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Archive for March, 2011

Orange County Elder Lawyer Urges You to Talk to Parents about Their Estate

Thursday, March 31st, 2011

As an Orange County elder lawyer, I know how common it is for each generation to avoid planning for their deaths.

It’s something no one likes to think about, especially when it comes to elderly parents who know they are running short of time on this earth.

Yet the big problem is that by avoiding this tough conversation with aging parents, the entire family is setting themselves up for a financial or legal mess if, and when, something happens to mom or dad.

Now I realize having this conversation can be tricky.

Neither you or your parents may feel comfortable talking about, or even planning for death. Not only that, but you don’t want to look greedy or uncaring. That’s why you should approach the topic in a way that lets them know you have their best interests at heart.

Here’s two important things to keep in mind:

1. Estate planning and end-of-life planning protects your parent’s legacy: It’s not the only way they’ll be remembered, but it does give mom or dad the opportunity to have a say in what becomes of the assets they worked so hard to acquire.

2. Estate planning protects the beneficiaries: Just because you’ve grown and gone out into the world doesn’t mean that your parents don’t still feel the need to “parent” you. By taking the proper steps then to plan their estate means that they can lessen the burden on their children and grandchildren during an otherwise emotional and stressful time for the family. So let your parents know that you want to follow through on their wishes, and by planning in advance, you can make sure that happens.

And finally, once the subject has been brought out into the open, it’s best to take steps to speak with an Orange County elder attorney to get everything official and in writing.

Of course if you are now at this stage of planning and need help getting started, please feel free to give our office a call at (949) 260-1400.

With the mention if this article, you can come in for a Family Wealth Planning Session that will allow us to sit down with the family and narrow down the best ways to make sure mom or dad’s assets stay protected if death or incapacity occurs.

These sessions are normally $750, but again, you can come in absolutely free with the mention of this post. Just call (949) 260-1400 to schedule your appointment today.

Tags: orange county elder planning
Posted in Orange County Elder Lawyer | No Comments »

Using a Limited Liability Company (LLC) to Transfer a Family Business

Thursday, March 31st, 2011

Most of us have at least one client who has a family-owned or closely held business that is a major part of their estate, yet they have done nothing to plan for the succession of that business. Business exit/succession planning can be challenging because of the tax issues, family dynamics and egos. But it can also be very rewarding. As we help our clients solve these issues, we develop a closer relationship with them, and we begin to build a relationship with the next generation. This planning also strengthens our professional relationships, as we must work together with other professionals to bring about the best results for our mutual clients.

In this issue of The Wealth Counselor, we will examine a case study that uses a Limited Liability Company (LLC) in the transfer of a family business to the next generation.

Case Study Facts
Frank (age 62) is married to Betty (age 58). Frank has an older son, Tom, from a previous marriage who is active in Frank’s business. Betty has a daughter, Susan, from her previous marriage. Together they have a son, Charlie, who is a minor. Betty, Susan and Charlie are not involved in Frank’s business.

Frank owns 100% of an S-corporation. It has a fair market value of $10 million and generates very good cash flow. Frank and Betty have significant other assets, including a home and investments. They own some jointly and Frank brought some into the marriage – they are held in his individual name. Their $5 million lifetime gift/estate/GSTT exemptions are fully available.

Consequences of No Planning
If Frank does nothing, according to the probate laws of the state in which they live, Betty will receive 50% of Frank’s estate including the business; his son Tom will receive 25% of Frank’s estate including the business; and Charlie will receive 25% of Frank’s estate including the business. Because Charlie is a minor, Betty will control his share until he is 18. So, in effect, Betty will control 75% of the business if Frank dies intestate. Susan, Betty’s daughter, will receive nothing.

Planning Objectives
Frank would like to ensure that ownership of the business will go to his son Tom, and Tom would like the security of knowing that one day the business will be his. Tom does not have the cash to buy the business. Frank would also like to control the timing of the transfer of the business and he would like to treat his stepdaughter and younger son fairly. He is concerned about maintaining enough cash flow to support himself and Betty now, and providing for Betty if he dies first. And he would like to minimize estate taxes.

Recommended Plan
Phase 1: Reorganize and Recapitalize the S-Corporation
In a tax-free reorganization, the S-corporation is converted to an LLC that is taxed as an S-corporation. The LLC is organized under the laws of a “charging order only” state. Frank’s ownership is changed from 100% voting shares in the corporation to 1% voting and 99% non-voting memberships in the LLC. Frank still effectively owns and controls 100% of the business, but now it is comprised of 10 LLC membership units (1%) that are voting units and 990 (99%) that are non-voting units.

