If you’re reading this you’re probably aware of all the webinars we’ve been hosting with professionals in various fields ranging from legal, insurance, development, to coaching (… and many more to come)! I’m working hard to bring you the most up-to-date information presented by leading industry experts that is not only interesting, but extremely relevant to most, if not all, people.
Today’s feature is an interview with Larry Beck, a top attorney here in San Francisco with Haas & Najarian, LLP. Larry specializes in 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. Larry has given estate planning workshops for the Internal Revenue Service, California Retired Teachers Association, Sons in Retirement, and many other distinguished organizations and companies.
Please tune in above, or read below, as we cover the basics of what everyone should not only be thinking about, but getting done!
If you’d like to get in touch with Larry directly, feel free to reach him at the contact information provided here:
Lawrence P. Beck
58 Maiden Lane, 2nd Floor
San Francisco, CA 94108
T: (415) 788-6330
E: lbeck@hnattorneys.com
Transcript from our call:
Ruth Krishnan: I’m here with Larry Beck, a fantastic trust and estates attorney in San Francisco, who has worked with many of my clients. I wanted to bring him on because in the last five weeks, since COVID and the shutdown started, I have looked at my trust more than I have in the last 10 years. As morbid as it is, during this time some of you may also be thinking a little bit more about your own mortality and how to protect your kids and assets. I thought it’d be good to bring Larry on and have him enlighten us a bit on trusts and estates.
Larry Beck: Good morning, Ruth.
Ruth Krishnan: Let’s start with the basics. As you know, I sell real estate; so I’m always recommending to all of my clients that they set up a trust, particularly if they have kids. Sometimes buyers (especially first timers) will ask, “What is a trust and why do I need it?” Can you give us an overview on trusts?
Larry Beck: Absolutely. First, you have to know that a trust is an entity. It’s like a corporation, except much more flexible. Why is a trust an entity and why does it make any difference? Because when you put your assets in an entity and you pass away, the entity survives you. Your assets don’t have to go through probate, which is a bad thing for anybody’s assets to have to go through.
Ruth Krishnan: If I have a will established, would my assets still have to go through probate?
Larry Beck: Yes. A will does not avoid probate. A will is essentially a formal letter to the judge saying, “Your honor, here’s what I want to happen when I die.” In that respect, a will is better than nothing because it tells you who is going to be in control of dispersing your assets, that’s called an executor, and it names your beneficiaries; but it still has to go through probate.
Ruth Krishnan: How much does probate cost?
Larry Beck: Probate is very expensive. When you do a probate, there are what’s called “statutory fees.” They’re set by the State of California. Why are they so expensive? Because guess who sets them? The attorneys that are in practice in the State of California.
Ruth Krishnan: Those dirty attorneys:)
Larry Beck: Those horrible attorneys! There are more attorney jokes than just about any other profession. I’m used to them. I even tell them sometimes. Anyway, the cost of probate is based on the gross estate, meaning you don’t subtract out the mortgages. Let’s say you have a house and it’s worth $2 million, and then you have bank accounts worth $1 million, and your house has a mortgage of $1 million. Your probate estate for determining your statutory attorney’s fees is still $3 million. You don’t subtract out the mortgage in determining it. Guess what? Your executor gets the same amount as the attorney that handles it.
Ruth Krishnan: On $3 million, what’s the average probate fee?
Larry Beck: About $45,000 to the lucky attorney that gets to do your probate, Ruth.
Ruth Krishnan: That must be what you charge to set up a trust, is that correct?
Larry Beck: Absolutely not.
Ruth Krishnan: What does an average trust cost?
Larry Beck: Trust cost can vary according to the attorney that does it. I like to consider myself in the low-middle range for San Francisco attorneys. If I do what’s called a “vanilla living trust,” I charge a flat fee, all included for what I call “estate planning 101,” and it’s $4,000. It’s got all the bells and whistles that you need to have what’s called a “basic estate plan.” Now, that’s for a married couple. If it’s a single person and it’s vanilla, it’s $3,500. Of course, like any other business, including yours, my clients compare prices before they become my client. They’ll find that if they go to the larger law firms, it’s going to be a lot more than that. I’m at a boutique firm, so I’m low-middle range.
Ruth Krishnan: So, somebody is going to save about $40,000 on average by hiring you?
Larry Beck: Correct.
Ruth Krishnan: Wow.
