10 Ways to Lawsuit-Proof Your Estate #10

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients. Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate. In our final installment, we’ll examine Part 10 – Spell out any Disinheritance

“If you’re disinheriting a son, spell it out in your will, making it clear it’s intentional. But don’t give a reason for disinheriting a child that might be challenged, particularly one a court might decide was against “public policy”. (For example, I am disinheriting junior unless he divorces his wife.) ” ~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis The issue of disinheriting a son or daughter is an issue that requires a lot of thought and care. As stated in the article – the Disinheritance must be Intentional or the Probate Court will conclude that you didn’t really mean to disinherit your child. California’s Pretermitted Heir Statutes, found in California Probate Code Sections 21620-21623, state that, in order for the disinheritance to be effective:

The decedent’s failure to provide for the child in the decedent’s testamentary instruments was intentional and that intention appears from the testamentary instruments. (Section 21621)

This means that the same document that disinherits a child must make it clear that the disinheritance was intentional. Failure to meet this or other statutory criteria, the Court will rule that:

The omitted child shall receive a share in the decedent’ s estate equal in value to that which the child would have received if the decedent had died without having executed any testamentary instrument. (Section 21620)

In other words:  to disinherit a child, you have to (1) mean it and (2) say that you mean it in the testamentary documents. For these reasons, competent legal counsel should always be consulted before attempting to disinherit a child.

10 Ways To Lawsuit-Proof Your Estate #9

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we’ll examine Part 9 – Include a “no contest” clause

“No contest clauses, also known as “in terrorem” clauses are generally valid and are an effective tool in preventing estate fights, especially if there is intrigue to start. A typical clause says that if any beneficiary of the will contests the validity of the will or any provision of the will, he of she forfeits his interest. You must leave something of value to the folks you expect to stir up trouble to make it work.”

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

No Contest Clauses can be very effective in deterring an estate fight, but they must be used with caution.

In some cases, they can be used to cut both ways – helping someone take money from an estate improperly.

In one estate we are familiar with, a distant relative of Mom & Dad convinced Mom & Dad to leave 80% of the estate to them, instead of to son.  Son and Grandchildren were left only 20% of the Estate.

Son believed that this was a result of undue influence, but risked triggering the No Contest Clause if he did not prevail.

Due to recent changes in the No Contest Clause law in California, the bar to successfully challenge based on undue influence (or other direct contests) has been raised.

California’s No Contest Clause, found in Probate Code Section 21310-21315, makes it very difficult to file a direct contest without “probable cause.

Typical of the Legislature, no precise definition of Probable Cause is provided in the Probate Code.

Absent clear guidance from the Courts, it remains difficult to determine which challenges will be found to trigger a No Contest Clause, and which will not.

Competent legal counsel should always be consulted before considering the use of No Contest Clauses in Estate Planning.

10 Ways To Lawsuit-Proof Your Estate #8

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we’ll examine Part 8 – Establish you’re of sound mind

One of the most common allegations in estate litigation is that the testator lacked the mental capacity to sign his will. One way to counter this claim, particularly if you’re getting up there in years: Get evaluated by both a treating physician and a geriatric psychiatrist immediately before signing the documents.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

Unfortunately, the fastest growing area in the field of Estate Planning is Litigation: Litigation between beneficiaries and Trustees; Litigation between Beneficiaries and each other; all manner of Will Contests designed to swing the advantage of the legal process in one’s favor.

While we agree with some of the analysis in this article, we always have clients assess the realistic chances of a dispute over the estate before advising them on capacity declarations.

Obviously, if the family gets along extremely well, or there is little to fight over, then extreme measures to document capacity may be overkill.

However, in our combined two decades of experience with Probate Litigation and Will Contests, we can flatly state – when in doubt, assume there will be a Contest.

We have seen numerous cases where everything appeared straightforward, and family members appeared to be free of disagreements, until Mom and Dad died.

Then, a family member (usually one with financial difficulties of their own) see an advantage to be gained by filing a contest.

