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When Disaster Strikes, Be Prepared!

Chuck Meiers was nestled in his bed when the call came. “Is this Charles Meiers? The owner of the building at Morgan and Main, CM Towers? I believe your business, CM Law, is the sole tenant there?” “Yes?” “Sir, this is the San Valdeos Fire Department. We responded to a fire alarm at your building. There is a lot of black smoke coming out of your roof. It appears your building is on fire.” “Oh no, can you put it out?’ “We are attempting entry now, sir. It would be best if you could get down here. We need details as to the flammable contents of the building, as well as any fire protection measures in place. By the way, is there any reason to believe that anyone is in the building at this time?” “Just the security guard. He must be the one who sounded the alarm.”

Chuck struggled to get out of bed, then began to pull on some clothes. “I’m coming. I’m coming. Just save my building! I have client files in there!”

Whether man-made or a force of nature, a disaster can spell big trouble for a small business. Not only could a disaster suspend business operations, it could effectively force you to shut your doors.

The first step to protecting your business, of course, is ensuring that you are sufficiently insured to protect against any potential loss that may occur when disaster strikes. The second is to have a comprehensive contingency plan in place. These two steps may enable you to reopen your business quickly and efficiently after a disaster strikes.

What qualifies as a disaster? Generally, anything that impacts the operation of your business for an extended period of time, resulting in significant financial loss, the loss of lives, or the loss of customer/public good will. Workplace violence, a fire, a system failure, a tornado or hurricane, data theft, employee embezzlement, or accusations of illegality all fall under the heading of a disaster.

There are many ways to create a contingency plan. Some small businesses simply gather employees, and using standard guidelines, hammer out the details. Others utilize a consultant or work with their property insurer. Whatever approach you take, the planning process should include consideration of the following potential risks to your business:

  • Are natural disasters, such as wildfires, earthquakes, snow/ice storms, or flooding common occurrences in your area? Would someone benefit from tampering with or stealing data about your operations? Are your premises open to the public and therefore at risk of exposure to certain other risks, such as violence or other criminal acts? Focus on likely disasters, not ones that have little probability of occurring.
  • An evacuation plan. When a disaster occurs, first consideration must be given to the preservation of human life. Does your business have a plan in place for evacuating employees when a disaster is imminent or occurs? If not, create one, and discuss it regularly with employees. Then post it in places with significant employee traffic, such as lunchrooms, restrooms, and stairways/elevators.
  • How notification of an impending disaster will occur, methods of seeking shelter on the premises, securing computers and other property, how to safely exit the building, establishing a gathering point once evacuation has occurred, and the appointment of safety monitors to ensure the building or offices have been cleared.
  • A communications plan. If the disaster occurs outside of work hours, how will employees be notified? If employees are sent home after a disaster occurs, how will they be kept updated on their responsibilities? Is a system in place for mass texts or notification by robo-call, or should employees visit the company website for updates, information, and instructions? In addition, how will customers or clients, as well as the public and the media, be notified of the disaster and the impact on business operations? Some companies create crisis communications plans that are designed to be executed by a specified group of people.
  • Emergency preparedness. Certain supplies are essential in emergencies, such as first aid kits, food, water, blankets, and safety equipment, including face masks and gloves. Consult with local governmental agencies to identify what your business needs to keep on hand for specified emergencies.
  • Protection of business assets. No matter what type of disaster occurs, it is essential that business information be protected. Storing copies of customer lists, financial data, and employee information offsite is key. Use of “a cloud” or a storage facility are among the alternatives that should be considered. There should also be a procedure in place for shutting down company computers, servers, and other electronic equipment en masse when evacuation occurs. That will protect against theft if the premises are left unprotected.
  • Resumption of business operations. What will it take to get your business up and running again? Is there an alternative site available to continue operations or will employees be permitted to work from home? Will the business resume operations in stages, starting with key employees, then adding other employees as practical? Are procedures in place to provide employees with the equipment and data they need to work at a different location? What supplies/products will be needed to meet the continuing demands of clients or customers? Will alternative vendor/storage arrangements be required?
  • Addressing the impact of the disaster. A disaster does not just impact a business, it impacts employees, customers, vendors, and the community. Create a procedure for addressing such concerns as the loss of income, the unavailability of services or products, maintaining goodwill with customers and the public, and connecting those impacted with local, state, and federal governmental and non-governmental resources.

Once these issues have been discussed, reduce the conversations to writing. Create a formal plan that outlines the company response to specific events and make it available to employees. In addition, keep it accessible off-site, for example, in the cloud, on company cell phones, or in a physical location, such as the homes of key executives. A plan is of no use if it cannot be accessed when needed.

Posted in Advance Directives, Business Planning, Digital Assets, Finances, Insurance, Power of Attorney, Real Estate, Trusts, Wills | Comments Off on When Disaster Strikes, Be Prepared!

When Creating a Will, Words Matter

Barry Donovan died a happy man. Not only was he joining his late wife, Sarah, in the great beyond, he was also confident his assets would be fairly distributed in accordance with his will.  Several days after he had been laid to rest, Barry’s five children—James, John, Sarah, Sally, and Iris—and his surviving siblings—Joseph, Sally, and Sarah—gathered for the reading of his will.

