One of the most long-standing and seemingly “bulletproof” estate planning mechanisms – the direct designation of a beneficiary on an account -- be it a bank account, an IRA,  a stock account or the like, is increasingly no longer as ironclad as both practitioners and their clients have long believed. A modern trend in California is gaining momentum in probate courts across the state whereby title rules are increasingly being bent to accommodate a decedent’s testamentary intent.
 
Until recently, it had always been viewed as a truism that one could augment the terms of their estate plan (regardless of whether implemented by will or by trust) by designating beneficiary(ies) directly on an account, or by adding a co-owner to an account.  Conventional wisdom has held that, upon the death of the account’s owner, that asset passed to the designated beneficiary (or co-owner) by virtue of contract law – the agreement entered into between the account owner and the financial institution mandated that the asset transferred directly to the person(s) named as beneficiary(ies), without necessitating a probate proceeding – and outside the scope of one’s estate planning documents.
 
Recently, however, California Probate Code Section 5302 has been employed to invoke an exception to that traditional mechanism: if a party contesting such a nonprobate transfer by way of beneficiary designation can prove by clear-and-convincing evidence that the decedent intended the account to pass to someone else, the beneficiary designation can be overridden.  So, the logical question is: what constitutes “clear-and-convincing” evidence in a case like this?
 
Of note, however, is that under California’s statute, the clear-and-convincing evidence can come after the account was created, meaning that estate planning documents, even if created subsequent to the establishment of the account, can serve to “trump” the “pay-on-death” designation on the account.  Thus, the testamentary intent evidenced in the terms of one’s will or trust can serve as evidence that the testator intended to apply the plan of distribution set forth in their will or trust to previously established accounts – but will it automatically satisfy the “clear-and-convincing” standard?
 
Before delving into an analysis of the “clear-and-convincing” standard, it must be noted that the rules governing disposition of nonprobate transfers traditionally differed depending on the type of account in question. The 1990 enactment of the California Multiple-Party Accounts Law (CAMPAL), however, imposed the “clear-and-convincing” standard to joint accounts, pay-on-death” accounts and so-called “Totten trust” accounts.

In the time since the passage of CAMPAL, modern case law has increasingly favored the usage of evidence of decedent’s intent over form of title – and the instrument used to demonstrate intent is open-ended: wills, trusts and even any writing, can serve as a basis to override form of title!  Language of intent to include assets that may have previously been beneficiary-driven have been found to include assertions in one’s living trust that they intend to assign to one’s trust “all of trustor’s right, title and interest in all property owned by trustor, both real and personal and wherever located.” Such boilerplate assignment declarations (found in many living trusts) can be deemed to constitute “clear-and-convincing” evidence that the trust’s provisions govern disposition of the asset, despite the fact that it is not, in fact, titled in the trust and, further, has a designated beneficiary.
 
The practical “take-away” for practitioners and clients in the estate planning arena is that unless one wishes to provide fertile ground for litigators, one should carefully “fund” their trust by transferring title to the trust with respect to all assets that they wish to be governed by the trust’s plan of distribution, while being careful to avoid overly broad assignment language in the event that they indeed want to utilize nonprobate transfers as a complementary element of their integrated estate plan. Once again, what had been long considered a safe option, is now fraught with potential peril. 

If you have any questions or would like more information, please don't hesitate to call (877-585-1558), email us or register to one of our free webinars.

Paul Morison

The benefits of a highly detailed, comprehensive durable power of attorney for finances are numerous. Unfortunately, many powers of attorney are more general in nature and can actually cause more problems than they solve. This article highlights the benefits of a comprehensive, detailed power of attorney, including some of the provisions that should be included. A proper starting point is to emphasize that the proper use of a power of attorney as an estate planning document depends on the reliability and honesty of the appointed agent.
 
The agent under a power of attorney has traditionally been called an "attorney-in-fact" or sometimes just "attorney." However, confusion over these terms has encouraged the terminology to change so more recent state statutes tend to use the label "agent" for the person receiving power by the document.

