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Two Common Mistakes with Trusts

CunninghamLegal – The Living Trust Lawyers

This is a great article from the American Academy of Estate Planning Attorneys. The writer, Steve Harnett, J.D., LL.M., does a wonderful job of boiling it down to the essential facts. You can find the article here: Two Common Mistakes with Trusts

This is a copy of the entire article from the link referenced above:

Trusts are incredibly useful tools. But, like other useful tools, they do not fit every circumstance. They must be used appropriately. For example, a hammer is an exceptional tool to use when looking to drive a nail into a wall. But, if you hit the nail with a glancing blow, the nail will bend and you’ll end up with a difficult situation. Here are a couple common errors with the use of trusts, and how they could be avoided.

The first mistake with the use of trusts is not using the right type of trust. There are many different types of trusts. By far the most common type of trust is a Revocable Living Trust, often called a “RLT.” A RLT is a great solution for most situations. It can provide for management of your assets during incapacity, avoids probate at death, etc. But, it may not be the right solution for every situation. For example, if someone is looking to qualify for Medicaid in the future, the assets in a RLT will be considered available resources, just as if those assets were owned outright. A special irrevocable trust could be used if one wished to qualify for Medicaid. Such a Medicaid trust could limit the transferor’s rights in the assets to income only, or the transferor might not be a beneficiary of the Medicaid trust at all. While a Medicaid trust is not the right solution for everyone, it can remove the assets from consideration for Medicaid and allow the transferor to qualify for Medicaid, if the transfer is made far enough in advance of the Medicaid application. Whether you are the attorney or the client, consider what type of trust is appropriate. Each type of trust has its strength. The key is choosing the right type of trust for the situation.

The second mistake with the use of trusts is not funding the trust properly. A RLT is a great tool, but only if it is funded. If a RLT is unfunded, the RLT may just be a worthless piece of paper. If there is a Pour-Over Will, which transfers the assets to the RLT upon death, the assets would be subject to probate and only then would be distributed according to the terms of the RLT. But, if there is no Will, the unfunded assets would pass pursuant to the one-size-fits-all system enacted by the legislature of the state of residence, the system known as “intestacy.” An RLT should be funded appropriately to maximize its usefulness during incapacity (to avoid needing a conservatorship) and death (to avoid a probate).

Source: https://www.aaepa.com


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Estate Planning. It’s Not for Everybody. So Who’s It For?

CunninghamLegal – The Living Trust Lawyers

“Estate Planning” is a general phrase that most people associate with planning for the end of one’s life. While that basic definition is a good place to start, estate planning goes far beyond just planning for the distribution of assets upon death. It also includes planning for periods of incapacity, healthcare decision making, Medi-Cal planning, and more.

Despite its importance, not everyone has an estate plan. Since not everybody has an estate plan, it can be reasoned that estate planning is not for everybody. If it’s not for everybody, who is it for?

If you’re the type of person who prepares before leaving town, estate planning is for you.

Most people would not dream of taking a vacation of any duration without making arrangements for their responsibilities and what they hold dear. Bill paying, pet care, home security, giving someone the power to make decisions, etc. are all topics that cross our minds when going away for a week or more. Estate planning is a process through which a person can, in a similar but formalized manner, prepare for life’s unplanned events.

During a period of incapacity, an estate plan allows a person to select who will act on their behalf, how their assets will be controlled and who will participate in medical decision making. Upon passing away, an estate plan allows a person to direct important outcomes, such as: guardianship of minor children, who will care for pets, and distribution of assets. The same foresight that people apply prior to travel can be formalized in an estate plan to thoroughly prepare for whatever lies ahead.

If you’re the type of person who likes to have control over your assets, estate planning is for you.

It has been said that even those without an estate plan, actually do have an estate plan. The problem with the default plan is that it is provided by the government through statutes. A person without their own estate plan who becomes incapacitated is likely to be the subject of a court-ordered conservatorship. A person who passes away without their own estate plan will have their assets administered through the statutory “one-size-fits-all” distribution scheme under the oversight of the probate court.

Few people would consciously invite the government to make such important decisions on their behalf. Living trusts, pour-over wills, powers of attorney, and advanced healthcare directives allow a person to create a unique plan that prepares for their possible incapacity and eventual death based upon their particular circumstances without governmental interference.

If you’re the type of person who wants your financial legacy to be protected from taxes, estate planning is for you.

