Due to the Governor's Shelter in Place Order, our office is closed. However, we continue to serve our clients via our emergency business continuity plan, which was established years ago (Although I did not envision a world-wide pandemic that would close virtually all business activity, I was always aware that some emergency event such as an earthquake, etc. might lead to a disruption in our usual way of doing business and established procedures to handle such an event.)

Bottom line - we are still here to serve you. It is more important then ever to make sure that your wills, trusts, and other family legal documents are in place and updated correctly!

Until further notice, my staff and I will be working from our home offices. In most cases, your essential documents are stored securely in the "cloud" and be accessed quickly. Modifications and updates, and new plans, can be drafted and delivered for signing. Documents that require notarization can be signed now with an attorney's affidavit of authenticity, and then notarized after the coronavirus Shelter In Place Order is lifted.

Meanwhile, during this period of time, we are offering FREE reviews and updates to your Advance Healthcare Directives, to make sure that your medical care will be uninterrupted in case you need it. Just shoot me an email (brian@brianmandellaw.com) to get that started.

I hope that this situation will be resolved soon and that you and yours will remain healthy. Stay safe!

Almost everyone is aware that an auto insurance policy must be purchased before you are involved in an accident – you cannot buy a policy after you cause an accident.  Nevertheless, people seldom engage in serious Asset Protection Planning before becoming involved in a lawsuit or other potential liability.  That is just a fact.

To be truly effective, an Asset Protection Plan must be implemented years before the incident that gives rise to liability occurs.  However, given the unfortunate fact above, one should not just “throw in the towel” and accept (many times wrongly) that there is no way to protect one’s assets after the occurrence of such an incident. 

There is one hard and fast rule in asset protection – if you do nothing, there is a 100% chance that you will lose your assets

Asset Protection Planning is most important for business owners and professionals.  Here are a few issues that you must be aware of before implementing any Asset Protection Plan:

1. Accept that implementing your Asset Protection Plan will be expensive, stressful, and painful.It is not fun, although if you undertake the task before becoming involved in a lawsuit, it will be much less stressful and the plan will work better.

    

2. You cannot possibly protect everything and the definition of “a successful Asset Protection Plan” may leave you somewhat disappointed.For example, if you settle the $10 million lawsuit against you for $2 million because you have an Asset Protection Plan, is that a success?Some would say yes, some would say no.

    

3. Secrecy is not an Asset Protection Plan.You must undertake planning that is open and transparent – relying on pseudonyms does not work.

    

4. In Asset Protection Planning, there are always tradeoffs.Certain asset protection techniques will require you to relinquish control of your assets; others may cause you to pay more taxes.For example, if you are married a Transmutation Agreement is very effective to shelter a business owner’s home and other personal assets from business liability but may expose that person to potential losses in a subsequent divorce.

    

5. You can’t just give assets away.There are laws in every state that are called “fraudulent conveyance” statutes.These laws make transfers of assets “voidable” by a court so that a defendant cannot simply give his/her assets away to friends or children and then claim that they are “judgement proof”.Understanding fraudulent conveyance laws is critical to proper Asset Protection Planning.

    

6. Most of the information regarding Asset Protection on the internet is wrong or misleading, like just about everything else on the internet.And, different competent lawyers may suggest different strategies for your specific situation.There is seldom any clear-cut strategy that is guaranteed to work and that everyone agrees on.

      

7. Here are some strategies that have worked for my clients:

    

   1. Transmutation Agreement.Very popular among professionals, this is an agreement between spouses that changes their community property to separate property, or vise versa.An equal division for fair market value must be made to avoid a fraudulent conveyance challenge; thereafter the family home and other non-business assets will be owned by the non-business owner spouse.If the professional is sued only his/her “dangerous” separate property assets (usually a professional practice or business) will be subject to claims.

       

   2. QPRT. “Qualified Personal Residence Trust”.A split-interest gift that transfers your personal residence into an irrevocable trust for the benefit of your children.

       

   3. Third-Party Irrevocable Trust.An irrevocable trust funded with your assets but for the benefit of your children or heirs.You can control the assets but not use them for yourself.