The "law of agency" governs the agent under a power of attorney. The law of agency is the body of statutes and common law court decisions built up over centuries that dictate how and to what degree an agent is authorized to act on behalf of the "principal"—in other words, the individual who has appointed the agent to represent him or her. Powers of attorney are a species of agency-creating document. In most states, powers of attorney can be and most often are unilateral contracts – that is, signed only by the principal, but accepted by the agent by the act of performance.

Much has been written about financial exploitation of individuals, particularly seniors and other vulnerable people, by people who take advantage of them through undue influence, hidden transactions, identity theft and the like. Even though exploitation risks exist, there are great benefits to one individual (the principal) privately empowering another person (the agent) to act on the principal's behalf to perform certain financial functions.

An important preliminary consideration about powers of attorney is "durability." Powers of attorney are voluntary delegations of authority by the principal to the agent. The principal has not given up his or her own power to do these same functions but has granted legal authority to the agent to perform various tasks on the principal's behalf. All states have adopted a "durability" statute that allows principals to include in their powers of attorney a simple declaration that no power granted by the principal in this document will become invalid upon the subsequent mental incapacity of the principal. The result is a "durable power of attorney" – a document that continues to be valid until a stated termination date or event occurs, or the principal dies. Absent durability provisions, the power of attorney terminates upon the principal’s death or incapacity.

Having covered the explanation of what a durable power of attorney is, let us look at the top benefits of having a comprehensive durable power of attorney.

1. Provides the ability to choose who will make decisions for you (rather than a court).

If someone has signed a power of attorney and later becomes incapacitated and unable to make decisions, the agent named can step into the shoes of the incapacitated person and make important financial decisions. Without a power of attorney, a guardianship or conservatorship may need to be established, and can be very expensive.

2. Avoids the necessity of a conservatorship.

Someone who does not have a comprehensive power of attorney at the time they become incapacitated would have no alternative than to have someone else petition the court to appoint a conservator. The court will choose who is appointed to manage the financial and/or health affairs of the incapacitated person, and the court will continue to monitor the situation as long as the incapacitated person is alive. While not only a costly process, another detriment is the fact that the incapacitated person has no input on who will be appointed to serve.

3. Provides family members a good opportunity to discuss wishes and desires.

There is much thought and consideration that goes into the creation of a comprehensive power of attorney. One of the most important decisions is who will serve as the agent. When a parent or loved one makes the decision to sign a power of attorney, it is a good opportunity for the parent to discuss wishes and expectations with the family and, in particular, the person named as agent in the power of attorney.

4. The more comprehensive the power of attorney, the better.

As people age, their needs change and their power of attorney should reflect that. Seniors have concerns about long-term care, applying for government benefits to pay for care, as well as choosing the proper care providers. Without allowing, the agent to perform these tasks and more, precious time and money may be wasted. 

5. Prevents questions about principal's intent.

Many of us have read about court battles over a person's intent once that person has become incapacitated. A well-drafted power of attorney, along with other health care directives, can eliminate the need for family members to argue or disagree over a loved one's wishes. Once written down, this document is excellent evidence of their intent and is difficult to dispute.

6. Prevents delays in asset protection planning.

A comprehensive power of attorney should include all of the powers required to do effective asset protection planning. If the power of attorney does not include a specific power, it can greatly dampen the agent's ability to complete the planning and could result in thousands of dollars lost. While some powers of attorney seem long, it is necessary to include all of the powers necessary to carry out proper planning.

7. Protects the agent from claims of financial abuse.

Comprehensive powers of attorney often allow the agent to make substantial gifts to self or others in order to carry out asset protection planning objectives. Without the power of attorney authorizing this, the agent (often a family member) could be at risk for financial abuse allegations.