Larry Beck: There is more money that you spend up front when you do a living trust, but it saves you tons of money and tons of time on the other end.
Ruth Krishnan: I feel that setting up a trust is really going to protect my kids. That’s why whenever any of my clients have kids, I stress the importance of having a trust. I really appreciated that when I set up the trust I had a professional there to help guide me through all decisions that would need to be made for my children such as, who they would go to, how the money would be given to them, and how all of that is protected, etc. Can we talk a little bit about that?
Larry Beck: You generally have to make a bunch of decisions, especially if you have more than one child. For example, if a married couple who has three kids comes in, the first thing I ask them is, “On the second death, is it going to go equally to the three kids?” You might be surprised at some of the answers I get.
Ruth Krishnan: Wow. Well, I guess once you’re dead you can show your cards.
Larry Beck: Absolutely. I hear some very strange stories, such as, “I don’t like the person that this kid is married to, so it’s going 40, 40, 20 in terms of percentage, and the one whose spouse I don’t like gets the 20%.”
Ruth Krishnan: Wow. I’ll be sure to remind my kids that before they get married:)
Larry Beck: Absolutely! You have more leverage than you think, Ruth.
Anyway, if you have young kids, in the case of the death of the second spouse, you don’t want the kids to get the assets directly because they don’t know how to handle money– especially a 12, 8, or 4 year old.
Ordinarily, people set up what’s called a “testamentary trust” for their kids, and it’s part of the living trust. In other words, when you die, you don’t have to have an additional trust set up because it’s already part of the regular language in your living trust. This language would say something like, “On the death of the second spouse, the assets are going to go equally to the three kids and there’s going to be a trust set up for each kid’s third of the assets.” Generally, the trustee (that’s the person in charge) has the discretion of giving them money as they need it for college, to start a business, to get married, whatever else they may need it for, until they reach a certain age. Then, when they reach a certain age the trust terminates, they get all the money, and can do with it as they please. You should hear some of the ages that I’ve gotten.
Ruth Krishnan: We have ours set up for age 39, so that they get a third when they’re 28 and the rest at 39. We want our kids to work for a living. I’m sure that they won’t be, but we don’t want them to be lazy as a result of not having an incentive to work.
Larry Beck: I hear that a lot. Your trust is in tranches– so they get a certain percentage when they hit a certain age– but a lot of trusts are not in tranches because people don’t want to be bothered thinking about it. The most common age is 28. You hear the same rationale over and over again, “Well, 25 sounds a little young, 30 sounds a little old. Okay, 28.”
Ruth Krishnan: Interesting. Another thing that’s really important right now is a health care directive, which is nice because it’s wrapped into a trust as the standard situation. What’s in a health care directive? Why do I need one? How does it apply to our current situation?
Larry Beck: Health care directive nominates a person to make decisions for you if you’re incapacitated and can’t make your own decisions. It only applies to health care. There is also a durable power of attorney for financial purposes, but that applies to money. This is purely for health care. Why is that important in general? In general, it’s important because the person that you nominate is in charge of decisions like pulling the plug and taking you off of any ventilator or whatever it is that you may have in place.
Ruth Krishnan: An example of a worst case scenario of this could be the Terri Schiavo case in Florida, right?
Larry Beck: Yes. She didn’t have a health care directive. She was on a ventilator and in a coma, and the doctors said she was brain dead. Her husband wanted to take her off the ventilator but her parents wanted to leave her on.
Ruth Krishnan: What a horrible situation for the families to be in.
Larry Beck: Absolutely. Because of these kinds of situations, you should put down the person that you would want making that kind of decision on your behalf. You also need to voice your opinion on whether or not you would want to be taken off of life support. Predominantly, people say that they want to be taken off of life support. I’ll tell you what’s critical right now, which is that some of these directives say that people don’t want to be intubated.
Ruth Krishnan: What does it mean to be intubated?
Larry Beck: Intubation is what is happening when people are on a ventilator. Because of Coronavirus, there are a lot more people being intubated than they would be in normal situations. For people that already have this health care directive done, they need to take another look at it because sometimes it says, “I don’t want to be intubated under any circumstance,” and the circumstances have changed. People may think that they have all this stuff under control because under normal circumstances, it could make sense not to be intubated, but given what’s going on, they should take another look at their health care directive if they have one.