Phase 2: Create Dynasty Trusts
Frank next establishes three irrevocable trusts, one for each child, in a jurisdiction that permits perpetual trusts. The trusts (irrevocable grantor trusts, aka intentionally defective grantor trusts) are disregarded by the IRS for income tax purposes, but not for estate and gift tax purposes. (Alternatively, one trust with three separate shares can be established.) The trusts are also designed to own life insurance on Frank’s life.

Frank makes an initial gift of $600,000 to each trust. These are taxable gifts that must be reported on Form 709, but no gift tax will be due because it will be applied to Frank’s and Betty’s lifetime gift tax exclusions. $600,000 of their generation skipping transfer tax (GSTT) exclusions will also be allocated to each trust, giving each a zero inclusion ratio – so that it is not subject to GSTT in the future.

The trustee of Susan’s and Charlie’s trusts uses their initial gifts to purchase life insurance policies on Frank and/or Betty, providing substantial assets upon Frank’s or their deaths.

Phase 3: Tom’s Trust Buys All Non-Voting Units with an Installment Note
A business valuation is performed to determine the fair market value of Frank’s business. As part of this process a qualified valuator first values the assets the business owns (real estate, equipment, good will, inventory, etc.). The valuator then determines whether and to what extent the value of the assets should be adjusted due to lack of control, liquidity and marketability.

When these valuation adjustments are applied to non-voting interests in an LLC, the fair market value is often depressed by a significant amount when compared to the fair market value of the entire business: in this hypothetical case, 40%. In other words, the non-voting units will each have a value of $6,000, making the total value of the 990 non-voting units $5,940,000. Alternatively, voting units will have a premium value to reflect the control value. In this hypothetical case, the voting units have an appraised value of $12,000 per unit, making the total value of the 10 voting units $120,000.

Tom’s dynasty trust buys Frank’s 990 non-voting units for $5,940,000 using a 20-year installment note, payable annually. Based on the current IRS published interest rates, the trust will pay Frank $447,197 every year for 20 years. The note is adequately secured by the LLC units and the $600,000 of other assets in Tom’s trust. The cash flow from 99% of the business is more than sufficient to cover the note payments.

Planning Tip: The installment note should be handled just like an installment sale to a non-family member or a loan from a bank. A pledge or security agreement should be signed, required taxes should be paid, required filings should be made, etc. A fully documented paper trail should exist for the transaction and the payments made on the note.

Why Reorganize the Corporation to an LLC?
Corporate stock is freely transferable, making it very easy for a judgment creditor to foreclose on corporate stock and become a shareholder. In most states, the percentage required for shareholder voting to liquidate a corporation is less than 100%, generally ranging from 51% to 80%. If a judgment creditor forecloses on enough shares of stock to allow the creditor to liquidate the corporation, the creditor would be able to seize the assets of the corporation to satisfy the claim.

Alternatively, LLC interests are usually not transferable without the consent of all members. Due to this limitation on transferability, an LLC offers much greater asset protection from creditors. Many states limit a creditor’s remedy to a “charging order” on distributions to LLC members. (Only when a distribution is made will it go to the creditor; when the claim has been repaid, the charging order is stopped.) The creditor can never become a substitute member, and will only become an assignee with no ability to vote on admission of new members or the liquidation of the LLC. In most states, it takes a 100% vote of all members to liquidate an LLC. Because a creditor can never become a member, it can never vote on liquidation of the LLC.

Outcome of the Planning
Frank owns the 10 voting units, giving him 100% control of the business and 1% of the equity. Tom’s dynasty trust owns 990 non-voting units, giving Tom no control over the business and 99% of the equity. Tom’s trust also has $600,000 in cash that Frank gifted to it as seed capital. This cash is invested, and the income tax attributes of income, gains and losses are passed through to Frank to be reported on his tax return, as is the income, gains and losses attributable to Tom’s trust’s 99% ownership in the business.

Income Tax Reporting
As long as Frank is deemed the owner of Tom’s dynasty trust for purposes of reporting trust income, the dynasty trust does not have to file a Form 1041 fiduciary income tax return. A corporate income tax return (1120S and K-1) is filed for the business and Frank reports the trust’s income on his tax return.

Income Tax Effect of Sale of Units
Because Frank is the deemed owner of the trust for income tax purposes, the sale of the LLC units to Tom’s trust is a non-recognition event; i.e., a sale by Frank to himself. No gain or loss is recognized on the sale. No interest income is recognized on the installment note payments and no interest deduction is allowed to the trust.