8. Allows agents to talk to other agencies.

An agent under a power of attorney is often in the position of trying to reconcile bank charges, make arrangements for health care, engage professionals for services to be provided to the principal, and much more. Without a comprehensive power of attorney giving authority to the agent, many companies will refuse to disclose any information or provide services to the incapacitated person. This can result in a great deal of frustration on the part of the family, as well as lost time and money.

9. Allows an agent to perform planning and transactions to make the principal eligible for public benefits.

One could argue that transferring assets from the principal to others in order to make the principal eligible for public benefits—Medi-Cal and/or non-service-connected Veterans Administration benefits--is not in the best interests of the principal, but rather in the best interests of the transferees. In fact, one reason that a comprehensive durable power of attorney is essential in elder law is that a Judge may not be willing to authorize a conservator to protect assets for others while enhancing the ward/protected person's eligibility for public benefits. However, that may have been the wish of the incapacitated person and one that would remain unfulfilled if a power of attorney were not in place. 

10. Provides immediate access to critical assets.

A well-crafted power of attorney includes provisions that allow the agent to access critical assets, such as the principal’s digital assets or safety deposit box, to continue to pay bills, access funds, etc. in a timely manner. Absent these provisions, court approval will be required before anyone can access these assets. Digital assets are also important because older powers of attorney did not address digital assets, yet more and more individuals have digital accounts. 

11. Provides peace of mind for everyone involved.

Taking the time to sign a power of attorney lessens the burden on family members who would otherwise have to go to court to get authority for performing basic tasks, like writing a check or arranging for home health services. Knowing this has been taken care of in advance is of great comfort to families and loved ones.

Conclusion

This discussion of the Reasons Why Everyone Needs a Comprehensive Power of Attorney could be expanded by many more. Which benefits are most important depends on the situation of the principal and their loved ones. This is why a comprehensive power of attorney is so essential: Nobody can predict exactly which powers will be needed in the future. The planning goal is to have a power of attorney in place that empowers a succession of trustworthy agents to do whatever needs to be done in the future. Please call us if we can be of assistance in any way or if you have any questions about durable powers of attorney.

​If you have any questions or would like more information, please don't hesitate to call (877-585-1558), email us or register to one of our free webinars. 

​Christopher Botti

ABLE accounts were authorized by the Achieving a Better Life Experience Act of 2014 and can be an excellent resource for individuals with disabilities. Let's take a deeper dive into what these accounts are, how they can benefit certain individuals, and some new regulations issued by the Internal Revenue Service (IRS) in order to clarify some rules regarding ABLE accounts.

Who is eligible to open an ABLE account?

To be eligible to open an ABLE account, one must be a U.S. citizen or legal resident and an individual with a significant disability that began before age twenty-six. Such an individual is termed the designated beneficiary of the ABLE account. The designated beneficiary can be of any age when the account is opened, but the disability had to have onset before age twenty-six. If the individual receives Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), that individual is already eligible to open an ABLE account. If the individual isn't receiving SSI or SSDI, they must obtain a disability certification from a doctor and meet the Social Security Administration's definition of significant functional limitation. Finally, each eligible designated beneficiary can only have one ABLE account.

Who can contribute to an ABLE account?

Anyone can contribute to an ABLE account. The account owner, or designated beneficiary, can contribute to the account, as can their family or friends.

How much can one contribute to an ABLE account?

There are limits on how much can be contributed to an ABLE account. In 2020, the annual limit for each contributor is $15,000. Consistent with the Tax Cuts and Jobs Act, eligible designated beneficiaries can make additional contributions to their ABLE account, up to the amount equal to their state's poverty limit or the federal poverty line, whichever is less. (However, if the eligible designated beneficiary's employer contributes to a workplace retirement plan, the individual cannot make these additional contributions.)  There are also lifetime caps set by individual states. Many such lifetime limits are as much as $300,000. 

What are the advantages of an ABLE account?

