is trying to take over money matters. The parent may think that the child is trying to cheat the parent, or the parent might feel that a vestige of independence is being removed.

Most such situations are resolved by requiring the person in need of help to go through neurological and psychological examination by a trained physician, psychologist or registered nurse. The court relies heavily on the results from these examinations to determine the need for a conservator.

This level of care protects those who are incapacitated from losing assets and being evicted from their homes or living facilities because they have failed to make payments.

Conservators are not, however, required to pay for the care of the protected person with the conservator’s own resources. The conservator should use the protected person’s resources to take care of expenses. The conservator can then apply for government benefits if needed to pay for the cost of care.

Some of a conservator’s duties include:

  • Obtaining a credit report on behalf of the protected person.
  • Creating a budget for the protected person’s finances.
  • Sending annual accounting reports to the court, as specified in that state.

Should the conservator fail to fulfill these responsibilities, he or she can be replaced by someone better suited to the position. Conservators who mismanage funds can be held personally liable.

If you have an aging loved one who is not making careful financial decisions, a conservatorship can be a good solution. Conservatorships are complicated. If you don’t like balancing your own checkbook or reviewing financial statements, then acting as a conservator is probably not something you should undertake. You may benefit from the help and direction of a financial conservator.

If you have questions about conservatorship or serving as a conservator, I’d love to help. Please comment below or contact our office.

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Estate Planning: What Is a Trust?

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Estate Planning What Is a TrustA trust is similar to a will. It’s an elegant way of specifying how your property gets distributed upon your death. Property placed in a trust can pass to your designated beneficiaries without the delays and expense of going to probate court.

But – a big but – a living trust is not a complete substitute for a will. You won’t be able to name a guardian for a minor child, for example. For many people a trust is a more efficient way to transfer property at death, especially large-ticket items such as a house. Here are a few benefits of placing your property in a trust:

  1. You can avoid probate. This allows you to bypass probate and to pass the property directly to your designated beneficiaries. This is especially important if you own real property in multiple states.
  2. A trust can help with property management for those who can’t or do not want to manage for themselves. (This is particularly beneficial for older individuals who want to make sure they will be cared for without the need for guardianship or conservatorship.)
  3. Trusts can reduce estate and gift taxes.
  4. A trust protects assets from creditors and lawsuits better than does a will.
  5. If you want to protect family wealth for future generations, you can set up a trust to protect these assets (whether a business or other accumulated assets). You can also save estate taxes (if this is relevant). A trust can also protect these assets from irresponsible heirs over several generations.

There are a variety of types of trusts. They are both flexible and complex. One of the most common types of trusts is called an AB trust, also called a bypass trust. An AB trust helps provide significant estate-tax savings as well as preserve assets to survive the blending of families when and if spouses get remarried. You need three things to create a trust for your estate:

  1. The creator, also called settlor or grantor
  2. Trust property
  3. Beneficiaries

You don’t need to name someone to manage your trust (though this is certainly a good idea). The court can always choose someone to administer the trust. You can have a trust as long as you have someone who created the trust, you have property in the trust and some identifiable beneficiaries.

Think of a trust as a special place where ordinary property from your estate goes, as the result of some type of transformation that occurs, that takes on a new identity with immunity from estate taxes and resistance to probate. In this article, I primarily discussed “living trusts” or revocable trusts. You can read more about this type of legal instrument here.

I’d love to hear from you. If you have any questions please give us a call or leave a comment below.

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The Role of a Personal Representative, Part 2

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The Role of an Estate Planning Representative, Part 2As I mentioned in my previous video, a good estate plan covers key life decisions. Your personal representative will be the one to make the necessary decisions to carry out your wishes.

Here are further responsibilities, based on the law in Arizona, but pertinent no matter where you live in the U.S.

  1. Provide an inventory of assets. This is where having an attorney with some experience comes in handy to help you classify different types of assets, especially personal property like furniture, ceramics or porcelain and photographs.
  2. Comply with the applicable standards of care. As personal representative, you are required to perform duties with prudence, reasonable care and caution.
  3. Keep detailed records. Keep and maintain records of everything: copies of checks, receipts, bills. Everything. You need to be able to prove where every dollar goes. So, avoid dealing in cash.
  4. Pay valid debts and expenses. There’s a specific procedure for determining whether a debt is valid. This takes into account all the debt and how to treat creditors equally as part of a personal representative’s fiduciary duty.
  5. Pay applicable taxes. Always pay applicable taxes before paying creditors and distributing assets.
  6. Distribute remaining assets. After all taxes and expenses have been paid, the remainder of assets can be distributed as the will has specified.
  7. Change the address of the estate. Until probate is closed and you complete your role as personal representative, you must notify the court in writing if you move or if your mailing address changes.
  8. Document payment your receipt of payment as personal representative. It’s important to document meticulously the time you’ve spent and the expenses you’ve incurred when seeking reimbursement from the estate you’re managing.
  9. Court involvement. The court prefers minimal involvement in settling estates where a personal representative has been appointed, but will get involved if the estate is not closed within two years.

To be sure your wishes are carried out, carefully select a personal representative for your estate. A little extra planning now can protect your family’s future. You can read more about a personal representative’s duties here.

If you have any questions about the duties of a personal representative, I’d love to help.


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