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Wednesday
May092012
DateWednesday, May 9, 2012 at 2:54PM

Getting Clear on Creditor Protection: The Limitations of the Revocable Living Trust

 

Trust and Estate Planning Attorney EncinoSan Fernando Valley Trust and Estate Planning

May 9, 2012
by Robert A. Hull

 

People often believe that if they set up a revocable living trust, and put their assets into the trust, their assets are protected from creditors.  

While a revocable living trust can provide numerous benefits – namely, the distribution at death of one’s property without court supervision and, possibly, substantial tax advantages – such a trust does not provide creditor protection.

General Rule of Thumb: The ability of a creditor to reach your assets is directly proportionate to how much control you can exercise over those assets (and/or whether you are a beneficiary of that trust, in which case the trust is called a “self-settled” trust). The greater control you have over your assets and/or benefit you derive from your assets, the greater chance a creditor can reach those assets.  

If you are the trustee of your revocable living trust, you are able to effectively control your assets as much as you can without such a trust.  You can amend or revoke the trust (hence, the name “revocable” trust) and withdraw assets from the trust, at will.  Thus, since you have the same degree of control over your property, creditors may access the trust’s assets almost as easily as they can access your assets which are not in such a trust.

On the other hand, the less control you have over those assets, the less chance a creditor can reach those assets.

In the most obvious case, if you give away assets, you no longer have control of those assets.  Hence, a creditor cannot normally reach them (unless there are mitigating circumstances such as the transfer was a fraudulent attempt to evade those creditors or a preferential transfer prior to a bankruptcy filing, etc.). 

However, you can achieve some protection from creditors and still maintain a degree of control over your assets for a period of time, even though you are effectively giving your assets away. 

 

Three Ways to Better Protect Your Assets  from Creditors

 

1. Irrevocable Trusts: Certain people set up “irrevocable” trusts for the benefit of their children, etc.  With these trusts, you are making a present gift of property, the bulk of which the beneficiary may receive at your death, or some other time in the future (note:  the gift needs to qualify as a present interest to be eligible for the gift tax annual exclusion). 

However, as trustee, you can still manage the property in the irrevocable trust until that future time, although you will not want to hold powers which will cause the trust to be included in your taxable estate at your death.  This is especially helpful when gifting business or real property interests.  Remember though, that you cannot modify these trusts, or remove property from them, without complying with state law and without risking its tax treatment, and in some cases exposing the trust to taxation.  Hence, your creditors cannot normally reach such property (except if there are mitigating circumstances, as mentioned above).

2. Gifts: In addition, you may wish to make a gift to heirs, but asset protection of such heirs may be a consideration (e.g., minimizing a child's exposure to divorce, tax problems, professional liability and general creditor problems).  Protection may be achieved to some degree by leaving the beneficiary’s bequest in trust, rather than gifting assets outright.

3. Business Structures: You may set up a business entity structure which can make it more challenging for creditors to reach your assets.  But, setting up and maintaining such entities, and also irrevocable trusts, involves some time and expense (e.g., in certain cases, the filing of annual income tax returns, payment of annual fees, substantial legal and accounting fees, etc.).

There are many terrific reasons for executing an estate plan, including a trust and a pourover will.  However, if creditor protection is an important consideration for you, you need to carefully implement the right devices to minimize the risk of creditors successfully coming after your property.

Robert A. Hull is an attorney in our Trust and Estate Planning, and Corporate Practice Groups. For more information about protecting your assets from creditors or other estate planning matters, contact him via e-mail: rhull@lewitthackman.com.




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

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Tuesday
May012012
DateTuesday, May 1, 2012 at 2:52PM

Another Blow for Property Owners Challenging Foreclosure

 

Real Estate LitigationReal Estate Litigation Attorney

May 1, 2012
by Nicholas Kanter


When challenging a foreclosure sale, property owners look to defects or irregularities in the foreclosure process, which is strictly regulated by California’s Civil Code, to have the sale enjoined or rescinded.  Recently, one section of the Civil Code has received a lot of attention.

Civil Code Section 2932.5 requires the assignee of a mortgage to record the assignment prior to exercising a power to sell real property.  Parties have relied on this section to challenge foreclosure sales where a deed of trust is assigned, but not recorded, until after the sale. 

California case law, dating back to 1908, established that the predecessor statute to section 2932.5 (section 858) applies only to mortgages, not deeds of trust (Stockwell v. Barnum). 

However, federal and state courts have recently disagreed over the application of Section 2932.5 to deeds of trust.  On the federal side, e.g., Tamburri v. Suntrust Mortgage, Inc., (2011), and In re Cruz (2011), courts have applied Section 2932.5 to deeds of trust.  On the state side, the court in Calvo v. HSBC Bank USA, N.A. (2011), followed the Stockwell decision.

