Common Estate Planning Myths

Common Estate Planning Myths

Common Estate Planning Myths

Estate planning is a powerful tool that among other things, enables you to direct exactly how your assets will be handled upon your death or disability. A well-crafted estate plan will ensure you and your family avoid the hassles of guardianship, conservatorship, probate or unpleasant estate tax surprises. Unfortunately, many individuals have fallen victim to several persistent myths and misconceptions about estate planning and what happens if you die or become incapacitated.

Some of these misconceptions about living trusts and wills cause people to postpone their estate planning – often until it is too late. Which myths have you heard? Which ones have you believed?

Myth: I’m not rich so I don’t need estate planning.
Fact: Estate planning is not just for the wealthy, and provides many benefits regardless of your income or assets. For example, a good estate plan includes provisions for caring for a minor or disabled child, caring for a surviving spouse, caring for pets, transferring ownership of property or business interests according to your wishes, tax savings, and probate avoidance.

Myth: I’m too young to create an estate plan.
Fact: Accidents happen. None of us knows exactly when we will die or become incapacitated. Even if you have no assets and no family to support, you should have a power of attorney and health care directive in place, in case you ever become disabled or incapacitated.

Myth: Owning property in joint tenancy is an easier, more affordable way to avoid probate than placing it in a revocable living trust.
Fact: It is true that property held in joint tenancy will pass to the other owner(s) outside of the probate process. However, it is a usually a very bad idea. Placing property in joint tenancy constitutes a gift to the joint tenant, and may result in a sizable gift tax being owed. Furthermore, once the deed is executed, the property is legally owned by all joint tenants and may be subject to the claims of any joint tenant’s creditors. Transferring a property into joint tenancy is irrevocable, unless all parties consent to a future transfer; whereas property owned in a living trust remains under your control and the transfer is fully revocable until your death.

Myth: Keeping property out of probate saves money on federal estate taxes.
Fact: Probate, and probate avoidance, are governed by state law and address how property passes upon your death; they have nothing to do with federal estate taxes, which are set forth in the Internal Revenue Code. Estate planning can reduce estate taxes, but that has nothing to do with a discussion regarding probate avoidance.

Myth: I don’t need a living trust if I have a will.
Fact: A properly drafted trust contains provisions addressing what happens to your property if you become incapacitated. On the other hand, a will only becomes effective upon your death and specifies who will inherit the property. If you own real property, or have more than $100,000 in assets, both a will and a living trust are generally recommended.

Myth: With a living trust, a surviving spouse need not take any action after the other spouse’s death.
Fact: Failure to adhere to the proper legal formalities following a death could result in significant administrative and tax implications. While a properly drafted and funded living trust will avoid probate, there are still many tasks that have to be performed such as filing documents, sending notices and transferring assets.

 

 

“Don’t ask what the world needs. Ask what makes you come alive, and go do it. Because what the world needs is people who have come alive.”
-Howard Thurman

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Do You Really Need Advance Directives for Health Care?

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imageedit_13_9231081772Many people are confused by advance directives. They are unsure what type of directives are out there, and whether they even need directives at all, especially if they are young. There are several types of advance directives. One is a living will, which communicates what type of life support and medical treatments, such as ventilators or a feeding tube, you wish to receive. Another type is called a health care power of attorney. In a health care power of attorney, you give someone the power to make health care decisions for you in the event are unable to do so for yourself. A third type of advance directive for health care is a do not resuscitate order. A DNR order is a request that you not receive CPR if your heart stops beating or you stop breathing. Depending on the laws in your state, the health care form you execute could include all three types of health care directives, or you may do each individually.If you are 18 or over, it’s time to establish your health care directives. Although no one thinks they will be in a medical situation requiring a directive at such a young age, it happens every day in the United States. People of all ages are involved in tragic accidents that couldn’t be foreseen and could result in life support being used. If you plan in advance, you can make sure you receive the type of medical care you wish, and you can avoid a lot of heartache to your family, who may be forced to guess what you would want done.Many people do not want to do health care directives because they may believe some of the common misperceptions that exist about them. People are often frightened to name someone to make health care decisions for them, because they fear they will give up the right to make decisions for themselves. However, an individual always has the right, if he or she is competent, to revoke the directive or make his or her own decisions.  Some also fear they will not be treated if they have a health care directive. This is also a common myth – the directive simply informs caregivers of the person you designate to make health care decisions and the type of treatment you’d like to receive in various situations.  Planning ahead can ensure that your treatment preferences are carried out while providing some peace of mind to your loved ones who are in a position to direct them.imageedit_13_9231081772