Unfortunately, the reading did not go well. Confusion reigned. Among Barry’s specific bequests:

  • To Sarah, I leave my collection of mint U.S. gold pieces, as well as any remaining funds in my bank account at Farmer’s Trust.” Unfortunately, the executor could not determine which Sarah the will referred to: His daughter or his sister?  And since the will had been executed prior to his wife Sarah’s death, there was also some question as to whether Barry’s late wife was the intended recipient.  In addition, no one knew where the gold pieces were located.  Barry’s daughter Iris claimed the coins had been sold to pay off a gambling debt.  Eventually, however, some gold coins were found in a box stuck in Barry’s freezer.  Some of the coins were dented and damaged.  The executor did not judge them to be in mint condition.  He was convinced the coins referred to in the will were gone. Instead, the executor placed the coins in the residual estate.  The executor also determined that the surviving Sarahs were the intended beneficiaries of the cash account, and he split the balance between them.


  • “To Sally, I leave the farm, including all animals, equipment, buildings, and fixtures.” Barry’s sister and daughter, both named Sally, each believed they alone were the intended recipient of the farm, however neither knew which farm Barry was referring to. It seems Barry owned two farms, one of which he had deeded to his son, Joseph, prior to his death, and the other, a farm that consisted solely of pasture, was leased to tenant farmers. The term of the leases was 99 years. After a considerable amount of time and research, the executor found the deed to a third farm. Because he could not determine the rightful owner, he sold the farm and split the proceeds among the two Sallys.


  • “To James, I leave my car.” Since there was only one James in the family, the intended recipient of a car was clear. Unfortunately, at the time of his death, Barry owned two cars, one a classic 1958 Chevy, valued at more than $100,000, and the other, an old Cadillac propped up on bricks in Barry’s driveway because it had no tires. Under protest from all the other children, who believed they should be entitled to a share of the classic car, the executor transferred the title of the classic car to James.

When the identity of beneficiaries or assets disposed of by will are unclear, bad things happen.  In the case of Barry’s family, his lack of details almost ensured that his testamentary wishes were not carried out.  There is no better way to foment dissent among family members than a will that is unclear, and leaves some family members feeling that they are being treated unfairly.

For example, if the executor had found the mint condition coins, but could not determine who the intended recipient was, he may have ordered the coins sold and the proceeds divided among the surviving Sarahs, thereby reducing the value of daughter Sarah’s bequest. Similarly, if the executor determined the intended recipient was Barry’s late wife, Sarah, he could have ordered the coins sold and the proceeds distributed among her heirs.  In that case, the value of daughter Sarah’s bequest would be further reduced, at the same time increasing the value of the bequests to the other children.  Barry’s intentions would no longer matter.

When preparing a will, bequests are categorized as specific or residuary.  Specific bequests refer to a particular asset, such as jewelry, cash, homes, or cars.  Residuary bequests refer to assets that remain after specific bequests have been distributed.  When making such bequests, the words used matter, not only to identify beneficiaries and assets, but also to state intentions behind the bequests.

For that reason, it is important to follow these steps when preparing a will:

  • Inventory and completely describe all assets. Provide complete physical descriptions, and state the estimated value and location, as well as the location of documents related to ownership.  For example, a property description should be as specific as possible:  “To X, I bequeath the 500-acre farm located on (legal description) in (city) (county) (state), including all buildings, fixtures, and equipment, as evidenced by the deed filed with the recorder of deeds on (date) by (owner).  Current FMV: $200,000.”


  • Provide information helpful in identifying intended beneficiaries. Beneficiary designations should include full legal names (including middle names), last known addresses, dates of birth, and the relationship to the testator. For example, “To my daughter, Sally, d.o.b. 5/14/1990, currently residing at XXX Millway Rd., Athens, GA, I bequeath….”


  • State intentions behind unequal distributions to family members, or reasons for denying benefits to a family member. Oral promises made prior to death, but not confirmed by will, carry no weight in probate court.  However, often when disputes arise, the court is forced to rely on testimony from those who stand to benefit from a challenge to the will. By stating intentions clearly, claims that a potential beneficiary was unintentionally excluded or that the testator was not of sound mind when making his or her bequests, can be avoided.


  • Do not place conditions on bequests. In some cases, it is inappropriate to specify that certain acts or behaviors must occur in order to receive a bequest.  For example, “I leave the entirety of my estate to my daughter Lea, but only if she divorces Howard and marries Ralph.”  The break-up of a family goes against public policy and will not be permitted to stand. Such conditions could be grounds for invalidating a will. Similarly, bequeathing an item to someone “only if it is in good condition” begs several questions: Who determines what qualifies as “good condition?”  If an item is not judged to be in “good condition,” does the bequest fail, or is the item still distributed to the named recipient?


  • Comply with all language requirements for creating a legal will. State law requires that certain words, terms, and descriptions be used when making bequests by will. Failure to comply could render the will invalid. At a minimum, a will should be reviewed by an attorney to ensure it will not later be invalidated.
Posted in Advance Directives, Beneficiaries, Beneficiary Designation, Estate Planning, Gifting, Inheritance, Power of Attorney, Trusts, Wills | Comments Off on When Creating a Will, Words Matter

Issues with Probate – Part V


Failure to timely probate estates creates problems for heirs

When Franklin Davies died, his wife, Jennifer was quite confident that all their ducks were in a row.

After Franklin inherited a significant number of assets from his father, Harold, the couple decided to create a Living Trust and place most of those assets in the trust for the benefit of their children.  Among those assets was a beachfront home.  Eventually, Franklin and Jennifer decided to make that home their main residence.  Franklin was tasked with the transfer of the deed, and informed Jennifer that to avoid probate, he would simply name Jennifer as a joint tenant. When either one of them died, the other would then assume total ownership of the residence.

