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Beware the Boilerplate: Lessons from Donald vs. Shelly Sterling

The recent battle between Donald and Shelly Sterling over control of the Los Angeles Clippers basketball team provided a valuable lesson for clients who have created trusts, or are considering creating trusts.  Not only is it critical for those who create trusts to understand the dispositive provisions of their trusts, but they also need to understand the so-called “boilerplate” provisions included in their trusts.

“Boilerplate” typically refers to the standard provisions that are included in legal documents such as contracts, trusts, powers of attorney, and wills.  In trusts, the boilerplate language usually refers to procedural and more general provisions concerning various aspects of the trust and how it is to be administered.  However, in the Sterling situation, the case turned on the meaning and use of certain “boilerplate” language.

The critical “boilerplate” language in Sterling dealt with the way in which a trustee would be deemed unable to continue to act as trustee of the trust.  The court determined that the trust language was clear and its procedures properly followed by Shelly Sterling.  As a result, Donald was deemed incapable of continuing to act as trustee.  This allowed Shelly to proceed and sell the Clippers for $2 billion to Steve Ballmer, which was in the trust’s best interest, and which avoided the NBA seizing control of the team.

One valuable lesson learned by the Sterling case is that those who create trusts need to understand the “boilerplate” language in their trusts, including provisions like the ones at issue in the Sterling case.  These provisions are designed to address situations that may arise in the future, and chances are that some of them will not be applicable to a given person’s situation.  However, there is no way to predict which provisions will become at issue in the future, which is why it is critical for those who create trusts to understand these provisions and ensure that they accurately reflect their intent.

Estate Planning for Young Families: Protecting Your Assets and Passing on Your Values

Preparing your estate plan can feel like a daunting task, but once your estate plan is completed, it is a comfort to know that just in case something happens to you, your family is protected. Many young families preparing an estate plan are focused on the distribution of assets to their children and who will be handling it. What young families also need to consider is what important family values they would want passed on to their children. Appointing a guardian is the first step. Choosing someone who shares your core values and life priorities ensures that your values will be implemented. Many times the guardian of your children will not be the same person best suited to handle your children’s finances. This financially responsible person is known as a trustee. If your children’s guardian and trustee are not one in the same, you should make sure your plan appoints a trustee who will work well with your guardian and who is aware of your child’s needs. Your estate plan should document your core values and goals for your children so that both your guardian and your trustee are able to carry out your wishes. This plan is an evolving document and will change as your family grows and your values change. You should make sure to review your plan frequently (at least every 5 years) to reflect changes in your family, family relationships and growth of your children.

Joint Tenancy: Is it really a convenience?

In the short term, adding a joint tenant could be convenient however, in the long run it could cause family ripples. For a good read on this topic, see a recent article by Forbes.com:

Top 5 Reasons To Beware Of Joint Ownership Between Generations

Celebrities are not the only ones to make mistakes with their estate planning.  It happens to people all across the country on a regular basis.  The end result — just like with the rich and famous — often is an ugly and expensive family fight in court.  One of the most common estate planning mistakes that people make is joint ownership.

For the most part, we’re not talking about when a husband and wife have joint bank accounts or the title to their home is held in both of their names.  While not ideal for estate planning, this is quite common and can often be used without problems, except in many second-marriage situations or large estates that may suffer adverse tax consequences... < continue reading at Forbes.com >

The Wall Street Journal: 25 Documents You Need Before You Die

25 Documents You Need Before You Dieclick on the image to view larger

The Wall Street Journal recently published an article discussing the essential points of the estate plan. The above image accompanied the article and is a helpful visual about the necessary items needed to prepare your "Death Dossier". To read the article, please click on the following link: 25 Documents You Need Before You Die.

Naming Retirement Beneficiaries: Who Should I Leave My Hard Earned Money To?