4 Things to Know About Homeowners Insurance in Orange County Califorina

Homeowners Insurance

A solid homeowners insurance policy can provide peace of mind about securing one of your most valuable assets. Unfortunately, many homeowners don’t fully grasp what exactly is covered under that policy, and most importantly, what isn’t.Homeowners insurance policies generally cover your home itself and other physical structures on the property. Your personal belongings also fall under most policies, along with property damage and bodily injury sustained by you or others on your property. You, your spouse and children, and any guests, tenants, or employees in your home can all be covered under this policy, just be sure to check when you purchase the policy.Sounds like they’ve got you covered, right? Not so fast; there are a number of possible perils that are often not covered under basic homeowners insurance. Knowing what falls into this category can save you a lot of time and trauma if you ever experience one of these situations in the future.

The two main exceptions are earthquake and flood damage. The impacts of these natural disasters would not be covered by your standard policy. Earthquake insurance and coverage for some types of water damage can often be purchased as an addendum, but flood insurance must be purchased on its own as a separate policy.

Further, standard policies don’t cover damages to your building as a result of your failure to perform regular maintenance on your property. Insect, bird, or rodent damage, rust, mold, and any kind of wear and tear on your property is typically not covered. Neither are hidden defects, mechanical breakdowns, or food spoilage in the event of a power outage. Though there is no current concern for this, damage caused by war or nuclear exposure is also not covered.

Some things have minimal coverage built into your standard policy, for which you can purchase additional coverage as an addendum. Valuable property, including firearms, jewelry, silverware, etc., is usually covered by a standard $1,000. Insurance for replacement value of lost or damaged property is usually determined on an itemized basis that takes depreciation into account. You can expand this coverage by paying to remove depreciation from consideration.  Liability coverage can be increased if desired as well.

These should serve as general guidelines for your homeowners insurance, but be sure to consider the details on your specific policy.  It’s important to consider exactly what you have covered in order to determine what additional types of insurance you may want to purchase.

Bankruptcy: Things You Need to Know

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BankruptcyWhen President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the laws governing the filing of bankruptcy changed drastically. One major change under BAPCPA requires all debtors filing bankruptcy to attend two credit counseling courses, one before filing and one while a case is pending.While some aspects of the U.S. Bankruptcy Code did not change at all when BAPCPA was enacted, some underwent minor tweaks while others were overhauled completely.   An example of a section of the bankruptcy laws that was amended revolves around the options available to a Chapter 7 debtor if their case includes secured debt. Financial obligations are secured if there is collateral a creditor can recover from a debtor if they don’t pay their bills on time. For example, if a debtor gets behind in their home mortgage payments, the bank or whoever lent them the money to buy the house can foreclose on it.

There are three options available to a Chapter 7 debtor whose bankruptcy includes secured debt. To reaffirm a debt is to sign a contract with the creditor indicating the debtor wants the debt to continue even after their bankruptcy is discharged. Surrendering occurs when the debtor returns the collateral to the creditor. The third alternative is redemption.When a debtor seeks to redeem secured property, it means they want to keep it. This is accomplished by submitting one lump sum payment to the creditor for the value of the collateral.While this may sound simple, there are a few limitations on a debtor’s ability to redeem secured property. First, the secured property has to be worth less than what the bankruptcy laws allow a debtor to own, and those limitations differ from state to state. Secondly, the bankruptcy court has to abandon its interest in the collateral, meaning it has no interest in taking it from the debtor to sell to repay some of the debts that debtor owed.

