 06/28/2007 ALERT
Our offices will be moving at the end of June. Effective Monday, July 2nd, our new contact information will be as follows: Law Offices of Jack E. Stephens, J.D., LL.M. 12526 High Bluff Drive, Suite 200 San Diego, CA 92130 Phone: (858)792-0909 Fax: (858)792-0806 E-mail: jes@jackstephens.com The reason we are moving is that the present Owner/Landlord is selling the building as condo suites. We have chosen not to purchase our suite which requires our moving. We apologize for any inconvenience regarding this matter but look forward to serving you in our new location. |
| 01/04/2008 Workshops
Please contact the office for dates and reservations. (858)792-0909 |
| 04/30/2008 HOT TOPICS: THREE STRATEGIES FOR YOUR ESTATE PLAN
Deficit Reduction Act (DEFRA): The federal law, the Deficit Reduction Act (DEFRA) will be implemented in California this year. Basically, it is a catastrophic health measure that significantly restricts eligibility for MediCal in California. It is grossly discriminatory against single individuals and increases recovery provisions, especially against the home, if one receives MediCal. It also prohibits MediCal eligibility for single homeowners who have more than $500,000 equity in their home. Transfer of assets to acquire MediCal will practically be outlawed by the new Transfer Rules. Regardless, the new law does allow some exemptions and planning alternatives. If you do not provide such provisions in your Trust document and Power of Attorney, your only recourse will be to petition the Probate Court to avoid impoverishment from spenddown due to DEFRA. If you do not have extensive long term care insurance, these provisions in your estate planning documents are a must. Even if you have long term insurance you should consider implementing these provisions as a safety net. Additionally, couples should consider Transmutation Agreements to insure assets are considered the separate property of the non-ill spouse. If you have signed Transmutation Agreements in the past, make sure they are current with the present assets you now own. If you have made portfolio changes or real property sales, your Agreement may need to be updated. Obviously if you can self-insure against catastrophic illness, you need not be concerned. We always want to plan in our estates to allow the greatest flexibility. There are at least two significant planning techniques which can be utilized to address the new law. One involves a specially designed Irrevocable Trust called an IDIT. It is designed to protect the home from a California claim should a single individual receive MediCal. This creative Trust provides asset protection, a step-up in basis and no property tax reassessment for the children. Another significant planning technique is the use of a specially arranged annuity. These annuities are not appropriate for everyone so scrutiny into their effectiveness under a particular situation must be part of the planning process. Annuities will work under certain situations but I recommend that you discuss them with your attorney, a reputable financial advisor and your family before signing any annuity contract for the purpose of sheltering assets to qualify for MediCal. Consider this a forewarning and pay heed. We have reputable financial planners we can refer you to should an annuity be considered for catastrophic health planning. Step-Up in Basis on Trust B Assets on Death of Surviving Spouse: In California assets held as community property receive a 100% step-up in basis on the death of the first spouse. The result is that all of the capital appreciation (gain) is wiped out and the asset can be sold without incurring capital gains tax. If the couple has an A-B Trust, we can place one-half (½) of the Trust property in the Survivor’s Trust. If we have implemented an Aggregation Clause in the Trust, we can put the entire residence in the Survivor’s Trust. On the death of the Surviving Spouse, we obtain a second step-up in basis on the home. As a result, when the children or other beneficiaries sell the home, they pay no capital gains tax because of the step-up. This is great Trust strategy and a great tax advantage for our clients. But what about Trust B assets? They don’t receive a step-up in basis on the death of the Surviving Spouse because they are not includible in his/her estate on their death. But what if we devised a way to obtain a step-up in basis on some or all of the Trust B assets as well? Would you be interested? We have designed a special Trust for this purpose which will allow for a second step-up in basis for assets in a credit shelter or bypass Trust. This strategic Trust will protect the decedent spouse’s interest in the estate from federal estate tax and allow for a step-up in basis for all of a portion of Trust B. If you are an existing client contact our office and we will pull your file to determine if this is advantageous for you. Trusts Specifically Designed for IRAs (IRA Designated Beneficiary Trust). I have been creating IRA Designated Beneficiary Trusts (DBT) since I wrote my book, Avoiding the Tax Traps In Your IRA in the late 1990s. For some reason they are just now being discovered. These Trusts are a creative technique utilized to stretch IRA funds over a beneficiary’s life expectancy with asset protection. IRAs have very limited protection from creditors under California law. In fact, the burden is on the IRA beneficiary to prove to a Court how much of the IRA funds he/she will need to insure his/her maintenance and support in retirement. Beneficiaries of IRAs get divorced, incur lawsuits, have creditor claims, including the IRS. They own businesses that can go bankrupt or be subjected to internal or external lawsuits. As a result, IRA funds can become vulnerable. Rather than designating individual children, grandchildren or others as IRA beneficiaries, an IRA DBT should be