If something unexpected happens to you and you haven't planned for everyone you love and everything you have, the State of California has a default plan for you.
Sound scary? Well, it can be. Those you love would have to deal with the red tape and bureaucracy of government procedures and regulations.
We at Sky Unlimited Legal Advisory help you understand the legal and financial consequences of not having a comprehensive Estate Plan to protect your loved ones ... and more.
Before meeting, we'll ask you to complete a Family Wealth Worksheet, which will help you understand what you own and what needs to be decided for the well-being and care of your loved ones and cherished belongings. We'll meet for a Family Wealth Planning Session™, where we spend some time together reviewing this document. You'll learn about our Planning for Life process and we will both decide if it makes sense to work together to design an estate plan that will best suit the needs of your family.
The foundation of your estate plan will often include a revocable living trust, which when done properly and maintained over time, should help your family to avoid the cost and delay of probate and minimize or eliminate estate taxes.
At Sky Unlimited Legal Advisory, we do not offer a "one size fits all" estate plan. We form a working relationship with our clients. We educate you, take the time to get to know you and your family. We will discuss your concerns, your goals, and will gladly and patiently answer all of your questions. Our goal is to create an estate plan that is exactly right for you.
Our services include a no-charge three-year review to ensure that as your lives change, so will your estate plan to safeguard your assets for maximum protection.
The strategies that are appropriate for protecting your assets are different for every family. Check out our proven process that gives you peace of mind...
No matter how rich or poor you or your parents are, especially in the wake of the COVID-19 pandemic, you need to be asking these and several other questions. When your parents become incapacitated or die, their affairs will become your responsibility, and it will be impossible to ask them to clarify anything. So, if you do not know whether or not they have estate planning in place that will help you best support them, read on.
The Best-Case Scenario
In a best-case scenario, your parents have an updated estate plan, and they’ve walked you through it. They have provided an inventory of their assets that’s easy for you to find listing out everything they own, how it’s titled, and who it should go to and how. Ideally, it also includes directions on how to handle their non-monetary assets, and an audio recording or written stories that pass on their values, insights and experience. On top of all that, it’s best if they’ve introduced you to the lawyer who set it all up, so you know who to turn to when the time comes.
However, the use of the word “unprecedented” regarding what’s happening now is not an exaggeration. And they may not understand it all or what they should do, not because they aren’t wise, but because the news has been confusing to interpret.
As of 4 pm on March 17th, the number of confirmed cases of COVID-19 across the United States was only 7,043 cases across the United States with 95 confirmed deaths from the virus. And this doesn’t sound like that many, or seem to warrant the kind of lock-in that we need in order to stop the spread. So, if your parents are seeing these numbers, they may not be taking the need to stay home seriously.
This video from Dave Asprey, founder of Bulletproof, makes the case quite clearly about why we need to stay home, even if we aren’t afraid of getting sick ourselves.
When we first became aware of COVID-19, the novel coronavirus, there were several TV pundits and other authority figures saying that the virus was just another version of the flu. We’ve learned a lot more about the seriousness of COVID-19 in the past few days, and the current advice is for people to stay home, particularly for the next two weeks, in order to “flatten the curve” and slow the spread.
But there are a few more benefits of a living trust that can help you do much more than that, if it’s set up right:
Asset protection for heirs. One of the most significant benefits of a living trust is to protect inherited assets for heirs. For example, minor children are not allowed by law to inherit property.
Instead, a guardian is appointed by the state to hold the property for them until they reach the age of 18. However, most parents would agree that even 18 is too young to manage a significant inheritance. Executing a living trust allows you to control how and when an inheritance is distributed and to name a trusted person to serve as trustee. In addition, a living trust can be especially useful in protecting assets from spendthrift heirs, creditors, or an heir’s potential divorce, if it’s set up right.
Most living trusts we see distribute assets outright to kids at 25, 30, and 35 instead of keeping assets in trust for the life of the beneficiary -- while giving the beneficiary control of the assets -- via a lifetime asset protection trust. This type of planning is still fairly unknown to most attorneys, but we’ve got specific training to ensure that what you leave to your kids will not be at risk from their future divorce, lawsuit, bankruptcy or other creditor matter.
Ensure none of your assets are lost. The vast majority of the time that a living trust is created, one of the most important and valuable aspects of creating the trust are lost -- and that’s making sure that when you become incapacitated or die that your loved ones stay out of Court and the assets you’ve worked so hard for make it to the people you love aren’t lost along the way.