Planning Tip: Include a “toggle” provision to turn each dynasty trust’s grantor status off or on as needed, so that the income being taxed to Frank can be stopped if that should become undesirable later. Consider giving this power to a trust protector.

Pass Through Dynasty Trust Income
Income from the LLC will be allocated to the unit holders based on their ownership percentages. Let’s assume the business has $500,000 in net income. Frank owns 10 voting units, equal to 1% of the equity, so he will be allocated $5,000 on the 1120S as K-1 income. Tom’s dynasty trust owns 990 non-voting units, which is equal to 99% of the equity. So Frank, on behalf of the trust, will also be allocated $495,000 on the 1120S as K-1 income.

Because the dynasty trusts are grantor trusts for income tax purposes, Frank must pay the income tax on all their income, including the S-corporation income that is allocated to Tom’s trust. But that is what he was doing before the sale, so he is paying the same income tax before and after.

Planning Tip: Frank’s payment of income taxes in dynasty trust income is not an additional gift to the trusts, so every year he is effectively transferring additional estate assets to the trusts for the children without additional transfer tax.

How the Dynasty Trust Makes the Required Note Payments
In this case study, we assume that the LLC will have $500,000 per year of cash flow to distribute to the unit holders. Tom’s dynasty trust will receive a cash distribution of $495,000 ($500,000 times 99% = $495,000). At the end of the first year, it will have $1,095,000 in cash ($495,000 from the LLC plus $600,000 that Frank gifted to it as seed capital). The trustee uses this money to pay the $447,197 note payment to Frank.

Planning Tip: If the business does not make enough income to pay the note, the payment can be deferred until the business recovers or the term or interest rate of the note can be adjusted.

Results after One Year
At the end of the first year, the note has been reduced to $5,745,847 and Tom’s trust has a cash balance of $647,803. This cash can be invested and saved, distributed to Tom (gift tax-free), or used to buy and pay for a life insurance policy on Frank’s life.

Frank has received $5,000 from the LLC and $447,197 from the note payment for a total of $452,197 in income. He pays income taxes on the full $500,000 of S-corporation income. If, after all deductions, he has a 25% effective income tax rate, he would pay $125,000 in income taxes, leaving him with $327,197 in income to support his and Betty’s lifestyle.

Planning Tip: A higher income tax rate means less net income, but the client can also receive additional (reasonable) compensation as an LLC manager or as a Director. If he needs less income, his salary can be reduced, but ensure that it is not so much that he loses benefits.

When Frank Dies
Frank and Betty also establish estate plans, so the assets in Frank’s estate will pass as planned, not according to the state’s default rules.

If Frank and Betty have consumed or gifted the net after-tax proceeds of each note payment from Tom’s dynasty trust, only the unpaid balance of the note will be included in the value of his taxable estate. Tom’s dynasty trust is GSTT exempt, so its assets will never be subject to estate, gift or GST taxes. Frank’s estate plan leaves the 10 voting units to Tom’s dynasty trust, giving Tom 100% ownership of the business. The dynasty trusts for Susan and Charlie are also GSTT exempt, and the life insurance proceeds will be exempt from probate and income, estate and GST taxes. Betty will continue to receive the remaining note payments for her support.

Estate Tax Results
Frank has removed 0.99 x $10,000,000 + 3 x $600,000 = $11,700,000 of appreciating assets from the value of his gross estate that, at his death, would have been subject to estate taxes. He and Betty have used $1,800,000 of their lifetime gift/estate/GST exemptions. (Remember, unless Congress acts before the end of 2012, the top estate tax rate in 2013 is scheduled to go back to 55% with a $1 million exemption.)

Frank has received an asset (the $5,940,000 note) that, in his estate, may have a discounted value due to lack of marketability, etc., and that will not appreciate; in fact, the note is depreciating because the principal will decrease over the 20-year term.

If Frank does not accumulate the note payments, at the end of the note term he will have completely removed the $10,600,000 and all future appreciation from his gross estate without making a taxable gift other than the initial $600,000 seed capital gifts to the dynasty trusts.

The trust assets are not subject to generation-skipping transfer tax, will be protected from creditors, and will not be included in the children’s or grandchildren’s or great-grandchildren’s gross estates at their deaths.

Objectives Met
All of Frank’s objectives have been met. His son Tom will receive the business without having to buy it, and Frank can control the timing of the business transfer. He was able to provide for his other children and his wife, and he saved substantial estate taxes.

Conclusion
While this kind of planning can be complicated, the above example demonstrates that the rewards are many. We have the opportunity to help our clients solve their problems, strengthen family relationships, save money and have peace of mind. At the same time, we have the opportunity to strengthen our relationships with clients, their children and the other planning professionals with whom we collaborate. This type of planning is truly a win-win opportunity.

