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The Law Offices of Jimmie L. Joe
A Professional Law Corporation
17700 Castleton Street, Suite 358
City of Industry, California 91748
Phone: (626) 839-8980
           (888) 988-3488


WHAT IS ESTATE PLANNING?

Estate planning is planning for the future. It is a way for you to make decisions about yourself and your assets instead of leaving those decisions to someone else. A proper estate plan should ensure that (1) you make your own decisions concerning your future; (2) you make the decision as to how your property is to be distributed and (3) you minimize or eliminate estate taxes, court interference and costs and expenses of probate. A proper estate plan will:

  • Ensure that you are the one who will provide instructions for your care in the event you become incapacitated or disabled;

  • Ensure that you provide security and protection for your loved ones;

  • Enable you to control and manage your assets during your lifetime;

  • Enable you to provide explicit instructions as to how your assets are to be utilized and distributed after your death;

  • Enable you to maintain your financial affairs private and confidential after your death;

  • Enable you to avoid probate and its associated costs;

  • Enable you to take advantage of minimizing any estate tax liability that you may have;

  • Become effective even if you move to or own property in another state.

Many people are mistaken that estate planning is only applicable to wealthy individuals. If you do not properly plan your estate, you will be allowing future decisions to be made your behalf by a court nominated individual if you become incapacitated or disabled. This would include health care decisions and decisions concerning the management of your assets. Moreover, California law will determine how and to whom your property and assets will be distributed. This process is known as “intestate succession”. These are all decisions that should and easily could be made by you.

A proper estate plan will allow you to maintain the affairs and settlement of your estate privately and confidentially. The death of a loved one leaves family grieving and distressed. Family should not have to undergo the added burden of having to go through probate. Probate will diminish your estate and tie your assets up. Your loved ones will have the misfortune of seeing a lifetime of accumulated assets diminished by the costs and expenses of probate.

For individuals with larger estates, proper estate planning also allows for the minimization of estate tax liability and wealth preservation. This can be accomplished by an experienced and qualified estate planning attorney knowledgeable about estate taxes.

By having a properly drafted estate plan, you should be able to maintain control of your assets, plan for the possibility of your own disability, determine whom you want to receive your assets, how you want them to receive it and when, avoid the agonizing experience of probate together with the associated costs, determine who you want to manage your assets and make important health care decisions on your behalf, settle and distribute your assets privately, efficiently and quickly and minimize your estate tax liability. The relevant cost of having an estate plan is small when compared to the alternative.

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BEWARE OF THE CONSEQUENCES OF NOT PLANNING YOUR ESTATE

The failure to properly plan for the preservation of hard earned wealth could prove to be disastrous to loved ones. According to “Fundamentals of Estate Planning”, a report by Deloitte & Touche, an accounting and management consulting firm, nearly three out of every four people who die each year in the U.S. have neither a will nor an estate plan. The reasons for this are varied, ranging from ignorance and procrastination to the unpleasant thought of death. The rich and the famous are not immune. Joe Robbie, the founder and one-time owner of the Miami Dolphins of the NFL, died in 1990, forcing his family to sell the franchise to pay estate taxes estimated at $47,000,000. When Carolyn Bessette, the wife of the late John F Kennedy Jr., died in a plane crash with her sister, Lauren, neither had a will. As a result, besides horror and grief, the family was left with the misfortune of having to deal with the courts. Although death is an unpleasant topic, it is a whole lot worse for loved ones if a deceased person fails to plan for wealth preservation.  

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ESTATE PLANNING FAMILY CONSIDERATIONS

Although death or disability is not something that we like to think about, the grief experienced by family members when a loved one passes makes it tough enough, but often family must deal with other changes. Relationships often change, such as when a surviving spouse has less interaction and contact with the deceased spouse’s children from a prior marriage. Confusion may result between family members, such as how to handle the deceased’s assets and final wishes. This can also strain once solid relationships.

The difficulties experienced by family members are not limited to death. When a loved one becomes incapacitated or disabled, family members are often left making difficult decisions. Such situations leave family members searching for answers to these decisions without guidance from the disabled or incapacitated loved one. These decisions are made more easily when the incapacitated person has left instructions as to how these decisions ought to be made.

