[video] The Power of Control in Wills and Trust Documents

Posted by on Jul 26, 2016 in Estate Planning | 0 comments

[video] The Power of Control in Wills and Trust Documents

One of the largest differences between a will and a trust is a trust must be funded in order to work. Funding the trust is the process of transferring your assets into the name of the trust so the trust becomes the owner. This is how all of your assets are pooled together for easy administration. Without funding, the trust cannot work effectively. Watch the video to learn more.


Bankruptcy After Divorce – Why It’s a Bad Idea

Posted by on Jun 13, 2016 in Divorce | 0 comments

Bankruptcy After Divorce – Why It’s a Bad Idea

When a couple divorces in Arizona, the community property is divided equitably. That means both assets and debts alike. “Equitably” does not necessarily mean “equally” and ultimately the court will make that determination or the parties will come to an agreement. Normally, however, both parties are responsible for a portion of the marital debt. So what happens when one of the parties files for Bankruptcy after the divorce?

The effect of Bankruptcy after divorce is that the party filing the bankruptcy will discharge their portion of the debt onto the other party. Remember, it is community debt so both people are obligated to the creditors. In short, one party becomes solely responsible for all of the marital debt.  When that happens, the equity under the decree is destroyed. You may be thinking, well why wouldn’t the other party file for bankruptcy too? Most times, the other party does not qualify to file for bankruptcy because they earn more than what is allowed under a Chapter 7 bankruptcy. While one can discharge their obligations to creditors, they cannot discharge their obligations under a court order.

According to Birt v. Birt, a case out of the Arizona Court of Appeals, the Superior court shall vacate portions of the decree and consider whether reallocating community property is appropriate in light of the changed circumstances due to one party discharging community debts through bankruptcy too soon after a divorce.

In plain language, the parties can re-open the property division in their divorce decree when one party is substantially harmed by the other party’s bankruptcy. The good news is there is recourse through the courts, the bad news is reopening the property division is like going through another divorce. The time, expense of hiring counsel, rehashing old arguments and more. The risk then in re-opening the property division is that everything is revisited. This could end up being a negative if something had not been addressed in the original decree. For example, if one of the parties had a business that was not included in the original decree, you now are looking at including the value of that business. In order to properly place value on a business, one must hire a business valuator to do an analysis. The business valuator alone costs anywhere between $5,000 to $10,000. That does not include hiring the business valuator as an expert witness for trial. Another negative that is all too common is when the community was comprised of mostly debts and very few assets.

The damage does not stop there. When the property is re-opened child support and spousal maintenance is recalculated. The end result could mean the deal you get is worse than in the first divorce.

The irony is, one person files for bankruptcy because they can’t afford their debts after the divorce then end up paying an attorney thousands and thousands of dollars on a “second divorce.”  The fees incurred could easily be greater than the debt that was discharged in bankruptcy.

The best practice is to not only go through your dissolution proceedings thoroughly to minimize areas that could be affected after the divorce, but then not to do anything that may destroy the obligations under that agreement or you will be back in court. The only circumstance where one should seek a bankruptcy after divorce is if the parties agreed to filing for bankruptcy under the decree.

Do I Really Need A Will? Horror Stories From The Grave.

Posted by on May 11, 2016 in Estate Planning | 0 comments

Do I Really Need A Will?  Horror Stories From The Grave.

We all hear people talk about estate plans and how everyone should have one drafted. But why is a will or a trust so important? Besides, who wants to think about the end of their life? Understandably the topic is a difficult one. But besides the normal warnings about how an estate plan can help you avoid family conflict, probate and estate taxes, I wanted to present a few real-life examples* to portray the sad and unfortunate circumstances that could have been avoided if a basic plan had been in place.

