Decanting a Trust in California

If you are interested in a trust as an estate planning tool, you may have heard the word “decanting” and wondered what it means and why you might need it as a strategy

What does decanting mean?

  • The word “decanting” traces its roots to winery, where a person would decant a wine by pouring it from it’s bottle into another container.
  • Similarly, a 2019 California law allows you to change the terms of an irrevocable trust by “pouring” trust assets from an old trust instrument into a new trust.  
  • This helps you to leave behind the unwanted terms of the old trust, just as you would leave behind the impurities in the wine. 

What law changed the rules for trust decanting? 

  • The California Uniform Trust Decanting Act became effective January 1, 2019. 
  • Before this change, modifying an irrevocable trust was difficult, but now decanting provides an easier way to modify an irrevocable trust. 

How is decanting accomplished?

  • In general, you must still notify trust beneficiaries of the proposed changes and allow them the opportunity to object to the changes. 
  • You must also stay within the limits of which the trust terms can be changed, which depend on the Trustee’s authority in the original trust. 
  • For example, you might want to eliminate beneficiaries, but you wouldn’t be allowed to use this rule to increase Trustee compensation. 

Contact an Experienced Estate Planning Attorney

There are pros and cons to decanting, and it needs to be accomplished properly. At the Law Office of David Knecht, we make it our business to stay current on regulatory changes that impact estate planning. We will customize a plan to help you find creative solutions to meet your estate planning goals, and we will work with you to keep your plan up-to-date and responsive to regulatory changes. Contact us today at 707-451-4502. 

Will Terminating an Irrevocable Trust Affect my Taxes?

A common question relating to trusts is whether terminating the trust will affect taxes.  The termination of irrevocable trusts can be a complex legal topic.

When does an irrevocable trust automatically terminate in California?

  • There are some circumstances where the trust terminates by law:
  • The term of the trust expires.
  • The purpose of the trust is fulfilled.
  • The purpose of the trust becomes unlawful or is impossible to fulfill. 

When can an irrevocable trust be dissolved?

  • When all beneficiaries consent to termination. 
  • If continuing the trust is necessary to carry out a material purpose of the trust, it can’t be terminated unless a court determines that the reason for doing so outweighs the interest in accomplishing the purpose of the trust. 
  • When the Fair market value of the principal of the trust has become so low in relation to cost of administration that continuation under the existing terms defeats accomplishment of its purposes.  
  • For other reasons beyond the scope of this article. 

What are the potential tax consequences of terminating an irrevocable trust?

  • When trust assets are liquidated and distributed those transactions may trigger taxes. 
  • If the trust is a grantor trust, then the person who created the trust is considered the owner of the assets and is responsible for taxes. 
  • If the trust is a non-grantor trust, it gets taxes as a separate entity, and the trust itself and beneficiaries are the ones who will pay the tax bill on distributions. 

What are some general principles for trusts and income taxes, capital gains and estate taxes?

  • An irrevocable trust may hold assets such as stocks or bank accounts that generate income and these gains are taxed as ordinary income. This tax applies to the profits, not the principal. 
  • Assets in the trust that increase in value are subject to capital gains taxes when the profits are distributed, and the beneficiaries will pay the tax rate that equates with their income level. 
  • When assets are transferred to an irrevocable trust, they lower the person’s estate tax liability when they die, but keep in mind that this is something most people do not need to consider since only large estates are subject to the federal estate tax in 2023. 

Contact an Experienced Estate Planning Attorney

This article contains general information about the tax consequences of terminating an irrevocable trust, but consulting a professional about the specific tax liabilities and strategies involved is highly recommended. At the Law Office of David Knecht, we can help you understand the tax consequences of the various tools available for estate planning, and we can customize a plan that is perfect for your goals and your family. Contact us today at 707-451-4502. 

Estate Planning Ideas: Transfer Wealth by Helping Your Children Buy a Home

People commonly think of estate planning as only being relevant after you have passed, but there are many tools for transferring wealth during your lifetime. This article will summarize three ways that you can transfer wealth to your children through helping them purchase a home.

Lend money as an intrafamily loan. 

  • A family loan can greatly benefit family members purchasing a home because they can avoid the high interest rates that are currently market standard.  
  • One common challenge is that a loan to one family member may strain relationships with other family members who were not given the opportunity for an intrafamily loan. 
  • Another challenge to be aware of is the complication of a intrafamily loan to a married family member who may subsequently get divorced.

Give money as a gift. 

  • A gift can be used outright or in the form of loan forgiveness. 
  • The lifetime gift exemption is cumulative and applies to all recipients, and under federal life that amount is $12.92 million per person, or $25.84 million for a married couple. (Numbers scheduled to change in 2026.)

 Co-sign a loan. 