Unfortunately, things did not go as planned.  It turned out that although Harold had left Franklin his entire estate by will, the will was never actually submitted to probate, so no assets were titled in Franklin’s name.  They could not be used to fund the trust.  In addition, Franklin neglected to update the deed to the home in which he and Jennifer resided, in fact, the deed remained in Harold’s name.  Jennifer had no right of survivorship.

Franklin and Jennifer had executed joint wills, and under the terms of that document, Jennifer was Franklin’s primary beneficiary.  A pour-over provision in the will to further fund the trust did not apply until the death of the second spouse.

When Jennifer contacted an estate planning attorney, she was informed that under California law, she would be required to submit both estates to probate.  California law requires that estates in excess of $150,000, subject to either the terms of a valid will or state intestate laws, must be submitted to probate.

When Franklin’s estate was submitted to probate, several problems arose.

  • Franklin had created a trust with the intent of using most of Harold’s assets to fund it. Unfortunately, at the time the trust was made, Franklin was not the legal owner of the assets, and his delay in assuming ownership and then transferring title of designated assets to the trust left it unfunded.  His children were very upset and were considering challenging his will.
  • Because Franklin never legally converted the deed for his primary residence to a joint tenancy with Jennifer, it was required to pass through probate. Jennifer ultimately received the home per the joint will, but it came at additional expense and delay.
  • Because Franklin failed to legally fund his trust during his lifetime, a dispute arose over whether those assets should be included or excluded from probate. For example, the executor argued that the assets should go directly into the trust, bypassing probate.  Unfortunately, the court ruled that because the assets did not actually pass to Franklin until Harold’s estate was probated, they could not be used to fund the trust.  Instead, the assets passed to Jennifer per the joint will, and she could, at her option, use them to fund the trust.  However, because the assets were subjected to probate court, their value was significantly diminished.

While not every estate or will must be submitted to the probate court in California, it is important to understand when probate is required. Failure to properly handle an estate could have long-term consequences.  Generally, California law takes three factors into account: The type of property owned by a decedent, the value of the property, and how ownership of the property was designated in the title. These rules apply:

  • When no will exists and an estate holds assets valued at more than $150,000, the estate must be probated.
  • When a valid will exists and an estate holds assets valued at more than $150,000, the estate must be probated.
  • When a will contains possible errors, for example, it was executed when the testator was incapacitated or someone exercised undue influence, the challenge must be submitted to probate court.

Generally, assets placed in a trust bypass probate. However, there are other ways to avoid probate. For example, a deed may list two people as joint tenants, with the right of survivorship.  Married couples are also permitted to own real estate as community property or as “tenancy by the entirety,” both of which provide a right of survivorship.  Upon death, property held in any of these ways passes to the survivor without probate. But property valued at more than $150,000 and held as “tenants in common” may require submission to the probate process.

Similarly, probate may be avoided through beneficiary designations or “payable upon death” accounts.  For example, beneficiaries must be named for retirement accounts and life insurance policies. Those benefits pass immediately upon the account holder’s death. “Payable upon death accounts” usually require the beneficiary to complete some paperwork before receiving the account, but again, that transfer is not subject to the probate court.

The purpose of the probate court is to clarify the terms of a will, distribute assets, and designate successor beneficiaries when parties predecease a testator.  However, the process can be costly and fraught with delay.  A comprehensive estate plan not only removes assets from the jurisdiction of the probate court, it also minimizes processing costs.

Posted in Estate Administration, Inheritance, Probate, Probate Administration | Comments Off on Issues with Probate – Part V

Issues With Probate – Part IV

Lost or Undiscovered Assets Pose Problems for the Administration of an Estate

When Jonathan Morgan was named the executor of his father’s estate, he thought he had an easy task ahead of him. After all, his father, Harold, had assured him that he had carefully listed every asset he owned on a sheet of notebook paper attached to his will.

“All you have to do is submit everything to the probate court and you’re golden,” Harold said with glee.

Unfortunately, upon Harold’s death, all Jonathan found was his father’s will, buried in a kitchen cupboard, with a small slip of paper attached.  It said:

  • Bank accounts
  • Pension plan
  • IRA
  • Life insurance
  • Crutchfield farm
  • Mother’s jewelry
  • House
  • Rental property

No further information was provided.  With the exception of Harold’s home, Jonathan had no clue where to begin his search for Harold’s assets.

One of the primary responsibilities of the executor of an estate is to identify and inventory the deceased’s assets. Ideally, the testator has taken the time to detail all of those assets, providing estimated values, locations, and other information about ownership. When such information does not exist, however, it is incumbent on the executor to search for and locate those assets.

Jonathan began the process by carefully searching Harold’s house, looking in closets and cupboards, under beds and mattresses, in drawers and bookshelves, through multiple boxes stored in the basement of Harold’s home, even in the pockets of Harold’s clothing. Jonathan also searched Harold’s car, garage, and tool shed. Eventually, he found a few personal papers, a receipt for payment of an insurance premium, some stock certificates, and an unlocked home safe, which contained four years’ worth of bank statements for a checking account and a passbook for a savings account. Jonathan also found a key to a safe deposit box in one of Harold’s shoes.

After calling numerous banks, Jonathan was able to identify the location of the safe deposit box, and per state identification requirements, opened the box and found three prior wills, as well as a jewelry case, which he assumed to be his mother’s jewelry. After reviewing the prior wills, Jonathan found a more detailed list of Harold’s assets but was unable to identify the location of an IRA and pension plan, and three more bank accounts.

