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Common Myths And Mistakes About Estate Planning

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By Richard Nevins

Attorney at Law

Richard Nevins
Estate Planning can be a complicated area of the law where myths abound and mistakes can be harmful to you and your loved ones.  Here is a list of common myths about estate planning.

I don't need a will because I don't own very much. 

If you don't create a valid Will, the state of California has a series of laws, known intestate succession, that will determine where your assets go and who will control everything that you own.  State law may not distribute your assets to the people you want to have them.  If you want to nominate a guardian for your children, then you need a will. 

Many people wrongly assume that the only important asset is money, when in reality some of the most difficult family disputes involve the inheritance of personal possessions, like family photographs and heirlooms.

I don't need an estate plan because I hold all my assets jointly with another person. 

This is one of the most dangerous ways to plan your estate.  When you add another person to your bank account or to your real estate as a joint tenant, you are exposing that asset to every current and future creditor of that new joint tenant.  The asset will also be exposed to gift tax, capital gains tax and estate taxes.  Joint ownership does not avoid probate.  Probate is delayed until the last joint owner's death.

If I have a good Will, probate will not be required, and my assets can be transferred immediately to the beneficiaries of the Will. 

In fact, having a Will mandates a probate in most circumstances and the assets may not be transferred to the heirs for months or years.

Probate is a court proceeding to transfer title from the decedent's name to the living beneficiaries.  Probate occurs in the state of your legal residence as well as in any state where you own real property.  The length of time to complete a Probate varies, but can take six to eighteen months, on average.

If my assets are few, I will avoid probate. 

In California, if you have a house worth more than $100,000, your estate will probably require probate, unless you use a Living Trust or some other probate-avoidance technique.

A Will covers all my assets. 

Wills do not cover assets held as joint tenants with right of survivorship, retirement plans, annuities, life insurance, bank or investment account with transfer on death designations.

I can do my own estate plan. 

Estate planning is more than just creating documents.  It is understanding the big picture and how the legal documents will work in concert with the assets at the time they are needed.

You can't afford to rely on myths when it comes to your estate. Find out the facts, plan carefully and execute a plan to provide you with peace of mind and security for your loved ones.

Richard Nevins has been an attorney for 18 years.  His law firm provides legal advice in estate planning and small business law.  For more information, please visit his website at www.RichardNevins.com

A Special Needs Trust Preserves An Inheritance For A Disabled Dependent

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By Richard Nevins

Attorney at Law

Richard Nevins
If you want to leave an inheritance for a physically, mentally or developmentally disabled sibling, parent, spouse or child, you can inadvertently create more problems than the solution you seek. 

If a disabled adult receives an inheritance, the government will require the individual to spend the money before it will pay for residential care or other services.   The cost of full-time care of a severely disabled adult can quickly exhaust what might seem like a large inheritance.  Virtually any increase in assets may disqualify a disabled person from receiving Medicaid or Medi-Cal.

Once the inheritance is exhausted, the individual may be in worse shape than before. He'll be dependent on government programs for clothing, food and shelter, and there won't be anything left to pay for extras like visits to relatives or a motorized wheelchair.

A special needs trust is the method by which you can leave an inheritance for the benefit of a disabled person and not have that person lose eligibility for Medi-Cal or Medicaid benefits.

Special needs trusts are designed to supplement, not replace, the kind of basic support provided by government programs like Medicaid and Supplemental Security Income (SSI). Special needs trusts pay for comforts and luxuries -- "special needs" -- that could not be paid for by public assistance funds.

To qualify, a special needs trust must be very specific in stating that its purpose is to supplement government benefits and to provide only benefits above and beyond the benefits the beneficiary (disabled person) receives from any government agencies.  It is critical that the trust not duplicate any government-provided services and that the beneficiary not have any resemblance of ownership of the trust assets. Otherwise, the government could attempt to seize the trust assets for repayment of services already provided or determine that the beneficiary does not qualify for future benefits.

To accomplish this, you will need to give the trustee complete control over the distribution of the assets and any income they generate; the beneficiary cannot be able to demand any principal or interest from the trust.

Give careful consideration to your choice for trustee. Of course, you (and your spouse) will continue to provide for this person while you are alive and able. But someone will need to assume this responsibility after your death or incapacity.

The most obvious choice is another family member who also cares deeply about this person. But be aware of a possible conflict of interest, especially if this trustee will inherit the trust assets after your disabled dependent has died; your trustee may care more about preserving trust assets than providing for your beneficiary.

Consider using (or adding) a corporate trustee; that's a bank or trust company that specializes in managing trusts. They can be impartial, and they will be around for as long as your beneficiary lives.

Finally, be sure to work closely with an attorney who has considerable experience with these trusts.

