Should Cinderella’s Parents Have Had a Trust? - Brian Dennis Law · Should Cinderella’s Parents...

ShouldCinderella’sParentsHaveHadaTrust?LifeisNotaFairyTale:21stCenturyEstatePlanning••BrianK.Dennis

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About the Author

BrianK.Dennisoperatesalegalpracticeasa

sole practitioner in Beverly Hills, California,

dealing with issues of Estate Planning, Probate

and Trust administration, charitable giving, risk

management, real estate, business transactions,

businesssuccessionandassetprotection.

Brian holds attorney licenses in California

andPennsylvania.HeisalsolicensedinCalifornia

as a Real Estate Broker and Insurance

Agent/Broker, owning and operating both an

independent insurance agency* and a separate wealth management firm—Dennis Capital

Management**. He holds Certified Financial Planner® (CFP®), Chartered Life Underwriter®

(CLU®)andCharteredFinancialConsultant®(ChFC®)designations.

*CAInsuranceLicense#0575617**SecuritiesofferedthroughSecuritiesServiceNetwork,Inc.,MemberFINRA/SIPC.Fee-basedadvisoryservicesareofferedthroughSSNAdvisory,Inc.,aRegisteredInvestmentAdvisor.

Disclaimer:Thisbookisintendedtoprovideaccurateinformationonthetopicofestateplanning,aswellaslimitedinformationaboutinsurance.Theauthorisnotintendingtoprovidelegal,financial,tax,accounting,insuranceorotherprofessionalservicesthroughthebook.Shouldsuchservicesbedesired,aconsultationwithaprofessionalissuggested,andthereaderisadvisedtocontact the author or another independent counsel. Also, laws affecting estate planning, aswell as financial and insuranceproduct offerings, may change frequently. This book provides general estate planning and insurance information. No legal,financial,tax,accounting,insuranceorinvestmentadviceisintendedtobeprovided.Thereaderisadvisedtoseekindependentcounselinanyoftheseareas.Further,noattorney-clientrelationshipisintendedtoarisebetweentheauthorandthereaderofthisbook.


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Foreword

Ispentthefirstpartofmycareerasafull-timelifeinsuranceagent.Irememberattending

a program at which a noted senior agent—decades later I still remember his name: Norm

Levine—spokeabouttheresponsibilitythatallofushavetotakecareofourfamilies,whether

weliveordie.

It takesa lotofmoney to fund for thecaringofwidowsand the raisingofchildren,and

Normstatedthat thereweretwoways toarrangesocieties toaccomplish that task.The first

wastosocializetheriskthroughgovernment,aswasdoneintheformerSovietUnionandother

command-controleconomies.Thealternativewastotakecareoftheriskourselves.Sincefew

peoplecouldaccumulatetheassetsnecessarytodoso,andeveniftheydiditmayhavebeen

undesirable to tie thoseassetsup to fundacontingency thatmayormaynothaveoccurred

untilmanyyearsinthefuture,inNorm’sviewthebestwaytodothatwastoshifttheriskto

another.Inahighlyadvanced,capitalisticsociety,themostefficientwaytoshiftthatriskwas

byacquiringa life insurancepolicy.Life insurancecompaniesare inthebusinessofaccepting

that risk—and for a small portion of the total assets involved all of us could meet our

obligationstoourfamiliesthroughthepaymentofasmall,affordablesumfromourincomeor

assets.Thatsmallsumisknownasapremium.

ItseemslikesolongagothatIlearnedthatconcept.AtthetimetheSovietUnionwasstill

themajorthreattothefreeworld,butthelessonisasvalidtodayasitwasthen.Thepassage

oftimehasnotlessenedorchangedthemessage.Wemustassumetheriskforthefuturecare

ofour families,andbe fortunate that in thehighlyadvanced,capitalistic society inwhichwe

livewehaveoptionsthatallowustodoso.

Inotherwords, Insurance isFreedom. That iswhatmotivatesme: freedom.Liberty isat

thecoreofthefoundationoftheUnitedStates,andIbelievethatnogreatersocietyhasever

beencreatedonearthbecauseithasprovidedthatlibertytocountlessmillions,theresultsof


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which have been nothing short of spectacular. One institution integral to this freedom and

libertyistheinsuranceindustry.ItiswhyIstillfunctionasaninsuranceagenttothisday.

Thesamefreedomforsurvivorsthatisprovidedbylifeinsuranceproceedsisprovidedbya

legal structure wherein people can order their affairs in such a way as to take individual

responsibilityforthem.Justastherearetwomodelsfororganizingsocietyinordertotakecare

ofthoseinneed,therearetwowaysforpeople’spropertytobedistributedatdeath:people

willeitherhavetakenactiontodesignatewhowilladministertheirpost-deathaffairsorthey

won’t—and,iftheydon’t,theresponsibilityforoverseeingtheadministrationoftheirestates,

for determining how their property will be distributed, will go to the state. Insurance is

freedom—andsoisanEstatePlan.