Ruth Krishnan: I come from a family of eight siblings and it’s complicated. Was it great to grow up in a big family? Oh yeah, it had its times, but it’s very complicated and so are the relationships. I’ve talked to my parents multiple times about getting things set up properly because, unfortunately, when they die, infighting can happen. There’s nothing I want that they have, but there will be things that other people want. If all of that stuff is not laid out, not to mention, the health care stuff, etc., it creates so much stress and potential for badly damaged relationships.
Even though this stuff is not fun to think about, it’s selfish not to take the time to think about it in advance and instead, potentially leave it to your kids or relatives to deal with and try to figure out what you would have wanted in the case of your absence.
Larry Beck: I’ll tell you some interesting things that people don’t think about. First of all, I’ve had about four cases in the last month where people explicitly made directions about what is to happen with their pets and how much money is to be left to the people taking care of their pets.
Ruth Krishnan: Interesting. I bet you see that a lot in San Francisco.
Larry Beck: I have one client who is leaving $100,000 for the care of his dog.
Ruth Krishnan: Wow.
Larry Beck: There’s going to be a lucky person that will be very happy about that situation.
Ruth Krishnan: You could buy that dog a house in Missouri!
Larry Beck: Another crazy thing that sometimes happens is that people who have a lot of jewelry will say that everything goes to the kids equally. I have seen terrible fights over splitting up jewelry, not money.
Ruth Krishnan: I bet. How do you decide what is equal between a broach that you got for your 25th anniversary and your first wedding ring? People are going to have different feelings about that, so I could totally see that happening.
Larry Beck: I always tell my clients, clarity is really important with this stuff. Another thing, Ruth, is that you and I both come from vanilla families.
Ruth Krishnan: My family is not vanilla, Larry:)
Larry Beck: No, no, no, your current family.
Ruth Krishnan: Oh, my current family (my husband and kids)? Yes, I would say we are.
Larry Beck: I don’t know your past family that well, but with regards to your current family, you and I both have the vanilla situation. We’re on our first marriage, we have a couple of kids and they seem to get along, and so on and so forth. But there are plenty of situations where there are mixed marriages and mixed family situations where it gets very dicey in terms of what is going to happen and who is going to get what. So again, clarity is the most important thing. You have to elicit from people what they want to happen, so that it doesn’t end up being this big amorphous mess on the second kid.
Ruth Krishnan: That’s where the attorneys are so important because most of us haven’t (thank God) dealt with a lot of deaths. Thinking through the things that can come up after your death is just not something that’s going to come natural to any of us. One of the things we have in our trust is a clause that says, in the event that our kids get divorced, the trust is in a separate trust and the ex-wife will not have access to any of the things they inherited, because we want to protect those assets for them.
Larry Beck: Sounds like a good idea. Too bad we didn’t meet before you did your estate plan, Ruth.
Ruth Krishnan: I know. It was a long time ago. I think we called it the skank clause:)
Larry Beck: Well, it sounds like somebody did a good job on yours.
Ruth Krishnan: She definitely did. Once a trust is set up, is this something that is done forever and I never have to think about again? How does it work in terms of maintaining it?
Larry Beck: The important thing after you set your trust up is that you have to make sure your assets are in your trust. You do that by titling your assets. It’s usually going to say something like, “John Doe and Jane Doe as trustees of the John Doe and Jane Doe living trust dated April 21, 2020.” In general, that’s how you title your assets so that they’re in the trust.
Ruth Krishnan: That was almost as painful as changing my name when I got married. It is not a fun process to change all of those things. My friend, Susan, who I did a talk with on insurance, reviewed my insurance policies for me and noticed that some of them did not have the trust’s name additionally insured on my trust that has been set up for eight years. That was something that got missed and those are the kinds of things that make me spiral when brought to my attention. All I can think is, “Oh my God, what else have we missed?!” We’re trying to protect all these people in our lives and do all the right things, but it’s so easy to miss filing out certain paperwork. That really stresses me out.
Larry Beck: The bad news about what happens if you miss titling your assets (if it’s more than $166,000 worth of assets) is that it ends up going through probate anyway. You defeated the whole purpose of setting up your living trust.
Ruth Krishnan: Let’s say the assets in question were $200,000 in a savings account, that’s the only amount subject to the probate, not everything else, right?
Larry Beck: That’s correct.
Ruth Krishnan: Okay. Thank God.
Larry Beck: Only the assets that are not in the trust have to go through probate.