  • Another common way for a parent to assist is to act as a guarantor or co-signer on a loan. 
  • This helps a child who may not have established credit and may help the child secure a better loan. 
  • The risk is that the parent is likely obligated under the terms of the loan if the child does not pay. 

Contact an Experienced Estate Planning Attorney

If you are interested in learning more about methods and tools for transferring wealth during life or after death, contact us at the Law Office of David Knecht. We have extensive experience with estate planning and can help update an old plan or create a new one that meets your needs. Contact us today at 707-451-4502. 



Pros and Cons of a Family Member as a Trustee Part 2

If you are setting up a trust, a key decision is who the right trustee is for your assets and goals. This article is part 2 of a two-part examination about the pros and cons of a family member as trustee and will focus on the advantages of a family member trustee. Each family is different, so this article will review general ideas, but you should consult an experienced estate planning attorney, such as the Law Office of David Knecht, to discuss your specific family, circumstances and estate planning goals. 

Advantages of Family Member Trustee

  • Cost savings.

Professional trustee fees can be expensive if a family member is willing to act as trustee for free. 

  • Family knowledge. 

Having a deep understanding of the family, the personalities, the relationship and the history can be an advantage to a trustee to potentially be able to anticipate problems and foresee challenges to the trust administration. 

  •  Confidence. 

A person doing estate planning may have more confidence in a family member than a professional trustee. Some people feel worried that a professional may not have the empathy for their family or understanding that someone on the inside would have.

Contact an Experienced Estate Planning Firm

If you are considering setting up a trust with a family member as trustee, you may need advice about the pros and cons of the trustee you want. Regardless of your estate planning objectives, an experienced estate planning firm can help you analyze and evaluate your choices.  At the Law Office of David Knecht, we want to help you achieve your estate planning goals. Contact us at 707-451-4502. 

Pros and Cons of a Family Member as a Trustee Part 1

If you are setting up a trust, your choice of who to make the trustee is one of the most important decisions. This article is part 1 of a two-part examination about the pros and cons of a family member as trustee. This will focus on the challenges. The circumstances vary widely for each family, so this article will review general ideas, but you should consult an experienced estate planning attorney, such as the Law Office of David Knecht, to discuss your specific family, circumstances and estate planning goals. This article will summarize information.

Challenges of Family Member Trustee

Fiduciary Duties

The family member who serves as the trustee will have important responsibilities. The trustee is managing money for the benefit of someone else, so the law holds the trustee to a higher standard of conduct than someone who is managing their own assets. A fiduciary duty is the duty to act in the best interest and failure to meet those responsibilities can have consequences. 

Inexperience. 

Being a trustee can require financial and legal knowledge and expertise. It can involve managing investments, taking charge of business responsibilities, etc. Depending on the particular trust assets involved, the lack of experience of a family member can potentially be a challenge. 

 Potential personal bias. 

Another challenge for a family member trustee can be a potential personal bias. The family member may have a lot of history, perhaps past conflicts, and personal relationships that may impact their ability to be objective and impartial. Even if the family member is completely objective, you may be subjecting that family member to criticism or conflict with other family members who might want a different result. 

Contact an Experienced Estate Planning Firm

If you are considering setting up a trust with a family member as trustee, you may need advice about how to ameliorate the challenges described in this article. Regardless of your estate planning objectives, an experienced estate planning firm can help you analyze and evaluate your choices.  At the Law Office of David Knecht, we want to help you achieve your estate planning goals. Contact us at 707-451-4502. 

Inheritance and Preventing Family Conflicts

As reported by Newsweek.com, a man recently sparked a storm of debate on Reddit when he inherited a property and refused to honor the tradition of hosting family weddings there. This article will summarize some of the suggestions on how to prevent family conflicts with inherited property from the full article, which can be found here:

A study shows asset transfers are of increasing importance for families. 

  • As per an April 2017 study published in Families, Relationships and Societies, “asset transfers are of increasing importance for families as a way of transmitting advantages over generations…but little is known about how inheritance generates disputes, tensions or dissatisfaction among family members.” 
  • See 

Research indicates a continuum of motivations by gifters. 

  •  A study published in the European Journal of Ageing, indicates that material inheritance constitutes a challenge for families and that the motivation of the gifter can fluctuate on a continuum between unconditional donation (altruism) and conditional donation (strategic, reciprocity). 

The person inheriting property should clearly communicate boundaries. 

  • Bill Gladwell, a communication expert, was quoted in the Newsweek article as advising people who inherit property to clearly communicate their boundaries and expectations to family members up front. 
  • Make it clear that any use of inherited property by family members must now be agreed to and approved by the person who now owns it. 
  • Having an open and honest conversation about concerns is vital. 
  • It is important for the new owner of the inherited property to be firm in their boundaries, but it is also imperative to express respect and understanding for the other family members’ feelings to keep the lines of communication open. 