A Stepchild’s Story:

A client recently came to me asking what she could do to protect the estate of her stepmother who had recently passed away. The history was that her stepmother had raised her and been her mom for over 40 years. In turn, the client had cared for her mother during her the last ten years of her life when she was very ill. Now that her mom had passed, her stepsister, and blood daughter of her mother, had cut her off from family communications and any inheritance. This is the same stepsister who had refused to help her ailing mother in her last years and had all but disappeared from her mom’s life only reappearing when her mother had passed away. At first blush this seems simply cruel and human instincts suggests that there must be a legal remedy to aid in such a case. Especially considering this client had letters signed “mom,” she was listed as next of kin on hospital documents and there are over 40 years of evidence showing that there indeed was a parent/child relationship. Unfortunately, the opposite is true. In Arizona one must be a blood child or legally adopted to be considered an heir.  The only saving measure that could have secured this woman’s interest in her inheritance and protecting her mother’s estate from the stepsister is an estate plan. If the mother had even a simple will drafted that named her beloved child – who was never her child legally but who was her child in every sense of the word – her daughter would have avoided the harsh reality that she had zero options once her mother passed away. Now this poor woman has to grieve her mother’s passing and the fact that there is nothing she can do to protect her mother’s estate from a crooked family member.

This scenario is particularly relevant because in the U.S. today, many families are blended families. While parents get divorced and remarried, it is common that the stepchildren bond with the stepparent. Sometimes, the stepparent becomes the only real parent the child has a relationship with. While there is normally no chance of formal adoption because the natural parents are still involved, the only other way to connect yourself to your stepchild and vice versa is through estate planning documents and beneficiary designations.  If you have a blended family or even if there is someone in your life who you dearly care for but they are not a blood relative, I encourage you to have a plan drafted to specifically name that individual.

A Beneficiary’s Story:

A man contacted me who had been operating a limousine business for just about two years. The woman who had purchased the limos and was allowing this man to use them for business purposes had passed away unexpectedly. While she had left no formal will, she had written instruction to transfer all of the limos into this man’s name. He was ecstatic because now he could continue to operate his small business and keep the bookings he already had for months in advance. Or could he? Trouble shortly followed when he realized the loans on these vehicles had not been paid off.  In order to keep the limos he would have to come up with the balance of the loan.  Within weeks this man could no longer operate his business, he had to forfeit the vehicles he had been using and he had to cancel all of his bookings because he didn’t have the income to even apply for a loan for a replacement limo.

All of this could have easily been avoided if the woman had created an estate plan.  One important item to note is, when a vehicle is gifted in a will or a trust the instructions must include that the estate will pay for the debt attached to the car. Otherwise, even with a properly drafted estate plan, the beneficiary will be responsible for the loan.

A Cousin’s Story:

A young man contacted me regarding the untimely death of his 21-year-old cousin who was like a sister to him. The 21 year old had been very depressed after losing her mother – the only other relative active in her life.  Her father had been estranged for decades. The 21 year old’s estate consisted of a 1-bedroom apartment, some personal belongings and a monetary inheritance from the life insurance her mother had in place. Upon her passing, her cousin wanted to get inside her apartment to organize her personal effects and clear out her belongings before the apartment complex would clean out the apartment discarding all contents to get it ready to rent. Even though the cousin had been listed as the emergency contact the apartment complex would not, and by law, did not have to let him inside the apartment.  In order for him to gain access he had to pay for a special administrator filing through the court. Once he did gain access, it was evident that things were missing but it was impossible to prove because he did not have pictures to show what the inventory of the apartment was prior to his cousin’s death. To compound matters, he was not listed on the bank account that contained the life insurance proceeds in excess of $75,000.00. This meant that the account would have to be probated and because the deceased did not have a will the State of Arizona intestacy laws would determine the beneficiaries. In Arizona, when someone passes away who does not have issue, or children, the inheritance goes up to the parents. Since her Mother was already deceased, that meant her Father, the person whom she had zero relationship with, would take everything. At this point the young man had a difficult decision to make. Would he probate the estate and let the funds go to her Father, the man whom he knew she would not want this money to go? Or would he do nothing and eventually let the state take the money? Either way, he would be left with nothing.

This heartbreaking tale could have been avoided if the 21 year old had a will. She could have named her cousin as the beneficiary and effectively disinherited her estranged Father. The lesson is two-fold in this case. Not only is it important to have a plan created or updated when you come into an inheritance, no matter the size, but it is important for every adult to have a plan whether they are 20 or 80.

As you can see, it isn’t the every day occurrence you create an estate plan for. It is the exceptions and circumstances that are unforeseeable that we plan for. I encourage you not to wait until tragedy shakes your world to have a plan in place but to have one created now. Our legacy, our wishes, and our protections for our loved ones are only as good as what we have in place before something happens.