A trust fund - or trust - is actually a great estate planning tool for many people with a wide range of incomes who want to accomplish a specific purpose with their money.
Simply put, a trust is just a vehicle used to transfer assets. According to this past article by the The Motley Fool, Trust Funds: They're Not Just for the Rich, and You Might Need One, trusts are especially useful for parents of minor children as well as those who wish to spare their beneficiaries the hassle of going to Court in the event of their incapacity or death.
And why would you want to keep your family out of court (known as avoiding probate)?
Perhaps you’d like to keep private the details of the assets you are leaving your heirs. Leaving assets via a Will, which must go through probate in order to be activated, makes your estate a matter of public record. A trust is a private document and distributes assets upon your death without the need for probate, preventing your assets from being tied up for a long period of time due to court backlogs and slow proceedings.
The court process can take longer than is necessary and keep your family from getting access to your assets as quickly as they want or need them.
Don’t put off making plans until you are unable to assert your wishes. Including health care documents in your estate plan can ensure your decisions are always your choice, even if you cannot speak for yourself.
Health care documents that clearly state your wishes should be included in your comprehensive estate plan. Here are three documents you need to include in your estate plan to ensure your wishes are respected:
Health Care Directive
This document allows you to name a health care agent. This will be the individual whom you grant the authority to make certain decisions on your behalf. A health care agent may also be called a health care surrogate or a personal representative.
In your directive, you can include specific instructions on the health care measures you desire if you are unable to make decisions for yourself. These are life and death decisions; make sure your agent is someone you trust. Work closely with an estate-planning lawyer to ensure your directive provides clear guidelines for your agent to follow.
In the first part of this series, we discussed the potential ramifications the SECURE ACT has for your estate and retirement planning.
Here, we’ll look more deeply into additional strategies you may want to consider in light of the new legislation.
Last week, we discussed three of the SECURE Act’s most impactful provisions. Specifically, we looked at the SECURE Act’s new requirements for the distribution of assets from inherited retirement accounts to your beneficiaries following your death.
Under the new law, your heirs could end up paying far more in income taxes than necessary when they inherit the assets in your retirement account. Moreover, the assets your heirs inherit could also end up at risk from creditors, lawsuits, or divorce. And this is true even for retirement assets held in certain protective trusts designed to shield those assets from such threats and maximize tax savings.
Here, we’ll cover the SECURE Act’s impact on your financial planning for retirement, offering strategies for maximizing your retirement account’s potential for growth, while minimizing tax liabilities and other risks that could arise in light of the legislation’s legal changes.
Tax-advantaged retirement planning
If your retirement account assets are held in a traditional IRA, you received a tax deduction when you put funds into that account, and now the investments in that account grow tax free as long as they remain in the account. When you eventually withdraw funds from the account, you’ll pay income taxes on that money based on your tax rate at the time.
If you withdraw those funds during retirement, your tax rate will likely be quite low because you typically have much less income in your retirement years. The combination of the upfront tax deduction on your initial investment with the lower tax rate on your withdrawal is what makes traditional IRAs such an attractive option for retirement planning.
Indeed, the changes ushered in by the SECURE Act have dramatic implications for both your retirement and estate planning strategies—and not all of them are positive. While the law includes a number of taxpayer-friendly measures to boost your ability to save for retirement, it also contains provisions that could have disastrous effects on planning strategies families have used for years to protect and pass on assets contained in retirement accounts.
Given this, if you hold assets in a retirement account you need to review your financial plan and estate plan as soon as possible. To help you with this process, here we’ll cover three of the SECURE Act’s biggest changes and how they stand to affect your retirement account both during your lifetime and after your death. Next week, we’ll look more deeply into a couple of additional strategies you may want to consider.
1. Increased age for Required Minimum Distributions (RMD)
Prior to the SECURE Act, the law required you to start making withdrawals from your retirement account at age 70 ½. But for people who haven’t reached 70 ½ by the end of 2019, the SECURE Act pushes back the RMD start date until age 72.
2. Repeal of the maximum age for IRA contributions
Under previous law, those who continued working could not contribute to a traditional IRA once they reached 70 ½. Starting in 2020, the SECURE Act removed that cap, so you can continue making contributions to your IRA for as long as you and/or your spouse are still working.
These two changes are positive because with our increased life spans people are now staying in the workforce longer than ever before, and the new rules allow you to continue contributing to your retirement accounts and accumulating tax-free growth for as long as possible.
