Season 2, Episode 18: Estate Planning & Living Trusts with Lawrence Beck

Welcome to Season 2, Episode 18 of Meet the Expert® with Elliot Kallen!

Elliot Kallen brings on Larry Beck, Estate Planning & Probate Attorney, to discuss estate planning and how to avoid probate in California.

Meet Our Guest

Sean Perlmutter

Co-Founder, Pivotal Twist

Lawrence P. Beck is a graduate of Brandeis University and Golden Gate University School of Law. Mr. Beck also holds an L.L.M. in Taxation from Golden Gate University. When he joined the firm in 1984, Mr. Beck brought four years of experience as a tax accountant at Hood & Strong, Certified Public Accountants. Mr. Beck is a member of the State Bar of California and the U.S. Tax Court. His practice emphasizes estate planning, including Living Trusts, Insurance Trusts, Charitable Trusts, Family Limited Partnerships and Qualified Personal Residence Trusts. He also handles trust administration, probates, and advises clients regarding incorporations, general partnerships, buy-sell agreements, real estate purchases and conservatorships. He has given estate planning workshops for the Internal Revenue Service, California Retired Teachers Association, Sons in Retirement, and many other distinguished organizations and companies.

What makes a great estate planning attorney?

A great estate planning attorney is somebody who listens very closely to what their clients tell them. It’s very important to listen specifically to all the information that a client is giving you, because a lot of times, they have very concrete ideas about how their assets should be distributed. You have to be a wonderful listener, and you have to help them feel comfortable enough to have a frank discussion about how to carry out their desires.

California is a probate state. What exactly is probate?

Probate, or estate administration, is the court-supervised process by which a deceased person’s property, known as their “estate,” is passed to the heirs and beneficiaries named in their will. (It has nothing to do with death taxes.) It is the process of gathering the deceased person’s assets, paying debts and taxes, and distributing what’s left to inheritors.

If you die and leave a will, then probate is required to implement the provisions of that will. However, a probate process also can happen if you die without a will and have property that needs to be distributed under the state intestacy law (the law of inheritance).

So, probate occurs when you don’t have a living trust. The disadvantages of probate are that:

1. It’s very time-consuming. If you die and your assets go through probate, it generally takes about a year for the probate process to wind itself through. It can take much longer because everything that occurs is supervised by the court system.
2. It’s very expensive. For the first $100,000 in your gross estate (not including your mortgage or other debts), it’ll cost 4 percent, or $4,000. For the next $100,000, it’ll cost 3 percent, or $3,000. For the next $800,000, it’ll cost 2 percent, or $8,000. That money goes to the attorney that does the probate, as well as to the executor who represents your estate in the probate.

If you have an estate worth $1,000,000 — and in California, if you own property, you’re way over $1,000,000 from the get-go — you’ll start out at $15,000 to the attorney for your first $1M, and the same amount to the executor. The cost climbs from there.

If I have a Living Trust, do I still need a Will?

Yes. You need a failsafe document in case you don’t title the assets in the name of the Living Trust.

Let’s say you buy a house and you have a Living Trust. You forget to title the assets in the name of the Living Trust, so you just take it in your own name. If you make this mistake — and it happens all the time — you need a way to get it into the Trust. Even if you have a Living Trust, a Pour-over Will is a last Will and testament that serves as a safety device to capture any assets that are not transferred to or included in a Living Trust.

Otherwise, there is no reason to have a Will if you already have a Trust.

Advice for estate planning after remarrying with children?

It is important to update, or at least revisit, your estate plan whenever you experience a significant life change such as separation or divorce. Go to a good Estate Planning Attorney who can explain to you how you can make sure that your current wife and your kids get some assets.

The problem that we often hear is, when someone gets remarried, and they have kids from the prior marriage, they want to provide an income to their spouse — but at the same time, they want to make sure that their kids are ultimately going to receive the assets at least when the spouse dies.

So, how can you protect your kids if you end up with a second marriage and you want to make sure your spouse gets some income for the rest of their life?

Create a Living Trust that specifies that when you’re deceased, your spouse will benefit from an Irrevocable Trust that is managed by somebody else (a Successor Special Trustee).