Tags: california llc
Posted in California Business Planning | No Comments »

The Family Business Succession Plan – An Important Piece of the Orange County Estate Planning Puzzle

Wednesday, March 30th, 2011

Do you own a family business?

If so, you have plenty of company. More than 90% of U.S. businesses are family businesses. Out of the Fortune 500, 150 are family businesses.

Now, would you like to hear some really startling statistics?

Only 30% of family businesses will survive into the family’s second generation, 12% to the third generation and only 4% last to the fourth generation.

Scary statistics, aren’t they?

All the blood, sweat and tears you put into building the family business…just gone.

Wondering how this happens?

The number one reason is lack of family business succession planning with a qualified Orange County estate planning attorney.

You can probably avoid many of the problems that can take your family business under with sound estate planning that takes family business succession plans into account.

Here are a few things you need to think about:

What Happens When You Give Up Control?

Plan your retirement around not having income from the business. That will keep your financial well-being separate from that of the business and it will be easier for you to turn over control of the company you built. It will make the company and you much healthier financially. Talk to your Orange County estate planning attorney and plan your retirement now so that you are no longer dependent upon the company for income when you retire.

Who Takes Over?

Does your entire family work in the business? Have you groomed one of your children to take over? How do the other siblings feel about that? Consider what will happen if you leave one child in charge of the business and others in charge of assets the company relies on. This can bring old childhood resentments to the forefront if siblings feel that one has been favored over the others. If all your assets are tied together and there is no harmony between the various controlling parties, your company and your family could be destroyed.

Have You Planned for a Management Transition?

Once you retire to play golf in Florida, who will manage the company? Will management consist wholly of family members or do you have employees in key positions who can take over? Have you discussed the possible management structure with your family? Make planning a smooth management transition a part of your estate planning process. The two are not totally separate processes if you own a family business.

How Do You Handle the Transfer of Assets?

This is an integral part of your estate plan and your family business succession plan. Will the transfer of assets take place with lifetime sales/gifts/transfers or will the ownership of the company be transferred only upon your death. You need to ensure that you have enough liquid assets left for you and your spouse to live on in retirement without putting the company into bankruptcy.

Many families just don’t want to deal with these issues. But dealing with issues as complex as these in a moment of crisis when you die or are rendered unable to make decisions by some illness or injury can mean disaster for your company. Taking them into account while everyone is able to focus on what is and isn’t important, and looking at the big picture for the survival of your family business, will make everyone’s life easier. A little painful introspection and thoughtful planning now will allow even your great- grandchildren to enjoy the fruits of your labor.

Call our Orange County estate planning office to schedule your Family Wealth Planning Session today. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today and mention this article.

Tags: business succession plan, orange county estate planning attorney, orange county family business
Posted in California Business Planning, Orange County Estate Planning | No Comments »

Orange County Estates Lawyer Asks, “What If You Never Made it Home Today…”

Tuesday, March 29th, 2011

Imagine being involved in a serious accident or suddenly dying without the authorities or medical personnel knowing that you have minor children waiting for you at home.

Now imagine your children waiting for hours upon hours feeling scared, confused and helpless while their babysitter or other caregiver scrambles to figure out what happened and why you never returned.

Even worse, imagine social services removing your kids from their home during this devastating time because they can’t find legal documentation that says who the kids are permitted to stay with if something happens to you.

Scary thought, isn’t it? Yet as an Orange County estates lawyer, I know that far too many area parents set themselves up for this devastating situation by not having the right emergency plans in place should the unthinkable occur.

Fortunately, there are 3 easy steps you can take right now to make sure your kids are protected if something happens to you. They are:

Legally document your choice of guardians- This is the most important step in making sure your kids are cared for by the people you want, in a way you want, if something happens to you. In addition to naming someone who can take care of your kids on a long-term basis, you’ll also want to name short-term guardians who can immediately show up and support your kids if the unthinkable happens. Without such documentation in place, the authorities will have no choice but to place your kids temporarily into the care of social services until a judge can make this decision on your behalf.
Carry a Guardianship Card in Your Wallet – This is such an easy, yet commonly overlooked step that will spare your children from hours of worry and anxiety if something unexpectedly happens to you. Essentially, you are going to create a card for your wallet that lets the police or medical personnel know that you have minor children at home. It should include your address, phone number and any other pertinent information necessary to get in contact with your kids. Finally, the card should include your guardianship instructions so the authorities know exactly what to do if tragedy strikes.
Leave detailed instructions with schools, babysitters and neighbors- Once you legally document your choice of guardians, it’s critical to leave such information with your child’s school, babysitter and even the next-door neighbors. That way, if the police show up at your door, someone will have tangible, legal proof as to where you want your children should go in an emergency.

