One of the main purposes of setting up a Trust is self-sufficiency, meaning I and my loved ones are able to handle our own affairs, and do not need to rely upon a government organization or agency.
The way we do this is by putting it in “writing”, in a legal and regulatory manner, that will be accepted by the financial and governmental organizations.
With the present Covid-19 virus, it is more clear than ever that our government is overwhelmed and lacks the resources to take care of all those who need it. Courts are shut down or have significantly delayed and reduced services.
Thus the “Planning” in Estate Planning is the most important aspect. Preparing in advance for a probable and certain event is a no-brainer. We will all die. Real life experience tells us that more “goes wrong” than right, and that hoping for wining the lottery ticket is a fool’s errand.
If you have time and capability now, why wait for the stressful and frustrating emergency to materialize, requiring an “immediate resolution”, only to find that you must rely on the governmental system and “get in line” of a large backlog of others.
When you set up a Trust you designate a successor Trustee who will wind down your affairs upon death. It is advisable to transfer or relate as many assets (e.g. real estate, financial accounts, life insurance) to the Trust allowing for a complete bypass of the Probate Court process.
Pursuant to the new SECURE act recently passed by the senate and signed into law by the president, any IRA, whether Traditional or Roth, must be depleted within 10 years from the original owners date of date.
This is a simplification and limitation from the prior rules which allowed tax-deferred withdrawals depending on the age of the of the beneficiary pursuant to an IRS life expectancy table.
The new 10 year limit would apply to anyone except an exempted group, such as a surviving spouse.
For more details you can visit Investopedia on Stretch IRAs.
AB 1482, California’s statewide rent control (limiting annual rent increases and imposing just cause eviction restrictions) has several property owner category exemptions, for most of pertinent are:
1. Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit.
2. A duplex in which the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
3) Housing that has been issued a certificate of occupancy within the previous 15 years.
4. Residential real property that is alienable separate from the title to any other dwelling unit, provided that both of the following apply:
owner is not any of the following:
real estate investment trust, as defined in Section 856 of the Internal Revenue
limited liability company in which at least one member is a corporation.
The most common exemption are residential homes and condominiums under category 4 (assuming the property does not otherwise qualify for municipal and city specific rent control.)
One type of real property that may not be exempt are “quasi-condo” structures under tenancy in common arrangements.
LLCs are also exempt, as long as no corporation has a membership interest.
Whenever a business entity seeks to acquire a busines asset it is strongly advised to structure part of the transaction as installment payments or include a withholding amount (to be disbursed subject to cash flow and liability representations being accurate).
The offset provision is usually contained within the indemnity povision of the purchase and sale agreement, or there may be a separate provision for withholding and required conditions for satisfaction.
The practical reality is there are many reasons a seller may want to offload a business asset. The seller almost invariably will paint the busines asset with overly optimistic exaggerations and potential.
A well crafted indemnity and offset provision will shift the burden on the seller to disprove the purchaser’s offset claims are improper.
Under California Proposition 58, the Parent to Child Exclusion for transfer of the pre-exisiting Proposition 13 tax base is unlimited for one residential property, plus one million ($1,000,000.00) per parent spouse for non-residential property (maximum two million [$2,000,000.00] if two parents).
For an owner of an investment property or properties exceeding two million, tax planning for purposes of preserving the pre-exisiting Proposition 13 tax base can be accomplished through the use of a business entity, e.g. LLC or L.P.
The tax re-assessment rules for a business entity holding real property differs in that it depends on 1) a change of control of more than 50%; or 2) more than 50% of the original co-owners change.
Importantly, any Business Entity planning and structuring regarding the investment property is only possibly before the owner dies.
As time goes on there will be more LLCs created as more real properties will be worth one million or more and more tax assessment will catch up to that threshold.
For a consultation regarding this topic please contact the Law Offices of Hanlen J. Chang.