Tax consequences cause most people to get professional advice, prior to buying, selling, or gifting major assets. The same approach should be taken when considering the transfer of assets upon death.

Estate planning can prevent a person’s financial legacy from being reduced due to estate taxes, generation-skipping taxes and capital gains taxes. What may sound like a good idea (“I’m putting my children on the title to my house now, just in case something happens . . . ”) could cause a tax burden that an estate plan could have prevented.


Estate planning allows a person to create a unique plan to control their assets during their life, through periods of incapacity, and asset distribution after their death. Most people make a plan regarding their assets when just leaving town for a few days. Likewise, most people would rather not have the government control their assets and decision making upon incapacity or death and most people would not want to create a large tax bill simply due to lack of planning, or poor planning. Therefore, upon reflection, most people are likely to determine that estate planning is for them.

By: Doug Reeve. Doug can be contacted in our Camarillo office at (805) 484-2769. Doug’s profile is also found at: Doug Reeve

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Estate Planning Basics: Asset Protection – Part 1

CunninghamLegal – The Living Trust Lawyers

Estate Planning Basics: The American Academy of Estate Planning Attorneys offers great information on the subject of Estate Planning. This article offers an introduction to the basics of Estate Planning with an initial focus on protecting your assets. When thinking about your assets and how you want them handled in your Estate, working with an experienced lawyer can help put your mind at ease, but more importantly, can help you better understand the different options available to you.

Read the entire article: Asset Protection in Estate Planning

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Incapacity – Snow White and the Seven Steps

CunninghamLegal – The Living Trust Lawyers

Incapacity is generally defined as lacking the ability to make decisions for oneself. This can occur due to a mental impairment or a physical disability or illness, which prevents a person from having the ability to communicate their reasonable decisions to others. Like most people, Snow White did not know that she would become incapacitated. However, she did understand that proper estate planning doesn’t merely focus on transferring assets upon a person’s death. She knew that an estate plan should also prepare for the possibility that a person may become incapacitated and provide for control of assets and guidance for health care decisions during that time.

Snow White had been warned that the evil queen was out to get her. Despite the warning, she still took a bite of a poisonous (and possibly non-organic) apple. That one bite led to Snow White’s incapacity. She lay unconscious in the forest surrounded by non-CPR certified dwarves, while her real property and financial accounts seemingly had no guidance and medical professionals feared that there was no one who could speak on Snow White’s behalf.

Fortunately, Snow White had a thorough estate plan and she had taken the proper steps to ensure that during her period of incapacity, she didn’t lose control of her assets or medical decisions. The steps she followed were to:

1) Have a Revocable Living Trust: Snow White visited a qualified estate planning attorney who drafted a Revocable Living Trust as the cornerstone of her estate plan. The person she selected as her successor trustee will be guided by the provisions of the trust during Snow White’s period of incapacity.

2) Have a Durable Power of Attorney: A durable power of attorney allows for a person to act as the agent, or attorney-in-fact, on behalf of a person who is incapacitated. Snow White named the successor trustee of her trust to be her attorney-in-fact, thus this person has the power to manage assets that are inside or outside of the trust.

3) Decide When the Durable Power of Attorney Will Be Effective: The durable power of attorney can be effective immediately, upon the signing of an authorization by a person who still has capacity, or upon the occurrence of an event that causes a person’s incapacity. Snow White preferred that her durable power of attorney be effective immediately upon the signing of her estate plan, which means that her attorney-in-fact could act in her best interest anytime thereafter.

4) Create a List of Assets, Obligations and Accounts to Guide Your Successor Trustee and Your Attorney-in-Fact: It can be daunting to assume responsibility for another person’s assets and finances. It is recommended that you keep a current list of assets, obligations, and accounts to allow the people that you have nominated to seamlessly act on your behalf.

5) Have an Advance Health Care Directive: Also referred to as the “medical-power-of-attorney”, this document allows a person to be named as the health care agent and empowers them to make decisions on behalf of an incapacitated person.

6) Thoughtfully Select Who is Best Suited to Make Medical Decisions: It is important to select a health care agent who is comfortable speaking with medical professionals and advocating on behalf of the incapacitated person. Snow White selected the dwarf named Doc as her health care agent. His name indicates that he has a medical background and therefore would be comfortable discussing possible treatments and procedures with Snow White’s doctors.