But again, it all starts by legally documenting your choice of guardians so someone has clear permission to care for your kids if something unexpectedly happens to you and/or your spouse.

If you have not yet documented your choice of legal guardians and are not quite sure how to start, I invite you to give our office a call at (949) 260-1400 and schedule a Family Wealth Planning Session. These sessions are normally $750, but you can come in at no-charge with the mention of this article.

Tags: orange county estates lawyer
Posted in Orange County Estate Planning, Orange County Wills and Trusts | No Comments »

What is a fiduciary? | Estate planning lawyers in Orange County

Wednesday, March 23rd, 2011

It’s bad enough that you have to think about death when planning your estate, but what’s worse are all of these hardly-pronounceable words of which you have no idea what they mean. Beneficiary? Fiduciary? Revocable Living Trusts?

What does it all mean?!

In order to focus on living your life and breathing easier, do yourself one favor: tackle the weird words, find out what they mean and how they apply to your after-death plan.

The Orange County estate planning lawyers at Morgan Law Group can help. Let’s tackle the f-word first. Fiduciary.

A fiduciary is the person you put in charge of handling your estate after you’re gone. Also commonly referred to as the Executor of the Estate, what many people don’t know is that the responsibility goes way beyond making sure that your will is carried out, which is why you should choose your fiduciary wisely (don’t worry – we’ll get to that in our next blog).

Here are just a few of the responsibilities the fiduciary may carry out:

- Making primary decisions on all things related to your estate. This includes carrying out all of your wishes according to your Last Will and Testament, and reporting your death to the probate court.

- Making medical decisions on your behalf if you are deemed incapacitated. What is dictated in your Durable Power of Attorney for Healthcare or Medical Power of Attorney, is what this person will follow. Oftentimes it is carrying out your wishes to be taken off or left on life support.

- Also in the event of your incapacity your fiduciary will oversee and care for your assets, including your house, accounts, cars, boats, jewelry, collectibles, insurance policies, retirement accounts, and any businesses you own.

As you can see, the role of fiduciary is a heavy task and one that should not be taken lightly. They must be held to certain standards to ensure that your wishes are carried out, and in our next blog, the estate planning lawyers at Morgan Law Group will give tips on choosing the right fiduciary for your estate. If you have questions in the meantime, don’t hesitate to contact us at (949) 260-1400 for your free consultation.

Tags: durable power of attorney, executor of the estate, last will and testament, medical power of attorney, orange county estate planning lawyers
Posted in Orange County Estate Planning, Orange County Wills and Trusts | No Comments »

Orange County Adult Day Care Centers – A Promising Option for Seniors

Tuesday, March 22nd, 2011

By: Darlynn Morgan, Orange County Elder Lawyer

Our parents are living longer.

And as an Orange County elder lawyer, I know that with those advanced years come problems we may not have considered…

Loneliness – spouses and many of their friends are gone…

Isolation – it’s harder for them to get out and do even the simplest task…

Dependence – they have to rely on us or even strangers for help when they’ve always been independent…

We’re all familiar with the standard (and expensive) options for dealing with the lifestyle issues of aging -

Home health care
Assisted living centers
Nursing homes

But a new option is becoming more popular and is well worth considering especially for seniors who are at the “in between” stage – too healthy for full time nursing care but unable to manage completely independently.

That option is the adult day care center.

Here’s what to consider when deciding if an adult day care center is the right option for you and your loved one:

What is an Adult Day Care Center?

Adult day care centers are managed facilities with planned programs and activities designed to give your loved one social interaction, nutritious meals and snacks (even those on special diets) and routine health related services.

As the name implies, adult day care centers are not equipped or designed to give around the clock care. Normally open Monday through Friday, their purpose is to give senior adults a chance to get out, see other people and remain engaged in a community. For you, the caregiver, they provide a chance to take a break, run errands or just rest.

Services Provided by Adult Day Care Centers

A good adult day care center will provide opportunities for your loved one to exercise, build on current skills or learn new ones, socialize and stay active. Most centers will provide:

Arts and crafts
Entertainment such as music and plays provided by local groups or staff
BINGO or other games to increase mental stimulation
Light exercise programs like stretching or even Tai Chi
Book clubs and discussion groups
Local outings

Some adult day care centers provide transportation to and from the center, counseling and support groups for the seniors and their caregivers, and routine healthcare services like blood pressure monitoring and vision/hearing screenings.