However, Jonathan still had no clue as to the location of any rental properties or the property identified as the “Crutchfield farm.” After an unsuccessful search of records in the county in which Harold lived, Jonathan hired a local private investigator to broaden the search. The P.I. suggested that the search also include:

  • Any loan documents that listed Harold as either the debtor or the lender.
  • Unclaimed assets held by state or the federal governments, such as bank accounts, real estate, or tax refunds.
  • S. Treasury securities.
  • Unclaimed insured deposits held on behalf of account holders at failed financial institutions.
  • Pension/retirement plans funded by defunct or bankrupted companies, as well as 401 (k) plans that may have been lost in job transitions.
  • Additional life insurance policies.

The private investigator explained that multiple websites now existed for the search for such assets and the information could be easily accessed by someone with legal authority, such as an executor holding Letters Testamentary (the authority granted by the probate court to administer an estate).

While the private investigator began his search, Jonathan asked his aunts and uncles, as well as his siblings, if they were aware of any properties Harold owned. He soon discovered that two of his aunts were living in homes Harold owned, but rented to them. Jonathan also learned that the “Crutchfield Farm” was in fact the “Kutzfeld Farm,” a property Harold had sold shortly before his death.

After more than six months, Jonathan finally had what he felt was a complete list of all of Harold’s assets and submitted it to the probate court along with a list of debts and liabilities. After payment of all outstanding debts, Jonathan was then able to distribute Harold’s assets as instructed by the will and settle the estate.

While lists of assets and liabilities are an important attachment to wills, some testators either ignore them or fail to fill them out completely. This can significantly delay the probate of an estate, or in some cases, require the reopening of an estate when assets are newly discovered.  The best approach is to keep an updated list of your assets and liabilities attached to your will, as well as a copy of that list with relevant paperwork attached and store it in a location known to the executor of your estate.

At a minimum, the following assets should be included in your inventory:

  • Personal property of value, such as cash, financial accounts, jewelry, art, antiques, and intellectual property.
  • Real estate, including homes, vacation homes, rental properties, and real estate held in trust or in a business entity.
  • Business interests, including shares held in a corporation, limited liability company, or partnership.

Creating an estate plan that clearly defines your desires regarding the distribution of assets upon your death is really only the first step. Without a complete inventory of those assets, your wishes will not be completely fulfilled.

It is very important to state your instructions regarding your estate clearly and accurately in your will, and vital that the list of assets and liabilities be comprehensive and informative.

Posted in Estate Administration, Estate Planning, Inheritance, Probate, Probate Administration, Real Estate, Trust Administration, Trust Bank Accounts, Trusts, Wills | Comments Off on Issues With Probate – Part IV

How To Avoid Conflict in Your Estate Plan – Part III

Should You Hire A Professional Fiduciary?

Marilyn Simons was irate.

“I’m telling you, Bob, that estate planning attorney thinks we have raised a bunch of dummies. We have three children, all perfectly competent adults. Why shouldn’t we nominate one of them to oversee our affairs? I am quite sure none of them would object.”

Bob Simons chuckled. “Marilyn, I hardly think the attorney was suggesting that our children are incapable of handling our affairs. She was merely inquiring as to whether any of them had the time or inclination to perform the duties that might be required of them as our appointee, executor, or trustee. Think about it: Janice has five children, a husband, and a full-time job as a teacher. She is already frazzled. Bob Jr. has a dairy farm, plus a wife and four kids. That guy is up before dawn and heads to bed after sunset. His entire life revolves around that farm. It’s a wonder he had any time to make babies, much less raise them. And Laura not only works full-time, she owns her own business. She is so busy, she can’t see the forest for the trees. None of them has time to spare. How do you expect them to find the time to handle our affairs?”

Marilyn frowned. “I would think any of them would be willing to take it on. We’re their parents after all. Surely, that means something. Besides, the idea of turning our affairs over to a complete stranger frightens the bejesus out of me. How do we know that they will make the right decisions? What if they mishandle or steal our money? Then we’re stuck and our kids won’t get their inheritance. If one of our kids handles everything, I know they can be trusted.”

Bob shook his head slowly. “My darling, you are completely missing the point. First of all, if you dump this responsibility on only one child and not the others, you are going to build up a mountain of resentment. Deciding it is okay to disrupt the life of one child and not the others is just wrong. You are essentially telling that child that you value the path they have chosen less than the others. I won’t do that. Secondly, professional fiduciaries have to be licensed under California law. That means they must adhere to professional standards and their actions are monitored by the state. The chances of them mishandling anything are slim to none. As long as our instructions are clear, there is little chance of any mishap.”

Marilyn’s lips formed into a pout. “Don’t you think our children will be upset that we hired a professional over them? It’s insulting not be asked to handle our affairs. That implies we don’t think they’re capable.”

Bob sighed. “We don’t have to decide right this minute. Let’s meet with the kids and find out how they feel. But know this: I don’t want to be a burden on our kids.”

“Well, okay, Bob, let’s ask. But I just know the girls will want to take care of it for us. I am their mother, after all.”

Traditionally, most people select adult children as the trustee of their trust, the executor of their will, and/or their appointee under both their durable power of attorney and their advance health care directive. Those who do not have adult children often select another family member or a friend for those roles.

However, not everyone has friends or family members willing and able, or sufficiently responsible and reliable, to take on these roles. Moreover, in many families, putting one sibling in charge of everything causes resentment—among those chosen as well as those who were not. That’s how estates get caught up in expensive, relationship-destroying litigation. In those instances, a professional fiduciary–a person or entity that performs those duties for compensation, rather than out of a sense of family obligation or friendship—may be the best option.