Contact an Experienced Estate Planning Laywer

One aspect of estate planning that is extremely important is thinking ahead to potential family conflicts and creating a plan that will promote the goals of the giver without stirring up disputes in the family. At the Law Office of David Knecht, we have extensive experience helping clients with estate planning and can help you make a plan that is just right for you and your loved ones. Contact us at 707-451-4502. 



What Can We Learn From Hollywood About Estate Planning

For those who follow celebrity news, there have been recent sobering and tragic events. This article discusses the heartbreaking passing of dancer, Stephen (tWitch) Boss, and actress, Kirstie Alley, as well as Celine Dion’s recent news of a challenging health diagnosis with stiff man syndrome. While we mourn with other fans about these events with sensitivity and compassion, we also urge our clients to use these celebrity examples as motivation to consider loved ones and make estate planning priority. Below we share a few lessons that can be gleaned from celebrity news. 

You are never too young for estate planning

  • The recent tragic death of Stephen (tWitch) Boss, a dancer who rose to fame through So You Think You Can Dance, is a case in point as he was only 40 when he died. 
  • There is much public concern as to the reason Twitch took his own life, but no answers that have been made public at this time and the hearts of many of his fans have been mourning his early death and its impact for his wife and children. 
  • The lesson here for estate planning is a heartbreaking one: you may not know the demons your spouse or partner is facing in life or how to help them, so preparing for tragic possibilities is wise even though it can be a challenging topic to discuss with loved ones. 

Estate planning for a health crisis is wise because a health crisis can be severe and unexpected

  • Celine Dion, renowned singe, recently announced a challenging health diagnosis, stiff person syndrome, that is preventing her from completing her upcoming tour.
  • This highlights that disease and disability can happen suddenly to anyone, and that serious health conditions can impact ability to work and qualify of life. 
  • Part of complete estate planning is thinking ahead to your wishes regarding health challenges in the future – for example, who do you want to help make medical decisions for you if a health condition prevents you from making decisions for yourself, how can you plan your assets for protection from creditors in the event of a major health crisis?

Estate planning is necessary because you never know how much time you have left

  • The reality for all of us is that life is precious and the amount of time we have left is unknown, so estate planning to communicate your wishes to loved ones and dispose of your property as you see fit is timely no matter when you begin. 

Contact an Experienced Estate Planning Law Firm

Although these celebrity stores are sobering, the good news is that you can seize today to get started on an estate plan that can help alleviate the stress and sorrow of loved ones in the instance of challenging or tragic events. the Law Office of David Knecht we have extensive experience with estate planning in California and can help you successfully plan for the future. We look forward to assisting you.  Contact us at 707-451-4502. 

 

Year End Estate Planning Strategies from the National Law Review

A recent article from the National Law Review shares 2022 year end estate planning updates and strategies for clients to consider. This article summarizes this publication, which can be found in its entirety here:

Gifts for 2022 

  • A person can make gifts up to $16,000 per recipient to an unlimited number of persons free from gift tax. 
  • For a married couple splitting the gift, this means they can gift up to $32,000 per recipient. 
  • Gifts are within an annual exclusion amount, so they do not reduce the tax payer’s lifetime federal estate and gift tax exemption. 
  • This creates an easy and effective way to pass wealth to family members or others. 
  • The gift must be made by December 31, 2022 to qualify. 
  • All gifts made outright can qualify and certain gifts made to a beneficiary in trust can qualify also if properly structured. 
  • In 2023, the annual amount will increase to $17,000 per recipient. 

The gift exclusion is a tool that is used by many of clients because it is a straightforward and easy mechanism for passing wealth to family members and others without a gift tax consequence for the giver. For clients with greater resources, the lifetime federal estate and gift tax exemption amounts should be considered in estate planning.

What is the lifetime federal estate and gift tax exemption?

  • This is the combined amount a person can transfer during life without 
    • triggering a current gift tax 
    • or upon death, transferring free from estate tax. 
  • However, transfers to U.S. citizen spouses and qualified charitable organizations are not generally subject to tax. 
  • Annual gifts within the gift exclusion described above do not “count” against this lifetime number
  • Other lifetime gifts, however, will reduce the amount of estate tax exemption available at death. 
  • Currently the lifetime exemption is $12,060,000 per taxpayer estate.
  • In 2023, this number will go up to  $12,920,000 per taxpayer estate.
  • This allows opportunities for estate planning in 2023 with these new numbers in mind.  

Contact an Experienced Family Lawyer

Whether you are just embarking on building your wealth or whether you have significant assets, estate planning can be helpful in utilizing tax advantageous tools and planning for the outcomes you seek. At the Law Office of David Knecht we have extensive experience with estate planning in California and can help you successfully prepare the right estate plan for you and your family. We look forward to assisting you.  Contact us at 707-451-4502. 

 

Celebrating National Estate Planning Awareness Week!