Such accounts allow those with disabilities and their families to save money in a tax beneficial way.  Contributions to an ABLE account are not tax-deductible and are made with post-tax earnings, but withdrawals and investment income earned will not be taxed. Possibly the best advantage of an ABLE account is that the balance therein will not be a countable resource when applying for needs-based public benefits. These needs-based programs have strict asset limits, sometimes as low as $2,000. So, if the individual has more than that amount, they would not qualify for benefits. But through an ABLE account, the individual can have extra funds set aside for their care and maintenance without jeopardizing their eligibility for needs-based government benefits. The funds in an ABLE account will not impact Medicaid, FAFSA, HUD, or SNAP eligibility. (There could be limits regarding how much ABLE account funds will be a non-countable asset. For example, the amount up to that state's 529 plan savings limit may be the amount exempt for Medicaid eligibility purposes.) Also, the first $100,000 in ABLE account funds is exempt when qualifying for SSI.\

What can ABLE account funds be spent on?

Distributions from the account are tax-free if used for any expense related to living with a disability, including healthcare costs, living expenses, housing, transportation, assistive technology, legal fees, and education. To be tax-free, the distribution must be made for a qualified disability expense, which is defined as follows:

"Qualified disability expenses mean any expenses incurred at a time when the designated beneficiary is an eligible individual that relates to the blindness or disability of the designated beneficiary of an ABLE account, including expenses that are for the benefit of the designated beneficiary in maintaining or improving his or her health, independence, or quality of life. See §1.529A-2(h). However, any expenses incurred at a time when a designated beneficiary is neither disabled nor blind within the meaning of §1.529A-1(b)(8)(i) or §1.529A-2(e)(1)(i), even if the designated beneficiary is an eligible individual for that entire taxable year, do not relate to blindness or disability and therefore are not qualified disability expenses."

Who administers ABLE accounts?

Although ABLE accounts are sanctioned by federal law, the ABLE account programs are operated by individual states. Many states have their own ABLE account programs, but some states may not have programs available.  However, some programs don't have residency requirements to enroll in their programs, such as Nebraska, Ohio, and Tennessee. Those state programs have nationwide enrollment. Individuals should shop around and really understand each program's terms to analyze whether it is the right one for them. Here is a useful chart of the different states' plans.

What are the new IRS regulations?

The final regulations issued by the IRS in October amends 26 CFR parts 1, 25, 26, and 301. The purpose of the new regulations is to provide guidance under section 529A of the Internal Revenue Code, which authorized states to create ABLE account programs. These new regulations finalize two proposed regulations, the first proposed in 2015 and the other proposed in 2019.
Below are some key takeaways from the new final regulations:

• Funds from qualified tuition programs (529 plans) may be rolled over into ABLE accounts.
• Distributions after the designated beneficiary's death that are made for outstanding debts for qualified disability expenses, or for the funeral or burial expenses of the designated beneficiary, are not included in the designated beneficiary's estate.
• A change of a designated beneficiary is not treated as a distribution if the successor beneficiary is an eligible individual and a family member of the designated beneficiary. (A member of the family includes any "sibling, whether by blood or adoption, and includes a brother, sister, stepbrother, stepsister, half-brother, and half-sister.")
  
  

If a change in designated beneficiary is to someone other than an eligible individual who is a family member of the designated beneficiary, then the change is considered a distribution to the former designated beneficiary.

• A contribution in excess of the annual contributions limit is subject to an excise tax of 6% of the excess contribution.
  
  

Here are some of the new regulations that will be effective beginning January 1, 2021:

• Contributions to an ABLE account, other than a designated beneficiary's contribution, is a completed gift for gift tax purposes.
• If a contribution is a nontaxable gift for Federal gift tax purposes, the inclusion ratio for GST-tax purposes will be zero.
• Funds in the ABLE account are included in the designated beneficiary's estate for estate tax purposes.

​ABLE accounts can be an excellent resource for folks who are disabled, and a great way for their families to be able to contribute in a meaningful way. 
 