Another tricky aspect of redemption is also related to the jurisdiction where a bankruptcy case is filed. Since each state has its own rules, called exemptions, about how much a debtor is allowed to keep after filing bankruptcy, a redemption may not be possible, for a few reasons. For example, some states only allow a debtor to have $400 cash on hand when they file a Chapter 7 bankruptcy. If a debtor in that state wants to redeem collateral for $500, they have more cash than their state laws allow. While some states do also offer a ‘catch-all’ exemption so a debtor could potentially redeem the item in question, that option is not available everywhere, so it’s important to consult with an experienced bankruptcy attorney on that matter.

 

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top 5 overlooked issue in estate planning

Top 5 Overlooked Issues in Estate Planning

In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issues.

Liquid Cash: Is there enough available cash to cover the estate’s operating expenses until it is settled? The estate may have to pay attorneys’ fees, court costs, probate expenses, debts of the decedent, or living expenses for a surviving spouse or other dependents. Your estate plan should estimate the cash needs and ensure there are adequate cash resources to cover these expenses.

Tax Planning: Even if your estate is exempt from federal estate tax, there are other possible taxes that should be anticipated by your estate plan. There may be estate or death taxes at the state level. The estate may have to pay income taxes on investment income earned before the estate is settled. Income taxes can be paid out of the liquid assets held in the estate. Death taxes may be paid by the estate from the amount inherited by each beneficiary.

Executor’s Access to Documents: The executor or estate administrator must be able to access the decedent’s important papers in order to locate assets and close up the decedent’s affairs. Also, creditors must be identified and paid before an estate can be settled. It is important to leave a notebook or other instructions listing significant assets, where they are located, identifying information such as serial numbers, account numbers or passwords. If the executor is not left with this information, it may require unnecessary expenditures of time and money to locate all of the assets. This notebook should also include a comprehensive list of creditors, to help the executor verify or refute any creditor claims.

Beneficiary Designations: Many assets can be transferred outside of a will or trust, by simply designating a beneficiary to receive the asset upon your death. Life insurance policies, annuities, retirement accounts, and motor vehicles are some of the assets that can be transferred directly to a beneficiary. To make these arrangements, submit a beneficiary designation form to the financial institution, retirement plan or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to the executor listing which assets are to be transferred in this manner.

Fund the Living Trust: Unfortunately, many people establish living trusts, but fail to fully implement them, thereby reducing or eliminating the trust’s potential benefits. To be subject to the trust, as opposed to the probate court, an asset’s ownership must be legally transferred into the trust. If legal title to homes, vehicles or financial accounts is not transferred into the trust, the trust is of no effect and the assets must be probated.

9 Benefits of California Corporations- Incorporation lawyer Santa Ana CA

Incorporating a business in California offers a number of advantages that aid in the protection of both assets and privacy.
A California Corporation will protect the individual from personal liability. A single individual can hold all offices including: Director, Shareholder, President, Secretary, and Treasurer.
Incorporating in California can allow you to take advantage of tax deductible benefits such as health, accident, disability insurance, life insurance, and medical reimbursement plans.

Corporations that have fewer than 75 shareholders can elect S corporation status which allows for the profits to flow through the company and directly to the shareholders of the corporation without being taxed.

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LLC as an Asset Protection tool?

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Limited Liability Companies are a preferred asset protection vehicle of many business owners as well as real estate owners. The LLC is a non-corporate business entity that is taxed as a partnership rather than a corporation.

As a result of being taxed as a partnership, an LLC is not subject to corporate income tax. Income is only taxed as personal income when you receive income or assets from the LLC. The LLC also protects the personal assets of the members and the officers of the LLC from creditors. The transfer of shares of an LLC can be greatly restricted by the operating agreement of that company.

Even if a creditor obtained a membership interest in the LLC, they would only be entitled to their share of profits and would not become a voting member of the LLC unless the board voted unanimously.

This provides the members greater control over both the present and future management of the LLC. The benefits of forming an LLC begin immediately upon formation and registration with the Secretary of State.