7) Name People to Receive Medical Information (HIPAA Authorization): The Health Insurance Portability and Accountability Act requires that information relating to a person’s medical condition only be released to named “HIPAA agents.” Although Snow White wanted only one health care agent to make decisions for her, she authorized a handful of dwarves and family members to receive information related to her medical condition.

By following the steps listed above, Snow White’s assets were managed during her period of incapacity by people she had previously selected. Additionally, her health care agent was able to discuss and authorize her treatment. The experimental “kiss-by-a-prince” therapy proved successful and Snow White regained her capacity and her ability to control her assets and make her own health-care decisions. And by avoiding poisonous, non-organic apples, she was able to live happily ever after.

By: Doug Reeve. Doug can be contacted in our Camarillo office at (805) 484-2769. Doug’s profile is also found at: Doug Reeve

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Your Estate Planning Binder Misses You

CunninghamLegal – The Living Trust Lawyers

For some people, a sighting of their estate planning binder is as rare as seeing Bigfoot in line at your local Starbucks. The binder is often initially reviewed and then is stored away for various reasons; to protect the documents, to protect confidential information contained in the documents, or to prevent one from having to think about the possibility of incapacity or their eventual passing.

Estate planning binders have been stored in the back of hall closets, underneath beds, or even inside mini-storage units located miles from the house. While the goal of protecting the documents from harm and protecting the sensitive information within from the curious glances of others is praiseworthy, the “out-of-sight, out-of-mind” approach goes against the responsible action of having had the estate plan created in the first place.

A quality estate plan takes an uncertain future into consideration. For example, naming contingent trustees and contingent beneficiaries addresses the possibility of changing circumstances. Another example of preparing for an uncertain future is that well-drafted estate plans address the possibility that a beneficiary may be receiving government benefits at the time of distribution. This beneficiary would then have their share distributed to a Special Needs Trust in order to augment, and not supplant, assistance they are receiving from the government.

Despite the ability of a quality estate plan to be forward-looking, a proactive approach is needed to ensure that the estate plan still meets the needs and the goals of the client. Is the estate plan still understood? Are there questions? Are changes needed?

Currently, there are many families relying on estate plans that were drafted before Congress dramatically increased the estate tax exemption in 2012. The “A-B Trust” structure that protected a family’s legacy from being eaten away by estate tax is often no longer needed and now can be cumbersome and expensive upon the passing of a married client.

Clients know about their own changing circumstances, but may not be aware of changes in the law. Estate planning attorneys are cognizant of changes in the law, but may not be aware of changes in the lives of all of their clients.

The key is to spend some time with your estate plan. Review the structure of the plan. Review the people you have nominated as your successor trustee, your financial power of attorney, and your health care agent. Review what will occur if you become incapacitated and how your legacy will be distributed upon your passing. As you review your estate plan, have post-it notes handy to write down questions that arise or to mark provisions that you are considering changing.

A dusty estate planning binder is the enemy! Vanquish the enemy today. Review your estate plan in light of your circumstances. Call us if you need help with the review.

Posted by: Doug Reeve. Doug can be contacted in our Camarillo office at (805) 484-2769.

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A Second Chance to Double Your Tax Exemption

CunninghamLegal – The Living Trust Lawyers

The IRS just issued Revenue Procedure 2017-34, which, for a limited time, has extended the deadline to file for portability elections. The American Taxpayer Relief Act of 2012 (enacted in 2013) provided people with the process of “Portability” where a surviving spouse “inherits” the unused Federal Estate Tax Exemption of their predeceased spouse by filing an Estate Tax Return (Portability Form 706) within nine (9) months of the date of death, or within 15 months if a 6-month extension is timely filed. This Portability tool may significantly reduce your estate taxes at your death. Due to the numerous extensions granted to people filing their estate tax return, the IRS has reopened that window for the sake of efficiency.

If you or anyone you know has missed the window to file the estate tax return, the deadline has been extended to January 2, 2018 or by the second anniversary of the decedent’s death (whichever is later). Please note, this process will not apply if the first spouse died before January 1st, 2011.

If you think your estate may benefit from electing “portability” but missed the deadline to file, you can still schedule an appointment with our office before the hard deadline of January 2, 2018, when this opportunity will be lost.

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Trust Administration. What’s That?

CunninghamLegal – The Living Trust Lawyers

Trust Administration – What’s that?