Where both parents die leaving minor children and no estate plan, the children’s future, care and custody are left to the courts. The courts can appoint a legal guardian, who may not be in the best interests of the children or which would have been favored by the parents. This could be easily rectified with a proper estate plan whereby the parents nominate a guardian to care for and maintain custody over the children. The death of both parents is a traumatic experience for minor children, making it preferable that the person nominated to act as a guardian be one acceptable by the parents.

Children of divorced parents require further consideration. Usually, when one parent dies, the surviving spouse has full custody and control of the assets. A deceased parent desiring to assure that his or her children from a prior marriage are adequately provided for may wish to consider utilizing the benefits of a qualified terminable interest property (QTIP) trust to accomplish this. For outright gifts to a minor child, the deceased spouse may wish to consider nominating someone other than the surviving spouse to manage and control the gift if the spouses do not agree on financial matters. Also, if the deceased parent desires that the custody of a child from a prior marriage should be with someone other than the surviving spouse, a proper estate plan is essential.

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ESTATE TAXES

The Federal Estate Tax is a transfer tax that an estate may have to pay before it can be distributed to its heirs or beneficiaries. The Estate Tax must be paid within nine months from the date of death of a deceased person. In June 2001, Congress enacted the Economic Growth and Tax Reconciliation Act of 2001, which amended much of the prior law governing Estate Taxes (Note: This is discussed further in the News/Updates section of this web-site). With the changes, the current maximum estate tax rate is 50%. The taxes must be paid in cash before the estate can be distributed to heirs or beneficiaries. Many estates have been forced to liquidate assets (See Joe Robbie’s estate, discussed above) in order to raise the cash needed to pay estate taxes.

The Estate Tax is computed on almost everything owned by an individual at death. This includes one’s home, business interests, bank accounts, investments, personal property, IRAs, retirement plans and death benefits from life insurance policies payable to or owned by the estate. These items are reduced by one’s debts at death, expenses of administration of the estate (such as executor, legal, and accounting fees), certain medical expenses, funeral expenses, marital and charitable deductions and certain losses. The value of the estate after deductions is subject to the Estate Tax to the extent it exceeds the exemption amount established by Congress at the time of death. A lifetime exemption against estate taxes is allowed to each individual. This means that there is no Estate Tax on the first $1,000,000 in assets owned at death. In 2002, the exemption amount is $1,000,000 per person. The amount gradually increases to a peak of $3,500,000 per person in 2009. In 2010, the Estate Tax is repealed. There is uncertainty as to what will transpire beyond 2010, because Congress has the authority to reenact the Estate Tax at that time. The uncertainty has created a challenge for estate planning attorneys nationwide, which must now plan for the possibility that the Estate Tax will be reenacted. What is certain is that individuals with previously prepared living trusts should now have their trusts reviewed by an experienced estate planning attorney to consider the impact of the Economic Growth and Tax Reconciliation Act of 2001. Contrary to what most had proclaimed, the Act has not eliminated consideration of Estate Taxes in planning for wealth preservation.

When considering whether you would be subjected to Estate Taxes, keep in mind that assets appreciate over time, inflation lessens the impact of the lifetime exemption and assets accumulate over a lifetime. The lifetime exemption represents the value of all assets owned as of the date of death. Many people are surprised to find the total value of their estate easily exceeds the $1,000,000 exemption.

The Estate Tax is a separate expense from income taxes and probate expenses, which also reduce the value of the estate passing to loved ones. A married couple can reduce or eliminate Estate Taxes through use of a Revocable Living Trust. The Revocable Living Trust, discussed below, allows a married couple to take full advantage of the lifetime exemptions for both husband and wife. In 2002, a Revocable Living Trust can shield $2,000,000 in assets from the Estate Tax. For larger estates, planning with use of more sophisticated estate-planning tools can allow individuals to reduce the size of their estates to further reduce or eliminate the Estate Tax.

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WILLS

A Will allows you to name the individuals, trusts or charitable organizations to receive your assets when you pass away, to nominate an executor to administer your estate in probate, to determine if such executor is to be bonded or not, to nominate a guardian for your minor children, and (in the case of a living will) to furnish instructions concerning extended medical treatment that should or should not be withheld or provided if you are unable to communicate. Having a Will alone will not allow you to avoid probate. In fact, having a Will alone will assure that your assets pass through probate and your financial affairs and estate made public. In addition, if you move to another state and die or if you own property in another state, a Will may not be effective. A Will is also easier to contest than a revocable living trust. Therefore, having a Will alone is not good and proper estate planning. On the other hand, a properly drafted Will that works in conjunction with other instruments could allow you to achieve the objectives of a good estate plan, as outlined above.

