Observers have long awaited an initial public offering for the wildly popular social networking website Facebook. The founders, Mark Zuckerberg and Dustin Moskovitz, have been in possession of the proverbial gold mine for quite some time, and they have already taken steps to take advantage of the tax efficiency strategy known as the zeroed out grantor retained annuity trust.

Zeroing out a GRAT for tax efficiency purposes involves funding the trust with volatile securities, and naming a beneficiary who would assume ownership of any funds that may remain in the trust after its term has expired.

When you create the trust, you arrange for annuity payments to be made to you on an annual basis throughout the duration of the term. The IRS considers the act of funding the trust to be a taxable gift, and it adds an estimate of  appreciation using 120% of the federal midterm rate (Section 7520) that was in place when you executed the trust agreement.

This percentage is added to the value of the assets to determine the taxable value of the trust. To zero out the trust, you do the math and take annuity payments that equal the entirety of this taxable value over the duration of the trust term.

However, if the assets earn more than the percentage applied by the IRS using the Section 7520 rate, there will be a remainder in the trust after you’ve taken all of your annuity payments. This will be transferred to your beneficiary free of taxation.

Placing highly valued stock in such a trust before an initial public offering like the Facebook founders did (according to Forbes) is an ideal use of the strategy.

If you are interested in the possibility of creating a grantor retained annuity trust, or if you would simply like to discuss your options with a professional, right now is a good time to pick up the phone to arrange for a consultation with an experienced Campbell CA estate planning lawyer.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

There are different family dynamics to consider when you are thinking about the subject of estate planning. Statistics on the subject vary, but it is safe to say that around 40% to 50% of marriages end in divorce these days.

Most people who go through a divorce eventually get married again, and the majority of these individuals already have children when they enter into their second or third marriages. 

This can create an estate planning situation that must be dealt with proactively. How do you make sure that your new spouse is provided for while protecting the interests of your children? One solution would be to enter into a prenuptial agreement and create a qualified terminable interest property trust.

Once you have asserted ownership of your personal property with the prenuptial agreement, you could create a QTIP trust for the benefit of your children. The QTIP allows your spouse to benefit from the resources that you place into the trust while he or she is alive.

However, your spouse does not have the power to decide who inherits the trust assets after his or her death. You name the beneficiaries when you are creating the trust, and you would presumably name your children as the beneficiaries if you are creating the trust for their protection.

Estate planning for blended families requires a certain brand of expertise. To devise a plan that provides for all of your loved ones, take action right now to arrange for a consultation with an experienced San Jose Bay Area estate planning attorney.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

People sometimes shy away from things that they don’t understand, and as a result they can wind up missing out on good opportunities. This is something to keep in mind when you are thinking about the subject of estate planning.

Most people have heard of trusts and trust funds, but many individuals assume that these instruments are something that only wealthy people need.  In reality, the creation of a revocable living trust could be a good choice for many people who would consider themselves to be ordinary Americans.

Revocable living trusts enable probate avoidance. If you simply use a last will to express your wishes, your estate must pass through the costly and time-consuming process of probate. In the long run, creation of a trust may be a less expensive and more efficient option.

The way a trust works is that you create a living trust appointing a trustee and naming your beneficiaries, and then you fund the trust.  Upon your death, the trustee administers the trust assets, and the beneficiaries receive distributions from the trust as directed by you in the trust agreement.

While you are alive, you can act as the beneficiary and the trustee, and this ongoing control adds to the appeal of revocable living trusts. If you create such a trust and act as the beneficiary and the trustee, you name successors to assume these roles upon your passing or incapacitation.

To learn more about creating a trust and trust administration, simply take the time to get in touch with an experienced San Jose estate planning attorney to arrange for an informative consultation.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

I was recently asked to address someone’s claims against an estate.  There were several procedural issues I addressed and pass along to you, as well as some practical advice regarding the nature of this person’s claims.

People create living trusts as part of the estate plan in order to avoid the death probate process which can be both time-consuming and expensive.  If there is a trust involved, you can present your claim to the trustee, and it can be in any format which communicates the nature and amount of the claim so the trustee can determine its validity.  Anyone acting as a trustee would be foolish not to address a creditor’s claim, because if the trustee were to distribute the trust assets and not have resolved the creditor’s claim, the trustee as well as the persons to whom the assets were distributed would become liable for the debt.

If a probate proceedings is started (Wills are implemented through a formal court proceedings known as a probate proceedings), the personal representative of the estate is required to give formal notice to all persons whom they reasonably believe may have a creditor claim The notice is statutory and includes disclosure of the need to file a formal claim with the court/personal representative.  The notice also advises that the creditor has four months in which to file a claim or otherwise be precluded from prosecuting their claim.  Once a claim is filed, the representative has an obligation to approve the claim, reject it, or approve in part and reject in part.  If the personal representative takes no action on the claim within 30 days of it being filed, it can be deemed rejected by the creditor. The creditor is permitted to file suit on the claim once it is rejected in whole or in part, or deemed rejected for failure of the representative to take action.