This is a question we get on occasion from clients.  The terms trust administration or trust settlement refer to the process of following through with the trust provisions and distributions after someone has died.  This process may involve helping the trustees (often a family member) with gathering and liquidating assets such as real estate and investments.  Trust administration can also involve navigating tax aspects of the trust, or dealing with problem beneficiaries.  The trust administration process, when done correctly, aids the trustee in making sure that all provisions of the trust are accurately adhered to, that the inheritance is properly distributed to the correct individuals and that all taxes and other obligations are specifically addressed.

CunninghamLegal is a leading law firm in trust administration.  Operating fully staffed offices in both Northern and Southern California, our firm has a dedicated team of talented attorneys and staff whose primary focus is working with trustees to successfully distribute and complete trusts after a death.  Attorney Preston Marx is the trust administration team leader, and he is assisted by Attorney Stephen Wood.  Firm-wide, CunninghamLegal has five paralegals and two legal assistants actively working with clients to settle trusts.  Our team not only has the required legal experience knowledge, but is also adept in helping people through what is a very emotional and traumatic time in their lives.  This combination of know-how and empathy allows families bring this important chapter to a successful close.

If you would like to learn more about trust administration, are an attorney who needs trust administration for a client, or if you would like to visit one of our offices, please call Preston Marx, Attorney at CunninghamLegal on 530-269-1515 or visit our website at www.cunninghamlegal.com for more information.

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Bypassing the Bypass Trust

CunninghamLegal – The Living Trust Lawyers

In this article, Stephen M. Wood, Attorney in our Camarillo and Ventura County office discusses A-B Trusts and why you should consider having your trust reviewed by an Attorney now.

Bypassing the “B” Trust

Under the current estate tax regime, it is often unnecessary for a married couple to have what is commonly called an A-B Trust. The “A” portion being the “Survivor’s Trust” and the “B” portion being the “Bypass Trust.” The A-B Trust presents a number of tax, cost and other problems that can easily be avoided when both spouses are living, but even if one spouse has died, there are legal strategies that can help.

When a Bypass Trust may still be needed

I won’t cover all the reasons why a Bypass Trust may still be needed, but, simply put, if a married couple is very high net worth (think top 1%), they should probably still have a Bypass Trust. In an uncertain estate tax law environment though, even if a trust should have provisions for a Bypass Trust, it should provide some flexibility for the surviving spouse to not fund the Bypass Trust if it doesn’t make any sense tax-wise. President Trump’s current tax plan gets rid of the estate tax altogether, but other than a repeal of the estate tax, other details are murky.  What if the estate tax is repealed and portability goes away, but the estate tax is brought back years later after one spouse has already died during the repeal? What if the estate tax exemption increases even further? Or, decreases? Since no one has a crystal ball, flexibility in the trust is your best friend.

Disadvantages of a Bypass Trust

Some of the disadvantages of a Bypass Trust include (take a deep breath!) no adjusted cost basis for Bypass Trust assets on the surviving spouse’s death, the cost to allocate assets to the Bypass Trust when the first spouse dies, ongoing administration costs of administering the Bypass Trust, the Bypass Trust cannot be changed by the surviving spouse and a principal residence in a Bypass Trust does not qualify for the IRC 121 exemption. Not having an adjusted cost basis when the surviving spouse dies can cause the heirs thousands in capital gains taxes.

I recently handled a case where there had been significant appreciation of the Bypass Trust assets since the first spouse died. If the heirs were to sell the appreciated property after the surviving spouse dies, it would result in over $100,000 in capital gains taxes. Fortunately, we were able to amend the Bypass Trust in court, which amendment will result in the Bypass Trust assets receiving an adjusted cost basis upon the surviving spouse’s death.

How to get rid of the Bypass Trust

What if you don’t need a Bypass Trust, but you still have one? If both spouses are living, getting rid of an A-B Trust is as simple as amending and restating their current trust. However, when one spouse has already passed away, amending the trust is no longer an option because the Bypass Trust is irrevocable. However, an irrevocable trust can be modified in court in a way which results in an adjusted cost basis on the surviving spouse’s death, like in the above example. This strategy is not for every client with a Bypass Trust, but there are other options that may be available depending on the terms of the trust.

If you know someone with an A-B Trust and both spouses are still living, please encourage them to have their trust amended right away. And if you know someone who already has a Bypass Trust that was established when their spouse died, it would be my pleasure to help them explore their options to get rid of it.

For more information call Stephen at 805-484-2769.