       

   4. NAPT. “Nevada Asset Protection Trust”.An irrevocable trust that is funded with your assets and that you can use during your lifetime, under certain circumstances.You must hire a Nevada-based Trustee or Trust Company, or have a friend or relative in Nevada that is willing to act as Trustee.

       

   5. ERISA Retirement Plans.Under Federal law assets contributed into a retirement plan that complies with the Employee Retirement Income Securities Act are safe from judgements and creditors.Common plans of this type are 401k plans and Defined Benefit Plans.Individual Retirement Accounts (IRAs) are not covered under ERISA.

       

   6. Private Retirement Plans.Under California law (CCP section 704.115) if a California resident participates in a Company-sponsored retirement plan, assets contributed to that plan by the company and by the employee are safe from judgments and creditors.This type of plan does not provide any tax benefit but also does not have to comply with ERISA rules.

       

   7. Incorporation/LLCs.If you are operating a business, you must conduct business in a manner that limits the owner’s liability so that his/her personal assets are not at risk from business problems.Likewise, your business should adhere to proper Human Resource Practices and have a Procedure Manual.

       

   8. Umbrella Insurance.Very basic, very important, very inexpensive.This is liability coverage for all of your automobiles and real estate assets.

       

8. Additional insights regarding Fraudulent Conveyances.First, of course, the plaintiff must be victorious in his/her lawsuit against you.During the collection process on the judgement, if there is: 1) a transfer of assets for less than fair market value; and 2) if the plaintiff brings a suit to have that transfer held to be a “fraudulent conveyance” within the statute of limitations for such transfer; and 3) if the court holds that that transfer was indeed a fraudulent conveyance; then 4) the transfer can be voided by the court and the assets will be ordered to be transferred back to the plaintiff.Therefore the plaintiff, if awarded a judgement, must then undertake another lawsuit to determine if the defendant had made any fraudulent conveyances.The additional legal expense and time is sometimes enough to put the defendant in a more favorable settlement position.And, there are statutes of limitation on transfers, which vary by jurisdiction.For example, in California the basic statute of limitation for a fraudulent conveyance lawsuit is 4 years, but in Nevada it is only 2 years.Bottom line – even though an incident has occurred or a lawsuit has been filed, a transfer that would possibly be held to be a “fraudulent conveyance” might still be worthwhile and should not be dismissed without thorough legal analysis.

    

9. Bankruptcy is not Asset Protection; it is the result of failing to have an effective Asset Protection plan!

Buying a Home with a Reverse Mortgage?

  Many any people may be familiar with the idea of taking out a Reverse Mortgage loan and using the borrower's existing home to access equity in that home.

 However, seniors (age 62+) may also Buy a Home with a Reverse Mortgage. Some possible advantages to doing this are:

1.   Loan qualification may be easier than with a conventional loan; and

 2.   If the loan is approved and closes, the borrower takes title to the new home and will not be responsible for monthly mortgage payments associated with the reverse mortgage loan. The borrower will still be responsible for paying his/her property taxes and insurance obligations.

 Reverse Mortgage for purchase may help permit qualifying seniors to “right-size” into another home without creating a corresponding monthly mortgage payment obligation.

 The “down-payment” needed to qualify for this loan program is higher than a conventional loan because the borrower builds an equity position with their “down” and that is what carries most of the loan qualification weight, not the borrower’s income status or history.

Most successful retirements focus on income, not just assets, so being able to buy a new home while not adding a new monthly mortgage payment obligation can present a very attractive option.

Having the opportunity to right-size with a Reverse Mortgage for purchase can provide valuable options to seniors and retirees such as:

·    Moving to a senior community to be in a more safe and controlled neighborhood

·    Moving closer to friends and family

·    Living in a home that better meets life-style needs and movement abilities

·    Freeing up home equity (from the sale of a previous property) to be used for life-style or to build up investment  portfolios

·    Entering into “owner partnerships” with other senior friends or family members

 A Reverse Mortgage for purchase can be used in many beneficial ways to help seniors achieve their home ownership goals.

 However, it is important for potential borrowers to work with an experienced mortgage loan officer that has a full understanding of the loan program’s capabilities and also its limitations.