Professional fiduciaries may be corporate and individual. Corporate fiduciaries are usually banks, but other financial institutions also have departments set up to take on fiduciary roles. Corporate fiduciaries offer longevity. A bank can live forever, whereas an individual fiduciary has a limited life expectancy. In a financial institution, the work gets done by individuals, but the host organization lives on. However, many corporate fiduciaries have an estate value threshold and will not take estates that do not exceed that value, whereas an individual fiduciary rarely sets such limits on his or her practice.

Individual fiduciaries can be attorneys or CPAs. They are considered qualified by virtue of their professional licenses.  Other individuals who wish to serve as professional fiduciaries must become licensed as fiduciaries by the State of California.  The Professional Fiduciaries Bureau, created in 2006, licenses and regulates professional fiduciaries, such conservators, guardians, trustees, and agents under a durable power of attorney for health care and finances. Requirements for licensing include passing an examination and completing 30 hours of approved education courses. In addition, licensees must earn 15 hours of continuing education credit each year for renewal of their license.

After meeting with their children, Bob and Marilyn decided to hire an individual fiduciary to handle their estate. Janice, Bob, Jr., and Laura agreed that if both parents became incapacitated or incompetent, and guardianship or conservatorship was required, they would be unable to handle the day to day affairs of their parents. They also felt that managing the family trust would create too much disruption in their daily lives.

“I think my husband would blow a gasket if I took on any more than I already have,” said Janice. “I am just barely keeping my head above water now.”

Bob, Jr., agreed. “My days are filled with cows and more cows. By nightfall, I’m ready for bed, after I carve out a few hours for the wife and kids.  Taking on any more responsibility would probably put me in an early grave.”

Laura took her mother’s hand, noting Marilyn’s disappointed face and smiled sympathetically. “Mom, I know you think we should do this out of our love for you and Dad, but our lives are so busy. We don’t want to resent you and dad because we’re handling these important tasks when we are so busy taking care of our young families – your grandchildren – and our jobs.  We want to remember the good times we’ve all shared together.  Please, at least consider hiring a professional fiduciary. That’s what’s best for all of us.”


Posted in Advance Directives, Aging in Place, Beneficiaries, Beneficiary Designation, Estate Administration, Estate Planning, Professional Fiduciary, Trusts | Comments Off on How To Avoid Conflict in Your Estate Plan – Part III

Foreign Beneficiaries Can Pose a Challenge for Estate Plans

Anna Mercer’s family was quite excited when she met and married Klaus Jergen.

After their joyous nuptials, the couple moved to Vienna, Austria, where Klaus was employed at a local school as a history teacher. Anna, a pastry chef, soon found employment at a local bäckerei or bakery, where she perfected the art of the Sachertorte and the Linzer torte. Eventually, the happy couple had three children, Marie, Simon, and Jonas.

When the youngest child reached school age, Anna and Klaus returned to the U.S. to introduce their children to their American relatives, including their grandparents, John and Angela Mercer. Sometime after the family had returned to Austria, John and Angela decided it was time to prepare an estate plan and provide a legacy for their children and grandchildren.

After much discussion, the couple decided to create a trust for their grandchildren, and divide the remainder of their assets among their two children, Anna and George. Their estate planning attorney quickly pointed out that the assistance of an international trusts and estates attorney may be required, because bequeathing assets to heirs who do not reside in the U. S. could raise complex tax and legal issues.

“Cross-border bequests are tricky, because you are not only dealing with U.S. law, but also the law of the country where the heirs reside,” the lawyer said. “There are taxes to be paid, treaties to be enforced, and laws that must be observed. It can be done, but it must be done correctly or your heirs could lose most of their inheritance through double taxation. The disposition of your estate will no longer be governed just by the laws of the United States.  It will also have to conform to the laws of Austria.”

“Once we take a look at all those laws and regulations, we can determine if there is a better and more tax advantageous method of accomplishing your goals.”

Whether an American citizen is married to a non-citizen or simply resides outside the U.S. (an expatriate), cross-border bequests are influenced by a myriad of laws, regulations, and treaties. It is necessary to study the legal and tax implications of succession and inheritance laws, as well as regulations regarding the gifting of assets and generation skipping transfers. Similarly, when an heir is not a U.S. citizen and resides in another country, certain strategies must be employed to ensure that the bequest can be made without any serious tax penalties.

Among the issues that may arise:

  • Point of taxation. The laws regarding estate planning in the U. S. are, with the exception of Louisiana, based on a common law system. However, many foreign countries have a civil law system. Traditionally, common law systems provide for more flexibility in estate planning, while civil law systems are very precise, leaving little room for discretionary acts or court interpretation. For example, in common law countries, the estate of the decedent is taxed prior to the distribution of bequests to heirs, and trusts are often used to bypass probate. If someone dies without a will in the U. S., state law governs the distribution of assets to heirs. Those outcomes change in civil law countries. Taxes are imposed on the heirs, not the decedent. In addition, civil law countries adhere to what is called a succession regime or forced heirship. The decedent has little say in how his or her assets are distributed upon death, it is already dictated by law. That scheme mimics U.S. intestate succession laws. Trusts are virtually non-existent in most civil law countries.


  • Residency status. The domicile of the testator and his or her heirs is key in a cross-border estate plan. A domicile is defined as “the country that a person treats as their permanent home, or lives in and has a substantial connection with.”  In effect, the person intends to stay at that location and will always return there. Domicile determines the rights of the testator, as well as the heirs, and most importantly, applicable law.


