What is a Pet Trust?

A Pet Trust is usually a Subtrust built into the regular Revocable Trust.

The Pet Trust can nominate its own set of Trustee(s) or depend on the parent or Revocable Trust’s Trustee(s).

The Pet Trust will usually be funded with a lump sum of money sufficient for the lifetime care of the Pets.

Other common provisions include designating a veterinarian, a request to keep your Pets together if more than one, and a designating Pet Sanctuary as fail-safe contingency.

An alternative to the Pet Trust involves gifting your pet to the preferred individual or organization along with a lump sum of money for the care.

Under California Law, a pet is considered the personal property of the owner.

For more information please contact the Law Offices of Hanlen J. Chang.

Disclaimer

About That A/B Trust

It is common to encounter A/B Trusts created for married couples before the year 2010.

Back in the day the A/B Trust was primarily established to avoid the tax impact of exceeding the then much lower Estate Tax limit.

The mechanics of an A/B trust involves setting up so called reciprocal “lockboxes”, first coming into effect when the first spouse passes.

At the time of the first death, the Trust estate (assuming all community property) gets divided 50-50 , with one-half transferred into the deceased spouse’s “Bypasss Trust” and the other half into the surviving Spouse’s “Survivor’s Trust”.

Once the first spouse passes, the surviving Spouse will only be able to modify or dispose of the A/B trust mechanism with a Court Order, as the so called “lockbox” becomes irrevocable.

In the year 2018 each spouse has an Estate Tax credit of eleven million dollars ($11,000,000.00). Thus, the A/B Trust is no longer a required tax planning mechanism for the vast majority of U.S. taxpayers.

Other overlooked implications of the A/B Trust are that illiquid assets, e.g. real estate, at the time of death, have to be divided into two (2) shares, the Survivor’s Trust and the Bypass Trust. This could be impracticable and contrary to long term estate planning goals.

If a married couple has a strong and straight forward relationship, where the goal is to simply leave everything to the Surviving Spouse, then it is strongly advised to have an Estate Planning attorney review the Trust documents, and if indicated, update it to a Non-Formula Trust.

If you are unsure if you have an A/B Trust or want to update to a Non-Formula Trust, please contact the Law Offices of Hanlen J. Chang located in San Francisco and Palo Alto.

Disclaimer

 

For Sale by Owner – Alternate Hourly or Flat Fee Service

For Sale by Owner (FSBO) is suitable for situations where the seller has already found a buyer. This alternative hourly rate or flat fee service can save costs compared to hiring a realtor who will be compensated on commission.

A Lawyer-Broker can assist with preparing the real estate documents and arranging for escrow. This service requires an average of 11-24 hours.

Common situations include:

  • Tenant seeking to buyout Landlord;
  • Buyout of a Joint Tenant;
  • An Owner who wants to sell without a realtor.

A Realtor service is more suitable when there is no a pre-determined buyer and marketing is required.

If you believe your situation may benefit from a For Sale by Owner alternative hourly or flat fee service, please contact the Law Offices of Hanlen J. Chang for more information.

Disclaimer

Someone Just Died – What Now?

There are three scenarios upon the passing of an individual:

  1. With a Trust;
  2. With a Will;
  3. No Trust or Will.

Whatever the scenario, there are additional post death administrative tasks to handle.

Passing With a Trust

The most efficient and secure succession setup and mechanism is to have a Trust.

One major benefit is that it bypasses the need for Probate Court (more specifically explained below).

Of importance is understanding that assets have to be transferred into Trust before death and out of Trust after death.

Equally important is the before and after tax planning and management of the assets.

Common Post Death Trust Administration tasks include:

  • Inventorying, valuing, and managing trust assets;
  • Satisfying or resolving debts (e.g. mortgages, utilities, credit cards, auto loans..etc.);
  • Filing Tax Returns (sometimes outsourced to a CPA);
  • Trust asset distribution (including sub-trust funding if applicable);
  • Collecting and distributing assets outside of Trust where applicable.

Another Trust advantage is when a beneficiary is a Non-Resident Foreigner, bypassing delays, verification, and tax withholding by financial institutions or third parties.

Passing With a Will or No Will

Probate Court is required if you pass with a Will or No Will (“Intestate) and there is an asset worth more than $150,000.00 for which there is otherwise no succession mechanism (e.g. beneficiary designations).

For assets below $150,000.00 those items can be collected by an out of court small estates procedure on behalf of the successors-in-interest.

The Schedule of Probate Fees is as follows:

• 4% of the first 100,000 of the gross value of the probate estate
• 3% of the next $100,000
• 2% of the next $800,000
• 1% of the next $9 million

Both the executor (individual nominated in the Will) or administrator (individual appointed by the court) and the attorney are entitled to this fee. Thus, the Probate Fees when multiplied by two (2) can become costly when compared to a Trust setup where the settlor (person establish the trust) gets to set the Trustee fee according to her or his preference.

The executor or administrator will essentially handle the same functions as the Trustee but under court supervision and approval.

Another consideration and possible drawback includes the time lag for completing the Probate process, which could be anywhere from 1 year to 3 years.

Disclaimer

 

Trust Funding – Overlooked At One’s Own Peril

As an Estate Planner I often answer questions about the Mechanics of Trust Funding:

Some important concepts include:

  • Only Assets owned by or related to the Trust are controlled by the Trust Terms;
  • Common Trust funding Assets include: Real Estate, Bank Accounts, Brokerages, Business Shares, Intellectual Property, and Personal Items;
  • Common Assets to Relate to Trust include: Retirement Accounts (Pension, 401(K), IRAs) and Life Insurance.
  • The Schedule of Trust Assets is an important Information Sheet (usually at the back of the Trust Instrument);
  • Without the Schedule, an asset could become lost due to the Trust Beneficiaries being unaware of its existence;
  • A General Note of Assignment is used to transfer miscellaneous house objects and personal effects to the Trust;
  • Real Estate is transferred by retitling the Deed  into the name of the Trust and preparing Tax Forms.
  • Bank Accounts and Traditional Brokerages can be retitled into the name of the Trust;
  • Retirement Accounts, including IRAs, and Life Insurance, can rely on Beneficiary Designation. You can relate these to the Trust by naming the Trust as a beneficiary, often as a contingent beneficiary;
  • Beneficiary Designations may be inadequate as you cannot list or name a “Beneficiary Class”, i.e. a category of relatives, or your bloodline and heirs- at-law.

If an Asset is not owned or related to the Trust it will be handled outside of the Trust terms. Avoid having an Asset without a succession or inheritance mechanism. If no mechanism in place, it can be owned or related to the Trust, which avoids having to hire a lawyer to assist in its post death collection.

One often overlooked nuance is that you may want to relate tax deductions from the cost of the Tax Administration to taxable income. This means all taxable assets need to flow into the Trust directly (instead of listing an individual’s name in the beneficiary designation, meaning the income goes directly to the individual’s separate tax liability.)

Excess tax deductions from the Trust Administration, at its termination, can be carried over to the individual’s tax return and be claimed over time. This is not as ideal as direct offsets all within the trust.

Dislclaimer