 By:

 Robert Trommler – Licensed Loan Officer

 NMLS# 1157859

 HighTechLending Inc

 Company NMLS # 7147

 2030 Main Street, Suite #350

 Irvine, Ca. 92614

 714 669 8313 rtrommler@hightechlending.com

  Licensed by the Department of Business Oversight under the California Residential Mortgage

Lending Act. Equal Housing Lender.

Unfortunately Fraudulent Conveyance laws make transfers under such circumstances voidable against current, known creditors and subject to statute of limitations requirements, even future unknown creditors.  Therefore some potential clients are discouraged from doing asset protection planning and simply "roll the dice" with respect to the current litigation and hope to win the lawsuit to avoid the financial loss.

Naturally, the best time to do asset protection planning is years before a problem arises.  But the second-best time is NOW!

Even upon the eve of litigation, some asset protection planning may be possible, with the understanding that transfers that would be considered fraudulent conveyances would not be effective against the current creditor.  However there may be strategic and tactical benefits to undertake asset protection planning, even during litigation.  For example, re-allocating an asset to a statutorily protected asset class (like a 401k plan or a California Private Retirement Plan, for example) might make sense.  In addition, the debtor might be in a better negotiating position, both during and after the litigation.  

If the litigation goes your way, you have "dodged the bullet" against that particular creditor.  But if you lose the case, by not doing any asset protection planning you lose your assets.  However if you take steps to protect your assets even in the face of current litigation, if you lose your case, you might still have some leverage against your current creditor and you will be far better protected against any future problems, too.  

Most people are aware that ERISA Qualified retirement plans are exempt from judgments.  The problem, of course, is that there are many rules, regulations, and limitations on ERISA plans such as 401k, 403b, etc. plans.  However, for many clients, a California Statutory Private Retirement Plan works very nicely.

Authorized in our law under section 704.115 of the California Code of Civil Procedure, a California Statutory Private Retirement Plans is a retirement savings and asset protection plan that is entirely exempt from judgments and bankruptcy. 

Contributions made to a California Statutory Private Retirement Plans are not tax- tax-deductible, and interest earned on plan investments is not tax-deferred.  In fact, the CSPRP does not enjoy any special tax treatment and therefore does not have to comply with ERISA rules.  Therefore a business owner can fund a CSPRP with almost any kind of valuable asset such as account receivables, real estate, stocks, mutual funds, or even Limited Liability Company interests.

 Compared to tax-deferred ERISA plans:

    There is no a limit on how much one can contribute into the plan, as long as the plan is properly structured and the need for sufficient retirement assets is correctly documented.

    Other employees do not need to be covered (the business owner can be the only participant in the plan).

    No IRS annual filings.

    There are no substantial restrictions on the types of investments in the plan.

    Late starters can “catch up” with large, yearly contributions.

    You can put the assets in any financial institution you wish.  

    You can manage the investments yourself or use a financial planner.

Under section 704.115, to qualify as exempt from creditors, a CSPRP must be "designed and used for retirement purposes”.  Misuse of the plan (such as withdrawing funds prior to retirement) will disqualify it as a CSPRP under California Law. 

One of the most remarkable and beneficial characteristics of a CSPRP is that not only are assets held in the plan protected from creditors, even distributions OUT of the plan are 100% protected, if they can be traced back to the CSPRP.

To maintain and protect the statutory exemption  of plan assets, a private retirement plan must be sponsored by a business and structured like a pension with targeted benefits and 3^rd party administration.  With the right guide and proper management, a CSPRP can provide the greatest defense for asset protection in retirement. 

Call us at: (949) 660-0007

Trusts are extremely flexible, useful estate planning tools that have been used for decades to accomplish a myriad of purposes.  A traditional and widely-used practice is to employ trusts to Control distributions to beneficiaries and to Protect the beneficiaries from creditors, lawsuits, taxes, and from themselves.  Why not use a trust to distribute qualified plan money for the same reasons?

New IRS rules now permit an individual to create an IRA Beneficiary Trust to insure that your beneficiaries (those who will receive the IRA's after your death) “stretch-out” their taxable, required minimum IRA distributions over a much longer period of time. And, if they do it right, the IRAs can continue to compound for many years income-tax free -- and may literally grow to be worth millions of dollars! In 2005, the IRS issued a private letter ruling 200537044 (the “PLR”) that approved this new type of revocable trust created solely to be the beneficiary of an IRA account. As a result of this PLR, it is now possible to create a stand-alone trust that allows each beneficiary to take “stretched-out” distributions based on his/her individual RMDs.