WhileImakethesepointsbydiscussinginsurancefirstandtheruleoflawsecond,thatis

duetomychronologicalexperiencesinlife:Iwasaninsuranceagentfirst,andthenIbecamean

attorney.Infact,fromthestandpointoforganizingsocietiesbasedonmodels,forfreesocieties

the rule of law comes first and insurance follows. As it pertains to estate planning, the law

creates the structure and provides for the distribution of people’s estates according to their

wishes.Once that framework is in place funding canbeprovided tomake sure that there is

money available to implement the plan, tomake it come true.Whether thatmoney should

comefromlife insuranceorothersourcesofprivatewealth isadecisionforpeopletomake,

andtheycanmakethatdecisionafterhavingarrangedtheiraffairsbyusingthelegalstructure

andinstrumentswhichcomprisetheirownEstatePlans.

Fortunately,asnotedinChapter2,recentestatetaxlawchanges,firstinstitutedattheend

of2010,nowprovideforupto$5.45millionperpersontobefreeoffederalestatetaxation.

Estate taxes require tax to be paid on assets left by a decedent before those assets can be

transferredtoheirs.Whileeachstatemayimposeitsownestatetaxlaws,andpeopleshould

becognizantoftheirownstate’srules,the$5.45millionperpersonfederalexclusionservesto

eliminatetheestatetaxforabout99%ofthepopulation.Itisestimatedthatlessthan1%ofthe

populationhas assets exceeding that$5.45million figure. Therefore, for the vastmajorityof

thepopulation, federalestatetaxation isno longeraconsideration.Thisbook is intendedfor

the 99% of people who won’t have federal estate tax considerations. For the 1% who are


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fortunate enough to have assets exceeding $5.45million per person, this bookmay still be

valuable,butconsideringadditionalestatetaxplanningtechniquesisadvisable.

Ithastakenmealifetimeofstudytoappreciateandlearnthetechniquesassociatedwith

effectiveestateplanning.Myabilitytosharethemwithyou,thereader,aswellasmypastand

future legaland insuranceclients, ina straightforwardandnon-legalesemanner so thatyou,

too,canfunctionwithintheruleoflawandprovidedignityforyourselfandyourlovedones,is

myobjectiveinwritingthisbook.

Note:forclarity,thisbookcapitalizesseveralwordsrelatingtospecificlegaldocumentsthatare

normallynotcapitalizedinordertoemphasizetheirimportanceinthenarrative:

[i.e.“Will,”“Trust,”“Trustee,”“SpecialNeeds,””Probate,”“EstatePlan”.]Also,theword“heirs,”

whichtechnicallyreferstobeneficiariesofthosepeopledyingwithoutawill,

isusedheretodescribeallbeneficiaries.


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©Copyright2016Allrightsreserved.

Thisbookisdedicatedto

Mywife,Linda,andmydaughter,Sabrina—mybeneficiaries!


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TABLE OF CONTENTS

Page#

SECTION1:OfFairyTalesandLife 9Chapter1: LifeisHarsh 10

SECTION2:OfMorality—AndtheReasonsforEstatePlanning 12

Chapter2: WhyHaveanEstatePlan? 13Chapter3: LifeWithoutanEstatePlan 18

SECTION3:TheCompleteEstatePlan 21

Chapter4: ACompleteEstatePlanCanProvideforYourself 22DuringYourLifetime—andHelpAssurethatYourChildrenDon’tEndUpLikeCinderella

Chapter5: WhatDocumentsAreApplicableinWhatCircumstances? 24SECTION4:DistributionsAfterDeath 26

Chapter6: Wills 27Chapter7: WillSubstitutes 29Chapter8: Trusts—YourOwnPrivateCourt 31Chapter9: BeneficiaryDesignations 37Chapter10: IRATrusts 39Chapter11: WillsandTrusts—KeyQuestions—andAnswers 41Chapter12: AdditionalPlanningIssues 54

SECTION5:YourWishes—YourLifetime 60

Chapter13: DurablePowersofAttorneyforFinancialManagement 61Chapter14: AdvanceHealthCareDirectives/LivingWills 64Chapter15: TheRighttoDie 69Chapter16: MedicalReleaseForms 71

