In my practice, this is important. I certainly do not want to be preparing estate planning documents for people that are incompetent. By definition, someone who is incompetent cannot be signing a trust, a will, a power of attorney, an advance health care directive, or any other legal/estate planning document.

In California, our probate code sets forth the criteria to be used in determining whether someone is incompetent. (The probate code deals with a lot more than wills and includes living trusts.) As a preparer of estate planning documents, it is important for me to be confident that the client is competent. This is true, because some day I might be required to give a deposition explaining why I thought the client was competent.

It is true that generally speaking the party seeking to invalidate the living trust or will has the burden of proof. They must demonstrate that at the time of executing the document the person either did not understand what he is signing; or did not know what he owns; or did not know who is being affected by his actions; or suffers from a deficit in a mental function and there is evidence of a correlation between the deficit(s) and the acts in question.

As someone who is also involved in probate litigation, I get a fair number of calls from people who want to challenge wills and trusts. Our firm works with people from throughout the state of California. I certainly am interested in potentially representing these people, but I also need to be convinced that they have a valid claim.

Practicing estate planning law in Southern California is always interesting. I get to become the lawyer to a variety of different types of people. More and more that means that I serve as the attorney for international clients.

Recently I attended a two day seminar in the San Francisco Bay Area that was exclusively geared to representing international clients. The speakers were some of the top attorneys and certified public accountants in the field.

Topics included identifying assets that are subject to the United States transfer tax; planning ideas for the non-citizen client or couple; pre-immigration planning; choosing a guardian for minor children when all of the family is overseas; Canada’s laws and the Canadian citizen; and more!

On the estate tax and gift tax fronts, the laws and rules are different depending on whether someone is a domiciliary; non-domiciliary; or a citizen. People have to take the time to understand the law as it applies to them; have their trusts drafted accordingly; and undertake their income tax and estate planning based upon their citizenship, domicile, and plans for the future.

From time-to-time, I will write about specific international estate planning issues, but just know that it makes the planning puzzle a bit more complex.

This is a follow-up to my thoughts after reading Mr. Jackson’s trust. Obviously, he was not an ordinary person and while he was certainly different than my clients, his desires were very similar to the great majority of my clients and to people everywhere.

In his “family” trust, he divides his estate into three shares in the short term. He provides that twenty percent of his gross estate shall be distributed to “one or more charities for the benefit of children and/or children’s causes.” He appoints his mother and the two co-executors of his will to select the charities.

One-half of the remainder of his estate, after all expenses and taxes have been paid, is to be divided equally for his children. Until a child is 21, the trustee is instructed to pay to or use for the benefit of the child the net income of the trust. Any net income not used, shall be added to principal. Upon the child attaining age 21, the instructions to the trustee change only slightly as it appears that all of the net income is to be utilized on behalf of the child. When a child attains age 30, he is to receive one-third of his/her trust; when the child attains age 35, one-half of the remainder or the second third; and at age 40, the child is to receive the balance of the trust.

The remaining one-half to be held in trust for his mother. She is to receive “as much of the net income and/or principal of the trust estate as the Trustee deems necessary or desirable, in his absolute discretion for KATHERINE’S care, support, maintenance, comfort and well-being.” Upon her death, the amount held in trust for her is to be added to Michael Jackson’s children’s trusts.

The distribution scheme, or a variation thereof, for his children is used quite frequently. Query, might he have set-up a different type of trust for his children that would have shielded and protected the assets from creditors, divorce, and wasteful spending.

That is something that I will explore in an upcoming post!

Michael Jackson’s trust is available on the internet for anyone to read. The fact that it is easily accessible dispels to some degree one of the “advantages” that attorneys (including this one) have offered of living trust over will and that is that the document is a private document and is not public record.

It is true that revocable living trusts, frequently called family trusts, are not required to be filed in the probate court upon the trust maker’s (also known as a settlor, trustor, or grantor) death as a condition of administering the trust. However, in the event that there is litigation, the trust will have to be filed in the probate department of the superior court. Once that happens, it is open season.

Does that mean that living trusts are not advantageous? No. I believe that living trusts are advantageous over simply doing a will in California because of the avoidance of probate. In some other states, New York and New Jersey come to mind, probate is a much simpler process than it is in California so that advantage is negated and there are many esteemed attorneys in those states who have a different view of revocable living trusts than do lawyers in California.

In my next post, I will provide a summary of what Michael Jackson’s trust actually says!

In late March, I posted a blog about the estate of Melvin Simon, the shopping mall developer and owner of the Indiana Pacers who died in 2009. With an estate worth over two billion dollars, he was one of our country’s wealthiest men.

His estate is involved in a nasty probate dispute. On the one hand you have his second wife, Bren, and on the other hand, you have the children of his prior marriage. It makes for an interesting battle in the probate court.

In California, we frequently have probate disputes that involve famous people and especially in the probate department of the Los Angeles Superior Court you can often listen to disputes that involve people who many know about because of television, movies, or music.