In this instance, I was advising “Lucy” regarding the nature of her claim for “live-in care” she provided for her foster mother who recently passed away.  The question I posed to Lucy was whether or not there was a verbal, written or implied contract that Lucy would provide the live-in care and would be compensated for providing that care?  I advised her that absent such a contract, Lucy probably had no “right” to compensation from her foster mother’s estate because Lucy acted as a volunteer.

Out of pocket expenses for food and home repairs might be reimbursable if providing those things were not a gift on Lucy’s part.  Gifts are not reimbursable from an estate.

Lucy also incurred moving expenses to move in and provide the live-in care and getting reimbursed from the estate for those moving expenses was problematic.  Was there a promise to pay for relocation costs?  Was it ever discussed?  When Lucy moved in, was it for the convenience of her foster mother, or Lucy?  Did Lucy’s foster mother pay the costs of the initial move into the home or did Lucy?

The issues pertaining to probate, creditor claims, and trust administration can be complex and hard to navigate.  A certified legal specialist in Estate Planning, Trust and Probate Law can be a key advocate to help you.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

Recently I had an attorney ask me about the following question.

A decedent had died holding several accounts in joint tenancy with someone believed to never have existed.  Who knows why people do these kinds of things, but there it is.  Apparently great effort and expense had been incurred trying to identify this person, and ultimately it was concluded they weren’t real.  The question is how to proceed?  The decedent had a will, but probate proceedings had not yet been started.  I advised as follows:

First, the will needs to be submitted to the court to be probated.  Once a personal representative has been appointed, the attorney should file a petition as follows.

Probate Code Section 850(a)(2) permits the personal representative in a probate proceedings to bring an action for a court order  (C) “Where the decedent died in possession of, or holding title to, real or personal property, and the property or some interest therein is claimed to belong to another” and (D) “Where the decedent died having a claim to real or personal property, title to or possession of which is held by another.”  Under Section 856 the court can render an order directing the person [read as bank] having title to or possession of the property, to execute a conveyance or transfer to the person entitled thereto, or granting other appropriate relief.”

As part of this petition, the attorney for the personal representative would want to file an ex parte petition for permission to publish notice to the joint tenant on the account claiming said joint tenant is fictitious and supporting that claim with whatever information was discovered regarding the non-existence of the joint tenant.  The court would then likely render an order permitting the other joint tenant to be served by publication, and when the joint tenant fails to appear, the court would render the order desired finding ownership in the name of the decedent.  The attorney would then file the petition for distribution and close the probate administration.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

I was recently asked to address a situation where Husband died and the home was held in joint tenancy between Husband and his mother.  Husband had no will.  The question was presented how does the surviving Wife get title to the home?

Assuming Mother has predeceased Husband, upon her death legal title would have passed by right of survivorship to Husband.  To remove Mother’s name from the title, an Affidavit of Death of Joint Tenant would have to be prepared and a certified copy of Mother’s death certificate attached, both of which would then have to be recorded.  This package would have to be accompanied by a Preliminary Change of Ownership Report and a BOE 58, claim of the parent child transfer exemption.  Once those documents are recorded, the real property would be solely in the name of Husband.  Since title would be in Husband’s name alone, it would be his sole and separate property (subject to the caveat below pertaining to a claim of a community property interest by Wife).  If the Husband did not leave a will at the time of his death, the real property would have to be probated (subject to a caveat below pertaining to real property having a value of less than $50,000) and would pass by the laws of intestate succession among the surviving Wife and surviving children of Husband.

The caveats are that if the debt service has been paid using community property income earned during the marriage, Wife is likely to have some claim against the home, even if it is held solely in the name of Husband.  The second caveat relates to the fact that California law was recently amended effective January 1, 2012 and will be applied retroactively, so that if the property has a value of less than $50,000, it will not have to be probated (just wait until 1/1/2012 to do the paperwork).

On the other hand, assuming Mother is still alive, title to the home passed to her upon Husband’s death (she would clear title as described above).  It is arguable that Wife might have some claim for community property used to pay the debt service, but that wouldn’t be as strong an argument as the debt service was paid in lieu of paying rent.  In this example, Mother could transfer the home to Wife after clearing title as described above.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

Many people interested in the subject of estate planning do research on the Internet. When doing online research,  the topic of probate avoidance is often mentioned. Probate is the legal process of estate administration, and though this sounds rather routine on the surface there are difficulties and costs that go along with the process, and as a result people often choose to avoid it. In this blog we highlight three of the reasons why you may want to employ probate avoidance strategies.