Ruth Krishnan: Thank goodness. That’s not as bad. I was actually making a list on my calendar reminder this morning for my property taxes and I decided to add in a list of all the other things we should be looking at yearly, so that I get a reminder. One of the things on that reminder is to review our trust, which we hadn’t done since maybe 3 or 4 years ago. I started reviewing the trust for the first time recently and realized we had a lot of outdated information in there, such as old bank accounts and life insurance policies. It wasn’t nicely categorized in my folder. It’s important to make sure all of those policies and information are updated and in a secure, organized place, and easy to find for whoever would need to to use that binder at some point.
Larry Beck: A lot of people think, “I really don’t want to do this but I know I have to do it,” and they finally get around to doing it, but then they just push the stuff away afterwards and don’t want to think about it anymore once it’s done. It’s not brain surgery to maintain your trust, you just have to be aware that it has to get done.
Ruth Krishnan: It’s like filing taxes. Nobody likes to do it, but once a year, every year, you gotta do it, right? Going back and checking in on those things is great. Although I do have to say, the initial emotional part of setting up a trust is tiring. It’s very taxing to think about how you want your money handled once you’re gone. This was on our to-do list for many years, so when we finally got it done, I felt like we had really accomplished something fantastic. It’s definitely important, but I can totally relate to why people delay it. At the same time, you got to go to the dentist, you got to file your taxes, and you got to do a trust, right? You have got to make sure people are protected.
Larry Beck: I would say yes. I try to make it as painless of an experience as possible. I always give clients a duplicate original of their trust to take home and put in a safe place. However, you wouldn’t believe the number of calls I get saying, “We lost our paperwork.” It’s just amazing how someone can lose something that important and not even remember where they put it. It’s out of sight and out of mind a lot of the time, and it really shouldn’t be.
Ruth Krishnan: Well, we talked about the boring reasons to get a trust, but some of the really exciting reasons are that as we grow our incomes and our estates, there’s some really good tax incentives as you start building more and more wealth. Can you talk a little bit about that?
Larry Beck: There are all kinds of tax implications when you do a living trust and one of the things you have to be aware of is the estate tax. The estate tax is a one-time tax. The IRS basically takes a snapshot of all the assets you own when you pass away. If they exceed a certain amount, then you’re subject to estate tax, which is 40% on the excess.
Ruth Krishnan: That’s what? $16 million right now?
Larry Beck: It’s $11.58 million per person. All you have to remember is that if you’re married, it’s about $23 million for a married couple.
Ruth Krishnan: I’m telling you, once I get $23 million, I’m happy to give half of it away (just kidding, but it’s a good problem to have). Nobody wants to give their money away, especially after they’ve already paid taxes on everything. What do you do?
Larry Beck: There are a whole bunch of ways to reduce the value of your taxable estate. One of which is that a person can give away $15,000 per beneficiary per year. For example, I have two kids. I could give away $15,000 per kid and my wife could give away $15,000 per kid, and it never hits the radar on my overall estate. I could give away $60,000 per year and that would reduce the size of my ultimate taxable estate when my wife and I are deceased.
Ruth Krishnan: What do you mean by “give it away?” Can you put it in like a retirement fund for them?
Larry Beck: Well, it’s a little more complicated when you put it in a 529 plan, but that’s one thing you can do. If they’re old enough, then you don’t really have to worry about putting in a trust for them. If you want to be simple, there’s a thing called a “custodial account.” California Uniform Transfers to Minors Act allows you to put money in a custodial account for the beneficiary of your kid. It can go until they’re 25 years old in that custodial account. You don’t have to set up a formal trust and get complicated with it.
Ruth Krishnan: Do they get access to it when they’re 25 or can you prohibit that (because I’m a control freak)?
Larry Beck: Unfortunately, the only way you can prohibit it is by putting it in a trust. But a lot of times they don’t even know that they have access to it when they’re 25.
We just had a case where somebody said, “Our kids are 25 and the custodial account is supposed to end.” I said, “Do your kids know about it?” This was their father and he said, “No.” I said, “Well, you probably should tell him at some point.” He said, “I still want to be in charge of the assets.” You have to tell them, but it’s a judgment call.
Ruth Krishnan: Got it. With regard to property, we see this in San Francisco a lot where seniors do not want to sell their property because they don’t want to pay taxes. Can you talk a little bit about that?