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LIVING TRUSTS

A revocable living trust is a legal document that allows you to direct how you want your assets to be distributed when you die while allowing you to maintain control of those assets during your lifetime. You can avoid probate, settle your estate privately and more quickly, reduce or eliminate estate taxes, allow assets to remain in trust until you want beneficiaries to inherit them, allow management of gifts to minors without the need for court intervention, protect dependents with special needs, and can easily be changed anytime before your death. In addition, a revocable living trust is more difficult to contest.
         
A revocable living trust works by having you transfer the title of all of your assets from yourself as an individual, to yourself as trustee of the trust. As the trustee, you manage the assets of the trust during your lifetime for the benefit of the beneficiary, which is you. This allows you to maintain complete control over your assets. Upon your death, a successor trustee that you appoint takes over the management of the assets for the benefit of the beneficiaries that you named in your trust. Your assets avoid Probate because they are no longer titled in your name as an individual, but are titled in the name of the trust. Upon your death, the successor trustee that you named simply transfers your assets directly to your beneficiaries without the need for court or attorney's fees or costs. Thus, a revocable living trust lets you maintain control over your assets and ensures that your assets are distributed to whom you designate without delay or unnecessary costs.

Besides the revocable living trust, many other types of trusts are in use: living irrevocable trusts, family trusts, charitable remainder trusts, a-b trusts, a-b-c trusts, investment trusts, qualified personal residence trusts, life insurance trusts, special needs trusts, etc. Each of these trusts can be used in wealth preservation in order to accomplish the goals of a properly drafted estate plan. The revocable living trust is one of the most popular and important estate planning documents in use today.

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OTHER ESTATE PLANNING TOOLS

For clients looking to eliminate or minimize gift or estate taxes, we provide simple estate tax planning and asset protection strategies, utilizing credit shelter trusts and qualified terminal interest property (QTIP) trusts, to sophisticated estate and gift tax savings and asset protection planning, including the use of family limited liability companies, family limited partnerships, charitable lead and charitable remainder trusts, buy-sell agreements, irrevocable life insurance trusts, qualified personal residence trusts, grantor retained annuity trusts, qualified sub-S trusts and qualified domestic trusts (QDOT), among others. For information on some of these planning tools, please visit the Articles section of our web site.

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ALL TRUSTS ARE NOT CREATED EQUAL
 
The public has been inundated with information from individuals claiming to be estate planning professionals and attorneys who do not devote a substantial part of their practice to the estate planning area. Individuals should be wary of estate planning documents drafted by these inexperienced individuals and non-attorneys. Estate planning is a complex area of the law. Any individual or firm engaged in providing estate-planning techniques and services should have a solid understanding of estate and gift taxation. The sad truth is that not all living trusts are drafted carefully or tailored to an individual’s needs for estate planning. Some living trusts are drafted properly, but the procedures for funding the trust are not carried out. If a living trust is not properly funded, it will not carry out its objectives. There are many law firms, non-attorneys, trust mills or “do-it-yourself” living trust guides offering to provide a “one-size-fits-all” living trust. The consumer needs to be cautious in his or her dealings. Our firm is experienced and committed to delivering highly personalized service, which includes an extensive interview with our clients to determine objectives and goals. For further information on trust mills, please visit the Articles section of our web site.
 
We welcome comments or questions and invite you to contact us at (888) 988-3488 for your estate planning needs and wealth preservation goals. We are confident that you will experience a difference in quality and service. We offer a free initial consultation by telephone in order to make it convenient for prospective clients.

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The information contained on this website is not intended as a source of legal advice. You should not act upon or rely on information at this or any other website without the advice of competent counsel, especially if you reside outside the State of California, where I am not licensed to practice law and don’t give advice. Nothing provided by this website is intended to create an attorney-client relationship. Sending e-mail to this firm or to an attorney at this firm will not create an attorney-client relationship. This website is intended for educational and informational purposes only. Please read the full Disclaimer page to this site by clicking here.

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