In support of Stockwell and Calvo, the Court of Appeal in Haynes v. EMC Mortgage Corp., (filed April 9, 2012, publication ordered April 24, 2012) found that Section 2932.5 does not apply to deeds of trust.  The Haynes court rejected Haynes’ reliance on the federal decisions finding:

We of course, are not bound by federal decisions on matters of state law…While our Supreme Court has noted in passing on issues other than the interpretation of section 2932.5, that “a deed of trust is tantamount to a mortgage with a power of sale” [citation], the court has not addressed section 2932.5 and the statute, by its plain terms, does not apply to deeds of trust.  

The court also explained why section 2932.5 applies to mortgages but not deeds of trust:

Section 2932.5 requires the recorded assignment of a mortgage so that prospective purchaser knows that the mortgagee has the authority to exercise the power of sale.  This is not necessary when a deed of trust is involved, as the trustee conducts the sale and transfers title. 

The Haynes decision, along with the holding in Calvo, reinforces long-standing California case law that Civil Code Section 2932.5 does not apply to deeds of trust, thus all but taking away a party’s ability to challenge a non-judicial foreclosure sale based on an unrecorded assignment.  

Nicholas Kanter is a Business Litigation Attorney in our Real Estate Practice Group. Contact him via e-mail: nkanter@lewitthackman.com.




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

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Wednesday
Apr252012
DateWednesday, April 25, 2012 at 11:32AM

Grey Divorce | Things to Consider When Divorcing After Decades of Marriage

 

Encino Divorce AttorneyEncino Divorce Attorney

April 25, 2012
by Vanessa Soto Nellis

The Japanese call it Retired Husband Syndrome. Here in America, the phenomenon is not so cut and dried.

We simply call it Grey Divorce, a trend that sees twice as many marriage dissolutions for the Baby Boomer generation now, than there were 20 years ago, according to the National Center for Family and Marriage Research at Bowling Green State University.

You may have seen the trend for a while: Tipper and Al Gore splitting after 40 years of marriage; Susan Sarandon and Tim Robbins after 23 years; or even the 99 year old in Italy who jammed the news wires last December because he sought a divorce from his wife of 77 years. (The gentleman cites infidelity as the cause, though his wife's affair occurred in the 1940s, and he himself never knew until recently.)

The reasons are varied, ranging from extra-marital affairs, to more financial independence for women, the restlessness of empty-nest syndrome, or the ever-present "growing apart" phenomenon we hear of so often.  A change in lifestyle (like retirement) can accentuate a marriage's problems, and the differing goals of each partner can put strain on a relationship.

Whatever the cause, couples undergoing a Grey Divorce have unique problems in the dissolution process. Sure, the children may be grown so they won't have to worry about child custody or visitation schedules, but there are other elements to consider.


Older Divorcing Couples & More Valuable Assets


Generally speaking, the longer a couple has been married, the more likely they are to have more valuable assets.

Assuming the children are grown, the main concerns for divorcing Boomers are:

Spousal Support – Many Baby Boomer couples will live longer than the generations that preceded them, and they tend to be healthier than those generations as well. If the spouses are retired there is fixed income that now needs to be used to cover expenses for two households. Thus, one spouse may need to return to work to make ends meet.

People going through a Grey Divorce should remember to consider their future needs.

Retirement Benefits – Whether a spouse took care of the children or worked outside of the home, both parties in a Grey Divorce will need, and be entitled to, retirement benefits. The retirement accounts will be divided.

Financial Management – It's often challenging for a spouse who hasn't handled the finances before to have to do it all of a sudden. It's important to work with a CPA or financial planner to make sure enough money is set aside for taxes, and that a budget is established to meet living expenses.

There are other considerations as well. Older divorced people who don't have any children should think about updating their retirement and estate beneficiaries…9 times out of 10 the beneficiaries are the ex-spouses.

Whatever the reasons for a divorce, there are always obstacles that will need to be considered carefully before they can be overcome. An experienced family law attorney can help with many of these, and recommend insurance or estate planning professionals to help with the others.

Vanessa Soto Nellis is a Divorce and Family Law Mediation Attorney in our Family Law Practice Group. You may contact her via e-mail: vnellis@lewitthackman.com.




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

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Wednesday
Apr182012
DateWednesday, April 18, 2012 at 3:13PM

Courtroom Closures Bring State Budget Crisis to Local Communities

 

Business Litigation AttorneyCivil Litigation Attorney

April 18, 2012
by Stephan Mihalovits


The upcoming wave of courtroom closures across southern California is serious – 24  civil courtrooms, 24 criminal courtrooms, an innovative juvenile court, and others will go dark.  Many experienced court employees will lose their jobs. 

One might think these cuts represent the court system’s fair share in a time of red ink.  But it seems foolish to punish an area of government that has continually embraced efficiency in the pursuit of justice and public service. 