Naming a beneficiary for anything is always difficult. When naming a beneficiary, or beneficiaries, on a retirement account it is important to properly name them to insure that assets, in this case your retirement account, passes to your beneficiaries without the need for probate (click HERE to the read an earlier post on why you want to avoid probate). You want your beneficiaries to have the opportunity to either "roll-over" your retirement account into a new retirement account or to stretch out the retirement account distributions over the life expectancy of the beneficiary. The "roll-over" option is mainly used if your beneficiary is a spouse and the stretch out option is mainly used if the beneficiary is a child (the use of "child" refers to ones adult child). In some cases the IRA owner may want to name a trust as a beneficiary in order to control the distribution of the retirement assets after his or her death.

Naming a trust as a beneficiary may present its own problems, such as exposing your retirement assets to immediate taxation upon your death and resulting in the loss of the “roll-over" and stretch out option.  If you want to name a trust as a beneficiary, help your beneficiaries avoid undo frustration and seek the advice of an estate planning attorney.

Estate Planning 101: What is Probate and why should it be avoided

Probate is the court supervised process for (1) gathering, inventorying and appraising the decedent’s assets, (2) determining and paying the debts of the decedent (3) paying the decedent’s taxes and  (4) distributing the assets of the estate to the identified heirs. Avoiding probate is usually desirable because probate can be confusing, expensive, time consuming and can take a number of years to complete, delaying the distribution of property to the heirs. In Southern California, it is estimated that Probates take 1 year to 18 months to complete. And, it could take even longer due to state mandated furloughs, which periodically close the courts during the normal scheduled work week.

Click here if you missed:
Estate Planning 101: Breaking Down the Documents
Estate Planning 101: Why Should I Have an Estate Plan?

Estate Planning 101: Why Should I Have an Estate Plan?

Every person, no matter your net worth, should have an individual Estate Plan in place. Why? Because if not the state determines how your property will pass to your heirs. This is called the laws of intestacy. Unfortunately, in many cases under the the law of intestacy assets of the decedent are passed to loved ones and others in a manner the decedent would not have wished. When estates are above a minimum size and assets are pass to heirs without a trust in place (through intestacy or by way of will), the assets will be subject to probate.

Later this week: Estate Planning 101: What is Probate and Why it Should be Avoided
Click here is you missed: Estate Planning 101: Breaking Down the Documents

Estate Planning 101: Breaking down the Documents

An estate plan consists of several documents including a will, usually a living trust, a financial power of attorney, a health care power of attorney and a HIPAA (Health Insurance Portability and Accountability Act) Waiver.  Here is a break down of what each document is:

Will – Describes how assets (Cash, Property, Collectibles, etc.) held in your individual name pass to heirs.  A will is necessary even if you have a trust to insure that assets held in your own name are transferred into your trust.  The Will is also where you would name guardians for minor children.

Revocable Living Trust – A revocable living trust is a legal entity that holds your assets while you are alive. In other words, the Trust is like a manager of your assets.  In the event of incapacity it dictates the transfer of assets to your heirs or beneficiaries on your death. It also avoids probate.

Financial Powers of Attorney – A financial power of attorney allows a person of your choosing to handle your individual assets. This document can be drafted to become effective immediately or only upon your incapacity.  A financial power of attorney can give your person of choosing, or agent, the authority to do some or all of the following:

  • Pay your everyday expenses
  • Manage your real property, including buying, selling and maintaining the real property
  • Collect social security, Medicare or or other government benefits
  • Invest your money
  • Handle transactions with banks and other financial institutions
  • Buy and sell insurance policies and annuities
  • File and pay your taxes
  • Operate your business
  • Claim property you inherit
  • Transfer property to your trust
  • Prosecute or litigate cases on your behalf
  • Manage your retirement accounts

Health Care Power of Attorney – A health care power of attorney allows you to appoint someone to make your health care decisions if you are incapacitated.

HIPAA Waiver – is a legal document that allows doctors to communicate with specifically named individuals about your health history and current health situation.  Without such authorization, doctors are legally barred from discussion anything about a patient with third parties, including family members.

Next week: Estate Planning 101: Why Should I Have an Estate Plan?