IRA Beneficiary Trusts insure that their beneficiaries will stretch-out payments from the IRA after they inherit their shares of the account so that the funds will grow inside the account without being taxed. This type of trust has also been referred to as an IRA trust, an IRA inheritance trust, a stand-alone IRA trust, an IRA stretch trust or an IRA protection trust.

If children and grandchildren who inherit IRA funds keep the funds in the IRA over their lives and only take the required minimum distributions each year (the “stretch-out”), the amount of money that can be earned, accumulated and paid to the beneficiaries can be staggering. To illustrate how this compounding can work, I have calculated how much money a beneficiary can receive from a parent's $100,000 IRA account; I have used two different ages (10 and 35) for the beneficiary and have assumed that the account averages an annualized 8% return:

This wealth accumulation strategy only works if the beneficiaries retain the inherited funds inside the IRA account. If a beneficiary takes all of the funds out of the IRA account at the time of the owner's death (called a “blow-out” because it blows the stretch-out), this wealth accumulation technique will be lost. One of the reasons to create an IRA Beneficiary Trust is because it can insure the stretch-out and can prevent a blow-out. This blow-out happens more often than you may think. The beneficiaries may not be aware of the tax rules and their distribution choices, so they may immediately withdraw the IRA's at the first opportunity (or worse yet, do a prohibited rollover!). Or the beneficiary, influenced by his or her spouse, may just decide to withdraw the IRA's to foolishly spend it. If the “stretch-out” isn’t done properly by the beneficiaries and income taxes are paid up front shortly after the IRA's are inherited, your family may lose hundreds of thousands of dollars (or more). 

Even if you assume that your beneficiaries will do the right thing (that is, keep the funds in the IRA account for their lives to maximize the income tax “stretch-out” of the IRA's), the IRA's may still be seriously exposed to one or more of the following threats that can arise years after you are gone:

• The beneficiary’s spouse may snatch half (or more) of the inherited IRA's in a divorce. The divorce rate is over 50% and a big pile of inherited money may become a divorce incentive for the ex-spouse. Even though inherited property is separate property, the beneficiary's ex-spouse's divorce lawyer will probably go after the IRA funds because the IRA account is frequently the largest asset and the lawyer knows there is a good chance the spouse who inherited the IRA will give a large portion or all of the IRA account just to end the divorce and to be rid of the ex-spouse.

   

• The beneficiary's poor spending habits, creditors and lawsuits may grab all of an inherited IRA's.

   

• The beneficiary could lose his or her needs-based government benefits (if he or she ever requires them), such as supplemental income (SSI) or long-term nursing care.

   

• And even if the beneficiary never encounters any of these problems, he or she may get walloped with a huge estate tax when he or she passes the IRA's down to the next generation.

One of the big advantages to the IRA Beneficiary Trust is the option to give a "Special Trustee" the right to elect out of the "conduit trust" (i.e., where the MRD must be paid to the beneficiary on an annual basis) to a fully discretionary "accumulation trust" (i.e., where the trustee can hold the beneficiary's MRD inside the trust). This election must be made, if at all, by September 30 of the year following the client's death. Making this election may result in a shorter “stretch-out” because the age of the oldest “possible beneficiary” must be used (the Special Trustee is also given the power to limit such possible beneficiaries to minimize this issue); however, having this option to elect between the different forms of trusts provides the flexibility to consider all factors known at the time of death and up to the election deadline (e.g., creditor problems, disability, etc.) the benefits of which may greatly out-weigh the increase in the income tax costs.

I have been directly trained by the lawyer that conceived this strategy and obtained the PLR.  Since 2006, I have drafted dozens of IRA Beneficiary Trusts. I understand all of the nuances involved in the proper establishment and implementation of this plan.  I recommend that all clients and their advisors consider naming a properly-drafted IRA Beneficiary Trust as the beneficiary of qualified retirement plans that are valued over $300,000.