If a challenge is likely, then a Capacity Declaration should be sought  immediately before and after the signing of the Documents.  Also, more than one doctor should be sought, often from different medical practices.

We have seen one case where the client had been evaluated by a court-recognized expert on incapacity, only to have the same court choose to believe another physician’s report instead.

The more likely there is to be a contest, the more you should approach it with a “belt and suspenders” approach.

10 Ways to Lawsuit-Proof Your Estate #7

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 7 – Consider a corporate executor

If you have modest assets and don’t anticipate family fights, you’ll probably want to name your spouse, and alternatively an adult child, to be executor of your estate.  If you anticipate problems, don’t do this. Putting a favored child in the driver’s seat is a set up for abuse of power or the perception of abuse, which can lead to litigation. A corporate executor (say a bank) is expensive, but there’s less chance of fights among siblings.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

We regularly advise our clients to consider using a corporate or professional Trustee, to manage their Trust after they are gone.

In addition to reducing the likelihood of family friction, a professional Trustee can manage the individual shares of a beneficiary for many years (if necessary).  Rarely do family members enjoy managing a Trust for several decades, until the youngest child reaches their twenties or thirties.

Here are some of the questions our clients raise with us when considering a Professional Trustee:

1) Do we have to choose a Bank?  The short answer is No.  While a Bank Trust Department or other Corporate Trustee provides valuable services to their clients, they are not the only game in town.  In California, we have the Professional Fiduciary Association of California, whose members are known as Professional Fiduciaries.  They are independently licensed, insured and bonded, and provide many of the same services as a Bank Trustee, and sometimes more.

2) How Much will it Cost? In general, a Trustee can charge a “Reasonable” fee, based on the complexity of the matter and the skill set of the Trustee.  A Bank or Corporate Trustee generally charges a percentage of Assets Under Management (AUM), which typically can range from 1-2% annually.  A Professional Fiduciary will charge an hourly rate, so they tend to be less expensive if the administration is relatively simple.

3) Will we Lose Control of Our Money?  Again, the answer is No.  While the Trustee has legal control, the California Probate Code imposes a wide array of duties and obligations, to ensure that the Trustee is responsive to the needs of the Beneficiaries.  In addition, a Professional Trustee can be removed if they are not doing the right job, or if the beneficiaries agree it’s time for a change.

4) Is Our Money Safe with a Professional Trustee?  We hear this one all the time, and it never ceases to amaze us.  Corporate or Professional Trustees exist to serve their clients – you.  They are licensed, insured, bonded and highly regulated.  If they are found guilty of a breach of their duties, they can be sanctioned.  If they cause a loss of Trust corpus due to mismanagement, their insurance and bond protects your family from loss.  If a family member Trustee runs off with the money, it’s almost never coming back.  You can sue them, but if it’s gone, it’s gone.

10 Ways to Lawsuit-Proof Your Estate #5

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 5 – Check ownership of what you leave

This sounds ridiculous, but make sure you own what you’re planning to leave to your heirs…With jointly owned property, the joint owner gets it…If you put your vacation condo in corporate name and the shares are to go into a trust, it doesn’t matter that you say in your will that you want your daughter to get it.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

One of the most common misconceptions in Estate Planning is that your Living Trust (or Will) will always determine “who gets what.”

However, a Living Trust only controls what is actually in the Trust.

If you never fund an asset to the Trust, the Trust will not determine who gets that asset.

As the article indicates, Joint Tenancy assets go to the surviving Joint Tenant, not through a Trust or Will, which is one of the major problems with Joint Tenancy.

We were involved in a litigation matter where the Father had created a Trust leaving the bulk of his estate to the children of the first marriage.

However, when he died, it was discovered that all properties were held in Joint Tenancy with his second wife.

The children were originally told they got nothing because these assets were never funded to the Trust.

In addition to property owned in Joint Tenancy, there are a number of assets that are not ordinarily subject to Probate – including assets that pass by operation of contract, such as an IRA or 401(k) or Life Insurance or Annuity.

For these assets, a Will is powerless over them, because they pass directly to the beneficiary named on the account form.

