should cinderella’s parents have had a trust? - brian dennis law · should cinderella’s parents...
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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.