SECTION6: Life’sCircumstances—NowWhat? 73

Chapter17: I’maNewlywed—NowWhat? 74Chapter18: Same-SexCouples 78


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Chapter19: Non-U.S.Citizens 79Chapter20: I’mSingle 81Chapter21: I’mDivorced:NowWhat? 83Chapter22: I’m18:NowWhat? 85Chapter23: Minors 86Chapter24: I’maGrandparentWhoWantstoGive 87

tomyGrandchildren–NowWhat?Chapter25: MyChildHasSpecialNeeds–NowWhat? 88Chapter26: I’maBusinessOwner 90Chapter27: WhatIf?InsuranceandAssetProtection 95

SECTION7:TheOrganizedLife 97Chapter28: LivingLifeinanOrganizedWay 100Chapter29: CompilingData 101Chapter30: AccesstoData:theCloudIstheLimit 102Chapter31: TheEthicalWill 104

SECTION8:Conclusion 106

Chapter32: Conclusion 107


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SECTION 2:

Of Morality—And the Reasons for Estate Planning


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Chapter 2

Why Have an Estate Plan?

The reasons to have an Estate Plan range from personal to psychological to financial.

v Why Have an Estate Plan?

Whenmakingdecisionsoneofthemostimportantquestionsthatwecanaskourselves,if

notthemostimportantquestion,is“Why?”Asking“Why?”allowsustofocusontheintended

resultfirst—andthenworkbackwardtoseeifwhatwe’reseekingtodojustifiesthetimeand

energywewillput intoourefforts, letalonewhetherwereallywanttheoutcomethatweat

firstthoughtthatwedid.

So,askyourself,“WhyshouldIhaveanEstatePlan?”

v Personal Reasons: Morality

Morality deals with what is right andwhat is wrong. It has become less fashionable to

speak in terms ofmorality but I believe that issues ofmorality should factor into all of our

decision-making—andthatitisamoralresponsibilitytohaveanEstatePlan.Ifyoudon’thave

one,yourlovedoneswillhavetoincurconsiderabletimeandexpense,andperhapsconflict,to

decideafteryourdeathhowyouintendedyourestatetobedistributed.Isn’titmoralforyouto

assumeandmakedecisionspertainingtoyourselfandyourpropertyduringyourlifetime,and


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notforcethatdecision-makingonyourlovedonesafteryouaregone?

Moreover,modernEstatePlansgofurtherthandealingwithissuesofdeathandthepost-

deathdistributionofourproperty: theyput inplaceprovisions forus todesignateothers to

serve as our agents—tomanage our affairs andmakemedical decisions for us—during our

lifetimes.Wecaninfluenceand/orcontrolourdestinies.

v Psychological Reasons: You May Feel Better

Manypeoplewhodon’thaveEstatePlanscarry theburdenofknowing that theyshould

establishthem.Nonetheless,theydon’tdoso.Thisoftencausesanaggingconcerninpeople,

onethatiseitherjustbeloworabovethesurface,butonethatisinexistence.HavinganEstate

Plancanallowyouto:

• Feelsecurethatyouhavedoneeverythingthatyoulegallycandotoprovidefor

yourselfandyourfamily.Takeatriporvacationwithoutworry!

• Protectyourselfshouldyougetsickorhurt

• Protectyourfamilyshouldyoudie

• Provide this protection bymaking your own rules, within the parameters and

frameworkestablishedbyyourstategovernment

• Makesurethatyourbeliefsanddecisionsarehonored

OnceyouestablishanEstatePlan,won’tyoufeelbetter?


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v Financial Reasons: Estate and Inheritance Taxes,

Probate and Bond, Financial Management, Focus For an Organized Life

Estate and Inheritance Taxes—and Portability

The federal government, alongwith some states, levies taxeson thewealth thatpeople

accumulateovertheirlifetimes.Formany,wealthiswhatremainsaftertheyhavepaidincome

taxesontheirearningsandcapitalgains.Estatetaxestaxthataccumulation.

Also,toavoidsituationswherepeoplegiveawaytheirassets justpriortotheirdeaths in

order to escape estate taxes, gift taxes were enacted. Gift taxation coordinates with estate

taxation,andwealthtransferduringlifetimeispartofestateplanning.

A small number of states tax the recipients of inheritances, most exempting surviving

spouses.Theserecipientsaresubjecttoinheritancetaxes.

Afterfederalgovernmentestateandgifttaxchangesthatwereenactedinlate2010,most

of the population (approximately 99%) is no longer subject to federal estate tax. As of this

writing in 2016, singleswithmore than $5.45million in assets, and coupleswithmore than

$10.69millioninassets,muststillconfrontestatetaxationonamountsoverthosethresholds.