The Trust says your spouse gets all the income as it comes in from the assets in this trust, but can’t access the principal of the trust. When your spouse dies, the Trust says that property in the Trust is distributed to your kids.

How can one leave a legacy to a charity that they really care about?

When you’re charitably inclined, you have many options to continue the causes that you really care about. Here are two options:

1. Make a Testamentary Gift to charity.

This is the easiest way to gift to a charity. For instance, when I die, I leave $20,000 to this particular charity, and I leave the rest of my assets to my spouse and my children.

2. Set up a Charitable Remainder Trust.

A Charitable Remainder Trust (CRT) is a “split interest” giving vehicle that allows you to make contributions to the trust and be eligible for a partial tax deduction, based on the CRT’s assets that will pass to charitable beneficiaries. You can name yourself or someone else to receive a potential income stream for a term of years, no more than 20, or for the life of one or more non-charitable beneficiaries, and then name one or more charities to receive the remainder of the donated assets.

Let’s say you have $500k of appreciated stock and you don’t want to sell it because you’ll need to pay capital gains. Put it into a Charitable Remainder Trust, then put the stocks in this Trust (it is an Irrevocable Trust). You’ll get all the income that is generated by the Trust for the rest of your life. If those stocks are sold within the trust, there’s no capital gain to you. You’ll also get an Income Tax Charitable Deduction.

The only disadvantage is that when you die, the assets that were within that Trust go to a charity. But you wanted that anyway!

There are all kinds of great benefits to setting this thing up: No capital gains, you get income off those assets for the rest of your life, and you get to make a great impact toward a great cause.

Is an Irrevocable Life Insurance Trust a good way to donate to charity?

If you own the life insurance policy and you die —  the life insurance proceeds end up being subject to estate tax in your estate. So, one way to sidestep the estate tax is to put the policy in an Irrevocable Life Insurance Trust (ILIT). Because you don’t own the policy — the trust owns the policy — upon your death, the proceeds go out to your beneficiaries, income tax-free.

If you’re charitably inclined, another way of avoiding the estate tax on your life insurance proceeds is sending some or all of the proceeds to charity.

Advice for passing on a family business?

Planning for the disposal of your business — either when you get old and you retire, or upon your death — is a huge portion of your overall estate planning.

When anyone has an ongoing business, you’ve got to figure out how you’re going to work this.

Here’s an example: Let’s say you have 5 kids. 2 kids want to run your business.

• When you die, your business is to be split among the 2 kids who want to run your business.
• You can make it up to your other 3 kids for giving that business to those 2 kids, depending on the other assets that you own.
• Your Estate Planning Attorney will help you figure out how much your business is worth. If it’s worth $1,000,000, your other 3 kids will receive $500,000 of assets off the top of the estate so that everybody’s equal.

If none of your kids want to go into the business, make sure your Successor Trustee is conversant enough with your business so that they can sell it and get some money from it to pay for your family if you pass away. If someone is not conversant with your business and you die, it’s very hard to sell the business because you’re the person that makes it valuable.

If you have partners in your business, you’ll want to set up a contract with your partners that obligates them to buy you out when you’re deceased. And many times, partners will buy cross-life insurance policies on each other to provide the funds to buy out the partner with the life insurance proceeds.

What’s the hottest thing in estate planning right now?

The hottest thing in estate planning right now is property taxes. When Prop 19 passed, parents could no longer give real estate to their kids without an immediate property tax reassessment when the kids got the property.

You used to be able to transfer up to $1,000,000 of California real property, other than a primary residence, to a child or children without reassessment.

Under this current law, kids may not be able to pay the increase in property taxes when the parents die — and will have to sell those properties.

There are still some things that can be done so that your property taxes don’t go up when your kids receive your properties. It’s complicated — it involves setting up LLCs and giving your kids interest in LLCs — but it can be done.

Schedule a complimentary Estate Planning Consultation

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DISCLAIMER: Prosperity Financial Group and Meet the Expert® with Elliot Kallen do not make specific investment recommendations on Meet the Expert® with Elliot Kallen or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of the Meet the Expert® with Elliot Kallen guests, and not necessarily of Elliot Kallen or Prosperity Financial Group.