Did you know that the third week in October is National Estate Planning Awareness Week? This commemoration was set up back in 2008 to encourage all Americans to protect themselves or their families in the event of sickness, accidents and untimely death.  

This article will summarize the text of the bill creating National Estate Planning Awareness Week to explain why this special week was created and help you understand why Americans commemorate estate planning awareness annually. 

What were the reasons why National Estate Planning Awareness Week was created?

  • A poll referenced in the text of the bill related to this holiday revealed that a large number of Americans believe they lack the knowledge necessary to adequately plan for retirement and that they are unfamiliar with basic retirement tools, such as a 401(k) plan. 
  • What are the benefits of estate planning?
  • Careful estate planning can greatly assist Americans in preserving assets built over a lifetime for the benefit of family, heirs or charities. 

 What are some of the important considerations relating to estate planning?

  • Safekeeping important documents
  • Documentation of assets
  • Preparation of legal instruments
  • Insurance
  • Availability of trust arragements
  • Charitable giving
  • Care of the benefactor during life

 What are some of the decisions that can be involved in estate planning?

  • Decisions about the method of holding title to certain assets
  • Decisions about the designation of beneficiaries
  • Decisions about possible transfer of assets during the life of the benefactor

What were some of the concerns that prompted the bill creating this estate planning holiday?

  • Many Americans are unaware that lack of estate planning and “financial illiteracy may cause their assets to be disposed of to unintended parties
  • Lack of careful planning may lead family members or other beneficiaries to being subjected to complex legal and administrative processes requiring significant expenditure of time
  • Lack of planning can lead to confusion and even animosity among family members upon the death of a loved one
  • Failure to prepare may lead to favorite charities being overlooked and benefactor’s gift-giving goals frustrated. 
  • Many Americans may want to have a plan for organ donation and use of life support functions, which intentions may be unclear without proper estate planning

Where does implementation of an estate plan start?

  • The first steps are education and planning and then the proper drafting and execution of appropriate legal documents, which may include will, trusts and durable power of attorney for health care. 

CONSULT THE LAW OFFICE OF DAVID KNECHT

Estate planning does not have to be a chore you dread or procrastinate. At the Law Office of David Knecht, we have years of experience with estate planning and can help make the process easy for you. In honor of Estate Planning Awareness Week, take a step today for the good of yourself and your loved ones, and call us today at 707-451-4502. 

 

More Drama in the Anne Heche Estate Saga

Last month, we wrote an article about the insightful estate planning lessons that could be derived from the Anne Heche case, and this article will provide updates on the saga of her estate and the custody of her minor son. The take home lesson is PLAN AHEAD. Many people do not want to prioritize estate planning, but this celebrity saga is one that shows the importance of proper planning and follow through when it comes to estate planning and guardianship. This article references information reported by usa.com at the article.

Who was Anne Heche and what happened?

  • Anne was an actress known for various movie roles including starring in the movie “Seven Days Seven Nights” along with Harrison Ford.
  • As reported by Fox News, the actress died in August in a car crash, leaving behind two sons, one an adult and one a minor.
  • The family indicated that she was “peacefully taken off life support” on Sunday August 14, 2022, after being declared brain-dead.  

Who is involved in the dispute?

  • As of October 15, 2022, a family legal battle is still underway. The players are Homer Laffoon, Anne’s adult son and her ex-husband, James Tupper, who is the father of her minor son, Atlas. 
  • Laffoon, the adult son, made a claim to his mother’s estate as the oldest heir. Tupper, the ex-husband, filed an objection declaring the Laffoon was not suitable for appointment over the estate. 

Did Anne have a will?

  • Did Anne have a will? That is the “Million Dollar Question” so to speak. Laffoon believes there was no valid will, but Tupper has claimed there is a will based on an email from 2011 establishing Tupper as the person in “control” of her assets and an email to her attorneys at the time with that the message should “go into my records as my word until further papers are drawn up.” 

 What are the latest developments? 

  • As of October 15, 2022, as reported on Yahoo.com, Tupper and his son Atlas, appeared in court to determine the next steps in their ongoing dispute with Laffoon. According to the article Court found that Tupper did not present enough evidence to halt Laffoon from becoming his half-brother’s guardian ad litem. When Tupper shook his head in disapproval of the judge’s decision, the judge reprimanded him with the statement: “We’re not here to pick the best person. I’m here to decide if he’s qualified, or disqualified.”

Consult the Law Office of David Knecht

While celebrity estate disputes can be fascinating to the public, they also provide a cautionary tale to all of us that death can come unexpectedly to anyone at any age. They are a beacon of warning telling us to prepare early to avoid the messes that can ensue when proper planning is not undertaken and documents are not finalized appropriately and lawfully. Contact the Law Office of David Knecht at 707-451-4502. We have extensive experience in estate planning and can help you prepare to avoid heartbreaking disputes.