What Adult Day Care Centers Don’t Provide

Don’t expect the adult day care center to provide more extensive health care services unless it is an Adult Day Health Care Center. These facilities will usually include the term “health care” in their name. Adult Day Health Care Centers usually provide physical therapy, speech therapy, more extensive monitoring of medical conditions and will have registered nurses and/or physicians on staff. If your loved one requires this heightened level of care, make sure you ask if it’s provided before signing up.

When to Choose Adult Day Care

Opting for any kind of assistance for your loved one can be a tough decision for everyone. Knowing your options before you need them is always the best course of action. Think about your loved one’s situation objectively. If they meet any of the following criteria, adult day care may be the option for you:

They can no longer handle their daily activities
They are socially isolated and miss the companionship of a social group
They can’t be left alone safely
They live alone or they live with someone who is gone frequently

Costs of Adult Day Care Centers

As with most other care options for the elderly, the costs for adult day care centers vary according to where you live and the services they provide. The average is $64 a day. If you opt for an adult day health care center, the cost will increase. The good news is that many adult day care centers base their fees on a sliding scale and what you pay will be based upon your income and ability to pay.

Medicare does not cover fees for adult day care centers; however, Medicaid will pay most of the costs of a licensed adult day care center if your loved one qualifies due to low income and few assets. Always ask the adult day care center you’re considering about available financial assistance programs.

Take a look at your loved one’s medical insurance policy – some private companies cover a portion of the daily fee if licensed medical professionals are involved in the care provided by the center. Some long term care insurance policies may also pay for adult day care centers as well.

And, one more thing to consider, as a caregiver you may be entitled to dependent-care tax credits.

There are many options available to you in paying for adult day care for your loved one. The best way to get started in the selection process is to know those options. Properly structuring your loved one’s estate and asset ownership can make a huge difference in the amount of assistance they qualify for.

Talk to us.

Call us, your neighborhood Orange County elder lawyers, to schedule your Family Wealth Planning Session today. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call (949) 260-1400 today and mention this article.

Tags: adult day health care center, assisted living oc, orange county adult day care
Posted in Orange County Elder Lawyer | No Comments »

Newport Beach Trust Attorney Reveals The Hidden Dangers of Using Online Trust Drafting Software

Monday, March 21st, 2011

I received a question last week that quite frankly I get all the time so I wanted to post it on my blog. Here’s the question (which is a GREAT one by the way) and my response below.

Question: “Darlynn-I have some folks that want to know why the Trust software that is available is not adequate in lieu of an attorney created document. How would you respond to this? Thanks- Chris”

Answer: There is a private joke in the legal field that attorneys just LOVE online trust drafting software available through places like Legal Zoom because it’s great for business.

Why?

Because online documents are so easy to mess up that people wind up paying double and even triple the price to hire a lawyer to clean up the mess after their documents FAIL when their family needs them the most.

It may sound extreme, but the truth of the matter is that creating your own legal documents often provides a false sense of security and a key breach is only discovered when it’s too late to do anything about it.

As a colleague of mine always says, it’s kind of like if you built your own house during the summer when the weather was really good and you thought you knew what you were doing, but unknowingly overlooked a key element like putting waterproof felt between the sheeting and the shingles (who would know that, I thought you’d just put the shingles right on the wood!).

You might not find out right away that you had overlooked this important item, but a couple years later the sheeting would start to rot away and by the third winter you’d have rain and snow in your house and by the time you figured out what you had done wrong, it’d be too late to do anything about it.

It’s the same with do it yourself estate planning, really.

It’s very rare that a do-it-yourself trust will meet the unique needs of your family. And, a trust might not even be the legal tool you really need to accomplish your estate planning goals! What you really need is guidance as to how you can best protect your family– which is something you will never receive when using online trust-drafting software.

Not to mention, it only takes a teeny tiny mistake or oversight to make your trust absolutely worthless in the eyes of the law. Something like not titling the ownership of your house properly. Or, not signing the bylaws for your corporation. Or not issuing the share certificates. Or, not signing your Will properly. Something that seems dumb, but is super easy to miss. Even for lawyers.

For that reason, I really encourage families to do their homework before settling on trust-drafting software (especially if your only reason for doing so is price!). In fact, I would encourage you to steer clear of trust-drafting software all together if you fall into one of the following four categories:

You own more than just personal belongings, such as cars, clothing, jewelry, furnishings, etc.
You want to ensure the people you love will have a trusted advisor to turn to for guidance when you are gone.
Your goal is to avoid probate, estate taxes or protect your children’s inheritance.
You want to GUARANTEE your plan will work when your family needs it!