If you have any questions or would like more information, please don't hesitate to call (877-585-1558), email us or register to one of our free webinars. 

​Christopher Botti
 
Sources:
https://www.savingforcollege.com/529-able-accounts/
https://www.able-now.com/resources/faqs/
https://www.irs.gov/pub/irs-drop/td-9923.pdf
https://www.disabilityscoop.com/2020/10/12/irs-issues-final-rules-for-able-accounts/29030/
https://www.savingforcollege.com/529-able-accounts/
https://www.ssa.gov/disability/professionals/bluebook/listing-impairments.htm
https://www.irs.gov/government-entities/federal-state-local-governments/able-accounts-tax-benefit-for-people-with-disabilities

Our children tend to think they’re invincible, and that they’ve got it all figured out – particularly once they hit 18, right?  While that milestone is exciting, it also exposes our adult children to a new set of dangers.
 
Consider the case of my nephew – while attending college in Pasadena, he was hit by a car while riding his bike and ended up in the hospital. Since he was 19 at the time, the hospital, citing HIPAA regulations, refused to release information about him to his parents. The well-intentioned but seemingly Draconian implications of this privacy law provide for only one exception concerning the release of one’s “personal health information”: parent-to-minor child. Consequently, although the application of it in my nephew’s case was harsh, it was proper under the law, since he was an “adult.”
 
Or what if an adult child becomes incapacitated – who has the right to handle their financial affairs during that period of incapacity?
 
The answer is frustratingly simple: unless one has the appropriate documents to avert it, an incapacitated adult (i.e., anyone over the age of 18) will be subjected to a conservatorship proceeding to empower someone to manage their financial and medical affairs. And while parents will most likely have the “inside track” in such a proceeding, judges are unpredictable. Furthermore, this type of proceeding is fraught with indignity, delay, publicity and expense.
 
Once again (see previous blogs), our maddening system has provided us with an easy “fix:” everyone over the age of 18 should be equipped with a simple combination of documents: a Durable Power of Attorney for Financial Purposes and an Advance Health Care Directive. This pair of documents serves to pre-ordain who will have the legal right to manage the finances of an incapacitated adult, as well as dictating how one should be treated by medical professionals and who has the right to receive one’s  personal health information and to act as an incapacitated patient’s advocate.
 
As parents, we go to great lengths to protect our children; doesn’t it make sense to be sure that they’re protected in the event of an accident? It’s truly remarkable how much aggravation this critical pair of documents can spare the parents of adult children – do your children as well as yourselves a huge favor by helping them execute these two documents. Naturally, we hope they’ll never need them, but the peace of mind you’ll realize is priceless.
 
We’re here to help – if you have any questions about this topic, feel free to give us a call (877-585-1558), email us or register to one of our free webinars. 

​Paul Morison 

This year California voters surprisingly passed Proposition 19 entitled the “Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act.”  In a classic case of “don't judge a book by its cover,” its reach extends far beyond those who were unfortunate to lose a home in a fire. This Act amended the California Constitution. It becomes effective on April 1, 2021, for replacement of primary residences and February 16, 2021, for transfers of ownership. Many fear that Proposition 19 may open the door to further weakening, if not outright elimination, of Proposition 13 down the road.

Proposition 19 has two significant features:

1. Retain Current Property Tax Assessment in Certain Situations. Proposition 19 allows homeowners who are either over 55, have severe disabilities, or are victims of natural disasters or hazardous waste contamination to purchase a new residence but retain their property tax assessment from a prior home. 

2. Significantly Modifies Proposition 58 and Proposition 193 Reassessment Exemptions. Proposition 19 limits the applicability of the parent-child (Proposition 58) and grandparent-grandchild exclusions (Proposition 193) from property tax reassessment to properties that will be used as the recipient’s personal residence only. 