This year’s game started me thinking of something that relates to my profession as an Estate Planning and Asset Protection attorney.  In retrospect, it was easy to get caught up in the excitement of the 17-1 Panthers, with their great quarterback Cam Newton, and their explosive offense.  But, now that the game is over, I am again reminded of one of football’s simplest, but most important axioms – GREAT DEFENSE BEATS GREAT OFFENSE!

 So… are you making sure that you are playing great DEFENSE, namely practicing effective Asset Protection Planning? 

Are you familiar with the recent US Supreme court ruling which held that inherited IRAs are not protected from creditors?  Do you know what you can do to protect those inherited IRAs?

Do you know that a Private Retirement Plan does not have annual contribution limits, that virtually any kind of asset can be contributed to the retirement plan, and that there is no requirement to include employees or even spouses in the company’s plan?  And, best of all, a Private Retirement Plan is completely exempt from creditors and judgments, including Bankruptcy, and does not run afoul of fraudulent conveyance statutes?

Would you be able to use a Qualified Personal Residence Trust (QPRT) to protect the equity in your home? How about a domestic Self-Settled Asset Protection Trust?

These are all defensive strategies that might save you from financial ruin if faced with a serious lawsuit! 

But the thing is, timing is essential – to work best, these strategies must be put into place before a problem arises.  The next meeting you have with your financial planner, accountant, insurance agent, or estate planning lawyer, express your interest in Asset Protection!

The obvious benefit of the DPA is that there is no court involvement and therefore matters can be handled much easier, cheaper, and faster than through Conservatorship.

There are many kinds of documents called Powers of Attorney.  All of them terminate upon the death of the Principal.  What we are talking about here is usually a “Springing” Durable Power of Attorney, which means that it only springs into effect upon the future incapacity of the Principal.  (If you are married, your spouse can be given authority as your Attorney-in-Fact to act in your stead even if you are not incapacitated, but only out of town or otherwise unavailable).

So, for example, in your DPA, you would name your spouse if you’re married as your Attorney-in-Fact to act on your behalf if needed, and if your spouse is unavailable or unwilling, your adult children can be named as alternates, or any other adult that you have total confidence in can serve as your Attorney-in-Fact.  Co-Attorneys-in-Fact usually must act together.

Beware of General Powers of Attorney, which are effective immediately upon signing and are not effective upon the incapacity of the Principal!

As part of his show, Handel sponsored “Law Day”.  He asked for attorneys in the area to volunteer to appear at a local law school to answer questions, for free, from the general public.  Each attorney would be given a table at which he or she could sit (or stand) with prospective clients to discuss their legal questions.  Attendees were given a directory with each lawyer’s name and area of expertise, and a map of the layout of the tables.

I thought that it might be a good opportunity to meet some other local attorneys, schmooze with them a little, maybe hand out a few business cards and develop some relationships that might lead to referrals later on.  Boy, was I surprised!  There were over a hundred lawyers present, but about 2,000 members of the public showed up!  From the moment the doors opened at 10 AM until they closed at 5 PM, I was swamped with people asking all sorts of questions about estate planning.  I talked all day, barely having enough time to go the bathroom.  Forget about getting lunch!  I have no idea how many people stopped by my table that day, but believe me, I was thrashed at the end of the day.

There was the young couple that had just gotten married, and wanted to know if they should sign a Pre-nup.  (Of course, Pre-nups are signed before you get married.)  A gentleman asked me if he could transfer his house to his kids to qualify for Medi-Cal.  There was the woman who told me a long, involved story about how her brother stole her inheritance from her, and wondered if I could do anything about it (unfortunately, this alleged misdeed occurred in the 1980′s!).  A man wanted to know about the stepped-up basis on inherited real property.  There was a couple that had heard that it was advantageous to set up a Charitable Remainder Trust, but weren’t’ sure what it was.  And so on, and so on…all day long.

This experience further confirmed my feeling that the public desperately needs and wants legal advice.

What You’ll Get From Reading This Blog

I’ve organized and written this blog to read as if you had attended one of my informational seminars, or were meeting with me for an informal conversation at my office.  I have tried to stay away from excessive technical language and copious footnotes, because I feel a book is easier to read and comprehend if the “jargon” is kept to a minimum.  Check back frequently for updates!