So I hope that answers any questions about why a trust document is not adequate in lieu of an attorney-drafted document.

I am the first person to tell people when they can save money by printing out a legal document online (for example, a HIPAA form, which you can find here). But a trust is NOT one of those documents. This planning tool is extremely complex and people that truly need a trust to protect their assets have far too much at stake to not spend the extra money and do it right the first time.

If you have further questions about this or now have concerns that your DIY documents could fail when your family needs them the most, please feel free to call our office and schedule a complimentary Family Wealth Planning Session (normally $750) with the mention of this article. Reserve your space now by calling (949) 260-1400 (limited to 10 spaces per month).

Tags: hipaa forms, newport beach trust attorney
Posted in Orange County Wills and Trusts | No Comments »

What You Need To Know About Long Term Care Insurance | Newport Beach Elder Lawyer

Thursday, March 17th, 2011

By: Darlynn Morgan, Newport Beach Elder Lawyer

When you’re middle-aged and healthy, it’s hard to imagine that one day you might not be in the best of health…

Often that realization comes when you’re dealing with aging parents…

The very things you encounter in helping Mom and/or Dad before, during and after an illness will be the same for you and your children.

I know as a Newport Beach elder lawyer that one way to make the process of going from independent living to dependence a bit easier for everyone involved is to purchase long term care insurance to help pay for your care if you need assistance.

Think about these issues before you buy any long term care insurance policy:

1.Have a clear picture of what you need.

If you plan to live where you are now, do your homework on long term care costs in your area. Go online (or have your children go online) and search by state and metropolitan areas and get the average cost for long term care for your city and state. Call some of the long term care facilities in your area and find out what they charge and what they offer. Call several because the costs can vary significantly even in a small city or town.

2.Cover every scenario possible.

Don’t buy a policy that doesn’t cover a wide range of long term care scenarios. Make sure it provides for not only nursing home or assisted living care, but also covers home health care or even adult day care services. Even if you want to stay in your home and be cared for, don’t buy a policy that only provides for in-home care. It won’t cover expenses for a nursing home or assisted living facility if you suffer some illness or accident that makes it impossible for you to remain in your home.

3.Plan for inflation.

Only purchase a plan if it allows for protection against inflation of at least 5% compounded. The cost of nursing home care is growing at a minimum of 5% and no one can predict where it will by the time you need coverage. If you don’t plan for inflation, your policy may only pay at current costs and that won’t help you twenty years fromnow.

4.Pay for the elimination period.

The elimination period in long term care policies is the period of time between a qualifying event (the accident or illness that makes it impossible for your to care for yourself) and the time when your coverage kicks in. If you can possibly cover expenses during that time period, do it. You may be able to negotiate a lower premium bycovering those costs.

5.Pay close attention to assisted living coverage.

Nursing home care coverage in long term care insurance policies is fairly standard; however, assisted living coverage can vary significantly between policies. Read this portion of any policy very carefully. Make sure you understand what the policy covers and the types of care that will incur additional charges (i.e., if you have to pay more for medication management, if the policy only provides for care for a certain number of hours every week, does it only cover day-to-day care and not provide for care if you become seriously ill, etc.).If you’re not sure you understand what the policy covers, ask an attorney familiar with long term care insurance policies to review and explain it.

6.Use a reputable insurance company.

Don’t buy a long term care insurance policy from any company without looking at their credentials and experience first. You can research each company you’re considering by checking with insurance rating companies like A.M. Best. Once you’ve narrowed the list, contact your state’s insurance department and make sure they are licensed to do business in your state. Ask your state insurance department how often they raise their premiums and if they have any complaints against them for non-payment or slow payment of claims.

Long term care insurance may be a good option for you but it may not suit your anticipated needs. Talk to an experienced estate planning attorney before you invest in any long term care policy.

We can help.

Call us to schedule your Family Wealth Planning Session today. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today and mention this article.

Tags: long term care insurance, newport beach elder law
Posted in Orange County Elder Lawyer | No Comments »

Got Kids? Orange County Wills and Trusts Lawyer Says, “Get an Estate Plan”

Wednesday, March 16th, 2011

If you’re young, healthy and have small children, you’re probably busy trying to make a living to provide for your family.

Most if not all of your time is spent thinking about babysitters, good schools, soccer games and PTA meetings.

The last thing on your mind is providing for your kids if something happens to you. You’re young and young people don’t die, right?

Wrong.

If you have children, especially small children, the time for Orange County estate planning is now.

Your estate plan allows you to plan for who will care for your children, makes sure that your property is transferred to the people you want to have it, determines who will handle the business affairs of your estate, and who will handle the property you leave to your children.