In the Simon case, Mr. Simon’s daughter has sued her stepmother alleging fraud. The most recent filing includes some pretty nasty claims and if they were true would go a long way to invalidating Mr. Simon’s final estate planning documents.

Most of the allegations have probably been seen in other cases by the probate judge. It is just that this time the amounts involved are larger!

The moral of the story – not sure if this one has a new moral. If the allegations are true, these types of issues will arise forever as there will always be people engaging in undue influence and fraud over others. As frequently occurs, it is the attorneys who end up with a windfall.

In the United States for the last twenty-five years certain wealthy families have been taxed differently than other wealthy families solely as a result of when the wealth was accumulated.

Trusts have been around for hundreds and hundreds of years. Even living trusts have been around for a long time. Today estate planning attorneys in most states routinely recommend a living trust to their clients. For example in California – it does not matter if a client is in Los Angeles, Manhattan Beach, Culver City or anywhere else in the state – it has been this way for well over twenty years. In the eastern United States, it has been a shorter period of time.

In 1986 Congress passed a tax law that included the federal generation skipping tax (GST). In a nutshell, the GST only permits an individual to pass a certain amount of money to someone more than one generation removed from him/her without incurring a tax on the transfer. The tax on the transfer is in addition to any estate tax that might have to be paid and is generally at the same rate as the estate tax rate. The purpose of the GST is to discourage wealthy people from skipping a generation. The idea is for Uncle Sam to get estate tax at every generation.

Congress when they passed the law specifically exempted any trusts that were both in existence and irrevocable on September 25, 1985. Therefore, families like the Kennedys play by a different set of rules than the Gates’ and the Bloombergs. You see, families inheriting new wealth, have to pay a federal estate every generation; while “older” wealthy families do not have to pay Uncle Sam if they had created irrevocable trusts prior to 1985.

What do you think? Should families who created irrevocable trusts prior to 1985 continue to get this advantage of a grandfathered GST tax? Should legislation be passed abolishing the distinction?

In California, living trusts are not recorded. Therefore, a premium is placed on finding the executed document. Even a copy is better than the original.

What if you cannot find either the original or a copy? I would then ask you how do you know there was a revocable living trust executed? If you are certain one was prepared, you may want to speak to the attorney whom you think prepared the document. If you do not know who that is or if it was not prepared by a lawyer, then this is of no assistance.

A second set of questions involve whether any of the decedent’s assets were retitled in the name of the living trust? For example, was a new deed prepared, signed, and recorded with the county recorder transferring the house into the revocable living trust? Was the title on a bank account changed? If the trust cannot be found and title was not changed on any assets, then even if a trust was created, it by definition cannot have any effect.

On the other hand, if assets were retitled in the name of the trust, there is evidence that there was a trust. After you have exhausted your search options, the safe thing to do is to go to court and get an order allowing someone to serve as the successor trustee. The assets will have to be distributed according to the law of intestacy.

Most of you reading this are aware that since January 1, 2010 there is no federal estate tax. Some states continue to have an estate tax while the majority of states are coupled with the federal government and therefore do not have an estate tax.

Dan Duncan made an incredible amount of money as a gas pipeline mogul. He lived in Houston and when he died on March 28, 2010 his estate was estimated to be 9 billion dollars.

Many people with his net worth have done at least some estate planning – generally a little more than the traditional revocable living trust and will. Even if he did not do comprehensive estate planning permitting his family to retain the vast majority of the estate, he may have left a lot of his money to a foundation like Warren Buffet and Bill Gates are doing.

However, it is likely that the federal treasury will lose out on a lot of money. In the event that he had not done estate planning, Mr. Duncan’s estate would have had to pay somewhere in the neighborhood of $4 billion in taxes.

Now, it may not be a total loss to the federal treasury. There may be capital gains taxes that will have to be paid because of the loss of a step up in basis. I do not know the composition of Mr. Duncan’s estate.

Nevertheless, I expect that the result of Mr. Duncan’s death has people in Congress talking. Mr. Duncan’s death may have huge effects on most of us who are simply concerned with living trusts and the avoidance of probate.

For the most recent analysis of what is occurring concerning the estate tax, this article from Forbes is as good as any. I will continue to post other articles that endeavor to keep us all current.

In California we have Medi-Cal. In most of the rest of the country, it is called Medicaid. In any event, this article in the Wall Street Journal sets forth some interesting points on Medicaid.

Whether you agree that there should be or not, there are many legal strategies that can be utilized to qualify for Medi-Cal. Some of those strategies will undoubtedly be eliminated because of the budget shortfalls, but at this time estate planning attorneys, including many who prepare living trusts, wills, special needs trusts, and irrevocable trusts are familiar with them and select the most appropriate ones for their clients. It makes sense for people who think that a family member might qualify for Medi-Cal to do the planning sooner rather than later!