However, to offset the tax revenue lost due to these beneficial changes, as you’ll see below, the SECURE Act also includes some less-favorable changes to the distribution requirements for retirement accounts after your death.
While some are advocating we prepare to be quarantined, potentially for months, others are saying the virus is nothing more than a common cold. The World Health Organization takes a more middle-of-the-road approach, advising we take precautions without becoming alarmed.
We’re going to take a similar middle-of-the-road approach, and empower you to make informed decisions for you and your family. Here are some resources to stay up to date on the virus and to keep yourself and your loved ones healthy.
For your reference, here’s a link where you can track infection and death rates over time as you can see, the numbers are increasing daily. Most of the people who die from coronavirus are over the age of 60, and people who have chronic illnesses like heart disease and diabetes have a 5–10% higher chance of dying from it. So if you have parents who may need information on how to boost their immunity, it would be good to share this article with them.
This video shares that, as of January 30, 2020, approximately 8,000 people had been infected with the Coronavirus, and 214 had died. The video indicates that symptoms are similar to a bad respiratory cold, with fever and cough, and that the only treatment is fever-reducing medication. Taking precautions now to up your intake of immunity-boosting supplements, the same way you might if there was a cold circulating in your community, would be a great idea.
A friend of mine shared some resources they’d compiled to help shore up their immunity, and I’ve included them in the list below. This is not medical advice, neither my friend nor I are doctors, just health conscious individuals. Consult your doctor before taking any supplements at all. These are just the things I am considering for my family, and I’m sharing with you so you can make the call for yours.
Also killed in the tragic accident was his 13-year-old daughter Gianna, and seven other passengers, who were friends and colleagues of Kobe and his family. The exact cause of the crash remains under investigation.
The 41-year-old former Los Angeles Laker was flying to Mamba Sports Academy, a youth sports center Kobe founded in Thousand Oaks, where his daughter Gianna was set to play in a basketball tournament. Fortunately, none of Kobe’s other family members were on the flight, and he’s survived by his wife Vanessa and three other daughters: Natalia, 17, Bianka, 3, and Capri, 7 months.
Kobe’s sudden death at such a young age has led to a huge outpouring of grief from fans across the world. Whenever someone so beloved dies so young, it highlights just how critical it is for every adult—but especially those with young children—to create an estate plan to ensure their loved ones are properly protected and provided for when they die or in the event of their incapacity.
While it’s too early to know the exact details of Kobe’s estate plan (and he may have planning vehicles in place to keep the public from ever knowing the full details), we can still learn from the issues his family and estate are likely to face in the aftermath of his death. We cover these issues in hopes that it will inspire you to remember that life is not guaranteed, death can come at any moment, and your loved ones are counting on you to do the right thing for them now.
Kobe’s sports and business empire
Between his salary and endorsements during his 20-year career with the L.A. Lakers, Kobe earned an estimated $680 million. And that’s not counting the money he made from his numerous business ventures, licensing rights for his likeness, and extensive venture capital investments following his retirement from the NBA. That said, by all estimates, his estate has the potential to be the most valuable of any modern athlete.
Given his business acumen and length of time in the spotlight, it’s highly unlikely Kobe died without at least some planning in place to protect his assets and his family. But even if Kobe did have a plan, when someone so young, wealthy, and successful passes away this unexpectedly in such a terrible accident, his family and estate will almost certainly face some potential threats and complications.
But one major change that you might not have noticed is the way the law altered the potential tax consequences of divorce.
Unlike child support, alimony payments have long been tax-deductible for the ex-spouse making the payments and taxed as income for the recipient. And alimony payments were an above-the-line deduction, meaning that the payor did not need to itemize in order to benefit from the tax advantage.
Because the spouse making payments was typically in a higher tax bracket than the recipient, shifting the income to the recipient’s lower tax bracket could result in significant overall tax savings. Indeed, this tax savings was often an important factor when negotiating divorce settlements, and it often led to larger alimony payments.
However, the TCJA repealed the alimony deduction and totally reversed the tax obligation: For divorce or separation agreements executed on or after January 1st, 2019, alimony payments are no longer tax deductible for the paying spouse, and alimony is no longer considered taxable income for the recipient.
Divorce or separation agreements executed before January 1, 2019 are grandfathered in under the law, meaning alimony will remain tax-deductible for the paying spouse and taxed to the recipient. That said, pre-2019, divorce agreements can be modified to apply the new rules to future alimony payments, provided the modification expressly states that the TCJA new tax treatment should apply.