In order to truly understand the far-reaching implications of Proposition 19, it is important that we understand how the landmark Proposition 13 works. Here is a quick summary:  

• Property taxes are based on market value when you first purchase a home.
• Lowered property taxes to 1% of the full value of the property.
• A maximum tax increase of 2% per year regardless of the value of the property.
• A reassessment occurs when the property ownership changes (unless an exemption applies) or there is construction done.

The Good News
​
Retain Current Property Tax Assessment in Certain Situations

Current Proposition 60 allows seniors who own a home to purchase a replacement residence that is equal to or lesser in value from the original property, and retain the original property tax assessment under Proposition 13. But, Proposition 60 does not benefit many in that seniors may only utilize this benefit one time. Additionally, the replacement property must be located in the same county as the original property, unless the original and replacement properties are in two of the ten counties that have agreed to an intercounty base year value transfer.

Beginning on April 1, 2021, Proposition 19 extends the persons who are eligible to retain their property tax assessment beyond seniors to persons with severe disabilities and victims of natural disasters as well as toxic waste contamination. It also permits the replacement property to be worth more than the original property. The assessment will be adjusted based on the difference in fair market value between the two properties. Lastly, it allows homeowners to change properties up to three times during their lifetime and within any county in California. Since seniors typically rely on fixed incomes, Proposition 19 allows for more freedom by giving them the option to purchase their new home, to downsize or be closer to loved ones.

The Bad News

Significantly Modifies Proposition 58 and Proposition 193 Reassessment Exemptions

Current Proposition 58 allows property owners to transfer their property to and from a parent or a child, by purchase, gift, or inheritance, with the recipient retaining the original owner’s property tax basis. There is no value limit on the exemption from reassessment provided the property has served as the original owner’s personal residence. There is a $1 million dollar exemption from reassessment for all other transferred property. Current Proposition 193 extended Proposition 58  to certain qualifying transfers between grandparents and grandchildren. 

Beginning on February 16, 2021, Proposition 19 limits the applicability of the parent-child and grandparent-grandchild exemptions to transfers of a home or a family farm that will be used as the personal residence of the recipient. If the property’s fair market value at the time of transfer is less than $1 million greater than its assessed value, the property will retain its original assessed value. If the property is worth more than $1 million over the assessed value, only $1 million is excluded from property tax reassessment. The parent-child and grandparent-grandchild exclusion for any real estate other than a personal residence has been eliminated.

What to do about it?

This law will have a substantial impact on those who intend to transfer properties such as vacation homes and commercial buildings to their children at death at the low property Proposition 13 tax basis. You may be inclined to hastily gift a property to a child prior to February 16, 2021, to take advantage of the benefits of the prior law and the high $11.58 million estate and gift tax exclusion.  

If it could only be as simple as just signing a deed. You must weigh the pros and cons before deciding on a course of action. There are numerous moving parts and a thorough mathematical analysis must be completed. If the transferee is going to want to keep the property for the long haul, then the scales tip in favor of retaining the current Proposition 13 tax basis and transferring the property before February 16, 2021. If the property is highly appreciated and the transferee is likely to want to sell the property as soon as they  receive upon death, then the scales tip in favor of retaining the full step-up in basis for capital gains tax purposes and not gifting the property prior to February 16, 2021.  (How to Defeat Capital Gains Tax blog post).

Gifting a property will also result in the loss of control. An outright gift will also expose the property to the creditors and whims of the transferee.  Gifted properties will need to be appraised and a Form 709 (Federal Gift Tax Return) will need to be filed.  Many of these concerns can be eliminated if a property is transferred to an Irrevocable Trust.  The costs and fees associated with transferring a property properly must also be considered.

We anticipate that legality of Proposition 19 will be challenged in court. Moreover, legal work-arounds may become available between now and its implementation.  Accordingly, we will post updates to this blog.  

If you have any questions or would like more information, please don't hesitate to call (877-585-1558), email us or register to one of our free webinars. 

​Christopher Botti

When we’re out discussing estate planning with folks, one of the most commonly posed questions is: “How do I know if I need a Trust?” And it’s a great question . . . one that deserves a bit of deeper analysis.
 