  • Tax treaties and foreign tax credits. The U.S. has tax treaties with a number of countries. Those treaties determine the tax consequences of the transfer of asset across borders and sometimes, eliminate the double taxation and discriminatory tax treatment of estates. Generally, the treaty controls which nation has the authority to assess taxes on an estate. Determining how a treaty is applied relies on two factors: the decedent’s domicile and the location of the decedent’s assets. Some treaties permit the country of the decedent’s domicile to tax all transfers of property in the estate. The other country is permitted only to tax real property and business property sited in its country. Then the domiciliary country typically provides tax credits for the taxes paid to the non-domiciliary country. Older treaties, however, impose more stringent rules, but provide for a greater range of tax credits. When no tax treaty exists, there is a greater potential for double taxation, but some tax credits may still be available to minimize that liability.

Generally, traditional estate planning tools, such as wills, trusts, life insurance, college savings plans, and gifting are available for non-resident beneficiaries. However, some financial instruments, such as life insurance or investment accounts, could have special instructions for foreign beneficiaries, and may require the completion of additional tax forms and registrations.

In any case, it is essential that complete information on foreign beneficiaries be included in an estate plan, including full names and locations of the beneficiary, his or her spouse and dependents, and their residency status within the country in which they are living.

Posted in Advance Directives, Asset Protection, Beneficiaries, Beneficiary Designation, Distribution of Assets, Estate Administration, Estate Planning, Inheritance, Tax Planning, Trust Administration, Trusts, Wills | Comments Off on Foreign Beneficiaries Can Pose a Challenge for Estate Plans

How to Avoid Conflict in Your Estate Plan – Part II

Preplanning avoids disputes over gifts and loans

After Marilyn Walker’s untimely death, her family solemnly gathered for the reading of her will.  According to her attorney, Marilyn divided her estate equally among her four children. Everything seemed cut and dried, until Marilyn’s eldest daughter, Kate, spoke up. “But what about that loan Mom made to Jimmy to start his business?  She invested most of her pension plan into his start-up, and although he promised to pay her back, he never did. Is that loan forgiven? Shouldn’t he be required to pay the loan back to the estate before he is permitted to inherit anything?”

“That was not a loan,” Jimmy replied, an angry frown crowding his face. “It was a gift. Mom said I could pay it back if and when I was able. Well, I haven’t been able. You’re just being greedy.”

“I agree with Kate,” said Marilyn’s other daughter, Anne. “Mom was worried that if Jimmy failed to repay that loan before she died, we would be left with nothing. I told her she should talk to an attorney to make sure the loan was repaid or was credited against Jimmy’s inheritance.”

The attorney slowly paged through Marilyn’s estate plan and pulled out a page with the heading, “Assets and Liabilities.”  He studied it. “Well, there is a notation on here. It says, ‘Jimmy’s loan.’ But there is not an amount or any information provided. And there is nothing in her will that indicates it should be counted against Jimmy’s share of Marilyn’s estate.”

The eldest son, John turned to Jimmy and said sternly, “Time to do the right thing, Jimmy. Either pay back the loan to the estate, or forgo any further inheritance. Though I have to say, I think it is pretty low to steal from a dead woman.”  Jimmy stood up, shook his fist at his siblings and stormed out of the attorney’s office.

“He can’t get away with that, can he?” Kate asked. “There is no way Mom intended for him to get the bulk of her estate.”

“While there is a difference between a gift and a loan, without further documentation, I am afraid Jimmy is under no obligation to repay the loan,” the attorney said. “How much was the loan for?”  Kate answered, “about half a million dollars.”

There is no way for the estate to recover anything without documentation. However, if you can find bank statements or a cancelled check, perhaps the executor can attempt to make a recovery if the probate court finds sufficient cause. But there is no guarantee.  “Mom is probably spinning in her grave right now,” said Anne. “I wish she had listened to me.”  “Forget about that, Anne,” said John, “but maybe there is a way to get the government involved.”

For estate planning purposes, there is a difference between a gift and a loan.  Gifts have some estate planning benefits.  They reduce the value of an estate, as well as the estate tax burden.

Under federal tax law, estate holders are permitted to give away up to $14,000 a year per person tax-free.  When a married couple makes a gift, the exclusion increases to $28,000 a year.  The gift can take any form, be it cash, an interest in property, or a business.  In addition, for gifts of high value assets, the exclusion may be spread out over five years.

There are some restrictions on gifting.  An estate holder is limited to giving away $5.49 million during their lifetime. Any gifting in excess of that amount will be subject to a federal gift tax of 40%.  California does not currently have a gift tax.   However, gifts of property located outside of the state, or gifts made to people who reside out of state, may be subject to the gift or income tax laws of those states.   Therefore, when making gifts that fall into those categories, it is important to consult with an attorney to minimize the tax implications.

Loans, on the other hand, are considered an asset for estate planning purposes. When properly documented, they are included in the total value of the estate.  Absent specific instructions from the testator about loan repayment, the executor may elect to call the loan in full at the time of the debt-holder’s death, and/or make arrangements for repayment, either through an installment plan or by subtracting the loan value from an heir’s share of the estate.

However, it is in the best interests of the testator, and his or her heirs, to fully document any loans that have an impact on the total value of the estate.  Such documentation should include a formal promissory note, which states the amount of the loan and the terms under which it must be repaid.  In addition, the testator’s wishes regarding loan repayment upon their death should also be spelled out in their estate plan. For example, a testator may wish to forgive the loan, apply the loan balance against an heir’s share of the estate, or seek repayment for the benefit of other heirs.

Similarly, any gifts made during a testator’s lifetime must be recorded for estate tax purposes.  When the total value of lifetime gifts exceeds $5.49 million, the excess will be subject to a federal gift tax.

