Cornerstone Law Center

Your’s, Mine and Ours Trusts Most everyone has heard the dismal statistics on the divorce rate. Depending on which study you consult, between 40% and 50% of married couples divorce. The rate of divorce for second marriages is even higher. What few people consider is the impact those statistics can have on their estate plans. Even without divorce in the picture, often when couples marry, one spouse may have significant separate property that they bring into the marriage. ... In California and the nine(ish) other community property states it is common for married couples to use a joint trust. While, technically, placing property into a revocable trust does not change the character of property from separate to community or vice versa, it can become difficult to track property when placed in a common name. Often, both spouses will have different ideas about where their separate assets should go when they die. The property, such as a family business or farm may be intended to be passed down one spouse’s bloodline or go to children from prior relationships. Children of different parents can become anxious about their mother or father losing their property in a subsequent divorce or about their inheritance being diluted or delayed. Those stresses can make for awkward situations. In general, joint trusts give each spouse control over all of the trust property. The shared control can be problematic when there is separate property involved. If separate property is also owned with other family members (frequently the case with inherited property) there may be objections or concerns about a non-family spouse controlling the property. While it is possible to draft a single trust around the issues surrounding separate and community property issues the document can become convoluted and difficult to understand. It is confusing to third parties as to which spouse has the authority to act on a particular piece of trust property. The solution is frequently two or more trusts. We often set up a trust to hold separate property for each spouse. That way, title to the property and control of the property is clearly set forth for both the couple and third parties. When the goal is to grow a community estate a third trust can be added to hold community property, such as a joint home or financial accounts. This multiple trust structure complements a pre-nuptial or post-nuptial agreement, helping to reflect the arrangement the couple set up to manage their finances. When setting up your estate plan, consider whether multiple trusts are right for you, your spouse, your children, and for your general piece of mind. Sometimes more of a good thing is a good thing. Michael E. Garner, Esq., CFP 7/10/2015

Is Your Retirement Plan Protected For You and Your Heirs? Many people take advantage of the wide range of tax advantaged accounts to plan for retirement. Among the advantages of retirement accounts are enhanced protections against seizure by creditors or in bankruptcy. However that protection varies based on the type of retirement plan. The strongest protection is found for plans that are governed by the Employee Retirement Income Security Act (ERISA). In general, these as...Continue reading

Unintended Tax Consequences Over the last few months a new issue has arisen concerning older trusts. We are starting to see significant capital gains trapped in the estate plans where the first spouse has died. In the 1990’s and early 2000’s it was very common for even small estates to have tax planning incorporated into then. This tax planning resulted in a type of trust commonly known as an A-B Trusts or A-B-C Trust. Under the terms of the trust, when the first spouse d...ied the assets of the trust were split into two sub-trusts. This division occurred even if there was no tax liability at the time of the deceased spouse’s death. Theses sub-trusts are commonly called the Survivor’s Trust and Bypass Trust (or Family Trust, or Credit Shelter Trust, or Exemption Trust, etc.) This planning was done when the Federal Estate Tax Exemption was relatively low: $600,000 to $1,000,000. As of this year the Federal Estate Tax Exemption is $5,340,000. This means that the original purpose of the A-B Trust may no longer be needed and may cause unnecessary tax consequences. When assets, especially real estate, were placed into the Bypass Trust, they often continue to appreciate. Now, ten to fifteen years later, those assets may have built up significant capital gains. The beneficiaries can be looking at a capital gains tax issue when they receive and sell the assets from the Bypass Trust. However, we have been successful in petitioning the court to allow us to remedy the issue. Essentially, we request that the court allow us to modify the trust and merge the Bypass Trust in to the Survivor’s Trust. This will cause the trust assets to be subject to tax at the surviving spouse’s death (allowing the application of the $5.34 million exemption). This also allows all of the Survivor’s Trust’s assets to receive a step-up in basis and thus eliminate the capital gains tax issue. This will not work for every situation, especially if the Bypass Trust has non-tax based restrictions on access or the estate is over five million dollars. However, were it can be applied the beneficiaries can receive a significant tax savings. Due to the changes to the tax law, planning that was originally intended to save taxes might now create them. This is just one of many reasons you will want your have your estate plan reviewed regularly. Michael E. Garner, Esq., CFP 7/22/2014

Long Term Care Choices One of many issues I encounter when creating estate plans with my clients is health care treatment. When I prepare an advance health care directive or trust instructions, clients discuss their preferences for lifestyle, care choices and location in the event of a prolonged illness. This information is then placed in the directive or trust as instructions for their agent or trustee. It is one of the best reasons to have your estate planning attorney wo...Continue reading

Estate Planning Necessity Funding www.cornerstonelawcenter.com/blog Funding is the word attorneys, trust companies and financial professionals use to describe the titling, vesting, ownership and beneficiary designation of property, generally in relationship with estate planning. Funding is critical to any estate plan’s success because the proper ownership or beneficiary designation of an asset directs not only to whom an asset will go when the owner dies but how that asset...Continue reading

Why Do I Need a Buy/Sell Agreement? CornerstoneLawCenter.com/blog What is the benefit of a Buy/Sell Agreement and are they worth the expense? The benefits are many as a properly drawn Buy/Sell Agreement can:...Continue reading

We've moved to larger quarters! As of May 1, 2014, Cornerstone Law Center has moved to larger quarters at 100 E. Thousand Oaks Blvd., Suite 258, Thousand Oaks, California 91260.

The Divorce Transitions Professionals Group is sponsoring a showing of Divorce Corp. on May 8, 2014. This documentary, narrated by Dr. Drew, takes a brutal and controversial look at the industry of divorce. Information on the showing can be found at http://tinyurl.com/lm4r8uc and the film in general at www.divorcecorp.com.

Please join me on November 2, 2011 at 6:00PM at 600 Hampshire Rd, Westlake Village, CA 91361 (Chamber of Commerce Building) for our presentation of: TRAIN YOUR TRUSTEE: Keys to Being a Successful Trustee You have invested time and money in preparing your Trust and Estate Plan. Now, make sure it works by giving your Trustee the tools to do the job right!... We invite you to bring your Trustee to this complementary presentation and learn about the tasks, time lines, and responsibilities your Trustee will face. Please RSVP to http://cornerstonelawcenter.com/contact to reserve space for you and your Trustee. I look forward to seeing you there. Michael E. Garner, Esq.