If you still don’t think you need an Orange County estate plan, here are a few things to think about:

Why Are You Delaying Estate Planning?

For many couples with young children, the expense of actually sitting down with an attorney may be the leading factor in delaying planning their estate. When you’re trying to pay a mortgage, an estate plan may seem like a luxury you can put off until a later time. But consider the possibility that something does happen to you and/or your spouse. What would happen to your children? If you don’t decide who will take care of your children and put that decision into an estate plan, a court will make the decision for you should something happen. And that may very well not be the best choice for your kids.

Some parents delay estate planning because of mixed feelings about death, property issues, even marriage and family relationships. If these issues are causing you to put off planning your estate, take some time to sit down and discuss them with your spouse, or write them down for yourself, and really get a handle on your feelings. Once you’ve dealt with how you feel about these issues, you will have a much better handle on how to plan your estate and the peace of mind that comes from knowing that your children and your property will be taken care of should the unthinkable happen prematurely.

A Reality Check

Once you’ve examined your feelings surrounding the issues involved in estate planning, it’s time for a little dose of reality. Be very realistic about your resources and how they’ll be used. If you want your estate to be used for sending your children to college, you need to also think about how they will be supported until they actually reach the age to go to college. The first thing you need to think about is supporting your children. They need food, clothing and shelter first. College is a secondary consideration.

The Time To Plan Is Now

If you’re wondering if you need to hire an Orange County wills and trusts attorney to plan your estate, the answer is yes. While you can do a simple will with forms you find online, if you have small children those forms are not going to design your estate in a way that truly benefits your children and ensures that what you really want done is done.

To get the ball rolling, sit down and make a list of the property you own, how it is titled, the fair market value and how much you owe on it (if anything). List all your life insurance and retirement plans, how much they’re worth and who the beneficiaries or owners are. Now is the time to think ahead. Don’t just think about your current situation but think about what your family will need in the future.

And be prepared for your estate plan to change over the years. As your children grow and your life changes, make sure you keep careful records and make sure your estate plan reflects those changes. A will that was written ten years before your death is highly unlikely to be an accurate reflection of your family’s needs when you die.

If all this has made you think that you would like an expert opinion on how to plan your estate to make sure that your children and your property are taken care of, call us to schedule your Family Wealth Planning Session today. We can identify what you need to do to plan for your family’s future and answer any questions you have about an effective estate plan. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for a couple parents who mention this article to have a complete planning session with me at no charge. Call today and mention this article.

Tags: college planning, what is estate planning, wills and trusts attorney
Posted in Orange County Estate Planning, Orange County Wills and Trusts | No Comments »

Orange County Will Lawyer Helps You Decide Where Your Assets Should Go

Tuesday, March 15th, 2011

In continuing our estate and trust planning series, we have already established important concepts in previous posts including how to determine your net worth and addressing the chance that you might become disabled and therefore unable to make decisions for yourself.

The next step in the process is to determine where you want your assets to go after you die.

It is important to take into consideration both your life situation and relationships now, as well as the possibility that they might change in the future. There are countless scenarios that could occur over the course of your life. Here are just a few to consider:

You may not have children at the present moment, but you plan on having kids and know that you would want them to inherit your assets.
Suppose you are married but not planning on having children – if your spouse were to pass away before you, to whom would you want your money to go?
If you were to pass away tomorrow, are your children or heirs capable of responsibly handling their inheritance?
Would you want to make sure a portion of your estate was left to your children from a previous marriage, rather than everything going to your current spouse?
Do you want to leave a portion of your estate to a charity or non-profit organization?
Do you have sentimental objects that you want to give to a specific person in the family?

One easy way to help you decide who you want to inherit your belongings is make a list of all of your assets and place a name beside that asset. This will help you get clear on your wishes as well as identify any roadblocks you might encounter in leaving assets to the beneficiaries of your choice.

For example, you might want to give the little cabin by the lake that your nephew enjoys each summer to him, but unless you put it in writing, there is no guarantee that he’ll get it. Did you put your ex-wife down as the beneficiary on your life insurance policy before you divorced but have yet to change it? Your new wife or kids from your new marriage could see nothing.

Turning this new list into an actual estate plan is where an experienced Orange County estate planning attorney comes in. We can help you take this portion of the plan and turn it into a complete guide for your family members upon your passing. Here at Morgan Law Group, we are fully committed to helping you make end-of-life decisions as easy as possible. Call us today at (949) 260-1400 for your free consultation.

Tags: estate and trust planning, estate plan, list all of your assets
Posted in Orange County Estate Planning, Orange County Wills and Trusts | No Comments »

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