This is why it is never enough to create a Living Trust, you must make sure that  your assets are funded to the Trust.

10 Ways to Lawsuit-Proof Your Estate #4

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 4 – Transfer a Business with a Contract

Suppose you have a house, $2 million in investments and a coveted family business you want your oldest child to have even though you think everybody else will be ticked off. Consider entering into a contract while you’re alive selling the business to that child, instead of including it as a specific bequest in your will or trust.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

While the basic advice in Part 4 is sound, it does not come close to eliminating the sources of family friction as it relates to the family business.

While it is harder to contest the lifetime sale of a business than it is to contest a bequest or devise – the real challenge is how to equalize the inheritance to all children, whether they work in the family business or not.

As it was discussed in Part 1 – Treat Siblings Equally – litigation and family friction can be largely avoided when all children are treated equally.

However, when it comes to a family business, even isn’t equal, and equal isn’t even.

If one child has been working in the family business, while others have been pursuing their own passions, it is only right to hand the business over to the child who has invested their life in the long term success of the family business.

However, if the family business is the majority of the family’s net worth, then how can the other children receive an equal inheritance?

Consider using life insurance to save the family business.

If you establish a buy-sell agreement – and fund it with life insurance – you can give company stock to the child who wants it, and cash to those who would prefer cash.

Everybody wins:

  1. The company is wholly owned by the child who can ensure it’s success
  2. The Child who works in the business has total voting control
  3. The Children who don’t want to work in the business aren’t tied to it for money

The Family Business is saved – and Family Harmony is preserved – for the cost of the insurance premium.

10 Ways to Lawsuit Proof Your Estate #3

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 3 – Keep track of loans and advances

If you loan money to one of several children, it’s best to have it in writing whether the loan is to be forgiven or repaid at your death. If you make a gift to one of several children, say $50,000 as a down-payment on a house, you can amend your will or trust to say that the gift is an “advancement”…Sometimes addressing this clarifies things, but sometimes the way it’s accounted for backfires and prompts litigation.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

Family loans and advances are one of the stickiest areas in Estate Planning.

They can almost do more harm than good, especially if family members fail to follow the rules set forth in the Internal Revenue Code.

To begin with, loans between family members are presumed to be Gifts, not Loans, unless the family members can prove that the Loan was made by an “arms-length” transaction.

In short, there should be some documentation of the loan, and – more importantly from the perspective of the IRS – appropriate interest must be charged.

What constitutes appropriate interest?

Well the IRS – in it’s infinite wisdom – will apply the Applicable Federal Rate to the loan, if you fail to assign a different rate.

More importantly, if you choose to not charge interest – the IRS may attribute interest to the transaction anyhow (imputed interest) which can lead to negative tax consequences for failure to pay the imputed interest.

As part of your Living Trust – you should make reference to the loan, the duration of the loan, the rate of interest charged, and any other identifying information (i.e. documentation).

The note (or evidence of the loan) should be assigned to the Living Trust.

If you decide to allow a Child or Beneficiary’s share of the Estate to be reduced in lieu of repayment – you must factor in the applicable interest rate over the term of the loan (from the date the money was lent until repayment).

While inter-family loans are extremely common – the rules surrounding them are complex, and must be followed to avoid negative tax consequences or litigation.

Bay Area courts to be hit hard by state budget cuts

The San Jose Mercury News reports in the article Bay Area courts to be hit hard by state budget cuts that California courts will suffer $350 million in cuts this year which is why at Ainer & Fraker, LLP we tell our clients you should Avoid Probate at All Cost.

California’s courts have long suffered from budget shortfalls, and this year and next year will be especially harsh.

California Probate Courts will suffer as well, as staff and hours are cut back to deal with State Budget Cuts.

In addition, some courts may consider closing on certain days, and other courts may close satellite locations.

All of these cutbacks add to the Bureaucratic Nightmare that is Probate, and slow down the already Lengthy Probate Process.

This is why at Ainer & Fraker we tell our clients you should Avoid Probate whenever possible.

Read the full article at the Mercury News.

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