Richard Nevins has been an attorney for 18 years.  His law firm provides legal advice in estate planning and small business law.  For more information, please visit his website at www.RichardNevins.com

Starting A Non-Profit Tax-Exempt Corporation

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By Richard Nevins

Attorney at Law

Attorney Richard Nevins
A popular misconception among many people who want to create a tax-exempt corporation is that they want to use this type of corporation to get grants and earn money for themselves without paying taxes.  In reality, the actual owner of a tax-exempt non-profit corporation is the board of directors.  The government uses the board of directors as a watchdog over the corporation.  As the true legal owners of the corporation, the board of directors are held personally responsible for the correct operation of the corporation, even though the board of directors are all volunteers and may only meet once per year.

The creation of a tax-exempt non-profit organization is based upon an important exchange between the government and the corporation.  The trade is that the government will allow a corporation to operate without the payment of income tax in exchange for the corporation donating all of its assets to charity and for using all of the corporation's resources for the benefit of the general public, instead of for the private benefit of a few key individuals.

A non-profit corporation and a tax-exempt corporation are not exactly the same entity.  These two terms signify the two major applications filed in this process.   The first step in the creation of any corporation is to state an intention to operate the corporation either as a for-profit or non-profit corporations.  The Articles of Incorporation is the document used for this purpose and it is filed with the California Secretary of State.  Once the Articles of Incorporation is approved, the corporation is officially formed and can begin operations. 

The second step is that a non-profit corporation must file an application with the California Franchise Tax Board and with the Internal Revenue Service to request that their newly-formed non-profit corporation become exempt from federal and state income taxation. 

The result of these two applications is the creation of a tax-exempt non-profit corporation that is completely owned and controlled by the board of directors.   It is very common that a single individual will initiate and pursue this two-step application process.  To become a for-profit corporation, a single individual can own operate and control everything.  However, to become a tax-exempt, non-profit corporation, the founder of an organization must agree to relinquish ownership of everything that the organization owns and also agree, via a declaration in the Articles of Incorporation, that none of the assets of the organization will be used for the private personal benefit of any individual, including the founder.

The IRS and the Franchise Tax Board has the power to revoke the tax-exempt status of any organization for violation of this basic requirement.  Revocation will also mean that all donations previously received by the organization will not be tax deductible by the individuals who made those donations.  Revocation may also result in personal liability to the board of directors for failing to properly supervise the actions of their corporation.

Richard Nevins has been an attorney for 18 years.  His law firm provides legal advice in estate planning and small business law.  For more information, please visit his website at www.RichardNevins.com

A Healthy Estate Plan Needs A Regular Check-Up

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By Richard Nevins

Attorney at Law

Richard Nevins
A regular medical exam gives you a chance to discover if your body is in the early stages of a problem that can be prevented.  When you file your tax return every year, you probably use that opportunity to think about your finances for the past year and your financial plans for the coming year.

Your estate plan should also be the subject of a regular review.  An estate plan is a picture of how you will take care of your family when you are gone.  The picture will change over time, because your life, and the people who are a part of it, will also change over time. A good estate plan should not be though of as being solid as a rock, but as flexible as Jello.  The plan should be capable of adapting to the changing shape of your life.

So, how do you know when it's time to give your estate plan a check-up? Regular routines are usually easier to remember.  The IRS makes April 15th a difficult date to forget.  So why not use that to make a complete financial and estate plan and review your estate documents.

If you can identify with any of the following events, then an immediate review of your estate plan is in order.  If you expect that any of these events may happen within the next year, then you should discuss them with an estate-planning attorney so that you can make the appropriate changes in your plan.

California community property laws automatically give your spouse an interest in all property that is acquired or earned during marriage.  Also, when a divorce becomes final, your former spouse is automatically prohibited, by law, from inheriting under your will.  However, while you are separated, or while you are still in the process of making a divorce decree final, you may want to change your will or living trust to exclude your soon to be ex-spouse.

If you have adopted children, then you need to check to make sure that they are treated as you desire in your estate plan.

Children who are minors should have a guardian named in your documents. 

As your health, or the health of your spouse declines, you may want to name a new person, other than your spouse, to be either the successor trustee of your living trust, the executor of your will, or the successor agent for your financial power of attorney documents.

If your parents, grandparents, or other family member becomes financially dependent upon you, your estate plan should provide for their care.

Any changes in property ownership, including the purchase of a timeshare, should be reflected in your estate plan, particularly if you wish to avoid probate of those assets.

Moving to another state requires a major review of all estate planning documents because both trusts and wills are regulated by the laws of the state where you reside.

Richard Nevins has been an attorney for 18 years.  His law firm provides legal advice in estate planning and small business law.  For more information, please visit his website at www.RichardNevins.com

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