*These examples have been taken from real life scenarios but have been changed slightly to protect the individual and safeguard their privacy.

I Had A Trust Created, Now What?

Posted by on Apr 28, 2016 in Estate Planning | 0 comments

I Had A Trust Created, Now What?

You hired an attorney, went through the planning process, made those difficult decisions about who would be trusted and where your assets would go. Now that everything is signed and recorded you are all set right? Not quite.  Before placing that portfolio on the shelf, you still have one major task to complete.

It may come as a surprise but most people do not realize that when you go to an attorney to have a trust created and the documents are executed, or signed, that isn’t the end. Creating a trust is a two-part process. The attorney’s job is to help plan, draft the documents, and ensure the execution is completed properly.  But unless you have hired an estate-planning attorney on an hourly basis, when you pay for a trust at a flat fee, the funding is left up to you. This should be discussed prior to drafting, but sometimes it comes as a surprise. Most attorneys will include instructions on how to fund the trust but when it comes down to the funding process, it is often overlooked. Disregarding the funding of the trust is detrimental to your estate plan because funding is what brings your trust to life. Without it, your Trust is no more useful than a basic will.

The good news is – this is 100% preventable. The other good news is, your wishes are still documented. The problem is, when you pass away your successor trustee will have the task of probating your estate. That means gaining access to real property, bank accounts, retirement accounts and the like. This takes a lot of time, out of pocket expenses for your trustee to hire an attorney to settle your estate, and a court process that is a matter of public record.  Instead of the process being automatic, the process has become painstaking for your loved ones and your estate becomes open to litigation. I bet by now funding the trust is starting to sound pretty important. And it should because not only it is important but imperative.

So what is funding the trust exactly? It is the process of effectively transferring your assets into the name of the trust.  Once you fund your trust, you will have the same flexibility to handle your assets the same as when they were owned in your name individually. The only difference will be that you will own your assets as Trustee for yourself since the Trust will be administered solely for your benefit during your lifetime.  The process is rather simple but it does take a little organization and time.

The process of funding depends on the type of asset.

  1. Real estate that is your residence, for example, is a matter of drafting a warranty deed to transfer title from you individually into the name of the trust. Once it is recorded, that process is complete. No, recording the deed under your trust will not accelerate any payments on loans. Acceleration on any outstanding indebtedness on your personal residence by virtue of a transfer to a Revocable Living Trust is prohibited under federal law.
  1. Real estate that is not your residence but encumbered by indebtedness (deed of trust, or mortgage) may be affected by transferring the name into the trust. The preventative measure on this item is to contact the financial institution holding the mortgage or deed of trust and get permission to transfer the deed into the name of the trust. Prior approval is key to avoiding accelerated payments.
  1. Bank Accounts and Savings and Loans have a simple procedure. Show the individual at the financial institution your passbook and name of the trust. Occasionally, depending on the financial institution, they may require a copy of the trust. Your attorney should provide you with a full copy of the trust in addition to the original in a binder or portfolio. Depending on how much money you keep in your regular checking account, you may wish to leave the checking account out of the trust and merely place a transferable on death designation or payable on death designation to your beneficiaries. But all other accounts should be held in the name of the trust.
  1. Stocks and Bonds will be funded depending on whether they are privately or publicly held.
  • Privately held stocks or bonds can be accomplished simply by having new stock certificates prepared in the name of the Trust and surrendering the prior stock certificates.
  • Publicly held stock has a more complicated process and it will be necessary to work through a stockbroker or through the institution from which the assets were purchased.
  1. Life Insurance Designations cannot be transferred into the trust. Instead, the trust should be named as the beneficiary of your life insurance proceeds. A significant exception to this would be if you have children or an ex-spouse from previous relationships. You may want to designate a particular life insurance policy for their benefit.  In that case, the beneficiary designation will simply name that individual directly.

There are many more categories of assets that can be transferred into the trust. The above are the most common. While it may seem like a large task, when taken asset by asset it really isn’t difficult.

The bottom line is that you need your trust to work effectively. Without proper funding you are forfeiting the benefits of your trust and placing a large burden on your loved ones. Remember to revisit when assets change, life circumstances shift, and time passes to make sure your trust is still operating as you intended it to.