The issue of whether money dispensed by a testator is a gift or loan is best decided when the money is received.  Clear documentation will not only avoid subsequent tax problems, it will also prevent discord among family members.  The most loving of families have been known to engage in furious, life-altering battles over inheritance.  With a little preplanning by the testator, those battles can be avoided.

Posted in Asset Protection, Baby Boomers, Beneficiaries, Beneficiary Designation, Distribution of Assets, Estate Administration, Estate Planning, Gifting, Inheritance, Probate, Probate Administration, Trust Administration, Trusts | Comments Off on How to Avoid Conflict in Your Estate Plan – Part II

Issues with Probate – Part III

Is Your Safe Deposit Box Accessible Upon Your Death?

Harry Williamson planned well for his death.  After consulting with his attorney, he prepared and executed a comprehensive estate plan, including a Last Will and Testament, a Living Trust, an Advance Healthcare Directive, a HIPAA release, and powers of attorney for healthcare and finances.

So when he died, family members expected everything to proceed smoothly. Instead they got chaos. It seemed no one could find his estate planning documents. Everyone knew he had a will, he had certainly talked about it often enough, but no one knew where it was. And they needed that will to determine Harry’s wishes concerning his funeral and burial.

His three daughters tore apart his house, looking for some clue as to where his will could be. They had all but given up until his eldest daughter, Elizabeth, found a singular key in a slipper tucked under his bed.  The key bore the name of the bank and a number.

Elizabeth brought the key to the bank and was told it would open a safety deposit box. However, Elizabeth would be required to provide proof of Harry’s death, as well as suitable identification, before she could use the key to open the box. In addition, Elizabeth was told she would not be permitted to remove anything from the box. However, the bank would gladly copy his will or trust documents, for a fee.

Under California law, a financial institution that holds a safe deposit box in the name of a deceased person, or deceased persons, may open the box for a third party if they possess a key and provide adequate identification and proof of their relationship to the decedent as well as a certified copy of the decedent’s death certificate.

The financial institution is required to:

  • Keep a record of the identity of the person accessing the safe deposit box.
  • Allow the authorized person to open the safe deposit box under the supervision of an officer or employee of the financial institution, and to conduct an inventory of the contents.
  • Photocopy all wills and trust instruments removed from the safe deposit box, and keep the photocopy in the safe deposit box until the contents of the box are removed by the personal representative of the estate or other legally authorized person. The financial institution may charge a reasonable fee for photocopying.
  • Permit the person given access to the box to remove the instructions for the disposition of the decedent’s remains, and, after a photocopy is made, to remove the will and trust documents.

Anyone given access to a decedent’s safe deposit box is required to deliver all wills found in the safe deposit box to the clerk of the superior court, and mail or deliver a copy to the person named in the will as executor or beneficiary. However, the contents of the box may not be removed until letters testamentary have been issued by the probate court. This means the family has to open a probate even if the decedent created a trust in order to avoid probate!

What could Harry have done differently? First, make it easy for his family to find the key. Also, either have one of his children listed as a signer or authorized user on the safe deposit box or arrange with the bank for the safe deposit box to be owned by his trust.

Posted in Asset Protection, Baby Boomers, Beneficiaries, Distribution of Assets, Estate Administration, Estate Planning, Finances, Inheritance, Probate, Probate Administration, Trust Administration, Trusts, Uncategorized | Comments Off on Issues with Probate – Part III

Issues with Probate – Part II

Disposing of Real Estate Using a Will Requires Legal Authority

When Minnie Wilson’s father died at the age of 96, she immediately listed his home for sale. Although her father’s estate had not yet been probated, Minnie knew she and her sister, Linda had inherited the house.  He stated that in his Last Will and Testament. Since neither sister wanted the home, Minnie thought she would help the process to sell it move right along.  Minnie had two kids in college and the proceeds from the sale would be useful in paying their tuition.

Unfortunately, even if Minnie managed to sell the home before her father’s estate was legally probated, the sale would be ruled invalid.  Under California law, only the executor of an estate has the legal authority to conduct real estate transactions and only the Probate Court can grant the authority to do so. It is also up to the court to determine how property sales will be conducted.

Even if Minnie were the sole beneficiary of her father’s Will, she has no legal claim to any assets until the estate is administered by the court-appointed executor and approved by the Probate Court.

Generally, when a California resident dies with a valid Will, an executor—nominated by the Will– petitions the Probate Court for what is called Letters Testamentary. This document appoints the executor and outlines the authority granted to the executor to dispose of real and personal property, including homes or vacant land, in the estate. The authority can be full or limited, and that designation impacts how and when real property can be sold.  Usually the letters are issued very early on in the probate process.

Not all real estate distributed by the Will must be sold. For example, a testator may grant certain heirs or beneficiaries the option to purchase real estate before listing it for public sale or instruct that the property be deeded to certain heirs or charities.  Real estate sales normally occur to satisfy creditors or other obligations, or to ensure an equitable distribution of the value of the property is made to multiple parties.

Full authority permits an executor to conduct all aspects of a real estate transaction without the supervision or approval of the court, including listing property for sale, accepting offers to purchase, granting options to purchase, securing title insurance, and transferring ownership to a purchaser.  Without the Letters Testamentary, however, a title company cannot issue title insurance. Without title insurance, the sale cannot take place. The grant of full authority to the executor not only makes the process of listing and selling real estate more efficient, it also ensures that the sale is legal and binding.