Expense

The hands-on tasks that must be taken care of during the probate process are undertaken by the executor or personal representative. This individual is entitled to remuneration for his or her services, and the executor will need a probate lawyer to assist in the proceedings. So there are attorney fees, and the executor may also need to engage an accountant, an appraiser or even multiple appraisers, and perhaps an estate liquidation company. In addition, there are court fees. All of this can add up to a significant sum.

Time

Most people would like to see their loved ones receive their inheritances in a fast and efficient manner. Probate slows things down considerably. Depending on the details, it can take years for an estate to be probated and closed, and at a minimum it will take a number of months.

Challenges

If anyone wanted to contest the contents of your will, they would do so before the probate court. Implementation of strategies that enable probate avoidance closes this window of opportunity for the disgruntled.

As you can see, there are some pitfalls that go along with the probate process. If you would like to explore your options with regard to probate avoidance, our office offers free Living Trust seminars to help educate our community on this important estate planning and probate avoidance tool.  For information on our free seminars and workshops, follow the “seminars” link at the top of this page.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

One of the major advantages of having a living trust is that upon death, assets of the trust are not subject to the probate process. But occasionally there are situations where probate might be an advantage. One of those would be where the decedent has legal obligations that are unknown or undefined. The decedent’s creditors would have a right to bring suit to collect on their claims against the trust for one year after the decedent’s death. If the decedent’s estate were being probated, the creditors would have only four months to file their claims.

Thus in the instance where the estate is held in a trust, the trustee may want to withhold distribution until after the one year statute of limitations has run so they are not faced with the possibility of having to recover distributions made in order to pay lawful claims of the estate. In such a circumstance the trustee may want to consider availing themselves of the optional claims procedure permitted by Probate Code Section 19000 through 19403. Under this procedure, the trustee can file formal documents with the court, serve copies on creditors, and the creditors will only have four months to file a claim, thus opening the way for distributions to be made without waiting for one year.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

Under California law, when a decedent dies and their living trust become irrevocable, the trustee is required by Probate Code Section 16061.7 to give any beneficiary notice of that fact and advise that the beneficiary has a right to receive a copy of the trust and periodic accountings and that the beneficiary has the right to contest the trust within 120 days after receipt of such notice. Having received no such notice, the beneficiary’s right to contest the trust is four years unless there are other factors involved, such as they were a minor until recently.

Contesting the trust may be in violation of a “no contest clause” which would result in the beneficiary losing their inheritance.

Probate Code Section 16062 provides that if a trust was executed after 7/1/1987, the trustee shall account to the beneficiaries of a trust at least annually. The required contents of any such account are set forth in Probate Code Section 16063. Probate Code Section 17200 authorizes a beneficiary to obtain a court order compelling a trustee to account if a written demand for an accounting has been made, and more than 60 days have passed.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

What are the legal rights of a surviving spouse to the deceased spouse’s assets where the decedent spouse leaves the bulk of his/her estate to a child from a prior marriage?

California is a community property state. Many people are confused about what constitutes community property. Basically, community property is everything a married couple acquires as a result of their labors commencing with the date of marriage. Community property does not include many things, such as separate property owned by one spouse prior to the marriage, gifts and inheritance received by one spouse before or during the marriage, and personal injury awards.

A decedent has the legal right to dispose of their separate property and their share of the community property however they chose, including disinheriting their spouse and leaving those assets to someone else, such as children by a prior marriage. But that is not the final answer. First, you must determine what is separate versus community property.

If there is a marital agreement (post-nuptial or prenuptial), that agreement will likely define the rights of the spouses to the assets. Absent such an agreement, the rights of the parties will be controlled by state law. For instance, Husband (“H”) and Wife (“W”) get married and do not sign a marital agreement, and H owns a business as his separate property at the time of the marriage.
Thereafter W works closely with H in the conduct of that business. It is likely to be found factually that the business has been converted (at least in part) to community property so that H can’t dispose of the community property interest acquired by W after the marriage, only his share.

Or, using the same example, assume H owned a home as his sole and separate property at the time of his marriage to W, but after the marriage, H and W used their combined earnings (community property) to make the mortgage payments. Upon H’s death, the home is likely to be found to be a commingled asset, partially owned by H as his separate property and partial owned by H and W as their community property.

There are lots of these types of questions to be asked.

In addition, the surviving spouse might have a claim against the estate of the decedent based upon financial need. In that event, a probate court proceeding can be brought to enforce a homestead right (the right to support) on behalf of the survivor which would become a debt of the decedent’s estate to be paid from the decedent’s trust assets.

The bottom line is:  A surviving spouse may have substantial rights which are not properly addressed by the deceased spouse’s estate plan. You would need to discuss the details of your marriage with competent legal counsel to determine what your rights are and how to best pursue those rights. You should also be concerned with the possibility that bringing any action to pursue those “rights” may violate the terms of any “no contest clause” contained in the estate plan which could possibly result in you losing any right to inherit, including anything left to you. Therefore, you should approach this very carefully.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.