considered. If the DBT is arranged, the Trust becomes the IRA beneficiary rather than the children, grandchildren, etc. If a child is sued or divorced, the IRA funds are sheltered because the DBT is the beneficiary, not the child. As a result, the creditor or spouse is precluded from getting to the IRA funds. The Trustee of the Trust is only distributing Minimum Required Distributions (MRDs) to the beneficiaries of the DBT with discretion to make distributions for other purposes such as health, education, support and maintenance. The children and/or grandchildren have no demand rights as a beneficiary of the DBT. Thus, the creditors or divorcing spouses can’t reach their share of the IRA funds held in Trust. The Trustee may be given flexible authority to distribute more of a share to the particular DBT beneficiary at a given time. For example, more funds can be utilized for education purposes through college or post graduate school. Or, additional funds can be utilized for the downpayment on a home for a beneficiary. The creator of the Trust can provide for all types of distribution benchmarks subject to limitations or restrictions. DMV ALERT Effective July 1, 2008, a new California law will prohibit using a handheld wireless telephone while operating a motor vehicle (Vehicle Code (VC) §23123). Motorists 18 and older may use a “hands-free” device. Drivers under age 18 may use neither. Fines and penalties for the first offense will be $76.00 and a second offense $190.00. A violation will appear on your driving record but will not be assigned a violation point. The law also applies to out-of-state drivers but does not apply to passengers in a vehicle. The IRA DBT is a creative Trust designed specifically for retirement funds. Basic living or family Trusts are not equipped to qualify as an IRA Trust because they are designed for other purposes. One of which is that the family or living Trust provides authority to pay the expenses incidental to the Trust estate. Or, it gives the Trustee the authority to pay taxes with Trust funds. If an IRA is payable to such a Trust, the IRS has ruled that the estate is also a beneficiary of the IRA because such funds can be utilized to pay estate taxes, debts or expenses. If the estate is considered a beneficiary, it has zero life expectancy. Under the shortest life expectancy rule applying to Trusts, there could be no stretching of the IRA funds over the lives of other beneficiaries because the estate has the shortest life expectancy of zero. The tax trap under this scenario is that all of the IRA would have to be distributed within approximately one year of the IRA owner’s death. As a result, professional advice regarding this tax problem must be given to a client who is considering naming his/her family or living Trust as the beneficiary of their IRA. If you have an interest in the DBT, contact Cari at 858-792-0909 for an appointment. |
| 04/30/2008 FINANCIAL ALERT
Beware of unscrupulous annuity salesmen who pose as “Living Trust Consultants” who use the Trust as a hook to sell you annuities or other financial products. Once DEFRA is in place, I anticipate a plethora of notices regarding annuities to shelter assets and that scams will abound in this area once this law is implemented. I was personally on a mailing list for “Security Financial” of Orange County. I completed their post card and mailed it back. Shortly, I was contacted by a friendly voice wishing to visit me to explain a Living Trust. He was not an attorney but a salesman of sorts. I visited the one-page website which only stated that the company advised on Living Trusts although no attorney was listed on the web-site. If any of you are contacted by mail, email, fax or otherwise regarding sales of Trusts, annuities, etc. please forward them to my office so that we can screen them and report any to the proper authorities for practicing law without a license or unlawful solicitation. |
| 04/30/2008 MEDICAL ALERT
If you are advised to have an MRI or MRA by your doctor, you must determine if gadolinium will be utilized. Gadolinium is injected into the bloodstream to enhance the images. If you have kidney problems, gadolinium can cause nephrogenic systemic fibrosis (NSF). NSF is a debilitating, potentially fatal disease for which there is no cure. It causes a thickening of the skin, connective tissues, muscles and internal organs throughout the body. Gadolinium - based contrast agents (GBCAs) are produced by four (4) pharmaceutical companies in the U.S. 1. Bracco - GBCA Products: Multihance and ProHance 2. GE Healthcare - GBCA Product: Omniscan 3. Bayer Healthcare - GBCA Product: Magnenist 4. Mallinckrodt Inc. - GBCA Product: OptiMark My former employer in litigation, Howard L. Nations, Esq. of Houston, Texas is a leading litigator on these issues and other pharmaceuticals. For more detailed information, go to his website, www.howardnations.com and click on pharmaceuticals. |
| 04/30/2008 IRA ALERT
If you have an IRA with Vanguard be aware that it is changing their beneficiary designation policy in September 2008. It could cause unintentional beneficiaries receiving IRA funds on your death if you have different beneficiaries listed on various IRAs. |
| 04/30/2008 DMV ALERT
Effective July 1, 2008, a new California law will prohibit using a handheld wireless telephone while operating a motor vehicle (Vehicle Code (VC) §23123). Motorists 18 and older may use a “hands-free” device. Drivers under age 18 may use neither. Fines and penalties for the first offense will be $76.00 and a second offense $190.00. A violation will appear on your driving record but will not be assigned a violation point. The law also applies to out-of-state drivers but does not apply to passengers in a vehicle. |
| E-mail: jes@jackstephens.com
12526 High Bluff Dr., Suite 200 San Diego, CA 92130 Telephone: (858) 792-0909 FAX: 858-792-0806 |