In California, the California Probate Code serves as the “bible” governing the inner workings of Trusts and other testamentary instruments, and it dictates that “assets not held in trust must pass through probate.” (You’ll need to consult some of the previous blog posts on our website to gain an appreciation as to why it is so critical to avoid probate.)
 
Consequently, many people assume that the only way to avoid probate is to establish (and properly fund) a revocable living trust. And for most of the folks we meet, this route ends up being the most appropriate mechanism for them (with the caveat, of course, that a living trust is not the “be-all, end-all” – it serves best as but one component of a comprehensive, integrated estate plan, featuring several legal documents engineered to work in a complementary manner to achieve the desired results).
 
But in the course of our ongoing interactions with clients, we occasionally run into one of the following scenarios: mom and dad have sold the longtime family home and are downsizing – perhaps moving into an assisted living facility; maybe moving in with one of their children. Consequently, they no longer own real estate, and have consolidated their assets into a couple of bank accounts, maybe a brokerage account, and their (tax-deferred) retirement accounts.  In addressing their well-founded desire to avoid probate, we counsel them that it can be done relatively simply: by designating beneficiaries on their accounts (assuming that a beneficiary outlives them) the account(s) designating beneficiaries will pass to those beneficiaries probate-free. And we know that, baring a catastrophic fail, their retirement accounts already have primary and contingent beneficiaries designated. Probate successfully defeated.
 
However, defeating probate is but one of the several compelling reasons to engage in estate planning (and, honestly, it’s a favor you’re doing for other people) – what about protecting yourself if you become incapacitated?  The avoidance of “conservatorship” is perhaps a more compelling objective served via proper estate planning. For unprepared people, in the event of incapacity, a probate judge is charged with the responsibility of determining who will be in charge of the financial and transactional matters of the incapacitated person, as well as who will be empowered to make medical decisions for them.  And married people beware – there is no guarantee that one’s spouse will automatically be the one designated by the court (remember Terri Schiavo’s infamous case?).

So, for people who might not need a trust to avoid probate due to the fact that they own no real property and have beneficiaries in place on all financial accounts, they still need a pair of critically important documents to eliminate the risk of conservatorship: a financial power of attorney (“General Durable Power of Attorney”) and a medical power of attorney (“Advance Health Care Directive”). The combination of these documents ensures that one has pre-ordained, in a legally-enforceable manner, who will manage their affairs in the event of incapacity – without the indignity and intrusiveness of a formal conservatorship proceeding in a public forum.
 
Then, while we’re preparing a “downsized” estate plan for people who don’t necessarily need a Trust, we typically include a Last Will and Testament – simply to facilitate the orderly distribution of one’s personal property.
 
While this approach often addresses the needs of the hypothetical client identified above (older folks in downsizing mode), it also can perform well for people on the other end of the spectrum: often the children of our clients.  Often a young adult is getting started with their career, maybe they’ve already started a family, but they don’t own a home yet. For them, the “Will Package” described above will similarly adequately address their estate planning needs.
 
So, the time-honored cliché that we bandy about at Botti & Morison: “We only buy blank paper!” is actually true – it is never proper to attempt to force differently-situated clients into the same estate planning approach; each prospective client of Botti & Morison will be afforded a thorough analysis to determine what their particular needs are, and a custom estate plan will be crafted to most effectively (from cost and document production perspectives) properly serve their needs.

If you have any questions or would like more information, please don't hesitate to call (877-585-1558), email us or register to one of our free webinars.

Paul Morison

​When we’re discussing estate planning with folks, one question almost invariably comes up. Can I designate more than one person as my successor trustee? It’s a great question, and one that warrants significant thought.
 
Aside from dictating who you wish to inherit the assets you leave behind, the designation of your successor trustee (“executor” in last will jargon) is probably the most significant decision you’ll make when establishing an estate plan. Ideally, your designation will establish your first choice and will be augmented by at least one alternate designee. 
 