Larry Beck: You have a $250,000 exemption per person from capital gains on the sale of your primary residence. You have a $500,000 exemption when you sell your primary residence. If it’s going to be more than that, it’s a little more complicated. What you can do is if you wait until the first spouse dies, the survivor gets what’s called a “stepped-up basis,” which means that your capital gain is determined by the fair market value on the date of death of the first spouse. There’s a lot of planning that goes into selling your house. Is the appreciation more than $500,000? If it is, then you have one set of issues.
Ruth Krishnan: I think a lot of these seniors, as you probably know, bought their house for about $150,000 maybe 30 years ago, and now it’s worth $5 million. That’s a lot of money to deal with in taxes, right? But if they keep this house that’s way too big for them, has been way too big for them for 20-30 years, then they don’t actually have to pay taxes on the house after their death. Is that correct?
Larry Beck: The kids don’t have to pay taxes on the second death. There’s no capital gain on the second death because you get a stepped-up basis when the second spouse dies. That’s a planning idea. Sometimes it works and sometimes it doesn’t.
Ruth Krishnan: When doesn’t it work?
Larry Beck: When people say, “I got to sell and I can’t wait.” Sometimes there’s absolutely nothing they can do. Another option is that they can move out and rent the place. There are rules about how long you have to rent it for, but if you rent it for a certain period of time, then after that time is up and you sell it, you could do what’s called a 1031 transaction and you put the proceeds into another rental property. In that case, nobody has to pay capital gains on that situation either.
Ruth Krishnan: Right. Then you can just pull some money out, but maybe not all of it. You get the 500 tax-free and then after your two years, you can go buy another property, correct? Then that would be tax free, so then it’s just the remainder that you would pay taxes on.
Larry Beck: It’s a little more complicated than that. I hear this stuff a lot and you have to sit down with a client and say, “What are your objectives here? What can you live with, and how important are the taxes to you?” Some people say, “I don’t care. I want to sell. I want to get out. I’ll pay the tax and that’s that.”
Ruth Krishnan: Got it. Any other big points I missed that you feel we should be aware of?
Larry Beck: A lot of times I hear people that don’t have any kids think, “Oh, I don’t need a living trust.” That’s a horrible misconception because let’s say (for example) these people get into a car accident and they don’t have anything in writing. It’s a married couple and the husband dies right away and 10 days later, the wife dies. Under California law, the wife is deemed to have survived the husband. Because this couple didn’t leave behind anything in writing, that means that when the wife died 10 days later, all the assets were in her estate. So the assets will all go to her side of the family. If she has parents, they go to her parents. If she doesn’t have parents, it goes to her siblings, etc.
Ruth Krishnan: This is assuming there’s no will, right?
Larry Beck: Correct.
Ruth Krishnan: Interesting. I didn’t know that. I’ll do a better job on advising my clients. Thank you for teaching me that piece.
Larry Beck: Also, gay couples and people that are living together as partners, if they don’t have anything in writing, it’s not going to the partner when they die if they’re not married. That’s also a horrible misconception.
Ruth Krishnan: That also applies to the health directive too– that’s been a really big problem for same-sex couples that are not in a domestic partnership or married, right?
Larry Beck: Right.
Ruth Krishnan: I learned something new, so that was great. Anything else?
Larry Beck: There are all kinds of things that people should know about with regards to property taxes. I deal with transfers of property all the time. Maybe we’ll do another webinar about that, about how people hold title to property and how their property taxes are impacted by the way they transfer the property to family members.
Ruth Krishnan: Let’s do it! Larry, if people want to get in touch with you, now that we’ve scared the crap out of them and they realize that they better do this tomorrow, I’ll definitely include your information in the webinar. But is there anything they should know in terms of how to schedule with you or anything like that?
Larry Beck: I’m working during these terrible times, so they should feel free to contact me. A lot of people are doing it. I’ve been contacted by two ER doctors that worked for Kaiser in the last week, who are very nervous about what’s happening. It’s a good way to get your assets in order.
Ruth Krishnan: Suddenly, this is the first time that we thought this could really happen to us. My sister lives next door to me, it could be her. It could be all of us, right? It’s usually unlikely, but the realization that we really need to get this stuff in order and make sure all of our things are protected and laid out properly has become more of a reality in the last month than ever before.
Larry Beck: I’d say that’s very prudent advice.
Ruth Krishnan: Well, thank you so much for your time, Larry. I really appreciate it. Be safe out there and I’ll talk to you soon.
Larry Beck: Thanks, Ruth. My pleasure.