It is also foolish (and perhaps against the spirit of the law) to, at once command the courts to reduce delay, while at the same time, reduce the courts’ resources.   Although trial court delay has been a significant problem in the past, problems will become even more evident as resources are stripped bare. 

True enough, courts are not revenue generators, they only use resources. 

But the value of the judicial branch is not measurable by the resources it uses.  The value of the court system is in providing residents with a trustworthy venue for the efficient and competent administration of justice.  

Court Closures Go Against the Grain. . .and the Law?


The judicial branch in California has historically held itself accountable.  In 1986, the Trial Court Delay Reduction Act became law, and courts embraced efforts to reduce delays. 

“The Trial Court Delay Reduction Act mandates trial courts to resolve matters before them as expeditiously as possible, in recognition that delay reduces the chance that justice will in fact be done…”  Moyal v. Lanphear (1989). 

Delay reduction measures are based on the important principle that “litigation from commencement to resolution, should require only that time reasonably necessary for pleadings, discovery, preparation, and court events… any additional elapsed time is delay and should be eliminated.”  Govt. Code. § 68603(a). 

The judicial branch connects efficiency with its mission of justice and public service.  In a 2009 report advocating more delay reduction measures through law, the Judicial Council recognized, “accountability is more than a commitment between co-equal branches of government: it is a necessary counterpart to judicial independence and represents an obligation of the judicial branch to the people of California.”  Thus, an undue reduction in court resources directly impacts the courts’ obligation to serve the state’s residents.

Drastic budget cuts to the system are detrimental to the courts’ mission.  Courts will not be able to administer justice efficiently when resources are taken away.  Delay will become more likely and more common. 

One last lament concerns the abandonment of an innovative court for the resolution of juvenile problems that are not appropriate for the more serious detention system.  Parents and judicial officers seek to deter young people from choices that may lead to prison. 

Talk about pound foolish.  A young person who may have been deterred by innovative thinking in dispute resolution might now choose a different path.  Without prevention, that young person may end up in state prison, costing taxpayers hundreds of thousands in preventable costs. 

It is short-sighted to ignore the immense value our state enjoys from having a trusted forum for the lawful resolution of disputes.  As the court system is asked to carry an even heavier load, let’s hope Sacramento will see the value of an adequately-funded judicial branch. 

Stephan Mihalovits is a Business Litigation Attorney at our Firm. You may reach him by e-mail.




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

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Thursday
Apr122012
DateThursday, April 12, 2012 at 3:05PM

Landmark Decision: CA Supreme Court Decides Employers Are Not Meal Police

 

Employer Lawyer Los AngelesLos Angeles Employment Defense LawyerApril 12, 2012
by Sue M. Bendavid


Employees of Brinker Restaurant Corporation (the parent company of Chili’s, Maggiano's, and Macaroni Grill, among others) brought a class action against Brinker alleging years of meal and rest period violations.

The employees claimed Brinker required them to take early lunches and then work an additional five to nine hours without a second meal break – and that this requirement violated wage and hour laws.

The plaintiffs also alleged employees were required to work off the clock during meal periods; that managers altered employee time cards; and that Brinker had an obligation to ensure employees take their meal periods.

The trial court ruled mostly for the employees, but Brinker appealed, and the Appellate Court ruled in favor of the employer and determined the claim could not proceed as a class action. The California Supreme Court granted review to resolve the questions regarding the nature of meal and rest breaks, how they should be provided, as well as whether or not the claims presented should be treated in a class action setting. The Court heard arguments in November, and delivered its decision today.

According to the decision written by Associate Justice Kathryn M. Werdegar, the most contentious issue proved to be whether employers must police meal periods to ensure employees take those breaks without doing any work in a 30 minute time frame.


The Supreme Court's Decision – Providing vs. Policing


The Supreme Court concluded an employer's obligation ends with providing the meal period. Once a meal break begins, an employee is "at liberty to use the meal period for whatever purpose he or she desires, but the employer need not ensure that no work is done."

The Court also decided that though first meal break must be provided no later than five hours into a shift, the employer need not schedule another meal break within five hours after the first meal period ended. Rather, employers must only provide a second meal break after 10 hours of work.


Employee Break Times Put to Rest Too


The Supreme Court cited Industrial Welfare Commission wage order rules, deciding that employees are entitled to a 10 minute break in the middle of each four hour work period (or “major fraction thereof”), meaning for many employees a rest break should be permitted between 3.5 and 6.0 hours of work into a shift. However, rest breaks are not necessarily required for a specific time before or after the meal period.


The Takeaway


All in all, the decision today is good news for employers, as it limits the scope of responsibility regarding meal periods:

“We conclude that under Wage Order No. 5 and Labor Code section 512, subdivision (a), an employer must relieve the employee of all duty for the designated period, but need not ensure that the employee does no work.”

Sue M. Bendavid is the Chair of our Employment Practice Group. Employers with questions regarding today's landmark decision can reach her at 818.990.2120.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

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