In the majority of cases, trustors (the person or people creating the living trust at the core of the estate plan) elect to designate their children as their successor trustees, and many folks struggle with the idea of being perceived as favoring one child over another.  Often, this results in a concession to a form of political correctness, resulting in a simple sequence based on age – e.g., oldest child as first designee, middle child as first alternate and youngest as second alternate. This approach may work out in some cases, but it fundamentally ignores the fact that one should truly be basing important decisions such as the designation of a successor trustee on more compelling factors like “which child is actually best-suited for the task” rather than simple birth order.
 
Next in people’s thought progression is often: can I designate my kids to serve together as co-successor trustees? The short answer is “yes.” But the concept justifies considerable further reflection. Firstly, although there is no statutory bar to designating multiple successor trustees, it is strongly recommended that one never consider more than two co-trustees – the resulting “committee” approach may well lead to gridlock (or worse). 
 
What most people fail to comprehend when contemplating the designation of multiple co-trustees is that the California Probate Code (the statutory authority governing the administration of trusts) mandates that co-trustees act unanimously. That means that the “two out of three” concept that most people assume would control is not how it works. Therefore, it is obvious that the more “cooks in the kitchen,” the more chance there is for a lack of unanimity – and the harsh reality of how gridlock is broken among co-trustees is a visit to probate court – the very place one is seeking to avoid when establishing a living trust.  And, to make matters worse, when co-trustees end up litigating a disagreement as to the course of a trust’s administration, each co-trustee’s legal fees and costs are borne by the trust!
 
And I know what many of you might be thinking: “What could our kids possibly disagree about? Our estate is simple.” Well, the classic example of a matter that could very well give rise to a disagreement among co-trustees is something as fundamental as what to do with the family home. One of the children (a co-trustee) believes that it should be sold as soon as possible in as-is condition; another child (co-trustee) thinks that they should spend some money fixing it up prior to sale; and the third child (also a co-trustee) feels that they should keep the home “in the family,” and rent it out. If they fail to reach an agreement, they may end up litigating the matter – while the attorneys end up devouring a good chunk of the estate in hourly fees.
 
Finally, there is a less well-known aspect of co-trustees that can be extremely scary: if one of the co-trustees breaches their fiduciary duty (for example, by stealing trust funds), each co-trustee is what is known as “jointly and severally” liable. That means that each co-trustee is potentially liable for the misdeeds of their colleagues, even if they did nothing wrong!
 
With all that said, however, there are, I believe, a couple of situations where designating co-trustees (but still never more than 2) can be a good idea. The first is the most basic: parents have only two adult children, each child is responsible and could handle the task if called upon, the kids get along well, and the estate plan calls for a 50/50 division of assets between the children. In this case, designating them as co-trustees is ideal, in that the responsibilities and effort needed to administer the parents’ trust can be shared between the children, and the fact that they’re co-trustees eliminates the need for one to provide the other with an accounting, thus making the task simpler. 
 
Also, the co-trustee approach eliminates the inherent inequity that exists when one of two children is designated solely as trustee (that one does all the work while their sibling simply sits back and incessantly questions what is taking so long) when, at the end of the process, assets are divided equally.
 
The other situation where one may want to give serious consideration to designating co-trustees is in the context of a blended family.  In this case, it is certainly more potentially volatile than the example noted above, but often parents of a blended family want to know that “their side” of the family is not being subordinated to the “other side.” Only consider this if you firmly believe that at least one representative of each branch of the family can get along and function smoothly with the representative of the other branch – otherwise you may be setting yourself up for failure.
 
Hopefully this brief discussion has shed a bit of light on a common question, but one which is not as simple as it might initially seem. When considering co-trustees . . . tread carefully.  

​If you have any questions or would like more information, please don't hesitate to call (877-585-1558), email us or register to one of our free webinars.

By Paul Morison