An executor with full authority may be required to post a surety bond, a form of insurance against inappropriate or fraudulent acts. However, all beneficiaries under the Will may waive the requirement for a bond.  An executor also has a fiduciary duty to all heirs to maximize an estate’s assets, requiring that real estate is sold at fair market value. In addition, an executor with full authority is required to provide 15 days written notice of an impending sale to all heirs or beneficiaries listed under the Will, as well as the court. That provides beneficiaries with the opportunity to object to terms of the sale.

When the Probate Court grants the executor only limited authority, the court supervises the disposition of the real estate and no sale may take place without court approval.  The sale actually takes place in the courtroom. This is a less efficient process, and may extend the time it takes to dispose of real estate in an estate.

In many cases, the extent of the executor’s authority is specified in the Will, and the grant of powers by the Probate Court is a formality.  In cases where the executor is not granted any powers by the Will, it falls to the court to set appropriate boundaries.  The court may, for example, grant full authority to only certain assets.

While it may appear that the grant of authority is an easy decision, it actually requires careful thought.  If a testator or maker of the Will does not fully trust the named executor, limited authority to dispose of real estate may be more appropriate. A limited grant of authority can be used to protect not only the assets in the estate, but also the rights of the beneficiaries.

California law specifically outlines the right and responsibilities of executors granted full or limited authority to dispose of real estate. It may be wise to review those provisions with an estate planning attorney to ensure your wishes concerning your assets will be followed.


Posted in Estate Administration, Estate Planning, Probate, Probate Administration, Real Estate, Trust Administration, Trusts, Wills | Comments Off on Issues with Probate – Part II

How to Avoid Conflict in Your Estate Plan – Part 1

Joint checking accounts are not always the answer.

At age 65, Louisa Willis was anxious to get all of her estate planning ducks in a row. Louisa decided to forgo the traditional methods of estate planning—a Will and Living Trust– and created a joint checking account, naming her son, Ben, as the co-owner. Louisa’s reasoning was simple.  By creating a joint account, Ben would have immediate access to her funds “in emergencies,” such as long-term care or upon her death, funeral expenses.  In addition, since Ben also owned the account, it would not be frozen upon her death and subject to administration by the probate court, so Louisa deposited $50,000 in the account, her life savings.

Unbeknownst to Louisa, Ben had a gambling problem. Since she did not actively monitor the account, considering it set-aside for emergencies, Louisa was not aware that her son was slowly draining the account to pay his gambling debts. One day on a whim, Louisa decided to “check in” on the account and learned the balance had dropped to $25. Since Ben was also named as a joint-owner of the account, Louisa had no recourse. Ben was legally entitled to withdraw the funds in the account, at any time and for any reason.  Her life savings had disappeared.

Let’s look at a different scenario.  Suppose Ben’s wife, Amelia, decided to file for divorce. In property settlement negotiations, Amelia sought access to the joint account. Although Ben argued that the account was not created for his support, but the support of his mother, the court ruled that 100 percent of the account value should be included in community property.  It was in his name, after all. Although Ben eventually received the account in the final division of property, the account’s value significantly impacted his share of assets received. In effect, Ben was penalized because of the joint account.

Another scenario: Ben began regularly depositing funds into the account, building up a sizable balance. However, upon reaching age 70, Louisa was diagnosed with Alzheimer’s Disease.  After a few years, Ben depleted Louisa’s initial contribution of $50,000, which was used to provide for her care. He then sought government assistance, arguing that the funds remaining in the account belonged to him, not Louisa, and should not be included in the valuation of assets required to determine if Louisa was eligible for government benefits.  The government disagreed, ruling that 100 percent of the funds in the account must be included in the calculation of available benefits.  As a result, Louisa was denied government assistance.

Sometimes, a “simple” method of estate planning becomes a nightmare. Creating a joint account with a child can give rise to several issues:

  • Risk. A joint account provides total access to all funds in the account, for any purpose. While it may be understood that the funds are to be used only for parental care, that does not make it so. There is no way to enforce or regulate the use of funds, nor to recoup funds expended improperly. The account is fair game for any and all addictions, as well as other nefarious purposes.  In addition, all of the funds in the account may be accessed by the creditors of either party, and 100 percent of the account value will be considered  in the calculation of any form of financial or public assistance.


  • Estate distribution. Technically, upon death, the balance of the checking account goes to the surviving party. However, if the estate holder has five children and only one is named on the account, there is no requirement that the surviving party share their bounty with the other heirs. While joint accounts may be established with each child, this requires a constant juggling act to ensure the distribution of wealth remains constant. That means if a parent creates a joint account with one child and places all of his or her life savings in that account, all other heirs may be left with nothing.


  • Unexpected circumstances. The purpose behind a joint account will fail if the child named as a co-owner predeceases the parent. Half of the account will not pass to the named child’s estate or his heirs, it will revert back to the parent. Unless other arrangements are made, the account will no longer remain out of reach of the probate court. No one has a claim to the joint account but the surviving owner. Without a Will, the remaining balance in the account will most likely be distributed via state intestate laws.

When an estate owner has only one heir and intends to leave all of his or her assets to that one individual, a joint account becomes a simple method of asset management and transfer of ownership upon death. In addition, under certain circumstances, access to limited funds upon incapacity or death may make sense. However, this option should be considered only in conjunction with a comprehensive estate plan. That is the best way to ensure an estate is protected, no matter what happens.

Posted in Asset Protection, Baby Boomers, Beneficiaries, Elder Abuse, Finances, Gifting, Inheritance, Power of Attorney, Uncategorized | Comments Off on How to Avoid Conflict in Your Estate Plan – Part 1