The $10.69 million exclusion from estate taxes is not automatic. A concept new to estate

planning,thatof“Portability,”hasarisensothatmarriedcouplescantakeadvantageofthefull

$10.69million exclusion amount, but Portability requires procedures to bemet in order for

couplestoavailthemselvesofthefull$10.69millionexclusionamount.

Even for those couples that do not have $5.45 million per person in assets, taking

advantageofthePortabilityproceduresmaybeadvisablebecauseitwillcementthepossibility

that$10.69millionpercouplecanultimatelybeexcludedfromestatetaxation.Forexample,a

couplemayhave$6million in totalassets,or$3millionperperson.Theway thatPortability

works,thefirstspousetodiewouldnothavehis/herassetssubjecttoestatetaxationbecause

$3million is less than$5.45million.Therewouldbe$2.45millionof theestatetaxexclusion

thatwouldbeunused.($5.45millionless$3million=$2.45million.)ButunderPortability,the

unused $2.45millionwould be carried over to the surviving spouse,who can then add that

figuretohis/herseparate$5.45millionexclusion.Thatwouldallowforthesurvivingspouse’s


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exclusiontobe$7.86million.($2.45millioncarryover+$5.45millionsurvivingspouseexclusion

(whichmayevenincreaseduetoindexingforinflation)=$7.90million.)Acouplewhoseassets

atthedeathofthefirstofthemtodiearelessthan$10.69millionmayultimatelybeableto

shelter$10.69millionfromestatetaxationovertheirjointlifetimes.

When engaging in estate planning, federal and state estate taxes, and state inheritance

taxes–arefactorstobeconsidered.

Probate—and the Cost of Bond

Title is themanner inwhichownership toproperty isheld. Probate is the courtprocess

thatallowsforadecedent’stitletopropertytobetransferred.Ifyoudesiredtogiftorsellyour

propertytoanotherduringyourlifetime,youcouldsigndocumentstransferringownershipof

yourpropertytoanother.But,ifyouarenotalivetodoso,acourtmuststepinandauthorize

those transfers—providing for the legal transferofassetsand the finalityofdebtsbymaking

surethatcreditorsarepaidandcannotcomebackinthefuturetoassertadditionalclaims.This

process is known as Probate, overseen by the Probate Court. Probate fees are set by state

law—andcanbeexpensive,oftentothesurpriseandamazementofheirs.

Whenproperty is topass subject toadecedent’sWill,orwhenadecedentdieswithout

leavingaWill,theProbateCourtoverseestheadministrationoftheestate.AWillmaynamean

ExecutororPersonalRepresentativetohandletheestate’saffairs,butincaseswheretheWill

doesn’t specify thatbondwillbenotbe required (i.e.,bond iswaived),and incircumstances

wherenoWillwasleftatall,theProbateCourtwillrequirethatabondbeposted,inorderto

guaranteethattheestate’sfundswillbethereforthebeneficiaries.Thecostofabondcanbe

quiteexpensive,sometimesasmuchifnotmorecostlythantheProbateprocessitself.

ACompleteEstatePlancaneliminateboththecostofProbateandbond.

Financial Management

What happens if you get sick or hurt and can’t manage your own affairs during your

lifetime? It happens often, and unless there’s another person appointed to be your agent


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financial issuesmaynotbeattendedto—perhapstoyoursignificantdetriment.ATrustanda

Durable Power of Attorney can provide for the care of your financial matters during your

lifetimes.

Tax Planning—and Unintended Consequences

Taxes impact somuch of our decision-making that almost any type of financial decision

requires tax planning. There are multiple systems of taxation, including but not limited to

income,estateandgiftandcorporatesystemsoftaxation.Absentadequatetaxplanningthere

isthepossibilitythatunintendedtaxconsequencescouldarise,withthefurtherpossibilitythat

substantial,unplanned-forcosts,intheformofunexpectedtaxes,couldarise.

Modernly,it’sfairtosaythatwenolongerengagesolelyinEstatePlanning:it’sestatetax

planningthat’sappropriate.Thesameholdsinotherrespects:wenolongercanengagesolely

in business planning, but business tax planning, or financial planning instead of financial tax

planning.

Focus—for Organization

EstatePlanningentailsandoverlapswithmanyotherdifferentsubjectmatters.Preparing

anEstatePlanhelpsfocusattentiononmanydifferentaspectsoflife.Byfocusingthatattention

onother, relatedareas, youwill becomemoreorganizedduring yourown lifetime—perhaps

takingstepsthatyouwouldotherwisenothavetaken.Forexample,youmaydecidetoacquire

or rearrangeyour insuranceprogramor take legal steps relating toassetprotection thatyou

wouldn’totherwiseevenhaveconsidered.

Should Cinderella’s Parents Have Had a Trust? - Brian Dennis Law · Should Cinderella’s Parents...

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